Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Fees for Top of PHLX Options (TOPO), PHLX Orders, and TOPO Plus Orders, 21648-21653 [2024-06574]
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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
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–CBOE–2024–014, and
should be submitted on or before April
18, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–06588 Filed 3–27–24; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99841; File No. SR–Phlx–
2024–15]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Fees for Top of PHLX
Options (TOPO), PHLX Orders, and
TOPO Plus Orders
ddrumheller on DSK120RN23PROD with NOTICES1
March 22, 2024.
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 March 20,
2024, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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 the
Exchange’s proprietary data fees for Top
of PHLX Options (‘‘TOPO’’), PHLX
Orders, and TOPO Plus Orders at
Options 7, Section 10, 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
BILLING CODE 8011–01–P
32 17
and Exchange Commission
(‘‘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. Purpose
The purpose of the proposed rule
change is to amend the Exchange’s
proprietary data fees for Top of PHLX
Options (‘‘TOPO’’),3 PHLX Orders,4 and
3 See Options 3, Section 23(a)(1) (‘‘Top of PHLX
Options (‘TOPO’) is a direct data feed product that
includes the Exchange’s best bid and offer price,
with aggregate size, based on displayable order and
quoting interest on Phlx and last sale information
for trades executed on Phlx. The data contained in
the TOPO data feed is identical to the data
simultaneously sent to the processor for the OPRA
and subscribers of the data feed. The data provided
for each options series includes the symbols (series
and underlying security), put or call indicator,
expiration date, the strike price of the series, and
whether the option series is available for trading on
Phlx and identifies if the series is available for
closing transactions only.’’).
4 See Options 3, Section 23(a)(1) (‘‘PHLX Orders
is a real-time full Limit Order book data feed that
provides pricing information for orders on the
PHLX Order book for displayed order types as well
as market participant capacity. PHLX Orders is
PO 00000
Frm 00166
Fmt 4703
Sfmt 4703
TOPO Plus Orders at Options 7, Section
10.5
Top of PHLX Options (‘‘TOPO’’)
TOPO is a direct data feed that
provides subscribers with PHLX Best
Bid and Offer (‘‘BBO’’) 6 and last sale
information.7 The data distributed on
TOPO is identical to the data
simultaneously sent to the Options Price
Reporting Authority (‘‘OPRA’’).8 The
TOPO feed also provides administrative
information to facilitate trading on the
Exchange such as, for example, the list
of symbols trading on a particular day.9
TOPO reduces the transmission and
processing latencies for top of book
information relative to the OPRA feed
by avoiding the latencies generated by
the latter in consolidating data.
Monthly fees for TOPO are currently
$2,000 for Internal Distributors,10
$2,500 for External Distributors,11 $1 for
a Non-Professional Subscriber,12 and
currently provided as part of the TOPO Plus Orders
data product. PHLX Orders provides real-time
information to enable users to keep track of the
single and complex order book(s). The data
provided for each options series includes the
symbols (series and underlying security), put or call
indicator, expiration date, the strike price of the
series, leg information on complex strategies and
whether the option series is available for trading on
Phlx and identifies if the series is available for
closing transactions only. The feed also provides
auction and exposure notifications and order
imbalances on opening/reopening (size of matched
contracts and size of the imbalance)’’).
5 The proposed changes were initially filed on
November 16, 2023, as SR–Phlx–2023–51. On
December 5, 2023, SR–Phlx–2023–51 was
withdrawn and replaced with SR–Phlx–2023–57.
On January 29, 2024, SR–Phlx–2023–57 was
withdrawn and replaced with SR–Phlx 2024–03. On
March 20, 2024, SR–Phlx–2024–03 was withdrawn
and replaced with the instant filing to provide
additional detail regarding the proposal.
6 The Best Bid and Offer includes aggregate size
information based on displayable order and quoting
interest on the Exchange.
7 See PHLX, ‘‘Top of Phlx Options,’’ available at
https://www.nasdaqtrader.com/Micro.aspx?id=
TOPO#:∼:text=Top%20of%20PHLX
%20Options%20(TOPO,in%20
the%20consolidated%20market%20feed.
8 See Options 3 (Options Trading Rules), Section
23(a)(1) (Data Feeds and Trade Information) (‘‘The
data contained in the TOPO data feed is identical
to the data simultaneously sent to the processor for
the OPRA and subscribers of the data feed.’’).
9 See, e.g., Nasdaq, ‘‘Top of Phlx Options Interface
Specifications, Version 3.4’’ Section 4.3 available at
https://www.nasdaqtrader.com/content/technical
support/specifications/dataproducts/topofphlx.pdf
(describing the start of day options directory
message, which lists all symbols eligible for the
auction process).
10 See Options 7, Section 10 (Proprietary Data
Feed Fees) (Top of PHLX Options) (‘‘A ‘distributor’
of Nasdaq PHLX data is any entity that receives a
feed or data file . . . directly from Nasdaq PHLX
or indirectly through another entity and then
distributes it either internally (within that entity) or
externally (outside that entity). All distributors
execute a Nasdaq PHLX distributor agreement.’’).
11 See id.
12 See id. (‘‘A Non-Professional Subscriber is a
natural person who is neither: (i) registered or
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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
$40 for a Professional Subscriber.13
None of these fees have changed for
over a decade since January 2013.14
ddrumheller on DSK120RN23PROD with NOTICES1
PHLX Orders
PHLX Orders is a real-time order book
feed with pricing information for
displayed orders on the PHLX order
book.15 The data provided for each
options series includes the symbols
(series and underlying security), a put or
call indicator, expiration date, and the
strike price of the series. It also provides
the real-time status of simple and
complex orders 16 on the order book,
including new orders and changes to
orders resting on the PHLX book for all
PHLX-listed options.17 The PHLX
Orders feed includes data on the
opening imbalance, Price Improvement
XL (PIXL),18 and Complex Order Live
Auction (COLA).19 A notification
message is sent for symbols entering an
qualified in any capacity with the Commission, the
Commodities Futures Trading Commission, any
state securities agency, any securities exchange or
association, or any commodities or futures contract
market or association; (ii) engaged as an ‘investment
adviser’ as that term is defined in Section 201(11)
of the Investment Advisors Act of 1940 (whether or
not registered or qualified under that Act); nor (iii)
employed by a bank or other organization exempt
from registration under federal or state securities
laws to perform functions that would require
registration or qualification if such functions were
performed for an organization not so exempt. A
Non-Professional Subscriber may only use the data
provided for personal purposes and not for any
commercial purpose.’’).
13 See id. (‘‘A Professional Subscriber is any
Subscriber that is not a Non-Professional
Subscriber. If the Nasdaq Subscriber agreement is
signed in the name of a business or commercial
entity, such entity would be considered a
Professional Subscriber.’’).
14 See Securities Exchange Act Release No. 68576
(January 3, 2013), 78 FR 1886 (January 9, 2013) (SR–
Phlx–2012–145).
15 See Options 3 (Options Trading Rules), Section
23(a)(2) (Data Feeds and Trade Information).
16 See Options 3 (Options Trading Rules), Section
23(a)(2) (Data Feeds and Trade Information);
Section 14(a)(i) (‘‘Complex Order. For purposes of
the electronic trading of Complex Orders, a
Complex Order is an order involving the
simultaneous purchase and/or sale of two or more
different options series in the same underlying
security, priced as a net debit or credit based on the
relative prices of the individual components, for the
same account, for the purpose of executing a
particular investment strategy.’’).
17 See Nasdaq, ‘‘PHLX Orders,’’ available at
https://www.nasdaqtrader.com/
Micro.aspx?id=PHLXOrders.
18 See Options 3 (Options Trading Rules), Section
23(a)(2); Section 13 (Price Improvement XL) (‘‘A
member may electronically submit for execution an
order it represents as agent on behalf of a Public
Customer, broker-dealer, or any other entity (‘PIXL
Order’) against principal interest or against any
other order (except as provided in sub-paragraph
(a)(6) below) it represents as agent (an ‘Initiating
Order’) provided it submits the PIXL Order for
electronic execution into the PIXL Auction
(‘Auction’) pursuant to this Rule.’’).
19 See Options 3, Section 14(e) (describing the
process for the Complex Order Live Auction
(‘‘COLA’’)).
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auction.20 PHLX Orders also furnishes
an historical record of all simple and
complex order message data from the
PHLX Orders data feed. PHLX Orders
information is not sent to OPRA.21
PHLX Orders is an alternative to
PHLX Depth of Market. It is an
optimized technical channel designed to
lower technology costs, reduce
processing time, and facilitate the
ingestion of data while still providing
customers insight beyond the top of
book by viewing active buy and sell
orders. PHLX Orders excludes
quotations by market makers and other
authorized entities that is included in
PHLX Depth of Market.22
What is the utility of an orders-only
data feed? It provides customers with
the opportunity to reduce bandwidth
(and therefore data processing costs) by
several orders of magnitude relative to
the full depth of book feed, while
retaining a view of market participant
orders (setting aside symbols where
participants have not placed orders).
The December 2023 bandwidth report
shows that the PHLX Depth of Market
feed transmitted a maximum of 14.3
billion messages per day during the
month of December,23 while the PHLX
Orders feed transmitted a maximum of
53.6 million messages over the same
period (41.5 million messages for simple
orders, and 12.1 million messages for
complex orders). The Exchange’s full
depth of book feed requires the
customer to process over 200 times
more messages than the orders feed over
the course of a day; replacing a depth
of book feed with an orders feed allows
a customer to reduce the maximum
20 Nasdaq, ‘‘PHLX Orders Interface
Specification,’’ (Version 1.92) available at https://
www.nasdaqtrader.com/content/technicalsupport/
specifications/dataproducts/topoplusorders.pdf
(describing auction notification message).
21 See Limited Liability Company Agreement of
Options Price Reporting Authority, LLC Article V,
Section 5.2(c)(i) (January 1, 2010), available at
https://assets.website-files.com/5ba40927ac854d8c
97bc92d7/;5d0bd57d87d3ccca102102d7_
OPRA%20Plan%20with%20Updated%20Exhibit
%20A%20-%2006-19-2019.pdf (describing last sale
and best bid and offer information disseminated by
OPRA).
22 See Options 3 (Options Trading Rules), Section
23(a)(3) (Data Feeds and Trade Information) (‘‘PHLX
Depth of Market is a data product that provides: (i)
order and quotation information for individual
quotes and orders on the order book . . .’’)
(emphasis added); Section 4(b) (Entry and display
of Quotes) (identifying the market participants
authorized to submit quotes to the Exchange).
23 See Nasdaq, ‘‘December 2023 Bandwidth
Report,’’ available at https://
view.officeapps.live.com/op/
view.aspx?src=https%3A%2F%
2Fwww.nasdaqtrader.com%2Fcontent%
2Ftechnicalsupport%2Fspecifications
%2Fdataproducts%2F
bandwidthreport.xls&wdOrigin=BROWSELINK.
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21649
number of daily messages it receives by
99.6%.
To cite another example, the
1 millisecond bandwidth peak for PHLX
Depth of Market was 13.96 million
messages; the comparable number of
messages for orders was 1.45 million
(891 thousand for simple and 561
thousand for complex orders). Replacing
depth of book with orders can therefore
reduce the number of messages
processed at peak at the 1 millisecond
bandwidth by nearly 90%.
Approximately 56% of customers
who take any data feed at all from the
PHLX exchange take an orders feed
(either Orders only or TOPO Plus
Orders) without depth of book. Another
38% of customers take both orders and
depth feeds. The remaining 6% take
either top of book or depth of book
alone.
What type of customer takes an orders
feed in lieu of depth? In general, firms
that only need information on actively
trading options do so. There are a great
number of use cases that fit this broad
description, but, for purposes of
illustration, the Exchange is aware of at
least two such types of customers.
The first is the market participant that
does not engage in order routing. These
are broker dealers that use third parties
to route orders, either because the
originating broker-dealer is not a
member of the exchange or to save costs.
Without the need for additional
information to inform routing decisions,
such customers often focus on active
trading alone, and therefore purchase
the orders feed.
A second category of customers are
those that use options data to analyze
trends in other markets. One example of
this type of customer is the equity trader
that analyzes equity-based options to
gauge market sentiment in the
underlying equity. For such customers,
there is relatively little utility in the full
depth feed, given that market sentiment
is best gauged using options that are
being actively traded, rather than those
that are dormant.
As noted above, there are some
customers that purchase both orders and
depth. Vendors are one example of this
type of customer. They purchase market
data solely for resale, not for trading on
behalf of themselves or others. Another
example is the firm that uses orders for
analysis and depth for order routing. As
noted above, the orders feed can be
useful for assessing sentiment in equity
markets, while depth is often used in
order routing decisions. Firms that
engage in both functions can lower
overall processing requirements by
using orders for analytics and depth for
routing.
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Purchase of PHLX Orders is optional.
Customers can obtain all of the data
contained in PHLX Orders from PHLX
Depth of Market feed, and may purchase
the latter if they do not realize the cost
savings offered by PHLX Orders.
PHLX Orders is a derivative product
designed as a lower-cost alternative to a
depth of book feed. It is not a
complement to any other product
offered by the Exchange or any of its
competitors. Customers are free to
purchase PHLX Orders or not, and can
reject the feed for any reason, including
the fee charged.
Current monthly fees for PHLX Orders
are $3,000 for Internal Distributors,
$3,500 for External Distributors, $1 for
a Non-Professional Subscriber, and $40
for a Professional Subscriber. None of
these fees have changes for over a
decade since January 2013.24
TOPO Plus Orders
TOPO Plus is a direct market data
product that offers subscribers both
TOPO and PHLX Orders for a
consolidated fee that is less than the
combined fee of the two products.25
Monthly fees for TOPO Plus Orders
are currently $4,500 for Internal
Distributors, $5,000 for External
Distributors, $1 for a Non-Professional
Subscriber, and $40 for a Professional
Subscriber.
Internal Distributor fees for TOPO
Plus Orders were modified in January
2018, over five years ago,26 but the other
TOPO Plus Orders fees have not
changed since January 2013.27
ddrumheller on DSK120RN23PROD with NOTICES1
Usage of TOPO, PHLX Orders, and
TOPO Plus Orders
Different types of market participants
purchase TOPO, PHLX Orders and
TOPO Plus Orders, including market
makers, vendors, banks, proprietary
traders, agency brokers (brokers that
route trades on behalf of other market
participants), hedge funds, index
providers and other firms.
In characterizing market participants,
we must be clear that firms use data
feeds for multiple tasks. A market
maker, for example, may use market
data for order routing, or for risk
analysis used in quoting in their
assigned option series. Banks may use
24 See Securities Exchange Act Release No. 68576
(January 3, 2013), 78 FR 1886 (January 9, 2013) (SR–
Phlx–2012–145).
25 See PHLX, TOPO Plus PHLX Orders, available
at https://www.nasdaqtrader.com/
Micro.aspx?id=TOPOPlusOrders.
26 See Securities Exchange Act Release No. 82495
(January 12, 2018), 83 FR 2839 (January 19, 2018)
(SR–Phlx–2018–08).
27 See Securities Exchange Act Release No. 68576
(January 3, 2013), 78 FR 1886 (January 9, 2013) (SR–
Phlx–2012–145).
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market data for prime brokerage
services, proprietary trading, or risk
management. Market data vendors do
not directly use the data at all, but
rather disseminate data to market
participants that use the data for a
multiplicity of purposes. Other firms
purchase options data to assess the
value of equity securities.28
Characterizing firms based on what
we understand to be their primary
market activity, and understanding that
firms play multiple roles, we estimate
that approximately half of the customers
that take top of book data in any form,
in combination with other products or
alone, are market makers, and the
remaining half are market data vendors,
banks, proprietary traders, agency
brokers, hedge funds, index providers,
and others. Roughly the same
distribution applies to customers that
purchase PHLX Orders, whether alone
or in combination with other products.
Although the distributions are roughly
similar, different customers are
purchasing different products in
different combinations.
As explained above, firms generally
purchase PHLX Orders rather than
depth of book data to lower technology
costs and reduce processing time, while
still providing customers insight into
open executable orders that could
impact the BBO.
A more specific explanation of how
TOPO, PHLX Orders and TOPO Plus
Orders is used will vary based on use
case, with many firms employing
multiple use cases. Market makers,
banks, hedge funds, and proprietary
traders often use top of book and orders
feeds for trading, order routing and
analysis. Banks may use market data for
prime brokerage services, proprietary
trading, or risk management. The clients
of market data vendors will utilize the
data for many different purposes. We do
not have sufficient visibility into our
customers’ businesses and proprietary
processes to be able to determine
precise data usage by customer category.
Proposed Changes
For TOPO, the Exchange proposes to
increase the monthly charge for Internal
Distributors from $2,000 to $2,500, and
the monthly charge for External
Distributors from $2,500 to $3,000. No
changes are proposed for NonProfessional and Professional Subscriber
fees.
28 We do not include ‘‘High Frequency Trading
Firm’’ as a distinct category because many market
participant may engage in low latency trading
strategies to some degree, but the Exchange does not
have sufficient information to be able to
characterize any particular firm as a high frequency
trader.
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For PHLX Orders, the Exchange
proposes to increase the monthly charge
for Internal Distributors from $3,000 to
$3,500, and the monthly charge for
External Distributors from $3,500 to
$4,000. No changes are proposed for
Non-Professional and Professional
Subscriber fees.
For TOPO Plus Orders, the Exchange
proposes to increase the monthly charge
for Internal Distributors from $4,500 to
$5,500, and the monthly charge for
External Distributors from $5,000 to
$6,000. No changes are proposed for
Non-Professional and Professional
Subscriber fees.
The proposed changes are designed to
update data fees to reflect their current
value, rather than their value when
these fees were set 5 or 10 years ago.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with section 6(b)
of the Act,29 in general, and furthers the
objectives of sections 6(b)(4) and 6(b)(5)
of the Act,30 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.
This belief is based on several factors.
First, exchange fees are constrained
because market participants can choose
among seventeen different venues for
options trading, and therefore no single
venue can charge excessive fees without
losing customers and market share.
Second, fees for TOPO are
constrained because the identical top of
book data is sent to OPRA, and certain
market participants may choose to rely
exclusively on OPRA rather than
purchasing the proprietary data product.
Third, the purchase of PHLX Orders is
optional. It is designed as a lower-cost
alternative to depth of book, and, as
such, is not a complement to any other
product offered by the Exchange or any
of its competitors. Customers may
purchase PHLX Orders or not, and can
reject the feed for any reason, including
the fee charged.
Fourth, the proposed fees are
comparable to, and in some cases less
than, those of similarly situated
exchanges.
Fifth, the current fees do not properly
reflect the value of the underlying
product, as fees for the products in
question have been static in nominal
terms, and therefore falling in real terms
(due to inflation), while the amount of
29 15
30 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
28MRN1
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information transmitted in those fees
have more than doubled in just the past
five years, reflecting a substantial
increase in customer value due to the
significantly higher levels of liquidity
currently available on the Exchange.
Sixth, higher fees for the external
distribution of TOPO, PHLX Orders, and
TOPO Plus Orders are based on the
additional value vendors receive from
distributing data to their own customers
and typically charging for the service.
ddrumheller on DSK120RN23PROD with NOTICES1
Customers Have a Choice in Trading
Venue
Customers face many choices in
where to trade options. Until recently,
sixteen exchanges have offered options
trading services,31 and they are now
being joined by a 17th member.32 Not a
single options exchange trades more
than 11 percent of the options market by
volume.33 PHLX, the second largest
options exchange by volume, only has 9
percent of the options market.34 Only
one of the 17 options exchanges have a
market share over 10 percent.35 This
broad dispersion of market share
demonstrates that market participants
can and do exercise choice in options
trading venues. As the number of
exchanges continues to grow,
competition will become fiercer and
customer choice will continue to
expand.
Most option contracts on the TOPO,
TOPO Plus, and Orders data feeds are
traded on multiple exchanges. A sample
of trading on March 7, 2024, from The
Options Clearing Corporation shows
that 5,836 symbols were traded on
PHLX’s options exchange, of which only
53 symbols were listed on the PHLX
options exchange only, and another 33
symbols were listed on multiple
Nasdaq-affiliated options exchanges.
In order to remain competitive with
other options exchanges, PHLX, like
31 See OPRA Plan, list of OPRA Participant
Exchanges, available at https://www.opraplan.com/
faqs. (All options exchanges are members of the
OPRA Plan.).
32 See Securities Exchange Act Release No. 98388
(September 14, 2023), 88 FR 64963 (September 20,
2023) (File No. 4–443) (‘‘Joint Industry Plan; Notice
of Filing and Immediate Effectiveness of
Amendment to the Plan for the Purpose of
Developing and Implementing Procedures Designed
To Facilitate the Listing and Trading of
Standardized Options To Add MEMX LLC as a Plan
Sponsor’’).
33 See Nasdaq, Options Market Statistics (Last
updated November 3, 2023), available at https://
www.nasdaqtrader.com/Trader.aspx?id=Options
VolumeSummary. On November 3, 2023, the total
percentage of options market volume by exchange
was as follows: ARCA: 11%; PHLX: 9%; CBOE: 9%;
BOX: 8%; ISE: 7%; EDGX: 7%; AMEX: 7%; MIAX:
7%; MPRL: 7%; NOM: 6%; BATS: 6%; C2: 5%;
EMLD: 4%; MRX: 3%; GEMX: 3%; BXOP: 3%;
MEMX: 0%.
34 See id.
35 See id.
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some options exchanges, offers several
proprietary options products that are
only traded on Nasdaq-affiliated
exchanges. These include products
based on the Nasdaq 100® Index,36 such
as NDX (Nasdaq 100 Index on PHLX,
Nasdaq GEMX, LLC (‘‘GEMX’’) and
Nasdaq ISE, LLC (‘‘ISE’’)), XND (Nasdaq
100 Micro Index on PHLX and ISE), and
NQX (Nasdaq 100 Micro Index on ISE),
as well as volatility products such as
VOLQ (Nasdaq-100® Volatility Index),
foreign currency options, and other
products.
Some Nasdaq option proprietary
products are subject to direct,
substitution-based competition from
other options exchanges. All are subject
to the competition among exchanges for
membership and market share.
Examples of substitution-based
competition include the VOLQ, which
can be substituted with the Cboe
Volatility Index® (‘‘VIX’’).37 NDX (listed
in PHLX, GEMX and ISE), XND (listed
on PHLX and ISE) and NQX (listed on
ISE) all offer different ways of gaining
exposure to the Nasdaq 100® Index, are
therefore each serves as a direct
substitute for the others.38 The Nasdaq
100® Index products also have
alternatives among other exchanges.39
Exchange proprietary products are
also subject to competition among
exchanges for membership and market
share.40 There are many factors that may
cause a market participant to decide to
36 The NASDAQ-100 is an index which includes
100 of the world’s largest non-financial companies
listed on the wider NASDAQ Stock market, based
on their market capitalization.
37 See Securities Exchange Act Release No. 95170
(June 29, 2022), 87 FR 40295 (July 6, 2022) (SR–
Phlx–2022–27) (explaining that the Nasdaq-100®
Volatility Index (‘‘VOLQ’’) is subject to ‘‘significant
substitution-based competitive forces; market
participants can substitute options on VOLQ for
products offered by other exchanges, for example,
the options on the Cboe Volatility Index®
(‘‘VIX’’).’’).
38 See, e.g., Securities Exchange Act Release No.
99141 (December 12, 2023), 88 FR 87466 (December
18, 2023) (SR–Phlx–2023–55) (‘‘[M]arket
participants are offered different ways to gain
exposure to the Nasdaq 100 Index, whether through
the Exchange’s proprietary products like options
overlying NDX, NDPX, or XND, or separately
through multi-listed options overlying Invesco QQQ
Trust (‘‘QQQ’’); Securities Exchange Act Release
No. 99171 (December 14, 2023), 88 FR 88206
(December 20, 2023) (SR–ISE–2023–36) (explaining
that NDX, XND and NQX provide ‘‘market
participants with a variety of choices in selecting
the product they desire to utilize in order to gain
exposure to the Nasdaq 100 Index.’’).
39 See, e.g., Securities Exchange Act Release No.
99141 n.7 (December 12, 2023), 88 FR 87466
(December 18, 2023) (SR–Phlx–2023–55)
(explaining that the fees for NDX and NDXP are in
line with fees assessed by Cboe on its MXEA and
MXEF options products).
40 See Securities Exchange Act Release No. 95170
(June 29, 2022), 87 FR 40295 (July 6, 2022) (SR–
Phlx–2022–27) (discussing the role of proprietary
data products in the competition among exchanges).
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21651
become a member of a particular
exchange; among these are product
offerings. Introducing new and
innovative products to the marketplace
designed to meet customer demands
may attract market participants to
become a member of a particular
options venue by allowing market
participants greater trading
opportunities and new avenues to
manage risks. An exchange’s proprietary
product offering may attract order flow
to a particular exchange to trade a
particular options product and generally
make that exchange a more desirable
venue to transaction options, thereby
attracting membership to that exchange.
In light of the number of trading
venues available to customers, the
Exchange must price its products,
including TOPO, PHLX Orders, and
TOPO Plus Orders (as well as other
products), competitively. If not,
customers would move to other venues.
‘‘If competitive forces are operative, the
self-interest of the exchanges themselves
will work powerfully to constrain
unreasonable or unfair behavior.’’ 41
Accordingly, ‘‘the existence of
significant competition provides a
substantial basis for finding that the
terms of an exchange’s fee proposal are
equitable, fair, reasonable, and not
unreasonably or unfairly
discriminatory.’’ 42
The Top of Book Data in TOPO Is Sent
to OPRA
The top of book data in TOPO is sent
to OPRA; under OPRA rules, proprietary
options information is available to
customers that have equivalent access to
OPRA information, and therefore is
supplementary to the OPRA feed.43
Specifically, Section 5.2(c)(iii) of the
OPRA Plan provides that ‘‘[a] Member
[of the OPRA Plan] may disseminate its
Proprietary Information,’’ provided that
‘‘such dissemination is limited to other
Members and to persons who also have
equivalent access to consolidated
Options Information disseminated by
OPRA for the same classes or series of
options that are included in the
Proprietary Information . . . .’’ 44
‘‘Consolidated Options Information’’
refers to ‘‘consolidated Last Sale Reports
combined with either consolidated
41 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74,770 (December 9,
2008) (SR–NYSEArca–2006–21).
42 Id.
43 See Limited Liability Company Agreement of
Options Price Reporting Authority, LLC § 5.2(c)(iii)
(January 1, 2010), available at https://assets.websitefiles.com/5ba40927ac854d8c97bc92d7/
5d0bd57d87d3ccca102102d7_OPRA%20Plan%20
with%20Updated%20Exhibit%20A%20-%2006-192019.pdf (‘‘OPRA Plan’’).
44 Id.
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Quotation Information or the BBO
furnished by OPRA.’’ 45 Access is
deemed to be ‘‘equivalent’’ ‘‘if both if
both kinds of information are equally
accessible on the same terminal or work
station . . . .’’ 46
Any customer that purchases
proprietary options data from the
Exchange, including TOPO and TOPO
Plus Orders, must also have equivalent
access to the OPRA Plan. As noted
above, the best bid and offer and last
sale information available from TOPO
and TOPO Plus Orders fees is identical
to the information simultaneously sent
to OPRA by the Exchange.47 OPRA
provides NBBO and last sale
information on options transactions.
TOPO and TOPO Plus Orders provide
additional administrative information
unique to trading on the Exchange, and
also reduce the transmission and
processing latencies generated through
the process of consolidating data into
the OPRA feed.48 Because top of book
and last sale information is available on
OPRA as well as TOPO, and customers
who purchase TOPO have equivalent
access to the OPRA feed, certain
customers may choose to rely on the
OPRA feed in lieu of purchasing PHLX
data, thereby limiting the ability of the
Exchange from charging excessive fees
for its TOPO and TOPO Plus Orders
feeds.
The Purchase of PHLX Orders Is
Optional
Purchase of PHLX Orders is optional.
As explained above, customers can
obtain all of the data contained in PHLX
Orders from PHLX Depth of Market
feed, and may purchase the latter if they
do not realize the cost savings offered by
PHLX Orders. PHLX Orders is not a
complement to any other product
offered by the Exchange or any of its
competitors; customers are free to
purchase PHLX Orders or not, and can
reject the feed for any reason, including
the fee charged.
45 Id.
ddrumheller on DSK120RN23PROD with NOTICES1
46 Id.
47 As noted above, the TOPO feed includes
administrative information (but not data) that is not
provided on the OPRA feed, such as symbol
directory messages. See Nasdaq, ‘‘Top of Phlx
Options Interface Specifications, Version 3.4’’
Section 4.3 available at https://
www.nasdaqtrader.com/content/technicalsupport/
specifications/dataproducts/topofphlx.pdf
(describing the start of day options directory
message, which lists all symbols eligible for the
auction process).
48 The bid and offer and last sale information
provided with the TOPO Plus Orders product is
identical to the data sent to OPRA, although the
‘‘orders’’ component of TOPO Plus Orders is not.
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As explained above, the Internal
Distributor fee for TOPO Plus Orders
was increased in 2018,54 while none of
the other fees have changed for over a
decade, since January 2013.55 This
means that fees for TOPO, PHLX Orders,
and TOPO Plus Orders have fallen in
real terms due to inflation. Using data
generated by the Department of
Commerce to estimate inflation in the
market for portfolio management and
investment services,56 inflation has
increased prices by 63.9% since January
2013, when most of the fees at issue
were set, and 15.7% since January 2018,
when internal distributor fees for TOPO
Plus Orders were last modified. At the
same time, the average daily message
count of PHLX has more than doubled
in just five years, from approximately
3.0 billion messages per day in 2018 to
approximately 8.2 billion messages in
2023.57 PHLX grew in conjunction with
options trading overall, which in the
aggregate grew at a faster pace than
PHLX alone. Between January 2018 and
December 2023, options volume on
PHLX grew by 31%, while options
volume on all exchanges nearly
doubled, from 467 million options to
912 million instruments.58
Growth in options trading means
better value for the consumer. The
greater variety of options contracts
traded means that customers have more
choice. The greater number of buyers
and sellers in the market means that
there is more liquidity, resulting in
tighter spreads and better consumer
value on each trade. Greater choice and
tighter spreads mean that the consumer
obtains more value from options
markets overall, which should be
reflected in fees for exchange services,
including market data. The proposal is
therefore reasonable in light of the
substantial increase in customer value
generate by the higher levels of liquidity
49 See Nasdaq, Options Market Statistics (Last
updated November 3, 2023), available at https://
www.nasdaqtrader.com/Trader.aspx?id=Options
VolumeSummary.
50 See, NYSE Arca Options Proprietary Market
Data Fees (as of July 3, 2023), available at https://
www.nyse.com/publicdocs/nyse/data/NYSE_Arca_
Options_Proprietary_Data_Fee_Schedule.pdf.
51 See Options 7, Section 10 (Proprietary Data
Feed Fees) (PHLX Depth Data). ARCA does not
charge separately for top of book and depth of book.
Although PHLX is not proposing to change fees for
depth of book information, PHLX depth of book
information is included here to maintain
comparability.
52 See Cboe Data Services (CDS), Market Data
Product Price List (updated July 1, 2023), available
at https://cdn.cboe.com/resources/membership/US_
Market_Data_Product_Price_List.pdf.
53 See Options 7, Section 10 (Proprietary Data
Feed Fees) (PHLX Depth Data). ARCA does not
charge separately for top of book and depth of book.
Although PHLX is not proposing to change fees for
depth of book information, PHLX depth of book
information is included here to ensure
comparability.
54 See Securities Exchange Act Release No. 82495
(January 12, 2018), 83 FR 2839 (January 19, 2018)
(SR–Phlx–2018–08).
55 See Securities Exchange Act Release No. 68576
(January 3, 2013), 78 FR 1886 (January 9, 2013) (SR–
Phlx–2012–145).
56 Bureau of Economic Analysis, U.S. Department
of Commerce, ‘‘Personal Consumption Expenditures
Price Index,’’ available at https://www.bea.gov/
data/personal-consumption-expenditures-priceindex.
57 PHLX Data (Average Daily Message Count was
2,979,919,551.32 in 2018, and 8,243,516,029.17
thus far in 2023). The significant increases in data
traffic have also required technological upgrades to
manage the larger traffic volume and to respond to
overall technological change in the industry. See,
e.g., Securities Exchange Act Release No. 82495
(January 12, 2018), 83 FR 2839 (January 19, 2018)
(SR–Phlx–2018–08) (discussing a number of
functional enhancements to both TOPO and PHLX
Orders).
58 Options Clearing Corporation, ‘‘Volume and
Open Interest,’’ available at https://
www.theocc.com/market-data/market-data-reports/
volume-and-open-interest/volume-by-exchange.
The Proposed Fees Are Comparable to
Those of Other Exchanges
The proposed fees are comparable to,
and in some cases less than, those of
other similarly situated exchange fees.
Options market statistics show that
PHLX has a market share of
approximately 9%. ARCA, with an 11%
market share, and CBOE, with a 9%
market share, are its closest
competitors.49
To obtain top of book and depth of
book information for internal
distribution (including both simple and
complex options) from ARCA, a
customer would be required to pay an
Access Fee of $3,000 per month, a NonDisplay fee of at least $5,000 per month
for simple options, and a Non-Display
fee of $1,000 for Complex Options, for
a total of $9,000 per month.50 To obtain
the same information from PHLX under
the new proposal, a customer would pay
the Internal Distributor fee of $2,500 for
TOPO, and an Internal Distributor fee of
$4,000 for PHLX Depth Data,51 for a
total of $6,500 per month.
To obtain comparable information for
Cboe Options, a customer would be
required to pay a combined fee of
$9,000 per month.52 As noted above, a
PHLX customer would pay the Internal
Distributor fee of $2,500 for TOPO, and
an Internal Distributor fee of $4,000 for
PHLX Depth Data,53 for a total of $6,500
per month.
As such, the proposed fees are
comparable to fees charged by industry
peers, and therefore presumptively
reasonable.
Real Exchange Fees Have Fallen While
Traffic Has Increased
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now available on the Exchange, coupled
with the fall in real prices due to
inflation.
ddrumheller on DSK120RN23PROD with NOTICES1
External Distributors Receive Additional
Value
External Distributors receive
additional value not available to
Internal Distributors by disseminating
information externally and typically
charging for the service. This additional
value supports higher fees for external
distribution for TOPO, PHLX Orders,
and TOPO Plus Orders. Higher fees for
external distribution of data are
common throughout the industry, and
nearly universal among exchanges. The
difference in value between internal and
external distribution is also reflected in
the current fee schedule, which has
previously been shown to be consistent
with the Exchange Act.
*
*
*
*
*
In summary, the proposal represents
an equitable allocation of reasonable
dues, fees and other charges because: (i)
customers have a choice in trading
venue, and will exercise that choice and
trade at another venue if exchange fees
are not set competitively; (ii) the top of
book data sent in the TOPO feed are also
sent to OPRA, and customers have the
option of relying on OPRA data; (iii) the
purchase of PHLX Orders is entirely
optional as it is a low-cost alternative to
the PHLX Depth of Market product; (iv)
the proposed fees are comparable to
those of other exchanges; (v) exchange
fees have fallen in real terms while the
amount of liquidity available on the
exchange has increased, and (vi)
external vendors receive additional
value from distributing data to their
own customers and typically charging
for the service, and therefore charging
higher fees for external distribution is
fair and reasonable.
No Unfair Discrimination
The Proposal is not unfairly
discriminatory. The three market data
feeds at issue here—TOPO, PHLX
Orders, and TOPO Plus Orders—are
used by a variety of market participants
for a variety of purposes. Users include
regulators, market makers, competing
exchanges, media, retail, academics,
portfolio managers. Market data feeds
will be available to members of all of
these groups on a non-discriminatory
basis.
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.
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Nothing in the Proposal burdens
inter-market competition (the
competition among self-regulatory
organizations) because approval of the
Proposal does not impose any burden
on the ability of other options exchanges
to compete. PHLX fees are comparable
to, and in some cases less than, those of
other exchanges, as discussed above.
Nothing in the Proposal burdens
intra-market competition (the
competition among consumers of
exchange data) because PHLX market
data is available to any customer under
the same fee schedule as any other
customer, and any market participant
that wishes to purchase PHLX market
data can do so on a non-discriminatory
basis.
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.59
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–2024–15 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
59 15
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21653
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–Phlx–2024–15. 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
a.m. and 3 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–2024–15 and should be
submitted on or before April 18, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.60
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–06574 Filed 3–27–24; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #20172 and #20173;
MAINE Disaster Number ME–20003]
Presidential Declaration of a Major
Disaster for the State of Maine
Small Business Administration.
Notice.
AGENCY:
ACTION:
This is a Notice of the
Presidential declaration of a major
disaster for the State of MAINE (FEMA–
4764–DR), dated 03/20/2024.
Incident: Severe Storms and Flooding.
SUMMARY:
60 17
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CFR 200.30–3(a)(12).
28MRN1
]]>Agencies
[Federal Register Volume 89, Number 61 (Thursday, March 28, 2024)]
[Notices]
[Pages 21648-21653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06574]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99841; File No. SR-Phlx-2024-15]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Fees for Top of PHLX Options (TOPO), PHLX Orders, and TOPO
Plus Orders
March 22, 2024.
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 March 20, 2024, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``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 the Exchange's proprietary data fees
for Top of PHLX Options (``TOPO''), PHLX Orders, and TOPO Plus Orders
at Options 7, Section 10, as described further below.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Exchange's
proprietary data fees for Top of PHLX Options (``TOPO''),\3\ PHLX
Orders,\4\ and TOPO Plus Orders at Options 7, Section 10.\5\
---------------------------------------------------------------------------
\3\ See Options 3, Section 23(a)(1) (``Top of PHLX Options
(`TOPO') is a direct data feed product that includes the Exchange's
best bid and offer price, with aggregate size, based on displayable
order and quoting interest on Phlx and last sale information for
trades executed on Phlx. The data contained in the TOPO data feed is
identical to the data simultaneously sent to the processor for the
OPRA and subscribers of the data feed. The data provided for each
options series includes the symbols (series and underlying
security), put or call indicator, expiration date, the strike price
of the series, and whether the option series is available for
trading on Phlx and identifies if the series is available for
closing transactions only.'').
\4\ See Options 3, Section 23(a)(1) (``PHLX Orders is a real-
time full Limit Order book data feed that provides pricing
information for orders on the PHLX Order book for displayed order
types as well as market participant capacity. PHLX Orders is
currently provided as part of the TOPO Plus Orders data product.
PHLX Orders provides real-time information to enable users to keep
track of the single and complex order book(s). The data provided for
each options series includes the symbols (series and underlying
security), put or call indicator, expiration date, the strike price
of the series, leg information on complex strategies and whether the
option series is available for trading on Phlx and identifies if the
series is available for closing transactions only. The feed also
provides auction and exposure notifications and order imbalances on
opening/reopening (size of matched contracts and size of the
imbalance)'').
\5\ The proposed changes were initially filed on November 16,
2023, as SR-Phlx-2023-51. On December 5, 2023, SR-Phlx-2023-51 was
withdrawn and replaced with SR-Phlx-2023-57. On January 29, 2024,
SR-Phlx-2023-57 was withdrawn and replaced with SR-Phlx 2024-03. On
March 20, 2024, SR-Phlx-2024-03 was withdrawn and replaced with the
instant filing to provide additional detail regarding the proposal.
---------------------------------------------------------------------------
Top of PHLX Options (``TOPO'')
TOPO is a direct data feed that provides subscribers with PHLX Best
Bid and Offer (``BBO'') \6\ and last sale information.\7\ The data
distributed on TOPO is identical to the data simultaneously sent to the
Options Price Reporting Authority (``OPRA'').\8\ The TOPO feed also
provides administrative information to facilitate trading on the
Exchange such as, for example, the list of symbols trading on a
particular day.\9\ TOPO reduces the transmission and processing
latencies for top of book information relative to the OPRA feed by
avoiding the latencies generated by the latter in consolidating data.
---------------------------------------------------------------------------
\6\ The Best Bid and Offer includes aggregate size information
based on displayable order and quoting interest on the Exchange.
\7\ See PHLX, ``Top of Phlx Options,'' available at https://
www.nasdaqtrader.com/
Micro.aspx?id=TOPO#:~:text=Top%20of%20PHLX%20Options%20(TOPO,in%20the
%20consolidated%20market%20feed.
\8\ See Options 3 (Options Trading Rules), Section 23(a)(1)
(Data Feeds and Trade Information) (``The data contained in the TOPO
data feed is identical to the data simultaneously sent to the
processor for the OPRA and subscribers of the data feed.'').
\9\ See, e.g., Nasdaq, ``Top of Phlx Options Interface
Specifications, Version 3.4'' Section 4.3 available at https://www.nasdaqtrader.com/content/technicalsupport/specifications/dataproducts/topofphlx.pdf (describing the start of day options
directory message, which lists all symbols eligible for the auction
process).
---------------------------------------------------------------------------
Monthly fees for TOPO are currently $2,000 for Internal
Distributors,\10\ $2,500 for External Distributors,\11\ $1 for a Non-
Professional Subscriber,\12\ and
[[Page 21649]]
$40 for a Professional Subscriber.\13\ None of these fees have changed
for over a decade since January 2013.\14\
---------------------------------------------------------------------------
\10\ See Options 7, Section 10 (Proprietary Data Feed Fees) (Top
of PHLX Options) (``A `distributor' of Nasdaq PHLX data is any
entity that receives a feed or data file . . . directly from Nasdaq
PHLX or indirectly through another entity and then distributes it
either internally (within that entity) or externally (outside that
entity). All distributors execute a Nasdaq PHLX distributor
agreement.'').
\11\ See id.
\12\ See id. (``A Non-Professional Subscriber is a natural
person who is neither: (i) registered or qualified in any capacity
with the Commission, the Commodities Futures Trading Commission, any
state securities agency, any securities exchange or association, or
any commodities or futures contract market or association; (ii)
engaged as an `investment adviser' as that term is defined in
Section 201(11) of the Investment Advisors Act of 1940 (whether or
not registered or qualified under that Act); nor (iii) employed by a
bank or other organization exempt from registration under federal or
state securities laws to perform functions that would require
registration or qualification if such functions were performed for
an organization not so exempt. A Non-Professional Subscriber may
only use the data provided for personal purposes and not for any
commercial purpose.'').
\13\ See id. (``A Professional Subscriber is any Subscriber that
is not a Non-Professional Subscriber. If the Nasdaq Subscriber
agreement is signed in the name of a business or commercial entity,
such entity would be considered a Professional Subscriber.'').
\14\ See Securities Exchange Act Release No. 68576 (January 3,
2013), 78 FR 1886 (January 9, 2013) (SR-Phlx-2012-145).
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PHLX Orders
PHLX Orders is a real-time order book feed with pricing information
for displayed orders on the PHLX order book.\15\ The data provided for
each options series includes the symbols (series and underlying
security), a put or call indicator, expiration date, and the strike
price of the series. It also provides the real-time status of simple
and complex orders \16\ on the order book, including new orders and
changes to orders resting on the PHLX book for all PHLX-listed
options.\17\ The PHLX Orders feed includes data on the opening
imbalance, Price Improvement XL (PIXL),\18\ and Complex Order Live
Auction (COLA).\19\ A notification message is sent for symbols entering
an auction.\20\ PHLX Orders also furnishes an historical record of all
simple and complex order message data from the PHLX Orders data feed.
PHLX Orders information is not sent to OPRA.\21\
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\15\ See Options 3 (Options Trading Rules), Section 23(a)(2)
(Data Feeds and Trade Information).
\16\ See Options 3 (Options Trading Rules), Section 23(a)(2)
(Data Feeds and Trade Information); Section 14(a)(i) (``Complex
Order. For purposes of the electronic trading of Complex Orders, a
Complex Order is an order involving the simultaneous purchase and/or
sale of two or more different options series in the same underlying
security, priced as a net debit or credit based on the relative
prices of the individual components, for the same account, for the
purpose of executing a particular investment strategy.'').
\17\ See Nasdaq, ``PHLX Orders,'' available at https://www.nasdaqtrader.com/Micro.aspx?id=PHLXOrders.
\18\ See Options 3 (Options Trading Rules), Section 23(a)(2);
Section 13 (Price Improvement XL) (``A member may electronically
submit for execution an order it represents as agent on behalf of a
Public Customer, broker-dealer, or any other entity (`PIXL Order')
against principal interest or against any other order (except as
provided in sub-paragraph (a)(6) below) it represents as agent (an
`Initiating Order') provided it submits the PIXL Order for
electronic execution into the PIXL Auction (`Auction') pursuant to
this Rule.'').
\19\ See Options 3, Section 14(e) (describing the process for
the Complex Order Live Auction (``COLA'')).
\20\ Nasdaq, ``PHLX Orders Interface Specification,'' (Version
1.92) available at https://www.nasdaqtrader.com/content/technicalsupport/specifications/dataproducts/topoplusorders.pdf
(describing auction notification message).
\21\ See Limited Liability Company Agreement of Options Price
Reporting Authority, LLC Article V, Section 5.2(c)(i) (January 1,
2010), available at https://assets.website-files.com/
5ba40927ac854d8c97bc92d7/
;5d0bd57d87d3ccca102102d7_OPRA%20Plan%20with%20Updated%20Exhibit%20A%
20-%2006-19-2019.pdf (describing last sale and best bid and offer
information disseminated by OPRA).
---------------------------------------------------------------------------
PHLX Orders is an alternative to PHLX Depth of Market. It is an
optimized technical channel designed to lower technology costs, reduce
processing time, and facilitate the ingestion of data while still
providing customers insight beyond the top of book by viewing active
buy and sell orders. PHLX Orders excludes quotations by market makers
and other authorized entities that is included in PHLX Depth of
Market.\22\
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\22\ See Options 3 (Options Trading Rules), Section 23(a)(3)
(Data Feeds and Trade Information) (``PHLX Depth of Market is a data
product that provides: (i) order and quotation information for
individual quotes and orders on the order book . . .'') (emphasis
added); Section 4(b) (Entry and display of Quotes) (identifying the
market participants authorized to submit quotes to the Exchange).
---------------------------------------------------------------------------
What is the utility of an orders-only data feed? It provides
customers with the opportunity to reduce bandwidth (and therefore data
processing costs) by several orders of magnitude relative to the full
depth of book feed, while retaining a view of market participant orders
(setting aside symbols where participants have not placed orders).
The December 2023 bandwidth report shows that the PHLX Depth of
Market feed transmitted a maximum of 14.3 billion messages per day
during the month of December,\23\ while the PHLX Orders feed
transmitted a maximum of 53.6 million messages over the same period
(41.5 million messages for simple orders, and 12.1 million messages for
complex orders). The Exchange's full depth of book feed requires the
customer to process over 200 times more messages than the orders feed
over the course of a day; replacing a depth of book feed with an orders
feed allows a customer to reduce the maximum number of daily messages
it receives by 99.6%.
---------------------------------------------------------------------------
\23\ See Nasdaq, ``December 2023 Bandwidth Report,'' available
at https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fwww.nasdaqtrader.com%2Fcontent%2Ftechnicalsupport%2Fspecifications%2Fdataproducts%2Fbandwidthreport.xls&wdOrigin=BROWSELINK.
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To cite another example, the 1 millisecond bandwidth peak for PHLX
Depth of Market was 13.96 million messages; the comparable number of
messages for orders was 1.45 million (891 thousand for simple and 561
thousand for complex orders). Replacing depth of book with orders can
therefore reduce the number of messages processed at peak at the 1
millisecond bandwidth by nearly 90%.
Approximately 56% of customers who take any data feed at all from
the PHLX exchange take an orders feed (either Orders only or TOPO Plus
Orders) without depth of book. Another 38% of customers take both
orders and depth feeds. The remaining 6% take either top of book or
depth of book alone.
What type of customer takes an orders feed in lieu of depth? In
general, firms that only need information on actively trading options
do so. There are a great number of use cases that fit this broad
description, but, for purposes of illustration, the Exchange is aware
of at least two such types of customers.
The first is the market participant that does not engage in order
routing. These are broker dealers that use third parties to route
orders, either because the originating broker-dealer is not a member of
the exchange or to save costs. Without the need for additional
information to inform routing decisions, such customers often focus on
active trading alone, and therefore purchase the orders feed.
A second category of customers are those that use options data to
analyze trends in other markets. One example of this type of customer
is the equity trader that analyzes equity-based options to gauge market
sentiment in the underlying equity. For such customers, there is
relatively little utility in the full depth feed, given that market
sentiment is best gauged using options that are being actively traded,
rather than those that are dormant.
As noted above, there are some customers that purchase both orders
and depth. Vendors are one example of this type of customer. They
purchase market data solely for resale, not for trading on behalf of
themselves or others. Another example is the firm that uses orders for
analysis and depth for order routing. As noted above, the orders feed
can be useful for assessing sentiment in equity markets, while depth is
often used in order routing decisions. Firms that engage in both
functions can lower overall processing requirements by using orders for
analytics and depth for routing.
[[Page 21650]]
Purchase of PHLX Orders is optional. Customers can obtain all of
the data contained in PHLX Orders from PHLX Depth of Market feed, and
may purchase the latter if they do not realize the cost savings offered
by PHLX Orders.
PHLX Orders is a derivative product designed as a lower-cost
alternative to a depth of book feed. It is not a complement to any
other product offered by the Exchange or any of its competitors.
Customers are free to purchase PHLX Orders or not, and can reject the
feed for any reason, including the fee charged.
Current monthly fees for PHLX Orders are $3,000 for Internal
Distributors, $3,500 for External Distributors, $1 for a Non-
Professional Subscriber, and $40 for a Professional Subscriber. None of
these fees have changes for over a decade since January 2013.\24\
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\24\ See Securities Exchange Act Release No. 68576 (January 3,
2013), 78 FR 1886 (January 9, 2013) (SR-Phlx-2012-145).
---------------------------------------------------------------------------
TOPO Plus Orders
TOPO Plus is a direct market data product that offers subscribers
both TOPO and PHLX Orders for a consolidated fee that is less than the
combined fee of the two products.\25\
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\25\ See PHLX, TOPO Plus PHLX Orders, available at https://www.nasdaqtrader.com/Micro.aspx?id=TOPOPlusOrders.
---------------------------------------------------------------------------
Monthly fees for TOPO Plus Orders are currently $4,500 for Internal
Distributors, $5,000 for External Distributors, $1 for a Non-
Professional Subscriber, and $40 for a Professional Subscriber.
Internal Distributor fees for TOPO Plus Orders were modified in
January 2018, over five years ago,\26\ but the other TOPO Plus Orders
fees have not changed since January 2013.\27\
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\26\ See Securities Exchange Act Release No. 82495 (January 12,
2018), 83 FR 2839 (January 19, 2018) (SR-Phlx-2018-08).
\27\ See Securities Exchange Act Release No. 68576 (January 3,
2013), 78 FR 1886 (January 9, 2013) (SR-Phlx-2012-145).
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Usage of TOPO, PHLX Orders, and TOPO Plus Orders
Different types of market participants purchase TOPO, PHLX Orders
and TOPO Plus Orders, including market makers, vendors, banks,
proprietary traders, agency brokers (brokers that route trades on
behalf of other market participants), hedge funds, index providers and
other firms.
In characterizing market participants, we must be clear that firms
use data feeds for multiple tasks. A market maker, for example, may use
market data for order routing, or for risk analysis used in quoting in
their assigned option series. Banks may use market data for prime
brokerage services, proprietary trading, or risk management. Market
data vendors do not directly use the data at all, but rather
disseminate data to market participants that use the data for a
multiplicity of purposes. Other firms purchase options data to assess
the value of equity securities.\28\
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\28\ We do not include ``High Frequency Trading Firm'' as a
distinct category because many market participant may engage in low
latency trading strategies to some degree, but the Exchange does not
have sufficient information to be able to characterize any
particular firm as a high frequency trader.
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Characterizing firms based on what we understand to be their
primary market activity, and understanding that firms play multiple
roles, we estimate that approximately half of the customers that take
top of book data in any form, in combination with other products or
alone, are market makers, and the remaining half are market data
vendors, banks, proprietary traders, agency brokers, hedge funds, index
providers, and others. Roughly the same distribution applies to
customers that purchase PHLX Orders, whether alone or in combination
with other products. Although the distributions are roughly similar,
different customers are purchasing different products in different
combinations.
As explained above, firms generally purchase PHLX Orders rather
than depth of book data to lower technology costs and reduce processing
time, while still providing customers insight into open executable
orders that could impact the BBO.
A more specific explanation of how TOPO, PHLX Orders and TOPO Plus
Orders is used will vary based on use case, with many firms employing
multiple use cases. Market makers, banks, hedge funds, and proprietary
traders often use top of book and orders feeds for trading, order
routing and analysis. Banks may use market data for prime brokerage
services, proprietary trading, or risk management. The clients of
market data vendors will utilize the data for many different purposes.
We do not have sufficient visibility into our customers' businesses and
proprietary processes to be able to determine precise data usage by
customer category.
Proposed Changes
For TOPO, the Exchange proposes to increase the monthly charge for
Internal Distributors from $2,000 to $2,500, and the monthly charge for
External Distributors from $2,500 to $3,000. No changes are proposed
for Non-Professional and Professional Subscriber fees.
For PHLX Orders, the Exchange proposes to increase the monthly
charge for Internal Distributors from $3,000 to $3,500, and the monthly
charge for External Distributors from $3,500 to $4,000. No changes are
proposed for Non-Professional and Professional Subscriber fees.
For TOPO Plus Orders, the Exchange proposes to increase the monthly
charge for Internal Distributors from $4,500 to $5,500, and the monthly
charge for External Distributors from $5,000 to $6,000. No changes are
proposed for Non-Professional and Professional Subscriber fees.
The proposed changes are designed to update data fees to reflect
their current value, rather than their value when these fees were set 5
or 10 years ago.
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\29\ in general, and furthers the objectives of
sections 6(b)(4) and 6(b)(5) of the Act,\30\ 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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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
This belief is based on several factors.
First, exchange fees are constrained because market participants
can choose among seventeen different venues for options trading, and
therefore no single venue can charge excessive fees without losing
customers and market share.
Second, fees for TOPO are constrained because the identical top of
book data is sent to OPRA, and certain market participants may choose
to rely exclusively on OPRA rather than purchasing the proprietary data
product.
Third, the purchase of PHLX Orders is optional. It is designed as a
lower-cost alternative to depth of book, and, as such, is not a
complement to any other product offered by the Exchange or any of its
competitors. Customers may purchase PHLX Orders or not, and can reject
the feed for any reason, including the fee charged.
Fourth, the proposed fees are comparable to, and in some cases less
than, those of similarly situated exchanges.
Fifth, the current fees do not properly reflect the value of the
underlying product, as fees for the products in question have been
static in nominal terms, and therefore falling in real terms (due to
inflation), while the amount of
[[Page 21651]]
information transmitted in those fees have more than doubled in just
the past five years, reflecting a substantial increase in customer
value due to the significantly higher levels of liquidity currently
available on the Exchange.
Sixth, higher fees for the external distribution of TOPO, PHLX
Orders, and TOPO Plus Orders are based on the additional value vendors
receive from distributing data to their own customers and typically
charging for the service.
Customers Have a Choice in Trading Venue
Customers face many choices in where to trade options. Until
recently, sixteen exchanges have offered options trading services,\31\
and they are now being joined by a 17th member.\32\ Not a single
options exchange trades more than 11 percent of the options market by
volume.\33\ PHLX, the second largest options exchange by volume, only
has 9 percent of the options market.\34\ Only one of the 17 options
exchanges have a market share over 10 percent.\35\ This broad
dispersion of market share demonstrates that market participants can
and do exercise choice in options trading venues. As the number of
exchanges continues to grow, competition will become fiercer and
customer choice will continue to expand.
---------------------------------------------------------------------------
\31\ See OPRA Plan, list of OPRA Participant Exchanges,
available at https://www.opraplan.com/faqs. (All options exchanges
are members of the OPRA Plan.).
\32\ See Securities Exchange Act Release No. 98388 (September
14, 2023), 88 FR 64963 (September 20, 2023) (File No. 4-443)
(``Joint Industry Plan; Notice of Filing and Immediate Effectiveness
of Amendment to the Plan for the Purpose of Developing and
Implementing Procedures Designed To Facilitate the Listing and
Trading of Standardized Options To Add MEMX LLC as a Plan
Sponsor'').
\33\ See Nasdaq, Options Market Statistics (Last updated
November 3, 2023), available at https://www.nasdaqtrader.com/Trader.aspx?id=OptionsVolumeSummary. On November 3, 2023, the total
percentage of options market volume by exchange was as follows:
ARCA: 11%; PHLX: 9%; CBOE: 9%; BOX: 8%; ISE: 7%; EDGX: 7%; AMEX: 7%;
MIAX: 7%; MPRL: 7%; NOM: 6%; BATS: 6%; C2: 5%; EMLD: 4%; MRX: 3%;
GEMX: 3%; BXOP: 3%; MEMX: 0%.
\34\ See id.
\35\ See id.
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Most option contracts on the TOPO, TOPO Plus, and Orders data feeds
are traded on multiple exchanges. A sample of trading on March 7, 2024,
from The Options Clearing Corporation shows that 5,836 symbols were
traded on PHLX's options exchange, of which only 53 symbols were listed
on the PHLX options exchange only, and another 33 symbols were listed
on multiple Nasdaq-affiliated options exchanges.
In order to remain competitive with other options exchanges, PHLX,
like some options exchanges, offers several proprietary options
products that are only traded on Nasdaq-affiliated exchanges. These
include products based on the Nasdaq 100[supreg] Index,\36\ such as NDX
(Nasdaq 100 Index on PHLX, Nasdaq GEMX, LLC (``GEMX'') and Nasdaq ISE,
LLC (``ISE'')), XND (Nasdaq 100 Micro Index on PHLX and ISE), and NQX
(Nasdaq 100 Micro Index on ISE), as well as volatility products such as
VOLQ (Nasdaq-100[supreg] Volatility Index), foreign currency options,
and other products.
---------------------------------------------------------------------------
\36\ The NASDAQ-100 is an index which includes 100 of the
world's largest non-financial companies listed on the wider NASDAQ
Stock market, based on their market capitalization.
---------------------------------------------------------------------------
Some Nasdaq option proprietary products are subject to direct,
substitution-based competition from other options exchanges. All are
subject to the competition among exchanges for membership and market
share. Examples of substitution-based competition include the VOLQ,
which can be substituted with the Cboe Volatility Index[supreg]
(``VIX'').\37\ NDX (listed in PHLX, GEMX and ISE), XND (listed on PHLX
and ISE) and NQX (listed on ISE) all offer different ways of gaining
exposure to the Nasdaq 100[supreg] Index, are therefore each serves as
a direct substitute for the others.\38\ The Nasdaq 100[supreg] Index
products also have alternatives among other exchanges.\39\
---------------------------------------------------------------------------
\37\ See Securities Exchange Act Release No. 95170 (June 29,
2022), 87 FR 40295 (July 6, 2022) (SR-Phlx-2022-27) (explaining that
the Nasdaq-100[supreg] Volatility Index (``VOLQ'') is subject to
``significant substitution-based competitive forces; market
participants can substitute options on VOLQ for products offered by
other exchanges, for example, the options on the Cboe Volatility
Index[supreg] (``VIX'').'').
\38\ See, e.g., Securities Exchange Act Release No. 99141
(December 12, 2023), 88 FR 87466 (December 18, 2023) (SR-Phlx-2023-
55) (``[M]arket participants are offered different ways to gain
exposure to the Nasdaq 100 Index, whether through the Exchange's
proprietary products like options overlying NDX, NDPX, or XND, or
separately through multi-listed options overlying Invesco QQQ Trust
(``QQQ''); Securities Exchange Act Release No. 99171 (December 14,
2023), 88 FR 88206 (December 20, 2023) (SR-ISE-2023-36) (explaining
that NDX, XND and NQX provide ``market participants with a variety
of choices in selecting the product they desire to utilize in order
to gain exposure to the Nasdaq 100 Index.'').
\39\ See, e.g., Securities Exchange Act Release No. 99141 n.7
(December 12, 2023), 88 FR 87466 (December 18, 2023) (SR-Phlx-2023-
55) (explaining that the fees for NDX and NDXP are in line with fees
assessed by Cboe on its MXEA and MXEF options products).
---------------------------------------------------------------------------
Exchange proprietary products are also subject to competition among
exchanges for membership and market share.\40\ There are many factors
that may cause a market participant to decide to become a member of a
particular exchange; among these are product offerings. Introducing new
and innovative products to the marketplace designed to meet customer
demands may attract market participants to become a member of a
particular options venue by allowing market participants greater
trading opportunities and new avenues to manage risks. An exchange's
proprietary product offering may attract order flow to a particular
exchange to trade a particular options product and generally make that
exchange a more desirable venue to transaction options, thereby
attracting membership to that exchange.
---------------------------------------------------------------------------
\40\ See Securities Exchange Act Release No. 95170 (June 29,
2022), 87 FR 40295 (July 6, 2022) (SR-Phlx-2022-27) (discussing the
role of proprietary data products in the competition among
exchanges).
---------------------------------------------------------------------------
In light of the number of trading venues available to customers,
the Exchange must price its products, including TOPO, PHLX Orders, and
TOPO Plus Orders (as well as other products), competitively. If not,
customers would move to other venues. ``If competitive forces are
operative, the self-interest of the exchanges themselves will work
powerfully to constrain unreasonable or unfair behavior.'' \41\
Accordingly, ``the existence of significant competition provides a
substantial basis for finding that the terms of an exchange's fee
proposal are equitable, fair, reasonable, and not unreasonably or
unfairly discriminatory.'' \42\
---------------------------------------------------------------------------
\41\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74,770 (December 9, 2008) (SR-NYSEArca-2006-21).
\42\ Id.
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The Top of Book Data in TOPO Is Sent to OPRA
The top of book data in TOPO is sent to OPRA; under OPRA rules,
proprietary options information is available to customers that have
equivalent access to OPRA information, and therefore is supplementary
to the OPRA feed.\43\ Specifically, Section 5.2(c)(iii) of the OPRA
Plan provides that ``[a] Member [of the OPRA Plan] may disseminate its
Proprietary Information,'' provided that ``such dissemination is
limited to other Members and to persons who also have equivalent access
to consolidated Options Information disseminated by OPRA for the same
classes or series of options that are included in the Proprietary
Information . . . .'' \44\ ``Consolidated Options Information'' refers
to ``consolidated Last Sale Reports combined with either consolidated
[[Page 21652]]
Quotation Information or the BBO furnished by OPRA.'' \45\ Access is
deemed to be ``equivalent'' ``if both if both kinds of information are
equally accessible on the same terminal or work station . . . .'' \46\
---------------------------------------------------------------------------
\43\ See Limited Liability Company Agreement of Options Price
Reporting Authority, LLC Sec. 5.2(c)(iii) (January 1, 2010),
available at https://assets.website-files.com/5ba40927ac854d8c97bc92d7/5d0bd57d87d3ccca102102d7_OPRA%20Plan%20with%20Updated%20Exhibit%20A%20-%2006-19-2019.pdf (``OPRA Plan'').
\44\ Id.
\45\ Id.
\46\ Id.
---------------------------------------------------------------------------
Any customer that purchases proprietary options data from the
Exchange, including TOPO and TOPO Plus Orders, must also have
equivalent access to the OPRA Plan. As noted above, the best bid and
offer and last sale information available from TOPO and TOPO Plus
Orders fees is identical to the information simultaneously sent to OPRA
by the Exchange.\47\ OPRA provides NBBO and last sale information on
options transactions. TOPO and TOPO Plus Orders provide additional
administrative information unique to trading on the Exchange, and also
reduce the transmission and processing latencies generated through the
process of consolidating data into the OPRA feed.\48\ Because top of
book and last sale information is available on OPRA as well as TOPO,
and customers who purchase TOPO have equivalent access to the OPRA
feed, certain customers may choose to rely on the OPRA feed in lieu of
purchasing PHLX data, thereby limiting the ability of the Exchange from
charging excessive fees for its TOPO and TOPO Plus Orders feeds.
---------------------------------------------------------------------------
\47\ As noted above, the TOPO feed includes administrative
information (but not data) that is not provided on the OPRA feed,
such as symbol directory messages. See Nasdaq, ``Top of Phlx Options
Interface Specifications, Version 3.4'' Section 4.3 available at
https://www.nasdaqtrader.com/content/technicalsupport/specifications/dataproducts/topofphlx.pdf (describing the start of
day options directory message, which lists all symbols eligible for
the auction process).
\48\ The bid and offer and last sale information provided with
the TOPO Plus Orders product is identical to the data sent to OPRA,
although the ``orders'' component of TOPO Plus Orders is not.
---------------------------------------------------------------------------
The Purchase of PHLX Orders Is Optional
Purchase of PHLX Orders is optional. As explained above, customers
can obtain all of the data contained in PHLX Orders from PHLX Depth of
Market feed, and may purchase the latter if they do not realize the
cost savings offered by PHLX Orders. PHLX Orders is not a complement to
any other product offered by the Exchange or any of its competitors;
customers are free to purchase PHLX Orders or not, and can reject the
feed for any reason, including the fee charged.
The Proposed Fees Are Comparable to Those of Other Exchanges
The proposed fees are comparable to, and in some cases less than,
those of other similarly situated exchange fees. Options market
statistics show that PHLX has a market share of approximately 9%. ARCA,
with an 11% market share, and CBOE, with a 9% market share, are its
closest competitors.\49\
---------------------------------------------------------------------------
\49\ See Nasdaq, Options Market Statistics (Last updated
November 3, 2023), available at https://www.nasdaqtrader.com/Trader.aspx?id=OptionsVolumeSummary.
---------------------------------------------------------------------------
To obtain top of book and depth of book information for internal
distribution (including both simple and complex options) from ARCA, a
customer would be required to pay an Access Fee of $3,000 per month, a
Non-Display fee of at least $5,000 per month for simple options, and a
Non-Display fee of $1,000 for Complex Options, for a total of $9,000
per month.\50\ To obtain the same information from PHLX under the new
proposal, a customer would pay the Internal Distributor fee of $2,500
for TOPO, and an Internal Distributor fee of $4,000 for PHLX Depth
Data,\51\ for a total of $6,500 per month.
---------------------------------------------------------------------------
\50\ See, NYSE Arca Options Proprietary Market Data Fees (as of
July 3, 2023), available at https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Options_Proprietary_Data_Fee_Schedule.pdf.
\51\ See Options 7, Section 10 (Proprietary Data Feed Fees)
(PHLX Depth Data). ARCA does not charge separately for top of book
and depth of book. Although PHLX is not proposing to change fees for
depth of book information, PHLX depth of book information is
included here to maintain comparability.
---------------------------------------------------------------------------
To obtain comparable information for Cboe Options, a customer would
be required to pay a combined fee of $9,000 per month.\52\ As noted
above, a PHLX customer would pay the Internal Distributor fee of $2,500
for TOPO, and an Internal Distributor fee of $4,000 for PHLX Depth
Data,\53\ for a total of $6,500 per month.
---------------------------------------------------------------------------
\52\ See Cboe Data Services (CDS), Market Data Product Price
List (updated July 1, 2023), available at https://cdn.cboe.com/resources/membership/US_Market_Data_Product_Price_List.pdf.
\53\ See Options 7, Section 10 (Proprietary Data Feed Fees)
(PHLX Depth Data). ARCA does not charge separately for top of book
and depth of book. Although PHLX is not proposing to change fees for
depth of book information, PHLX depth of book information is
included here to ensure comparability.
---------------------------------------------------------------------------
As such, the proposed fees are comparable to fees charged by
industry peers, and therefore presumptively reasonable.
Real Exchange Fees Have Fallen While Traffic Has Increased
As explained above, the Internal Distributor fee for TOPO Plus
Orders was increased in 2018,\54\ while none of the other fees have
changed for over a decade, since January 2013.\55\ This means that fees
for TOPO, PHLX Orders, and TOPO Plus Orders have fallen in real terms
due to inflation. Using data generated by the Department of Commerce to
estimate inflation in the market for portfolio management and
investment services,\56\ inflation has increased prices by 63.9% since
January 2013, when most of the fees at issue were set, and 15.7% since
January 2018, when internal distributor fees for TOPO Plus Orders were
last modified. At the same time, the average daily message count of
PHLX has more than doubled in just five years, from approximately 3.0
billion messages per day in 2018 to approximately 8.2 billion messages
in 2023.\57\ PHLX grew in conjunction with options trading overall,
which in the aggregate grew at a faster pace than PHLX alone. Between
January 2018 and December 2023, options volume on PHLX grew by 31%,
while options volume on all exchanges nearly doubled, from 467 million
options to 912 million instruments.\58\
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\54\ See Securities Exchange Act Release No. 82495 (January 12,
2018), 83 FR 2839 (January 19, 2018) (SR-Phlx-2018-08).
\55\ See Securities Exchange Act Release No. 68576 (January 3,
2013), 78 FR 1886 (January 9, 2013) (SR-Phlx-2012-145).
\56\ Bureau of Economic Analysis, U.S. Department of Commerce,
``Personal Consumption Expenditures Price Index,'' available at
https://www.bea.gov/data/personal-consumption-expenditures-price-index.
\57\ PHLX Data (Average Daily Message Count was 2,979,919,551.32
in 2018, and 8,243,516,029.17 thus far in 2023). The significant
increases in data traffic have also required technological upgrades
to manage the larger traffic volume and to respond to overall
technological change in the industry. See, e.g., Securities Exchange
Act Release No. 82495 (January 12, 2018), 83 FR 2839 (January 19,
2018) (SR-Phlx-2018-08) (discussing a number of functional
enhancements to both TOPO and PHLX Orders).
\58\ Options Clearing Corporation, ``Volume and Open Interest,''
available at https://www.theocc.com/market-data/market-data-reports/volume-and-open-interest/volume-by-exchange.
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Growth in options trading means better value for the consumer. The
greater variety of options contracts traded means that customers have
more choice. The greater number of buyers and sellers in the market
means that there is more liquidity, resulting in tighter spreads and
better consumer value on each trade. Greater choice and tighter spreads
mean that the consumer obtains more value from options markets overall,
which should be reflected in fees for exchange services, including
market data. The proposal is therefore reasonable in light of the
substantial increase in customer value generate by the higher levels of
liquidity
[[Page 21653]]
now available on the Exchange, coupled with the fall in real prices due
to inflation.
External Distributors Receive Additional Value
External Distributors receive additional value not available to
Internal Distributors by disseminating information externally and
typically charging for the service. This additional value supports
higher fees for external distribution for TOPO, PHLX Orders, and TOPO
Plus Orders. Higher fees for external distribution of data are common
throughout the industry, and nearly universal among exchanges. The
difference in value between internal and external distribution is also
reflected in the current fee schedule, which has previously been shown
to be consistent with the Exchange Act.
* * * * *
In summary, the proposal represents an equitable allocation of
reasonable dues, fees and other charges because: (i) customers have a
choice in trading venue, and will exercise that choice and trade at
another venue if exchange fees are not set competitively; (ii) the top
of book data sent in the TOPO feed are also sent to OPRA, and customers
have the option of relying on OPRA data; (iii) the purchase of PHLX
Orders is entirely optional as it is a low-cost alternative to the PHLX
Depth of Market product; (iv) the proposed fees are comparable to those
of other exchanges; (v) exchange fees have fallen in real terms while
the amount of liquidity available on the exchange has increased, and
(vi) external vendors receive additional value from distributing data
to their own customers and typically charging for the service, and
therefore charging higher fees for external distribution is fair and
reasonable.
No Unfair Discrimination
The Proposal is not unfairly discriminatory. The three market data
feeds at issue here--TOPO, PHLX Orders, and TOPO Plus Orders--are used
by a variety of market participants for a variety of purposes. Users
include regulators, market makers, competing exchanges, media, retail,
academics, portfolio managers. Market data feeds will be available to
members of all of these groups on a non-discriminatory basis.
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.
Nothing in the Proposal burdens inter-market competition (the
competition among self-regulatory organizations) because approval of
the Proposal does not impose any burden on the ability of other options
exchanges to compete. PHLX fees are comparable to, and in some cases
less than, those of other exchanges, as discussed above.
Nothing in the Proposal burdens intra-market competition (the
competition among consumers of exchange data) because PHLX market data
is available to any customer under the same fee schedule as any other
customer, and any market participant that wishes to purchase PHLX
market data can do so on a non-discriminatory basis.
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.\59\
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\59\ 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-2024-15 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-2024-15. 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
a.m. and 3 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-2024-15 and should be
submitted on or before April 18, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
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\60\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06574 Filed 3-27-24; 8:45 am]
BILLING CODE 8011-01-P
