Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee Schedule at Equity 7, Section 3 To Implement a Market Data Revenue Rebate Program, 39668-39671 [2024-10081]
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Federal Register / Vol. 89, No. 91 / Thursday, May 9, 2024 / Notices
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES:
Product Change—Priority Mail and
USPS Ground Advantage® Negotiated
Service Agreement
Postal ServiceTM.
ACTION: Notice.
AGENCY:
Date of required notice: May 9,
2024.
FOR FURTHER INFORMATION CONTACT:
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on April 30, 2024,
it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Express Contract 101 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2024–261, CP2024–267.
SUPPLEMENTARY INFORMATION:
Sean Robinson,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2024–10104 Filed 5–8–24; 8:45 am]
BILLING CODE 7710–12–P
POSTAL SERVICE
Product Change—Priority Mail and
USPS Ground Advantage® Negotiated
Service Agreement
ACTION:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice: May 9,
2024.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on May 3, 2024, it
filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail & USPS Ground
Advantage® Contract 241 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2024–268, CP2024–274.
SUMMARY:
Sean Robinson, 202–268–8405.
AGENCY:
solicit comments on the proposed rule
change from interested persons.
POSTAL SERVICE
Sean Robinson,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2024–10099 Filed 5–8–24; 8:45 am]
Postal ServiceTM.
BILLING CODE 7710–12–P
Notice.
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
SUMMARY:
DATES:
Date of required notice: May 9,
2024.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on May 3, 2024, it
filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail & USPS Ground
Advantage® Contract 245 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2024–272, CP2024–278.
ddrumheller on DSK120RN23PROD with NOTICES1
SUPPLEMENTARY INFORMATION:
Sean Robinson,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2024–10103 Filed 5–8–24; 8:45 am]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100060; File No. SR–Phlx–
2024–18]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Its Fee
Schedule at Equity 7, Section 3 To
Implement a Market Data Revenue
Rebate Program
May 3, 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 April 25,
2024, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
1 15
2 17
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CFR 240.19b–4.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
fee schedule at Equity 7, Section 3 to
implement a Market Data Revenue
Rebate program, as described further
below.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
fee schedule at Equity 7, Section 3 to
adopt a Market Data Revenue (‘‘MDR’’)
Rebate program for Nasdaq PSX.3 In
sum, the proposed MDR Rebate program
calls for 40% of MDR that exceeds fixed
thresholds in any one of two pools
(‘‘Excess MDR’’) to be shared with PSX
Participants in proportion to their
respective eligible quoting activity in
Tape A and C securities, as described
further below. The proposed MDR
Rebate program is designed to improve
displayed liquidity and promote order
flow to the Exchange by offering an
incentive for market participants to
quote on the Exchange.
Background
The Securities Information Processors
(‘‘SIPs’’), which include the Unlisted
Trading Privileges and the Consolidated
Tape Association, collect fees from
3 The Exchange initially filed the proposed
pricing change on April 1, 2024 (SR–Phlx–2024–
16). On April 15, 2024, the Exchange withdrew that
filing and submitted SR–Phlx–2024–17. On April
25, 2024, the Exchange withdrew that filing and
submitted this filing.
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Federal Register / Vol. 89, No. 91 / Thursday, May 9, 2024 / Notices
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subscribers for trade and quote tape data
received from trading centers and
reporting facilities, such as the
Exchange (collectively ‘‘SIP
Participants’’). After deducting the cost
of operating each tape, the profits are
allocated among the SIP Participants on
a quarterly basis, according to a
complex set of calculations that
consider estimates of anticipated MDR,
adjustments to comport to actual MDR
from previous quarters and a non-linear
aggregation of total trading and quoting
activity in Tape A, B and C securities in
attributing MDR to each SIP Participant.
Based on these calculations, the SIPs
provide MDR payments to each SIP
Participant during the first month of
each quarter for trade and quote data
from the previous calendar quarter,
which are subject to adjustment through
subsequent quarterly payments. These
payments can be divided into six pools
(i.e., trade and quote activity in Tape A,
B and C securities).
Proposed PSX MDR Rebate Program
As the Exchange does not currently
share MDR with Participants, the
Exchange now proposes to implement a
PSX MDR Rebate program to share MDR
attributed to quote activity only by
adopting a PSX MDR Rebate program in
Equity 7, Section 3.
Specifically, proposed Section (a)
provides that, assuming that the
requirements of this PSX MDR Rebate
Section are met, a PSX Participant may
receive a quarterly MDR rebate in
proportion to the PSX Participant’s
quoting of displayed orders in Tape A
and C securities from the previous
calendar quarter (‘‘MDR Rebate’’), as
described further in Section (e).
Proposed Section (b) provides that, to
qualify for the MDR Rebate, a PSX
Participant must quote at the National
Best Bid or Offer (‘‘NBBO’’) at least 25%
of the time during Market Hours in an
average of at least 250 securities for
Tape A securities or at least 300
securities for Tape C securities through
the PSX Participant’s MPID. A PSX
Participant is considered to be quoting
at the NBBO if the PSX Participant’s
MPID quotes a displayed order of at
least 100 shares in the security and
prices the order at either the national
best bid or the national best offer or both
the national best bid and offer for the
security. To qualify for the MDR Rebate,
the PSX Participant must meet the
requirement for an average of at least
250 securities for Tape A securities or
at least 300 securities for Tape C
securities per day over the course of the
quarter.
Proposed Section (c) provides that
MDR will be calculated separately for
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quotes in each Tape A and C security,
for a total of two MDR pools. If the MDR
received by the Exchange in any given
pool exceeds the following thresholds in
any given calendar quarter, 40% of such
excess MDR will be payable to PSX
Participants in proportion to their
respective quoting of displayed orders
in that pool:
Tape A
Tape C
$110,000
$200,000
The proposed thresholds were
selected based on historical data of
PSX’s quoting revenue from Q2 2023–
Q4 2023. The dollar values represent the
amount of MDR that must be paid to the
Exchange by the SIPs before the Excess
MDR would be eligible for distribution.
The Exchange proposes to adopt two
of the six MDR pools utilized by the
SIPs, excluding the pools for trading
activity and the pool for quoting activity
in Tape B, and attributing the proposed
MDR Rebates to PSX Participants for
quote activity in Tapes A and C.
Currently, PSX Participants are most
actively quoting Tape B securities on
PSX. The Exchange proposes to
establish the MDR Rebates for quoting
activity in Tapes A and C because the
Exchange wants to encourage increased
quoting at the NBBO for Tapes A and C.
Section (d) provides a de minimis
requirement that states that a PSX
Participant will not receive an MDR
Rebate in any calendar quarter in which
the total MDR Rebate attributed to the
PSX Participant is less than $500. If a
PSX Participant is eligible for MDR
Rebates from both pools, the PSX
Participant will be eligible to receive an
MDR rebate equal to the sum of the
rebates. However, if the sum of the
rebates is less than $500, the PSX
Participant will not receive a payment
and the rebate will be kept by the
Exchange. The purpose of the de
minimis requirement is to encourage
significant quote activity and for the
Exchange to avoid having to pay PSX
Participants for de minimis Excess
MDR.4
In attributing eligible quote activity to
PSX Participants, the Exchange
proposes to utilize a set of calculations
similar to those used by the SIPs in
allocating MDR to SIP Participants.
Section (e) of the proposed rule
language describes the steps for
calculating MDR Rebates:
4 For example, it would be unduly burdensome to
the Exchange to calculate and pay MDR Rebates to
PSX Participants if the total Excess MDR of all the
pools was $4000 and ten PSX Participants were
each attributed $400 in rebates.
PO 00000
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39669
Step 1. Calculate, on a daily basis (per
MPID), the product of three factors:
number of shares in the quotation, the
duration of the quotation at the NBBO
(for both the bid and the offer), and the
price of the security.
Step 2. For each security, sum the
daily values from Step 1 across the
quarter, the sum of which represents the
PSX Participant’s quote credits (per
MPID) in each security.
Step 3. For each security, sum all PSX
Participants’ quote credits to obtain the
total quote credits available per security.
Step 4. Divide each PSX Participant’s
quote credits (per MPID) (from Step 2)
into the total quote credits available per
security (from Step 3) to obtain a
Participant’s percentage of the security
they are quoting (per MPID).
Step 5. Calculate the income
allocation weight for each security
based on the share of revenue allocated
to the symbol by the SIP that quarter.
Step 6. For each security, multiply a
PSX Participant’s percentage of security
they are quoting (per MPID) (from Step
4) by the income allocation weight of
the security (from Step 5).
Step 7. For each PSX Participant’s
MPID, sum the values calculated in Step
6 across all securities in the pool (i.e.,
in the same Tape) to obtain the PSX
Participant’s allocation percentage for
the excess MDR in the pool.
Step 8. For each PSX Participant with
eligible quote activity in the pool,
multiply the PSX Participant’s
allocation percentage (from Step 7) by
the excess MDR in the pool to determine
the dollar amount of the PSX
Participant’s MDR Rebate in the pool.
As for calculating the pool of funds
from which MDR Rebates will be paid,
unlike the SIPs, the Exchange will
derive MDR Rebate allocation from a
fixed value that will not be subject to
adjustment (i.e., the amount of MDR
actually received by the Exchange on a
quarterly basis). This avoids the
problem of having to adjust MDR
rebates that have already been paid to
PSX Participants to comport to
adjustments to MDR made by the SIPs.5
The following Example, which the
Exchange provides in the proposed rule
language, illustrates how Excess MDR
will be calculated and distributed:
Step 1. On the first day of the quarter,
PSX Participant A earns 59,000 quote
5 For example, if MDR paid to the Exchange was
less than anticipated in Q3 2024 due to an
adjustment to the MDR paid to the Exchange in Q2
2024 (i.e., actual MDR in Q2 fell short of estimates),
the Exchange will not recoup the difference from
the PSX Participants that had been paid the Q2
MDR Rebate. Instead, the MDR Rebate for Q3 will
be calculated based on the actual MDR paid to the
Exchange in Q3.
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Federal Register / Vol. 89, No. 91 / Thursday, May 9, 2024 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
credits in MPID 1 for Security X (a Tape
C security): 59 seconds x $10 x 100
shares.
Step 2. Assume PSX Participant A
earns 4,000,000 quote credits for
Security X in MPID 1 after summing its
daily quote credits across the quarter.
Step 3. Assume there are five PSX
Participants (i.e., Participants A, B, C, D
and E) that had eligible quote activity in
Security X during the quarter. The
quarterly quote credits for Security X
are as follows:
Participants may be paid MDR Rebates
for attributed eligible quoting activity
from 40% of the excess MDR in the
Tape C pool, which is $60,000.
The attributed MDR for PSX
Participant A in MPID 1 is $1,500: 2.5%
× 60,000. Sincethe attributed MDR is
greater than $500, PSX Participant A
would receive an MDRpayment in the
amount of $1,500.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
Security X Quote of the Act,6 in general, and furthers the
Participant
Credits
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,7 in particular, in that it
A .....................................
4,000,000 provides for the equitable allocation of
B .....................................
1,000,000
reasonable dues, fees and other charges
C .....................................
3,500,000
D .....................................
2,500,000 among members and issuers and other
E .....................................
5,000,000 persons using any facility, and is not
designed to permit unfair
Total .........................
16,000,000 discrimination between customers,
issuers, brokers, or dealers.
The Exchange’s proposed changes to
Step 4. PSX Participant A’s
its schedule of credits are reasonable in
percentage of Security X it quoted is
several respects. As a threshold matter,
25%: 4,000,000/16,000,000.
Step 5. Assume the SIP allocated
the Exchange is subject to significant
revenue of $360,000 to Security X for
competitive forces in the market for
the quarter and $36,000,000 to all
equity securities transaction services
securities in the Tape C pool for the
that constrain its pricing determinations
in that market. The fact that this market
quarter. The income allocation weight
is competitive has long been recognized
for security X is 1%: $360,000/
by the courts. In NetCoalition v.
$36,000,000.
Step 6. PSX Participant A’s allocation Securities and Exchange Commission,
percentage for the excess MDR in
the D.C. Circuit stated as follows: ‘‘[n]o
Security X in MPID 1 is 0.25%: 25% x
one disputes that competition for order
1%.
flow is ‘fierce.’ . . . As the SEC
Step 7. Assume, after summing the
explained, ‘[i]n the U.S. national market
allocation percentage calculated in Step system, buyers and sellers of securities,
6 across all securities in the Tape C
and the broker-dealers that act as their
pool, PSX Participant A’s allocation
order-routing agents, have a wide range
percentage is 2.5% in MPID 1.
of choices of where to route orders for
Step 8. Assume PSX Participant A
execution’; [and] ‘no exchange can
quoted at the NBBO at least 25% of the
afford to take its market share
time during Market Hours in an average percentages for granted’ because ‘no
of at least 300 securities in Tape C
exchange possesses a monopoly,
through MPID 1, in accordance with
regulatory or otherwise, in the execution
section (b) above.
of order flow from broker
The following table represents the
dealers’. . ..’’ 8
proposed MDR pool thresholds:
The Commission and the courts have
repeatedly expressed their preference
Tape A
Tape C
for competition over regulatory
intervention in determining prices,
$110,000
$200,000
products, and services in the securities
markets. In Regulation NMS, while
Under this Example, assume that the
adopting a series of steps to improve the
quarterly MDR paid to the Exchange is
current market model, the Commission
apportioned as follows:
highlighted the importance of market
forces in determining prices and SRO
Tape A
Tape C
revenues and, also, recognized that
current regulation of the market system
$110,000
$350,000
‘‘has been remarkably successful in
Under this Example, the Tape C pool
6 15 U.S.C. 78f(b).
has excess MDR in the amount of
7 15 U.S.C. 78f(b)(4) and (5).
$150,000. However, the Tape A pool has
8 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir.
no excess MDR because the actual MDR
2010) (quoting Securities Exchange Act Release No.
received in the Tape A pool was equal
59039 (December 2, 2008), 73 FR 74770, 74782–83
to its $110,000 threshold. Thus, PSX
(December 9, 2008) (SR–NYSEArca–2006–21)).
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promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 9
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for equity
security transaction services. The
Exchange is only one of several equity
venues to which market participants
may direct their order flow. Competing
equity exchanges offer similar tiered
pricing structures to that of the
Exchange, including schedules of
rebates and fees that apply based upon
members achieving certain volume
thresholds.
Within this environment, market
participants can freely and often do shift
their order flow among the Exchange
and competing venues in response to
changes in their respective pricing
schedules. As such, the proposal
represents a reasonable attempt by the
Exchange to increase its liquidity and
market share relative to its competitors.
The Exchange believes it is
reasonable, equitable, and not unfairly
discriminatory for the Exchange to
adopt a PSX MDR Rebate program that
provides for sharing of Excess MDR
with PSX Participants in proportion to
their respective eligible quoting activity
in Tape A and C securities, as described
above. The Exchange believes the
proposal is reasonable as it will provide
an incentive for PSX Participants to
increase quoting in displayed liquidity
in Tape A and C securities on the
Exchange. An increase in displayed
liquidity and order flow to the Exchange
will, in turn, improve the quality of the
market and increase its attractiveness to
existing and prospective participants. In
addition, the proposal is equitable and
not unfairly discriminatory as the
proposal would equitably allocate MDR
Rebates among PSX Participants by
paying MDR Rebates according to the
total quoting activity in Tape A and C
securities attributable to a PSX
Participant in any given calendar
quarter. The MDR Rebates are available
to all PSX Participants.
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.
9 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
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Federal Register / Vol. 89, No. 91 / Thursday, May 9, 2024 / Notices
Intramarket Competition
The Exchange does not believe that its
proposal will place any category of
Exchange participant at a competitive
disadvantage.
As noted above, the Exchange’s
proposal is intended to have marketimproving effects, by increasing
displayed liquidity and order flow to
the Exchange, to the benefit of all
participants. The Exchange notes that its
participants are free to trade on other
venues to the extent they believe that
the proposal is not attractive. As one
can observe by looking at any market
share chart, price competition between
exchanges is fierce, with liquidity and
market share moving freely between
exchanges in reaction to fee and credit
changes.
ddrumheller on DSK120RN23PROD with NOTICES1
Intermarket Competition
In terms of inter-market competition,
the Exchange notes that it operates in a
highly competitive market in which
market participants can readily favor
competing venues if they deem fee
levels at a particular venue to be
excessive, or rebate opportunities
available at other venues to be more
favorable. In such an environment, the
Exchange must continually adjust its
credits and fees to remain competitive
with other exchanges and with
alternative trading systems that have
been exempted from compliance with
the statutory standards applicable to
exchanges. Because competitors are free
to modify their own credits and fees in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which credit
or fee changes in this market may
impose any burden on competition is
extremely limited. The proposal is
reflective of this competition.
Even the largest U.S. equities
exchange by volume has less than 20%
market share, which in most markets
could hardly be categorized as having
enough market power to burden
competition. Moreover, as noted above,
price competition between exchanges is
fierce, with liquidity and market share
moving freely between exchanges in
reaction to fee and credit changes. This
is in addition to free flow of order flow
to and among off-exchange venues
which comprises upwards of 50% of
industry volume.
In sum, if the change proposed herein
is unattractive to market participants, it
is likely that the Exchange will lose
market share as a result. Accordingly,
the Exchange does not believe that the
proposed change will impair the ability
of members or competing order
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execution venues to maintain their
competitive standing in the financial
markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.10
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–2024–18 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–2024–18. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. Do not include
personal identifiable information in
submissions; you should submit only
information that you wish to make
available publicly. We may redact in
part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to file number SR–Phlx–2024–18, and
should be submitted on or before May
30, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024–10081 Filed 5–8–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100061; File No. SR–Phlx–
2024–22]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the Trade Now
Order Attribute, at Equity 4, Rule
3301B and Rule 3301A
May 3, 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 April 30,
2024, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
10 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
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]]>Agencies
[Federal Register Volume 89, Number 91 (Thursday, May 9, 2024)]
[Notices]
[Pages 39668-39671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10081]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100060; File No. SR-Phlx-2024-18]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee
Schedule at Equity 7, Section 3 To Implement a Market Data Revenue
Rebate Program
May 3, 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 April 25, 2024, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its fee schedule at Equity 7,
Section 3 to implement a Market Data Revenue Rebate program, as
described further below.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its fee schedule at Equity 7,
Section 3 to adopt a Market Data Revenue (``MDR'') Rebate program for
Nasdaq PSX.\3\ In sum, the proposed MDR Rebate program calls for 40% of
MDR that exceeds fixed thresholds in any one of two pools (``Excess
MDR'') to be shared with PSX Participants in proportion to their
respective eligible quoting activity in Tape A and C securities, as
described further below. The proposed MDR Rebate program is designed to
improve displayed liquidity and promote order flow to the Exchange by
offering an incentive for market participants to quote on the Exchange.
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\3\ The Exchange initially filed the proposed pricing change on
April 1, 2024 (SR-Phlx-2024-16). On April 15, 2024, the Exchange
withdrew that filing and submitted SR-Phlx-2024-17. On April 25,
2024, the Exchange withdrew that filing and submitted this filing.
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Background
The Securities Information Processors (``SIPs''), which include the
Unlisted Trading Privileges and the Consolidated Tape Association,
collect fees from
[[Page 39669]]
subscribers for trade and quote tape data received from trading centers
and reporting facilities, such as the Exchange (collectively ``SIP
Participants''). After deducting the cost of operating each tape, the
profits are allocated among the SIP Participants on a quarterly basis,
according to a complex set of calculations that consider estimates of
anticipated MDR, adjustments to comport to actual MDR from previous
quarters and a non-linear aggregation of total trading and quoting
activity in Tape A, B and C securities in attributing MDR to each SIP
Participant. Based on these calculations, the SIPs provide MDR payments
to each SIP Participant during the first month of each quarter for
trade and quote data from the previous calendar quarter, which are
subject to adjustment through subsequent quarterly payments. These
payments can be divided into six pools (i.e., trade and quote activity
in Tape A, B and C securities).
Proposed PSX MDR Rebate Program
As the Exchange does not currently share MDR with Participants, the
Exchange now proposes to implement a PSX MDR Rebate program to share
MDR attributed to quote activity only by adopting a PSX MDR Rebate
program in Equity 7, Section 3.
Specifically, proposed Section (a) provides that, assuming that the
requirements of this PSX MDR Rebate Section are met, a PSX Participant
may receive a quarterly MDR rebate in proportion to the PSX
Participant's quoting of displayed orders in Tape A and C securities
from the previous calendar quarter (``MDR Rebate''), as described
further in Section (e).
Proposed Section (b) provides that, to qualify for the MDR Rebate,
a PSX Participant must quote at the National Best Bid or Offer
(``NBBO'') at least 25% of the time during Market Hours in an average
of at least 250 securities for Tape A securities or at least 300
securities for Tape C securities through the PSX Participant's MPID. A
PSX Participant is considered to be quoting at the NBBO if the PSX
Participant's MPID quotes a displayed order of at least 100 shares in
the security and prices the order at either the national best bid or
the national best offer or both the national best bid and offer for the
security. To qualify for the MDR Rebate, the PSX Participant must meet
the requirement for an average of at least 250 securities for Tape A
securities or at least 300 securities for Tape C securities per day
over the course of the quarter.
Proposed Section (c) provides that MDR will be calculated
separately for quotes in each Tape A and C security, for a total of two
MDR pools. If the MDR received by the Exchange in any given pool
exceeds the following thresholds in any given calendar quarter, 40% of
such excess MDR will be payable to PSX Participants in proportion to
their respective quoting of displayed orders in that pool:
------------------------------------------------------------------------
Tape A Tape C
------------------------------------------------------------------------
$110,000 $200,000
------------------------------------------------------------------------
The proposed thresholds were selected based on historical data of
PSX's quoting revenue from Q2 2023-Q4 2023. The dollar values represent
the amount of MDR that must be paid to the Exchange by the SIPs before
the Excess MDR would be eligible for distribution.
The Exchange proposes to adopt two of the six MDR pools utilized by
the SIPs, excluding the pools for trading activity and the pool for
quoting activity in Tape B, and attributing the proposed MDR Rebates to
PSX Participants for quote activity in Tapes A and C. Currently, PSX
Participants are most actively quoting Tape B securities on PSX. The
Exchange proposes to establish the MDR Rebates for quoting activity in
Tapes A and C because the Exchange wants to encourage increased quoting
at the NBBO for Tapes A and C.
Section (d) provides a de minimis requirement that states that a
PSX Participant will not receive an MDR Rebate in any calendar quarter
in which the total MDR Rebate attributed to the PSX Participant is less
than $500. If a PSX Participant is eligible for MDR Rebates from both
pools, the PSX Participant will be eligible to receive an MDR rebate
equal to the sum of the rebates. However, if the sum of the rebates is
less than $500, the PSX Participant will not receive a payment and the
rebate will be kept by the Exchange. The purpose of the de minimis
requirement is to encourage significant quote activity and for the
Exchange to avoid having to pay PSX Participants for de minimis Excess
MDR.\4\
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\4\ For example, it would be unduly burdensome to the Exchange
to calculate and pay MDR Rebates to PSX Participants if the total
Excess MDR of all the pools was $4000 and ten PSX Participants were
each attributed $400 in rebates.
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In attributing eligible quote activity to PSX Participants, the
Exchange proposes to utilize a set of calculations similar to those
used by the SIPs in allocating MDR to SIP Participants. Section (e) of
the proposed rule language describes the steps for calculating MDR
Rebates:
Step 1. Calculate, on a daily basis (per MPID), the product of
three factors: number of shares in the quotation, the duration of the
quotation at the NBBO (for both the bid and the offer), and the price
of the security.
Step 2. For each security, sum the daily values from Step 1 across
the quarter, the sum of which represents the PSX Participant's quote
credits (per MPID) in each security.
Step 3. For each security, sum all PSX Participants' quote credits
to obtain the total quote credits available per security.
Step 4. Divide each PSX Participant's quote credits (per MPID)
(from Step 2) into the total quote credits available per security (from
Step 3) to obtain a Participant's percentage of the security they are
quoting (per MPID).
Step 5. Calculate the income allocation weight for each security
based on the share of revenue allocated to the symbol by the SIP that
quarter.
Step 6. For each security, multiply a PSX Participant's percentage
of security they are quoting (per MPID) (from Step 4) by the income
allocation weight of the security (from Step 5).
Step 7. For each PSX Participant's MPID, sum the values calculated
in Step 6 across all securities in the pool (i.e., in the same Tape) to
obtain the PSX Participant's allocation percentage for the excess MDR
in the pool.
Step 8. For each PSX Participant with eligible quote activity in
the pool, multiply the PSX Participant's allocation percentage (from
Step 7) by the excess MDR in the pool to determine the dollar amount of
the PSX Participant's MDR Rebate in the pool.
As for calculating the pool of funds from which MDR Rebates will be
paid, unlike the SIPs, the Exchange will derive MDR Rebate allocation
from a fixed value that will not be subject to adjustment (i.e., the
amount of MDR actually received by the Exchange on a quarterly basis).
This avoids the problem of having to adjust MDR rebates that have
already been paid to PSX Participants to comport to adjustments to MDR
made by the SIPs.\5\
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\5\ For example, if MDR paid to the Exchange was less than
anticipated in Q3 2024 due to an adjustment to the MDR paid to the
Exchange in Q2 2024 (i.e., actual MDR in Q2 fell short of
estimates), the Exchange will not recoup the difference from the PSX
Participants that had been paid the Q2 MDR Rebate. Instead, the MDR
Rebate for Q3 will be calculated based on the actual MDR paid to the
Exchange in Q3.
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The following Example, which the Exchange provides in the proposed
rule language, illustrates how Excess MDR will be calculated and
distributed:
Step 1. On the first day of the quarter, PSX Participant A earns
59,000 quote
[[Page 39670]]
credits in MPID 1 for Security X (a Tape C security): 59 seconds x $10
x 100 shares.
Step 2. Assume PSX Participant A earns 4,000,000 quote credits for
Security X in MPID 1 after summing its daily quote credits across the
quarter.
Step 3. Assume there are five PSX Participants (i.e., Participants
A, B, C, D and E) that had eligible quote activity in Security X during
the quarter. The quarterly quote credits for Security X are as follows:
------------------------------------------------------------------------
Security X Quote
Participant Credits
------------------------------------------------------------------------
A.................................................... 4,000,000
B.................................................... 1,000,000
C.................................................... 3,500,000
D.................................................... 2,500,000
E.................................................... 5,000,000
------------------
Total............................................ 16,000,000
------------------------------------------------------------------------
Step 4. PSX Participant A's percentage of Security X it quoted is
25%: 4,000,000/16,000,000.
Step 5. Assume the SIP allocated revenue of $360,000 to Security X
for the quarter and $36,000,000 to all securities in the Tape C pool
for the quarter. The income allocation weight for security X is 1%:
$360,000/$36,000,000.
Step 6. PSX Participant A's allocation percentage for the excess
MDR in Security X in MPID 1 is 0.25%: 25% x 1%.
Step 7. Assume, after summing the allocation percentage calculated
in Step 6 across all securities in the Tape C pool, PSX Participant A's
allocation percentage is 2.5% in MPID 1.
Step 8. Assume PSX Participant A quoted at the NBBO at least 25% of
the time during Market Hours in an average of at least 300 securities
in Tape C through MPID 1, in accordance with section (b) above.
The following table represents the proposed MDR pool thresholds:
------------------------------------------------------------------------
Tape A Tape C
------------------------------------------------------------------------
$110,000 $200,000
------------------------------------------------------------------------
Under this Example, assume that the quarterly MDR paid to the
Exchange is apportioned as follows:
------------------------------------------------------------------------
Tape A Tape C
------------------------------------------------------------------------
$110,000 $350,000
------------------------------------------------------------------------
Under this Example, the Tape C pool has excess MDR in the amount of
$150,000. However, the Tape A pool has no excess MDR because the actual
MDR received in the Tape A pool was equal to its $110,000 threshold.
Thus, PSX Participants may be paid MDR Rebates for attributed eligible
quoting activity from 40% of the excess MDR in the Tape C pool, which
is $60,000.
The attributed MDR for PSX Participant A in MPID 1 is $1,500: 2.5%
x 60,000. Sincethe attributed MDR is greater than $500, PSX Participant
A would receive an MDRpayment in the amount of $1,500.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\6\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\7\ 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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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to its schedule of credits are
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for equity
securities transaction services that constrain its pricing
determinations in that market. The fact that this market is competitive
has long been recognized by the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . ..'' \8\
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\8\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \9\
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\9\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
equity security transaction services. The Exchange is only one of
several equity venues to which market participants may direct their
order flow. Competing equity exchanges offer similar tiered pricing
structures to that of the Exchange, including schedules of rebates and
fees that apply based upon members achieving certain volume thresholds.
Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules. As such, the
proposal represents a reasonable attempt by the Exchange to increase
its liquidity and market share relative to its competitors.
The Exchange believes it is reasonable, equitable, and not unfairly
discriminatory for the Exchange to adopt a PSX MDR Rebate program that
provides for sharing of Excess MDR with PSX Participants in proportion
to their respective eligible quoting activity in Tape A and C
securities, as described above. The Exchange believes the proposal is
reasonable as it will provide an incentive for PSX Participants to
increase quoting in displayed liquidity in Tape A and C securities on
the Exchange. An increase in displayed liquidity and order flow to the
Exchange will, in turn, improve the quality of the market and increase
its attractiveness to existing and prospective participants. In
addition, the proposal is equitable and not unfairly discriminatory as
the proposal would equitably allocate MDR Rebates among PSX
Participants by paying MDR Rebates according to the total quoting
activity in Tape A and C securities attributable to a PSX Participant
in any given calendar quarter. The MDR Rebates are available to all PSX
Participants.
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.
[[Page 39671]]
Intramarket Competition
The Exchange does not believe that its proposal will place any
category of Exchange participant at a competitive disadvantage.
As noted above, the Exchange's proposal is intended to have market-
improving effects, by increasing displayed liquidity and order flow to
the Exchange, to the benefit of all participants. The Exchange notes
that its participants are free to trade on other venues to the extent
they believe that the proposal is not attractive. As one can observe by
looking at any market share chart, price competition between exchanges
is fierce, with liquidity and market share moving freely between
exchanges in reaction to fee and credit changes.
Intermarket Competition
In terms of inter-market competition, the Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its credits and fees to remain competitive with
other exchanges and with alternative trading systems that have been
exempted from compliance with the statutory standards applicable to
exchanges. Because competitors are free to modify their own credits and
fees in response, and because market participants may readily adjust
their order routing practices, the Exchange believes that the degree to
which credit or fee changes in this market may impose any burden on
competition is extremely limited. The proposal is reflective of this
competition.
Even the largest U.S. equities exchange by volume has less than 20%
market share, which in most markets could hardly be categorized as
having enough market power to burden competition. Moreover, as noted
above, price competition between exchanges is fierce, with liquidity
and market share moving freely between exchanges in reaction to fee and
credit changes. This is in addition to free flow of order flow to and
among off-exchange venues which comprises upwards of 50% of industry
volume.
In sum, if the change proposed herein is unattractive to market
participants, it is likely that the Exchange will lose market share as
a result. Accordingly, the Exchange does not believe that the proposed
change will impair the ability of members or competing order execution
venues to maintain their competitive standing in the financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\10\
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\10\ 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-2024-18 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-2024-18. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. Do
not include personal identifiable information in submissions; you
should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-Phlx-2024-18, and should
be submitted on or before May 30, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-10081 Filed 5-8-24; 8:45 am]
BILLING CODE 8011-01-P
