Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule at Options 7, Section 3 To Increase SPY Rebates, 43955-43957 [2024-10951]
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Federal Register / Vol. 89, No. 98 / Monday, May 20, 2024 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100135; File No. SR–Phlx–
2024–20]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Pricing Schedule at
Options 7, Section 3 To Increase SPY
Rebates
May 14, 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 May 1,
2024, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s Pricing Schedule at Options
7, Section 3 to increase SPY rebates.
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.
lotter on DSK11XQN23PROD with NOTICES1
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 Pricing Schedule
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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19:14 May 17, 2024
Jkt 262001
at Options 7, Section 3 to increase the
Simple Order Rebate for Adding
Liquidity in SPY that is currently
provided to Lead Market Makers 3 and
Market Makers.4
Today, the Exchange pays Lead
Market Makers and Market Makers a
Simple Order Rebate for Adding
Liquidity in SPY. The rebate is paid
based on a percentage of all cleared
customer volume at The Options
Clearing Corporation in Multiply Listed
Equity Options and Exchange-Traded
Products (‘‘TCV’’). Rebates are currently
paid on electronically executed Lead
Market Maker and Market Maker Simple
Order contracts per day in a month in
SPY. Today, Lead Market Makers and
Market Makers are paid per the highest
tier achieved as follows:
Tiers
1
2
3
4
5
6
........
........
........
........
........
........
Adds liquidity in
SPY as a percentage of TCV
up to 0.02%
up to 0.04%
up to 0.10%
up to 0.20%
up to 0.40%
greater than
Rebate for
adding liquidity
...........
...........
...........
...........
...........
0.40%
$0.12
0.15
0.18
0.24
0.27
0.32
The Exchange now proposes to
increase the Tier 5 rebate from $0.27 to
$0.28 per contract and the Tier 6 rebate
from $0.32 to $0.34 per contract. The
Exchange is increasing the Tier 5 and
Tier 6 rebates without changing the
current tier qualifications so that Lead
Market Makers and Market Makers can
submit the same amount of liquidity
adding volume in SPY as they do today
to receive the higher rebates proposed
above. The Exchange believes that the
proposed changes will incentivize Lead
Market Makers and Market Makers to
provide greater liquidity in SPY to
receive the higher rebates, which
benefits all market participants through
the quality of order interaction.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
3 The term ‘‘Lead Market Maker’’ applies to
transactions for the account of a Lead Market Maker
(as defined in Options 2, Section 12(a)). A Lead
Market Maker is an Exchange member who is
registered as an options Lead Market Maker
pursuant to Options 2, Section 12(a). An options
Lead Market Maker includes a Remote Lead Market
Maker which is defined as an options Lead Market
Maker in one or more classes that does not have a
physical presence on an Exchange floor and is
approved by the Exchange pursuant to Options 2,
Section 11.
4 The term ‘‘Market Maker’’ is defined in Options
1, Section 1(b)(28) as a member of the Exchange
who is registered as an options Market Maker
pursuant to Options 2, Section 12(a). A Market
Maker includes SQTs and RSQTs as well as Floor
Market Makers.
PO 00000
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Fmt 4703
Sfmt 4703
43955
of the Act,5 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,6 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The Exchange’s proposed changes to
its Pricing Schedule are reasonable in
several respects. As a threshold matter,
the Exchange is subject to significant
competitive forces in the market for
options 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’. . . .’’ 7
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.’’ 8
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for options
security transaction services. The
Exchange is only one of seventeen
options exchanges to which market
participants may direct their order flow.
5 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
7 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)).
8 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
6 15
E:\FR\FM\20MYN1.SGM
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Federal Register / Vol. 89, No. 98 / Monday, May 20, 2024 / Notices
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 that its
proposal to increase the Tier 5 and Tier
6 Simple Order Rebates for Adding
Liquidity in SPY that will be provided
to qualifying Lead Market Makers and
Market Makers is reasonable because the
proposed changes are designed to attract
more liquidity in SPY to Phlx to the
benefit of all market participants. As
discussed above, the Exchange is
proposing to increase the Tier 5 rebate
from $0.27 to $0.28 per contract and the
Tier 6 rebate from $0.32 to $0.34 per
contract without changing the current
tier qualifications so that Lead Market
Makers and Market Makers can submit
the same amount of liquidity adding
volume in SPY as they do today to
receive the higher proposed rebates.
Because SPY is the most actively traded
symbol on Phlx, the Exchange believes
that further incentivizing Lead Market
Makers and Market Makers to add
liquidity in this symbol will have a
significant and beneficial impact on
market quality on Phlx.
The Exchange also believes that the
proposed changes are equitable and not
unfairly discriminatory as all qualifying
Lead Market Makers and Market Makers
would be eligible to receive the
increased Tier 5 and Tier 6 Simple
Order Rebates for Adding Liquidity in
SPY. Furthermore, the Exchange
continues to believe that it is not
unfairly discriminatory to offer certain
incentive programs (like the rebates
discussed in this proposal) to only Lead
Market Makers and Market Makers.
Lead Market Makers and Market Makers
add value through continuous quoting 9
and are subject to additional
requirements and obligations 10 that
other market participants are not.
Incentivizing Lead Market Makers and
Market Makers to provide greater
liquidity benefits all market participants
through the quality of order interaction.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
9 See
Options 2, Section 5.
Options 2, Section 4.
10 See
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19:14 May 17, 2024
In terms of intra-market competition,
the Exchange does not believe that its
proposal puts any category of market
participant at a competitive
disadvantage. As described above, while
the proposed SPY rebates will apply to
only Lead Market Makers and Market
Makers, the Exchange believes that
incentivizing Lead Market Makers and
Market Makers to provide greater
liquidity in SPY benefits all market
participants through the quality of order
interaction.
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
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
fees in response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which fee
changes in this market may impose any
burden on competition is extremely
limited. In sum, if the changes proposed
herein are unattractive to market
participants, it is likely that the
Exchange will lose market share as a
result. Accordingly, the Exchange does
not believe that the proposed changes
will impair the ability of members or
competing order execution venues to
maintain their competitive standing in
the financial markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.11
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
11 15
Jkt 262001
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
Frm 00157
Fmt 4703
Sfmt 4703
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–2024–20 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–2024–20. 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
E:\FR\FM\20MYN1.SGM
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Federal Register / Vol. 89, No. 98 / Monday, May 20, 2024 / Notices
SR–Phlx–2024–20 and should be
submitted on or before June 10, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–10951 Filed 5–17–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100138; File No. SR–MRX–
2024–11]
Self-Regulatory Organizations; Nasdaq
MRX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 7,
Section 6
May 14, 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 May 1,
2024, Nasdaq MRX, LLC (‘‘MRX’’ 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
Rules at Options 7, Section 6.3
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/mrx/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
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Exchange initially filed the proposed
pricing changes on November 28, 2023 (SR–MRX–
2023–23) to be effective on December 1, 2023. On
December 5, 2023, the Exchange withdrew SR–
MRX–2023–23 and replaced it with SR–MRX–
2023–25. On January 16, 2023, the Exchange
withdrew SR–MRX–2023–25 and submitted SR–
MRX–2024–02. On March 7, 2024, the Exchange
withdrew SR–MRX–2024–02 and submitted SR–
MRX–2024–07. On May 1, 2024, the Exchange
withdrew SR–MRX–2024–07 and submitted this
filing.
lotter on DSK11XQN23PROD with NOTICES1
1 15
VerDate Sep<11>2014
19:14 May 17, 2024
Jkt 262001
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
Options 7, Section 6, Ports and Other
Services. Specifically, the Exchange
proposes to amend the monthly caps for
SQF Ports 4 and SQF Purge Ports.5
Today, MRX assesses $1,250 per port,
per month for an SQF Port as well as an
SQF Purge Port. Today, MRX waives
one SQF Port fee per Market Maker per
month. Also, today, SQF Ports and SQF
Purge Ports are subject to a monthly cap
of $17,500, which cap is applicable to
Market Makers.
At this time, the Exchange proposes to
establish an increased SQF Fee and SQF
Purge Port Cap to Primary Market
Makers and Market Makers that do not
4 ‘‘Specialized Quote Feed’’ or ‘‘SQF’’ is an
interface that allows Market Makers to connect,
send, and receive messages related to quotes,
Immediate-or-Cancel Orders, and auction responses
to the Exchange. Features include the following: (1)
options symbol directory messages (e.g., underlying
and complex instruments); (2) system event
messages (e.g., start of trading hours messages and
start of opening); (3) trading action messages (e.g.,
halts and resumes); (4) execution messages; (5)
quote messages; (6) Immediate-or-Cancel Order
messages; (7) risk protection triggers and purge
notifications; (8) opening imbalance messages; (9)
auction notifications; and (10) auction responses.
The SQF Purge Interface only receives and notifies
of purge requests from the Market Maker. Market
Makers may only enter interest into SQF in their
assigned options series. Immediate-or-Cancel
Orders entered into SQF are not subject to the (i)
Order Price Protection, Market Order Spread
Protection, and Size Limitation Protection in
Options 3, Section 15(a)(1)(A), (1)(B), and (2)(B)
respectively, for single leg orders, or (ii) Complex
Order Price Protection as defined in Options 3,
Section 16(c)(1) for Complex Orders. See
Supplementary Material .03(c) to Options 3, Section
7.
5 SQF Purge is a specific port for the SQF
interface that only receives and notifies of purge
requests from the Market Maker. Dedicated SQF
Purge Ports enable Market Makers to seamlessly
manage their ability to remove their quotes in a
swift manner. The SQF Purge Port is designed to
assist Market Makers in the management of, and
risk control over, their quotes. Market Makers may
utilize a purge port to reduce uncertainty and to
manage risk by purging all quotes in their assigned
options series. Of note, Market Makers may only
enter interest into SQF in their assigned options
series. Additionally, the SQF Purge Port may be
utilized by a Market Maker in the event that the
Member has a system issue and determines to purge
its quotes from the order book.
PO 00000
Frm 00158
Fmt 4703
Sfmt 4703
43957
provide a minimum amount of liquidity
on MRX. This proposed increased SQF
Fee and SQF Purge Port Cap is intended
to incentivize Primary Market Makers
and Market Makers to add liquidity on
MRX for the benefit of other market
participants in order to lower their fees.
MRX proposes to increase the SQF Port
and SQF Purge Port Cap to $27,500 a
month if a Primary Market Maker or
Market Maker does not transact 0.50%
of Total Customer Volume in electronic
simple orders that adds liquidity in a
month.6 Today, MRX caps an SQF Port
and SQF Purge Port at $17,500 a month.
With this proposal, the Exchange would
not assess Primary Market Makers and
Market Makers an SQF Port and SQF
Purge Port Cap beyond the monthly cap
of $27,500, instead of $17,500, once the
Member has exceeded the proposed port
cap for the respective month. Primary
Market Makers and Market Makers who
transacts 0.50% of Total Customer
Volume in electronic simple orders that
adds liquidity in a month will continue
to be subject to the $17,500 SQF Port
and SQF Purge Port Cap.
Pursuant to Supplementary Material
.03(c) to Options 3, Section 7, Market
Makers may only enter interest into SQF
in their assigned options series.
Pursuant to Supplementary Material
.03(c) to Options 3, Section 7, the SQF
interface allows Market Makers to
connect, send, and receive messages
related to quotes, Immediate-or-Cancel
Orders, and auction responses to the
Exchange. An SQF Purge is a specific
port for the SQF interface that only
receives and notifies of purge requests
from the Market Maker. A MRX Market
Maker requires only one SQF Port to
submit quotes in its assigned options
series into MRX. While a Market Maker
may elect to obtain multiple SQF Ports
and SQF Purge Ports to organize its
business,7 only one SQF Port and SQF
Purge Port is necessary for a Market
Maker to fulfill its regulatory quoting
obligations.8
6 For purposes of this cap, ‘‘Total Customer
Volume’’ shall be defined as a percentage of all
cleared customer volume at The Options Clearing
Corporation in Multiply Listed Equity Options and
Exchange-Traded Products (‘‘TCV’’).
7 For example, a Market Maker may desire to
utilize multiple SQF Ports for accounting purposes,
to measure performance, for regulatory reasons or
other determinations that are specific to that
Member.
8 MRX Market Makers have various regulatory
requirements as provided for in Options 2, Section
4. Additionally, MRX Market Makers have certain
quoting requirements with respect to their assigned
options series as provided in Options 2, Section 5.
SQF Ports are the only quoting protocol available
on MRX and only Market Makers may utilize SQF
Ports. The same is true for SQF Purge Ports.
E:\FR\FM\20MYN1.SGM
20MYN1
]]>Agencies
[Federal Register Volume 89, Number 98 (Monday, May 20, 2024)]
[Notices]
[Pages 43955-43957]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10951]
[[Page 43955]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100135; File No. SR-Phlx-2024-20]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Pricing Schedule at Options 7, Section 3 To Increase SPY
Rebates
May 14, 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 May 1, 2024, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and III, below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\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 Pricing Schedule at
Options 7, Section 3 to increase SPY rebates.
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 Pricing
Schedule at Options 7, Section 3 to increase the Simple Order Rebate
for Adding Liquidity in SPY that is currently provided to Lead Market
Makers \3\ and Market Makers.\4\
---------------------------------------------------------------------------
\3\ The term ``Lead Market Maker'' applies to transactions for
the account of a Lead Market Maker (as defined in Options 2, Section
12(a)). A Lead Market Maker is an Exchange member who is registered
as an options Lead Market Maker pursuant to Options 2, Section
12(a). An options Lead Market Maker includes a Remote Lead Market
Maker which is defined as an options Lead Market Maker in one or
more classes that does not have a physical presence on an Exchange
floor and is approved by the Exchange pursuant to Options 2, Section
11.
\4\ The term ``Market Maker'' is defined in Options 1, Section
1(b)(28) as a member of the Exchange who is registered as an options
Market Maker pursuant to Options 2, Section 12(a). A Market Maker
includes SQTs and RSQTs as well as Floor Market Makers.
---------------------------------------------------------------------------
Today, the Exchange pays Lead Market Makers and Market Makers a
Simple Order Rebate for Adding Liquidity in SPY. The rebate is paid
based on a percentage of all cleared customer volume at The Options
Clearing Corporation in Multiply Listed Equity Options and Exchange-
Traded Products (``TCV''). Rebates are currently paid on electronically
executed Lead Market Maker and Market Maker Simple Order contracts per
day in a month in SPY. Today, Lead Market Makers and Market Makers are
paid per the highest tier achieved as follows:
------------------------------------------------------------------------
Adds liquidity in Rebate for
Tiers SPY as a percentage adding
of TCV liquidity
------------------------------------------------------------------------
1................................. up to 0.02%......... $0.12
2................................. up to 0.04%......... 0.15
3................................. up to 0.10%......... 0.18
4................................. up to 0.20%......... 0.24
5................................. up to 0.40%......... 0.27
6................................. greater than 0.40%.. 0.32
------------------------------------------------------------------------
The Exchange now proposes to increase the Tier 5 rebate from $0.27
to $0.28 per contract and the Tier 6 rebate from $0.32 to $0.34 per
contract. The Exchange is increasing the Tier 5 and Tier 6 rebates
without changing the current tier qualifications so that Lead Market
Makers and Market Makers can submit the same amount of liquidity adding
volume in SPY as they do today to receive the higher rebates proposed
above. The Exchange believes that the proposed changes will incentivize
Lead Market Makers and Market Makers to provide greater liquidity in
SPY to receive the higher rebates, which benefits all market
participants through the quality of order interaction.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\5\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\6\ 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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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to its Pricing Schedule are
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for options
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'. . . .'' \7\
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\7\ 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.'' \8\
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\8\ 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
options security transaction services. The Exchange is only one of
seventeen options exchanges to which market participants may direct
their order flow.
[[Page 43956]]
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 that its proposal to increase the Tier 5 and
Tier 6 Simple Order Rebates for Adding Liquidity in SPY that will be
provided to qualifying Lead Market Makers and Market Makers is
reasonable because the proposed changes are designed to attract more
liquidity in SPY to Phlx to the benefit of all market participants. As
discussed above, the Exchange is proposing to increase the Tier 5
rebate from $0.27 to $0.28 per contract and the Tier 6 rebate from
$0.32 to $0.34 per contract without changing the current tier
qualifications so that Lead Market Makers and Market Makers can submit
the same amount of liquidity adding volume in SPY as they do today to
receive the higher proposed rebates. Because SPY is the most actively
traded symbol on Phlx, the Exchange believes that further incentivizing
Lead Market Makers and Market Makers to add liquidity in this symbol
will have a significant and beneficial impact on market quality on
Phlx.
The Exchange also believes that the proposed changes are equitable
and not unfairly discriminatory as all qualifying Lead Market Makers
and Market Makers would be eligible to receive the increased Tier 5 and
Tier 6 Simple Order Rebates for Adding Liquidity in SPY. Furthermore,
the Exchange continues to believe that it is not unfairly
discriminatory to offer certain incentive programs (like the rebates
discussed in this proposal) to only Lead Market Makers and Market
Makers. Lead Market Makers and Market Makers add value through
continuous quoting \9\ and are subject to additional requirements and
obligations \10\ that other market participants are not. Incentivizing
Lead Market Makers and Market Makers to provide greater liquidity
benefits all market participants through the quality of order
interaction.
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\9\ See Options 2, Section 5.
\10\ See Options 2, Section 4.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
In terms of intra-market competition, the Exchange does not believe
that its proposal puts any category of market participant at a
competitive disadvantage. As described above, while the proposed SPY
rebates will apply to only Lead Market Makers and Market Makers, the
Exchange believes that incentivizing Lead Market Makers and Market
Makers to provide greater liquidity in SPY benefits all market
participants through the quality of order interaction.
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 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 fees in response, and
because market participants may readily adjust their order routing
practices, the Exchange believes that the degree to which fee changes
in this market may impose any burden on competition is extremely
limited. In sum, if the changes proposed herein are unattractive to
market participants, it is likely that the Exchange will lose market
share as a result. Accordingly, the Exchange does not believe that the
proposed changes will impair the ability of members or competing order
execution venues to maintain their competitive standing in the
financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\11\
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\11\ 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-2024-20 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-2024-20. 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
[[Page 43957]]
SR-Phlx-2024-20 and should be submitted on or before June 10, 2024.
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\12\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10951 Filed 5-17-24; 8:45 am]
BILLING CODE 8011-01-P
