Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 9, 57967-57971 [2024-15503]

Download as PDF Federal Register / Vol. 89, No. 136 / Tuesday, July 16, 2024 / Notices 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 Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 13 and subparagraph (f)(6) of Rule 19b–4 thereunder.14 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 necessary or appropriate in the public interest, for the protection of investors, or 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– ISE–2024–24 on the subject line. khammond on DSKJM1Z7X2PROD with NOTICES 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–ISE–2024–24. This file 13 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 14 17 VerDate Sep<11>2014 16:55 Jul 15, 2024 Jkt 262001 number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–ISE–2024–24 and should be submitted on or before August 6, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Vanessa A. Countryman, Secretary. [FR Doc. 2024–15498 Filed 7–15–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100489; File No. SR–Phlx– 2024–29] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 9 July 10, 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 July 1, 2024, Nasdaq PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities PO 00000 15 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 Frm 00125 Fmt 4703 Sfmt 4703 57967 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 Options 7, Section 9. 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 Options 7, Section 9, B, Port Fees, to increase the SQF Port 3 Fee cap for 3 ‘‘Specialized Quote Feed’’ or ‘‘SQF’’ is an interface that allows Lead Market Makers, Streaming Quote Traders (‘‘SQTs’’) and Remote Streaming Quote Traders (‘‘RSQTs’’) to connect, send, and receive messages related to quotes, Immediate-or-Cancel Orders, and auction responses into and from 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-orCancel 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 Lead Market Maker, SQT or RSQT. Lead Market Makers, SQTs and RSQTs may only enter interest into SQF in their assigned options series. Immediate-or-Cancel Orders entered into SQF are not subject to the Order Price Protection, the Market Order Spread Protection, or Size Limitation in Options 3, Section 15(a)(1), (a)(2) and (b)(2), respectively. See Options 3, Section 7(a)(i)(B). E:\FR\FM\16JYN1.SGM 16JYN1 57968 Federal Register / Vol. 89, No. 136 / Tuesday, July 16, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES certain Market Makers.4 Today, Phlx assesses $1,250 per port, per month up to a maximum of $42,000 per month for an SQF Port that receives inbound quotes at any time within that month.5 Today, Market Makers are not assessed an active SQF Port Fee for additional ports acquired for ten business days for the purpose of transitioning technology.6 The Exchange proposes to add the words ‘‘active port’’ in parenthesis at the end of the description of SQF Port Fee to tie the definition of an active port to the description for the port.7 At this time, the Exchange proposes to increase the monthly maximum SQF Port Fee Cap of $42,000 per month for certain Market Makers based on the size of the Market Maker on Phlx. The Exchange is determining the size of the Market Maker based on the amount of transactional volume executed on Phlx in a given month. The Exchange proposes to take each Market’s Maker’s electronic monthly transactional volume via SQF on Phlx and divide that number by the sum of all Market Maker electronic monthly transactional volume via SQF on Phlx (‘‘Transactional Volume’’). All SQF interest would be considered. Each Market Maker would then be classified on Phlx, for the purpose of the SQF Port Fee Cap, as a ‘‘small,’’ ‘‘medium,’’ or ‘‘large’’ Market Maker based on their Transactional Volume on Phlx to determine the applicable cap in a given month. Market Makers that qualify as ‘‘small’’ would continue to be subject to the current $42,000 per month cap on SQF Port Fees. Market Makers that qualify as ‘‘medium’’ would be subject to an increased monthly cap of $46,000 for SQF Port Fees. Finally, Market Makers that qualify as ‘‘large’’ would be subject to an increased monthly cap of $50,000 for SQF Port Fees. As is the case today, the Exchange would not assess a Market Maker an 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. See Options 7, Section 1(c). The term ‘‘Floor Market Maker’’ is a Market Maker who is neither an SQT or an RSQT. A Floor Market Maker may provide a quote in open outcry. See Options 8, Section 2(a)(4). 5 An active port shall mean that the port was utilized to submit a quote to the System during a given month. See Options 7, Section 9, B. 6 The member organization is required to provide the Exchange with written notification of the transition and all additional ports, provided at no cost, will be removed at the end of the ten business days. See Options 7, Section 9, B. 7 The Exchange also proposes a technical amendment to add a comma between ‘‘per port’’ and ‘‘per month’’ for the SQF Port Fee in Options 7, Section 9, B. VerDate Sep<11>2014 16:55 Jul 15, 2024 Jkt 262001 SQF Port Fee beyond the monthly cap once the Market Maker has exceeded the monthly cap for the respective month. Despite increasing the maximum SQF Port Fees for Market Makers that qualify as ‘‘medium’’ and ‘‘large,’’ the Exchange will continue to offer all Market Makers the opportunity to cap their SQF Port Fees to limit their costs as they would not be assessed an SQF Port Fee beyond the applicable cap each month. A Phlx Market Maker requires only one SQF Port to submit quotes in its assigned options series into Phlx. A Phlx Market Maker may submit all quotes through one SQF Port. While a Phlx Market Maker may elect to obtain multiple SQF Ports to organize its business,8 only one SQF Port is necessary for a Phlx Market Maker to fulfill its regulatory quoting obligations.9 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,10 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,11 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 proposed pricing change to increase the SQF Fee Cap for Market Makers that qualify as ‘‘medium’’ from $42,000 to $46,000 per month for SQF Port Fees, and for Market Makers that qualify as ‘‘large’’ from $42,000 to $50,000 per month for SQF Port Fees, is reasonable because despite the increase in the maximum SQF Port Fee, the Exchange will continue to offer all Market Makers the opportunity to cap their SQF Port Fees each month to limit their costs as they would not be assessed an SQF Port Fee beyond the cap. The Exchange would not increase the current SQF Port Fee Cap for a Market Maker that qualifies as ‘‘small.’’ A Phlx Market Maker requires only one SQF Port to submit quotes in its 8 For example, a Phlx 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 organization. 9 Phlx Market Makers have various regulatory requirements as provided for in Options 2, Section 4. Additionally, Phlx 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 Phlx and only Market Makers may utilize SQF Ports. 10 15 U.S.C. 78f(b). 11 15 U.S.C. 78f(b)(4) and (5). PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 assigned options series into Phlx. A Phlx Market Maker may submit all quotes through one SQF Port. While a Phlx Market Maker may elect to obtain multiple SQF Ports to organize its business,12 only one SQF Port is necessary for a Phlx Market Maker to fulfill its regulatory quoting obligations.13 Member organizations may choose a greater number of SQF Ports beyond one port, depending on that member organization’s particular business model. Additionally, the Exchange believes that the caps are reasonable for two reasons. First, SQF Ports are a secure method for Market Makers to submit quotes into the Exchange’s match engine and for the Exchange to send messages related to those quotes to Market Makers. Phlx must manage the security and message traffic, among other things, for each port. Utilizing the various caps based on the ‘‘size’’ of the Market Maker as determined by Transactional Volume, provides every Market Maker the ability to manage cost. Additionally, the Exchange would have the ability to manage the quantity of SQF Ports issued on Phlx. The various SQF Port Fee Caps were determined based on the level of Transactional Volume on Phlx in 2024 for Market Makers. The Exchange assessed each level of Market Maker an increased cap of $4,000 based on size, as reflected by Transactional Volume, to reflect the various sizes of Market Makers present on Phlx at this time. By capping the SQF Ports at different levels based on ‘‘size,’’ the Exchange is considering the message traffic and message rates generated by the various ‘‘sizes’’ of Market Makers and the Exchange’s ability to process messages from all SQF Ports. The SQF Port Fee Caps would allow the Exchange to scale its needs with respect to processing messages in an efficient manner. The Exchange notes that Cboe Exchange, Inc. (‘‘Cboe’’) limits usage on each port and assesses fees for incremental usage.14 12 For example, a Phlx 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 organization. 13 Phlx Market Makers have various regulatory requirements as provided for in Options 2, Section 4. Additionally, Phlx 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 Phlx and only Market Makers may utilize SQF Ports. 14 Each Cboe Binary Order Entry (‘‘BOE’’) or FIX Logical Port incur the logical port fee indicated when used to enter up to 70,000 orders per trading day per logical port as measured on average in a single month. For each incremental usage of up to 70,000 per day per logical port will incur an additional logical port fee of $800 per month. BOE E:\FR\FM\16JYN1.SGM 16JYN1 Federal Register / Vol. 89, No. 136 / Tuesday, July 16, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Second, the Exchange notes that multiple SQF Ports are not necessary, however, to the extent that some Market Makers elect to obtain multiple SQF Ports, the Exchange is offering to cap their total port cost. Phlx believes that the existence of a cap based on ‘‘size’’ of the Market Maker will level the playing field. The Exchange believes that this approach enables various types of Market Makers to effectively limit costs based on their executed Transactional Volume on Phlx. Further, the existence of an SQF Port Fee Cap allows for efficiencies and permits Market Makers to increase their number of ports beyond the cap. The cap levels the playing field by allowing various types of Market Makers that want to obtain a larger number of ports to do so with the certainty of a fee cap. Without the SQF Fee Cap, Phlx Market Makers may pay more to obtain multiple SQF Ports on Phlx. Other market tier port fees. BOX Exchange LLC (‘‘BOX’’) assesses $1,000 per month for all SAIL Ports for Market Making and $500 per month per port up to 5 ports for order entry and $150 per month for each additional port.15 Miami International Securities Exchange, LLC’s (‘‘MIAX’’) MIAX Express Interface (‘‘MEI’’) Fee levels are based on a tiered fee structure based on the Market Maker’s total monthly executed volume during the relevant month.16 The proposed pricing change to increase the SQF Fee Cap for Market Makers that qualify as ‘‘medium’’ from $42,000 to $46,000 per month for SQF Port Fees, and for Market Makers that qualify as ‘‘large’’ from $42,000 to $50,000 per month for SQF Port Fees, is equitable and not unfairly discriminatory because the Exchange is offering different sizes of Market Makers, based on Transactional Volume executed on Phlx, the ability to cap their costs at different levels and potentially obtain some SQF Ports at no cost. The proposal recognizes that some Market Makers may be deemed ‘‘small’’ and may not be able to achieve the same cap as other Market Makers. To this end, the Exchange proposes not to increase SQF Port Fees for Market Makers that qualify or FIX Logical Ports provide users the ability to enter order/quotes. See Cboe’s Fees Schedule. 15 See BOX’s Fee Schedule. 16 MEI is a connection to MIAX systems that enables Market Makers to submit simple and complex electronic quotes to MIAX. MIAX caps its MEI Ports. For these Monthly MIAX MEI Fees levels, if the Market Maker’s total monthly executed volume during the relevant month is less than 0.060% of the total monthly executed volume reported by OCC in the market maker account type for MIAX-listed option classes for that month, then the fee will be $14,500 instead of the fee otherwise applicable to such level. See MIAX’s Fee Schedule. VerDate Sep<11>2014 16:55 Jul 15, 2024 Jkt 262001 as ‘‘small’’ in a given month. To the extent that a Market Maker qualifies in a given month as a ‘‘medium’’ Market Maker the Exchange proposes to increase the cap from $42,000 to $46,000 per month. This fee presumes to place a Market Maker that qualifies as ‘‘medium’’ on equal footing with a Market Maker that qualifies as a ‘‘small’’ Market Maker in terms of the cap, by setting different fee caps for each group. The proposal presumes that based on Transactional Volume, these Market Makers that qualify as ‘‘medium’’ have a greater ability to obtain a greater amount of SQF Ports as compared to Market Makers that qualify as ‘‘small.’’ Finally, to the extent that a Market Maker qualifies in a given month as a ‘‘large’’ Market Maker the Exchange proposes to increase the cap from $42,000 to $50,000 per month. This fee presumes to place a Market Maker that qualifies as ‘‘large’’ on equal footing with a Market Maker that qualifies as a ‘‘small’’ Market Maker and a Market Maker that qualifies as ‘‘medium’’ in terms of the cap, by setting different fee caps for each group. The proposal presumes that based on Transactional Volume these Market Makers that qualify as ‘‘large’’ have the ability to obtain the largest amount of SQF Ports. The Exchange would uniformly apply the appropriate Market Maker cap to each Market Maker group based on the same volume calculation. Also, Market Makers who exceed their applicable cap would uniformly not be assessed any fee for SQF Ports beyond the applicable maximum amount. Market Makers are the only market participants that are assessed SQF Port Fees because they are the only market participants that are permitted to quote on the Exchange. SQF Ports are only utilized in the Market Maker’s assigned options series. Unlike other market participants, Market Makers are subject to market making and quoting obligations.17 These liquidity providers are critical market participants in that they are the only market participants that provide liquidity to Phlx on a continuous basis. In addition, the Exchange notes that Lead Market Makers are required to submit quotes in the Opening Process to open an options series.18 Market Makers are subject to a number of fees, unlike other market participants. Market Makers pay separate permit fees,19 and Streaming Quote Trader Fees,20 in addition to other fees paid by other market PO 00000 17 See Options 2, Sections 4 and 5. Options 3, Section 8. 19 See Options 7, Section 8, A. 20 See Options 7, Section 8, B. 18 See Frm 00127 Fmt 4703 Sfmt 4703 57969 participants. Providing all Market Makers a means to cap their cost related to quoting at a rate that reflects their ‘‘size’’ and enabling all Market Makers to acquire SQF Ports at no cost beyond the applicable cap enables these market participants to provide the necessary liquidity to Phlx at lower costs. Therefore, because Market Makers fulfill a unique role on the Exchange, are the only market participant required to submit quotes as part of their obligations to operate on the Exchange, and, in light of that role, they are eligible for certain incentives. The proposed SQF Port Fee Cap is designed to continue to incent all Market Makers to quote on Phlx, thereby promoting liquidity, quote competition, and trading opportunities. In 2022, NYSE Arca, Inc. (‘‘NYSE Arca’’) proposed to restructure fees relating to OTPs for Market Makers.21 In that rule change,22 NYSE Arca argued that, Market Makers serve a unique and important function on the Exchange (and other options exchanges) given the quotedriven nature of options markets. Because options exchanges rely on actively quoting Market Makers to facilitate a robust marketplace that attracts order flow, options exchanges must attract and retain Market Makers, including by setting competitive Market Maker permit fees. Stated otherwise, changes to Market Maker permit fees can have a direct effect on the ability of an exchange to compete for order flow. The Exchange also believes that the number of options exchanges on which Market Makers can effect option transactions also ensures competition in the marketplace and constrains the ability of exchanges to charge supracompetitive fees for access to its market by Market Makers. Further, NYSE ARCA noted that,23 The Exchange further believes that its ability to set Market Maker permit fees is constrained by competitive forces based on the fact that Market Makers can, and have, chosen to terminate their status as a Market Maker if they deem Market Maker permit fees to be unreasonable or excessive. Specifically, the Exchange notes that a BOX participant modified its access to BOX in connection with the implementation of a proposed change to BOX’s Market Maker permit fees. The Exchange has also observed that another options exchange group experienced decreases in market share following its proposed modifications of its access fees (including Market Maker trading permit fees), 21 See Securities Exchange Act Release No. 95412 (June 23, 2022), 87 FR 38786 (June 29, 2022) (SR– NYSEArca–2022–36). NYSE Arca proposed to increase both the monthly fee per Market Maker OTP and the number of issues covered by each additional OTP because, among other reasons, the number of issues traded on the Exchange has increased significantly in recent years. 22 Id at 38788. 23 Id at 38790. E:\FR\FM\16JYN1.SGM 16JYN1 57970 Federal Register / Vol. 89, No. 136 / Tuesday, July 16, 2024 / Notices suggesting that market participants (including Market Makers) are sensitive to changes in exchanges’ access fees and may respond by shifting their order flow elsewhere if they deem the fees to be unreasonable or excessive. There is no requirement, regulatory or otherwise, that any Market Maker connect to and access any (or all of) the available options exchanges. The Exchange also is not aware of any reason why a Market Maker could not cease being a permit holder in response to unreasonable price increases. The Exchange does not assess any termination fee for a Market Maker to drop its OTP, nor is the Exchange aware of any other costs that would be incurred by a Market Maker to do so. The Exchange likewise believes that its ability to cap SQF Ports Fees is constrained by competitive forces and that its proposed modifications to the SQF Port Fee cap is reasonably designed in consideration of the competitive environment in which the Exchange operates, by balancing the value of the enhanced benefits available to all Market Makers, based on their transactional volume and presumed ‘‘size.’’ At the same time, the Exchange believes the proposed fees will incent Market Makers to support increased liquidity, quote competition, and trading opportunities on the Exchange, for the benefit of all market 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. khammond on DSKJM1Z7X2PROD with NOTICES Intermarket Competition The proposal does not impose an undue burden on intermarket 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. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. Intramarket Competition The proposed pricing change to increase the SQF Fee Cap for Market Makers that qualify as ‘‘medium’’ from $42,000 to $46,000 per month for SQF Port Fees, and for Market Makers that VerDate Sep<11>2014 16:55 Jul 15, 2024 Jkt 262001 qualify as ‘‘large’’ from $42,000 to $50,000 per month for SQF Port Fees does not impose an undue burden on competition because the Exchange is offering different sizes of Market Makers, based on Transactional Volume executed on Phlx, the ability to cap their costs at different levels and potentially obtain some SQF Ports at no cost. The proposal recognizes that some Market Makers may be deemed ‘‘small’’ and may not be able to achieve the same cap as other Market Makers. To the extent that a Market Maker qualifies in a given month as a ‘‘medium’’ Market Maker the Exchange proposes to increase the cap from $42,000 to $46,000 per month. This fee presumes to place a Market Maker that qualifies as ‘‘medium’’ on equal footing with a Market Maker that qualifies as a ‘‘small’’ Market Maker in terms of the cap, by setting different fee caps for each group. The proposal presumes that based on Transactional Volume these Market Makers that qualify as ‘‘medium’’ have a greater ability to obtain a greater amount of SQF Ports as compared to Market Makers that qualify as ‘‘small.’’ Finally, to the extent that a Market Maker qualifies in a given month as a ‘‘large’’ Market Maker the Exchange proposes to increase the cap from $42,000 to $50,000 per month. This fee presumes to place a Market Maker that qualifies as ‘‘large’’ on equal footing with a Market Maker that qualifies as a ‘‘small’’ Market Maker and a Market Maker that qualifies as ‘‘medium’’ in terms of the cap, by setting different fee caps for each group. The proposal presumes that based on Transactional Volume these Market Makers that qualify as ‘‘large’’ have the ability to obtain the largest amount of SQF Ports. The Exchange would uniformly apply the appropriate Market Maker cap to each Market Maker group based on the same volume calculation. Also, Market Makers who exceed their applicable cap would uniformly not be assessed any fee for SQF Ports beyond the applicable maximum amount. Market Makers are the only market participants that are assessed SQF Port Fees because they are the only market participants that are permitted to quote on the Exchange. SQF Ports are only utilized in the Market Maker’s assigned options series. Unlike other market participants, Market Makers are subject to market making and quoting obligations.24 These liquidity providers are critical market participants in that they are the only market participants that provide liquidity to Phlx on a continuous basis. In addition, the Exchange notes that Lead Market PO 00000 24 See Options 2, Sections 4 and 5. Frm 00128 Fmt 4703 Sfmt 4703 Makers are required to submit quotes in the Opening Process to open an options series.25 Market Makers are subject to a number of fees, unlike other market participants. Market Makers pay separate permit fees,26 and Streaming Quote Trader Fees,27 in addition to other fees paid by other market participants. Providing all Market Makers a means to cap their cost related to quoting at a rate that reflects their ‘‘size’’ and enabling all Market Makers to acquire SQF Ports at no cost beyond the applicable cap, enables these market participants to provide the necessary liquidity to Phlx at lower costs. Therefore, because Market Makers fulfill a unique role on the Exchange, are the only market participant required to submit quotes as part of their obligations to operate on the Exchange, and, in light of that role, they are eligible for certain incentives. The proposed SQF Port Fee Cap is designed to continue to incent all Market Makers to quote on Phlx, thereby promoting liquidity, quote competition, and trading opportunities. 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.28 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: 25 See Options 3, Section 8. Options 7, Section 8, A. 27 See Options 7, Section 8, B. 28 15 U.S.C. 78s(b)(3)(A)(ii). 26 See E:\FR\FM\16JYN1.SGM 16JYN1 Federal Register / Vol. 89, No. 136 / Tuesday, July 16, 2024 / Notices 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–2024–29 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. khammond on DSKJM1Z7X2PROD with NOTICES All submissions should refer to file number SR–Phlx–2024–29. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–Phlx–2024–29 and should be submitted on or before August 6, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Vanessa A. Countryman, Secretary. [FR Doc. 2024–15503 Filed 7–15–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100485; File No. SR– GEMX–2024–16] Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Launch Proximity-OnDemand, a Managed Colocation Solution July 10, 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 June 28, 2024, Nasdaq GEMX, LLC (‘‘GEMX’’ 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 launch Proximity-On-Demand, a managed colocation solution. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/gemx/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 launch Proximity-On-Demand (‘‘POD’’), a managed colocation solution. POD will 1 15 29 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 16:55 Jul 15, 2024 2 17 Jkt 262001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00129 Fmt 4703 Sfmt 4703 57971 offer colocation customers a convenient variant of colocation where applications are deployed on managed infrastructure in the form of virtual or dedicated servers in the co-location space. Current Co-Location Offering The Exchange currently offers colocation services, which include a suite of data center space, power, telecommunication, and other ancillary products and services that allow customers to place their trading and communications equipment in close physical proximity to the quoting and execution facilities of the Exchange. The use of colocation services is entirely voluntary and colocation services are available to all market participants who desire them. Colocation customers are not provided any separate or superior means of direct access to the Exchange quoting and trading facilities. Nor does the Exchange offer any separate or superior means of access to the Exchange quoting and trading facilities as among colocation customers themselves within the data center (or any future expansions to the data center).3 In addition, all orders sent to the Exchange market enter the marketplace through the same central system quote and order gateway regardless of whether the sender is co-located in the Exchange data center or not. In short, the Exchange has created no special market technology or programming that is available only to co-located customers and the Exchange has organized its systems to minimize, to the greatest extent possible, any advantage for one customer versus another. Proximity-On-Demand POD will be an alternative to the traditional offering of space and power for the physical colocation of customers’ equipment. The Exchange will continue to offer its traditional colocation services. With POD, customers will not need to order cabinets and power to install a server or network hardware in the Exchange’s data center to be able to set up their systems and access the market directly. Instead, POD will provide customers with a variant of colocation where applications are deployed on a 3 Although the proposal and launch of POD are not dependent on the expansion of the data center, the Exchange notes that is in the process of expanding its data center in Carteret, New Jersey. Client connections to the matching engine will be equal across the board, within and among the current data center and the expansion. E:\FR\FM\16JYN1.SGM 16JYN1

Agencies

[Federal Register Volume 89, Number 136 (Tuesday, July 16, 2024)]
[Notices]
[Pages 57967-57971]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15503]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100489; File No. SR-Phlx-2024-29]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Section 9

July 10, 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 July 1, 2024, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III, below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 7, Section 9.
    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 Options 7, Section 9, B, Port Fees, 
to increase the SQF Port \3\ Fee cap for

[[Page 57968]]

certain Market Makers.\4\ Today, Phlx assesses $1,250 per port, per 
month up to a maximum of $42,000 per month for an SQF Port that 
receives inbound quotes at any time within that month.\5\ Today, Market 
Makers are not assessed an active SQF Port Fee for additional ports 
acquired for ten business days for the purpose of transitioning 
technology.\6\ The Exchange proposes to add the words ``active port'' 
in parenthesis at the end of the description of SQF Port Fee to tie the 
definition of an active port to the description for the port.\7\
---------------------------------------------------------------------------

    \3\ ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Lead Market Makers, Streaming Quote Traders (``SQTs'') and 
Remote Streaming Quote Traders (``RSQTs'') to connect, send, and 
receive messages related to quotes, Immediate-or-Cancel Orders, and 
auction responses into and from 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 Lead Market Maker, SQT or RSQT. Lead Market Makers, SQTs 
and RSQTs may only enter interest into SQF in their assigned options 
series. Immediate-or-Cancel Orders entered into SQF are not subject 
to the Order Price Protection, the Market Order Spread Protection, 
or Size Limitation in Options 3, Section 15(a)(1), (a)(2) and 
(b)(2), respectively. See Options 3, Section 7(a)(i)(B).
    \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. See Options 
7, Section 1(c). The term ``Floor Market Maker'' is a Market Maker 
who is neither an SQT or an RSQT. A Floor Market Maker may provide a 
quote in open outcry. See Options 8, Section 2(a)(4).
    \5\ An active port shall mean that the port was utilized to 
submit a quote to the System during a given month. See Options 7, 
Section 9, B.
    \6\ The member organization is required to provide the Exchange 
with written notification of the transition and all additional 
ports, provided at no cost, will be removed at the end of the ten 
business days. See Options 7, Section 9, B.
    \7\ The Exchange also proposes a technical amendment to add a 
comma between ``per port'' and ``per month'' for the SQF Port Fee in 
Options 7, Section 9, B.
---------------------------------------------------------------------------

    At this time, the Exchange proposes to increase the monthly maximum 
SQF Port Fee Cap of $42,000 per month for certain Market Makers based 
on the size of the Market Maker on Phlx. The Exchange is determining 
the size of the Market Maker based on the amount of transactional 
volume executed on Phlx in a given month. The Exchange proposes to take 
each Market's Maker's electronic monthly transactional volume via SQF 
on Phlx and divide that number by the sum of all Market Maker 
electronic monthly transactional volume via SQF on Phlx 
(``Transactional Volume''). All SQF interest would be considered. Each 
Market Maker would then be classified on Phlx, for the purpose of the 
SQF Port Fee Cap, as a ``small,'' ``medium,'' or ``large'' Market Maker 
based on their Transactional Volume on Phlx to determine the applicable 
cap in a given month. Market Makers that qualify as ``small'' would 
continue to be subject to the current $42,000 per month cap on SQF Port 
Fees. Market Makers that qualify as ``medium'' would be subject to an 
increased monthly cap of $46,000 for SQF Port Fees. Finally, Market 
Makers that qualify as ``large'' would be subject to an increased 
monthly cap of $50,000 for SQF Port Fees.
    As is the case today, the Exchange would not assess a Market Maker 
an SQF Port Fee beyond the monthly cap once the Market Maker has 
exceeded the monthly cap for the respective month. Despite increasing 
the maximum SQF Port Fees for Market Makers that qualify as ``medium'' 
and ``large,'' the Exchange will continue to offer all Market Makers 
the opportunity to cap their SQF Port Fees to limit their costs as they 
would not be assessed an SQF Port Fee beyond the applicable cap each 
month.
    A Phlx Market Maker requires only one SQF Port to submit quotes in 
its assigned options series into Phlx. A Phlx Market Maker may submit 
all quotes through one SQF Port. While a Phlx Market Maker may elect to 
obtain multiple SQF Ports to organize its business,\8\ only one SQF 
Port is necessary for a Phlx Market Maker to fulfill its regulatory 
quoting obligations.\9\
---------------------------------------------------------------------------

    \8\ For example, a Phlx 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 organization.
    \9\ Phlx Market Makers have various regulatory requirements as 
provided for in Options 2, Section 4. Additionally, Phlx 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 Phlx and only 
Market Makers may utilize SQF Ports.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The proposed pricing change to increase the SQF Fee Cap for Market 
Makers that qualify as ``medium'' from $42,000 to $46,000 per month for 
SQF Port Fees, and for Market Makers that qualify as ``large'' from 
$42,000 to $50,000 per month for SQF Port Fees, is reasonable because 
despite the increase in the maximum SQF Port Fee, the Exchange will 
continue to offer all Market Makers the opportunity to cap their SQF 
Port Fees each month to limit their costs as they would not be assessed 
an SQF Port Fee beyond the cap. The Exchange would not increase the 
current SQF Port Fee Cap for a Market Maker that qualifies as 
``small.''
    A Phlx Market Maker requires only one SQF Port to submit quotes in 
its assigned options series into Phlx. A Phlx Market Maker may submit 
all quotes through one SQF Port. While a Phlx Market Maker may elect to 
obtain multiple SQF Ports to organize its business,\12\ only one SQF 
Port is necessary for a Phlx Market Maker to fulfill its regulatory 
quoting obligations.\13\ Member organizations may choose a greater 
number of SQF Ports beyond one port, depending on that member 
organization's particular business model. Additionally, the Exchange 
believes that the caps are reasonable for two reasons.
---------------------------------------------------------------------------

    \12\ For example, a Phlx 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 organization.
    \13\ Phlx Market Makers have various regulatory requirements as 
provided for in Options 2, Section 4. Additionally, Phlx 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 Phlx and only 
Market Makers may utilize SQF Ports.
---------------------------------------------------------------------------

    First, SQF Ports are a secure method for Market Makers to submit 
quotes into the Exchange's match engine and for the Exchange to send 
messages related to those quotes to Market Makers. Phlx must manage the 
security and message traffic, among other things, for each port. 
Utilizing the various caps based on the ``size'' of the Market Maker as 
determined by Transactional Volume, provides every Market Maker the 
ability to manage cost. Additionally, the Exchange would have the 
ability to manage the quantity of SQF Ports issued on Phlx. The various 
SQF Port Fee Caps were determined based on the level of Transactional 
Volume on Phlx in 2024 for Market Makers. The Exchange assessed each 
level of Market Maker an increased cap of $4,000 based on size, as 
reflected by Transactional Volume, to reflect the various sizes of 
Market Makers present on Phlx at this time. By capping the SQF Ports at 
different levels based on ``size,'' the Exchange is considering the 
message traffic and message rates generated by the various ``sizes'' of 
Market Makers and the Exchange's ability to process messages from all 
SQF Ports. The SQF Port Fee Caps would allow the Exchange to scale its 
needs with respect to processing messages in an efficient manner. The 
Exchange notes that Cboe Exchange, Inc. (``Cboe'') limits usage on each 
port and assesses fees for incremental usage.\14\
---------------------------------------------------------------------------

    \14\ Each Cboe Binary Order Entry (``BOE'') or FIX Logical Port 
incur the logical port fee indicated when used to enter up to 70,000 
orders per trading day per logical port as measured on average in a 
single month. For each incremental usage of up to 70,000 per day per 
logical port will incur an additional logical port fee of $800 per 
month. BOE or FIX Logical Ports provide users the ability to enter 
order/quotes. See Cboe's Fees Schedule.

---------------------------------------------------------------------------

[[Page 57969]]

    Second, the Exchange notes that multiple SQF Ports are not 
necessary, however, to the extent that some Market Makers elect to 
obtain multiple SQF Ports, the Exchange is offering to cap their total 
port cost. Phlx believes that the existence of a cap based on ``size'' 
of the Market Maker will level the playing field. The Exchange believes 
that this approach enables various types of Market Makers to 
effectively limit costs based on their executed Transactional Volume on 
Phlx. Further, the existence of an SQF Port Fee Cap allows for 
efficiencies and permits Market Makers to increase their number of 
ports beyond the cap. The cap levels the playing field by allowing 
various types of Market Makers that want to obtain a larger number of 
ports to do so with the certainty of a fee cap. Without the SQF Fee 
Cap, Phlx Market Makers may pay more to obtain multiple SQF Ports on 
Phlx. Other market tier port fees. BOX Exchange LLC (``BOX'') assesses 
$1,000 per month for all SAIL Ports for Market Making and $500 per 
month per port up to 5 ports for order entry and $150 per month for 
each additional port.\15\ Miami International Securities Exchange, 
LLC's (``MIAX'') MIAX Express Interface (``MEI'') Fee levels are based 
on a tiered fee structure based on the Market Maker's total monthly 
executed volume during the relevant month.\16\
---------------------------------------------------------------------------

    \15\ See BOX's Fee Schedule.
    \16\ MEI is a connection to MIAX systems that enables Market 
Makers to submit simple and complex electronic quotes to MIAX. MIAX 
caps its MEI Ports. For these Monthly MIAX MEI Fees levels, if the 
Market Maker's total monthly executed volume during the relevant 
month is less than 0.060% of the total monthly executed volume 
reported by OCC in the market maker account type for MIAX-listed 
option classes for that month, then the fee will be $14,500 instead 
of the fee otherwise applicable to such level. See MIAX's Fee 
Schedule.
---------------------------------------------------------------------------

    The proposed pricing change to increase the SQF Fee Cap for Market 
Makers that qualify as ``medium'' from $42,000 to $46,000 per month for 
SQF Port Fees, and for Market Makers that qualify as ``large'' from 
$42,000 to $50,000 per month for SQF Port Fees, is equitable and not 
unfairly discriminatory because the Exchange is offering different 
sizes of Market Makers, based on Transactional Volume executed on Phlx, 
the ability to cap their costs at different levels and potentially 
obtain some SQF Ports at no cost. The proposal recognizes that some 
Market Makers may be deemed ``small'' and may not be able to achieve 
the same cap as other Market Makers. To this end, the Exchange proposes 
not to increase SQF Port Fees for Market Makers that qualify as 
``small'' in a given month. To the extent that a Market Maker qualifies 
in a given month as a ``medium'' Market Maker the Exchange proposes to 
increase the cap from $42,000 to $46,000 per month. This fee presumes 
to place a Market Maker that qualifies as ``medium'' on equal footing 
with a Market Maker that qualifies as a ``small'' Market Maker in terms 
of the cap, by setting different fee caps for each group. The proposal 
presumes that based on Transactional Volume, these Market Makers that 
qualify as ``medium'' have a greater ability to obtain a greater amount 
of SQF Ports as compared to Market Makers that qualify as ``small.'' 
Finally, to the extent that a Market Maker qualifies in a given month 
as a ``large'' Market Maker the Exchange proposes to increase the cap 
from $42,000 to $50,000 per month. This fee presumes to place a Market 
Maker that qualifies as ``large'' on equal footing with a Market Maker 
that qualifies as a ``small'' Market Maker and a Market Maker that 
qualifies as ``medium'' in terms of the cap, by setting different fee 
caps for each group. The proposal presumes that based on Transactional 
Volume these Market Makers that qualify as ``large'' have the ability 
to obtain the largest amount of SQF Ports. The Exchange would uniformly 
apply the appropriate Market Maker cap to each Market Maker group based 
on the same volume calculation. Also, Market Makers who exceed their 
applicable cap would uniformly not be assessed any fee for SQF Ports 
beyond the applicable maximum amount.
    Market Makers are the only market participants that are assessed 
SQF Port Fees because they are the only market participants that are 
permitted to quote on the Exchange. SQF Ports are only utilized in the 
Market Maker's assigned options series. Unlike other market 
participants, Market Makers are subject to market making and quoting 
obligations.\17\ These liquidity providers are critical market 
participants in that they are the only market participants that provide 
liquidity to Phlx on a continuous basis. In addition, the Exchange 
notes that Lead Market Makers are required to submit quotes in the 
Opening Process to open an options series.\18\ Market Makers are 
subject to a number of fees, unlike other market participants. Market 
Makers pay separate permit fees,\19\ and Streaming Quote Trader 
Fees,\20\ in addition to other fees paid by other market participants. 
Providing all Market Makers a means to cap their cost related to 
quoting at a rate that reflects their ``size'' and enabling all Market 
Makers to acquire SQF Ports at no cost beyond the applicable cap 
enables these market participants to provide the necessary liquidity to 
Phlx at lower costs. Therefore, because Market Makers fulfill a unique 
role on the Exchange, are the only market participant required to 
submit quotes as part of their obligations to operate on the Exchange, 
and, in light of that role, they are eligible for certain incentives. 
The proposed SQF Port Fee Cap is designed to continue to incent all 
Market Makers to quote on Phlx, thereby promoting liquidity, quote 
competition, and trading opportunities.
---------------------------------------------------------------------------

    \17\ See Options 2, Sections 4 and 5.
    \18\ See Options 3, Section 8.
    \19\ See Options 7, Section 8, A.
    \20\ See Options 7, Section 8, B.
---------------------------------------------------------------------------

    In 2022, NYSE Arca, Inc. (``NYSE Arca'') proposed to restructure 
fees relating to OTPs for Market Makers.\21\ In that rule change,\22\ 
NYSE Arca argued that,
---------------------------------------------------------------------------

    \21\ See Securities Exchange Act Release No. 95412 (June 23, 
2022), 87 FR 38786 (June 29, 2022) (SR-NYSEArca-2022-36). NYSE Arca 
proposed to increase both the monthly fee per Market Maker OTP and 
the number of issues covered by each additional OTP because, among 
other reasons, the number of issues traded on the Exchange has 
increased significantly in recent years.
    \22\ Id at 38788.

    Market Makers serve a unique and important function on the 
Exchange (and other options exchanges) given the quote-driven nature 
of options markets. Because options exchanges rely on actively 
quoting Market Makers to facilitate a robust marketplace that 
attracts order flow, options exchanges must attract and retain 
Market Makers, including by setting competitive Market Maker permit 
fees. Stated otherwise, changes to Market Maker permit fees can have 
a direct effect on the ability of an exchange to compete for order 
flow. The Exchange also believes that the number of options 
exchanges on which Market Makers can effect option transactions also 
ensures competition in the marketplace and constrains the ability of 
exchanges to charge supracompetitive fees for access to its market 
---------------------------------------------------------------------------
by Market Makers.

    Further, NYSE ARCA noted that,\23\
---------------------------------------------------------------------------

    \23\ Id at 38790.

    The Exchange further believes that its ability to set Market 
Maker permit fees is constrained by competitive forces based on the 
fact that Market Makers can, and have, chosen to terminate their 
status as a Market Maker if they deem Market Maker permit fees to be 
unreasonable or excessive. Specifically, the Exchange notes that a 
BOX participant modified its access to BOX in connection with the 
implementation of a proposed change to BOX's Market Maker permit 
fees. The Exchange has also observed that another options exchange 
group experienced decreases in market share following its proposed 
modifications of its access fees (including Market Maker trading 
permit fees),

[[Page 57970]]

suggesting that market participants (including Market Makers) are 
sensitive to changes in exchanges' access fees and may respond by 
shifting their order flow elsewhere if they deem the fees to be 
unreasonable or excessive.
    There is no requirement, regulatory or otherwise, that any 
Market Maker connect to and access any (or all of) the available 
options exchanges. The Exchange also is not aware of any reason why 
a Market Maker could not cease being a permit holder in response to 
unreasonable price increases. The Exchange does not assess any 
termination fee for a Market Maker to drop its OTP, nor is the 
Exchange aware of any other costs that would be incurred by a Market 
Maker to do so.

    The Exchange likewise believes that its ability to cap SQF Ports 
Fees is constrained by competitive forces and that its proposed 
modifications to the SQF Port Fee cap is reasonably designed in 
consideration of the competitive environment in which the Exchange 
operates, by balancing the value of the enhanced benefits available to 
all Market Makers, based on their transactional volume and presumed 
``size.'' At the same time, the Exchange believes the proposed fees 
will incent Market Makers to support increased liquidity, quote 
competition, and trading opportunities on the Exchange, for the benefit 
of all market 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.
Intermarket Competition
    The proposal does not impose an undue burden on intermarket 
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. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
Intramarket Competition
    The proposed pricing change to increase the SQF Fee Cap for Market 
Makers that qualify as ``medium'' from $42,000 to $46,000 per month for 
SQF Port Fees, and for Market Makers that qualify as ``large'' from 
$42,000 to $50,000 per month for SQF Port Fees does not impose an undue 
burden on competition because the Exchange is offering different sizes 
of Market Makers, based on Transactional Volume executed on Phlx, the 
ability to cap their costs at different levels and potentially obtain 
some SQF Ports at no cost. The proposal recognizes that some Market 
Makers may be deemed ``small'' and may not be able to achieve the same 
cap as other Market Makers. To the extent that a Market Maker qualifies 
in a given month as a ``medium'' Market Maker the Exchange proposes to 
increase the cap from $42,000 to $46,000 per month. This fee presumes 
to place a Market Maker that qualifies as ``medium'' on equal footing 
with a Market Maker that qualifies as a ``small'' Market Maker in terms 
of the cap, by setting different fee caps for each group. The proposal 
presumes that based on Transactional Volume these Market Makers that 
qualify as ``medium'' have a greater ability to obtain a greater amount 
of SQF Ports as compared to Market Makers that qualify as ``small.'' 
Finally, to the extent that a Market Maker qualifies in a given month 
as a ``large'' Market Maker the Exchange proposes to increase the cap 
from $42,000 to $50,000 per month. This fee presumes to place a Market 
Maker that qualifies as ``large'' on equal footing with a Market Maker 
that qualifies as a ``small'' Market Maker and a Market Maker that 
qualifies as ``medium'' in terms of the cap, by setting different fee 
caps for each group. The proposal presumes that based on Transactional 
Volume these Market Makers that qualify as ``large'' have the ability 
to obtain the largest amount of SQF Ports. The Exchange would uniformly 
apply the appropriate Market Maker cap to each Market Maker group based 
on the same volume calculation. Also, Market Makers who exceed their 
applicable cap would uniformly not be assessed any fee for SQF Ports 
beyond the applicable maximum amount.
    Market Makers are the only market participants that are assessed 
SQF Port Fees because they are the only market participants that are 
permitted to quote on the Exchange. SQF Ports are only utilized in the 
Market Maker's assigned options series. Unlike other market 
participants, Market Makers are subject to market making and quoting 
obligations.\24\ These liquidity providers are critical market 
participants in that they are the only market participants that provide 
liquidity to Phlx on a continuous basis. In addition, the Exchange 
notes that Lead Market Makers are required to submit quotes in the 
Opening Process to open an options series.\25\ Market Makers are 
subject to a number of fees, unlike other market participants. Market 
Makers pay separate permit fees,\26\ and Streaming Quote Trader 
Fees,\27\ in addition to other fees paid by other market participants. 
Providing all Market Makers a means to cap their cost related to 
quoting at a rate that reflects their ``size'' and enabling all Market 
Makers to acquire SQF Ports at no cost beyond the applicable cap, 
enables these market participants to provide the necessary liquidity to 
Phlx at lower costs. Therefore, because Market Makers fulfill a unique 
role on the Exchange, are the only market participant required to 
submit quotes as part of their obligations to operate on the Exchange, 
and, in light of that role, they are eligible for certain incentives. 
The proposed SQF Port Fee Cap is designed to continue to incent all 
Market Makers to quote on Phlx, thereby promoting liquidity, quote 
competition, and trading opportunities.
---------------------------------------------------------------------------

    \24\ See Options 2, Sections 4 and 5.
    \25\ See Options 3, Section 8.
    \26\ See Options 7, Section 8, A.
    \27\ See Options 7, Section 8, B.
---------------------------------------------------------------------------

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.\28\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 57971]]

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-2024-29 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-2024-29. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-Phlx-2024-29 and should be 
submitted on or before August 6, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-15503 Filed 7-15-24; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.