Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 4, 68683-68686 [2024-19151]

Download as PDF Federal Register / Vol. 89, No. 166 / Tuesday, August 27, 2024 / Notices 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–MRX–2024–31 and should be submitted on or before September 17, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.45 Vanessa A. Countryman, Secretary. [FR Doc. 2024–19148 Filed 8–26–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100797; File No. SR–Phlx– 2024–40] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 4 ddrumheller on DSK120RN23PROD with NOTICES1 August 21, 2024. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 6, 2024, Nasdaq PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 17:14 Aug 26, 2024 The Exchange proposes to amend Phlx’s Pricing Schedule at Options 7, Section 4, ‘‘Multiply Listed Options Fees (Includes options overlying equities, ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY and broad-based index options symbols listed within Options 7, Section 5.A).’’ 3 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 Phlx proposes to amend its Pricing Schedule at Options 7, Section 4, ‘‘Multiply Listed Options Fees (Includes options overlying equities, ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY and broad-based index options symbols listed within Options 7, Section 5.A).’’ Specifically, Phlx proposes to amend its Qualified Contingent Cross (‘‘QCC’’) Rebates. Today, the Exchange assesses a $0.20 per contract QCC Transaction Fee for a 3 On July 21, 2025, SR–Phlx–2024–39 was filed with an operative date of August 1, 2024. On August 6, 2024, Phlx withdrew SR–Phlx–2024–39 and filed this rule change. 45 17 VerDate Sep<11>2014 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Jkt 262001 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 68683 Lead Market Maker,4 Market Maker 5 Firm 6 and Broker-Dealer.7 Customers 8 and Professionals 9 are not assessed a QCC Transaction Fee. QCC Transaction Fees apply to electronic QCC Orders 10 and Floor QCC Orders.11 QCC Rebates Today, Options 7, Section 4 describes QCC Rebates that are offered by Phlx. Today, Phlx pays a QCC Rebate of $0.12 per contract on electronic QCC Orders, as defined in Options 3, Section 12, and Floor QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is comprised of a Customer or Professional order on one side and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the other side. This rebate is $0.17 per contract in the event that a member or member organization executes greater than 750,000 qualifying QCC contracts in a given month. 4 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. See Options 7, Section 1(c). The term ‘‘Floor Lead Market Maker’’ is a member who is registered as an options Lead Market Maker pursuant to Options 2, Section 12(a) and has a physical presence on the Exchange’s trading floor. See Options 8, Section 2(a)(3). 5 The term ‘‘Market Maker’’ is defined in Options 1, Section 1(b)(28) as a Streaming Quote Trader or a Remote Streaming Quote Trader who enters quotations for his own account electronically into the System. 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). 6 The term ‘‘Firm’’ applies to any transaction that is identified by a member or member organization for clearing in the Firm range at The Options Clearing Corporation. See Options 7, Section 1(c). 7 The term ‘‘Broker-Dealer’’ applies to any transaction which is not subject to any of the other transaction fees applicable within a particular category. See Options 7, Section 1(c). 8 The term ‘‘Customer’’ applies to any transaction that is identified by a member or member organization for clearing in the Customer range at The Options Clearing Corporation (‘‘OCC’’) which is not for the account of a broker or dealer or for the account of a ‘‘Professional’’ (as that term is defined in Options 1, Section 1(b)(45)). See Options 7, Section 1(c). 9 The term ‘‘Professional’’ applies to transactions for the accounts of Professionals, as defined in Options 1, Section 1(b)(45) means any person or entity that (i) is not a broker or dealer in securities, and (ii) places more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s). See Options 7, Section 1(c). 10 Electronic QCC Orders are described in Options 3, Section 12. 11 Floor QCC Orders are described in Options 8, Section 30(e). E:\FR\FM\27AUN1.SGM 27AUN1 ddrumheller on DSK120RN23PROD with NOTICES1 68684 Federal Register / Vol. 89, No. 166 / Tuesday, August 27, 2024 / Notices Additionally, Phlx pays a rebate of $0.22 per contract in the event that a member or member organization executes: (1) greater than 750,000 qualifying QCC contracts in a given month, (2) Floor Originated Strategy Executions 12 in excess of 3,500,000 contracts in a given month, and (3) at least 40% of the member or member organization’s QCC executed contracts in that month are comprised of a Lead Market Maker, Market Maker, BrokerDealer, or Firm order on one side and Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the other side. Today, Phlx also pays a QCC Rebate of $0.14 per contract on electronic QCC Orders, as defined in Options 3, Section 12, and Floor QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one side and a Lead Market Maker, Market Maker, BrokerDealer, or Firm order on the other side. This rebate is $0.19 per contract in the event that a member or member organization executes greater than 750,000 qualifying QCC contracts in a given month. Additionally, Phlx pays a rebate of $0.27 per contract in the event that a member or member organization executes: (1) greater than 750,000 qualifying QCC contracts in a given month, (2) Floor Originated Strategy Executions in excess of 3,500,000 contracts in a given month, and (3) at least 40% of the member or member organization’s QCC executed contracts in that month are comprised of a Lead Market Maker, Market Maker, BrokerDealer, or Firm order on one side and Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the other side Today, these QCC rebates are paid on all qualifying executed electronic QCC Orders, as defined in Options 3, Section 12, and Floor QCC Orders, as defined in Options 8, Section 30(e), except where the transaction is either: (i) Customer-toCustomer; (ii) Customer-to-Professional; (iii) Professional-to-Professional or (iv) a dividend, merger, short stock interest, reversal and conversion, jelly roll, and box spread strategy executions (as defined in Options 7, Section 4). Further, today, volume resulting from all executed electronic QCC Orders and Floor QCC Orders, including Customerto-Customer, Customer-to-Professional, and Professional-to-Professional transactions and excluding dividend, 12 Floor Originated Strategy Executions are defined as a dividend, merger, short stock interest, reversal and conversion, jelly roll or box spread strategy as described in Options 7, Section 4. VerDate Sep<11>2014 17:14 Aug 26, 2024 Jkt 262001 merger, short stock interest, reversal and conversion, jelly roll, and box spread strategy executions, will be aggregated in determining the applicable member or member organization qualifying QCC contract volume in a given month. Proposal At this time, the Exchange proposes to amend the qualifications on two of the QCC Rebates to lower the second qualification for Floor Originated Strategy Executions from ‘‘in excess of 3,500,000 contracts’’ to ‘‘in excess of 2,500,000.’’ Therefore, the Exchange proposes to continue to pay a rebate of $0.22 per contract, when a QCC Order is comprised of a Customer or Professional order on one side and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the other side, in the event that a member or member organization executes (1) greater than 750,000 qualifying QCC contracts in a given month; (2) Floor Originated Strategy Executions in excess of 2,500,000 contracts in a given month; and (3) at least 40% of the member or member organization’s QCC executed contracts in that month are comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one side and Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the other side. Additionally, the Exchange proposes to continue to pay a rebate of $0.27 per contract, when a QCC Order is comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one side and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the other side, in the event that a member or member organization executes: (1) greater than 750,000 qualifying QCC contracts in a given month; (2) Floor Originated Strategy Executions in excess of 2,500,000 contracts in a given month and (3) at least 40% of the member or member organization’s QCC executed contracts in that month are comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one side and Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the other side. The Exchange would continue to pay QCC Rebates on all qualifying executed electronic QCC Orders, as defined in Options 3, Section 12, and Floor QCC Orders, as defined in Options 8, Section 30(e), except where the transaction is either: (i) Customer-to-Customer; (ii) Customer-to-Professional; (iii) Professional-to-Professional; or (iv) a dividend, merger, short stock interest, reversal and conversion, jelly roll, and PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 box spread strategy executions (as defined in Options 7, Section 4). Also, the Exchange would continue to aggregate volume resulting from all executed electronic QCC Orders and Floor QCC Orders, including Customerto-Customer, Customer-to-Professional, and Professional-to-Professional transactions and excluding dividend, merger, short stock interest, reversal and conversion, jelly roll, and box spread strategy executions, in determining the applicable member or member organization qualifying QCC contract volume in a given month. The Exchange believes that the proposed amendments to the qualifications will encourage Phlx members and member organizations to continue to transact qualifying QCC contracts and Floor Originated Strategy Executions on Phlx. By lowering the number of Floor Originated Strategy Executions as part of the qualifications, Phlx believes additional members and member organizations may achieve these QCC rebates. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,13 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,14 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 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.’’ 15 Likewise, in NetCoalition v. Securities and Exchange Commission 16 (‘‘NetCoalition’’) the D.C. Circuit upheld the Commission’s use of a market-based approach in evaluating the fairness of 13 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 15 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 16 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). 14 15 E:\FR\FM\27AUN1.SGM 27AUN1 Federal Register / Vol. 89, No. 166 / Tuesday, August 27, 2024 / Notices market data fees against a challenge claiming that Congress mandated a costbased approach.17 As the court emphasized, the Commission ‘‘intended in Regulation NMS that ‘market forces, rather than regulatory requirements’ play a role in determining the market data . . . to be made available to investors and at what cost.’’ 18 Further, ‘‘[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 brokerdealers 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’. . . .’’ 19 Although the court and the SEC were discussing the cash equities markets, the Exchange believes that these views apply with equal force to the options markets. The Exchange’s proposal to amend the qualifications for two QCC Rebates in Options 7, Section 4 20 by lowering the second qualification for Floor Originated Strategy Executions ‘‘in excess of 3,500,000 contracts’’ to ‘‘in excess of 2,500,000’’ in a given month is reasonable because the proposed 17 See NetCoalition, at 534–535. at 537. 19 Id. at 539 (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782–83 (December 9, 2008) (SR– NYSEArca–2006–21)). 20 The Exchange proposes to amend the qualification where it is currently paying a rebate of $0.22 per contract, when a QCC Order is comprised of a Customer or Professional order on one side and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the other side, in the event that a member or member organization both executes: (1) greater than 750,000 qualifying QCC contracts in a given month; (2) Floor Originated Strategy Executions in excess of 3,500,000 contracts in a given month, and (3) at least at least 40% of the member or member organization’s QCC executed contracts in that month are comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one side and Lead Market Maker, Market Maker, BrokerDealer, or Firm order on the other side. Additionally, the Exchange proposes to amend the qualification where it is currently paying a $0.27 per contract, when a QCC Order is comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one side and a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the other side, in the event that a member or member organization both executes (1) greater than 750,000 qualifying QCC contracts in a given month, (2) Floor Originated Strategy Executions in excess of 3,500,000 contracts in a given month, and (3) at least 40% of the member or member organization’s QCC executed contracts in that month are comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one side and Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the other side. ddrumheller on DSK120RN23PROD with NOTICES1 18 Id. VerDate Sep<11>2014 17:14 Aug 26, 2024 Jkt 262001 amendments to the qualifications will encourage Phlx members and member organizations to continue to transact qualifying QCC contracts and Floor Originated Strategy Executions on Phlx. By lowering the number of Floor Originated Strategy Executions as part of the qualifications, Phlx believes additional members and member organizations may achieve the QCC rebates. Floor Originated Strategy Executions are defined as a dividend, merger, short stock interest, reversal and conversion, jelly roll or box spread strategy as described in Options 7, Section 4. The Exchange’s proposal to amend the qualifications for two QCC Rebates in Options 7, Section 4 by lowering the second qualification for Floor Originated Strategy Executions ‘‘in excess of 3,500,000 contracts’’ to ‘‘in excess of 2,500,000’’ in a given month is equitable and not unfairly discriminatory because all members and member organizations may qualify for QCC Rebates, provided they transact the requisite volume. 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. Inter-Market Competition The proposal does not impose an undue burden on inter-market competition. The Exchange believes its proposal remains competitive with other options markets and will offer market participants with another choice of where to transact options. 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. 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. Intra-Market Competition The proposed amendments do not impose an undue burden on intramarket competition. The Exchange’s proposal to amend the qualifications for PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 68685 two QCC Rebates in Options 7, Section 4 by lowering the second qualification for Floor Originated Strategy Executions ‘‘in excess of 3,500,000 contracts’’ to ‘‘in excess of 2,500,000’’ in a given month does not impose an undue burden on competition because all members and member organizations may qualify for QCC Rebates, provided they transact the requisite volume. 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 is effective upon filing pursuant to Section 19(b)(3)(A) 21 of the Act and subparagraph (f)(2) of Rule 19b–4 22 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of such 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 under Section 19(b)(2)(B) 23 of the Act to determine whether the proposed rule change 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–2024–40 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. 21 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). 23 15 U.S.C. 78s(b)(2)(B). 22 17 E:\FR\FM\27AUN1.SGM 27AUN1 68686 Federal Register / Vol. 89, No. 166 / Tuesday, August 27, 2024 / Notices All submissions should refer to file number SR–Phlx–2024–40. 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–2024–40 and should be submitted on or before September 17, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Vanessa A. Countryman, Secretary. [FR Doc. 2024–19151 Filed 8–26–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100787; File No. SR– FINRA–2024–008] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Partial Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Partial Amendment No. 1, To Amend FINRA Rule 12800 (Simplified Arbitration) To Clarify and Amend the Applicability of the Document Production Lists II. Description of the Proposed Rule Change August 21, 2024. I. Introduction On May 13, 2024, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change (SR–FINRA–2024–008) to amend FINRA Rule 12800 (Simplified Arbitration) of the FINRA Code of Arbitration Procedure for Customer Disputes (‘‘Customer Code’’). The proposed rule change, as subsequently modified by Partial Amendment No. 1, would address the applicability of the Document Production Lists 3 to simplified customer arbitrations administered under FINRA Rule 12800. The proposed rule change was published for public comment in the Federal Register on May 28, 2024.4 The public comment period closed on June 18, 2024. The Commission received comment letters related to this filing.5 On July 8, 2024, FINRA consented to an extension of the time period in which the Commission must approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change to August 26, 2024.6 On 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 FINRA Rule 12506 (Document Production Lists) describes the documents that are presumed to be discoverable in all arbitrations between a customer and a member firm or associated person. 4 See Exchange Act Release No. 100204 (May 21, 2024), 89 FR 46210 (May 28, 2024) (File No. SR– FINRA2024–008) (‘‘Notice’’). 5 The comment letters are available at https:// www.sec.gov/comments/sr-finra-2024-008/srfinra 2024008.htm. 6 See letter from Carissa Laughlin, Principal Counsel, Office of General Counsel, FINRA, to Lourdes Gonzalez, Assistant Chief Counsel, Division of Trading and Markets, Commission, ddrumheller on DSK120RN23PROD with NOTICES1 2 17 24 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:14 Aug 26, 2024 Jkt 262001 PO 00000 Frm 00111 Fmt 4703 August 7, 2024, FINRA responded to the comment letters received in response to the Notice and filed a partial amendment to modify the proposed rule change (‘‘Partial Amendment No. 1’’).7 The Commission is publishing this order pursuant to Section 19(b)(2)(B) of the Exchange Act 8 to solicit comments on the proposed rule change, as modified by Partial Amendment No. 1, and to institute proceedings to determine whether to approve or disapprove the proposed rule change, as modified by Partial Amendment No. 1 (hereinafter referred to as the ‘‘proposed rule change’’ unless otherwise specified). Sfmt 4703 A. Background FINRA Dispute Resolution Services (‘‘DRS’’) provides a Discovery Guide to help guide the parties and arbitrators through the discovery process in customer arbitrations.9 The Document Production Lists, which are included in the Discovery Guide and described in FINRA Rule 12506, outline presumptively discoverable documents that the parties should exchange, without arbitrator or DRS staff intervention.10 Document Production Lists 1 and 2 describe the documents that are presumed to be discoverable in all arbitrations between a customer and a member firm or associated person except in simplified customer arbitrations as explained below.11 List 1 outlines the documents that member firms and associated persons shall produce; List 2 outlines the documents that customers shall produce.12 The proposed rule change would affect the applicability of the Document dated July 8, 2024, https://www.finra.org/sites/ default/files/2024-07/SR-FINRA-2024-008extension1.pdf. 7 See letter from Carissa Laughlin, Principal Counsel, Office of General Counsel, FINRA, to Vanessa Countryman, Secretary, Commission, dated August 7, 2024, https://www.sec.gov/comments/srfinra-2024-008/srfinra2024008-503775-1470022.pdf (‘‘FINRA Response Letter’’); see also Partial Amendment No. 1, https://www.finra.org/sites/ default/files/2024-08/SR-FINRA-2024-008-PartialA-1.pdf. 8 15 U.S.C. 78s(b)(2)(B). 9 See Notice at 46210; see also https:// www.finra.org/sites/default/files/ArbMed/ p394527.pdf. The FINRA Discovery Guide and Document Production Lists do not apply to arbitrations administered under the Code of Arbitration Procedure for Industry Disputes. See Notice at 46210 n.3. 10 See Notice at 46210. 11 Id.; see also FINRA Rule 12506(a). 12 See Notice at 46210; see also https:// www.finra.org/sites/default/files/ArbMed/ p394527.pdf. E:\FR\FM\27AUN1.SGM 27AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 166 (Tuesday, August 27, 2024)]
[Notices]
[Pages 68683-68686]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19151]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100797; File No. SR-Phlx-2024-40]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Section 4

August 21, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 6, 2024, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx's Pricing Schedule at Options 
7, Section 4, ``Multiply Listed Options Fees (Includes options 
overlying equities, ETFs, ETNs and indexes which are Multiply Listed) 
(Excludes SPY and broad-based index options symbols listed within 
Options 7, Section 5.A).'' \3\
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    \3\ On July 21, 2025, SR-Phlx-2024-39 was filed with an 
operative date of August 1, 2024. On August 6, 2024, Phlx withdrew 
SR-Phlx-2024-39 and filed this rule change.
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    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
    Phlx proposes to amend its Pricing Schedule at Options 7, Section 
4, ``Multiply Listed Options Fees (Includes options overlying equities, 
ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY and 
broad-based index options symbols listed within Options 7, Section 
5.A).'' Specifically, Phlx proposes to amend its Qualified Contingent 
Cross (``QCC'') Rebates.
    Today, the Exchange assesses a $0.20 per contract QCC Transaction 
Fee for a Lead Market Maker,\4\ Market Maker \5\ Firm \6\ and Broker-
Dealer.\7\ Customers \8\ and Professionals \9\ are not assessed a QCC 
Transaction Fee. QCC Transaction Fees apply to electronic QCC Orders 
\10\ and Floor QCC Orders.\11\
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    \4\ 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. See Options 7, Section 1(c). The term ``Floor Lead Market 
Maker'' is a member who is registered as an options Lead Market 
Maker pursuant to Options 2, Section 12(a) and has a physical 
presence on the Exchange's trading floor. See Options 8, Section 
2(a)(3).
    \5\ The term ``Market Maker'' is defined in Options 1, Section 
1(b)(28) as a Streaming Quote Trader or a Remote Streaming Quote 
Trader who enters quotations for his own account electronically into 
the System. 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).
    \6\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation. See Options 7, 
Section 1(c).
    \7\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category. See Options 7, Section 1(c).
    \8\ The term ``Customer'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Customer range at The Options Clearing Corporation (``OCC'') which 
is not for the account of a broker or dealer or for the account of a 
``Professional'' (as that term is defined in Options 1, Section 
1(b)(45)). See Options 7, Section 1(c).
    \9\ The term ``Professional'' applies to transactions for the 
accounts of Professionals, as defined in Options 1, Section 1(b)(45) 
means any person or entity that (i) is not a broker or dealer in 
securities, and (ii) places more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s). See Options 7, Section 1(c).
    \10\ Electronic QCC Orders are described in Options 3, Section 
12.
    \11\ Floor QCC Orders are described in Options 8, Section 30(e).
---------------------------------------------------------------------------

QCC Rebates
    Today, Options 7, Section 4 describes QCC Rebates that are offered 
by Phlx. Today, Phlx pays a QCC Rebate of $0.12 per contract on 
electronic QCC Orders, as defined in Options 3, Section 12, and Floor 
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is 
comprised of a Customer or Professional order on one side and a Lead 
Market Maker, Market Maker, Broker-Dealer, or Firm order on the other 
side. This rebate is $0.17 per contract in the event that a member or 
member organization executes greater than 750,000 qualifying QCC 
contracts in a given month.

[[Page 68684]]

Additionally, Phlx pays a rebate of $0.22 per contract in the event 
that a member or member organization executes: (1) greater than 750,000 
qualifying QCC contracts in a given month, (2) Floor Originated 
Strategy Executions \12\ in excess of 3,500,000 contracts in a given 
month, and (3) at least 40% of the member or member organization's QCC 
executed contracts in that month are comprised of a Lead Market Maker, 
Market Maker, Broker-Dealer, or Firm order on one side and Lead Market 
Maker, Market Maker, Broker-Dealer, or Firm order on the other side.
---------------------------------------------------------------------------

    \12\ Floor Originated Strategy Executions are defined as a 
dividend, merger, short stock interest, reversal and conversion, 
jelly roll or box spread strategy as described in Options 7, Section 
4.
---------------------------------------------------------------------------

    Today, Phlx also pays a QCC Rebate of $0.14 per contract on 
electronic QCC Orders, as defined in Options 3, Section 12, and Floor 
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is 
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm 
order on one side and a Lead Market Maker, Market Maker, Broker-Dealer, 
or Firm order on the other side. This rebate is $0.19 per contract in 
the event that a member or member organization executes greater than 
750,000 qualifying QCC contracts in a given month. Additionally, Phlx 
pays a rebate of $0.27 per contract in the event that a member or 
member organization executes: (1) greater than 750,000 qualifying QCC 
contracts in a given month, (2) Floor Originated Strategy Executions in 
excess of 3,500,000 contracts in a given month, and (3) at least 40% of 
the member or member organization's QCC executed contracts in that 
month are comprised of a Lead Market Maker, Market Maker, Broker-
Dealer, or Firm order on one side and Lead Market Maker, Market Maker, 
Broker-Dealer, or Firm order on the other side
    Today, these QCC rebates are paid on all qualifying executed 
electronic QCC Orders, as defined in Options 3, Section 12, and Floor 
QCC Orders, as defined in Options 8, Section 30(e), except where the 
transaction is either: (i) Customer-to-Customer; (ii) Customer-to-
Professional; (iii) Professional-to-Professional or (iv) a dividend, 
merger, short stock interest, reversal and conversion, jelly roll, and 
box spread strategy executions (as defined in Options 7, Section 4). 
Further, today, volume resulting from all executed electronic QCC 
Orders and Floor QCC Orders, including Customer-to-Customer, Customer-
to-Professional, and Professional-to-Professional transactions and 
excluding dividend, merger, short stock interest, reversal and 
conversion, jelly roll, and box spread strategy executions, will be 
aggregated in determining the applicable member or member organization 
qualifying QCC contract volume in a given month.
Proposal
    At this time, the Exchange proposes to amend the qualifications on 
two of the QCC Rebates to lower the second qualification for Floor 
Originated Strategy Executions from ``in excess of 3,500,000 
contracts'' to ``in excess of 2,500,000.''
    Therefore, the Exchange proposes to continue to pay a rebate of 
$0.22 per contract, when a QCC Order is comprised of a Customer or 
Professional order on one side and a Lead Market Maker, Market Maker, 
Broker-Dealer, or Firm order on the other side, in the event that a 
member or member organization executes (1) greater than 750,000 
qualifying QCC contracts in a given month; (2) Floor Originated 
Strategy Executions in excess of 2,500,000 contracts in a given month; 
and (3) at least 40% of the member or member organization's QCC 
executed contracts in that month are comprised of a Lead Market Maker, 
Market Maker, Broker-Dealer, or Firm order on one side and Lead Market 
Maker, Market Maker, Broker-Dealer, or Firm order on the other side.
    Additionally, the Exchange proposes to continue to pay a rebate of 
$0.27 per contract, when a QCC Order is comprised of a Lead Market 
Maker, Market Maker, Broker-Dealer, or Firm order on one side and a 
Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the 
other side, in the event that a member or member organization executes: 
(1) greater than 750,000 qualifying QCC contracts in a given month; (2) 
Floor Originated Strategy Executions in excess of 2,500,000 contracts 
in a given month and (3) at least 40% of the member or member 
organization's QCC executed contracts in that month are comprised of a 
Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one 
side and Lead Market Maker, Market Maker, Broker-Dealer, or Firm order 
on the other side.
    The Exchange would continue to pay QCC Rebates on all qualifying 
executed electronic QCC Orders, as defined in Options 3, Section 12, 
and Floor QCC Orders, as defined in Options 8, Section 30(e), except 
where the transaction is either: (i) Customer-to-Customer; (ii) 
Customer-to-Professional; (iii) Professional-to-Professional; or (iv) a 
dividend, merger, short stock interest, reversal and conversion, jelly 
roll, and box spread strategy executions (as defined in Options 7, 
Section 4). Also, the Exchange would continue to aggregate volume 
resulting from all executed electronic QCC Orders and Floor QCC Orders, 
including Customer-to-Customer, Customer-to-Professional, and 
Professional-to-Professional transactions and excluding dividend, 
merger, short stock interest, reversal and conversion, jelly roll, and 
box spread strategy executions, in determining the applicable member or 
member organization qualifying QCC contract volume in a given month.
    The Exchange believes that the proposed amendments to the 
qualifications will encourage Phlx members and member organizations to 
continue to transact qualifying QCC contracts and Floor Originated 
Strategy Executions on Phlx. By lowering the number of Floor Originated 
Strategy Executions as part of the qualifications, Phlx believes 
additional members and member organizations may achieve these QCC 
rebates.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    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.'' \15\
---------------------------------------------------------------------------

    \15\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission 
\16\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of

[[Page 68685]]

market data fees against a challenge claiming that Congress mandated a 
cost-based approach.\17\ As the court emphasized, the Commission 
``intended in Regulation NMS that `market forces, rather than 
regulatory requirements' play a role in determining the market data . . 
. to be made available to investors and at what cost.'' \18\
---------------------------------------------------------------------------

    \16\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \17\ See NetCoalition, at 534-535.
    \18\ Id. at 537.
---------------------------------------------------------------------------

    Further, ``[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'. . . .'' \19\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
---------------------------------------------------------------------------

    \19\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Exchange's proposal to amend the qualifications for two QCC 
Rebates in Options 7, Section 4 \20\ by lowering the second 
qualification for Floor Originated Strategy Executions ``in excess of 
3,500,000 contracts'' to ``in excess of 2,500,000'' in a given month is 
reasonable because the proposed amendments to the qualifications will 
encourage Phlx members and member organizations to continue to transact 
qualifying QCC contracts and Floor Originated Strategy Executions on 
Phlx. By lowering the number of Floor Originated Strategy Executions as 
part of the qualifications, Phlx believes additional members and member 
organizations may achieve the QCC rebates. Floor Originated Strategy 
Executions are defined as a dividend, merger, short stock interest, 
reversal and conversion, jelly roll or box spread strategy as described 
in Options 7, Section 4.
---------------------------------------------------------------------------

    \20\ The Exchange proposes to amend the qualification where it 
is currently paying a rebate of $0.22 per contract, when a QCC Order 
is comprised of a Customer or Professional order on one side and a 
Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the 
other side, in the event that a member or member organization both 
executes: (1) greater than 750,000 qualifying QCC contracts in a 
given month; (2) Floor Originated Strategy Executions in excess of 
3,500,000 contracts in a given month, and (3) at least at least 40% 
of the member or member organization's QCC executed contracts in 
that month are comprised of a Lead Market Maker, Market Maker, 
Broker-Dealer, or Firm order on one side and Lead Market Maker, 
Market Maker, Broker-Dealer, or Firm order on the other side. 
Additionally, the Exchange proposes to amend the qualification where 
it is currently paying a $0.27 per contract, when a QCC Order is 
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or 
Firm order on one side and a Lead Market Maker, Market Maker, 
Broker-Dealer, or Firm order on the other side, in the event that a 
member or member organization both executes (1) greater than 750,000 
qualifying QCC contracts in a given month, (2) Floor Originated 
Strategy Executions in excess of 3,500,000 contracts in a given 
month, and (3) at least 40% of the member or member organization's 
QCC executed contracts in that month are comprised of a Lead Market 
Maker, Market Maker, Broker-Dealer, or Firm order on one side and 
Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on the 
other side.
---------------------------------------------------------------------------

    The Exchange's proposal to amend the qualifications for two QCC 
Rebates in Options 7, Section 4 by lowering the second qualification 
for Floor Originated Strategy Executions ``in excess of 3,500,000 
contracts'' to ``in excess of 2,500,000'' in a given month is equitable 
and not unfairly discriminatory because all members and member 
organizations may qualify for QCC Rebates, provided they transact the 
requisite volume.

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.
Inter-Market Competition
    The proposal does not impose an undue burden on inter-market 
competition. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice of where to transact options. 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. 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.
Intra-Market Competition
    The proposed amendments do not impose an undue burden on intra-
market competition. The Exchange's proposal to amend the qualifications 
for two QCC Rebates in Options 7, Section 4 by lowering the second 
qualification for Floor Originated Strategy Executions ``in excess of 
3,500,000 contracts'' to ``in excess of 2,500,000'' in a given month 
does not impose an undue burden on competition because all members and 
member organizations may qualify for QCC Rebates, provided they 
transact the requisite volume.

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 is effective upon filing pursuant to 
Section 19(b)(3)(A) \21\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \22\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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 under 
Section 19(b)(2)(B) \23\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-2024-40 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.


[[Page 68686]]


All submissions should refer to file number SR-Phlx-2024-40. 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-2024-40 and should be 
submitted on or before September 17, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-19151 Filed 8-26-24; 8:45 am]
BILLING CODE 8011-01-P

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