Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 9, 88326-88329 [2024-25838]

Download as PDF 88326 Federal Register / Vol. 89, No. 216 / Thursday, November 7, 2024 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.32 Vanessa A. Countryman, Secretary. [FR Doc. 2024–25837 Filed 11–6–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101498; File No. SR–Phlx– 2024–55] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, Section 9 November 1, 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 October 18, 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. 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. While these amendments are effective upon filing, the Exchange has designated the proposed amendments to be operative on January 1, 2025. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/phlx/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. lotter on DSK11XQN23PROD with NOTICES1 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set 32 17 CFR 200.30–3(a)(12), (59). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 18:15 Nov 06, 2024 Jkt 265001 forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend the Exchange’s SQF Port Fee and SQF Purge Port Fee. Specifically, the Exchange proposes to raise its SQF Port Fee and SQF Purge Port Fee in Options 7, Section 9, B by 10%. 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.3 With this proposal, Phlx would assess Market Makers $1,375 per port, per month (a 10% increase from $1,250) up to a maximum of $46,200 per month (a 10% increase from $42,000). Also, today, Phlx assesses $500 per port, per month for each of the first 5 SQF Purge Ports and $100 per port, per month for each port thereafter. With this proposal, Phlx would assess Market Makers $550 per port, per month for each of the first 5 SQF Purge Ports (a 10% increase from $500) and $110 per port, per month for each port thereafter (a 10% increase from $100).4 The proposed SQF Port Fee and SQF Purge Port Fee increases would enable the Exchange to maintain and improve its market technology and services to remain competitive with its peers. Over the years, customer demand for risk protections and capacity has increased. The Exchange continues to invest in maintaining, improving, and enhancing its port protocols—for the benefit and often at the behest of its customers. Such enhancements include refreshing hardware, upgrading risk protections and information security, and offering customers additional capacity. The Exchange has not increased Phlx’s SQF Port Fee since 2015,5 and has not increased its SQF Purge Port Fee since 3 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. 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. 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. 4 Phlx proposes to add commas between per port and per month on the Pricing Schedule for the SQF Purge Port Fee. 5 See Securities Exchange Act Release No. 74833 (April 29, 2015), 80 FR 25749 (May 5, 2015) (SR– Phlx–2015–36). PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 2016 6 where inflation has been between roughly 15%–16%, as measured using the metric described below. Nevertheless, the Exchange proposes to increase its SQF Port Fee by 10%, only with respect to inflation that has occurred since 2015, and its SQF Purge Port Fee by 10%, only with respect to inflation that has occurred since 2016. Further, the Exchange also proposes to increase the maximum monthly fee that may be assessed for an SQF Port by 10% so as to align with the increase to the SQF Port Fee. As discussed below, the Exchange proposes to adjust its fees by an industry- and product-specific inflationary measure. It is reasonable and consistent with the Act for the Exchange to recoup its investments, at least in part, by adjusting its fees. Continuing to operate at fees frozen at 2015 and 2016 levels, respectively, impacts the Exchange’s ability to enhance its offerings and the interests of market participants and investors. The fee increases the Exchange proposes are based on an industryspecific Producer Price Index (‘‘PPI’’), which is a tailored measure of inflation.7 As a general matter, the Producer Price Index is a family of indexes that measures the average change over time in selling prices received by domestic producers of goods and services. PPI measures price change from the perspective of the seller. This contrasts with other metrics, such as the Consumer Price Index (‘‘CPI’’), that measure price change from the purchaser’s perspective.8 About 10,000 PPIs for individual products and groups of products are tracked and released each month.9 PPIs are available for the output of nearly all industries in the goods-producing sectors of the U.S. economy—mining, manufacturing, agriculture, fishing, and forestry—as well as natural gas, electricity, and construction, among others. The PPI program covers approximately 69 percent of the service sector’s output, as measured by revenue reported in the 2017 Economic Census. For purposes of this proposal, the relevant industry-specific PPI is the Hosting, Activer Server Pages, and Other IT Infrastructure Provisioning Services (‘‘Data PPI’’) within the Data Processing and Related Services Industry, which is an industry netoutput PPI that measures the average 6 See Securities Exchange Act Release No. 77613 (April 13, 2016), 81 FR 23023 (April 19, 2016) (SR– Phlx–2016–45). 7 See https://data.bls.gov/timeseries/ PCU5182105182105. 8 See https://www.bls.gov/ppi/overview.htm. 9 See Id. E:\FR\FM\07NON1.SGM 07NON1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 89, No. 216 / Thursday, November 7, 2024 / Notices change in selling prices received by companies that provide data processing services. The Data Processing and Related Services industry was introduced to the PPI in January 2002 by the Bureau of Labor Statistics (‘‘BLS’’) as part of an ongoing effort to expand Producer Price Index coverage of the services sector of the U.S. economy and is identified as NAICS–518210 in the North American Industry Classification System.10 According to the BLS ‘‘[t]he primary output of NAICS 518210 is the provision of electronic data processing services. In the broadest sense, computer services companies help their customers efficiently use technology. The processing services market consists of vendors who use their own computer systems—often utilizing proprietary software—to process customers’ transactions and data. Companies that offer processing services collect, organize, and store a customer’s transactions and other data for recordkeeping purposes. Price movements for the NAICS 518210 index are based on changes in the revenue received by companies that provide data processing services. Each month, companies provide net transaction prices for a specified service. The transaction is an actual contract selected by probability, where the price-determining characteristics are held constant while the service is repriced. The prices used in index calculation are the actual prices billed for the selected service contract.’’ 11 The Exchange believes the Data PPI is the most appropriate subset of the Data Processing and Related services industry to be considered in the context of the proposed rule change to modify the SQF Port Fee and the SQF Purge Port Fee because the Exchange uses its ‘‘proprietary software,’’ i.e., its own proprietary matching engine software, respectively, to receive options quotes on the Exchange’s proprietary trading platform. For purposes of this proposed rule change, with respect to the SQF Port Fee, the Exchange examined the Data PPI value for the period from April 2015 to August 2024. The Data PPI had a starting value of 101.0 in April 2015 and an ending value of 116.445 in August 2024, a 15.29% increase. For purposes of this proposed rule change, with respect to the SQF Purge Port Fee, the Exchange examined the Data PPI value 10 See https://data.bls.gov/timeseries/ PCU5182105182105. 11 See https://www.bls.gov/ppi/factsheets/ producer-price-index-for-the-data-processing-andrelated-servicesindustry-naics-518210.htm. VerDate Sep<11>2014 18:15 Nov 06, 2024 Jkt 265001 for the period from April 2016 to August 2024. The Data PPI had a starting value of 100.4 in April 2016 and an ending value of 116.445 in August 2024, a 15.98% increase. This data indicates that companies who are also in the data storage and processing business have generally increased prices for a specified service covered under NAICS 518210 by an average of 15.29% and 15.98%, respectively, during this period. Based on that percentage change, the Exchange proposes to make a one-time fee increase of only 10%, which reflects an increase covering roughly the entire period since the last price adjustment to the SQF Port Fee and the SQF Purge Port Fee was made. Additionally, the Exchange proposes to increase the maximum monthly fee that may be assessed for an SQF Port by 10% so as to align with the increase to the SQF Port Fee. The Exchange further believes the Data PPI is an appropriate measure for purposes of the proposed rule change on the basis that it is a stable metric with limited volatility, unlike other consumer-side inflation metrics. In fact, the Data PPI has not experienced a greater than 2.16% increase for any one calendar year period since Data PPI was introduced into the PPI in January 2002. The average calendar year change from January 2002 to December 2023 was .62%, with a cumulative increase of 15.67% over this 21-year period. The Exchange believes the Data PPI is considerably less volatile than other inflation metrics such as CPI, which has had individual calendar-year increases of more than 6.5%, and a cumulative increase of over 73% over the same period.12 The Exchange believes the Data PPI, and significant investments into, and enhanced performance of, the Exchange support the reasonableness of the proposed fee increases.13 As a technical amendment, the Exchange proposes to add the words ‘‘active port’’ in parenthesis at the end of the description of the SQF Port Fee to tie the definition of an active port to the description for the port. 12 See https://www.usinflationcalculator.com/. supra discussion of SQF Port and SQF Purge Port enhancements. Additionally, other exchanges have filed for increases in certain fees, based in part on comparisons to inflation. See, e.g., Securities Exchange Act Release Nos. 34–100004 (April 22, 2024), 89 FR 32465 (April 26, 2024) (SR– CboeBYX–2024–012); and 34–100398 (June 21, 2024), 89 FR 53676 (June 27, 2024) (SR–BOX–2024– 16)l; Securities Exchange Act Release No. 34– 100994 (September 10, 2024), 89 FR 75612 (September 16, 2024) (SR–NYSEARCA–2024–79). 13 See PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 88327 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,14 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,15 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. This belief is based on two factors. First, the current fees do not properly reflect the quality of the SQF Ports and SQF Purge Ports, as the SQF Port Fee and SQF Purge Port Fee has been static in nominal terms, and therefore falling in real terms due to inflation. Second, the Exchange believes that investments made in enhancing the risk protections and capacity of SQF Ports and SQF Purge Ports has increased the performance of these ports. The Proposed Rule Change Is Reasonable As noted above, the Exchange has not increased any of the fees included in the proposal since 2015 and 2016, respectively. However, in the years following the last fee increases, the Exchange has made significant investments in upgrades to its SQF Ports and SQF Purge Ports, enhancing the quality of its services, as measured by, among other things, increased capacity. In other words, Exchange customers have greatly benefitted, while the Exchange’s ability to recoup its investments has been hampered. Between 2015 and 2024, the inflation rate is 3.22% per year, on average, producing a cumulative inflation rate of 33.03%.16 Also, between 2016 and 2024, the inflation rate is 3.47% per year, on average, producing a cumulative inflation rate of 31.37%.17 Using the more targeted inflation number of Data PPI, the cumulative inflation rate was 15.29% between 2015 and 2024, and 15.98% between 2016 and 2024. The Exchange believes the Data PPI is a reasonable metric to base this fee increase on because it is targeted to producer-side increases in the data processing industry, which based on the definition adopted by BLS would include the Exchange’s port protocols. Notwithstanding inflation, as noted above, the Exchange has not increased 14 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 16 See https://www.officialdata.org/us/inflation/ 2015?amount=1. 17 See https://www.officialdata.org/us/inflation/ 2015?amount=1. 15 15 E:\FR\FM\07NON1.SGM 07NON1 88328 Federal Register / Vol. 89, No. 216 / Thursday, November 7, 2024 / Notices lotter on DSK11XQN23PROD with NOTICES1 its fees at all for over eight and nine years, respectively, for the subject services. The proposed SQF Port Fee and SQF Purge Port Fee represent a modest increase from the current SQF Port Fee and SQF Purge Port Fee. Further, the proposed increase to the maximum monthly fee for an SQF Port aligns with the increase to the SQF Port Fee. The Exchange believes the proposed SQF Port Fee and SQF Purge Port Fee increases are reasonable in light of the Exchange’s continued expenditure in maintaining a robust technology ecosystem. Furthermore, the Exchange continues to invest in maintaining and enhancing its port products—for the benefit and often at the behest of its customers and global investors. Such enhancements include refreshing several aspects of the technology ecosystem including software, hardware, and network while introducing new and innovative products. The goal of the enhancements discussed above, among other things, is to provide more modern connectivity to the match engine. Accordingly, the Exchange continues to expend resources to innovate and modernize its technology so that it may benefit its members in offering SQF Ports and SQF Purge Ports. The Proposed Fees Are Equitably Allocated and Not Unfairly Discriminatory The Exchange also believes that the proposed fee increases are equitably allocated and not unfairly discriminatory because they would apply to all Market Makers uniformly. Market Makers are the only market participants that are assessed the SQF Port Fee and SQF Purge Port Fee because they are the only market participants that are permitted to quote on the Exchange.18 These liquidity providers are critical market participants in that they are the only market participants that provide liquidity to the Exchange on a continuous basis. SQF Ports and SQF Purge Ports are only utilized in a Market Maker’s assigned options series. The Exchange believes that the proposed fee increases are equitably allocated and not unfairly discriminatory because they would apply uniformly to all Market Makers that subscribe to SQF Ports and SQF Purge Ports to quote on the Exchange. The Exchange also believes that the proposal represents an equitable allocation of reasonable dues, fees and other charges because Exchange fees 18 Unlike other market participants, Market Makers are subject to market making and quoting obligations. See Options 2, Sections 4 and 5. VerDate Sep<11>2014 18:15 Nov 06, 2024 Jkt 265001 have fallen in real terms during the relevant period. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed fees will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Intramarket Competition The Exchange believes that the proposed fees do not impose an undue burden on intramarket competition because they would apply to all Market Makers uniformly. Market Makers are the only market participants that are assessed an SQF Port Fee and an SQF Purge Port Fee because they are the only market participants that are permitted to quote on the Exchange.19 These liquidity providers are critical market participants in that they are the only market participants that provide liquidity to the Exchange on a continuous basis. SQF Ports and SQF Purge Ports are only utilized in a Market Maker’s assigned options series. The Exchange believes that the proposed fee increases are equitably allocated and not unfairly discriminatory because they would apply uniformly to all Market Makers that subscribe to SQF Ports and SQF Purge Ports to quote on the Exchange. The Exchange believes that the proposed fees do not impose an undue burden on intermarket competition or on other SROs that is not necessary or appropriate. In determining the proposed fees, the Exchange utilized an objective and stable metric with limited volatility. Utilizing Data PPI over a specified period of time is a reasonable means of recouping the Exchange’s investment in SQF Ports and SQF Purge Ports. The Exchange believes utilizing Data PPI, a tailored measure of inflation, to increase the SQF Port Fee and SQF Purge Port Fee to recoup the Exchange’s investment in maintaining and enhancing SQF Ports and SQF Purge Ports does not impose a burden on competition. 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. 19 Unlike other market participants, Market Makers are subject to market making and quoting obligations. See Options 2, Sections 4 and 5. Frm 00099 Fmt 4703 Sfmt 4703 The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.20 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– Phlx–2024–55 on the subject line. Paper Comments Intermarket Competition PO 00000 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action • 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–2024–55. 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, 20 15 E:\FR\FM\07NON1.SGM U.S.C. 78s(b)(3)(A)(ii). 07NON1 Federal Register / Vol. 89, No. 216 / Thursday, November 7, 2024 / Notices 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–2024–55 and should be submitted on or before November 29, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Vanessa A. Countryman, Secretary. [FR Doc. 2024–25838 Filed 11–6–24; 8:45 am] SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Increase the Exchange’s SQF Fees in Options 7, Section 6 November 1, 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 October 18, 2024, Nasdaq MRX, LLC (‘‘MRX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. lotter on DSK11XQN23PROD with NOTICES1 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to increase the Exchange’s port fees in Options 7, Section 6. While these amendments are effective upon filing, the Exchange has designated the proposed amendments to be operative on January 1, 2025. CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. VerDate Sep<11>2014 18:15 Nov 06, 2024 Jkt 265001 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. 1. Purpose [Release No. 34–101499; File No. SR–MRX– 2024–42] 1 15 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P 21 17 The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/mrx/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. The purpose of the proposed rule change is to increase the Exchange’s connectivity fees in Options 7, Section 6 for the Specialized Quote Feed (‘‘SQF’’) Ports 3 and SQF Purge Ports 4 by 4%. Options 7, Section 6(i) includes the Exchange’s fees that relate to the SQF Ports and SQF Purge Ports that Market Makers 5 use to connect to the Exchange. Today, the Exchange assesses all Market Makers an SQF Port fee of $1,250 per port per month and an SQF Purge Port 3 ‘‘Specialized Quote Feed’’ or ‘‘SQF’’ is an interface that allows Market Makers to connect, send, and receive messages related to quotes, Immediate-or-Cancel Orders, and auction responses to the Exchange. Features include the following: (1) options symbol directory messages (e.g., underlying 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. Market Makers may only enter interest into SQF in their assigned options series. Immediate-or-Cancel Orders entered into SQF are not subject to the Order Price Protection, Market Order Spread Protection, and Size Limitation Protection in Options 3, Section 15(a)(1)(A), (1)(B), and (2)(B) respectively. See Supplementary Material .03(c) to Options 3, Section 7. 4 The SQF Purge Interface only receives and notifies of purge requests from the Market Maker. See Supplementary Material .03(c) to Options 3, Section 7. 5 The term ‘‘Market Makers’’ refers to ‘‘Competitive Market Makers’’ and ‘‘Primary Market Makers’’ collectively. See Options 1, Section 1(a)(21). PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 88329 Fee of $1,250 per port per month.6 In addition, the SQF and the SQF Purge Ports are currently subject to a monthly cap (‘‘SQF Fee Cap’’) of $17,500, which is applicable to Market Makers. The Exchange now proposes to increase the foregoing pricing by 4%. As amended, the SQF Port and SQF Purge Port fees would each become $1,300 per port per month. The amended SQF Fee Cap would likewise increase by 4% to $18,200. The proposed pricing increases would enable the Exchange to maintain and improve its market technology and services to remain competitive with its peers. Over the years, customer demand for risk protections and capacity has increased. The Exchange continues to invest in maintaining, improving, and enhancing its protocols like SQF Ports and SQF Purge Ports for the benefit and often at the behest of its customers. Such enhancements include refreshing hardware, upgrading risk protections and information security, and offering customers additional capacity. Nevertheless, the Exchange has not increased the fees for SQF Ports and SQF Purge Ports, or the SQF Fee Cap, since 2022 7 (where inflation has been around 4.3%, as measured using the metric described below). Nevertheless, the Exchange proposes to increase its SQF and SQF Purge Port fees by only 4%. Further, the Exchange proposes to increase the SQF Fee Cap by 4% to align with the foregoing fee increases. As discussed below, the Exchange proposes to adjust its pricing by an industry- and product-specific inflationary measure. It is reasonable and consistent with the Act for the Exchange to recoup its investments, at least in part, by adjusting its pricing. Continuing to operate at pricing frozen at 2022 levels impacts the Exchange’s ability to enhance its offerings and the interests of market participants and investors. The pricing increases the Exchange proposes are based on an industryspecific Producer Price Index (‘‘PPI’’), which is a tailored measure of inflation.8 As a general matter, the Producer Price Index is a family of indexes that measures the average change over time in selling prices 6 The Exchange waives one SQF Port fee per Market Maker per month. See Options 7, Section 6, note 4. 7 See Securities Exchange Act Release No. 96824 (February 7, 2023), 88 FR 8975 (February 10, 2023) (SR–MRX–2023–05). As noted in SR–MRX–2023– 05, the Exchange initially filed the proposed pricing changes on May 2, 2022 (SR–MRX–2022–04) and subsequently withdrew and replaced multiple times until SR–MRX–2023–05. 8 See https://data.bls.gov/timeseries/ PCU5182105182105. E:\FR\FM\07NON1.SGM 07NON1

Agencies

[Federal Register Volume 89, Number 216 (Thursday, November 7, 2024)]
[Notices]
[Pages 88326-88329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25838]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101498; File No. SR-Phlx-2024-55]


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

November 1, 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 October 18, 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.
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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 Options 7, Section 9.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on January 1, 2025.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
SQF Port Fee and SQF Purge Port Fee. Specifically, the Exchange 
proposes to raise its SQF Port Fee and SQF Purge Port Fee in Options 7, 
Section 9, B by 10%.
    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.\3\ With this proposal, Phlx would assess Market 
Makers $1,375 per port, per month (a 10% increase from $1,250) up to a 
maximum of $46,200 per month (a 10% increase from $42,000). Also, 
today, Phlx assesses $500 per port, per month for each of the first 5 
SQF Purge Ports and $100 per port, per month for each port thereafter. 
With this proposal, Phlx would assess Market Makers $550 per port, per 
month for each of the first 5 SQF Purge Ports (a 10% increase from 
$500) and $110 per port, per month for each port thereafter (a 10% 
increase from $100).\4\
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    \3\ 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. 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. 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.
    \4\ Phlx proposes to add commas between per port and per month 
on the Pricing Schedule for the SQF Purge Port Fee.
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    The proposed SQF Port Fee and SQF Purge Port Fee increases would 
enable the Exchange to maintain and improve its market technology and 
services to remain competitive with its peers. Over the years, customer 
demand for risk protections and capacity has increased. The Exchange 
continues to invest in maintaining, improving, and enhancing its port 
protocols--for the benefit and often at the behest of its customers. 
Such enhancements include refreshing hardware, upgrading risk 
protections and information security, and offering customers additional 
capacity. The Exchange has not increased Phlx's SQF Port Fee since 
2015,\5\ and has not increased its SQF Purge Port Fee since 2016 \6\ 
where inflation has been between roughly 15%-16%, as measured using the 
metric described below. Nevertheless, the Exchange proposes to increase 
its SQF Port Fee by 10%, only with respect to inflation that has 
occurred since 2015, and its SQF Purge Port Fee by 10%, only with 
respect to inflation that has occurred since 2016. Further, the 
Exchange also proposes to increase the maximum monthly fee that may be 
assessed for an SQF Port by 10% so as to align with the increase to the 
SQF Port Fee.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 74833 (April 29, 
2015), 80 FR 25749 (May 5, 2015) (SR-Phlx-2015-36).
    \6\ See Securities Exchange Act Release No. 77613 (April 13, 
2016), 81 FR 23023 (April 19, 2016) (SR-Phlx-2016-45).
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    As discussed below, the Exchange proposes to adjust its fees by an 
industry- and product-specific inflationary measure. It is reasonable 
and consistent with the Act for the Exchange to recoup its investments, 
at least in part, by adjusting its fees. Continuing to operate at fees 
frozen at 2015 and 2016 levels, respectively, impacts the Exchange's 
ability to enhance its offerings and the interests of market 
participants and investors.
    The fee increases the Exchange proposes are based on an industry-
specific Producer Price Index (``PPI''), which is a tailored measure of 
inflation.\7\ As a general matter, the Producer Price Index is a family 
of indexes that measures the average change over time in selling prices 
received by domestic producers of goods and services. PPI measures 
price change from the perspective of the seller. This contrasts with 
other metrics, such as the Consumer Price Index (``CPI''), that measure 
price change from the purchaser's perspective.\8\ About 10,000 PPIs for 
individual products and groups of products are tracked and released 
each month.\9\ PPIs are available for the output of nearly all 
industries in the goods-producing sectors of the U.S. economy--mining, 
manufacturing, agriculture, fishing, and forestry--as well as natural 
gas, electricity, and construction, among others. The PPI program 
covers approximately 69 percent of the service sector's output, as 
measured by revenue reported in the 2017 Economic Census.
---------------------------------------------------------------------------

    \7\ See https://data.bls.gov/timeseries/PCU5182105182105.
    \8\ See https://www.bls.gov/ppi/overview.htm.
    \9\ See Id.
---------------------------------------------------------------------------

    For purposes of this proposal, the relevant industry-specific PPI 
is the Hosting, Activer Server Pages, and Other IT Infrastructure 
Provisioning Services (``Data PPI'') within the Data Processing and 
Related Services Industry, which is an industry net-output PPI that 
measures the average

[[Page 88327]]

change in selling prices received by companies that provide data 
processing services.
    The Data Processing and Related Services industry was introduced to 
the PPI in January 2002 by the Bureau of Labor Statistics (``BLS'') as 
part of an ongoing effort to expand Producer Price Index coverage of 
the services sector of the U.S. economy and is identified as NAICS-
518210 in the North American Industry Classification System.\10\ 
According to the BLS ``[t]he primary output of NAICS 518210 is the 
provision of electronic data processing services. In the broadest 
sense, computer services companies help their customers efficiently use 
technology. The processing services market consists of vendors who use 
their own computer systems--often utilizing proprietary software--to 
process customers' transactions and data. Companies that offer 
processing services collect, organize, and store a customer's 
transactions and other data for record-keeping purposes. Price 
movements for the NAICS 518210 index are based on changes in the 
revenue received by companies that provide data processing services. 
Each month, companies provide net transaction prices for a specified 
service. The transaction is an actual contract selected by probability, 
where the price-determining characteristics are held constant while the 
service is repriced. The prices used in index calculation are the 
actual prices billed for the selected service contract.'' \11\
---------------------------------------------------------------------------

    \10\ See https://data.bls.gov/timeseries/PCU5182105182105.
    \11\ See https://www.bls.gov/ppi/factsheets/producer-price-index-for-the-data-processing-and-related-servicesindustry-naics-518210.htm.
---------------------------------------------------------------------------

    The Exchange believes the Data PPI is the most appropriate subset 
of the Data Processing and Related services industry to be considered 
in the context of the proposed rule change to modify the SQF Port Fee 
and the SQF Purge Port Fee because the Exchange uses its ``proprietary 
software,'' i.e., its own proprietary matching engine software, 
respectively, to receive options quotes on the Exchange's proprietary 
trading platform.
    For purposes of this proposed rule change, with respect to the SQF 
Port Fee, the Exchange examined the Data PPI value for the period from 
April 2015 to August 2024. The Data PPI had a starting value of 101.0 
in April 2015 and an ending value of 116.445 in August 2024, a 15.29% 
increase. For purposes of this proposed rule change, with respect to 
the SQF Purge Port Fee, the Exchange examined the Data PPI value for 
the period from April 2016 to August 2024. The Data PPI had a starting 
value of 100.4 in April 2016 and an ending value of 116.445 in August 
2024, a 15.98% increase. This data indicates that companies who are 
also in the data storage and processing business have generally 
increased prices for a specified service covered under NAICS 518210 by 
an average of 15.29% and 15.98%, respectively, during this period. 
Based on that percentage change, the Exchange proposes to make a one-
time fee increase of only 10%, which reflects an increase covering 
roughly the entire period since the last price adjustment to the SQF 
Port Fee and the SQF Purge Port Fee was made. Additionally, the 
Exchange proposes to increase the maximum monthly fee that may be 
assessed for an SQF Port by 10% so as to align with the increase to the 
SQF Port Fee.
    The Exchange further believes the Data PPI is an appropriate 
measure for purposes of the proposed rule change on the basis that it 
is a stable metric with limited volatility, unlike other consumer-side 
inflation metrics. In fact, the Data PPI has not experienced a greater 
than 2.16% increase for any one calendar year period since Data PPI was 
introduced into the PPI in January 2002. The average calendar year 
change from January 2002 to December 2023 was .62%, with a cumulative 
increase of 15.67% over this 21-year period. The Exchange believes the 
Data PPI is considerably less volatile than other inflation metrics 
such as CPI, which has had individual calendar-year increases of more 
than 6.5%, and a cumulative increase of over 73% over the same 
period.\12\
---------------------------------------------------------------------------

    \12\ See https://www.usinflationcalculator.com/.
---------------------------------------------------------------------------

    The Exchange believes the Data PPI, and significant investments 
into, and enhanced performance of, the Exchange support the 
reasonableness of the proposed fee increases.\13\
---------------------------------------------------------------------------

    \13\ See supra discussion of SQF Port and SQF Purge Port 
enhancements. Additionally, other exchanges have filed for increases 
in certain fees, based in part on comparisons to inflation. See, 
e.g., Securities Exchange Act Release Nos. 34-100004 (April 22, 
2024), 89 FR 32465 (April 26, 2024) (SR-CboeBYX-2024-012); and 34-
100398 (June 21, 2024), 89 FR 53676 (June 27, 2024) (SR-BOX-2024-
16)l; Securities Exchange Act Release No. 34-100994 (September 10, 
2024), 89 FR 75612 (September 16, 2024) (SR-NYSEARCA-2024-79).
---------------------------------------------------------------------------

    As a technical amendment, the Exchange proposes to add the words 
``active port'' in parenthesis at the end of the description of the SQF 
Port Fee to tie the definition of an active port to the description for 
the port.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\15\ 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.
---------------------------------------------------------------------------

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

    This belief is based on two factors. First, the current fees do not 
properly reflect the quality of the SQF Ports and SQF Purge Ports, as 
the SQF Port Fee and SQF Purge Port Fee has been static in nominal 
terms, and therefore falling in real terms due to inflation. Second, 
the Exchange believes that investments made in enhancing the risk 
protections and capacity of SQF Ports and SQF Purge Ports has increased 
the performance of these ports.
The Proposed Rule Change Is Reasonable
    As noted above, the Exchange has not increased any of the fees 
included in the proposal since 2015 and 2016, respectively. However, in 
the years following the last fee increases, the Exchange has made 
significant investments in upgrades to its SQF Ports and SQF Purge 
Ports, enhancing the quality of its services, as measured by, among 
other things, increased capacity. In other words, Exchange customers 
have greatly benefitted, while the Exchange's ability to recoup its 
investments has been hampered. Between 2015 and 2024, the inflation 
rate is 3.22% per year, on average, producing a cumulative inflation 
rate of 33.03%.\16\ Also, between 2016 and 2024, the inflation rate is 
3.47% per year, on average, producing a cumulative inflation rate of 
31.37%.\17\ Using the more targeted inflation number of Data PPI, the 
cumulative inflation rate was 15.29% between 2015 and 2024, and 15.98% 
between 2016 and 2024. The Exchange believes the Data PPI is a 
reasonable metric to base this fee increase on because it is targeted 
to producer-side increases in the data processing industry, which based 
on the definition adopted by BLS would include the Exchange's port 
protocols.
---------------------------------------------------------------------------

    \16\ See https://www.officialdata.org/us/inflation/2015?amount=1.
    \17\ See https://www.officialdata.org/us/inflation/2015?amount=1.
---------------------------------------------------------------------------

    Notwithstanding inflation, as noted above, the Exchange has not 
increased

[[Page 88328]]

its fees at all for over eight and nine years, respectively, for the 
subject services. The proposed SQF Port Fee and SQF Purge Port Fee 
represent a modest increase from the current SQF Port Fee and SQF Purge 
Port Fee. Further, the proposed increase to the maximum monthly fee for 
an SQF Port aligns with the increase to the SQF Port Fee. The Exchange 
believes the proposed SQF Port Fee and SQF Purge Port Fee increases are 
reasonable in light of the Exchange's continued expenditure in 
maintaining a robust technology ecosystem. Furthermore, the Exchange 
continues to invest in maintaining and enhancing its port products--for 
the benefit and often at the behest of its customers and global 
investors. Such enhancements include refreshing several aspects of the 
technology ecosystem including software, hardware, and network while 
introducing new and innovative products. The goal of the enhancements 
discussed above, among other things, is to provide more modern 
connectivity to the match engine. Accordingly, the Exchange continues 
to expend resources to innovate and modernize its technology so that it 
may benefit its members in offering SQF Ports and SQF Purge Ports.
The Proposed Fees Are Equitably Allocated and Not Unfairly 
Discriminatory
    The Exchange also believes that the proposed fee increases are 
equitably allocated and not unfairly discriminatory because they would 
apply to all Market Makers uniformly. Market Makers are the only market 
participants that are assessed the SQF Port Fee and SQF Purge Port Fee 
because they are the only market participants that are permitted to 
quote on the Exchange.\18\ These liquidity providers are critical 
market participants in that they are the only market participants that 
provide liquidity to the Exchange on a continuous basis. SQF Ports and 
SQF Purge Ports are only utilized in a Market Maker's assigned options 
series. The Exchange believes that the proposed fee increases are 
equitably allocated and not unfairly discriminatory because they would 
apply uniformly to all Market Makers that subscribe to SQF Ports and 
SQF Purge Ports to quote on the Exchange. The Exchange also believes 
that the proposal represents an equitable allocation of reasonable 
dues, fees and other charges because Exchange fees have fallen in real 
terms during the relevant period.
---------------------------------------------------------------------------

    \18\ Unlike other market participants, Market Makers are subject 
to market making and quoting obligations. See Options 2, Sections 4 
and 5.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed fees will impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Intramarket Competition
    The Exchange believes that the proposed fees do not impose an undue 
burden on intramarket competition because they would apply to all 
Market Makers uniformly. Market Makers are the only market participants 
that are assessed an SQF Port Fee and an SQF Purge Port Fee because 
they are the only market participants that are permitted to quote on 
the Exchange.\19\ These liquidity providers are critical market 
participants in that they are the only market participants that provide 
liquidity to the Exchange on a continuous basis. SQF Ports and SQF 
Purge Ports are only utilized in a Market Maker's assigned options 
series. The Exchange believes that the proposed fee increases are 
equitably allocated and not unfairly discriminatory because they would 
apply uniformly to all Market Makers that subscribe to SQF Ports and 
SQF Purge Ports to quote on the Exchange.
---------------------------------------------------------------------------

    \19\ Unlike other market participants, Market Makers are subject 
to market making and quoting obligations. See Options 2, Sections 4 
and 5.
---------------------------------------------------------------------------

Intermarket Competition
    The Exchange believes that the proposed fees do not impose an undue 
burden on intermarket competition or on other SROs that is not 
necessary or appropriate. In determining the proposed fees, the 
Exchange utilized an objective and stable metric with limited 
volatility. Utilizing Data PPI over a specified period of time is a 
reasonable means of recouping the Exchange's investment in SQF Ports 
and SQF Purge Ports. The Exchange believes utilizing Data PPI, a 
tailored measure of inflation, to increase the SQF Port Fee and SQF 
Purge Port Fee to recoup the Exchange's investment in maintaining and 
enhancing SQF Ports and SQF Purge Ports does not impose a burden on 
competition.

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.\20\
---------------------------------------------------------------------------

    \20\ 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:

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-2024-55 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-2024-55. 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,

[[Page 88329]]

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-2024-55 and should be 
submitted on or before November 29, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-25838 Filed 11-6-24; 8:45 am]
BILLING CODE 8011-01-P
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