[Federal Register Volume 85, Number 116 (Tuesday, June 16, 2020)]
[Notices]
[Pages 36438-36442]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12904]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89041; File No. SR-Phlx-2020-28]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx
Pricing Schedule at Options 7, Section 8, Membership Fees and Options
7, Section 9, Other Member Fees
June 10, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 28, 2020, 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.
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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 8, ``Membership Fees'' and Options 7, Section 9, ``Other
Member Fees.''
While the changes proposed herein are effective upon filing, the
Exchange has designated the amendments become operative on June 1,
2020.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaqphlx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
[[Page 36439]]
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 within Options 7, Section 8,
``Membership Fees'' and Options 7, Section 9, ``Other Member Fees.''
Each change will be described below.
Credit
Phlx proposes to amend Options 7, Section 8, ``Membership Fees,''
at Part A, ``Permit and Registration Fees,'' to offer a credit of
$3,400, for the month of June 2020, to any member or member
organization on the Trading Floor if that member or member organization
was eligible for the $2,300 reduced Permit Fee as a result of having
executed at least 100 options in a Phlx house account for the months of
February and March 2020, and paid the $4,000 Permit Fee in April and
May 2020. Open outcry on the Exchange's Trading Floor was closed on
March 17, 2020 \3\ and will not re-open until June 1, 2020.\4\ The
Exchange proposes to issue the $3,400 credit to those members or member
organizations on the Trading Floor who demonstrated they did execute at
least 100 options in a Phlx house account, for the months of February
and March 2020, in order to qualify for the reduced Permit Fee of
$2,300. The Exchange believes that these members and member
organizations may have also qualified for the credit in April or May
2020, if open outcry trading was available.
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\3\ See Options Trader Alert #2020-07.
\4\ See Options Trader Alert #2020-08.
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The Exchange proposes to credit those qualifying members and member
organizations the difference ($1,700 a month) as between the $4,000 a
month Permit Fee and the reduced Permit Fee of $2,300 a month, for the
months of April and May 2020 when open outcry was not available,
provided the member or member organization is able to demonstrate that
they qualified for the credit in February and March 2020.
This credit would not be offered to Floor Brokers,\5\ Floor Lead
Market Makers, or Floor Market Makers,\6\ who are not eligible today
for a reduced Permit Fee. Also, the credit would not be offered to
member organizations who transact an electronic options business, as
those member organizations remain able to transact at least 100 options
in a Phlx house account.\7\
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\5\ See Options 7, Section 8A. Phlx assesses a Floor Broker
Permit Fee of $4,000 per month. Additionally, the Exchange proposes
to waive the Floor Broker Permit Fee for the month of June 2020 as
described below.
\6\ See Options 7, Section 8A. Phlx assesses a Floor Lead Market
Maker and Floor Market Maker Permit Fee of $6,000 per month.
\7\ Remote Lead Market Makers and Remote Market Makers access
the market electronically and are therefore excluded.
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Waivers
Today, the Exchange waives certain fees related to the Phlx Trading
Floor within Options 7, Section 8. Specifically, for the months of
April and May 2020, the Exchange waived the Floor Broker Permit Fee of
$4,000 per month to Floor Brokers.\8\ The Exchange also waived the
Clerk Fee \9\ of $100 per month. Finally, the Exchange waived the
Streaming Quote Trader (``SQT'') \10\ Fees within Options 8, Section
8B. The SQT Fees are tiered fees.\11\ Phlx's 7 tier SQT Fees \12\ are
as follows:
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\8\ See Phlx Rules at Options 7, Section 8A.
\9\ The Clerk Fee is imposed on any registered on-floor person
employed by or associated with a member or member organization
pursuant to Options 3, Section 19, including Inactive Nominees
pursuant to Options 8, Section 7. The Clerk Fee is not imposed on
permit holders. See Phlx Rules at Options 7, Section 8A.
\10\ The term ``Streaming Quote Trader'' is defined in Options
1, Section 1(b)(54) as a Market Maker who has received permission
from the Exchange to generate and submit option quotations
electronically in options to which such SQT is assigned. See Options
7, Section 1. Further, Options 1, Section 1(b)(54) provides that an
SQT means a Market Maker who has received permission from the
Exchange to generate and submit option quotations electronically in
options to which such SQT is assigned. An SQT may only submit such
quotations while such SQT is physically present on the trading floor
of the Exchange. An SQT may only submit quotes in classes of options
in which the SQT is assigned.
\11\ The Exchange notes, with respect to SQTs, that these
participants may only submit quotations while physically present on
the Trading Floor.
\12\ In calculating the number of option class assignments for
SQT Fees, equity options including ETFs and ETNs are counted.
Currencies and indexes are not counted in the number of option class
assignments.
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Number of option class
assignments SQT Fees
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Tier 1: Up to 200 classes.... $0.00 per calendar month.
Tier 2: Up to 400 classes.... 2,200 per calendar month.
Tier 3: Up to 600 classes.... 3,200.00 per calendar month.
Tier 4: Up to 800 classes.... 4,200.00 per calendar month.
Tier 5: Up to 1000 classes... 5,200.00 per calendar month.
Tier 6: Up to 1200 classes... 6,200.00 per calendar month.
Tier 7: All equity issues.... 7,200 per calendar month.
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The Exchange waived the Floor Broker Permit Fee, the Clerk Fee and
the SQT Fees, during the months of April and May 2020, to account for
the closure of open outcry trading. As noted herein, the Trading Floor
will remain closed until June 1, 2020.\13\ The Exchange proposes to
continue to waive these fees for the month of June 2020 to account for
the fact that the Trading Floor has been closed since March 17,
2020.\14\ Also, the Exchange proposes to remove obsolete language,
which was relevant in April and May 2020 regarding a credit, which is
no longer being offered.
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\13\ See note 4 above.
\14\ See note 3 above.
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Options 7, Section 9
Today, the Exchange waives certain fees related to the Phlx Trading
Floor within Options 7, Section 9. Specifically, the Exchange waived
the Floor Facility Fee of $330 per month, which is applicable Clerks
(excluding Inactive Nominees pursuant to Options 8, Section 7), Floor
Brokers, Market Makers (including SQTs) and individual Lead Market
Makers), for the months of April and May 2020. The Exchange proposes to
continue to waive the Floor Facility Fee for the month of June 2020 to
account for the fact that the Trading
[[Page 36440]]
Floor has been closed since March 17, 2020.\15\
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\15\ Id.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\16\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\17\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(4) and (5).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \18\
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\18\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission
\19\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of
a market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-based
approach.\20\ 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.'' \21\
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\19\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\20\ See NetCoalition, at 534-535.
\21\ Id. at 537.
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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' . . . .'' \22\ 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.
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\22\ 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)).
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Options 7, Section 8
Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,''
at Part A, ``Permit and Registration Fees,'' to offer a credit of
$3,400, for the month of June 2020, to any member or member
organization on the Trading Floor, if that member or member
organization was eligible for the $2,300 reduced Permit Fee as a result
of having executed at least 100 options in a Phlx house account for the
months of February and March 2020, is reasonable. Open outcry trading
was closed on March 17, 2020,\23\ and will not re-open until June 1,
2020.\24\ The Exchange proposes to issue the $3,400 credit to those
members or member organizations on the Trading Floor who demonstrated
they executed at least 100 options in a Phlx house account for the
months of February and March 2020, and paid the $4,000 Permit Fee in
April and May 2020, in order to qualify for the reduced Permit Fee of
$2,300. The Exchange believes that these members and member
organizations may have also qualified for the credit in April or May
2020, if open outcry trading were available. The Exchange proposes to
credit those qualifying member and member organizations on the Trading
Floor the difference ($1,700 per month) as between the $4,000 a month
Permit Fee and the reduced Permit Fee of $2,300 a month for the two
full months (April and May 2020) when open outcry trading was closed.
The Exchange believes it is reasonable to pay the difference based on
whether the member or member organization qualified in both the two
full prior months, when open outcry trading was unavailable. This
credit would not apply to Floor Brokers,\25\ Floor Lead Market Makers,
or Floor Market Makers, as these members do not have the ability to
qualify for a reduced Permit Fee today. The credit would also not apply
to members accessing Phlx electronically.\26\
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\23\ See note 3 above.
\24\ See note 4 above.
\25\ The Floor Broker Permit Fee was waived in April and May
2020. The Exchange proposes herein to also waive that fee for June
2020.
\26\ Remote Lead Market Makers and Remote Market Makers access
the market electronically and are therefore excluded.
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Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,''
at Part A, ``Permit and Registration Fees,'' to offer a credit of
$3,400, for the month of June 2020, to any member or member
organization on the Trading Floor, if that member or member
organization was eligible for the $2,300 reduced Permit Fee as a result
of having executed at least 100 options in a Phlx house account for the
months of February and March 2020 and paid the $4,000 Permit Fee in
April and May 2020, is equitable and not unreasonably discriminatory.
The Exchange proposes to uniformly offer all Trading Floor members and
member organizations who currently pay the $4,000 Permit Fee, a credit
of $3,400, provided they executed at least 100 options in a Phlx house
account for the months of February and March 2020, and paid the $4,000
Permit Fee in April and May 2020. The Exchange notes that it is
equitable and not unfairly discriminatory to not offer the credit to
Floor Brokers, Floor Lead Market Makers, or Floor Market Makers as
these members do not have the ability to qualify for a reduced Permit
Fee today.\27\ Also, it is equitable and not unfairly discriminatory to
not offer the credit to member organizations who transact an electronic
options business, as those member organizations remain able to transact
at least 100 options in a Phlx house account.\28\
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\27\ The Floor Broker Permit Fee is proposed to be waived for
the month of June 2020.
\28\ Remote Lead Market Makers and Remote Market Makers access
the market electronically and are therefore excluded.
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Fee Waivers
The Exchange's proposal to waive the Floor Broker Permit Fee, the
Clerk Fee, SQT Fee and the Floor Facility Fee, during the month of June
2020, is reasonable as open outcry on the Phlx Trading Floor has not
been available since March 17, 2020.\29\ The Exchange's proposal to
waive these fees, which apply to transacting an options business on the
Trading Floor, is intended to alleviate costs for member organizations
in consideration of their inability to transact options in open outcry
on the Phlx Trading Floor since March 17, 2020.
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\29\ See note 3 above.
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The Exchange's proposal to waive the Floor Broker Permit Fee, the
Clerk Fee, SQT Fee and the Floor Facility Fee, during the month of June
2020, is equitable and not unfairly discriminatory as the Exchange will
apply these proposed waivers uniformly to all member organizations on
the Trading Floor. Phlx continues to permit
[[Page 36441]]
electronic trading and, therefore, fees associated with electronic
trading have not been waived.
Obsolete Text
The Exchange's proposal to remove obsolete language from Options 7,
Section 8, related to an obsolete credit is reasonable, equitable and
not unfairly discriminatory as the credit is no longer applicable. No
member or member organization may obtain the credit.
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 that have been exempted from compliance with the statutory
standards applicable to exchanges. Because competitors are free to
modify their own fees in response, and because market participants may
readily adjust their order routing practices, the Exchange believes
that the degree to which fee changes in this market may impose any
burden on competition is extremely limited.
Intra-Market Competition
Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,''
at Part A, ``Permit and Registration Fees,'' to offer a credit of
$3,400, for the month of June 2020, to any member or member
organization on the Trading Floor, if that member or member
organization was eligible for the $2,300 reduced Permit Fee as a result
of having executed at least 100 options in a Phlx house account for the
months of February and March 2020, and paid the $4,000 Permit Fee in
April and May 2020, does not impose an undue burden on competition. The
Exchange would uniformly offer all Trading Floor members and member
organizations who currently pay the $4,000 Permit Fee, a credit of
$3,400, provided they executed at least 100 options in a Phlx house
account for the months of February and March 2020, and paid the $4,000
Permit Fee in April and May 2020. The Exchange notes that it does not
impose an undue burden on competition to not offer the credit to Floor
Brokers, Floor Lead Market Makers, or Floor Market Makers as these
members do not have the ability to qualify for a reduced Permit Fee
today.\30\ Also, it does not impose an undue burden on competition to
not offer the credit to member organizations who transact an electronic
options business, as those member organizations remain able to transact
at least 100 options in a Phlx house account.\31\
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\30\ The Floor Broker Permit Fee is proposed to be waived for
the month of June 2020.
\31\ Remote Lead Market Makers and Remote Market Makers access
the market electronically and are therefore excluded.
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The Exchange's proposal to waive the Floor Broker Permit Fee, the
Clerk Fee, SQT Fee and the Floor Facility Fee during the month of June
2020 does not impose an undue burden on competition as the Exchange
will apply these proposed waivers uniformly to all member organizations
on the Trading Floor. Phlx continues to permit electronic trading and
therefore fees associated with electronic trading have not been waived.
The Exchange's proposal to remove obsolete language from Options 7,
Section 8, related to an obsolete credit, does not impose an undue
burden on competition as the credit is no longer applicable. No member
or member organization may obtain the credit.
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.\32\
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\32\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-Phlx-2020-28 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-2020-28. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-Phlx-2020-28 and should be submitted on
or before July 7, 2020.
[[Page 36442]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12904 Filed 6-15-20; 8:45 am]
BILLING CODE 8011-01-P