[Federal Register Volume 85, Number 75 (Friday, April 17, 2020)]
[Notices]
[Pages 21490-21493]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08087]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88626; File No. SR-Phlx-2020-19]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx's
Pricing Schedule
April 13, 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 April 3, 2020, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and III, below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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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.
Specifically, the Exchange proposes to amend rule text within Options
7, Section 8, ``Membership Fees.''
While the changes proposed herein are effective upon filing, the
Exchange has designated the amendments to become operative on May 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 21491]]
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 Options 7, Section 8, ``Membership Fees''
concerning a May 2020 credit. In addition, Phlx proposes to remove
outdated rule text.
Prior Proposal
In light of the recent closure of open outcry trading on the Phlx
Trading Floor as of March 17, 2020,\3\ Phlx waived certain floor-
related fees within Options 7, Section 8, ``Membership Fees.'' \4\
Specifically, Phlx's Prior Proposal waived: (1) A Permit Fee of $4,000
per month to Floor Brokers; \5\ (2) a Clerk \6\ Fee \7\ of $100 per
month; and (3) Streaming Quote Trader (``SQT'') \8\ Fees within Options
8, Section 8B.\9\ Phlx's 7 tier SQT Fees are as follows:
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\3\ See Options Trader Alert #2020-7.
\4\ See Securities Exchange Act Release No. 88525 (March 31,
2020) (not yet published) (SR-Phlx-2020-12) (``Prior Proposal'').
\5\ See Phlx Rules at Options 7, Section 8A.
\6\ The term ``Clerk'' means any registered on-floor person
employed by or associated with a member or member organization who
is not a member and is not eligible to effect transactions on the
Options Floor as a Lead Market Maker, Floor Market Maker, or Floor
Broker. An Inactive Nominee is deemed a Clerk. See Options 8,
Section 12(a).
\7\ 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.
\8\ 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.
\9\ The Prior Proposal also 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), within
Options 7, Section 9, for the month of April 2020 and May 2020.
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SQT Fees (per
Number of option class assignments calendar
month)
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Tier 1: Up to 200 classes............................... $0.00
Tier 2: Up to 400 classes............................... $2,200.00
Tier 3: Up to 600 classes............................... $3,200.00
Tier 4: Up to 800 classes............................... $4,200.00
Tier 5: Up to 1,000 classes............................. $5,200.00
Tier 6: Up to 1,200 classes............................. $6,200.00
Tier 7: All equity issues............................... $7,200.00
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Additionally, Phlx paid a credit to Trading Floor member
organizations of $5,000 per Clerk based on the number of Clerks those
member organizations had registered as of April 1, 2020. Phlx also
stated it would pay the aforementioned credit for the month of May
2020, in the event that open outcry trading is unavailable as of May 1,
2020 and the Clerk is registered as of May 1, 2020.
At this time, the Exchange proposes to amend Options 7, Section 8
to remove the language regarding the April 2020 waiver and credits,
which were already waived and paid, and amend the language regarding
May credits to state that Phlx will credit each member organization an
amount of $5,000 per associated person that was registered as a Clerk
as of April 1, 2020 and remains registered on May 1, 2020, in the event
that open outcry trading is unavailable as of May 1, 2020. The credit
was not intended to pay any new Clerks that registered within the time
period that open outcry was closed, rather it was intended to ensure
that Clerks continued to be registered with the Exchange during the
closure of open outcry.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 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.'' \12\
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\12\ 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
\13\ (``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.\14\ 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.'' \15\
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\13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\14\ See NetCoalition, at 534-535.
\15\ 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' . . . .'' \16\ 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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\16\ 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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The Exchange's proposal to pay a credit of $5,000 per associated
person that was registered as a Clerk as of April 1, 2020 and remains
registered as of May 1, 2020 for the month of May 2020, in the event
that open outcry trading is unavailable as of May 1, 2020, is
reasonable. The intent of the credit was to provide relief to member
organizations that are currently unable to transact options in open
outcry on the Phlx Trading Floor by paying a credit
[[Page 21492]]
for their Clerks who were registered with the Exchange. The Exchange
intended to pay a May 2020 credit to member organizations, provided
those Clerks were registered as of April 1, 2020 and were retained by
the Phlx member organizations as of May 1, 2020, in the event that open
outcry trading was unavailable as of May 1, 2020. The credit was not
intended to attract new Clerks to the Trading Floor during the closure
of open outcry. Inserting rule text to make clear the Clerks that
receive the credit had to be registered as of April 1, 2020 and remain
registered as of May 1, 2020 will achieve the goal for which the credit
was intended. Phlx believes this credit will assist member
organizations to continue to maintain their business operations during
the time period that open outcry trading is unavailable.
The Exchange's proposal to pay a credit of $5,000 per associated
person that was registered as a Clerk as of April 1, 2020 and remains
registered as of May 1, 2020 for the month of May 2020, in the event
that open outcry trading is unavailable as of May 1, 2020, is equitable
and not unfairly discriminatory. The Exchange proposes to pay all
member organizations a credit for each Clerk the firm has registered as
of April 1, 2020 and remains registered as of May 1, 2020 in a uniform
manner, in the event that open outcry trading is unavailable as of May
1, 2020. The Exchange believes that paying a credit to member
organizations for each Clerk would alleviate some of the financial
burden for each member organization. A Clerk is any registered on-floor
person employed by or associated with a member or member organization
who is not a member and is not eligible to effect transactions on the
Options Floor as a Lead Market Maker, Floor Market Maker, or Floor
Broker. As such, Clerks are employees of Phlx Trading Floor member
organizations that would not otherwise be able to transact an options
business as a Lead Market Maker, Floor Market Maker, or Floor Broker.
The Exchange believes the credit to member organizations for each Clerk
will assist member organizations in continuing to employee Clerks
during the closure of open outcry trading.
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
The proposed amendments do not impose an undue burden on intra-
market competition.
The Exchange's proposal to pay a credit of $5,000 per associated
person that was registered as a Clerk as of April 1, 2020 and remains
registered as of May 1, 2020 for the month of May 2020, in the event
that open outcry trading is unavailable as of May 1, 2020, does not
impose an undue burden on competition. The Exchange proposes to pay all
member organizations a credit for each Clerk the firm has registered as
of April 1, 2020 and remains registered as of May 1, 2020 in a uniform
manner. The Exchange believes that paying a credit to member
organizations for each Clerk would alleviate some of the financial
burden for each member organization. A Clerk is any registered on-floor
person employed by or associated with a member or member organization
who is not a member and is not eligible to effect transactions on the
Options Floor as a Lead Market Maker, Floor Market Maker, or Floor
Broker. As such, Clerks are employees of Phlx Trading Floor member
organizations that would not otherwise be able to transact an options
business as a Lead Market Maker, Floor Market Maker, or Floor Broker.
The Exchange believes the credit to member organizations for each Clerk
will assist member organizations in continuing to employee Clerks
during the closure of open outcry trading.
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.\17\
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\17\ 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-2020-19 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-2020-19. 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
[[Page 21493]]
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-2020-19 and should be submitted on or before May 8, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08087 Filed 4-16-20; 8:45 am]
BILLING CODE 8011-01-P