[Federal Register Volume 85, Number 135 (Tuesday, July 14, 2020)]
[Notices]
[Pages 42459-42462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15112]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89256; File No. SR-Phlx-2020-33]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Phlx's
Pricing Schedule To Waive Certain Fees
July 8, 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 June 25, 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 at Options
7, Section 8, ``Membership Fees'' and Options 7, Section 9, ``Other
Member Fees.'' Phlx also proposes other technical amendments to various
sections of Options 7.
While the changes proposed herein are effective upon filing, the
Exchange has designated the amendments become operative on July 1,
2020.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Phlx proposes to amend its pricing within Options 7, Section 8,
``Membership Fees'' and Options 7, Section 9, ``Other Member Fees.''
Phlx also proposes to update the name of the ``Penny Pilot Program''
within Options 7. Each change will be described below.
Options 7, Section 8
Phlx proposes to amend Options 7, Section 8, ``Membership Fees,''
at Part A, ``Permit and Registration Fees,'' to waive the Floor Lead
Market Maker and Floor Market Maker \3\ Permit Fee of $6,000, for the
months of July and August 2020, for those members and member
organizations who paid the Floor Lead Market Maker and Floor Market
Maker Permit Fee in March 2020 and were not otherwise registered as a
Streaming Quote Trader \4\ or Remote Streaming Quote Trader \5\ in
March 2020.
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\3\ A ``Floor Market Maker'' is a Market Maker who is neither an
SQT or an RSQT.
\4\ A ``Streaming Quote Trader'' or ``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. See Options 1, Section 1(b)(54).
\5\ A ``Remote Streaming Quote Trader'' or ``RSQT'' means a
Market Maker that is a member affiliated with an Remote Streaming
Quote Trader Organization with no physical trading floor presence
who has received permission from the Exchange to generate and submit
option quotations electronically in options to which such RSQT has
been assigned. A qualified RSQT may function as a Remote Lead Market
Maker upon Exchange approval. An RSQT is also known as a Remote
Market Maker (``RMM'') pursuant to Options 2, Section 11. A Remote
Streaming Quote Organization (``RSQTO'') or Remote Market Maker
Organization (``RMO'') are Exchange member organizations that have
qualified pursuant to Options 2, Section 1. See Options 1, Section
1(b)(49).
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Open outcry on the Exchange's Trading Floor was closed on March 17,
2020 \6\ and did not re-open until June 3, 2020.\7\ At the time that
open outcry trading became unavailable in March 2020, Floor Lead Market
Makers and Floor Market Makers were unable to transact business on the
Phlx Trading Floor. The Exchange assessed these members and member
organizations the monthly Floor Lead Market Maker and Floor Market
Maker Fee of $6,000 during the time period when open outcry trading was
unavailable. The Exchange seeks to waive the Floor Lead Market Maker
and Floor Market Maker Permit Fee, for the months of July and August
2020, for those members and member organizations that paid the Floor
Lead Market Maker and Floor Market Maker Permit Fee in March 2020, and
were not otherwise registered as a Streaming Quote Trader or as a
Remote Streaming Quote Trader in March 2020. This waiver of the Floor
Lead Market Maker and Floor Market Maker Permit Fee, for the months of
July and August 2020, is intended to relieve Floor Lead Market Makers
and Floor Market Makers, who do not otherwise stream quotes, of these
fees for two months to ensure that these market makers continue to
provide liquidity to the Trading Floor.
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\6\ See Options Trader Alert #2020-07.
\7\ See Options Trader Alert #2020-08.
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The Exchange proposes to remove obsolete rule text, which was
relevant in June 2020, regarding fee waivers for the Floor Broker
Permit Fee, the Clerk Fee and the Streaming Quote Trader (``SQT'')
Fees, which are no longer available. The Exchange also proposes to
remove obsolete rule text related to an electronic Permit Fee credit
that was offered in June 2020 and is no longer available.
Options 7, Section 9
The Exchange proposes to remove obsolete rule text, which was
relevant in June 2020, regarding a fee waiver for the Floor Facility
Fee, which is no longer available.
[[Page 42460]]
Penny Pilot
The Exchange proposes to amend the description of Penny Symbols to
replace the term ``Penny Pilot Program'' with ``Penny Interval
Program,'' and replace the terms ``Penny Pilot Options'' and ``Penny
Pilot'' with ``Penny Symbol.'' On April 1, 2020, the Commission
approved the amendment to the OLPP to make permanent the Pilot Program
(the ``OLPP Program'').\8\ The Exchange recently filed a proposal to
amend Phlx Options 3, Section 3 to conform the rule to Section 3.1 of
the Plan for the Purpose of Developing and Implementing Procedures
Designed to Facilitate the Listing and Trading of Standardized Options
(the ``OLPP'').\9\ The Exchange's proposal amended Phlx Options 3,
Section 3 to refer to a Penny Interval Program instead of a Penny Pilot
Program. The proposed amendments conform the name of the program and
also amend other references by removing the term ``pilot options'' and
instead referring to Penny or Non-Penny Symbols. Specifically, the
Exchange proposes to amend Options 7, Section 1; Options 7, Section 4;
and Options 7, Section 6.
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\8\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval
Order'').
\9\ See SR-Phlx-2020-32 (not yet published).
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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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Options 7, Section 8
Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,''
at Part A, ``Permit and Registration Fees,'' to waive the Floor Lead
Market Maker and Floor Market Maker Permit Fee,\17\ for the months of
July and August 2020, provided a member or member organization (1) paid
the Floor Lead Market Maker or Floor Market Maker Permit Fee in March
2020; and (2) was not otherwise registered as a Streaming Quote Trader
or as a Remote Streaming Quote Trader in March 2020, is reasonable.
Open outcry on the Exchange's Trading Floor was closed on March 17,
2020 \18\ and did not re-open until June 3, 2020.\19\ At the time that
open outcry trading became unavailable in March 2020, certain Floor
Lead Market Makers and Floor Market Makers were unable to transact
business on the Phlx Trading Floor. The Exchange assessed these members
and member organizations the monthly Floor Lead Market Maker and Floor
Market Maker Fee of $6,000 during the time period that open outcry was
unavailable for trading. The Exchange seeks to waive the Floor Lead
Market Maker and Floor Market Maker Permit Fee, for the months of July
and August 2020, for those members and member organizations that paid
the Floor Lead Market Maker and Floor Market Maker Permit Fee in March
2020, and were not otherwise registered as a Streaming Quote Trader or
as a Remote Streaming Quote Trader in March 2020. This waiver of the
Floor Lead Market Maker and Floor Market Maker Permit Fee, for the
months of July and August 2020, is intended to relieve Floor Lead
Market Makers and Floor Market Makers, who do not otherwise stream
quotes, of these fees for two months to ensure that these market makers
continue to provide liquidity to the Trading Floor.
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\17\ Phlx assesses a Floor Lead Market Maker and Floor Market
Maker Permit Fee of $6,000.
\18\ See Options Trader Alert #2020-07.
\19\ See Options Trader Alert #2020-08.
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Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,''
at Part A, ``Permit and Registration Fees,'' to waive the Floor Lead
Market Maker and Floor Market Maker Permit Fee,\20\ for the months of
July and August 2020, provided a member or member organization (1) paid
the Floor Lead Market Maker or Floor Market Maker Permit Fee in March
2020; and (2) was not otherwise registered as a Streaming Quote Trader
or as a Remote Streaming Quote Trader in March 2020, is equitable and
not unfairly discriminatory. The Exchange is proposing to waive fees
for members and member organizations that solely conducted a business
within open outcry trading and did not otherwise conduct an electronic
business during the time period that open outcry trading was
unavailable. Floor Lead Market Makers and Floor Market Makers are by
definition not Streaming Quote Traders \21\ or Remote Streaming Quote
Traders. Some members and member organizations are registered to
transact a market making business both on the Trading Floor and also
electronically. The Exchange proposes to compensate members and member
organizations who conducted a market making business on the Trading
Floor in March
[[Page 42461]]
2020, and did not conduct an electronic business, because these members
and member organizations were not able to transact any business on Phlx
from March 17, 2020 through June 3, 2020, when open outcry trading was
unavailable. Floor Lead Market Makers and Floor Market Maker have
certain trading obligations, pursuant to Options 8, Section 27,\22\ and
incur certain infrastructure costs to provide liquidity on the
Exchange's Trading Floor. The Exchange will uniformly apply the waiver
to all members and member organizations who only conducted a market
making business on Phlx's Trading Floor in March 2020 as a Floor Lead
Market Maker or Floor Market Maker, and did not otherwise act in a
market making capacity electronically on Phlx.
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\20\ Phlx assesses a Floor Lead Market Maker and Floor Market
Maker Permit Fee of $6,000.
\21\ The Exchange notes that Streaming Quote Traders were able
to register as Remote Market Makers, pursuant to Options 2, Section
11, during the period of time that the Trading Floor was
unavailable. In addition, the Exchange waived Streaming Quote Trader
Fees from April 2020 through June 2020. See Securities Exchange Act
Release Nos. 88525 (March 31, 2020), 85 FR 19185 (April 6, 2020)
(SR-Phlx-2020-12); and 89041 (June 10, 2020), 85 FR 36438 (June 16,
2020) (SR-Phlx-2020-28).
\22\ Phlx Options 8, Section 27(f) provides, ``(f) A Floor
Market Maker is required to trade either (a) 1,000 contracts and 300
transactions, or (b) 10,000 contracts and 100 transactions, on the
Exchange each quarter. Transactions executed in the trading crowd
where the contra-side is an ROT are not included.''
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The Exchange's proposal to remove obsolete rule text, which was
relevant in June 2020, regarding fee waivers for the Floor Broker
Permit Fee, the Clerk Fee and the SQT Fees, as well as an electronic
Permit Fee credit, which fee waivers and credit are no longer
available, is reasonable, equitable and not unfairly discriminatory.
Options 7, Section 9
The Exchange's proposal to remove obsolete rule text, which was
relevant in June 2020, regarding a fee waiver for the Floor Facility
Fee, which is no longer available, is reasonable, equitable and not
unfairly discriminatory.
Penny Pilot
The Exchange's proposal to amend rule text relating to the Penny
Pilot Program to replace the term ``Penny Pilot Program'' with ``Penny
Interval Program,'' and replace the terms ``Penny Pilot Options'' and
``Penny Pilot'' with ``Penny Symbol'' is reasonable, equitable and not
unfairly discriminatory. The proposed amendments conform the name of
the program and also amend other references by removing the term
``pilot options'' and instead referring to Penny or Non-Penny Symbols.
Specifically, the Exchange proposes to amend Options 7, Section 1;
Options 7, Section 4; and Options 7, Section 6.
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
Options 7, Section 8
Phlx's proposal to amend Options 7, Section 8, ``Membership Fees,''
at Part A, ``Permit and Registration Fees,'' to waive the Floor Lead
Market Maker and Floor Market Maker Permit Fee,\23\ for the months of
July and August 2020, provided a member or member organization (1) paid
the Floor Lead Market Maker or Floor Market Maker Permit Fee in March
2020; and (2) was not otherwise registered as a Streaming Quote Trader
or as a Remote Streaming Quote Trader in March 2020, does not impose an
undue burden on competition. The Exchange is proposing to waive fees
for members and member organizations that solely conducted a business
within open outcry trading and did not otherwise conduct an electronic
business during the time period that open outcry trading was
unavailable. Floor Lead Market Makers and Floor Market Makers are by
definition not Streaming Quote Traders \24\ or Remote Streaming Quote
Traders. Some members and member organizations are registered to
transact a market making business both on the Trading Floor and also
electronically. The Exchange proposes to compensate members and member
organizations who conducted a market making business on the Trading
Floor in March 2020, and did not conduct an electronic business,
because these members and member organizations were not able to
transact any business on Phlx from March 17, 2020 through June 3, 2020,
when open outcry trading was unavailable. Floor Lead Market Makers and
Floor Market Maker have certain trading obligations, pursuant to
Options 8, Section 27,\25\ and incur certain infrastructure costs to
provide liquidity on the Exchange's Trading Floor. The Exchange will
uniformly apply the waiver to all members and member organizations who
only conducted a market making business on Phlx's Trading Floor in
March 2020 as a Floor Lead Market Maker or Floor Market Maker, and did
not otherwise act in a market making capacity electronically on Phlx.
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\23\ Phlx assesses a Floor Lead Market Maker and Floor Market
Maker Permit Fee of $6,000.
\24\ The Exchange notes that Streaming Quote Traders were able
to register as Remote Market Makers, pursuant to Options 2, Section
11, during the period of time that the Trading Floor was
unavailable. In addition, the Exchange waived Streaming Quote Trader
Fees from April 2020 through June 2020. See Securities Exchange Act
Release Nos. 88525 (March 31, 2020), 85 FR 19185 (April 6, 2020)
(SR-Phlx-2020-12); and 89041 (June 10, 2020), 85 FR 36438 (June 16,
2020) (SR-Phlx-2020-28).
\25\ Phlx Options 8, Section 27(f) provides, ``(f) A Floor
Market Maker is required to trade either (a) 1,000 contracts and 300
transactions, or (b) 10,000 contracts and 100 transactions, on the
Exchange each quarter. Transactions executed in the trading crowd
where the contra-side is an ROT are not included.''
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The Exchange's proposal to remove obsolete rule text, which was
relevant in June 2020, regarding fee waivers for the Floor Broker
Permit Fee, the Clerk Fee and the SQT Fees, as well as an electronic
Permit Fee credit, which fee waivers and credit are no longer
available, does not impose an undue burden on competition.
Options 7, Section 9
The Exchange's proposal to remove obsolete rule text, which was
relevant in June 2020, regarding a fee waiver for the Floor Facility
Fee, which is no longer available, does not impose an undue burden on
competition.
Penny Pilot
The Exchange's proposal to amend rule text relating to the Penny
Pilot Program to replace the term ``Penny Pilot Program'' with ``Penny
Interval Program,'' and replace the terms ``Penny Pilot Options'' and
``Penny Pilot'' with ``Penny Symbol'' does not impose an undue burden
on competition. The proposed amendments conform the name of the program
and also amend other references by removing the term
[[Page 42462]]
``pilot options'' and instead referring to Penny or Non-Penny Symbols.
Specifically, the Exchange proposes to amend Options 7, Section 1;
Options 7, Section 4; and Options 7, Section 6.
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.\26\
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\26\ 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-2020-33 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-2020-33. 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-2020-33 and should be submitted on
or before August 4, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15112 Filed 7-13-20; 8:45 am]
BILLING CODE 8011-01-P