
[Federal Register Volume 82, Number 78 (Tuesday, April 25, 2017)]
[Notices]
[Pages 19124-19127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08281]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80483; File No. SR-Phlx-2017-31]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Transaction Fees at Section VIII

April 19, 2017.
    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 10, 2017, 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 the Exchange's transaction fees at 
Section VIII (NASDAQ PSX Fees) to provide an additional credit tier for 
displayed quotes and orders on NASDAQ PSX (``PSX'') in securities that 
are listed on exchanges other than The NASDAQ Stock Market LLC 
(``Nasdaq'') or the New York Stock Exchange LLC (``NYSE'').
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.cchwallstreet.com/, 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 provide an additional 
credit tier for displayed quotes and orders on PSX in securities listed 
on exchanges other than Nasdaq or NYSE (``Tape B securities'') that are 
priced at $1 and above.\3\
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    \3\ Tape C securities are those that are listed on the Exchange 
[sic], Tape A securities are those that are listed on NYSE, and Tape 
B securities are those that are listed on exchanges other than 
Nasdaq or NYSE.
     The Exchange initially filed the proposed pricing changes on 
April 3, 2017 (SR-Phlx-2017-28). On April 10, 2017, the Exchange 
withdrew that filing and submitted this filing.
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    Currently, the Exchange provides two credits for providing 
liquidity through PSX. First, the Exchange provides a credit for 
displayed quotes and orders, with the amount of the credit determined 
by the member's

[[Page 19125]]

Consolidated Volume in that month.\4\ Second, the Exchange provides a 
credit for certain non-displayed orders.\5\
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    \4\ Specifically, the Exchange provides a credit of $0.0031 per 
share executed for Quotes/Orders entered by a member organization 
that provides and accesses 0.35% or more of Consolidated Volume 
during the month; $0.0029 per share executed for Quotes/Orders 
entered by a member organization that provides and accesses 0.25% or 
more of Consolidated Volume during the month; $0.0027 per share 
executed for Quotes/Orders entered by a member organization that 
provides and accesses 0.15% or more of Consolidated Volume during 
the month; $0.0025 per share executed for Quotes/Orders entered by a 
member organization that provides and accesses 0.05% or more of 
Consolidated Volume during the month; and $0.0023 per share executed 
for all other Quotes/Orders.
    \5\ Specifically, the Exchange provides a credit of $0.0023 per 
share executed credit for all orders with midpoint pegging that 
provide liquidity, and $0.0000 per share executed credit for other 
non-displayed orders that provide liquidity.
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    The Exchange now proposes to provide an additional credit tier for 
displayed quotes and orders in Tape B securities on the Exchange. 
Specifically, the Exchange will provide a credit of $0.0027 per share 
executed for displayed Quotes/Orders entered in securities listed on 
exchanges other than Nasdaq or NYSE by a member organization that (1) 
provides a minimum of 1 million shares a day on average in securities 
listed on exchanges other than Nasdaq or NYSE and (2) doubles the daily 
average share volume provided in securities that are listed on 
exchanges other than Nasdaq or NYSE during the month versus the member 
organization's daily average share volume provided in securities that 
are listed on exchanges other than Nasdaq or NYSE in February 2017.\6\ 
This credit will only apply to securities that are priced at $1 or 
above.
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    \6\ As an example, assume that a member had a daily average 
share volume of 600,000 shares in Tape B securities in February 
2017. If the member provided 1.2 million shares per day on average 
in Tape B securities in April, the member would receive the rebate 
for that month, since it had doubled its daily average share volume 
in Tape B securities in comparison to its February Tape B volume, 
and also exceeded the one million daily share average volume 
requirement in Tape B securities in the month of April.
     If a member had a daily average share volume of 400,000 shares 
in Tape B securities in February 2017, the member would have to 
increase its average daily share volume by 2.5 times in order meet 
the requirements of the proposed rebate, since doubling its February 
average daily volume in Tape B securities would result in an average 
daily volume of 800,000 shares, which would not satisfy the 
requirement that the member provide a minimum of 1 million shares a 
day on average in securities listed on exchanges other than Nasdaq 
and NYSE.
     A member that had a daily average share volume of 900,000 
shares in Tape B securities in February 2017 would have to increase 
its average daily volume in Tape B securities to 1.8 million shares 
in order to qualify for the credit in a given month, since this 
would satisfy the requirement that the member double its average 
daily share volume in Tape B securities in the given month in 
comparison to its February 2017 volume, in addition to adding at 
least 1 million shares a day on average in Tape B securities in the 
month in which eligibility for the credit is being assessed.
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    If a member had no activity in February 2017 in securities listed 
on exchanges other than Nasdaq or NYSE or became a member after 
February 2017, its February 2017 daily average share volume in 
securities that are listed on exchanges other than Nasdaq or NYSE would 
be zero for purposes of determining that member's eligibility for the 
credit in subsequent months.
    The Exchange believes this credit tier will incentivize members to 
provide increased liquidity in Tape B securities on the Exchange, 
thereby enhancing the Exchange's market quality in Tape B securities.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 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.'' \9\
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    \9\ 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 
\10\ (``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.\11\ 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.'' \12\
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    \10\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \11\ See NetCoalition, at 534-535.
    \12\ 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'. . . .'' \13\
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    \13\ 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 believes that the additional credit tier is reasonable 
because it is designed to incentivize members to provide increased 
liquidity in Tape B securities on the Exchange, thereby enhancing the 
Exchange's market quality in Tape B securities. The Exchange believes 
that the amount of the credit ($0.0027 per share executed) is 
proportionate to the requirements necessary to qualify for the credit, 
and will act as an incentive to add liquidity in Tape B securities. The 
Exchange notes that the amount of the credit is comparable to other 
credits offered by the Exchange for adding displayed liquidity, which 
range from $0.0023 to $0.0031 and impose comparable requirements.\14\
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    \14\ For example, the Exchange pays a credit of $0.0027 per 
share executed for displayed Quotes/Orders that are entered by a 
member organization that provides and accesses 0.15% or more of 
Consolidated Volume during the month. While that credit uses 
percentage of Daily Volume, rather than a daily average share volume 
measurement, the Exchange believes that the requirements are 
nonetheless comparable.
     The Exchange also notes that Bats BZX Exchange, Inc. pays a 
credit of $0.0027 for displayed orders that add liquidity in Tape B 
securities where the member has an average daily added volume that 
equals or exceeds 0.08% of Total Consolidated Volume.
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    The Exchange believes it is reasonable to provide this credit tier 
to displayed liquidity only, since displayed liquidity plays a 
significant role in the price formation process, and should thus be 
incentivized through a credit tier such as is being proposed here. The 
Exchange believes that it is reasonable to provide this credit tier to 
Tape B securities that are priced at $1 or greater, because the 
Exchange desires to increase its market share in Tape B securities, and 
because securities priced at less than $1 are subject to a separate 
pricing structure.

[[Page 19126]]

    The Exchange believes that using February 2017 as the basis for 
determining eligibility for the credit tier is reasonable because that 
month represents the most recent full month of trading for which the 
Exchange has completed its assessment of members' activity on the 
Exchange for purposes of assessing charges and credits, and because the 
selection of a previous month as a baseline prevents members from 
changing their behavior prospectively to influence their baseline, and 
thus, their eligibility for the credit tier. The Exchange also notes 
that other exchanges use prior months as benchmarks for assessing 
transaction credits.\15\
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    \15\ For example, Bats BZX Exchange, Inc. pays a credit of 
$0.0030 per share for adding displayed orders if the member 
increases its share of total Consolidated Volume for adding 
liquidity by 0.15% or more in comparison to its volume in April 
2016, and if the member has an average daily added volume as a 
percentage of total Consolidated Volume that equals or exceeds 
0.20%.
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    The Exchange believes that it is reasonable to require a member to 
both double its daily average share volume in Tape B securities in 
comparison to its February 2017 volume and also provides a minimum of 1 
million shares a day on average in Tape B securities for the month in 
which eligibility for the credit is being assessed. Requiring that a 
member double its daily average share volume in Tape B securities in 
comparison to its February 2017 volume means that the member is 
required to add volume in an amount which is meaningful to the member, 
while requiring that the member provide a daily average share volume of 
at least of 1 million shares a day in Tape B securities means that the 
member is required to add volume in an amount which is meaningful to 
the Exchange.
    The Exchange believes that proposed credit tier is an equitable 
allocation and is not unfairly discriminatory because the Exchange will 
apply the same credit to all similarly situated members. The Exchange 
notes that participation on the Exchange, and eligibility for the 
credit tier, is voluntary, and that the proposed credit tier applies 
equally to all members that qualify for it, e.g., the member doubles 
its daily average share volume in Tape B securities in comparison to 
its February 2017 level and provides a minimum of 1 million shares a 
day on average in Tape B securities for the month in which eligibility 
for the credit tier is being assessed. This way to receive an ongoing 
credit is open to any member that elects to meet the volume 
requirements in Tape B securities.
    The Exchange notes that it already offers other credits for adding 
displayed liquidity that do not require the member to transact in Tape 
B securities. In adopting this credit tier, the Exchange is providing 
members with another way in which they may qualify for a credit on the 
Exchange, while incentivizing members to add increased displayed 
liquidity in Tape B securities, thereby enhancing the market quality on 
the Exchange in those securities and benefitting all participants. The 
Exchange notes that, given the requirement that a member double its 
daily average share volume in Tape B securities in comparison to its 
February 2017 level and provide a minimum of 1 million shares a day on 
average in Tape B securities in the given month, a member may have to 
more than double its daily average share volume in Tape B securities in 
comparison to its February 2017 volume, or provide more than 1 million 
shares a day on average in Tape B securities in the given month, in 
order to be eligible for the credit tier. The Exchange believes that 
this is equitable and not unfairly discriminatory because the 
requirements to qualify for the credit tier apply to all members, and 
because imposing both elements requires a member to add volume in an 
amount which is meaningful to the member (by doubling its February 2017 
average daily volume in Tape B securities) and to the Exchange 
(providing a daily average share volume of at least of 1 million shares 
a day in Tape B securities).

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. In terms of inter-market 
competition, 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 and credits to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees and credits in response, 
and because market participants may readily adjust their order routing 
practices, the Exchange believes that the degree to which fee and 
credit changes in this market may impose any burden on competition is 
extremely limited.
    In this instance, the proposed credit tier does not impose a burden 
on competition because the Exchange's execution services are completely 
voluntary and subject to extensive competition both from other 
exchanges and from off-exchange venues. The new credit tier is 
consistent with transaction credits currently assessed by the Exchange 
and by other exchanges. The new credit tier applies equally to all 
members that meet the volume requirements, and all similarly situated 
members are equally capable of qualifying for the credit if they choose 
to meet the volume requirements. Finally, the purpose of the credit is 
to incentivize members to add displayed liquidity to the Exchange in 
Tape B securities. The Exchange believes this will create greater 
liquidity in those securities on the Exchange, which will potentially 
attract additional participants to the Exchange and thereby promote 
competition.
    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.

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.\16\
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    \16\ 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.

[[Page 19127]]

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 rule-comments@sec.gov. Please include 
File Number SR-Phlx-2017-31 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-2017-31. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2017-31 and should be 
submitted on or before May 16, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08281 Filed 4-24-17; 8:45 am]
 BILLING CODE 8011-01-P


