[Federal Register Volume 84, Number 157 (Wednesday, August 14, 2019)]
[Notices]
[Pages 40454-40456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17390]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86610; File No. SR-Phlx-2019-27]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend SCAR 
Credits at Equity 7, Section 3(a)

August 8, 2019.
    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 July 25, 2019, 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 SCAR credits at Equity 7, Section 
3(a), as described further below. While these amendments are effective 
upon filing, the Exchange has designated the proposed amendments to be 
operative on August 1, 2019. The text of the proposed rule change is 
available on the

[[Page 40455]]

Exchange's website 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 adopt revised pricing 
for the recently adopted SCAR routing strategy.\3\ In sum, SCAR is a 
routing option under which orders check the System \4\ for available 
shares and simultaneously route to the other equity markets operated by 
Nasdaq, Inc., Nasdaq BX, Inc. (``BX'') and The Nasdaq Stock Market LLC 
(``Nasdaq'').\5\
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    \3\ See Rule 3315(a)(1)(A). See also Securities Exchange Act 
Release No. 85366 (March 20, 2019), 84 FR 11345 (March 26, 2019) 
(SR-Phlx-2019-04).
    \4\ The term ``System'' shall mean the automated system for 
order execution and trade reporting owned and operated by the 
Exchange. See Rule 3301(a).
    \5\ If shares remain unexecuted after routing, they are posted 
on the Exchange's book or cancelled. Once on the book, should the 
order subsequently be locked or crossed by another market center, 
the System will not route the order to the locking or crossing 
market center. See Rule 3315(a)(1)(A)(x).
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    The Exchange proposes to adopt revised credits for SCAR orders in 
securities listed on Nasdaq (``Tape C''), NYSE (``Tape A''), and on 
exchanges other than Nasdaq and NYSE (``Tape B'') (collectively, 
``Tapes''), which execute on BX.\6\ BX recently updated its fee 
schedule whereby it generally increased the credits provided for orders 
that access liquidity,\7\ and the Exchange is proposing to adjust its 
fee schedule relating to SCAR to increase credits provided for SCAR 
executions occurring on BX Tapes A and C securities and to decrease the 
credit provided for SCAR executions occurring on BX Tape B securities. 
Currently in securities priced at $1 or more per share, the Exchange 
provides a credit of $0.0015 per share for SCAR orders in Tapes A and C 
securities executed at BX, and a credit of $0.0026 per share for SCAR 
orders in Tape B securities executed at Nasdaq BX.\8\ The Exchange is 
proposing to provide a credit of $0.0025 per share executed for SCAR 
orders executed on BX in the securities of any of the Tapes priced at 
$1 or more per share, which will align the credits with recent changes 
to the BX fee schedule.\9\
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    \6\ The Exchange currently provides pricing for execution on BX 
using SCAR that is better than a market participant would otherwise 
receive for removing liquidity from BX if it did not meet certain 
volume thresholds that would qualify them for a better rate (such as 
a liquidity removal credit), which is $0.0003 per share executed for 
orders in any Tape securities priced at $1 or more per share that 
access liquidity on the Exchange. See BX Equity 7, Section 118(a). 
Thus, the Exchange's current fees are more reflective of the pricing 
a market participant would receive if it provided certain levels of 
volume. The Exchange is proposing to adjust the credit provided for 
BX executions to reflect recent changes to the credits provided to 
BX members for removing liquidity. See Securities Exchange Act 
Release No. 34-86447 (July 24, 2019) (SR-BX-2019-026) (awaiting 
publication in the Federal Register).
    \7\ Id.
    \8\ BX operates on the ``taker-maker'' model, whereby it 
generally pays credits to members that take liquidity and charges 
fees to members that provide liquidity.
    \9\ See supra note 6.
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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 Exchange believes that the pricing structure proposed above for 
SCAR is reasonable, equitable, and not unfairly discriminatory because 
the new credits are generally set at a level intended to incentivize 
members to use this new routing strategy. The proposed $0.0025 per 
share executed credit for orders in any Tape securities priced at $1 or 
more per share that route to, and execute on, BX using the SCAR routing 
strategy is significantly higher than the current credit provided in 
such transactions in securities of Tapes A and C, and is a modest 
decrease to the credit provided for executions in such transactions in 
securities of Tape B. This is reflective of the Exchange's desire to 
increase incentives to members to use the routing strategy and its 
assessment of the costs incurred in providing the routing strategy. 
Alignment of the incentive for executions on BX will strike a balance 
between these factors. In this regard, the Exchange notes that if the 
order executed directly on BX as the home exchange, (i.e., without 
using SCAR) the member would be charged the standard transaction fee of 
$0.0003 per share executed.\12\ As such, the proposed SCAR credit is 
set at a rate that makes it more economical for members to use this 
routing strategy, especially for those members that do not already add 
and/or remove volume on BX directly. Last, the Exchange believes that 
the proposed pricing changes are equitable and not unfairly 
discriminatory because they will apply uniformly to all members.
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    \12\ This fee would apply unless the member qualifies for a 
better rate (such as a discounted fee or credit) by meeting certain 
volume thresholds. See BX Equity 7, Section 118(a).
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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. The Exchange 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. 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.
    In this instance, the proposed pricing for SCAR orders is intended 
to provide incentive to members to use the Exchange's SCAR routing 
strategy, balanced against the need to recoup the Exchange's costs 
associated with providing its completely optional routing services. 
Because the Exchange's routing services are the subject of competition, 
including price competition, from other exchanges and broker-dealers 
that offer routing services, as well as the ability of members to use 
their own routing capabilities, it is likely that the Exchange will 
lose market share as a result of the changes if they are unattractive 
to market participants.

[[Page 40456]]

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.\13\
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    \13\ 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 rule-comments@sec.gov. Please include 
File Number SR-Phlx-2019-27 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-2019-27. 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-2019-27, and should be submitted on 
or before September 4, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17390 Filed 8-13-19; 8:45 am]
BILLING CODE 8011-01-P


