[Federal Register Volume 86, Number 100 (Wednesday, May 26, 2021)]
[Notices]
[Pages 28418-28420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11076]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91960; File No. SR-Phlx-2021-31]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule at Equity 7, Section 3

May 20, 2021.
    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 12, 2021, 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 pricing schedule at 
Equity 7, Section 3, as described further below.
    The Exchange originally filed the proposal pricing change on May 3, 
2021 (SR-Phlx-2021-29). On May 12, 2021, the Exchange withdrew that 
filing and submitted this filing.
    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
    The Exchange proposes to amend its pricing schedule, at Equity 7, 
Section 3, to make a change to its fees for routing of orders using the 
SCAR routing option in all securities. Specifically, the Exchange 
proposes to lower the $0.0025 per share executed credit that is given 
to a member that enters an order in any of the three tapes using the 
``SCAR'' routing option \3\ which ultimately executes on Nasdaq BX 
(``BX'').
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    \3\ Pursuant to Equity 4, Section 3315(a)(1)(A)(x), ``SCAR'' is 
a routing option under which orders will check the System for 
available shares and simultaneously route to BX and Nasdaq in 
accordance with the System routing table. If shares remain 
unexecuted after routing, they are posted on the 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.
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    BX recently revised its pricing schedule to lower its existing 
credits.\4\ Currently, all credits provided to members on BX are lower 
than $0.0025 per share executed. As a result, the Exchange is proposing 
to lower its existing $0.0025 per share credit to $0.0016 per share 
executed for SCAR orders that execute on BX in order to better align 
this amount with the credit amount provided by BX on its fee schedule.
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    \4\ Securities Exchange Act Release No. 91639 (April 22, 2021), 
80 FR 22500, (April 28, 2021).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
    The Exchange's proposed changes to its SCAR routing rebate are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for equity 
securities transaction

[[Page 28419]]

services that constrain its pricing determinations in that market. The 
fact that this market is competitive has long been recognized by the 
courts. In NetCoalition v. Securities and Exchange Commission, the D.C. 
Circuit stated as follows: ``[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'. . . .'' \7\
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    \7\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(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 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.'' \8\
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    \8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow.
    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules.
    The Exchange believes it is reasonable to lower the $0.0025 per 
share executed credit that it provides to a member that enters a SCAR 
routed order that executes on BX because the proposal will better align 
this credit with corresponding credits that BX provides to its own 
members that remove liquidity from that exchange.\9\ The Exchange also 
believes that it is appropriate to periodically reassess and 
recalibrate its fees. In this instance, better aligning the credits 
will help to ensure that market participants will not use the 
Exchange's SCAR order routing strategy solely to obtain a higher rebate 
on orders that are routed and executed on BX.
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    \9\ See Nasdaq BX Equity 7 (Pricing Schedule), available at 
https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Equity%207 [sic].
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The Proposal Is an Equitable Allocation of Credits and Not Unfairly 
Discriminatory
    The Exchange believes its proposal to lower its credit for SCAR 
routed orders that execute on BX to $0.0016 per share executed credit 
is an equitable allocation because the proposed amended credit amount 
is better aligned with the liquidity removal credits that BX provides 
to its members. Additionally, the proposal is not unfairly 
discriminatory because the proposed amended credit is available to all 
members.
    Any participant that is dissatisfied with the proposals is free to 
shift their order flow to competing venues that provide more generous 
pricing or less stringent qualifying criteria.

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.
Intramarket Competition
    The Exchange does not believe that its proposal will place any 
category of Exchange participants at a competitive disadvantage. The 
proposal will merely ensure that the amount of the SCAR credit is 
better aligned with the recently lowered corresponding credits that BX 
provides to its own members that remove liquidity from that exchange.
    As noted above, all members of the Exchange will benefit from the 
protection of the overall quality of the equity market. Moreover, 
members are free to trade on other venues to the extent they believe 
that the proposed credit amount is not attractive. As one can observe 
by looking at any market share chart, price competition between 
exchanges is fierce, with liquidity and market share moving freely 
between exchanges in reaction to fee and credit changes.
Intermarket Competition
    The Exchange's proposal is pro-competitive in that the proposal 
will result in competitive alignment between the SCAR credit and the 
amounts of liquidity removal credits that BX provides to its own 
members that remove liquidity from that exchange.
    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.\10\
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    \10\ 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-2021-31 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-2021-31. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your

[[Page 28420]]

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-2021-31 and should be submitted on or before June 16, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11076 Filed 5-25-21; 8:45 am]
BILLING CODE 8011-01-P


