[Federal Register Volume 86, Number 121 (Monday, June 28, 2021)]
[Notices]
[Pages 34101-34104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13658]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92231; File No. SR-Phlx-2021-37]


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

June 22, 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 June 11, 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

[[Page 34102]]

solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 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 adopt a new $0.0033 per share executed credit for member 
organizations that provide displayed liquidity to the Exchange and 
receive an execution priced at or between $1.00 and $5.00. The Exchange 
proposes to add this new credit and target it at securities executed at 
prices between $1.00 and $5.00 because the Exchange observes that, at 
present, liquidity in securities in this lower price segment is less 
robust on the Exchange than it is in other price segments.\3\ The 
Exchange hopes that the proposed credit will encourage member 
organizations to increase the extent to which they quote or place 
orders on the Exchange for securities priced at or between $1.00 and 
$5.00. If the proposal is effective in achieving this purpose, then the 
quality of the Exchange's market will improve, to the benefit of all 
participants.\4\
---------------------------------------------------------------------------

    \3\ The Exchange notes that the threshold for prices at or below 
$5.00 tracks the SEC's definition of a ``penny stock.'' See 17 CFR 
240.3a5-1-1.
    \4\ Although there may be value in offering credits to members 
that provide liquidity in securities executed at other prices, or 
that satisfy other criteria, the Exchange has limited resources 
available to it to offer its members market-improving incentives, 
and it allocates those limited resources to those segments of the 
market where it perceives the need to be greatest and/or where it 
determines that the incentive is likely to achieve its intended 
objective.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The Proposal Is Reasonable and Is an Equitable Allocation of Credits
    The Exchange's proposed change to its schedule of credits is 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for equity 
securities transaction 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\
---------------------------------------------------------------------------

    \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)).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    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.\9\ Within 
the foregoing context, the proposal represents a reasonable attempt by 
the Exchange to increase its market share relative to its competitors.
---------------------------------------------------------------------------

    \9\ The Exchange perceives no regulatory, structural, or cost 
impediments to market participants shifting order flow away from it. 
In particular, the Exchange notes that such shifts in liquidity and 
market share occur within the context of market participants' 
existing duties of Best Execution and obligations under the Order 
Protection Rule under Regulation NMS.
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable and equitable to adopt 
a new $0.0033 per share executed credit for member organizations that 
provide displayed liquidity in securities that execute at prices at or 
between $1.00 and $5.00 per share. As discussed above, the Exchange 
observes a particular need to increase displayed liquidity in 
securities at these prices because liquidity on the Exchange in such 
lower priced securities is less robust than it is in other market 
segments. It is reasonable and equitable to address this need by 
allocating its limited resources to offer member organizations a credit 
to incent them to provide the liquidity needed. If the proposal is 
effective in achieving this purpose, then the quality of the Exchange's 
market will improve, to the benefit of all participants.
The Proposal Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. The Exchange intends for its proposal to increase 
displayed liquidity in securities executed at or between $1.00 and 
$5.00 per share, where the Exchange observes that liquidity in such 
lower securities is less robust than it is in other market segments. 
Additional liquidity is needed for the Exchange to maintain and improve 
its market quality. Although member organizations that are able to 
provide liquidity in such securities are likely to benefit directly

[[Page 34103]]

from this proposal, any improvement in market quality that it 
facilitates will ultimately benefit all market participants.
    Although there may be value in offering credits to members that 
provide liquidity in securities executed at other prices, or that 
satisfy other criteria, the Exchange has limited resources available to 
it to offer its members market-improving incentives, and it allocates 
those limited resources to those segments of the market where it 
perceives the need to be greatest and/or where it determines that the 
incentive is likely to achieve its intended objective.

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. As 
noted above, all member organizations of the Exchange will benefit from 
an increase in the addition of liquidity in securities priced at or 
between $1.00 and $5.00. Moreover, member organizations are free to 
trade on other venues to the extent they believe that the credit 
provided 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 believes that its proposed new credit will not impose 
a burden on competition because the Exchange's execution services are 
completely voluntary and subject to extensive competition both from the 
other live exchanges and from off-exchange venues, which include 
alternative trading systems that trade national market system stock. 
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 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 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.
    The proposed credit for adding liquidity is reflective of this 
competition because, as a threshold issue, the Exchange is a relatively 
small market so its ability to burden intermarket competition is 
limited. In this regard, even the largest U.S. equities exchange by 
volume only has 17-18% market share, which in most markets could hardly 
be categorized as having enough market power to burden competition. 
Moreover, as noted above, price competition between exchanges is 
fierce, with liquidity and market share moving freely between exchanges 
in reaction to fee and credit changes. This is in addition to free flow 
of order flow to and among off-exchange venues which comprises more 
than 40% of industry volume in recent months.
    In sum, the Exchange intends for the proposed credit to incent 
member organizations to add displayed liquidity to the Exchange in 
securities within a certain price range, and to thereby contribute to 
market quality, which is reflective of fierce competition for order 
flow noted above; however, if the proposed credit is unattractive to 
market participants, it is likely that the Exchange will either fail to 
increase its market share or even lose market share as a result. 
Accordingly, the Exchange does not believe that the proposed new credit 
will impair the ability of member organizations 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\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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-2021-37 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-2021-37. 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

[[Page 34104]]

Number SR-Phlx-2021-37 and should be submitted on or before July 19, 
2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13658 Filed 6-25-21; 8:45 am]
BILLING CODE 8011-01-P


