[Federal Register Volume 86, Number 166 (Tuesday, August 31, 2021)]
[Notices]
[Pages 48789-48792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-18676]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92754; File No. SR-Phlx-2021-47]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, 
Section 3 To Adopt an Enhanced Market Quality Program

August 25, 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 August 12, 2021, Nasdaq PHLX LLC (``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 Equity 7, Section 3 to adopt an 
Enhanced Market Quality Program and a related credit, 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.

[[Page 48790]]

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 amend Equity 7, 
Section 3 to adopt an Enhanced Market Quality Program and a related 
credit.
    The Enhanced Market Quality Program is intended to provide 
supplemental incentives to member organizations that meet certain 
quality standards in acting as market makers for securities on the 
Exchange by incentivizing such member organizations to make a 
significant contribution to market quality by providing liquidity at 
the national best bid and offer (``NBBO'') in a large number of 
securities for a significant portion of the day. Specifically, the 
Exchange proposes to make a lump sum payment at the end of each month 
(a ``Fixed Payment'') to a member organization to the extent that the 
member organization, through one or more of its MPIDs, quotes at the 
NBBO for at least a threshold percentage of the time during Market 
Hours in an average number of securities per day during the month, as 
specified below. On a daily basis, the Exchange will determine the 
number of securities in which each of a member organization's MPIDs 
satisfied the NBBO requirement. The Exchange will aggregate all of a 
member organization's MPIDs to determine the number of securities for 
purposes of the NBBO requirement. The program is open to all member 
organizations. A member organization may but is not required to be, a 
registered market maker in any security; thus, the program does not by 
itself impose a two-sided quotation obligation or convey any of the 
benefits associated with being a registered market maker. Accordingly, 
the program is designed to attract liquidity both from traditional 
market makers and from other firms that are willing to commit capital 
to support liquidity at the NBBO.
    For purposes of the Enhanced Market Quality Program, a member 
organization will be deemed to quote at the NBBO in a security if it 
quotes a displayed order of at least 100 shares in the security and 
prices the order at either the national best bid or the national best 
offer or both the national best bid and offer for the security. The 
Exchange will determine the amount of the Fixed Payment that it pays to 
a qualifying member organization by multiplying the average daily 
number of its qualifying securities during the month within the range 
set forth in the highest qualifying Tier (rounded to the nearest whole 
number) by the applicable amounts set forth in the following tables 
below and adding the specified lump sum, where applicable. For a 
particular Tape A security to count towards the threshold for 
qualifying for the Fixed Payment on a particular day, and receiving the 
Fixed Payment, a member organization has to quote such security at the 
NBBO for at least 30% of the time during Market Hours on that day. For 
a particular Tape B security to count towards the threshold for 
qualifying for the Fixed Payment on a particular day, and receiving the 
Fixed Payment, a member organization has to quote such security at the 
NBBO for at least 50% of the time during Market Hours on that day. A 
member organization that qualifies for the Fixed Payment for securities 
in each of Tapes A and B will receive Fixed Payments covering 
qualifying securities in both Tapes, but within each Tape, a member 
organization may only qualify for one Tier during a month.\3\
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    \3\ Example 1: A member firm quotes an average of 250 symbols a 
day in tape A over the 30% time threshold in a particular month. The 
Fixed Payment due to such firm is calculated as follows: 51 (the 
number of symbols over 199) times $25, which equals to $1,275 for 
the month. This example shows a tape A Tier 2 Fixed Payment. Example 
2: A member firm quotes an average of 350 symbols a day in tape A 
over the 30% time threshold in a particular month. The Fixed Payment 
due to such firm is calculated as follows: $2,500 plus 51 (the 
number of symbols over 299) times $200, which equals to $12,700 for 
the month. This example shows a tape A Tier 3 Fixed Payment.
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    The Exchange proposes to set the tiers and the Fixed Payments as 
follows:

                            Tape A Securities
------------------------------------------------------------------------
                                     Average daily
                                       number of
                                   securities quoted
                                  at the NBBO for at
              Tiers                least 30% of the      Fixed payment
                                  time during Market
                                   Hours during the
                                         month
------------------------------------------------------------------------
1...............................  0-199.............  $0 per qualified
                                                       security per
                                                       month.
2...............................  200-299...........  $25 per qualified
                                                       security over
                                                       199.
3...............................  300-399...........  $2,500 + ($200 per
                                                       qualified
                                                       security over
                                                       299).
4...............................  400-499...........  $22,500 + ($300
                                                       per qualified
                                                       security over
                                                       399).
5...............................  500 or greater....  $52,500 + ($400
                                                       per qualified
                                                       security over
                                                       499).
------------------------------------------------------------------------


                            Tape B Securities
------------------------------------------------------------------------
                                     Average daily
                                       number of
                                   securities quoted
                                  at the NBBO for at
              Tiers                least 50% of the      Fixed payment
                                  time during Market
                                   Hours during the
                                         month
------------------------------------------------------------------------
1...............................  0-299.............  $0 per qualified
                                                       security per
                                                       month.
2...............................  300-399...........  $100 per qualified
                                                       security over
                                                       299.
3...............................  400-499...........  $10,000 + ($200
                                                       per qualified
                                                       security over
                                                       399).
4...............................  500 or greater....  $30,000 + ($300
                                                       per qualified
                                                       security over
                                                       499).
------------------------------------------------------------------------

    Through the use of this incentive program, the Exchange hopes to 
provide improved trading conditions for all market participants through 
narrower bid-ask spreads and increased depth of liquidity available at 
the inside market. In addition, the program reflects an effort to use 
financial incentives to encourage a wider variety of member 
organizations to make positive commitments to promote market quality. 
The Exchange believes that different member organizations may respond 
to different incentives, and therefore the Enhanced Market Quality 
Program is designed to promote market quality through quoting activity. 
The Exchange recognizes that while generally market participants will 
provide quotes with the intention of trading, market makers and 
liquidity

[[Page 48791]]

providers cannot control when counter parties choose to interact with 
those quotes and therefore the Exchange believes it is beneficial to 
the market to offer this incentive based on quoting activity directly.
    The Exchange notes that it will make the Fixed Payment in addition 
to other rebates or fees provided under Equity 7, Sections 3 (a)-(c).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among member organizations 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 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.'' \6\
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    \6\ 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 \7\ 
(``NetCoalition'') 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'. . . .'' \8\
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    \7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \8\ 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 proposed Enhanced Market Quality 
Program is reasonable because it is similar to other incentive programs 
offered by the Exchange for displayed orders that provide liquidity, 
like the Qualified Market Maker Program set forth in Equity 7, Sections 
3(c). The proposed Fixed Payment will provide an opportunity to member 
organizations to receive an additional credit in return for certain 
levels of participation on the Exchange as measured by quoting at the 
NBBO. The proposed credit is set at a level that is reflective of the 
beneficial contributions of market participants that quote 
significantly at the NBBO for a wide range of symbols. The Exchange 
believes that it is appropriate to limit applicability of the proposed 
credit to displayed orders in securities in Tape A and Tape B, and set 
the credits higher for the Tape A securities, insofar as the Exchange 
seeks to incentivize member organizations to add liquidity to the 
Exchange in such securities and improve the market therefor.
    The Exchange believes that the proposed Fixed Payments set forth by 
the Enhanced Market Quality Program are an equitable allocation and are 
not unfairly discriminatory because the Exchange will offer the same 
credit to all similarly situated member organizations. Moreover, the 
proposed qualification criteria requires a member organization to quote 
significantly at the NBBO therefore contributing to market quality in a 
meaningful way on the Exchange. Any member organization may quote at 
the NBBO at the level required by the qualification criteria of the 
Enhanced Market Quality Program. The Exchange notes that it has a 
similar Qualified Market Maker Program in which member organizations 
are required to quote at the NBBO more than a certain amount of time 
during regular market hours.\9\ For these reasons, the Exchange 
believes that the proposed Enhanced Market Quality Program Fixed 
Payments and qualification criteria are an equitable allocation and are 
not unfairly discriminatory.
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    \9\ See Qualified Market Maker Program, Equity 7, Section 3(c).
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    The Exchange believes that the proposal is equitable and is not 
unfairly discriminatory because the Exchange proposes to offer the same 
Fixed Payments to all similarly situated member organizations. The 
Exchange also believes that it is equitable and not unfairly 
discriminatory to establish the Enhanced Market Quality Program only 
for Tape A and Tape B securities, and set the credits higher for the 
Tape A securities, because the Exchange has limited resources and the 
Exchange believes that the best current application of such limited 
resources is to improve the market quality for Tape A and Tape B 
securities, as proposed.

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 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.
    In this instance, the proposed changes to the Exchange's credits 
provided to member organizations do 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 proposed Fixed Payment provides member 
organizations with the opportunity to be given higher credits for 
quotations if they improve the market by providing significant quoting 
at the NBBO in a large number of securities which the Exchange believes 
will improve market quality.
    In terms of intra-market 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 
because the program is open to all member organizations on the same 
terms.
    In sum, the proposed changes are designed to make the Exchange a 
more desirable venue on which to transact; however, 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 member organizations or competing

[[Page 48792]]

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-2021-47 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-2021-47. 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-2021-47 and should be submitted on 
or before September 21, 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18676 Filed 8-30-21; 8:45 am]
BILLING CODE 8011-01-P


