[Federal Register Volume 86, Number 198 (Monday, October 18, 2021)]
[Notices]
[Pages 57716-57722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-22569]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93293; File No. SR-Phlx-2021-58]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Pricing Schedule at Options 7, Section 10

October 12, 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 September 30, 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 
Options 7, Section 10 (Proprietary Data Feed Fees) to: (i) Allow the 
external distribution of analytic products derived from information 
contained in the Phlx Options Trade Outline (``PHOTO'') to the general 
investing public; (ii) increase fees for End of Day, Intra-Day, and 
historical data to reflect the current market value of these products; 
and (iii) offer a discounted fee for 36 months of historical data for 
current distributors. The proposal also includes a number of conforming 
and technical changes 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
    This Proposal will: (i) Allow the external distribution of analytic 
products derived from PHOTO information to the general investing 
public; (ii) increase fees for End of Day, Intra-Day, and historical 
data to reflect the current market value of these products; and (iii) 
offer a discounted fee for 36 months of historical data for current 
distributors.
    The Exchange initially filed these proposed pricing changes on 
August 6, 2021 (SR-Phlx-2021-46), but withdrew that filing on August 
19, 2021. This filing reintroduces the August 6 Proposal.
PHLX Options Trade Outline (``PHOTO'')
    PHOTO provides customers with the ability to create and test 
trading models and analytic strategies and build customized sentiment 
indicators using the following data fields:\3\
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    \3\ See Securities Exchange Act Release No. 62887 (September 10, 
2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121) (initial 
filing introducing PHOTO on September 1, 2010).
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     Aggregate number of buy and sell transactions in the 
affected series;
     Aggregate volume traded electronically on the Exchange in 
the affected series;
     Aggregate number of trades effected on the Exchange to 
open a position; \4\
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    \4\ PHOTO provides subscribers with the aggregate number of 
``opening purchase transactions.'' The term ``opening purchase 
transaction'' means an exchange options transaction in which the 
purchaser's intention is to create or increase a long position in 
the series of options involved in such transaction. See Options 1, 
Section 1(b)(34). PHOTO will also provide subscribers with the 
aggregate number of ``opening writing transactions.'' The term 
``opening writing transaction'' means an Exchange options 
transaction in which the seller's (writer's) intention is to create 
or increase a short position in the series of options involved in 
such transaction. See Options 1, Section 1(b)(35).

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[[Page 57717]]

     Aggregate number of trades effected on the Exchange to 
close a position; \5\
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    \5\ PHOTO provides subscribers with the aggregate number of 
``closing purchase transactions'' in the affected series. A 
``closing purchase transaction'' means an Exchange options 
transaction in which the purchaser's intention is to reduce or 
eliminate a short position in the series of options involved in such 
transaction. See Options 1, Section 1(b)(11). PHOTO will also 
provide subscribers with the aggregate number of ``closing sale 
transactions.'' A ``closing sale transaction'' means an Exchange 
options transaction in which the seller's intention is to reduce or 
eliminate a long position in the series of options involved in such 
transaction. See Options 1, Section 1(b)(12).
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     Origin of the orders involved in trades on the Exchange in 
the affected series during a particular trading session, specifically 
aggregated in the following categories of participants: Customers, 
broker-dealers, market makers (including specialists, Registered 
Options Traders (``ROTs''), Streaming Quote Traders (``SQTs'') \6\ and 
Remote Streaming Quote Traders (``RSQTs'')),\7\ and Professionals.\8\
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    \6\ A ``Streaming Quote Trader'' or ``SQT'' means a Market Maker 
who has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such SQT is 
assigned. An SQT may only submit such quotations while such SQT is 
physically present on the trading floor of the Exchange. An SQT may 
only submit quotes in classes of options in which the SQT is 
assigned. See Options 1, Section 1(b)(54).
    \7\ A ``Remote Streaming Quote Trader'' or ``RSQT'' means a 
Market Maker that is a member affiliated with a Remote Streaming 
Quote Trader Organization with no physical trading floor presence 
who has received permission from the Exchange to generate and submit 
option quotations electronically in options to which such RSQT has 
been assigned. A qualified RSQT may function as a Remote Lead Market 
Maker upon Exchange approval. An RSQT is also known as a Remote 
Market Maker (``RMM'') pursuant to Options 2, Section 11. A Remote 
Streaming Quote Organization (``RSQTO'') or Remote Market Maker 
Organization (``RMO'') are Exchange member organizations that have 
qualified pursuant to Options 2, Section 1. See Options 1, Section 
1(b)(49).
    \8\ The term ``Professional'' means any person or entity that 
(i) is not a broker or dealer in securities, and (ii) places more 
than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account(s). Member 
organizations must indicate whether orders are for Professionals. 
See Options 1, Section 1(b)(45).
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    PHOTO is available in End of Day and Intra-Day files. The End of 
Day file is updated during an overnight process with additional fields 
and is available the following morning.\9\ The monthly subscriber fee 
for the End of Day product is currently $400.
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    \9\ These additional fields are: (i) Option First Trade Price; 
(ii) Option High Trade Price; (iii) Option Low Trade Price; (iv) 
Option Last Trade Price; (v) Total Phlx electronic volume for the 
series; (vi) Total industry volume for the series; and (vii) Open 
interest for the series.
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    The Intra-Day product is captured in ``snapshots'' taken every 10 
minutes throughout the trading day, available to subscribers within 5 
minutes of the conclusion of each period. Subscribers receive the first 
calculation at 9:45 a.m. ET, representing data captured from 9:30 a.m. 
to 9:39 a.m., and the second calculation at 9:55 a.m., representing 
data from both the most recent snapshot and previous snapshots, 
continuing over the course of the trading day. The monthly subscriber 
fee for the Intra-Day product is currently $1,500.
    PHOTO historical data provides information about the past activity 
of all option series traded on the Exchange for each trading session 
conducted during a prior calendar month selected by the subscriber.\10\ 
This data is intended to enhance a purchaser's ability to analyze 
option trade and volume data, evaluate historical trends in the trading 
activity of a particular option series, and create and test trading 
models and analytical strategies. The product provides the following 
data:
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    \10\ See Securities Exchange Act Release 63351 (November 19, 
2010), 75 FR 73140 (November 29, 2010) (SR-Phlx-2010-154).
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     Aggregate number of buy and sell transactions in the 
affected series for each trading session conducted during the specified 
calendar month(s);
     Aggregate volume traded electronically on the Exchange in 
the affected series for each trading session conducted during the 
specified calendar month(s);
     Aggregate number of trades effected on the Exchange to 
open a position \11\ for each trading session conducted during the 
specified calendar month(s);
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    \11\ See Supra, n. 4.
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     Aggregate number of trades effected on the Exchange to 
close a position \12\ for each trading session conducted during the 
specified calendar month(s);
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    \12\ See Supra, n. 5.
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     Origin of the orders involved in trades on the Exchange in 
the affected series for each trading session conducted during the 
specified calendar month(s), specifically aggregated in the following 
categories of participants: Customers, broker-dealers, market makers 
(including specialists, ROTs, SQTs \13\ and RSQTs),\14\ and 
Professionals.\15\
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    \13\ See Supra, n. 6.
    \14\ See Supra, n. 7.
    \15\ See Supra, n. 8.
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    Historical PHOTO data is available starting in January 2009 in both 
End of Day and Intra-Day files.\16\ The End of Day product provides 
aggregate data for the entire trading session, while the Intra-Day 
product includes periodic, cumulative data for each trading session at 
ten minutes intervals. The fee for the historical End of Day product is 
currently $400 per month, and the fee for the historical Intra-Day 
product is $750 per month.
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    \16\ See Securities Exchange Act Release No. 63351 (November 19, 
2010), 75 FR 73140 (November 29, 2010) (SR-Phlx-2010-154) 
(introducing fees for PHOTO historical data).
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    PHOTO is one of five market data products offered by the 
Exchange.\17\ The others are Phlx Depth of Market,\18\ Top of Phlx 
Options,\19\ TOPO Plus Orders,\20\ and Historical Phlx Orders.\21\ 
PHOTO plays a unique role in this array. It is not necessary to execute 
a trade, but it supplies the customer with information about underlying 
market trends designed to improve the quality of that customer's 
investment decisions. Customers can, and often do, elect to forego this 
information. The current purchasers of PHOTO are investment banks, 
market makers, asset managers and other buy-side investors.\22\
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    \17\ There is little overlap in the data provided by PHOTO and 
the data provided by the other options market data products offered 
by the Exchange. The only elements of overlapping data would be the 
last sale information, which is available through Top of Phlx 
Options and TOPO Plus orders, and total exchange volume, which can 
be derived from several of the other products.
    \18\ Phlx Depth of Market (Phlx Depth) is designed to provide 
aggregate order book and last sale data from the PHLX Options Market 
in an easy-to-display format. Similar to NASDAQ TotalView-Aggregated 
feed, PHLX Depth summarizes the order interest at each price level 
in the PHLX system. See Options 3, Section 23(a)(3).
    \19\ Top of Phlx Options (TOPO) is designed to provide Best Bid 
and Offer (BBO) and last sale information directly to PHLX Options 
Market participant firms that subscribe to the data feed. See 
Options 3, Section 23(a)(1).
    \20\ TOPO Plus Orders is designed to provide Best Bid and Offer 
(BBO) and last sale information plus the state of single and complex 
orders on the PHLX order book to firms on a real-time basis. TOPO 
Plus Orders provides access to both the TOPO data feed and the PHLX 
Orders data feed. See Options 3, Section 23(a)(2).
    \21\ Historical Phlx Orders provides a historical record of the 
simple and complex order message data from the TOPO Plus Orders data 
product. Subscribers to this historical product may download the 
Historical Phlx Orders daily message logs on a T+1 basis from a 
secure FTP server. Historical Phlx Orders is available as eight 
separate files each day, four for simple orders and four for complex 
orders. The data originates from the Phlx Orders data feed and 
therefore, no quote data is included.
    \22\ An average of 26 customers per month over the past year 
have subscribed to either the End of Day or Intra-Day product.
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    PHOTO is subject to direct competition from similar end of day and 
intra-day options trading summaries offered by ten other options 
exchanges.\23\ All of these exchanges

[[Page 57718]]

offer essentially the same end of day and intra-day options trading 
summary information, and generally differ solely in the amount of 
history available for purchase.\24\ A few data fields available on 
PHOTO are also available on the OPRA feed.\25\
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    \23\ These substitute products are: Nasdaq Options Trade 
Outline, ISE Trade Profile, GEMX Trade Profile data; open-close data 
from Cboe C1, C2, BZX, and EDGX; and Open Close Reports from MIAX 
Options, Pearl, and Emerald. A small number of options exchanges do 
not offer PHOTO-like products: Amex, ARCA, BOX, BX Options, and MRX, 
although the Exchange understands that similar products for BX 
Options and MRX may be forthcoming.
    \24\ For example, Cboe offers history for their end of day data 
starting in January 1990 while PHOTO End of Day history is only 
offered starting in January 2009. Also, Cboe offers intraday 
starting in October 2019 while PHOTO intraday is offered starting in 
January 2009.
    \25\ The overlap is limited to open interest, total industry 
volume, and first, high, low, and last trade price for an option 
series.
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    The options trading summary files offered by these ten exchanges 
are substitutes, not complements.\26\ PHOTO provides data on options 
market activity which can be used to infer longer-term trends. The 
information provided by one exchange is generally similar to that 
provided by other exchanges because order flow can move from one 
exchange to another, and market sentiment trends that appear on one 
exchange are likely to be similar to the sentiment trends on other 
exchanges. The key differentiator in the quality of the data depends on 
the volume of transactions on a given exchange. The greater the volume 
of transactions, the greater the value of the data. We observe that 
customers purchase sufficient data to provide a view of the market, but 
not more, as the value of data from each additional exchange yields 
diminishing returns.\27\ Fees for PHOTO are therefore constrained by 
the competition among exchanges for similar options trading summary 
products.
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    \26\ Complementary products require the purchaser to buy both 
products together to be useful, as in the example of a video game 
and a video game console, or a smartphone and a smartphone charger. 
Products are substitutes when the purchase of one product renders 
purchase of the other product less necessary, as in the case of 
smartphones from two different manufacturers.
    \27\ Customers sometimes choose between purchasing PHOTO-type 
data from one exchange with a relatively large market share, or 
multiple exchanges with smaller market shares which collectively 
represent roughly the same fraction of the market as the larger 
exchange. Once the customer has an adequate view of the market, 
either through one or a small number of exchanges, the customer does 
not purchase additional data as the value of more data diminishes 
with each successive purchase.
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Proposed Changes
    The Proposal will: (i) Allow the external distribution of analytic 
products derived from PHOTO information to the general investing 
public; (ii) increase fees for End of Day, Intra-Day, and historical 
data to reflect the current market value of the product; and (iii) 
offer a discounted fee for 36 months of historical data for current 
distributors.
External Distribution to the General Investing Public
    The external distribution of PHOTO data or any analytic product 
derived from such data is not currently permitted, as explained in the 
initial filing of this product.\28\ The Exchange proposes to remove 
that prohibition and allow vendors to distribute ``Derived Data'' \29\ 
based on PHOTO. Derived Data is ``any Information generated in whole or 
in part from Exchange Information \30\ such that the Information 
generated cannot be reverse engineered to recreate Exchange 
Information, or be used to create other data that is recognizable as a 
reasonable substitute for such Exchange Information.'' The Exchange 
proposes to allow the distribution of Derived Data based on the 
information contained in the PHOTO product.\31\
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    \28\ See Securities Exchange Act Release No. 62887 (September 
10, 2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121) 
(``PHOTO is available only for internal use and distribution by 
subscribers.'').
    \29\ ``Derived Data'' is not currently a defined term in the 
Phlx Rulebook. In the Nasdaq rulebook, ``Derived Data'' is defined 
as ``any information generated in whole or in part from Exchange 
Information such that the information generated cannot be reverse 
engineered to recreate Exchange Information, or be used to create 
other data that is recognizable as a reasonable substitute for such 
Exchange Information.'' See Nasdaq Rulebook, Equity 7 (Pricing 
Schedule), Section 139(f) (definition of Derived Data for the Nasdaq 
Last Sale and Nasdaq Last Sale Plus data feeds).
    \30\ ``Exchange Information'' is any data or information that 
has been collected, validated, processed and/or recorded by the 
Exchange and made available for transmission relating to: (i) 
Eligible securities or other financial instruments, markets, 
products, vehicles, indicators, or devices; (ii) activities of the 
Exchange; or (iii) other information or data from the Exchange. 
Information includes, but is not limited to, any element of 
information used or processed in such a way that Exchange 
Information or a substitute for such Information can be identified, 
recalculated or re-engineered from the processed information.
    \31\ Although Derived Data is a general term, in the context of 
this proposal it applies only to data derived from PHOTO 
information.
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    An example of the type of Derived Data that the Exchange would like 
vendors to disseminate is the Sentiment Indicator currently offered by 
the Nasdaq ISE Exchange.\32\ This indicator compares the number of 
opening long call options to opening long put options.\33\ If the value 
is greater than 100, more long call options have been purchased by 
investors than long put options, while values less than 100 indicates 
the opposite. The higher the index is above 100, the more bullish the 
market sentiment is thought to be; the lower the index is below 100, 
the more bearish. This is but one example.
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    \32\ See Nasdaq ISE, LLC Rules, Options 7 (Pricing Schedule), 
Section 10(D) (Enhanced Sentiment Market Data), available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207. See 
also https://www.nasdaq.com/market-activity/isee-index.
    \33\ ISE sentiment Index = (Number of long call options 
purchased / Number of long put options purchased) x 100. Focusing on 
opening activity allows for a more accurate measure of true investor 
sentiment.
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    While the Exchange could develop and market such products on its 
own, a more effective way to distribute such information would be to 
allow market data vendors to identify, develop, and sell such 
indicators, harnessing the power of the competitive marketplace to 
promote innovation. This will promote the dissemination of a variety of 
analytical insights--previously available only to investment banks, 
market makers, asset managers and other buy-side investors--to the 
general investing public.\34\
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    \34\ The Exchange proposes to sell the license to distribute 
this information in the form of Derived Data, rather than 
distributing the underlying information, so that the general 
investing public can benefit from the interpretation of the 
underlying data that we expect vendors to provide. Although the 
Exchange expects that this product will have the greatest utility 
for the general investing public, it is possible that some firms may 
find a Derived Data product useful as well. As such, the Exchange is 
not inserting a requirement that distribution be limited only to the 
general investing public.
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    This Proposal is based on industry feedback. Over the years, a 
number of vendors, as well as a few existing customers, have expressed 
an interest in creating indicators from PHOTO data that can be easily 
consumed by the general investing public. Phlx believes that it will be 
first to the market with an options data product that allows market 
data vendors to distribute market sentiment information. The fees 
charged for a license to distribute the Derived Data will be 
constrained by potential competition, as any exchange with an options 
trading product would be able to submit an immediately-effective fee 
filing to allow redistribution, most likely without needing to modify 
the underlying trading outline product in any way, thereby subjecting 
the proposed fee to market competition.
    The Exchange proposes a fee of $5,000 per month to allow the 
unlimited external distribution of Derived Data from PHOTO.
    The Exchange expects up to 10 additional vendors to take advantage 
of this innovation over the course of the next 24 months. We do not 
have a precise estimate of the number of individuals expected to 
benefit, which will ultimately depend on the usefulness of the Derived 
Data products that reach the market. Having said that, we expect this 
to be a popular product that will benefit thousands of investors.

[[Page 57719]]

    The Exchange proposes to license distribution of Derived Data for a 
fee of $5,000 per month, which will be in addition to fees for the 
underlying data.\35\
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    \35\ For example, external distribution of data derived from the 
End of Day product will be $750 per month, plus the $5,000 per month 
fee.
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Fee Increases for End of Day, Intra-Day and Historical Data
    The Exchange proposes to increase the fee for End of Day data from 
$500 to $750 per month, and the fee for Intra-Day data from $1,500 to 
$2,500. Fees for historical data are proposed to increase from $400 to 
$500 per month for the End of Day file, and from $750 to $1,000 per 
month for the Intra-Day file.
    These changes are proposed as an adjustment to reflect the current 
market value of the product, based on a review of fees for substitute 
products for PHOTO, particularly those offered by Cboe and MIAX.\36\ As 
explained above, PHOTO provides customers with the ability to create 
and test trading models and analytic strategies and build customized 
sentiment indicators using options transaction data. The value of 
PHOTO, and similar products, is determined in part by the number of 
underlying transactions reflected in the data, and in part by other 
factors such as the technical sophistication of the product.\37\ The 
Exchange believes that the proposed fees reflect the current market 
value of this product, based on a comparison to the fees charged by 
competitors, adjusted by the relative value of the competitor 
products.\38\ If the Exchange is incorrect in its assessment of the 
marketplace, current and prospective customers will elect not to 
purchase PHOTO.
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    \36\ Cboe (C1) offers end of day data for $600 per month, and 
intra-day data for $2,000 per month. For historical data, 1-4 years 
are available for $600/month, and 5+ years of data are available for 
$300 per month. See Cboe Exchange, Inc. Fee Schedule (July 1, 2021) 
available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf. Cboe (C2) offers end of day data for $500 per 
month, and Intra-Day data for $1,000 per month. Historical data is 
available for $400 for End of Day, and $500 Intra-Day. See Cboe U.S. 
Options Fee Schedules (Cboe Options) (June 1, 2021) available at 
https://www.cboe.com/us/options/membership/fee_schedule/ctwo/ Cboe 
BZX offers end of day data for $500, intra-day for $1,500; end of 
day historical data is $400 per month, and intra-day data is $750 
per month. See Cboe U.S. Options Fee Schedules (BZX Options) (June 
1, 2021) available at https://www.cboe.com/us/options/membership/fee_schedule/bzx Cboe EDGX end of day data is $500 per month, Intra-
Day data is $1,000 per month; historical data is $400 for end of 
day, and $750 for intra-day. See Cboe U.S. Options Fee Schedules 
(EDGX Options) (June 1, 2021) available at https://www.cboe.com/us/options/membership/fee_schedule/edgx/ MIAX Options, MIAX Pearl and 
MIAX Emerald are $600 per month for end of day, and $2,000 per month 
for intra-day. See MIAX Options Exchange Fee Schedule (July 12, 
2021), available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_07122021.pdf; MIAX 
Pearl Options Exchange Fee Schedule (July 1, 2021), available at 
https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_07012021.pdf; MIAX Emerald Options 
Exchange Fee Schedule (July 1, 2021), available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_07012021.pdf.
    \37\ PHOTO was originally delivered via FTP files, but now is 
available through Report HQ, a technology that allows access to all 
Nasdaq reports, including PHOTO, via an ``On-Demand'' technology 
with secure user access that provides firms with more options to 
better manage their subscriptions. A description of Report HQ access 
is available here: https://www.nasdaq.com/docs/NasdaqReportHQ.pdf.
    \38\ The value of PHOTO has increased since the product was 
first established on September 1, 2010. See Securities Exchange Act 
Release No. 62887 (September 10, 2010), 75 FR 57092 (September 17, 
2010) (SR-Phlx-2010-121). The same is true for the historical PHOTO 
data. See Securities Exchange Act Release No. 63351 (November 19, 
2010), 75 FR 73140 (November 29, 2010) (SR-Phlx-2010-154).
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    Because fees are being set at market rates, we do not expect to see 
significant changes in sales for the core PHOTO products due to these 
particular fee changes, although, for the reasons discussed below, we 
do expect the discount on historical data to attract between 5 and 10 
new customers.\39\
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    \39\ As a conforming change, the Exchange also proposes to 
replace the word ``Subscriber'' with ``Distributor.'' A 
``Distributor'' of Nasdaq PHLX data is ``any entity that receives a 
feed or data file of data directly from Nasdaq PHLX or indirectly 
through another entity and then distributes it either internally 
(within that entity) or externally (outside that entity).'' See 
Options 7, Section 10. The term ``Subscriber'' is not specifically 
defined in the Phlx Options fee schedule, but is defined in the PSX 
Equity schedule as ``any access that a distributor of the data 
entitlement package(s) provides to: (1) Access the information in 
the data entitlement package(s); or (2) communicate with the 
distributor so as to cause the distributor to access the information 
in the data entitlement package(s).'' See Equity 7, PSX TotalView, 
Subsection (d). In light of these definitions, we believe that the 
term ``Distributor'' is a more apt term for purchasers of PHOTO 
information than the term ``Subscriber.''
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Discounts for 36 Months of Historical Data
    PHOTO customers often purchase historical data with their 
subscription to create and test trading models and analytical 
strategies. To facilitate such testing and encourage new firms to 
purchase the product (and in particular to incentivize data vendors to 
develop new Derived Data products), the Exchange proposes an historical 
data discount for Current Distributors: \40\ $6,000 for the most recent 
36 months \41\ of End of Day data (one-third of the $18,000 for 36 
months at the proposed rate of $500 per month); and $12,000 for the 
most recent 36 months of Intra-Day data (one-third of the $36,000 for 
36 months at the proposed rate of $1,000 per month). Current 
Distributors would be able to purchase both End of Day and Intra-Day 
data for $18,000. Data for any months outside of the 36-month period 
would be purchased at the standard rates.\42\
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    \40\ A ``Current Distributor'' is any firm that purchases either 
the End of Day Product for the current month, or the Intra-Day 
Product for the current month in the same month that the 36 months 
of historical End of Day or Intra-Day data is ordered.
    \41\ The most recent 36 months is measured based on the date of 
purchase of the 36 months of data by a Current Distributor.
    \42\ As a conforming change, the phrase ``Charge per calendar 
month Requested'' is replaced with the word ``Fee'' because of the 
special monthly rates for Current Distributors.
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    The discount will depend on the type of subscription: A current 
purchaser of End of Day data would be eligible for the historical End 
of Day product at the reduced rate; a current purchaser of the Intra-
Day product would be able to purchase the historical Intra-Day product 
at the reduced rate; and a purchaser of both the current End of Day and 
Intra-Day products would be entitled to purchase both types of history 
at the reduced rate.\43\
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    \43\ Historical data is linked to the current product because 
effective historical testing requires a comparison of similar 
products. Effective testing of the End of Day product, for example, 
requires End of Day historical data, and the same would hold true 
for Intra-Day data.
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    This discount will allow any customer with either a new or ongoing 
subscription to take advantage of the discounted rate. For example, a 
customer that buys the End of Day product for the first time in October 
2021 would also be able to purchase historical End of Day data for the 
period September 2018 through September 2021 (inclusive) at the 
discounted rate. Similarly, a customer with a longstanding End of Day 
subscription that is current in October 2021 would be able to purchase 
the historical End of Day data from September 2018 through September 
2021 at the discounted rate. The same reasoning would apply to Intra-
Day customers.\44\
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    \44\ A customer may use the proposed historical data discount 
more than once. For example, a Current Distributor that purchases 36 
months of historical data at a discount, but later terminates that 
subscription, would be eligible to purchase another 36 months of 
historical data (based on the date of purchase) upon renewing that 
subscription. (Current Distributors that never terminate would have 
no need for a second purchase, as they would already possess the 
most recent months of historical data.).
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    The proposed 36-month discount is based on customer feedback and 
our analysis of recent purchases. Customers have told us over the years 
that 36 months of historical data is optimal for

[[Page 57720]]

testing. Although the median number of months for the purchase of 
historical data increased to 42 months over the past year, we 
determined that this was skewed by a large number of unusually large 
purchases, and decided to use the long-term average of 36 months as the 
most appropriate basis for the discount.
    Any exchange that provides options trading statistics would be able 
to match the proposed discount for historical data through an 
immediately-effective fee filing with the Commission, thus subjecting 
the proposed fee change to competition.
    We believe that the historical data discount will be attractive to 
our customers, and expect between 5 and 10 new distributors in the 
first year as a result.
Technical Change
    The Exchange proposes to delete the footnote describing how 
historical data is charged as unnecessary.
Operative Date
    The Exchange proposes the operative date to be October 1, 2021.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\45\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\46\ 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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    \45\ 15 U.S.C. 78f(b).
    \46\ 15 U.S.C. 78f(b)(4) and (5).
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Equitable Allocation of Reasonable Dues, Fees and Other Charges
    As the Commission and courts \47\ have recognized, ``[i]f 
competitive forces are operative, the self-interest of the exchanges 
themselves will work powerfully to constrain unreasonable or unfair 
behavior.'' \48\ Accordingly, ``the existence of significant 
competition provides a substantial basis for finding that the terms of 
an exchange's fee proposal are equitable, fair, reasonable, and not 
unreasonably or unfairly discriminatory.'' \49\ 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.'' \50\
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    \47\ The decision of the United States Court of Appeals for the 
District of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 
(D.C. Cir. 2010) upheld the Commission's reliance upon competitive 
markets to set reasonable and equitably allocated fees for market 
data. ``In fact, the legislative history indicates that the Congress 
intended that the market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed and that the SEC wield its regulatory power in those 
situations where competition may not be sufficient, such as in the 
creation of a consolidated transactional reporting system.'' 
NetCoalition I, at 535 (quoting H.R. Rep. No. 94-229, at 92 (1975), 
as reprinted in 1975 U.S.C.C.A.N. 321, 323) (internal quotation 
marks omitted). The court agreed with the Commission's conclusion 
that ``Congress intended that competitive forces should dictate the 
services and practices that constitute the U.S. national market 
system for trading equity securities.'' Id. (quoting Securities 
Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 
74,771 (December 9, 2008) (SR-NYSEArca-2006-21)).
    \48\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \49\ See id.
    \50\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    PHOTO is in direct competition with 10 options trading products 
that serve as substitutes for PHOTO information.\51\ All of these 
products offer the same type of data content through end of day or 
intra-day reports, and in general differ only with respect to the 
amount of history available.\52\ A small amount of the information 
available on PHOTO is also available on the OPRA feed.\53\
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    \51\ These substitute products are: NOTO, ISE Trade Profile, 
GEMX Trade Profile data; open-close data from Cboe C1, C2, BZX, and 
EDGX; and Open Close Reports from MIAX Options, Pearl, and Emerald. 
The Exchange understands that similar products for BX Options and 
MRX will be forthcoming.
    \52\ For example, Cboe offers history for their end of day data 
back through January 1990 while PHOTO End of Day history is only 
offered back through January 2009. Also, Cboe offers intra-day 
history back through Oct 2019 while PHOTO Intra-Day is offered 
through Jan 2009.
    \53\ The overlap is limited to open interest and total industry 
volume.
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    Purchase of PHOTO, like all market data products, is optional.\54\ 
PHOTO is designed to help investors understand underlying market trends 
to improve the quality of investment decisions, but is not necessary to 
execute a trade. Customers can, and do, choose to forego the 
information from PHOTO or any of its competitor products when making a 
trade, as is evident from the relatively small number of current 
subscribers. As noted, a monthly average of only 26 customers over the 
past year subscribed to either the End of Day or Intra-Day 
products.\55\
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    \54\ Staff Guidance on SRO Filings Related to Fees states that 
``any discussion of alternatives should include a discussion of how 
regulatory requirements, particularly best execution obligations, 
Regulation NMS Rule 611 (the Order Protection Rule), and/or the 
Options Order Protection and Locked/Crossed Market Plan (Options 
Linkage Plan), as applicable, affect the competitive analysis.'' See 
Division of Trading and Markets, U.S. Securities and Exchange 
Commission, ``Staff Guidance on SRO Filings Related to Fees'' (May 
21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (``Staff Guidance''). Given that PHOTO is an 
optional analytic product, other regulatory requirements are 
inapplicable.
    \55\ Staff Guidance, Supra n. 59, indicates that an SRO may 
estimate elasticity of demand for a product as part of the fee 
proposal. Such estimation is impossible in the case of PHOTO, which 
has not had a price change in nearly 10 years, and more generally is 
inapposite for any product subject to overall competition among 
exchange platforms.
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    Each of the three proposed changes--allowing the external 
distribution of derived data, modifying fees to reflect current market 
value, and discounting historical data--is subject to competition, both 
separately and together. As a whole, the Proposals will expand and 
enhance that competition.
    First, the proposal to allow the external distribution of derived 
data is subject to competition as discussed above, and also introduces 
a new category of market participant--market data vendors--into the 
equation. Under the current rulebook, PHOTO data is not available for 
redistribution, in either native form or through Derived Data.\56\ This 
proposal will create a new market for the sale of Derived Data products 
to the general investing public. This is itself evidence of the 
competitive environment for PHOTO and its substitutes, as it is exactly 
the type of innovation one would expect to see in a competitive market. 
It will also spur further innovation by challenging market data vendors 
to create new and innovative Derived Data products. Any exchange that 
wishes to allow distribution of a Derived Data product based on options 
trading information would be able to do so with an immediately-
effective fee filing similar to this Proposal, most likely without 
requiring any technological enhancement to the underlying product.
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    \56\ See Securities Exchange Act Release No. 62887 (September 
10, 2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121) 
(stating that ``PHOTO is available only for internal use and 
distribution by subscribers.'').
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    Allowing the redistribution of Derived Data, but not the underlying 
information, to the general investing public is an equitable allocation 
of reasonable dues, fees and other charges because it is the most 
efficient

[[Page 57721]]

mechanism for widespread delivery of market sentiment information. As 
explained above, the proposal is designed to promote the dissemination 
of a variety of analytical insights--previously available only to 
investment banks, market makers, asset managers and other buy-side 
investors--to the general investing public by creating an incentive for 
market data vendors to identify, develop, and sell such indicators. 
Ordinarily, neither exchanges nor vendors allow redistribution of 
analytic products--such products are typically designed solely for the 
use of direct customers, not for redistribution to the customers of 
customers in the manner of a data feed. Allowing the redistribution of 
Derived Data provides an incentive for vendors to innovate with new 
compelling and varied analytic products for the general investing 
public that will provide access to market sentiment insights currently 
available only to sophisticated investors.
    Second, the proposed adjustments to PHOTO fees reflect the 
Exchange's assessment of the current marketplace, based on a review of 
fees for substitute products, particularly those offered by Cboe and 
MIAX.\57\ As explained above, PHOTO provides customers with the ability 
to create and test trading models and analytic strategies and build 
customized sentiment indicators using options transaction data. The 
value of PHOTO, and similar products, is determined in part by the 
number of underlying transactions reflected in the data, and in part 
the technical sophistication of the product.\58\ The Exchange believes 
that the proposed fees reflect the current market value of this 
product, based on a comparison to the fees charged by competitors, 
adjusted by the relative value of the competitor products.\59\ If the 
Exchange is incorrect in its assessment of the marketplace, current and 
prospective customers will elect not to purchase PHOTO.
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    \57\ Cboe (C1) offers end of day data for $600 per month, and 
intra-day data for $2,000 per month. For historical data, 1-4 years 
are available for $600/month, and 5+ years of data are available for 
$300 per month. See Cboe Exchange, Inc. Fee Schedule (July 1, 2021) 
available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf. Cboe (C2) offers end of day data for $500 per 
month, and Intra-Day data for $1,000 per month. Historical data is 
available for $400 for End of Day, and $500 Intra-Day. See Cboe U.S. 
Options Fee Schedules (Cboe Options) (June 1, 2021) available at 
https://www.cboe.com/us/options/membership/fee_schedule/ctwo/ Cboe 
BZX offers end of day data for $500, intra-day for $1,500; end of 
day historical data is $400 per month, and intra-day data is $750 
per month. See Cboe U.S. Options Fee Schedules (BZX Options) (June 
1, 2021) available at https://www.cboe.com/us/options/membership/fee_schedule/bzx Cboe EDGX end of day data is $500 per month, Intra-
Day data is $1,000 per month; historical data is $400 for end of 
day, and $750 for intra-day. See Cboe U.S. Options Fee Schedules 
(EDGX Options) (June 1, 2021) available at https://www.cboe.com/us/options/membership/fee_schedule/edgx/ MIAX Options, MIAX Pearl and 
MIAX Emerald are $600 per month for end of day, and $2,000 per month 
for intra-day. See MIAX Options Exchange Fee Schedule (July 12, 
2021), available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_07122021.pdf; MIAX 
Pearl Options Exchange Fee Schedule (July 1, 2021), available at 
https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_07012021.pdf; MIAX Emerald Options 
Exchange Fee Schedule (July 1, 2021), available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_07012021.pdf.
    \58\ PHOTO was originally delivered via FTP files, but now is 
available through Report HQ, a technology that allows access to all 
Nasdaq reports, including PHOTO, via an ``On-Demand'' technology 
with secure user access that provides firms with more options to 
better manage their subscriptions. A description of Report HQ access 
is available here: https://www.nasdaq.com/docs/NasdaqReportHQ.pdf.
    \59\ The value of PHOTO has increased since the product was 
first established on September 1, 2010. See Securities Exchange Act 
Release No. 62887 (September 10, 2010), 75 FR 57092 (September 17, 
2010) (SR-Phlx-2010-121). The same is true for the historical PHOTO 
data. See Securities Exchange Act Release No. 63351 (November 19, 
2010), 75 FR 73140 (November 29, 2010) (SR-Phlx-2010-154).
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    Third, offering historical data at a discount is yet another 
example of how the competitive marketplace works to constrain prices. 
In order to effectively compete, the Exchange proposes to reduce the 
price of historical data to: (i) Encourage vendors to test the product 
for the first time and develop Derived Data products, and (ii) 
incentivize those categories of market participants that currently 
purchase the product--investment banks, market makers, asset managers 
and other buy-side investors--to test new trading models and analytical 
strategies. As explained above, the Exchange believes that this 36-
month period is optimal for testing based on customer feedback and our 
analysis of recent purchases, and expects this new fee structure to be 
attractive for both old and new customers. Options exchanges that offer 
substitute products would be able to reduce the price of their 
historical data through an immediately-effective fee filing at any time 
in response.
    For all of these reasons, each aspect of the proposal, separately 
and together, is subject to competition, and therefore provides for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility.
The Proposal Does Not Permit Unfair Discrimination
    Nothing in the Proposal treats any category of market participant 
any differently from any other category of market participant. On the 
contrary, the Proposal expands distribution of PHOTO information beyond 
investment banks, market makers, asset managers and other buy-side 
investors to market data vendors and the general investing public. 
Allowing the distribution of Derived Data to the general investing 
public will broaden the availability of such information while not 
treating any current recipient of the product differently in any way. 
The new fee structure, which modifies fees to reflect current market 
value and offers historical data at a discount, applies equally to all 
current and potential distributors. PHOTO is available to all market 
participants, including members and non-members, and all market 
participants receive the same information in the PHOTO data feed.
    With respect to the specific fee changes, it is reasonable and not 
unfair discrimination to charge an external distributor of Derived Data 
a $5,000 licensing fee. Vendors will ordinarily charge a fee to their 
downstream customers for this service, and, even if the vendor is not 
charging a specific fee for this particular service, Derived Data 
products from PHOTO will be part of a suite of offerings that generally 
promote sales. External distribution is fundamentally different than 
internal use, in that the former generates revenue from external sales 
while the latter does not. It is not unfair discrimination to charge a 
licensing fee for a product that generates downstream revenue.
    Nor is it unfair discrimination to allow the redistribution of 
Derived Data, but not the underlying information, to the general 
investing public. As explained above, neither exchanges nor vendors 
ordinarily allow redistribution of analytic products--such products are 
typically designed solely for the use of direct customers, not for 
redistribution to the customers of customers in the manner of a data 
feed. Allowing the redistribution of Derived Data provides an incentive 
for vendors to innovate with new compelling and varied analytic 
products for the general investing public that will provide access to 
market sentiment insights currently available only to sophisticated 
investors. This proposal is therefore not unfair discrimination, but 
rather allows for more equitable access to market sentiment information 
to the general investing public.
    It is also not unfair discrimination to provide a discount for 36 
months of historical data to current distributors, but not former 
distributors or firms that have never purchased the product. Any firm 
would be able to become a current

[[Page 57722]]

distributor at any time by subscribing to the PHOTO service, and would 
be able to cancel the subscription at any time after receiving the 36 
months of historical data for the proposed discounted fee. It is not 
unfair discrimination to limit the historical data discount to current 
distributors, as they are in the best position to benefit from the 
historical data, whereas firms that do not currently receive the 
service would have little use for the information.
    For all of these reasons, the Proposal does not permit unfair 
discrimination.

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 environment in which 
the Exchange must continually adjust its fees to remain competitive. 
Because competitors are free to modify their own fees in response, the 
Exchange believes that the degree to which fee changes in this market 
may impose any burden on competition is extremely limited.
Intermarket Competition
    As discussed in detail under Statutory Basis, PHOTO is subject to 
direct competition from the ten other options exchanges that offer 
substitutes to PHOTO. Moreover, purchase of PHOTO is optional. It is 
designed to help investors understand underlying market trends to 
improve the quality of investment decisions, but is not necessary to 
execute a trade.
    The Proposal is grounded in the Exchange's efforts to compete more 
effectively. The Exchange is proposing to broaden distribution of PHOTO 
information beyond investment banks, market makers, asset managers and 
other buy-side investors to market data vendors and the general 
investing public, and to provide a discount for distributors to test 
investment strategies and trading models, and develop market sentiment 
indicators. These changes will not cause any unnecessary or 
inappropriate burden on intermarket competition, but rather will 
promote competition by expanding the market for PHOTO data and 
encouraging new distributors to investigate the product. Other 
exchanges are, of course, free to match these changes or undertake 
other competitive responses, enhancing overall competition.
Intramarket Competition
    The Proposal will not cause any unnecessary or inappropriate burden 
on intramarket competition. On the contrary, it will foster competition 
by expanding dissemination of data to vendors and the general investing 
public, and by encouraging more market participants to use PHOTO data 
to help inform their investments strategies and analytic models.

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.\60\
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    \60\ 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 [email protected]. Please include 
File Number SR-Phlx-2021-58 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-2021-58. 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-2021-58 and should be submitted on 
or before November 8, 2021.
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    \61\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\61\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22569 Filed 10-15-21; 8:45 am]
BILLING CODE 8011-01-P


