[Federal Register Volume 87, Number 32 (Wednesday, February 16, 2022)]
[Notices]
[Pages 8898-8901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03279]


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SECURITIES AND EXCHANGE COMMISSION

Release No. 34-94219; File No. SR-Phlx-2022-05]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Its Fee 
Schedule, at Equity 7, Section 3

February 10, 2022.
    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 February 1, 2022, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule

[[Page 8899]]

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 its fee 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 $0.0029 per share executed fee for a member 
organization that removes liquidity from the Exchange to the extent 
that the member organization: (i) Adds a daily average of at least 2 
million shares of liquidity in all securities from the Exchange during 
the month; (ii) increases its average daily volume added to the 
Exchange by 50% or more during the month relative to the month of 
January 2022; (iii) increases its average daily volume added to and 
removed from the Exchange by 100% or more during the month relative to 
the month of January 2022; and (iv) adds and removes a daily average of 
at least 10 million shares of liquidity in all securities from the 
Exchange during the month. The propose fee represents a discount 
relative to the existing fee of $0.0030 per share executed.\3\
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    \3\ The Exchange proposes to make a conforming change to the 
existing $0.0030 per share executed fee to reflect the fact that, 
going forward, it will apply to all other orders that remove 
liquidity from the Exchange to the extent that a member organization 
does not meet the criteria for its orders to qualify for the new 
$0.0029 per share executed fee.
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    The Exchange proposes to add this new discounted fee tier to 
provide an incentive for member organizations to engage in a 
significant amount of activity on the Exchange as to increase the 
extent that they do so relative to a recent baseline month. If the 
proposal is effective in achieving these objectives, then overall 
activity on the Exchange will increase, and the quality of the market 
will improve, to the benefit of all participants.
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 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable and Is an Equitable Allocation of Fees
    The Exchange's proposed change to its schedule of fees 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'. . . .'' \6\
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    \6\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \7\
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    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow.
    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules.\8\ Within 
the foregoing context, the proposal represents a reasonable attempt by 
the Exchange to increase its market share relative to its competitors.
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    \8\ 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.
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    The Exchange believes that it is reasonable and equitable to adopt 
the new $0.0029 per share executed fee. The Exchange seeks to increase 
the extent of overall activity in the market. It is reasonable and 
equitable to address this need by allocating its limited resources to 
offer member organizations a discounted fee, relative to the existing 
$0.0030 per share executed removal fee, to incent member organizations 
that remove liquidity from the Exchange to engage in significant 
activity overall activity on the Exchange, and to increase the extent 
to which they do so relative to a baseline month. 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 the 
extent to which member organizations add to and remove

[[Page 8900]]

liquidity from the Exchange. Increased activity on the Exchange helps 
to maintain and improve its market quality. Although member 
organizations that will benefit directly from this proposal are those 
that are able to add and remove liquidity in the threshold volumes and 
to grow their activity by the threshold percentages, any improvement in 
market quality that the proposal facilitates will ultimately benefit 
all market participants.

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 activity on the exchange. Moreover, member organizations 
are free to trade on other venues to the extent they believe that the 
discounted fee 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 fee 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 discounted fee 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 fee to incent member 
organizations that remove liquidity from the Exchange to also engage in 
heightened activity on the Exchange and to thereby contribute to market 
quality, which is reflective of fierce competition for order flow noted 
above; however, if the proposed fee 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 fee 
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.\9\
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    \9\ 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-2022-05 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-2022-05. 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-2022-05 and should be submitted on 
or before March 9, 2022.


[[Page 8901]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03279 Filed 2-15-22; 8:45 am]
BILLING CODE 8011-01-P


