[Federal Register Volume 87, Number 94 (Monday, May 16, 2022)]
[Notices]
[Pages 29766-29768]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-10416]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94882; File No. SR-Phlx-2022-20]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, 
Section 3 To Add a New Transaction Credit

May 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 May 2, 2022, 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 Equity 7, Section 3 to add a new 
transaction 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.

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 amend the Exchange's schedule of credits to add a new 
growth credit for displayed orders.
    Pursuant to Equity 7, Section 3, the Exchange presently provides a 
series of credits to member organizations that enter displayed orders/
quotes that execute on the Exchange. The Exchange presently offers the 
following credits to member organizations that add displayed liquidity 
to the Exchange: (i) $0.0035 per share executed for Quotes/Orders 
entered by a member organization that provides 0.10% or more of total 
Consolidated Volume \3\ during the month; (ii) $0.0034 per share 
executed for Quotes/Orders entered by a member organization that 
provides 0.05% or more of total Consolidated Volume during the month 
and removes 0.02% of total Consolidated Volume during the month; (iii) 
0.0030 per share executed for Quotes/Orders entered by a member 
organization that provides a daily average of at least 1 million shares 
of liquidity in all securities on the Exchange during the month and 
increases its average daily volume of Quotes/Orders added to the 
Exchange by 100% or more during the month relative to the month of 
October 2021; and (iv) $0.0020 per share executed for all other quotes/
orders.
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    \3\ Pursuant to Equity 7, Section 3, the term ``Consolidated 
Volume'' means the total consolidated volume reported to all 
consolidated transaction reporting plans by all exchanges and trade 
reporting facilities during a month in equity securities, excluding 
executed orders with a size of less than one round lot. For purposes 
of calculating Consolidated Volume and the extent of a member 
organization's trading activity, the date of the annual 
reconstitution of the Russell Investments Indexes is excluded from 
both total Consolidated Volume and the member organization's trading 
activity.
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    The Exchange proposes to establish a new growth credit that will 
reward a member organization with a credit of $0.0032 per share 
executed to the extent that it adds a daily average of at least 2 
million shares of liquidity in all securities on the Exchange during 
the month and increases its average daily volume of quotes/orders added 
to the Exchange by 75% or more during the month relative to the month 
of March 2022.
    The proposed new growth credit will provide an additional incentive 
to member organizations to add and increase the extent to which they 
add liquidity to the Exchange. Insofar as the proposed growth credit 
will require a qualifying member organization to provide double the 
daily average number of shares of liquidity on the Exchange as it must 
to qualify for the existing $0.0030 per share executed growth tier 
credit, the Exchange believes it is reasonable for the amount of the 
proposed credit to be larger, at $0.0032 per share executed. To the 
extent that the proposed new credit succeeds in increasing liquidity on 
the Exchange, the Exchange hopes that additional liquidity will improve 
the quality of the market and help to grow it over time.
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

[[Page 29767]]

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 its proposal to add a new growth credit 
tier of $0.0032 per share executed is reasonable, equitable, and not 
unfairly discriminatory. The Exchange assesses a particular need to 
increase the extent to which its member organizations add liquidity to 
the Exchange as a means of improving market quality. The proposal 
serves that purpose by adding a new credit to reward member 
organizations that add a substantial amount of liquidity to the 
Exchange, and which grow the extent to which they add such liquidity by 
a substantial percentage relative to a baseline month of March 2022. 
Although the proposal will benefit net adders of liquidity, the 
Exchange believes that this is equitable and not unfairly 
discriminatory because all market participants stand to benefit to the 
extent that the proposal is successful in increasing liquidity on the 
Exchange and improving market quality. Insofar as the proposed growth 
credit will require a qualifying member organization to provide double 
the daily average number of shares of liquidity on the Exchange as it 
must to qualify for the existing $0.0030 per share executed growth tier 
credit, the Exchange believes it is reasonable, equitable, and not 
unfairly discriminatory for the amount of the proposed credit to be 
larger, at $0.0032 per share executed.

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 credit will not impose 
a burden on competition because the Exchange's execution services are 
completely voluntary and subject to extensive competition both from the 
other live exchanges and from off-exchange venues, which include 
alternative trading systems that trade national market system stock. 
The Exchange notes that it operates in a highly competitive market in 
which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive, or rebate 
opportunities available at other venues to be more favorable. In such 
an environment, the Exchange must continually adjust its credits 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 credits and fees in response, and because market 
participants may readily adjust their order routing practices, the 
Exchange believes that the degree to which credit changes in this 
market may impose any burden on competition is extremely limited.
    The proposed new growth credit is reflective of this competition 
because, as a threshold issue, the Exchange is a relatively small 
market so its ability to burden intermarket competition is limited. In 
this regard, even the largest U.S. equities exchange by volume only has 
17-18% market share, which in most markets could hardly be categorized 
as having enough market power to burden competition. Moreover, as noted 
above, price competition between exchanges is fierce, with liquidity 
and market share moving freely between exchanges in reaction to fee and 
credit changes. This is in addition to free flow of order flow to and 
among off-exchange venues which comprises more than 40% of industry 
volume in recent months.
    In sum, the Exchange intends for the proposed credit to incent 
member organizations to add liquidity to the Exchange and to thereby 
contribute to market quality, which is reflective of fierce competition 
for order flow noted above; however, if the change proposed herein 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 change 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2022-20 on the subject line.

[[Page 29768]]

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-2022-20. 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 (https://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-2022-20 and should be 
submitted on or before June 6, 2022.

    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. 2022-10416 Filed 5-13-22; 8:45 am]
BILLING CODE 8011-01-P


