[Federal Register Volume 87, Number 128 (Wednesday, July 6, 2022)]
[Notices]
[Pages 40295-40299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14293]



[[Page 40295]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95170; File No. SR-Phlx-2022-27]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt Pricing 
for Options on a Nasdaq-100[supreg] Volatility Index

June 29, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on June 16, 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\ 15 U.S.C. 78a.
    \3\ 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 5, Index and Singly Listed Options (Includes options 
overlying FX Options, equities, ETFs, ETNs, and indexes not listed on 
another exchange), to adopt pricing for options on a Nasdaq-100[supreg] 
Volatility Index (``VOLQ'').\4\
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    \4\ VOLQ a new index that measures changes in 30-day implied 
volatility of the Nasdaq-100[supreg] Index. See Securities Exchange 
Act Release No. 91781 (May 5, 2021), 86 FR 25918 (May 11, 2021) (SR-
Phlx-2020-41) (Notice of Filing of Amendment Nos. 1 and 2 and Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment Nos. 1 and 2, To List and Trade Options on a Nasdaq-100 
Volatility Index). See also Securities Exchange Act Release No. 
93628 (November 19, 2021), 86 FR 67555 (November 26, 2021) (SR-Phlx-
2021-56) (Order Approving a Proposed Rule Change To Amend Options 
4A, Section 12 Regarding the Calculation of the Closing Volume 
Weighted Average Price for Options on the Nasdaq-100 Volatility 
Index in Certain Circumstances).
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    Additionally, the proposal amends Options 7, Section 2, Customer 
Rebate Program; Options 7, Section 4, Multiply Listed Options Fees 
(Includes options overlying equities, ETFs, ETNs and indexes which are 
Multiply Listed) (Excludes SPY); and Options 7, Section 6, Other 
Transaction Fees.
    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 received approval to list index options on VOLQ.\5\ 
The Exchange will commence listing VOLQ options on June 14, 2022. At 
this time, the Exchange proposes to amend its Pricing Schedule at 
Options 7, Section 5.A., Broad-Based Index Options, to adopt pricing 
for VOLQ Options for transactions executed electronically and on the 
floor.\6\
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    \5\ See note 3 above.
    \6\ The term ``floor transaction'' is a transaction that is 
effected in open outcry on the Exchange's Trading Floor. See Options 
7, Section 1(c).
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    Additionally, the proposal amends Options 7, Section 2, Customer 
Rebate Program; Options 7, Section 4, Multiply Listed Options Fees 
(Includes options overlying equities, ETFs, ETNs and indexes which are 
Multiply Listed) (Excludes SPY); and Options 7, Section 6, Other 
Transaction Fees. Each change is described below.
    The Exchange proposes to assess Professionals,\7\ Lead Market 
Makers,\8\ Market Makers,\9\ Broker-Dealers \10\ and Firms \11\ a $0.40 
per contract fee to transact simple and complex VOLQ options 
electronically and on the floor. Customers \12\ will not be assessed a 
transaction fee to transact VOLQ options electronically or on the 
floor.
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    \7\ The term ``Professional'' applies to transactions for the 
accounts of Professionals, as defined in Options 1, Section 1(b)(45) 
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). See Options 7, Section 1(c).
    \8\ The term ``Lead Market Maker'' applies to transactions for 
the account of a Lead Market Maker (as defined in Options 2, Section 
12(a)). A Lead Market Maker is an Exchange member who is registered 
as an options Lead Market Maker pursuant to Options 2, Section 
12(a). An options Lead Market Maker includes a Remote Lead Market 
Maker which is defined as an options Lead Market Maker in one or 
more classes that does not have a physical presence on an Exchange 
floor and is approved by the Exchange pursuant to Options 2, Section 
11. See Options 7, Section 1(c). The term ``Floor Lead Market 
Maker'' is a member who is registered as an options Lead Market 
Maker pursuant to Options 2, Section 12(a) and has a physical 
presence on the Exchange's trading floor. See Options 8, Section 
2(a)(3).
    \9\ The term ``Market Maker'' is defined in Options 1, Section 
1(b)(28) as a member of the Exchange who is registered as an options 
Market Maker pursuant to Options 2, Section 12(a). A Market Maker 
includes SQTs and RSQTs as well as Floor Market Makers. See Options 
7, Section 1(c). The term ``Floor Market Maker'' is a Market Maker 
who is neither an SQT or an RSQT. A Floor Market Maker may provide a 
quote in open outcry. See Options 8, Section 2(a)(4).
    \10\ The term ``Broker-Dealer'' applies to any transaction which 
is not subject to any of the other transaction fees applicable 
within a particular category. See Options 7, Section 1(c).
    \11\ The term ``Firm'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Firm range at The Options Clearing Corporation. See Options 7, 
Section 1(c).
    \12\ The term ``Customer'' applies to any transaction that is 
identified by a member or member organization for clearing in the 
Customer range at The Options Clearing Corporation (``OCC'') which 
is not for the account of a broker or dealer or for the account of a 
``Professional'' (as that term is defined in Options 1, Section 
1(b)(45)). See Options 7, Section 1(c).
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    Additionally, the Exchange will assess a surcharge \13\ of $0.10 
per contract to Non-Customers \14\ who transact VOLQ options, in 
addition to the transaction fees.
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    \13\ The surcharge is assessed because VOLQ is a proprietary 
product and there is a license associated with this product.
    \14\ The term ``Non-Customer'' applies to transactions for the 
accounts of Lead Market Makers, Market Makers, Firms, Professionals, 
Broker-Dealers and JBOs. The term ``Joint Back Office'' or ``JBO'' 
applies to any transaction that is identified by a member or member 
organization for clearing in the Firm range at OCC and is identified 
with an origin code as a JBO. A JBO will be priced the same as a 
Broker-Dealer. A JBO participant is a member, member organization or 
non-member organization that maintains a JBO arrangement with a 
clearing broker-dealer (``JBO Broker'') subject to the requirements 
of Regulation T Section 220.7 of the Federal Reserve System as 
further discussed at Options 6D, Section 1. See Options 7, Section 
1(c).
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    The Exchange proposes to pay a rebate of $0.40 per contract to Lead 
Market Makers and Market Makers who add liquidity in VOLQ. The Exchange 
proposes to note within the rule text that, with respect to Section 5 
of this Options 7 Pricing Schedule, the order that is received by the 
trading system first in time shall be considered an order adding 
liquidity and an order that trades against that order shall be 
considered an order removing liquidity.
    The Exchange also proposes to amend various sections of the Pricing 
Schedule to make clear that pricing for broad-based index options 
symbols listed within Options 7, Section 5.A. is

[[Page 40296]]

governed by the pricing within Options 7, Section 5.A. Today, the 
Pricing Schedule makes note where options symbols currently listed 
within Options 7, Section 5.A. (NDX, NDXP and XND) are excluded from 
pricing. For example, Options 7, Section 2 Customer Rebates are not 
paid on NDX, NDXP, or XND contracts. The Exchange proposes to also 
exclude VOLQ options from Customer Rebates, similar to NDX, NDXP, and 
XND. The pricing for certain broad-based proprietary index options, 
NDX, NDXP, and XND, and now VOLQ, is specified within Options 7, 
Section 5.A. and other pricing within Options 7 does not apply to these 
products. The Exchange specifically makes clear within Options 7, 
Sections 2, 4, and 6 that the pricing within Options 7, Section 5.A. 
will govern for NDX, NDXP, XND and now VOLQ.
    Also, today, a member's transacted options volume for broad-based 
options symbols currently listed within Options 7, Section 5.A. (NDX, 
NDXP, and XND) may count toward certain volume requirements despite 
these symbols not being eligible for corresponding rebates. For 
example, NDX, NDXP, and XND contracts count toward the volume 
requirement to qualify for a Customer Rebate Tier within Options 7, 
Section 2, and continue to not be eligible for Customer rebates. VOLQ 
will also count toward the volume requirement to qualify for a Customer 
Rebate Tier within Options 7, Section 2, and not be eligible for 
Customer rebates.
    The Exchange is replacing rule text within Options 7 concerning 
NDX, NDXP, and XND with rule text that instead refers to ``broad-based 
index options symbols within Options 7, Section 5.A.'' which 
exclusively includes NDX, NDXP, XND and now VOLQ. Within Options 7, 
Section 4, the Exchange proposes to amend the title of the rule to 
state that broad-based index options symbols listed within Options 7, 
Section 5.A are excluded in place of noting the exclusion by symbol 
within the table in that section. Additionally, the Exchange proposes 
to note that broad-based index options symbols listed within Options 7, 
Section 5.A are excluded from the $0.12 per contract surcharge assessed 
to Non-Customer electronic Complex Orders that remove liquidity from 
the Complex Order Book and auctions within Options 7, Section 4. The 
surcharges for NDX, NDXP, XND, and VOLQ are noted within Options 7, 
Section 5.A. Likewise, broad-based index options symbols listed within 
Options 7, Section 5.A are excluded from the Monthly Market Maker Cap, 
Monthly Firm Fee Cap, Firm Floor Options Transaction Charge and Broker-
Dealer Floor Options Transaction Charge waivers, Monthly Strategy Cap, 
and Marketing Fees within Options 7, Section 4 and the PIXL Pricing, 
FLEX Transaction Fees and MARS pricing within Options 7, Section 6. 
Making clear which section of the Options 7 Pricing Schedule governs 
for particular products will provide members and member organizations 
easy references to how Phlx's pricing will be applied.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\15\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed changes to the pricing schedule are reasonable in 
several respects. As a threshold matter, the Exchange is subject to 
significant competitive forces in the market for order flow, which 
constrains its pricing determinations. The fact that the market for 
order flow is competitive has long been recognized by the courts. In 
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit 
stated, ``[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'. . . .'' \17\
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    \17\ See NetCoalition, 615 F.3d at 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 to determine 
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.'' \18\
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    \18\ 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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    Congress directed the Commission to ``rely on `competition, 
whenever possible, in meeting its regulatory responsibilities for 
overseeing the SROs and the national market system.' '' \19\ As a 
result, the Commission has historically relied on competitive forces to 
determine whether a fee proposal is equitable, fair, reasonable, and 
not unreasonably or unfairly discriminatory. ``If competitive forces 
are operative, the self-interest of the exchanges themselves will work 
powerfully to constrain unreasonable or unfair behavior.'' \20\ 
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.'' \21\
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    \19\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep. 
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that 
the national market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed.'').
    \20\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \21\ Id.
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Proposed Pricing Is Reasonable
    The Exchange believes that it is reasonable to assess 
Professionals, Lead Market Makers, Market Makers, Broker-Dealers and 
Firms a $0.40 per contract fee to transact simple and complex VOLQ 
options electronically and on the floor while assessing Customers no 
such fee. Additionally, the Exchange believes that it is reasonable to 
assess a surcharge of $0.10 per contract to Non-Customers who transact 
VOLQ options, in addition to transaction fees. Finally, the Exchange 
believes that it is reasonable to offer a rebate of $0.40 per contract 
to Lead Market Makers and Market Makers who add liquidity in VOLQ. The 
proposed pricing is reasonably designed because it is intended to 
incentivize market participants to transact VOLQ index options on the 
Exchange, which enables the Exchange to improve its overall 
competitiveness and strengthen its market quality for all market 
participants.
    VOLQ is subject to significant substitution-based competitive 
forces; market participants can substitute options on VOLQ for products 
offered by other exchanges, for example, the options on the Cboe 
Volatility Index[supreg]

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(``VIX'') \22\ and options on the SPIKES Volatility Index 
(``SPIKES[supreg]'').\23\ The proposed fees and rebates are in line 
with those of other options markets for similar products. The Exchange 
notes that if the fees are not within the range of fees offered by 
competitors, the proposed pricing may cause market participants to 
select other substitutes to Phlx's VOLQ product, so the most efficient 
price-setting strategy is to set prices at the same level as competing 
products.
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    \22\ The VIX Index is a financial benchmark designed to be an 
up-to-the-minute market estimate of expected volatility of the S&P 
500 Index, and is calculated by using the midpoint of real-time S&P 
500[supreg] Index (SPX) option bid/ask quotes.
    \23\ The SPIKES Volatility Index is a measure of the expected 
30-day volatility in the SPDR S&P 500 ETF.
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    Today, Cboe Exchange, Inc. (``Cboe'') assesses Customers VIX simple 
order fees based on tiered premium price which ranges from $0.10 to 
$0.45 per contract and complex order fees based on tiered premium price 
which ranges from $0.05 to $0.45 per contract.\24\ A Clearing Trading 
Permit Holder Proprietary is assessed a VIX fee based on a VIX sliding 
scale which ranges from $0.25 to $0.01 per contract.\25\ A Cboe Options 
Market-Maker/DPM/LMM are assessed fees based on tiered premium price 
which ranges from $0.05 to $0.23 per contract.\26\ Joint Back Office, 
Non-Trading Permit Holder Market Makers, and Professionals are assessed 
a VIX $0.40 per contract fee.\27\ VIX transactions are assessed a 
Surcharge Fee/Index License of $0.10 ($0.00 for capacity codes F and L 
for VIX transactions where the VIX Premium is <=$0.10 and the related 
series has an expiration of seven (7) calendar days or less).\28\
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    \24\ See Cboe's Fee Schedule. Transactions fees will be waived 
for Customer orders executed in VIX options during GTH through 
December 31, 2022.
    \25\ See Cboe's Fee Schedule.
    \26\ See Cboe's Fee Schedule.
    \27\ See Cboe's Fee Schedule.
    \28\ See Cboe's Fee Schedule. The Surcharge Fees apply to all 
non-public customer transactions (i.e., Cboe Options and non-Trading 
Permit Holder market-maker, Clearing Trading Permit Holder, JBO 
participant, and broker-dealer), including professionals.
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    Miami International Securities Exchange, LLC (``MIAX'') assesses 
SPIKE fees as follows: Priority Customers are assessed no fees; Market 
Makers are assessed a $0.20 per contract simple/complex taker fee and a 
$0.15 per contract simple opening fee; Non-MIAX Market Makers are 
assessed a $0.10 per contract simple/complex maker fee, a $0.25 per 
contract simple/complex taker fee and a $0.15 per contract simple 
opening fee; Broker-Dealers are assessed a $0.10 per contract simple/
complex maker fee, a $0.25 per contract simple/complex taker fee and a 
$0.15 per contract simple opening fee; Firm Proprietary are assessed a 
$0.00 per contract simple/complex maker fee, a $0.20 per contract 
simple/complex taker fee \29\ and a $0.15 per contract simple opening 
fee; and Public Customer that is not a Priority Customer are assessed a 
$0.10 per contract simple/complex maker fee, a $0.25 per contract 
simple/complex taker fee and a $0.15 per contract simple opening 
fee.\30\ MIAX also offers a SPIKES Market Maker Incentive Program 
wherein Market Makers that satisfy the quote width requirement, 70% 
time in market requirement, and average quote size of 25 contracts are 
entitled to receive Incentive 1 for that particular month ($10,000 per 
Market Maker).\31\
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    \29\ Taker fees for options with a premium price of $0.10 or 
less will be charged $0.05 per contract. See MIAX's Options Exchange 
Fee Schedule.
    \30\ See MIAX's Options Exchange Fee Schedule.
    \31\ The compensation pool for Incentive 1 is capped at a total 
of $40,000 per month. If more than four (4) Market Makers satisfy 
the requirements for Incentive 1, each Market Maker will receive a 
pro-rata share of the compensation pool based on the total number of 
Market Makers that qualify in that particular month. Each Market 
Maker that meets or exceeds all the requirements of Incentive 1, 
(``qualifying Market Maker''), may earn an additional rebate each 
month. Each qualifying Market Maker's spread width for eligible ITM 
and OTM SPIKES options is calculated and ranked relative to each 
other qualifying Market Maker. Market Makers with the highest 
quality width spread (i.e., the tightest spread) are eligible for 
compensation under Incentive 2. Each qualifying Market Maker 
receives a rebate, capped at $25,000 per Member per month, based on 
their relative ranking to each other qualifying Market Maker, with 
the top performer receiving the largest rebate amount and the bottom 
performer receiving the smallest rebate amount. The compensation 
pool size for Incentive 2 is generated by the market quality that is 
created by qualifying Market Makers, where $5,000 per basis point 
improvement over the market quality baseline, as established by 
MIAX, is contributed to fund Incentive Pool 2, which is capped at 
$100,000 per month.
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    Unlike Cboe's Customer fees for VIX, VOLQ will assess no fees to 
Customers. Today, Customers are not assessed fees for NDX, NDXP or XND. 
The $0.40 per contract fee proposed for Professionals, Lead Market 
Makers, Market Makers, Broker-Dealers and Firms to transact VOLQ simple 
and complex options electronically and on the floor is within the range 
of fees assessed by Cboe for VIX. Also, Phlx currently assesses a $0.75 
per contract fee to Non-Customers for options transacted in NDX, a 
broad-based index. VOLQ is similarly a broad-based index. Because VOLQ 
is a new index, the Exchange proposes a lower fee as compared to NDX, a 
more mature product ($0.40 per contract for VOLQ vs. $0.75 per contract 
for NDX).
    The $0.10 per contract surcharge proposed for Non-Customers who 
transact VOLQ options is within the range of the VIX surcharge. 
Customers would not pay a VOLQ surcharge as is the case today for all 
index option surcharges assessed by Phlx. Today, the Exchange assesses 
a $0.25 per contract surcharge for options transactions in NDX. The 
proposed VOLQ options surcharge is less than half the surcharge for 
NDX. The Exchange believes this surcharge is appropriate for options 
transactions on this new broad based index.
    Finally, today MIAX offers a SPIKES Market Maker Incentive Program. 
The Exchange proposes offering Lead Market Makers and Market Makers a 
$0.40 per contract rebate when adding liquidity in VOLQ to offset the 
proposed transaction fee.\32\ The Exchange believes that this rebate 
would incentivize Lead Market Makers and Market Makers to add liquidity 
to the Exchange in VOLQ.
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    \32\ The order that is received by the trading system first in 
time shall be considered an order adding liquidity and an order that 
trades against that order shall be considered an order removing 
liquidity.
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    The Exchange believes that there are many factors that may cause a 
market participant to decide to become a member of a particular 
exchange. Among various factors, the Exchange believes market 
participants consider when deciding to become a member are product 
offerings. Introducing new and innovative products to the marketplace 
designed to meet customer demands may attract market participants to 
become a member of a particular options venue. New products in the 
options industry may allow market participants greater trading and 
hedging opportunities, as well as new avenues to manage risks. The 
listing of new options products enhances competition among market 
participants by providing investors with additional investment 
vehicles, as well as competitive alternatives, to existing investment 
products. An exchange's proprietary product offering may attract order 
flow to a particular exchange to trade a particular options product and 
generally make that exchange a more desirable venue to transaction 
options, thereby attracting membership to that exchange.
    Specifically, VOLQ introduces a cash-settled options contract 
focused on equity exposure using options on the NDX, which are actively 
traded equity option products, into the marketplace. The Exchange 
believes that VOLQ's novel structure will enhance competition among 
market participants, to the benefit of investors and the marketplace. 
The introduction of VOLQ is intended to attract market

[[Page 40298]]

participants to Phlx in order to transact this solely listed product.
    The Exchange's proposal to amend Options 7, Sections 2, 4, and 6 to 
make clear that the pricing within Options 7, Section 5.A. will govern 
for NDX, NDXP, XND and now VOLQ is reasonable, equitable and not 
unfairly discriminatory. Also, making clear within Options 7, Section 
2, where VOLQ options volume would count toward the volume requirement 
to qualify for a Customer Rebate Tier within Options 7, Section 2, and 
not be eligible for Customer rebates, is reasonable, equitable and not 
unfairly discriminatory. The proposed rule text will make clear to 
members and member organizations how Phlx's pricing will be applied. 
Also, applying VOLQ options volume in the Customer Rebate Tiers is 
consistent with the manner in which other index options currently 
listed on Phlx are treated. The Exchange believes that excluding the 
broad-based index options symbols within Options 7, Section 5.A from 
other multiply-listed options pricing \33\ on the Exchange is 
reasonable, equitable, and not unfairly discriminatory because 
multiply-listed options pricing assesses fees, pays rebates, waives 
pricing or discounts pricing for most multiply-listed option symbols 
generally, regardless of symbol.\34\ In contrast, pricing for 
proprietary broad-based index options is specific to the product. It is 
not novel to assess different pricing for multiply-listed options as 
compared to proprietary singly-listed options.\35\
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    \33\ Broad-based index options symbols within Options 7, Section 
5.A are excluded from Customer Rebates within Options 7, Section 2, 
the $0.12 per contract surcharge assessed to Non-Customer electronic 
Complex Orders that remove liquidity from the Complex Order Book and 
auctions, Monthly Market Maker Cap, Monthly Firm Fee Cap, Firm Floor 
Options Transaction Charge and Broker-Dealer Floor Options 
Transaction Charge waivers, Monthly Strategy Cap, and Marketing Fees 
within Options 7, Section 4 and the PIXL Pricing, FLEX Transaction 
Fees and MARS pricing within Options 7, Section 6.
    \34\ Today, Phlx prices options in SPY differently than other 
multiply-listed options symbols.
    \35\ Today, Cboe, MIAX and Phlx assess different pricing for 
singly-listed options and multiply-listed options.
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    Finally, pricing by symbol is a common practice on many U.S. 
options exchanges as a means to incentivize order flow to be sent to an 
exchange for execution in particular products. Other options exchanges 
price by symbol.\36\ Finally, it is reasonable, equitable and not 
unfairly discriminatory to assess the proposed fees and rebates for 
both simple and complex executions in VOLQ options, as is the case for 
other index options currently listed on Phlx.
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    \36\ See pricing NQX on Nasdaq ISE, LLC.
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Proposed Pricing Is Equitable and Not Unfairly Discriminatory
    The Exchange believes that it is equitable and not unfairly 
discriminatory to assess Professionals, Lead Market Makers, Market 
Makers, Broker-Dealers and Firms a $0.40 per contract fee to transact 
simple and complex VOLQ options electronically and on the floor, and a 
$0.10 per contract surcharge, while assessing Customers no such 
transaction fee or surcharge. Customer order flow enhances liquidity on 
the Exchange for the benefit of all market participants. Customer 
liquidity provides more trading opportunities, which attracts Market 
Makers. An increase in the activity of these market participants in 
turn facilitates tighter spreads, which may cause an additional 
corresponding increase in order flow from other market participants. 
The proposed pricing for Customer orders in VOLQ is intended to attract 
Customer trading volume to the Exchange. In addition, the proposed VOLQ 
pricing for Customers will apply equally to all Customer orders. Non-
Customers (Professionals, Lead Market Makers, Market Makers, Broker-
Dealers and Firms) would be uniformly assessed a $0.40 per contract fee 
to transact simple and complex VOLQ options electronically and on the 
floor and a $0.10 per contract surcharge in VOLQ. All Non-Customers may 
transact VOLQ options and would be assessed the same fees.
    The Exchange believes that it is equitable and not unfairly 
discriminatory to pay Lead Market Makers and Market Makers a $0.40 per 
contract rebate when adding liquidity in VOLQ. Maker Makers take on a 
number of obligations,\37\ including quoting obligations,\38\ unlike 
other market participants. Further, the proposed pricing for Lead 
Market Makers and Market Makers in VOLQ is intended to incentivize them 
to quote and trade more on the Exchange, thereby providing more trading 
opportunities for all market participants. As noted above, the $0.40 
per contract rebate when adding liquidity in VOLQ is intended to offset 
the $0.40 per contract VOLQ transaction fee. The Exchange believes the 
proposed pricing will incentivize Lead Market Makers and Market Makers 
to provide liquidity in the new product. Additionally, the proposed 
VOLQ rebate will be applied equally to all Lead Market Makers and 
Market Makers.
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    \37\ See Options 2, Section 4.
    \38\ See Options 2, Section 5 and Options 3, Section 8.
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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 believes its 
proposal remains competitive with other options markets that offer 
similar substitute products, and will offer market participants with 
another choice of venue to transact options. While VOLQ options are 
singly-listed on Phlx, 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. The Exchange notes that there are other volatility products 
available today on other options markets, such as VIX and SPIKES, which 
allow investors to gauge volatility. In sum, if the changes proposed 
herein are unattractive to market participants, it is likely that the 
Exchange will lose market share as a result.
    In terms of intra-market competition, the Exchange believes that 
the proposed pricing does not impose an undue burden on competition. 
Assessing no transaction fees or surcharge fees to Customer orders in 
VOLQ does not impose an undue burden on competition because Customer 
order flow enhances liquidity on the Exchange for the benefit of all 
market participants. Customer liquidity provides more trading 
opportunities, which attracts Market Makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. The proposed pricing for Customer 
orders in VOLQ is intended to attract Customer trading volume to the 
Exchange. In addition, the proposed VOLQ pricing for Customers will 
apply equally to all Customer orders. Further, uniformly assessing Non-
Customers (Professionals, Lead Market Makers, Market Makers, Broker-
Dealers and Firms) a $0.40 per contract fee to transact simple and 
complex VOLQ options electronically and on the floor and a $0.10 per 
contract surcharge in VOLQ does not impose an undue burden on 
competition. All Non-Customers may transact VOLQ options and would be 
assessed the same fees. Finally, paying Lead Market Makers and

[[Page 40299]]

Market Makers a $0.40 per contract rebate when adding liquidity in VOLQ 
does not impose an undue burden on competition. Maker Makers take on a 
number of obligations,\39\ including quoting obligations,\40\ unlike 
other market participants. Further, the proposed pricing for Lead 
Market Makers and Market Makers in VOLQ is intended to incentivize them 
to quote and trade more on the Exchange, thereby providing more trading 
opportunities for all market participants. As noted above, the $0.40 
per contract rebate when adding liquidity in VOLQ is intended to offset 
the $0.40 per contract VOLQ transaction fee. The Exchange believes the 
proposed pricing will incentivize Lead Market Makers and Market Makers 
to provide liquidity in the new product. Additionally, the proposed 
VOLQ rebate will be applied equally to all Lead Market Makers and 
Market Makers.
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    \39\ See Options 2, Section 4.
    \40\ See Options 2, Section 5 and Options 3, Section 8.
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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.\41\
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    \41\ 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-2022-27 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-2022-27. 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-2022-27, and should be submitted on 
or before July 27, 2022.
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    \42\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-14293 Filed 7-5-22; 8:45 am]
BILLING CODE 8011-01-P


