[Federal Register Volume 88, Number 12 (Thursday, January 19, 2023)]
[Notices]
[Pages 3456-3458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-00987]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96666; File No. SR-Phlx-2023-01]


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

January 13, 2023.
    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 January 3, 2023, 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 and II, 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 schedule of fees and 
credits at Equity 7, Section 3. 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 the Exchange's 
schedule of fees and credits at Equity 7, Section 3. First, the 
Exchange proposes to remove a $0.0029 per share executed fee for member 
organizations that remove liquidity from the Exchange. Second, the 
Exchange proposes to remove several credits for displayed Quotes/
Orders, including credits of $0.0035, $0.0034, and $0.0032 per share 
executed. Third, the Exchange proposes to add a new credit for 
displayed Quotes/Orders of $0.0032 per share executed.
Discontinued Fee To Remove Liquidity
    The Exchange proposes to amend its pricing schedule, at Equity 7, 
Section 3, to remove a current $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. Currently, the $0.0029 per share executed 
fee represents a discount relative to the fee of $0.0030 per share 
executed for all other orders that do not meet the criteria to qualify 
for the $0.0029 per share executed fee. Therefore, the effect of 
removing the $0.0029 per share executed fee is that all orders that 
remove liquidity from the Exchange would be subject to the $0.0030 per 
share executed fee. 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 orders that remove liquidity 
from the Exchange. The Exchange has limited resources available to it 
to offer its members market-improving incentives, and it allocates 
those limited resources to those segments of the market where it 
perceives the need to be greatest and/or where it determines that the 
incentive is likely to achieve its intended objective. The Exchange 
proposes to discontinue the $0.0029 per share executed fee because it 
has not induced members to grow materially the extent to which they add 
liquidity to the Exchange over time.
Discontinued Rebates To Add Displayed Liquidity
    The Exchange proposes to remove the following credits presently 
offered to member organizations that add displayed liquidity to the 
Exchange: (1) $0.0035 per share executed for Quotes/Orders entered by a 
member organization that provides 0.10% or more of total Consolidated 
Volume during the month; (2) $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; and (3) $0.0032 per share 
executed for Quotes/Orders entered by a member organization that: (i) 
provides a daily average of at least 2 million shares of liquidity in 
all securities on the Exchange during the month; and (ii) 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 Exchange 
offers these credits as a means of improving market quality by 
providing its members with an incentive to increase liquidity on the 
Exchange. The Exchange has limited resources available to it to offer 
its members market-improving incentives, and it allocates those limited 
resources to those segments of the market where it perceives the need 
to be greatest and/or where it determines that the incentive is likely 
to achieve its intended objective. Accordingly, the Exchange proposes 
to eliminate the credits noted above.
New Rebate To Add Displayed Liquidity
    The Exchange proposes to establish a new credit that will reward a 
member organization with a credit of $0.0032 per share executed for 
Quotes/Orders that provides 0.05% or more of total Consolidated Volume 
during the month. The proposed new credit will provide an incentive to 
member organizations to add liquidity to the Exchange. 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,\3\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\4\ in particular, in that it provides 
for the equitable allocation of

[[Page 3457]]

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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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its schedule of credits are 
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'. . . .'' \5\
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    \5\ 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.'' \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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    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. Competing equity exchanges offer similar tiered pricing 
structures to that of the Exchange, including schedules of rebates and 
fees that apply based upon members achieving certain volume thresholds.
    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. As such, the 
proposal represents a reasonable attempt by the Exchange to increase 
its liquidity and market share relative to its competitors.
    The Exchange believes it is reasonable, equitable, and not unfairly 
discriminatory to eliminate the $0.0029 per share executed fee for 
member organizations that remove liquidity from the Exchange and make 
conforming changes to the fee schedule. The fee has not been successful 
in inducing members to grow materially the extent to which they add 
liquidity to the Exchange over time. The Exchange has limited resources 
to allocate to incentives and it must, from time to time, reallocate 
those resources to maximize their net impact on the Exchange, market 
quality, and participants.
    It is also reasonable, equitable, and not unfairly discriminatory 
for the Exchange to streamline its schedule of credits for adding 
displayed liquidity to the Exchange, including removing three credits 
and adding a new credit. These adjustments will better align incentives 
with the Exchange's needs. Again, the Exchange has limited resources to 
devote to incentive programs, and it is appropriate for the Exchange to 
reallocate these incentives periodically in a manner that best achieves 
the Exchange's overall mix of objectives.
    Those participants that are dissatisfied with the proposed changes 
to the Exchange's schedule of fees and credits are free to shift their 
order flow to competing venues that provide more generous incentives or 
less stringent qualifying criteria.

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 proposals will place any 
category of Exchange participant at a competitive disadvantage.
    The Exchange intends for its proposed changes to its fees and 
credits to reallocate its limited resources more efficiently and to 
align them with the Exchange's overall mix of objectives. The Exchange 
notes that its members are free to trade on other venues to the extent 
they believe that these proposals are 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
    In terms of inter-market competition, the Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem fee levels at a 
particular venue to be excessive, or rebate opportunities available at 
other venues to be more favorable. In such an environment, the Exchange 
must continually adjust its credits and 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 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 or fee changes in this market may impose any burden on 
competition is extremely limited. The proposals are reflective of this 
competition.
    Even as one of the largest U.S. equities exchanges by volume, the 
Exchange has less than 20% 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 upwards of 50% of industry volume.
    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. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members 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.

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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) of the Act \7\ and paragraph (f) of Rule 19b-4 
thereunder.\8\ 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.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f).
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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-2023-01 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-2023-01. 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 
a.m. and 3 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-2023-01 and should be 
submitted on or before February 9, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00987 Filed 1-18-23; 8:45 am]
BILLING CODE 8011-01-P


