[Federal Register Volume 88, Number 93 (Monday, May 15, 2023)]
[Notices]
[Pages 31081-31083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10248]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97465; File No. SR-Phlx-2023-16]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, 
Section 3(a)(1)

May 9, 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 May 1, 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, 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(a)(1) to exclude 
certain days for purposes of calculating Consolidated Volume and 
trading activity, 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

[[Page 31082]]

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(a)(1) to exclude certain days for purposes of calculating 
Consolidated Volume and trading activity. Specifically, the Exchange 
also proposes to amend Equity 7, Section 3(a)(1) to exclude the 
following from calculations of total Consolidated Volume and the 
member's trading activity for purposes of volume calculations for 
equity pricing tiers/incentives: (1) the dates on which stock options, 
stock index options, and stock index futures expire (i.e., the third 
Friday of March, June, September, and December) (``Triple Witch 
Dates''); (2) the dates on which the MSCI Equity Indexes are rebalanced 
(i.e., on a quarterly basis) (``MSCI Rebalance Dates''); (3) the dates 
on which the S&P 400, S&P 500, and S&P 600 Indexes are rebalanced 
(i.e., on a quarterly basis) (``S&P Rebalance Dates''); and (4) the 
date of the annual reconstitution of the Nasdaq-100 and Nasdaq 
Biotechnology Indexes (``Nasdaq Reconstitution Date''). Currently, the 
Exchange excludes the date of the annual reconstitution of the Russell 
Investments Indexes from calculations of total Consolidated Volume and 
the member's trading activity for purposes of volume calculations for 
equity pricing tiers/incentives.
    For the same reasons that the Exchange currently excludes the date 
of the annual reconstitution of the Russell Investments Indexes from 
these calculations, the Exchange believes it is appropriate to exclude 
Triple Witch Dates, MSCI Rebalance Dates, S&P Rebalance Dates, and the 
Nasdaq Reconstitution Date from these calculations in the same manner, 
as trading volumes on such days are generally far in excess of volumes 
on other days during the month, and market participants that are not 
otherwise active on the Exchange to a great extent often participate on 
the Exchange on such dates to rebalance holdings, or in the case of 
Triple Witch Dates, to close out or roll over positions prior to 
expiration. The Exchange believes this change to normal activity may 
affect a member's ability to meet the applicable volume thresholds 
under its volume-based tiers. The Exchange notes that the proposed 
exclusion of Triple Witch Dates, MSCI Rebalance Dates, S&P Rebalance 
Dates, and the Nasdaq Reconstitution Date from the relevant 
calculations would be applied in the same manner that the Exchange 
currently excludes the date of the annual reconstitution of the Russell 
Investments Indexes from such calculations.
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 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 believes it is reasonable, equitable, and not unfairly 
discriminatory to exclude Triple Witch Dates, MSCI Rebalance Dates, S&P 
Rebalance Dates, and the Nasdaq Reconstitution Date from calculations 
of total Consolidated Volume and the member's trading activity for 
purposes of volume calculations for equity pricing tiers/incentives. As 
described above, Triple Witch Dates, MSCI Rebalance Dates, S&P 
Rebalance Dates, and the Nasdaq Reconstitution Date typically have 
extraordinarily high and/or abnormally distributed trading volumes 
which, in turn, may affect a member's ability to meet the applicable 
volume thresholds under its transaction pricing tiers/incentives, and 
the Exchange believes that excluding such days from the relevant 
calculations for purposes of determining a member's qualification for 
such tiers/incentives would help to avoid penalizing members that might 
otherwise have met the requirements to qualify for such tiers/
incentives. The Exchange believes that the proposal is reasonable 
because it will diminish the likelihood of a de facto price increase 
occurring because a member is not able to reach a volume percentage on 
that date that it reaches on other trading days during the month.
    The Exchange further believes that the change is consistent with an 
equitable allocation of fees and is not unfairly discriminatory. 
Specifically, because trading activity on Triple Witch Dates, MSCI 
Rebalance Dates, S&P Rebalance Dates, and the Nasdaq Reconstitution 
Date will be excluded from determinations of a member's percentage of 
Consolidated Volume, the Exchange believes it will be easier for 
members to determine the volume required to meet a certain percentage 
of participation than would otherwise be the case. To the extent that a 
member has been active on the Exchange at a significant level 
throughout the month, excluding the Triple Witch Dates, MSCI Rebalance 
Dates, S&P Rebalance Dates, and the Nasdaq Reconstitution Date, on 
which its percentage of Consolidated Volume is likely to be lower than 
on other days, will increase its overall percentage for the month. 
Conversely, even if a member was more active on Triple Witch Dates, 
MSCI Rebalance Dates, S&P Rebalance Dates, and the Nasdaq 
Reconstitution Date than on other dates, it is unlikely that its 
activity on one day would be able to increase its overall monthly 
percentage to a meaningful extent. Thus, the Exchange believes that the 
change will benefit members that are in a position to achieve volume 
levels required by the Exchange's pricing schedule but without harming 
the ability of any members to reach such levels.
    Finally, the Exchange believes that the change does not unfairly 
burden competition because it will help to preserve or improve the 
pricing status that would apply to members' trading activity in the 
absence of Triple Witch Dates, MSCI Rebalance Dates, S&P Rebalance 
Dates, and the Nasdaq Reconstitution Date, and therefore will not 
impact the ability of such members to compete. The proposed rule change 
would apply to all members uniformly, in that each member's volume 
activities for purposes of pricing tiers/incentives would continue to 
be calculated in a uniform manner and would now exclude Triple Witch 
Dates, MSCI Rebalance Dates, S&P Rebalance Dates, and the Nasdaq 
Reconstitution Date.

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 participant at a competitive disadvantage.
    The Exchange intends for its proposed changes to amend the 
calculation of Consolidated Volume and trading activity at Equity 7, 
Section 3(a)(1) to avoid penalizing members that might otherwise have 
met the applicable volume thresholds to qualify for the Exchange's 
transaction pricing tiers/incentives if not for the abnormal

[[Page 31083]]

trading volumes and market conditions typically experienced in the 
equities markets on the Triple Witch Dates, MSCI Rebalance Dates, S&P 
Rebalance Dates, and the Nasdaq Reconstitution Date. The proposed 
exclusion of such dates from the relevant calculations would apply to 
all members uniformly and in the same manner that the Exchange 
currently excludes the date of the annual reconstitution of the Russell 
Investments Indexes from such calculations.
    The Exchange notes that its members are free to trade on other 
venues to the extent they believe that the proposal 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
    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 proposal is 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.
    The Exchange believes the proposal to exclude certain dates from 
calculating Consolidated Volume and trading activity is not concerned 
with competitive issues, but rather relates to calculation 
methodologies applicable to its pricing tiers/incentives.
    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.

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.\5\
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    \5\ 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-2023-16 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-2023-16. 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. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to File Number SR-PHLX-2023-16 and should 
be submitted on or before June 5, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10248 Filed 5-12-23; 8:45 am]
BILLING CODE 8011-01-P


