82 FR 19124 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Transaction Fees at Section VIII
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 78 (April 25, 2017)
Federal Register Volume 82, Issue 78 (April 25, 2017)
| Page Range | 19124-19127 | |
| FR Document | 2017-08281 |
[Federal Register Volume 82, Number 78 (Tuesday, April 25, 2017)] [Notices] [Pages 19124-19127] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-08281] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80483; File No. SR-Phlx-2017-31] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Transaction Fees at Section VIII April 19, 2017. 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 April 10, 2017, 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Exchange's transaction fees at Section VIII (NASDAQ PSX Fees) to provide an additional credit tier for displayed quotes and orders on NASDAQ PSX (``PSX'') in securities that are listed on exchanges other than The NASDAQ Stock Market LLC (``Nasdaq'') or the New York Stock Exchange LLC (``NYSE''). The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqphlx.cchwallstreet.com/, 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 provide an additional credit tier for displayed quotes and orders on PSX in securities listed on exchanges other than Nasdaq or NYSE (``Tape B securities'') that are priced at $1 and above.\3\ --------------------------------------------------------------------------- \3\ Tape C securities are those that are listed on the Exchange [sic], Tape A securities are those that are listed on NYSE, and Tape B securities are those that are listed on exchanges other than Nasdaq or NYSE. The Exchange initially filed the proposed pricing changes on April 3, 2017 (SR-Phlx-2017-28). On April 10, 2017, the Exchange withdrew that filing and submitted this filing. --------------------------------------------------------------------------- Currently, the Exchange provides two credits for providing liquidity through PSX. First, the Exchange provides a credit for displayed quotes and orders, with the amount of the credit determined by the member's [[Page 19125]] Consolidated Volume in that month.\4\ Second, the Exchange provides a credit for certain non-displayed orders.\5\ --------------------------------------------------------------------------- \4\ Specifically, the Exchange provides a credit of $0.0031 per share executed for Quotes/Orders entered by a member organization that provides and accesses 0.35% or more of Consolidated Volume during the month; $0.0029 per share executed for Quotes/Orders entered by a member organization that provides and accesses 0.25% or more of Consolidated Volume during the month; $0.0027 per share executed for Quotes/Orders entered by a member organization that provides and accesses 0.15% or more of Consolidated Volume during the month; $0.0025 per share executed for Quotes/Orders entered by a member organization that provides and accesses 0.05% or more of Consolidated Volume during the month; and $0.0023 per share executed for all other Quotes/Orders. \5\ Specifically, the Exchange provides a credit of $0.0023 per share executed credit for all orders with midpoint pegging that provide liquidity, and $0.0000 per share executed credit for other non-displayed orders that provide liquidity. --------------------------------------------------------------------------- The Exchange now proposes to provide an additional credit tier for displayed quotes and orders in Tape B securities on the Exchange. Specifically, the Exchange will provide a credit of $0.0027 per share executed for displayed Quotes/Orders entered in securities listed on exchanges other than Nasdaq or NYSE by a member organization that (1) provides a minimum of 1 million shares a day on average in securities listed on exchanges other than Nasdaq or NYSE and (2) doubles the daily average share volume provided in securities that are listed on exchanges other than Nasdaq or NYSE during the month versus the member organization's daily average share volume provided in securities that are listed on exchanges other than Nasdaq or NYSE in February 2017.\6\ This credit will only apply to securities that are priced at $1 or above. --------------------------------------------------------------------------- \6\ As an example, assume that a member had a daily average share volume of 600,000 shares in Tape B securities in February 2017. If the member provided 1.2 million shares per day on average in Tape B securities in April, the member would receive the rebate for that month, since it had doubled its daily average share volume in Tape B securities in comparison to its February Tape B volume, and also exceeded the one million daily share average volume requirement in Tape B securities in the month of April. If a member had a daily average share volume of 400,000 shares in Tape B securities in February 2017, the member would have to increase its average daily share volume by 2.5 times in order meet the requirements of the proposed rebate, since doubling its February average daily volume in Tape B securities would result in an average daily volume of 800,000 shares, which would not satisfy the requirement that the member provide a minimum of 1 million shares a day on average in securities listed on exchanges other than Nasdaq and NYSE. A member that had a daily average share volume of 900,000 shares in Tape B securities in February 2017 would have to increase its average daily volume in Tape B securities to 1.8 million shares in order to qualify for the credit in a given month, since this would satisfy the requirement that the member double its average daily share volume in Tape B securities in the given month in comparison to its February 2017 volume, in addition to adding at least 1 million shares a day on average in Tape B securities in the month in which eligibility for the credit is being assessed. --------------------------------------------------------------------------- If a member had no activity in February 2017 in securities listed on exchanges other than Nasdaq or NYSE or became a member after February 2017, its February 2017 daily average share volume in securities that are listed on exchanges other than Nasdaq or NYSE would be zero for purposes of determining that member's eligibility for the credit in subsequent months. The Exchange believes this credit tier will incentivize members to provide increased liquidity in Tape B securities on the Exchange, thereby enhancing the Exchange's market quality in Tape B securities. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\7\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\8\ 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. --------------------------------------------------------------------------- \7\ 15 U.S.C. 78f(b). \8\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- 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.'' \9\ --------------------------------------------------------------------------- \9\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting Release''). --------------------------------------------------------------------------- Likewise, in NetCoalition v. Securities and Exchange Commission \10\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of a market-based approach in evaluating the fairness of market data fees against a challenge claiming that Congress mandated a cost-based approach.\11\ As the court emphasized, the Commission ``intended in Regulation NMS that `market forces, rather than regulatory requirements' play a role in determining the market data . . . to be made available to investors and at what cost.'' \12\ --------------------------------------------------------------------------- \10\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \11\ See NetCoalition, at 534-535. \12\ Id. at 537. --------------------------------------------------------------------------- Further, ``[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'. . . .'' \13\ --------------------------------------------------------------------------- \13\ 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)). --------------------------------------------------------------------------- The Exchange believes that the additional credit tier is reasonable because it is designed to incentivize members to provide increased liquidity in Tape B securities on the Exchange, thereby enhancing the Exchange's market quality in Tape B securities. The Exchange believes that the amount of the credit ($0.0027 per share executed) is proportionate to the requirements necessary to qualify for the credit, and will act as an incentive to add liquidity in Tape B securities. The Exchange notes that the amount of the credit is comparable to other credits offered by the Exchange for adding displayed liquidity, which range from $0.0023 to $0.0031 and impose comparable requirements.\14\ --------------------------------------------------------------------------- \14\ For example, the Exchange pays a credit of $0.0027 per share executed for displayed Quotes/Orders that are entered by a member organization that provides and accesses 0.15% or more of Consolidated Volume during the month. While that credit uses percentage of Daily Volume, rather than a daily average share volume measurement, the Exchange believes that the requirements are nonetheless comparable. The Exchange also notes that Bats BZX Exchange, Inc. pays a credit of $0.0027 for displayed orders that add liquidity in Tape B securities where the member has an average daily added volume that equals or exceeds 0.08% of Total Consolidated Volume. --------------------------------------------------------------------------- The Exchange believes it is reasonable to provide this credit tier to displayed liquidity only, since displayed liquidity plays a significant role in the price formation process, and should thus be incentivized through a credit tier such as is being proposed here. The Exchange believes that it is reasonable to provide this credit tier to Tape B securities that are priced at $1 or greater, because the Exchange desires to increase its market share in Tape B securities, and because securities priced at less than $1 are subject to a separate pricing structure. [[Page 19126]] The Exchange believes that using February 2017 as the basis for determining eligibility for the credit tier is reasonable because that month represents the most recent full month of trading for which the Exchange has completed its assessment of members' activity on the Exchange for purposes of assessing charges and credits, and because the selection of a previous month as a baseline prevents members from changing their behavior prospectively to influence their baseline, and thus, their eligibility for the credit tier. The Exchange also notes that other exchanges use prior months as benchmarks for assessing transaction credits.\15\ --------------------------------------------------------------------------- \15\ For example, Bats BZX Exchange, Inc. pays a credit of $0.0030 per share for adding displayed orders if the member increases its share of total Consolidated Volume for adding liquidity by 0.15% or more in comparison to its volume in April 2016, and if the member has an average daily added volume as a percentage of total Consolidated Volume that equals or exceeds 0.20%. --------------------------------------------------------------------------- The Exchange believes that it is reasonable to require a member to both double its daily average share volume in Tape B securities in comparison to its February 2017 volume and also provides a minimum of 1 million shares a day on average in Tape B securities for the month in which eligibility for the credit is being assessed. Requiring that a member double its daily average share volume in Tape B securities in comparison to its February 2017 volume means that the member is required to add volume in an amount which is meaningful to the member, while requiring that the member provide a daily average share volume of at least of 1 million shares a day in Tape B securities means that the member is required to add volume in an amount which is meaningful to the Exchange. The Exchange believes that proposed credit tier is an equitable allocation and is not unfairly discriminatory because the Exchange will apply the same credit to all similarly situated members. The Exchange notes that participation on the Exchange, and eligibility for the credit tier, is voluntary, and that the proposed credit tier applies equally to all members that qualify for it, e.g., the member doubles its daily average share volume in Tape B securities in comparison to its February 2017 level and provides a minimum of 1 million shares a day on average in Tape B securities for the month in which eligibility for the credit tier is being assessed. This way to receive an ongoing credit is open to any member that elects to meet the volume requirements in Tape B securities. The Exchange notes that it already offers other credits for adding displayed liquidity that do not require the member to transact in Tape B securities. In adopting this credit tier, the Exchange is providing members with another way in which they may qualify for a credit on the Exchange, while incentivizing members to add increased displayed liquidity in Tape B securities, thereby enhancing the market quality on the Exchange in those securities and benefitting all participants. The Exchange notes that, given the requirement that a member double its daily average share volume in Tape B securities in comparison to its February 2017 level and provide a minimum of 1 million shares a day on average in Tape B securities in the given month, a member may have to more than double its daily average share volume in Tape B securities in comparison to its February 2017 volume, or provide more than 1 million shares a day on average in Tape B securities in the given month, in order to be eligible for the credit tier. The Exchange believes that this is equitable and not unfairly discriminatory because the requirements to qualify for the credit tier apply to all members, and because imposing both elements requires a member to add volume in an amount which is meaningful to the member (by doubling its February 2017 average daily volume in Tape B securities) and to the Exchange (providing a daily average share volume of at least of 1 million shares a day in Tape B securities). 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 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 and 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 fees and credits in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee and credit changes in this market may impose any burden on competition is extremely limited. In this instance, the proposed credit tier does not impose a burden on competition because the Exchange's execution services are completely voluntary and subject to extensive competition both from other exchanges and from off-exchange venues. The new credit tier is consistent with transaction credits currently assessed by the Exchange and by other exchanges. The new credit tier applies equally to all members that meet the volume requirements, and all similarly situated members are equally capable of qualifying for the credit if they choose to meet the volume requirements. Finally, the purpose of the credit is to incentivize members to add displayed liquidity to the Exchange in Tape B securities. The Exchange believes this will create greater liquidity in those securities on the Exchange, which will potentially attract additional participants to the Exchange and thereby promote competition. 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. 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.\16\ --------------------------------------------------------------------------- \16\ 15 U.S.C. 78s(b)(3)(A)(ii). --------------------------------------------------------------------------- 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. [[Page 19127]] 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 CommentsUse 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-2017-31 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-2017-31. 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 Web site (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 Web site 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; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2017-31 and should be submitted on or before May 16, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\17\ --------------------------------------------------------------------------- \17\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-08281 Filed 4-24-17; 8:45 am] BILLING CODE 8011-01-P
![19124 Federal Register / Vol. 82, No. 78 / Tuesday, April 25, 2017 / Notices
Agencies’ liquidity risk management with respect to the Proposed Rule solicit comments on the proposed rule
tools as they currently apply to their Changes that are filed with the change from interested persons.
respective Members or Participants. Commission, and all written
I. Self-Regulatory Organization’s
communications relating to the
(C) Clearing Agencies’ Statements on Statement of the Terms of Substance of
Proposed Rule Changes between the
Comments on the Proposed Rule the Proposed Rule Change
Commission and any person, other than
Changes Received From Members,
those that may be withheld from the The Exchange proposes to amend the
Participants, or Others
public in accordance with the Exchange’s transaction fees at Section
The Clearing Agencies have not provisions of 5 U.S.C. 552, will be VIII (NASDAQ PSX Fees) to provide an
solicited or received any written available for Web site viewing and additional credit tier for displayed
comments relating to this proposal. The printing in the Commission’s Public quotes and orders on NASDAQ PSX
Clearing Agencies will notify the Reference Room, 100 F Street NE., (‘‘PSX’’) in securities that are listed on
Commission of any written comments Washington, DC 20549 on official exchanges other than The NASDAQ
received by the Clearing Agencies. business days between the hours of Stock Market LLC (‘‘Nasdaq’’) or the
III. Date of Effectiveness of the 10:00 a.m. and 3:00 p.m. Copies of the New York Stock Exchange LLC
Proposed Rule Changes, and Timing for filing also will be available for (‘‘NYSE’’).
Commission Action inspection and copying at the principal The text of the proposed rule change
office of the Clearing Agencies, and on is available on the Exchange’s Web
Within 45 days of the date of DTCC’s Web site (http://dtcc.com/legal/
publication of this notice in the Federal site at http://
sec-rule-filings.aspx). All comments nasdaqphlx.cchwallstreet.com/, at the
Register or within such longer period received will be posted without change;
up to 90 days (i) as the Commission may principal office of the Exchange, and at
the Commission does not edit personal the Commission’s Public Reference
designate if it finds such longer period identifying information from
to be appropriate and publishes its Room.
submissions. You should submit only
reasons for so finding or (ii) as to which information that you wish to make II. Self-Regulatory Organization’s
the clearing agency consents, the available publicly. All submissions Statement of the Purpose of, and
Commission will: should refer to File Number SR–DTC– Statutory Basis for, the Proposed Rule
(A) by order approve or disapprove 2017–004, SR–NSCC–2017–005, or SR– Change
such Proposed Rule Changes, or FICC–2017–008, and should be
(B) institute proceedings to determine In its filing with the Commission, the
submitted on or before May 16, 2017.
whether the Proposed Rule Changes Exchange included statements
should be disapproved. For the Commission, by the Division of concerning the purpose of and basis for
Trading and Markets, pursuant to delegated the proposed rule change and discussed
IV. Solicitation of Comments authority.37
any comments it received on the
Interested persons are invited to Eduardo A. Aleman, proposed rule change. The text of these
submit written data, views and Assistant Secretary. statements may be examined at the
arguments concerning the foregoing, [FR Doc. 2017–08286 Filed 4–24–17; 8:45 am] places specified in Item IV below. The
including whether the Proposed Rule BILLING CODE 8011–01–P Exchange has prepared summaries, set
Changes are consistent with the Act. forth in sections A, B, and C below, of
Comments may be submitted by any of the most significant aspects of such
the following methods: SECURITIES AND EXCHANGE statements.
COMMISSION
Electronic Comments A. Self-Regulatory Organization’s
• Use the Commission’s Internet [Release No. 34–80483; File No. SR-Phlx- Statement of the Purpose of, and
2017–31] Statutory Basis for, the Proposed Rule
comment form (http://www.sec.gov/
rules/sro.shtml); or Change
Self-Regulatory Organizations;
• Send an email to rule-comments@ NASDAQ PHLX LLC; Notice of Filing 1. Purpose
sec.gov. Please include File Number SR– and Immediate Effectiveness of
DTC–2017–004, SR–NSCC–2017–005, or The purpose of the proposed rule
Proposed Rule Change To Amend the
SR–FICC–2017–008 on the subject line. change is to provide an additional credit
Exchange’s Transaction Fees at
tier for displayed quotes and orders on
Paper Comments Section VIII
PSX in securities listed on exchanges
• Send paper comments in triplicate April 19, 2017. other than Nasdaq or NYSE (‘‘Tape B
to Secretary, Securities and Exchange Pursuant to Section 19(b)(1) of the securities’’) that are priced at $1 and
Commission, 100 F Street NE., Securities Exchange Act of 1934 above.3
Washington, DC 20549. (‘‘Act’’) 1, and Rule 19b–4 thereunder,2 Currently, the Exchange provides two
All submissions should refer to File notice is hereby given that on April 10, credits for providing liquidity through
Number SR–DTC–2017–004, SR–NSCC– 2017, NASDAQ PHLX LLC (‘‘Phlx’’ or PSX. First, the Exchange provides a
2017–005, or SR–FICC–2017–008. One ‘‘Exchange’’) filed with the Securities credit for displayed quotes and orders,
of these file numbers should be and Exchange Commission (‘‘SEC’’ or with the amount of the credit
included on the subject line if email is
asabaliauskas on DSK3SPTVN1PROD with NOTICES
‘‘Commission’’) the proposed rule determined by the member’s
used. To help the Commission process change as described in Items I, II, and
and review your comments more III, below, which Items have been 3 Tape C securities are those that are listed on the
efficiently, please use only one method. prepared by the Exchange. The Exchange [sic], Tape A securities are those that are
The Commission will post all comments Commission is publishing this notice to listed on NYSE, and Tape B securities are those that
on the Commission’s Internet Web site are listed on exchanges other than Nasdaq or NYSE.
The Exchange initially filed the proposed pricing
(http://www.sec.gov/rules/sro.shtml). 37 17 CFR 200.30–3(a)(12). changes on April 3, 2017 (SR–Phlx–2017–28). On
Copies of the submission, all subsequent 1 15 U.S.C. 78s(b)(1). April 10, 2017, the Exchange withdrew that filing
amendments, all written statements 2 17 CFR 240.19b–4. and submitted this filing.
VerDate Sep<11>2014 17:42 Apr 24, 2017 Jkt 241001 PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 E:\FR\FM\25APN1.SGM 25APN1](https://thefederalregister.org/doc/82_FR_19202/page/1.svg)
![Federal Register / Vol. 82, No. 78 / Tuesday, April 25, 2017 / Notices 19125
Consolidated Volume in that month.4 will only apply to securities that are rather than regulatory requirements’
Second, the Exchange provides a credit priced at $1 or above. play a role in determining the market
for certain non-displayed orders.5 If a member had no activity in data . . . to be made available to
The Exchange now proposes to February 2017 in securities listed on investors and at what cost.’’ 12
provide an additional credit tier for exchanges other than Nasdaq or NYSE Further, ‘‘[n]o one disputes that
displayed quotes and orders in Tape B or became a member after February competition for order flow is ‘fierce.’
securities on the Exchange. Specifically, 2017, its February 2017 daily average . . . As the SEC explained, ‘[i]n the U.S.
the Exchange will provide a credit of share volume in securities that are listed national market system, buyers and
$0.0027 per share executed for on exchanges other than Nasdaq or sellers of securities, and the broker-
displayed Quotes/Orders entered in NYSE would be zero for purposes of dealers that act as their order-routing
securities listed on exchanges other than determining that member’s eligibility for agents, have a wide range of choices of
Nasdaq or NYSE by a member the credit in subsequent months. where to route orders for execution’;
organization that (1) provides a The Exchange believes this credit tier [and] ‘no exchange can afford to take its
minimum of 1 million shares a day on will incentivize members to provide market share percentages for granted’
average in securities listed on exchanges increased liquidity in Tape B securities because ‘no exchange possesses a
other than Nasdaq or NYSE and (2) on the Exchange, thereby enhancing the monopoly, regulatory or otherwise, in
doubles the daily average share volume Exchange’s market quality in Tape B the execution of order flow from broker
provided in securities that are listed on securities. dealers’. . . .’’ 13
exchanges other than Nasdaq or NYSE The Exchange believes that the
during the month versus the member 2. Statutory Basis additional credit tier is reasonable
organization’s daily average share The Exchange believes that its because it is designed to incentivize
volume provided in securities that are proposal is consistent with Section 6(b) members to provide increased liquidity
listed on exchanges other than Nasdaq of the Act,7 in general, and furthers the in Tape B securities on the Exchange,
or NYSE in February 2017.6 This credit objectives of Sections 6(b)(4) and 6(b)(5) thereby enhancing the Exchange’s
of the Act,8 in particular, in that it market quality in Tape B securities. The
4 Specifically, the Exchange provides a credit of
provides for the equitable allocation of Exchange believes that the amount of
$0.0031 per share executed for Quotes/Orders
entered by a member organization that provides and
reasonable dues, fees and other charges the credit ($0.0027 per share executed)
accesses 0.35% or more of Consolidated Volume among members and issuers and other is proportionate to the requirements
during the month; $0.0029 per share executed for persons using any facility, and is not necessary to qualify for the credit, and
Quotes/Orders entered by a member organization designed to permit unfair will act as an incentive to add liquidity
that provides and accesses 0.25% or more of
Consolidated Volume during the month; $0.0027
discrimination between customers, in Tape B securities. The Exchange
per share executed for Quotes/Orders entered by a issuers, brokers, or dealers. notes that the amount of the credit is
member organization that provides and accesses The Commission and the courts have comparable to other credits offered by
0.15% or more of Consolidated Volume during the repeatedly expressed their preference the Exchange for adding displayed
month; $0.0025 per share executed for Quotes/
Orders entered by a member organization that for competition over regulatory liquidity, which range from $0.0023 to
provides and accesses 0.05% or more of intervention in determining prices, $0.0031 and impose comparable
Consolidated Volume during the month; and products, and services in the securities requirements.14
$0.0023 per share executed for all other Quotes/ markets. In Regulation NMS, while The Exchange believes it is reasonable
Orders.
5 Specifically, the Exchange provides a credit of adopting a series of steps to improve the to provide this credit tier to displayed
$0.0023 per share executed credit for all orders with current market model, the Commission liquidity only, since displayed liquidity
midpoint pegging that provide liquidity, and highlighted the importance of market plays a significant role in the price
$0.0000 per share executed credit for other non- forces in determining prices and SRO formation process, and should thus be
displayed orders that provide liquidity.
6 As an example, assume that a member had a
revenues and, also, recognized that incentivized through a credit tier such
daily average share volume of 600,000 shares in current regulation of the market system as is being proposed here. The Exchange
Tape B securities in February 2017. If the member ‘‘has been remarkably successful in believes that it is reasonable to provide
provided 1.2 million shares per day on average in promoting market competition in its this credit tier to Tape B securities that
Tape B securities in April, the member would
receive the rebate for that month, since it had
broader forms that are most important to are priced at $1 or greater, because the
doubled its daily average share volume in Tape B investors and listed companies.’’ 9 Exchange desires to increase its market
securities in comparison to its February Tape B Likewise, in NetCoalition v. Securities share in Tape B securities, and because
volume, and also exceeded the one million daily and Exchange Commission 10 securities priced at less than $1 are
share average volume requirement in Tape B
securities in the month of April.
(‘‘NetCoalition’’) the D.C. Circuit upheld subject to a separate pricing structure.
If a member had a daily average share volume of the Commission’s use of a market-based
400,000 shares in Tape B securities in February approach in evaluating the fairness of 12 Id.at 537.
13 Id.at 539 (quoting Securities Exchange Act
2017, the member would have to increase its market data fees against a challenge
average daily share volume by 2.5 times in order Release No. 59039 (December 2, 2008), 73 FR
claiming that Congress mandated a cost- 74770, 74782–83 (December 9, 2008) (SR–
meet the requirements of the proposed rebate, since
doubling its February average daily volume in Tape based approach.11 As the court NYSEArca–2006–21)).
B securities would result in an average daily emphasized, the Commission ‘‘intended 14 For example, the Exchange pays a credit of
volume of 800,000 shares, which would not satisfy in Regulation NMS that ‘market forces, $0.0027 per share executed for displayed Quotes/
the requirement that the member provide a Orders that are entered by a member organization
minimum of 1 million shares a day on average in that provides and accesses 0.15% or more of
at least 1 million shares a day on average in Tape
securities listed on exchanges other than Nasdaq Consolidated Volume during the month. While that
asabaliauskas on DSK3SPTVN1PROD with NOTICES
B securities in the month in which eligibility for the
and NYSE. credit uses percentage of Daily Volume, rather than
credit is being assessed.
A member that had a daily average share volume 7 15 U.S.C. 78f(b).
a daily average share volume measurement, the
of 900,000 shares in Tape B securities in February Exchange believes that the requirements are
8 15 U.S.C. 78f(b)(4) and (5).
2017 would have to increase its average daily nonetheless comparable.
9 Securities Exchange Act Release No. 51808
volume in Tape B securities to 1.8 million shares The Exchange also notes that Bats BZX Exchange,
in order to qualify for the credit in a given month, (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) Inc. pays a credit of $0.0027 for displayed orders
since this would satisfy the requirement that the (‘‘Regulation NMS Adopting Release’’). that add liquidity in Tape B securities where the
10 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
member double its average daily share volume in member has an average daily added volume that
Tape B securities in the given month in comparison 2010). equals or exceeds 0.08% of Total Consolidated
to its February 2017 volume, in addition to adding 11 See NetCoalition, at 534–535. Volume.
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![Federal Register / Vol. 82, No. 78 / Tuesday, April 25, 2017 / Notices 19127
IV. Solicitation of Comments For the Commission, by the Division of below. The Capital Policy and the
Trading and Markets, pursuant to delegated Capital Replenishment Plan would be
Interested persons are invited to authority.17 maintained by the Clearing Agencies in
submit written data, views, and Eduardo A. Aleman, compliance with Rule 17Ad–22(e)(15),
arguments concerning the foregoing, Assistant Secretary. under the Act, as described below.3
including whether the proposed rule [FR Doc. 2017–08281 Filed 4–24–17; 8:45 am] Although the Clearing Agencies
change is consistent with the Act. BILLING CODE 8011–01–P would consider the Capital Policy and
Comments may be submitted by any of the Capital Replenishment Plan to be
the following methods: rules, the Proposed Rule Changes do not
SECURITIES AND EXCHANGE require any changes to the Rules, By-
Electronic Comments COMMISSION laws and Organizational Certificate of
• Use the Commission’s Internet DTC (‘‘DTC Rules’’), the Rulebook of the
[Release No. 34–80491; File No. SR–DTC–
Government Securities Division of FICC
comment form (http://www.sec.gov/ 2017–003, SR–NSCC–2017–004, SR–FICC–
2017–007] (‘‘GSD Rules’’), the Clearing Rules of the
rules/sro.shtml); or Mortgage-Backed Securities Division of
• Send an email to rule-comments@ Self-Regulatory Organizations; The FICC (‘‘MBSD Rules’’), or the Rules &
sec.gov. Please include File Number SR– Depository Trust Company; National Procedures of NSCC (‘‘NSCC Rules’’), as
Phlx–2017–31 on the subject line. Securities Clearing Corporation; Fixed the Policy and the Plan would be
Income Clearing Corporation; Notice of standalone documents.4
Paper Comments
Filings of Proposed Rule Changes, as II. Clearing Agencies’ Statements of the
• Send paper comments in triplicate Modified by Amendments No. 1, To Purpose of, and Statutory Basis for, the
to Secretary, Securities and Exchange Adopt the Clearing Agency Policy on Proposed Rule Changes
Commission, 100 F Street NE., Capital Requirements and the Clearing
Agency Capital Replenishment Plan In their filings with the Commission,
Washington, DC 20549–1090. the Clearing Agencies included
All submissions should refer to File April 19, 2017. statements concerning the purpose of
Number SR–Phlx–2017–31. This file Pursuant to Section 19(b)(1) of the and basis for the Proposed Rule Changes
number should be included on the Securities Exchange Act of 1934 and discussed any comments they
subject line if email is used. To help the (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 received on the Proposed Rule Changes.
Commission process and review your notice is hereby given that on April 6, The text of these statements may be
comments more efficiently, please use 2017, The Depository Trust Company examined at the places specified in Item
(‘‘DTC’’), National Securities Clearing IV below. The Clearing Agencies have
only one method. The Commission will
Corporation (‘‘NSCC’’), and Fixed prepared summaries, set forth in
post all comments on the Commission’s
Income Clearing Corporation (‘‘FICC’’, sections A, B, and C below, of the most
Internet Web site (http://www.sec.gov/
and together with DTC and NSCC, the significant aspects of such statements.
rules/sro.shtml). Copies of the
‘‘Clearing Agencies’’), filed with the (A) Clearing Agencies’ Statements of the
submission, all subsequent
Securities and Exchange Commission Purpose of, and Statutory Basis for, the
amendments, all written statements
(‘‘Commission’’) the proposed rule Proposed Rule Changes
with respect to the proposed rule changes. On April 13, 2017, the Clearing
change that are filed with the Agencies filed Amendments No. 1 to the 1. Purpose
Commission, and all written proposed rule changes, which made The Clearing Agencies are proposing
communications relating to the technical corrections to the page to adopt the Capital Policy, which
proposed rule change between the numbers and the Table of Contents in would set forth the manner in which
Commission and any person, other than the Exhibit 5s. The proposed rule each Clearing Agency identifies,
those that may be withheld from the changes, as modified by Amendments monitors, and manages its general
public in accordance with the No. 1 (hereinafter collectively business risk with respect to the
provisions of 5 U.S.C. 552, will be ‘‘Proposed Rule Changes’’), are requirement to hold sufficient liquid net
available for Web site viewing and described in Items I and II below, which assets (‘‘LNA’’) funded by equity to
printing in the Commission’s Public Items have been prepared primarily by cover potential general business losses
Reference Room, 100 F Street NE., the Clearing Agencies. The Commission so the Clearing Agencies can continue
Washington, DC 20549, on official is publishing this notice to solicit operations and services as a going
business days between the hours of comments on the Proposed Rule concern if such losses materialize. The
10:00 a.m. and 3:00 p.m. Copies of the Changes from interested persons. amount of LNA funded by equity to be
filing also will be available for I. Clearing Agencies’ Statements of the held by each of the Clearing Agencies
inspection and copying at the principal Terms of Substance of the Proposed for this purpose would be defined in the
office of the Exchange. All comments Rule Changes Policy as the General Business Risk
received will be posted without change;
The Proposed Rule Changes would 3 17 CFR 240.17Ad–22(e)(15). The Commission
the Commission does not edit personal
adopt (1) the Clearing Agency Policy on adopted amendments to Rule 17Ad–22, including
identifying information from the addition of new section 17Ad–22(e), on
Capital Requirements (‘‘Capital Policy’’
submissions. You should submit only September 28, 2016. See Securities Exchange Act
asabaliauskas on DSK3SPTVN1PROD with NOTICES
or ‘‘Policy’’) of the Clearing Agencies; Release No. 78961 (September 28, 2016), 81 FR
information that you wish to make and (2) the Clearing Agency Capital 70786 (October 13, 2016) (S7–03–14). Each of the
available publicly. All submissions Replenishment Plan (‘‘Capital Clearing Agencies is a ‘‘covered clearing agency’’ as
should refer to File Number SR–Phlx– Replenishment Plan’’ or ‘‘Plan’’) of the defined in Rule 17Ad–22(a)(5) and must comply
2017–31 and should be submitted on or Clearing Agencies, both described with new section (e) of Rule 17Ad–22 by April 11,
before May 16, 2017. 2017.
4 Capitalized terms not defined herein are defined
17 17 CFR 200.30–3(a)(12). in the DTC Rules, GSD Rules, MBSD Rules, or
1 15 U.S.C. 78s(b)(1). NSCC Rules, as applicable, available at http://
2 17 CFR 240.19b–4. dtcc.com/legal/rules-and-procedures.
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Document Created: 2017-04-25 02:18:31
Document Modified: 2017-04-25 02:18:31
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 19124 |
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