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Federal Register / Vol. 86, No. 35 / Wednesday, February 24, 2021 / Notices For the Commission, by the Division of Investment Management, under delegated authority.
J. Matthew DeLesDernier, Assistant Secretary.

A. Self-Regulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose
FR Doc. 202103715 Filed 22321; 8:45 am BILLING CODE 801101P

SECURITIES AND EXCHANGE
COMMISSION
Release No. 3491159; File No. SRPhlx 202109

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchanges Pricing Schedule at Equity 7, Section 3
February 18, 2021.

Pursuant to Section 19b1 of the Securities Exchange Act of 1934
Act,1 and Rule 19b4 thereunder,2
notice is hereby given that on February 10, 2021, 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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I. Self-Regulatory Organizations Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Exchanges pricing schedule at Equity 7, Section 3, as described further below.
The text of the proposed rule change is available on the Exchanges website at https listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal office of the Exchange, and at the Commissions Public Reference Room.
II. Self-Regulatory Organizations 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.
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The Exchange proposes to amend its pricing schedule, at Equity 7, Section 3, to make a change to its Qualified Market Maker QMM Program. The QMM
Program provides supplemental incentives to member organizations that meet certain quality standards in acting as market makers for securities on the Exchange.
Specifically, the Exchange proposes to adjust upward the percentage of time for which a member organization must quote at the national best bid and offer NBBO during market hours to qualify as a QMM as set forth in Equity 7, Section 3c1. Currently, a member organization must quote at the NBBO at least 10 percent of the time during market hours in an average of at least 400 securities per day during a month to qualify as a QMM. The Exchange proposes to increase the percentage to 15 percent.
The Exchange proposes to increase the threshold percentage of time in which a member organization must quote at the NBBO during a month to qualify as a QMM as a means of encouraging member organizations to increase liquidity adding activity, increase quoting at the NBBO, enhance price discovery, and improve the overall quality of the equity markets. The Exchange believes that QMM activity on the Exchange is already robust enough to accommodate the establishment of a higher qualification threshold without compromising the ability of existing QMMs to maintain their current statuses in the program.
The Exchange also proposes to make conforming changes to Equity 7, Section 3c5 to add the proposed 15 percent NBBO requirement.
2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6b of the Act,3 in general, and furthers the objectives of Sections 6b4 and 6b5
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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The Proposal Is Reasonable The Exchanges proposed changes to its QMM Program 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: no one disputes that competition for order flow is fierce. . . . As the SEC
explained, in 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
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
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.7
Within this environment, market participants can freely and often do shift 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, 7478283
December 9, 2008 SRNYSEArca200621.
6 Securities Exchange Act Release No. 51808
June 9, 2005, 70 FR 37496, 37499 June 29, 2005
Regulation NMS Adopting Release.
7 See Cboe EDGX U.S. Equities Exchange Fee Schedule, available at https markets.cboe.com/us/
equities/membership/fee_schedule/edgx/.

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