8011-01p
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100405; File No. SR-Phlx-2024-25]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Amend Options 7, Sections 4 and 9
June 24, 2024.
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 June 12, 2024, Nasdaq PHLX LLC (“Phlx” or
“Exchange”) filed with the Securities and Exchange Commission (“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.
I.

Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed
Rule Change
The Exchange proposes to amend Options 7, Sections 4 and 9.3 The Exchange proposes

to sunset the amendments to Options 7, Section 4 on July 1, 2024. The proposed maximum SQF
Port Fee proposed herein in Options 7, Section 4 will remain in effect through the month of June
2024.
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.

15 U.S.C. 78s(b)(1).

17 CFR 240.19b-4.

The Exchange initially filed the proposed pricing changes on November 28, 2023 (SR-Phlx-2023-52) to be
effective on December 1, 2023. On December 5, 2023, the Exchange withdrew SR-Phlx-2023-52 and
replaced it with SR-Phlx-2023-56. On January 16, 2023, the Exchange withdrew SR-Phlx-2023-56 and
submitted SR-Phlx-2024-02. On March 7, 2024, the Exchange withdrew SR-Phlx-2024-02 and submitted
SR-Phlx-2024-10. On May 1, 2024, the Exchange withdrew SR-Phlx-2024-10 and submitted SR-Phlx2024-21. On June 12, 2024, the Exchange withdrew SR-Phlx-2024-21 and submitted this filing.

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 proposes to amend Options 7, Section 4, Multiply Listed Options Fees
(Includes options overlying equities, ETFs, ETNs and indexes which are Multiply Listed)
(Excludes SPY and broad-based index options symbols listed within Options 7, Section 5.A).
The Exchange also proposes a technical amendment to Options 7, Section 9, B. The Exchange
proposes to sunset the amendments to Options 7, Section 4 on July 1, 2024. The proposed
maximum SQF Port Fee proposed herein in Options 7, Section 4 will remain in effect through
the month of June 2024.
Today, Lead Market Makers and Market Makers are subject to a “Monthly Market Maker
Cap” of $500,000 for: (i) electronic Option Transaction Charges, excluding surcharges and
excluding options overlying broad-based index options symbols listed within Options 7, Section
5.A; and (ii) QCC Transaction Fees (as defined in Exchange Options 3, Section 12 and Floor
QCC Orders, as defined in Options 8, Section 30(e)).4 All dividend, merger, short stock interest,
reversal and conversion, jelly roll and box spread strategy executions (as defined in this Options
7, Section 4) are excluded from the Monthly Market Maker Cap. Lead Market Makers or Market
Makers that (i) are on the contra-side of an electronically-delivered and executed Customer

The trading activity of separate Lead Market Maker and Market Maker member organizations is aggregated
in calculating the Monthly Market Maker Cap if there is Common Ownership between the member
organizations.

order, excluding responses to a PIXL auction; and (ii) have reached the Monthly Market Maker
Cap are assessed fees $0.05 per contract Fee for Adding Liquidity in Penny Symbols, $0.18 per
contract Fee for Removing Liquidity in Penny Symbols, $0.18 per contract in Non-Penny
Symbols, and $0.18 per contract in a non-Complex electronic auction, including the Quote
Exhaust auction and, for purposes of this fee, the opening process.5 Today, the Monthly Market
Maker Cap offers Lead Market Makers and Market Makers the ability to lower their costs
provided they execute a certain amount of orders on Phlx.
At this time, the Exchange proposes to establish an increased SQF Fee Cap to Lead
Market Makers and Market Makers that do not provide a minimum amount of liquidity on Phlx.
This proposed increased SQF Fee Cap is intended to incentivize Lead Market Makers and
Market Makers to add liquidity on Phlx for the benefit of other market participants in order to
lower their fees. Phlx proposes to increase the SQF Port Fees cap to $50,000 a month if a Lead
Market Maker or Market Maker does not transact 0.20% of Total Customer Volume in electronic
simple orders that adds liquidity in a month.6 Today, Phlx assesses $1,250 per port, per month
up to a maximum of $42,000 per month for an SQF Port that receives inbound quotes at any time
within that month.7 With this proposal, the Exchange would not assess Lead Market Makers and
Market Makers an SQF Port Fee beyond the monthly cap of $50,000, instead of $42,000, once
the member organization has exceeded the proposed port cap for the respective month. Lead

A Complex electronic auction includes, but is not limited to, the Complex Order Live Auction ("COLA").
Transactions which execute against an order for which the Exchange broadcast an order exposure alert in
an electronic auction will be subject to this fee.

For purposes of this cap, “Total Customer Volume” shall be defined as a percentage of all cleared customer
volume at The Options Clearing Corporation in Multiply Listed Equity Options and Exchange-Traded
Products (“TCV”).

An active port shall mean that the port was utilized to submit a quote to the System during a given month.
See Options 7, Section 9, B. The Exchange proposes to add the words “active port” in parenthesis at the
end of the description of SQF Port Fee in Options 7, Section 9, B to tie the definition of an active port to
the description for the port. The Exchange also proposes a technical amendment to add a comma between
“per port” and “per month” for the SQF Port Fee in Options 7, Section 9, B. Today, member organizations
are not assessed an active SQF Port Fee for additional ports acquired for ten business days for the purpose
of transitioning technology. The member organization is required to provide the Exchange with written
notification of the transition and all additional ports, provided at no cost, will be removed at the end of the
ten business days. See Options 7, Section 9, B.

Market Makers and Market Makers who transacts 0.20% of Total Customer Volume in
electronic simple orders that adds liquidity in a month will continue to be subject to the $42,000
SQF Fee Cap. The Exchange believes that Lead Market Makers and Market Makers will add
liquidity to Phlx in order to decrease their costs of doing business on the Exchange by obtaining
the benefits of the lower SQF Fee Cap similar to the manner in which Lead Market Maker and
Market Makers today transact a certain quantity of orders to achieve the Monthly Market Maker
Cap.
Pursuant to Options 3, Section 7(a)(i)(B), Market Makers may only enter quotes into SQF
in their assigned options series to add liquidity on Phlx. Pursuant to Options 3, Section
7(a)(i)(B), the SQF interface allows Market Makers to connect, send, and receive messages
related to quotes, Immediate-or-Cancel Orders, and auction responses to the Exchange. While a
Phlx Market Maker may elect to obtain multiple SQF Ports to organize its business,8 only one
SQF Port is necessary for a Phlx Market Maker to fulfill its regulatory quoting obligations.9
2.

Statutory Basis

The Exchange believes that its proposal is consistent with Section 6(b) of the Act,10 in
general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,11 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.
The proposed pricing change to increase the SQF Fee Cap for Lead Market Makers and

For example, a Phlx Market Maker may desire to utilize multiple SQF Ports for accounting purposes, to
measure performance, for regulatory reasons or other determinations that are specific to that member
organization.

Phlx Market Makers have various regulatory requirements as provided for in Options 2, Section 4.
Additionally, Phlx Market Makers have certain quoting requirements with respect to their assigned options
series as provided in Options 2, Section 5. SQF Ports are the only quoting protocol available on Phlx and
only Market Makers may utilize SQF Ports.

15 U.S.C. 78f(b).

15 U.S.C. 78f(b)(4) and (5).

Market Makers to $50,000 a month if Lead Market Makers or Market Makers do not transact
0.20% of Total Customer Volume in electronic simple orders that adds liquidity in a month is
reasonable because it will incentivize Lead Market Makers and Market Makers to add liquidity
on Phlx to lower their costs. The Exchange believes that the total volume required to achieve the
cap is reasonable as the Exchange has limited the volume to simple orders, as not all Market
Makers transact complex orders. Additionally, the Exchange has limited the trading volume to
electronic volume, as not all Market Makers transact business in open outcry and Floor Market
Makers may enter orders verbally in the trading crowd. Further, 0.20% of Total Customer
Volume in electronic simple orders that adds liquidity in a month is an achievable number for
Market Makers who currently add volume to the Exchange. Additionally, the Exchange believes
that an SQF Fee cap of $50,000, in lieu of $42,000, is reasonable because Lead Market Makers
and Market Makers are obligated, among other things, to maintain a two-sided market in those
options in which the Market Maker is registered to trade, in a manner that enhances the depth,
liquidity and competitiveness of the market and compete with other electronic Market Makers in
all options in all capacities in which the electronic Market Maker is registered to trade.12 The
Exchange believes that it is reasonable to increase the SQF Port Fee Cap to $50,000 for Lead
Market Makers and Market Makers that do not transact 0.20% of Total Customer Volume in
electronic simple orders that adds liquidity in a month because the Exchange believes that Lead
Market Makers and Market Makers that do not contribute a minimum amount of liquidity on
Phlx should not be subject to the same opportunities to lower their costs as those Lead Market
Makers and Market Makers that do contribute to liquidity and therefore provide the ability for
other market participants to engage with that order flow. The Exchange believes that the
increase is modest and would serve to encourage Lead Market Makers and Market Makers to
submit order flow to Phlx in order to lower their cost and would result in additional order

See Options 2, Section 5(a)(1) and (3).

competition, which also benefits market participants. The Exchange believes this proposal
promotes liquidity, quote competition, and trading opportunities.
SQF Ports are utilized by Lead Market Makers and Market Makers to quote on Phlx. The
SQF Port is the only protocol available for quoting. A Phlx Market Maker may submit all quotes
through one SQF Port and SQF Ports are only utilized in the Market Maker’s assigned options
series. While a Phlx Market Maker may elect to obtain multiple SQF Ports to organize its
business,13 only one SQF Port is necessary for a Phlx Market Maker to fulfill its regulatory
quoting obligations.14 For those Market Makers that elect to organize themselves by obtaining a
greater number of SQF Ports, they will be subject to a cap.15 For Market Makers that only take 1
SQF Port or only a few SQF Ports, their costs would be far below the $42,000 or $50,000
threshold for the cap.
The proposed pricing change to increase the SQF Fee Cap for Lead Market Makers and
Market Makers to $50,000 a month if Lead Market Makers or Market Makers do not transact
0.20% of Total Customer Volume in electronic simple orders that adds liquidity in a month is
equitable and not unfairly discriminatory as all Lead Market Makers and Market Makers would
be able to cap their SQF Port costs at $42,000, provided they transacted the requisite volume,
otherwise Lead Market Makers and Market Makers would be uniformly subject to the $50,000
SQF Fee Cap. The Exchange notes that unlike other market participants, Lead Market Makers

For example, a Phlx Market Maker may desire to utilize multiple SQF Ports for accounting purposes, to
measure performance, for regulatory reasons or other determinations that are specific to that member
organization.

Phlx Market Makers have various regulatory requirements as provided for in Options 2, Section 4.
Additionally, Phlx Market Makers have certain quoting requirements with respect to their assigned options
series as provided in Options 2, Section 5. SQF Ports are the only quoting protocol available on Phlx and
only Market Makers may utilize SQF Ports.

The number of ports that member organizations choose to purchase varies widely. Today, on Phlx, 2
Market Makers have 1 SQF Port, 5 Market Makers have 2-5 SQF Ports, 4 Market Makers have between 610 SQF Ports, and 11 Market Makers have more than 10 SQF Ports. Additionally, today, on Nasdaq
GEMX, LLC no Market Makers have 1 SQF Port/SQF Purge Port, 1 Market Maker has 2-5 SQF Ports/SQF
Purge Ports, 4 Market Makers have between 6-10 SQF Ports/SQF Purge Ports, and 8 Market Makers have
more than 10 SQF Ports/SQF Purge Ports. Finally, on Nasdaq MRX LLC (“MRX”), 2 Market Makers
have 1 SQF Ports/SQF Purge Ports, no Market Makers have 2-5 SQF Ports/SQF Purge Ports, 2 Market
Makers have between 6-10 SQF Ports/SQF Purge Ports, and 6 Market Makers have more than 10 SQF
Ports/SQF Purge Ports.

are obligated to quote in the Opening Process and intra-day.16 Additionally, Market Makers may
enter quotes in the Opening Process to open an option series and they are required to quote intraday.17 Further, unlike other market participants, Lead Market Makers and Market Makers have
obligations to the market to maintain a two-sided market in those options in which the Market
Maker is registered to trade, in a manner that enhances the depth, liquidity and competitiveness
of the market and compete with other electronic Market Makers in all options in all capacities in
which the electronic Market Maker is registered to trade, among other obligations.18 Finally,
unlike other market participants, Lead Market Makers and Market Makers incur other costs
related to their quoting obligations in addition to other fees paid by other market participants.
Phlx assesses Streaming Quote Trader19 Fees based on the number of option class assignments to
Lead Market Makers and Market Makers.20 Additionally, Phlx assesses Remote Market Maker21
Organization Fees and Remote Lead Market Maker Fees.22 These liquidity providers are critical
market participants in that they are the only market participants that provide liquidity to Phlx and
are necessary for opening the market. Allowing Lead Market Makers and Market Makers to
manage their costs by capping SQF Ports in addition to transaction fees enables these essential
market participants to manage their business model more effectively and better allocate resources

See Options 3, Section 8 and Options 2, Section 5.

Id.

See Options 2, Section 5(a)(1) and (3).

A “Streaming Quote Trader” or “SQT” means a Market Maker who has received permission from the
Exchange to generate and submit option quotations electronically in options to which such SQT is
assigned. An SQT may only submit such quotations while such SQT is physically present on the trading
floor of the Exchange. An SQT may only submit quotes in classes of options in which the SQT is assigned.
See Options 1, Section 1(b)(54).

See Options 7, Section 8, B.

A “Remote Streaming Quote Trader” or “RSQT” means a Market Maker that is a member affiliated with a
Remote Streaming Quote Trader Organization with no physical trading floor presence who has received
permission from the Exchange to generate and submit option quotations electronically in options to which
such RSQT has been assigned. A qualified RSQT may function as a Remote Lead Market Maker upon
Exchange approval. An RSQT is also known as a Remote Market Maker (“RMM”) pursuant to Options 2,
Section 11. A Remote Streaming Quote Organization (“RSQTO”) or Remote Market Maker Organization
(“RMO”) are Exchange member organizations that have qualified pursuant to Options 2, Section 1. See
Options 1, Section 1(b)(49).

See Options 7, Section 8, C and D.

to other technologies that are necessary to manage risk and capacity to ensure that these market
participants continue to compete effectively on Phlx. The following chart represents the
classification of Phlx members and the percentage of Market Makers.

Phlx believes Lead Market Makers and Market Makers should be eligible for certain incentives
because they fulfill a unique role on the Exchange and are the only market participants required
to submit quotes to the Exchange. The proposed SQF Port Cap is designed to ensure that Lead
Market Makers and Market Makers add a certain amount of liquidity on Phlx in order to be able
to cap their SQF Fees at the lower cap of $42,000 as compared to the increased cap of $50,000.
The Exchange would apply the criteria uniformly when applying the SQF Fee Cap to Lead
Market Makers and Market Makers.
Finally, Phlx believes the proposed SQF cap is constrained by competitive forces and
reasonably designed in consideration of the competitive environment in which the Exchange
operates. This fee structure incents Lead Market Makers and Market Makers to support
increased liquidity, quote competition, and trading opportunities on the Exchange, for the benefit
of all market participants.
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.
Intermarket Competition
The proposal does not impose an undue burden on intermarket 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. The
chart below shows the February 2024 market share for multiply listed options by exchange. Of
the 17 operating options exchanges, none currently has more than a 17.6% market share.
Customers widely distribute their transactions across exchanges according to their business
needs and the ability of each exchange to meet those needs through technology, liquidity and
functionality.

Market share is the percentage of volume on a particular exchange relative to the total volume
across all exchanges and indicates the amount of order flow directed to that exchange. High
levels of market share enhance the value of trading and ports. In such an environment, the
Exchange must continually adjust its fees to remain competitive with other exchanges. Because
competitors are free to modify their own fees in response, and because market participants may
readily adjust their order routing practices, the Exchange believes that the degree to which fee

changes in this market may impose any burden on competition is extremely limited.
Intramarket Competition
The proposed pricing change to increase the SQF Fee Cap for Lead Market Makers and
Market Makers to $50,000 a month if Lead Market Makers or Market Makers do not transact
0.20% of Total Customer Volume in electronic simple orders that adds liquidity in a month does
not impose an undue burden on competition as all Lead Market Makers and Market Makers
would be able to cap their SQF Port costs at $42,000, provided they transacted the requisite
volume, otherwise Lead Market Makers and Market Makers would be uniformly subject to the
$50,000 SQF Fee Cap. The Exchange notes that unlike other market participants, Lead Market
Makers are obligated to quote in the Opening Process and intra-day.23 Additionally, Market
Makers may enter quotes in the Opening Process to open an option series and they are required
to quote intra-day.24 Further, unlike other market participants, Lead Market Makers and Market
Makers have obligations to the market to maintain a two-sided market in those options in which
the Market Maker is registered to trade, in a manner that enhances the depth, liquidity and
competitiveness of the market and compete with other electronic Market Makers in all options in
all capacities in which the electronic Market Maker is registered to trade, among other
obligations.25 Finally, unlike other market participants, Lead Market Makers and Market Makers
incur other costs related to their quoting obligations in addition to other fees paid by other market
participants. Phlx assesses Streaming Quote Trader26 Fees based on the number of option class
assignments to Lead Market Makers and Market Makers.27 Additionally, Phlx assesses Remote

See Options 3, Section 8 and Options 2, Section 5.

Id.

See Options 2, Section 5(a)(1) and (3).

A “Streaming Quote Trader” or “SQT” means a Market Maker who has received permission from the
Exchange to generate and submit option quotations electronically in options to which such SQT is
assigned. An SQT may only submit such quotations while such SQT is physically present on the trading
floor of the Exchange. An SQT may only submit quotes in classes of options in which the SQT is assigned.
See Options 1, Section 1(b)(54).

See Options 7, Section 8, B.

Market Maker28 Organization Fees and Remote Lead Market Maker Fees.29 These liquidity
providers are critical market participants in that they are the only market participants that provide
liquidity to Phlx and are necessary for opening the market. Allowing Lead Market Makers and
Market Makers to manage their costs by capping SQF Ports in addition to transaction fees
enables these essential market participants to manage their business model more effectively and
better allocate resources to other technologies that are necessary to manage risk and capacity to
ensure that these market participants continue to compete effectively on Phlx. The Exchange
believes that Lead Market Makers and Market Makers should be eligible for certain incentives
because they fulfill a unique role on the Exchange and are the only market participants required
to submit quotes to the Exchange. The proposed SQF Port Cap is designed to ensure that Lead
Market Makers and Market Makers add a certain amount of liquidity on Phlx in order to be able
to cap their SQF Fees at the lower cap of $42,000 as compared to the increased cap of $50,000.
The Exchange would apply the SQF Fee Cap criteria uniformly to Lead Market Makers and
Market Makers.
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.30

A “Remote Streaming Quote Trader” or “RSQT” means a Market Maker that is a member affiliated with a
Remote Streaming Quote Trader Organization with no physical trading floor presence who has received
permission from the Exchange to generate and submit option quotations electronically in options to which
such RSQT has been assigned. A qualified RSQT may function as a Remote Lead Market Maker upon
Exchange approval. An RSQT is also known as a Remote Market Maker (“RMM”) pursuant to Options 2,
Section 11. A Remote Streaming Quote Organization (“RSQTO”) or Remote Market Maker Organization
(“RMO”) are Exchange member organizations that have qualified pursuant to Options 2, Section 1. See
Options 1, Section 1(b)(49).

See Options 7, Section 8, C and D.

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.
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 rule-comments@sec.gov. Please include file number
SR-Phlx-2024-25 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-2024-25. 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. 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-2024-25 and should be
submitted on or before [INSERT DATE 21 DAYS AFTER DATE OF PUBLICATION IN THE
FEDERAL REGISTER].
For the Commission, by the Division of Trading and Markets, pursuant to delegated
authority.31
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-14208 Filed: 6/27/2024 8:45 am; Publication Date: 6/28/2024]

17 CFR 200.30-3(a)(12).