8011-01p
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100489; File No. SR-Phlx-2024-29]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Amend Options 7, Section 9
July 10, 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 July 1, 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, Section 9.
The text of the proposed rule change is available on the Exchange’s Website at
https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the principal office of the Exchange, and
at the Commission’s Public Reference Room..
II.

Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the Exchange included statements concerning the

purpose of and basis for the proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below,
of the most significant aspects of such statements.

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

17 CFR 240.19b-4.

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 9, B, Port Fees, to increase the SQF
Port3 Fee cap for certain Market Makers.4 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.5 Today, Market Makers are not assessed an active SQF Port Fee for
additional ports acquired for ten business days for the purpose of transitioning technology.6 The
Exchange proposes to add the words “active port” in parenthesis at the end of the description of
SQF Port Fee to tie the definition of an active port to the description for the port.7
At this time, the Exchange proposes to increase the monthly maximum SQF Port Fee Cap
of $42,000 per month for certain Market Makers based on the size of the Market Maker on Phlx.
The Exchange is determining the size of the Market Maker based on the amount of transactional
volume executed on Phlx in a given month. The Exchange proposes to take each Market’s
Maker’s electronic monthly transactional volume via SQF on Phlx and divide that number by the

“Specialized Quote Feed” or “SQF” is an interface that allows Lead Market Makers, Streaming Quote
Traders ("SQTs") and Remote Streaming Quote Traders ("RSQTs") to connect, send, and receive messages
related to quotes, Immediate-or-Cancel Orders, and auction responses into and from the Exchange. Features
include the following: (1) options symbol directory messages (e.g., underlying and complex instruments);
(2) system event messages (e.g., start of trading hours messages and start of opening); (3) trading action
messages (e.g., halts and resumes); (4) execution messages; (5) quote messages; (6) Immediate-or-Cancel
Order messages; (7) risk protection triggers and purge notifications; (8) opening imbalance messages; (9)
auction notifications; and (10) auction responses. The SQF Purge Interface only receives and notifies of
purge requests from the Lead Market Maker, SQT or RSQT. Lead Market Makers, SQTs and RSQTs may
only enter interest into SQF in their assigned options series. Immediate-or-Cancel Orders entered into SQF
are not subject to the Order Price Protection, the Market Order Spread Protection, or Size Limitation in
Options 3, Section 15(a)(1), (a)(2) and (b)(2), respectively. See Options 3, Section 7(a)(i)(B).

The term “Market Maker” is defined in Options 1, Section 1(b)(28) as a member of the Exchange who is
registered as an options Market Maker pursuant to Options 2, Section 12(a). A Market Maker includes
SQTs and RSQTs as well as Floor Market Makers. See Options 7, Section 1(c). The term “Floor Market
Maker” is a Market Maker who is neither an SQT or an RSQT. A Floor Market Maker may provide a
quote in open outcry. See Options 8, Section 2(a)(4).

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 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.

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.

sum of all Market Maker electronic monthly transactional volume via SQF on Phlx
(“Transactional Volume”). All SQF interest would be considered. Each Market Maker would
then be classified on Phlx, for the purpose of the SQF Port Fee Cap, as a “small,” “medium,” or
“large” Market Maker based on their Transactional Volume on Phlx to determine the applicable
cap in a given month. Market Makers that qualify as “small” would continue to be subject to the
current $42,000 per month cap on SQF Port Fees. Market Makers that qualify as “medium”
would be subject to an increased monthly cap of $46,000 for SQF Port Fees. Finally, Market
Makers that qualify as “large” would be subject to an increased monthly cap of $50,000 for SQF
Port Fees.
As is the case today, the Exchange would not assess a Market Maker an SQF Port Fee
beyond the monthly cap once the Market Maker has exceeded the monthly cap for the respective
month. Despite increasing the maximum SQF Port Fees for Market Makers that qualify as
“medium” and “large,” the Exchange will continue to offer all Market Makers the opportunity to
cap their SQF Port Fees to limit their costs as they would not be assessed an SQF Port Fee
beyond the applicable cap each month.
A Phlx Market Maker requires only one SQF Port to submit quotes in its assigned options
series into Phlx. A Phlx Market Maker may submit all quotes through one SQF Port. 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

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).

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 Market Makers that qualify
as “medium” from $42,000 to $46,000 per month for SQF Port Fees, and for Market Makers that
qualify as “large” from $42,000 to $50,000 per month for SQF Port Fees, is reasonable because
despite the increase in the maximum SQF Port Fee, the Exchange will continue to offer all
Market Makers the opportunity to cap their SQF Port Fees each month to limit their costs as they
would not be assessed an SQF Port Fee beyond the cap. The Exchange would not increase the
current SQF Port Fee Cap for a Market Maker that qualifies as “small.”
A Phlx Market Maker requires only one SQF Port to submit quotes in its assigned options
series into Phlx. A Phlx Market Maker may submit all quotes through one SQF Port. While a
Phlx Market Maker may elect to obtain multiple SQF Ports to organize its business,12 only one
SQF Port is necessary for a Phlx Market Maker to fulfill its regulatory quoting obligations.13
Member organizations may choose a greater number of SQF Ports beyond one port, depending
on that member organization’s particular business model. Additionally, the Exchange believes
that the caps are reasonable for two reasons.
First, SQF Ports are a secure method for Market Makers to submit quotes into the
Exchange’s match engine and for the Exchange to send messages related to those quotes to
Market Makers. Phlx must manage the security and message traffic, among other things, for

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

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.

each port. Utilizing the various caps based on the “size” of the Market Maker as determined by
Transactional Volume, provides every Market Maker the ability to manage cost. Additionally,
the Exchange would have the ability to manage the quantity of SQF Ports issued on Phlx. The
various SQF Port Fee Caps were determined based on the level of Transactional Volume on Phlx
in 2024 for Market Makers. The Exchange assessed each level of Market Maker an increased
cap of $4,000 based on size, as reflected by Transactional Volume, to reflect the various sizes of
Market Makers present on Phlx at this time. By capping the SQF Ports at different levels based
on “size,” the Exchange is considering the message traffic and message rates generated by the
various “sizes” of Market Makers and the Exchange’s ability to process messages from all SQF
Ports. The SQF Port Fee Caps would allow the Exchange to scale its needs with respect to
processing messages in an efficient manner. The Exchange notes that Cboe Exchange, Inc.
(“Cboe”) limits usage on each port and assesses fees for incremental usage.14
Second, the Exchange notes that multiple SQF Ports are not necessary, however, to the
extent that some Market Makers elect to obtain multiple SQF Ports, the Exchange is offering to
cap their total port cost. Phlx believes that the existence of a cap based on “size” of the Market
Maker will level the playing field. The Exchange believes that this approach enables various
types of Market Makers to effectively limit costs based on their executed Transactional Volume
on Phlx. Further, the existence of an SQF Port Fee Cap allows for efficiencies and permits
Market Makers to increase their number of ports beyond the cap. The cap levels the playing
field by allowing various types of Market Makers that want to obtain a larger number of ports to
do so with the certainty of a fee cap. Without the SQF Fee Cap, Phlx Market Makers may pay
more to obtain multiple SQF Ports on Phlx. Other market tier port fees. BOX Exchange LLC
(“BOX”) assesses $1,000 per month for all SAIL Ports for Market Making and $500 per month

Each Cboe Binary Order Entry (“BOE”) or FIX Logical Port incur the logical port fee indicated when used
to enter up to 70,000 orders per trading day per logical port as measured on average in a single month. For
each incremental usage of up to 70,000 per day per logical port will incur an additional logical port fee of
$800 per month. BOE or FIX Logical Ports provide users the ability to enter order/quotes. See Cboe’s
Fees Schedule.

per port up to 5 ports for order entry and $150 per month for each additional port.15 Miami
International Securities Exchange, LLC’s (“MIAX”) MIAX Express Interface (“MEI”) Fee
levels are based on a tiered fee structure based on the Market Maker’s total monthly executed
volume during the relevant month.16
The proposed pricing change to increase the SQF Fee Cap for Market Makers that qualify
as “medium” from $42,000 to $46,000 per month for SQF Port Fees, and for Market Makers that
qualify as “large” from $42,000 to $50,000 per month for SQF Port Fees, is equitable and not
unfairly discriminatory because the Exchange is offering different sizes of Market Makers, based
on Transactional Volume executed on Phlx, the ability to cap their costs at different levels and
potentially obtain some SQF Ports at no cost. The proposal recognizes that some Market Makers
may be deemed “small” and may not be able to achieve the same cap as other Market Makers.
To this end, the Exchange proposes not to increase SQF Port Fees for Market Makers that
qualify as “small” in a given month. To the extent that a Market Maker qualifies in a given
month as a “medium” Market Maker the Exchange proposes to increase the cap from $42,000 to
$46,000 per month. This fee presumes to place a Market Maker that qualifies as “medium” on
equal footing with a Market Maker that qualifies as a “small” Market Maker in terms of the cap,
by setting different fee caps for each group. The proposal presumes that based on Transactional
Volume, these Market Makers that qualify as “medium” have a greater ability to obtain a greater
amount of SQF Ports as compared to Market Makers that qualify as “small.” Finally, to the
extent that a Market Maker qualifies in a given month as a “large” Market Maker the Exchange
proposes to increase the cap from $42,000 to $50,000 per month. This fee presumes to place a
Market Maker that qualifies as “large” on equal footing with a Market Maker that qualifies as a

See BOX’s Fee Schedule.

MEI is a connection to MIAX systems that enables Market Makers to submit simple and complex
electronic quotes to MIAX. MIAX caps its MEI Ports. For these Monthly MIAX MEI Fees levels, if the
Market Maker’s total monthly executed volume during the relevant month is less than 0.060% of the total
monthly executed volume reported by OCC in the market maker account type for MIAX-listed option
classes for that month, then the fee will be $14,500 instead of the fee otherwise applicable to such level.
See MIAX’s Fee Schedule.

“small” Market Maker and a Market Maker that qualifies as “medium” in terms of the cap, by
setting different fee caps for each group. The proposal presumes that based on Transactional
Volume these Market Makers that qualify as “large” have the ability to obtain the largest amount
of SQF Ports. The Exchange would uniformly apply the appropriate Market Maker cap to each
Market Maker group based on the same volume calculation. Also, Market Makers who exceed
their applicable cap would uniformly not be assessed any fee for SQF Ports beyond the
applicable maximum amount.
Market Makers are the only market participants that are assessed SQF Port Fees because
they are the only market participants that are permitted to quote on the Exchange. SQF Ports are
only utilized in the Market Maker’s assigned options series. Unlike other market participants,
Market Makers are subject to market making and quoting obligations.17 These liquidity
providers are critical market participants in that they are the only market participants that provide
liquidity to Phlx on a continuous basis. In addition, the Exchange notes that Lead Market
Makers are required to submit quotes in the Opening Process to open an options series.18 Market
Makers are subject to a number of fees, unlike other market participants. Market Makers pay
separate permit fees,19 and Streaming Quote Trader Fees,20 in addition to other fees paid by other
market participants. Providing all Market Makers a means to cap their cost related to quoting at
a rate that reflects their “size” and enabling all Market Makers to acquire SQF Ports at no cost
beyond the applicable cap enables these market participants to provide the necessary liquidity to
Phlx at lower costs. Therefore, because Market Makers fulfill a unique role on the Exchange, are
the only market participant required to submit quotes as part of their obligations to operate on the
Exchange, and, in light of that role, they are eligible for certain incentives. The proposed SQF
Port Fee Cap is designed to continue to incent all Market Makers to quote on Phlx, thereby
See Options 2, Sections 4 and 5.

See Options 3, Section 8.

See Options 7, Section 8, A.

See Options 7, Section 8, B.

promoting liquidity, quote competition, and trading opportunities.
In 2022, NYSE Arca, Inc. (“NYSE Arca”) proposed to restructure fees relating to OTPs
for Market Makers.21 In that rule change,22 NYSE Arca argued that,
Market Makers serve a unique and important function on the Exchange (and other
options exchanges) given the quote-driven nature of options markets. Because
options exchanges rely on actively quoting Market Makers to facilitate a robust
marketplace that attracts order flow, options exchanges must attract and retain
Market Makers, including by setting competitive Market Maker permit fees.
Stated otherwise, changes to Market Maker permit fees can have a direct effect on
the ability of an exchange to compete for order flow. The Exchange also believes
that the number of options exchanges on which Market Makers can effect option
transactions also ensures competition in the marketplace and constrains the ability
of exchanges to charge supracompetitive fees for access to its market by Market
Makers.
Further, NYSE ARCA noted that,23
The Exchange further believes that its ability to set Market Maker permit fees is
constrained by competitive forces based on the fact that Market Makers can, and
have, chosen to terminate their status as a Market Maker if they deem Market
Maker permit fees to be unreasonable or excessive. Specifically, the Exchange
notes that a BOX participant modified its access to BOX in connection with the
implementation of a proposed change to BOX’s Market Maker permit fees. The
Exchange has also observed that another options exchange group experienced
decreases in market share following its proposed modifications of its access fees
(including Market Maker trading permit fees), suggesting that market participants
(including Market Makers) are sensitive to changes in exchanges’ access fees and
may respond by shifting their order flow elsewhere if they deem the fees to be
unreasonable or excessive.
There is no requirement, regulatory or otherwise, that any Market Maker connect
to and access any (or all of) the available options exchanges. The Exchange also
is not aware of any reason why a Market Maker could not cease being a permit
holder in response to unreasonable price increases. The Exchange does not assess
any termination fee for a Market Maker to drop its OTP, nor is the Exchange
aware of any other costs that would be incurred by a Market Maker to do so.
The Exchange likewise believes that its ability to cap SQF Ports Fees is constrained by
competitive forces and that its proposed modifications to the SQF Port Fee cap is reasonably

See Securities Exchange Act Release No. 95412 (June 23, 2022), 87 FR 38786 (June 29, 2022) (SRNYSEArca-2022-36). NYSE Arca proposed to increase both the monthly fee per Market Maker OTP and
the number of issues covered by each additional OTP because, among other reasons, the number of issues
traded on the Exchange has increased significantly in recent years.

Id at 38788.

Id at 38790.

designed in consideration of the competitive environment in which the Exchange operates, by
balancing the value of the enhanced benefits available to all Market Makers, based on their
transactional volume and presumed “size.” At the same time, the Exchange believes the
proposed fees will incent 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. 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 Market Makers that qualify
as “medium” from $42,000 to $46,000 per month for SQF Port Fees, and for Market Makers that
qualify as “large” from $42,000 to $50,000 per month for SQF Port Fees does not impose an
undue burden on competition because the Exchange is offering different sizes of Market Makers,
based on Transactional Volume executed on Phlx, the ability to cap their costs at different levels
and potentially obtain some SQF Ports at no cost. The proposal recognizes that some Market
Makers may be deemed “small” and may not be able to achieve the same cap as other Market
Makers. To the extent that a Market Maker qualifies in a given month as a “medium” Market

Maker the Exchange proposes to increase the cap from $42,000 to $46,000 per month. This fee
presumes to place a Market Maker that qualifies as “medium” on equal footing with a Market
Maker that qualifies as a “small” Market Maker in terms of the cap, by setting different fee caps
for each group. The proposal presumes that based on Transactional Volume these Market
Makers that qualify as “medium” have a greater ability to obtain a greater amount of SQF Ports
as compared to Market Makers that qualify as “small.” Finally, to the extent that a Market
Maker qualifies in a given month as a “large” Market Maker the Exchange proposes to increase
the cap from $42,000 to $50,000 per month. This fee presumes to place a Market Maker that
qualifies as “large” on equal footing with a Market Maker that qualifies as a “small” Market
Maker and a Market Maker that qualifies as “medium” in terms of the cap, by setting different
fee caps for each group. The proposal presumes that based on Transactional Volume these
Market Makers that qualify as “large” have the ability to obtain the largest amount of SQF Ports.
The Exchange would uniformly apply the appropriate Market Maker cap to each Market Maker
group based on the same volume calculation. Also, Market Makers who exceed their applicable
cap would uniformly not be assessed any fee for SQF Ports beyond the applicable maximum
amount.
Market Makers are the only market participants that are assessed SQF Port Fees because
they are the only market participants that are permitted to quote on the Exchange. SQF Ports are
only utilized in the Market Maker’s assigned options series. Unlike other market participants,
Market Makers are subject to market making and quoting obligations.24 These liquidity
providers are critical market participants in that they are the only market participants that provide
liquidity to Phlx on a continuous basis. In addition, the Exchange notes that Lead Market
Makers are required to submit quotes in the Opening Process to open an options series.25 Market
Makers are subject to a number of fees, unlike other market participants. Market Makers pay

See Options 2, Sections 4 and 5.

See Options 3, Section 8.

separate permit fees,26 and Streaming Quote Trader Fees,27 in addition to other fees paid by other
market participants. Providing all Market Makers a means to cap their cost related to quoting at
a rate that reflects their “size” and enabling all Market Makers to acquire SQF Ports at no cost
beyond the applicable cap, enables these market participants to provide the necessary liquidity to
Phlx at lower costs. Therefore, because Market Makers fulfill a unique role on the Exchange, are
the only market participant required to submit quotes as part of their obligations to operate on the
Exchange, and, in light of that role, they are eligible for certain incentives. The proposed SQF
Port Fee Cap is designed to continue to incent all Market Makers to quote on Phlx, thereby
promoting liquidity, quote competition, and trading opportunities.
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.28
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.

See Options 7, Section 8, A.

See Options 7, Section 8, B.

15 U.S.C. 78s(b)(3)(A)(ii).

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-2024-29 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-2024-29. 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-2024-29 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.29

Vanessa A. Countryman,
Secretary.

[FR Doc. 2024-15503 Filed: 7/15/2024 8:45 am; Publication Date: 7/16/2024]

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