FR 2025-06517

Summary of the Document

The document published by the Securities and Exchange Commission (SEC) reports a filing by Nasdaq PHLX LLC to discontinue its Market Data Revenue (MDR) Rebate Program. This program was initially designed to incentivize market participants to display orders on the exchange by offering financial rebates. However, the program did not achieve the desired effect of significantly boosting trading activity. Consequently, it is being eliminated due to its complexity and limited financial returns for the participants. The SEC invites public comments on this proposed change.

Significant Issues and Concerns

One of the principal issues raised by this document is the underutilization of the MDR Rebate Program, which indicates that resources may have been inefficiently allocated. Despite the intention to stimulate market activity, the program did not succeed in attracting the participation it aimed for, suggesting a possible misalignment between the incentives offered and the needs of market participants.

The document is also characterized by complex and technical language. Sections describing the calculation and allocation of MDR rebates are intricate, which may complicate understanding for those unfamiliar with securities regulations. The reliance on references and previous filings could further obscure the document's details for readers without access to those documents.

Another concern is the lack of specific data or examples supporting claims regarding the competitive nature of the market. While the document references competition as a factor in decision-making, the absence of concrete examples makes it difficult to assess the real impact of competition on the Exchange's operations.

Impact on the Public

The elimination of the MDR Rebate Program might not directly affect the general public, given its technical nature and specific target audience of market participants. However, it reflects broader trends in financial markets where exchanges are continuously refining their strategies to stay competitive and efficient. For the general public, such changes may indirectly impact the liquidity and efficiency of the markets, which can influence trading costs and market stability.

Impact on Specific Stakeholders

Market Participants: For trading firms and other market participants who previously engaged with the program, this change could have varying impacts. Participants who found the program beneficial might feel a negative effect due to the loss of potential rebates. Conversely, for firms that found the program complex and marginally beneficial, its elimination might streamline their operations, allowing them to focus on other opportunities.

Nasdaq PHLX LLC: For the exchange itself, eliminating the program could redirect resources and attention towards more effective initiatives. By acknowledging the program's inefficiencies, Nasdaq PHLX LLC demonstrates an adaptive approach aimed at optimizing its service offerings.

Overall, while the cessation of the MDR Rebate Program marks a shift in Nasdaq PHLX LLC’s approach to fostering market activity, its ultimate impact will vary among different stakeholders, shaping the competitive landscape in nuanced ways.

In examining the document, it is evident that the primary financial focus is the Market Data Revenue (MDR) Rebate program, which the Nasdaq PHLX LLC Exchange has moved to eliminate. This program previously allocated financial rebates to participants based on specific quoting activities. These rebates were distributed when the MDR received by the Exchange exceeded certain thresholds, with 40% of any excess MDR being shared with participants.

The financial allocations under this program were linked to participants' quoting activities, specifically involving displayed orders in Tape A and C securities. A PSX Participant's rebate was contingent upon quoting at the National Best Bid or Offer (NBBO) for a requisite percentage of the time. Participants were required to engage in quoting activity at least 25% of the time during market hours across a prescribed number of securities.

Importantly, there was a de minimis requirement, meaning that a PSX Participant would not receive a rebate for any quarter if their total attributed MDR Rebate was less than $500. This suggests that while the program aimed to incentivize market activity, its structure may have limited smaller participants or those unable to consistently meet the quoting requirements from benefiting until certain financial thresholds were surpassed.

The complexity of the rebate calculation, described through a series of steps, highlights the administrative effort required to manage these financial allocations. This complexity, alongside minimal financial returns, contributed to the inefficient spending of resources, addressing the issue raised in the document about inefficient allocation of funds. The inadequacy in achieving targeted quoting activity—despite financial incentives—underscores a disconnect between financial allocation and desired market behavior, as noted in the issues identified.

Moreover, while the document emphasizes the competitive nature of the securities markets, it lacks detailed quantitative support for how this competitiveness impacts financial decisions like the elimination of the MDR program. This gap points to an opportunity for clearer connection between competitive pressures and financial policies, which could enhance understanding for stakeholders and justify such financial decisions more robustly.