Nasdaq PHLX LLC, a self-regulatory organization, filed a proposed rule change with the Securities and Exchange Commission on February 27, 2026, to amend its Options 7 pricing schedule. The filing, effective immediately upon submission under Section 19(b)(3)(A) of the Securities Exchange Act of 1934, introduces a surcharge and rebate mechanism for specific floor transactions in multiply-listed options. It also eliminates outdated references to a completed technology migration. Published in the Federal Register on March 17, 2026, the proposal seeks to enhance trading activity on the exchange's floor by balancing incentives for floor brokers with costs for market makers, while ensuring compliance with statutory requirements for equitable and competitive fee structures. This development reflects ongoing efforts by options exchanges to adapt pricing models amid competitive pressures and technological shifts.
Background and Purpose of the Proposed Changes
The proposal primarily targets Options 7, Section 4, which governs fees for multiply-listed options overlying equities, exchange-traded funds, exchange-traded notes, and indexes, excluding SPY options. Currently, floor options transaction charges stand at $0.50 per contract for lead market makers and market makers, and $0.25 per contract for broker-dealers and firms, with no charges for customers or professionals. The exchange now proposes adding note 9 to this section, imposing a $0.20 per contract surcharge on floor lead market makers and floor market makers when they act as counterparties to customer complex floor transactions executed by a floor broker in open outcry. In tandem, floor brokers executing such trades would receive a $0.20 per contract rebate.
These changes exclude index options, singly listed options, strategy transactions like dividend or merger strategies, floor qualified contingent cross orders, and customer cross orders. The exchange justifies this by noting that index and singly listed options follow separate pricing in Options 7, Section 5, while strategy transactions and non-open outcry orders have distinct models. The amendments are set to become operative on March 2, 2026, following the filing date.
Additionally, the proposal amends Options 7, Section 9B by removing text related to a 2025 technology migration. This migration involved transitioning from legacy FIX ports to a new platform, completed in December 2025, with legacy ports sunset on February 27, 2026. The deletion eliminates obsolete references, streamlining the rulebook.
Phlx's filing emphasizes that the changes promote competition and liquidity on the trading floor. By incentivizing floor brokers to direct more customer complex orders, the exchange aims to increase overall volume, benefiting all participants through enhanced trading opportunities.
Key Players and Legal Framework
The primary entities involved are Nasdaq PHLX LLC as the filer, the Securities and Exchange Commission as the regulator, and exchange participants including floor lead market makers, floor market makers, and floor brokers. Floor lead market makers are registered options lead market makers with a physical floor presence, while floor market makers provide quotes in open outcry without electronic streaming. Floor brokers act as agents handling options orders on the floor.
The proposal operates under Section 6(b) of the Securities Exchange Act of 1934, requiring fees to be equitable, not unfairly discriminatory, and consistent with promoting just and equitable principles of trade. Phlx cites precedents from competing exchanges like NYSE Arca and NYSE American, which impose similar $0.12 surcharges on market makers countering floor broker trades, paired with $0.20 rebates for brokers. This alignment suggests Phlx's move is influenced by industry practices to remain competitive.
Relevant legal precedents include the D.C. Circuit's decision in NetCoalition v. SEC (2010), which upheld market-based approaches to fee structures over strict cost-based models, emphasizing competition in determining prices. Phlx invokes this to argue that its pricing fosters market forces, as seen in Regulation NMS, which prioritizes competition for order flow.
Analysis of Potential Implications
The surcharge and rebate could shift dynamics on Phlx's trading floor. Short-term, floor brokers may increase submissions of customer complex orders to earn rebates, potentially boosting open outcry volume. Market makers, facing higher costs, might adjust quoting strategies but could benefit from increased liquidity, as more orders create execution opportunities. The exchange anticipates no discouragement of market making, given the offsetting influx of broker-driven flow.
Long-term, this may enhance Phlx's competitiveness against electronic-focused venues, preserving the role of open outcry in a hybrid market. However, if surcharges deter market makers, it could reduce quote tightness or depth, impacting price discovery. Perspectives vary: proponents view it as a balanced incentive aligning with statutory goals, while critics might argue it disproportionately burdens market makers, though Phlx counters that all participants gain from deeper markets.
The migration text removal has minimal impact, serving mainly to clarify rules post-transition. It reflects broader industry trends toward technological efficiency, reducing administrative burdens without altering substantive fees.
Evidence from the filing includes Phlx's statement that the proposal is 'designed to incent Floor Brokers to increase the number of open outcry complex orders sent to the Exchange,' supported by comparisons to NYSE Arca's fee schedule. No comments were received on the proposal, indicating limited immediate controversy.
