[Federal Register Volume 86, Number 6 (Monday, January 11, 2021)]
[Notices]
[Pages 2018-2020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00196]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90849; File No. SR-MEMX-2020-17]


Self-Regulatory Organizations; MEMX LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 11.8(b) Relating to the Handling of Limit Orders When the National 
Best Bid or Offer Is Not Available

January 5, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 29, 2020, MEMX LLC (``MEMX'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I, and II below, which 
Items have been prepared by the Exchange. The Exchange filed the 
proposal as a ``non-controversial'' proposed rule change pursuant to 
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposed rule change 
to amend Exchange Rule 11.8(b) as it relates to the System's \5\ 
handling of Limit Orders \6\ when the national best bid or offer 
(``NBBO'') is not available. The text of the proposed rule change is 
provided in Exhibit 5.
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    \5\ As defined in Rule 1.5(gg), the Exchange's ``System'' is the 
electronic communications and trading facility designated by the 
Board through which securities orders of Users are consolidated for 
ranking, execution and, when applicable, routing. As defined in Rule 
1.5(jj), a ``User'' is a member of the Exchange (``Member'') or 
sponsored participant of a Member who is authorized to obtain access 
to the System pursuant to Rule 11.3.
    \6\ Limit Orders are described in Exchange Rule 11.8(b) and 
generally defined as an order to buy or sell a stated amount of a 
security at a specified price or better.
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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
    On May 4, 2020, the Commission approved the Exchange's Form 1 
application for registration as a national securities exchange, 
including the initial Rules of the Exchange.\7\ In preparation for the 
Exchange's launch on September 21, 2020, the Exchange adopted in August 
2020 certain additional Rules relating to the System's handling of 
Market Orders \8\ and Limit Orders when the NBBO is not available.\9\ 
Specifically, the Exchange adopted Exchange Rule 11.8(a)(7), which 
provides that a Market Order received by the System when the NBBO is 
not available will be rejected or cancelled back to the entering User, 
and Exchange Rule 11.8(b)(9), which similarly provides that a Limit 
Order received by the System when the NBBO is not available will be 
rejected or cancelled back to the entering User. These Rules were based 
on language applicable to Pegged Orders \10\ set forth in Exchange Rule 
11.8(c)(7) and were intended to match the handling of Market Orders and 
Limit Orders with the handling of Pegged Orders when the NBBO is not 
available under that Rule (i.e., that such orders will be rejected or 
cancelled back to the entering User).\11\ The Exchange noted in the 
proposal to adopt Exchange Rules 11.8(a)(7) and 11.8(b)(9) that it 
believed that, at least in connection with the launch of the

[[Page 2019]]

Exchange, it should not accept orders (of any type) when there is no 
available NBBO in the applicable security, as the Exchange believed 
that the absence of an NBBO may be indicative of a potential market 
problem and that many of the protections in place for the protection of 
investors may be absent when there is no NBBO.\12\
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    \7\ See Securities Exchange Act Release No. 88806 (May 4, 2020), 
85 FR 27451
    (May 8, 2020) (the ``Approval Order'').
    \8\ Market Orders are described in Exchange Rule 11.8(a) and 
generally defined as an order to buy or sell a stated amount of a 
security that is to be executed at the NBBO or better when the order 
reaches the Exchange.
    \9\ See Securities Exchange Act Release No. 89581 (August 17, 
2020), 85 FR 51799 (August 21, 2020) (SR-MEMX-2020-04).
    \10\ In addition to Market Orders and Limit Orders, Pegged 
Orders are the third of three primary order types offered by the 
Exchange. Pegged Orders are described in Exchange Rules 11.6(h) and 
11.8(c) and generally defined as an order that is pegged to a 
reference price and automatically re-prices in response to changes 
in the NBBO. The two types of peg instructions for Pegged Orders 
are: (1) Primary Peg, which pegs to the NBB (NBO) for buy (sell) 
orders; and (2) Midpoint Peg, which pegs to the midpoint of the 
NBBO.
    \11\ See Exchange Rule 11.8(c)(7).
    \12\ See supra note 9 at 51805.
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    The Exchange now proposes to delete Exchange Rule 11.8(b)(9) to 
allow the System to accept Limit Orders when the NBBO is not available 
and handle such orders in accordance with the User's instructions and 
the Rules of the Exchange. Since its launch, the Exchange has had 
direct experience with handling orders when the NBBO is not available, 
and the Exchange believes that potential problems applicable to Market 
Orders and Pegged Orders when the NBBO is not available are not 
applicable to Limit Orders. For instance, with respect to Market 
Orders, the Exchange believes that the absence of an NBBO may be 
problematic because such orders must, by definition, be executed at the 
NBBO or better when the order reaches the Exchange, and thus when no 
NBBO is available the System is not able to execute at the NBBO and 
does not have a price to reference for determining what constitutes an 
appropriate price.\13\ Moreover, because Market Orders are not subject 
to any further price limitations entered by the User, the System could 
execute an accepted Market Order when no NBBO is available against a 
marketable contra-side order resting on the Exchange that is priced far 
away from the last sale price or last disseminated NBBO, which the 
Exchange believes would rarely be intended. Therefore, to protect 
against executions of Market Orders at unintended price levels, the 
Exchange believes that rejecting or cancelling such orders is still 
appropriate. With respect to Pegged Orders, the Exchange believes that 
the absence of an NBBO may be problematic because such orders, by 
definition, must be pegged to (i) the NBB (NBO) for buy (sell) orders 
for a Primary Peg instruction, or (ii) the midpoint of the NBBO for a 
Midpoint Peg instruction, and thus when no NBBO is available there is 
no reference price to which such orders can be pegged. Therefore, the 
Exchange believes that rejecting or cancelling such orders is still 
appropriate. Accordingly, the Exchange believes the protection afforded 
by Exchange Rules 11.8(a)(7) and 11.8(c)(7) for Market Orders and 
Pegged Orders when the NBBO is not available (i.e., that such orders 
will be rejected or cancelled back to the entering User) is still 
appropriate and the Exchange does not propose to delete or amend these 
Rules.
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    \13\ See Exchange Rule 11.8(b)(9).
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    Unlike Market Orders and Pegged Orders, a Limit Order requires the 
entering User to specify a dollar price that the System must execute 
the order at or better than instead of execution of the order being 
based on the NBBO. Therefore, for Limit Orders, the entering User is 
able to establish its own protection in the form of a specified price 
limitation. Thus, even when the NBBO is not available, the possibility 
of executing at an unintended price is not present for a Limit Order 
because the User must specify the most aggressive price at which it is 
willing to execute. Additionally, the Exchange believes that the 
proposed change would result in Members sending additional liquidity in 
the form of Limit Orders to the Exchange when there is otherwise no 
available NBBO, which would deepen the liquidity on the Exchange and 
potentially establish the NBBO to the benefit of all Members and the 
market generally.
    The Exchange also notes that its initial Rules previously approved 
by the Commission in the Approval Order did not contain Exchange Rule 
11.8(b)(9). Rather, as noted above, this provision was subsequently 
adopted by the Exchange in connection with the Exchange's initial 
launch so the Exchange could evaluate the necessity of this 
functionality while gaining operational experience and data. The 
Exchange now believes that the rejection of Limit Orders when no NBBO 
is available pursuant to Exchange Rule 11.8(b)(9) is unnecessary for 
the reasons stated above. The Exchange also notes that deletion of 
Exchange Rule 11.8(b)(9) is consistent with the existing rules and 
functionality of other exchanges.\14\
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    \14\ See, e.g., Cboe EDGX Exchange, Inc. Rule 11.8(b) regarding 
limit orders, which does not have a comparable provision to Exchange 
Rule 11.8(b)(9); Cboe EDGA Exchange, Inc. Rule 11.8(b) regarding 
limit orders, which does not have a comparable provision to Exchange 
Rule 11.8(b)(9).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act,\15\ which requires, among other 
things, that the Exchange's rules must be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest, and 
Section 6(b)(8) of the Act,\16\ which requires that the Exchange's 
rules not impose any burden on competition that is not necessary or 
appropriate.
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    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78f(b)(8).
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    As noted above, the proposed change is intended to revert the 
System's handling of Limit Orders when there is no available NBBO to 
the functionality contemplated by the Exchange's initial Rules 
previously approved by the Commission in the Approval Order. The 
Exchange believes that permitting Members to submit Limit Orders to the 
Exchange when the NBBO is not available is appropriate and consistent 
with the Act as the Exchange believes that its Members would want to 
utilize this functionality, thereby resulting in additional liquidity 
in the form of Limit Orders being sent to the Exchange when there is 
otherwise no available NBBO, which would deepen the liquidity on the 
Exchange and potentially establish the NBBO to the benefit of all 
Members and the market generally. Furthermore, the proposed change 
would make the System's functionality consistent with the functionality 
offered by certain other exchanges with respect to accepting Limit 
Orders when no NBBO is available.\17\ Thus, the Exchange believes the 
proposed changes in this regard would promote just and equitable 
principles of trade, remove impediments to and perfect the mechanism of 
a free and open market and a national market system, and, in general, 
would protect investors and the public interest.
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    \17\ See supra note 14.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
reiterates that the proposed rule change would revert the System's 
functionality to that contemplated by the Exchange's initial Rules 
previously approved by the Commission in the Approval Order, which is 
also consistent with the functionality offered by other exchanges.\18\ 
The Exchange believes that the proposed rule change would not burden 
intramarket competition because the ability to submit Limit Orders to 
the Exchange when the NBBO is not available would be open to all 
Members. The Exchange believes that the proposed rule change would not 
burden, but rather increase,

[[Page 2020]]

intermarket competition as the Exchange belives [sic] that permitting 
Members to submit Limit Orders to the Exchange when the NBBO is not 
available would ultimately enable the Exchange to better compete with 
other exchanges that offer this same functionality. Thus, the Exchange 
believes this proposed rule change will facilitate fair competition 
among national securities exchanges. In addition, the Exchange believes 
the proposed rule change will all benefit Members and market 
participants in that the change would allow for additional orders, 
particularly when there is not already an active market in a particular 
security, to be sent to the Exchange, thereby deepening the Exchange's 
liquidity and possibly establishing the NBBO when it is not otherwise 
available.
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    \18\ See supra note 14.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \19\ and Rule 19b-
4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \21\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \22\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest.
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
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    The proposed change will allow the Exchange to accept Limit Orders 
when the NBBO is not available, in which case the Exchange will handle 
such orders in accordance with the User's instructions and the Rules of 
the Exchange. The Exchange believes that waiver of the operative delay 
is consistent with the protection of investors and the public interest 
because the proposed functionality will allow market participants to 
submit limit orders to MEMX when the NBBO is not available, just as 
they can do to other exchanges, which can provide additional liquidity 
on MEMX and contribute to the formation of two-sided quotes that are 
publicly available. In addition, the Exchange states in its filing that 
its proposal is consistent with the initial applicable rule for the 
Exchange that was previously approved by the Commission in connection 
with its initial exchange registration, and also is consistent with 
existing rules and functionality offered by other exchanges.\23\ The 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposed rule change does not raise any new or novel 
issues. Therefore, the Commission hereby waives the operative delay and 
designates the proposal as operative upon filing.\24\
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    \23\ See supra note 14. In its filing, the Exchange stated that 
it proposes to implement the proposed rule change on or about 
January 15, 2021.
    \24\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \25\ 15 U.S.C. 78s(b)(2)(B).
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number
    SR-MEMX-2020-17 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-MEMX-2020-17. 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 (http://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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MEMX-2020-17 and should be submitted on 
or before February 1, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-00196 Filed 1-8-21; 8:45 am]
BILLING CODE 8011-01-P