[Federal Register Volume 86, Number 171 (Wednesday, September 8, 2021)]
[Notices]
[Pages 50411-50420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-19294]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92844; File No. SR-MEMX-2021-10]


Self-Regulatory Organizations; MEMX LLC; Notice of Filing of a 
Proposed Rule Change To Establish a Retail Midpoint Liquidity Program

September 1, 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 August 18, 2021, 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 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.
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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 establish a Retail Midpoint Liquidity Program. The text of the 
proposed rule change is provided in Exhibit 5.

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

Purpose
Background
    The Exchange proposes to adopt new Exchange Rule 11.22 to establish 
a Retail Midpoint Liquidity Program (the ``RML Program''). As proposed, 
the RML Program is designed to provide retail investors with meaningful 
price improvement opportunities by executing at the midpoint of the 
national best bid and offer (``NBBO'') such that Users \3\ will be 
incentivized to direct additional orders designed to execute at the 
midpoint of the NBBO (the ``Midpoint Price'') to the Exchange to 
interact with orders that originate from retail investors that are also 
designed to execute at the Midpoint Price.
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    \3\ As defined in Exchange 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 
Exchange Rule 11.3. The term ``System'' refers to 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. See Exchange Rule 1.5(gg).
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    As former Commission Chairman Jay Clayton noted in a 2018 speech, 
forty-three million U.S. households hold a retirement or brokerage 
account, with $3.6 trillion in balance sheet assets in 128 million 
customer accounts serviced by more than 2,800 registered broker-
dealers.\4\ He also noted the importance of continued broad, long-term 
retail participation in our capital markets, and that retail investors 
count on the capital markets to fund major life events such as paying 
for their children's higher education or funding their own 
retirements.\5\
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    \4\ See The Evolving Market for Retail Investment Services and 
Forward-Looking Regulation--Adding Clarity and Investor Protection 
while Ensuring Access and Choice, Chairman Jay Clayton, Commission 
(May 2, 2018), available at https://www.sec.gov/news/speech/speech-clayton-2018-05-02.
    \5\ Id.
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    Against this backdrop, the RML Program is designed to provide 
retail investors with access to a pool of midpoint liquidity on the 
Exchange by introducing a new mechanism for retail-oriented liquidity 
provision, thereby providing enhanced opportunities for meaningful 
price improvement at the Midpoint Price for retail investors. The 
Exchange believes that introducing the RML Program could provide retail 
investors with a competitive alternative to existing exchange and over-
the-counter (``OTC'') retail programs, by

[[Page 50412]]

attracting counterparty liquidity to the Exchange from Users and their 
clients seeking to interact with retail liquidity. The Exchange 
understands that many professional market participants, such as market 
makers, view interacting with orders of retail investors as more 
desirable than interacting with orders of other professional market 
participants. For example, as the Commission staff noted in a 2016 
memorandum to the Equity Market Structure Advisory Committee (``EMSAC 
Memorandum''), ``[m]arket makers are interested in retail customer 
order flow because retail investors are, on balance, less informed than 
other traders about short-term price movements . . . [and t]rading 
against retail customer order flow enables market makers to avoid 
adverse selection by informed professional traders and to more reliably 
profit from market-making activity.'' \6\ Consistent with the EMSAC 
Memorandum's conclusions, and based on informal discussions with market 
participants and the knowledge and experience of its staff, the 
Exchange believes that market makers and other sophisticated market 
participants generally value interacting with retail orders because 
they are smaller and not likely to be part of a larger parent order 
that can move a stock price, causing a loss to the market maker. The 
proposed rule change thus seeks to provide enhanced price improvement 
opportunities for retail customers by incentivizing Users and their 
clients to provide price-improving liquidity to interact with the 
orders of retail investors. The RML Program would therefore be 
consistent with the goals of the Commission to encourage markets that 
are structured to benefit ordinary investors,\7\ while facilitating 
order interaction to the benefit of all market participants.
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    \6\ See January 26, 2016 Memorandum entitled ``Certain Issues 
Affecting Customers in the Current Equity Market Structure'' from 
the staff of the Commission's Division of Trading and Markets, 
available at https://www.sec.gov/spotlight/equity-market-structure/issues-affecting-customers-emsac-012616.pdf.
    \7\ See, e.g., U.S. Securities and Exchange Commission, 
Strategic Plan, Fiscal Years 2018-2022, available at https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf 
(``Commission Strategic Plan'').
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    As proposed, through the RML Program, the Exchange would enable 
Retail Member Organizations \8\ to submit a new type of Retail Order 
designed to execute at the Midpoint Price (i.e., a Retail Midpoint 
Order, described below) to the Exchange, and any User would be 
permitted to provide price improvement to such order in the form of 
another new order type that is designed to execute at the Midpoint 
Price and that is only eligible to execute against a Retail Midpoint 
Order (i.e., an RML Order, described below). The Exchange expects that 
the introduction of Retail Midpoint Orders and RML Orders, through the 
proposed RML Program, would result in a balanced mix of retail 
brokerage firms and their wholesaling partners submitting Retail 
Midpoint Orders to the Exchange to access the additional midpoint 
liquidity provided by RML Orders that the Exchange anticipates 
resulting from the RML Program.
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    \8\ A ``Retail Member Organization'' or ``RMO'' is a Member (or 
a division thereof) that has been approved by the Exchange under 
Exchange Rule 11.21 to submit Retail Orders. A ``Retail Order'' 
means an agency or riskless principal order that meets the criteria 
of FINRA Rule 5320.03 that originates from a natural person and is 
submitted to the Exchange by a Retail Member Organization, provided 
that no change is made to the terms of the order with respect to 
price or side of market and the order does not originate from a 
trading algorithm or any other computerized methodology. See 
Exchange Rule 11.21(a).
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    The Exchange notes that the proposed RML Program is comparable in 
purpose and effect to the Investors Exchange LLC (``IEX'') Retail Price 
Improvement Program (the ``IEX Retail Program''), which is also 
designed to provide retail investors with meaningful price improvement 
opportunities.\9\ Further, the Commission recently approved several 
changes to the IEX Retail Program that make certain features of the IEX 
Retail Program substantially similar to proposed features of the RML 
Program.\10\ The Exchange will describe certain differences between the 
proposed RML Program and the IEX Retail Program under the appropriate 
headings below.
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    \9\ See IEX Rule 11.232; see also Securities Exchange Act 
Release No. 92398 (July 13, 2021), 86 FR 38166 (July 19, 2021) (SR-
IEX-2021-06) (order approving changes to the IEX Retail Program 
including dissemination of a retail liquidity identifier and 
limiting IEX Retail Liquidity Provider orders to midpoint peg 
orders) (the ``IEX Retail Approval Order''). The Exchange notes that 
the IEX Retail Program, as amended, supports executions of retail 
orders described in IEX Rule 11.190(b)(15) (``IEX Retail Orders'') 
at the Midpoint Price as well as prices that are different than the 
Midpoint Price in certain limited circumstances. While the 
Exchange's proposed new order types under the RML Program would only 
be eligible to execute at the Midpoint Price, as further described 
below, the Exchange notes that Retail Orders would still be eligible 
to execute at prices that are different than the Midpoint Price 
outside of the RML Program as they are today.
    \10\ See IEX Retail Approval Order, supra note 9.
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    The Exchange will submit a separate proposal to amend its Fee 
Schedule in connection with the proposed RML Program. Under that 
proposal, the Exchange expects to provide free executions or charge a 
fee to Users for executions of their RML Orders against Retail Midpoint 
Orders, and in turn would provide a rebate or free executions to RMOs 
for executions of their Retail Midpoint Orders against RML Orders.
Definitions
    The Exchange proposes to adopt the following definitions under 
paragraph (a) of proposed Exchange Rule 11.22 (Retail Midpoint 
Liquidity Program). First, the term ``Retail Midpoint Order'' would be 
defined as a Retail Order submitted by an RMO that is a Pegged Order 
\11\ with a Midpoint Peg \12\ instruction (``Midpoint Peg Order'') and 
that is only eligible to execute against RML Orders (a proposed new 
order type described below), and other orders priced more aggressively 
than the Midpoint Price, through the execution process described in 
proposed Exchange Rule 11.22(c). As proposed, a Retail Midpoint Order 
must have a time-in-force (``TIF'') instruction of IOC.\13\
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    \11\ 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.
    \12\ A Midpoint Peg instruction is an instruction that may be 
placed on a Pegged Order that instructs the Exchange to peg the 
order to the midpoint of the NBBO. See Exchange Rule 11.6(h)(2).
    \13\ ``IOC'' is an instruction the User may attach to an order 
stating the order is to be executed in whole or in part as soon as 
such order is received, and the portion not executed immediately on 
the Exchange or another trading center is treated as cancelled and 
is not posted to the MEMX Book. See Exchange Rule 11.6(o)(1). The 
term ``MEMX Book'' refers to the System's electronic file of orders. 
See Exchange Rule 1.5(q).
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    Second, the term ``Retail Midpoint Liquidity Order'' or ``RML 
Order'' would be defined as a Midpoint Peg Order that is only eligible 
to execute against Retail Midpoint Orders through the execution process 
described in proposed Exchange Rule 11.22(c). As proposed, an RML Order 
must have a TIF instruction of Day,\14\ RHO,\15\ or GTT \16\ and may 
not include a Minimum Execution Quantity \17\ instruction. Any User 
would be permitted, but not required, to submit RML Orders. 
Additionally, the Exchange proposes that a User may, but is not 
required to, designate an RML Order to be identified as RML Order 
interest (``RML Interest'') for purposes of the Retail Liquidity

[[Page 50413]]

Identifier pursuant to proposed Exchange Rule 11.22(b) (such RML 
Interest is sometimes referred to herein as ``designated RML 
Interest''), as further described below, by including a Displayed 
instruction.\18\ A User would be able to designate RML Interest for 
this purpose on an order-by-order basis or on a port-by-port basis. The 
Exchange notes that, except with respect to a User's ability to elect 
whether to designate an RML Order to be identified as such for purposes 
of the Retail Liquidity Identifier, an RML Order is substantially 
similar in effect to IEX's Retail Liquidity Provider Order (``IEX RLP 
Order'') offered under the IEX Retail Program, in that an RML Order is 
an order that is designed to execute at the Midpoint Price, is only 
eligible to execute against retail order interest, and may be submitted 
by any User.\19\
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    \14\ See Exchange Rule 11.6(o)(2).
    \15\ See Exchange Rule 11.6(o)(5).
    \16\ See Exchange Rule 11.6(o)(4).
    \17\ The Minimum Execution Quantity instruction is described in 
Exchange Rule 11.6(f) and is generally defined as an instruction a 
User may attach to an order with a Non-Displayed instruction or a 
TIF of IOC instruction requiring the System to execute the order 
only to the extent that a minimum quantity can be satisfied. A Non-
Displayed instruction is an instruction a User may attach to an 
order stating that the order is not to be displayed by the System on 
the MEMX Book. See Exchange Rule 11.6(c)(2).
    \18\ A Displayed instruction is an instruction a User may attach 
to an order stating that the order is to be displayed by the System 
on the MEMX Book. See Exchange Rule 11.6(c)(1). Under Exchange Rule 
11.8(c)(3), Pegged Orders, including Midpoint Peg Orders, are not 
eligible to include a Displayed instruction; however, as proposed, 
an RML Order would be eligible to include a Displayed instruction, 
which would be for the sole purpose of indicating to the Exchange 
that the User has designated the RML Order to be identified as RML 
Interest for purposes of the Retail Liquidity Identifier pursuant to 
proposed Exchange Rule 11.22(b), and inclusion of the Displayed 
instruction would not indicate to the Exchange that the RML Order is 
to be displayed by the System on the MEMX Book. The Exchange's 
proposal to permit Users to include a Displayed instruction for an 
RML Order for this purpose is purely to facilitate the 
implementation of the Retail Liquidity Identifier by using an 
existing but otherwise inapplicable instruction type (i.e., the 
Displayed instruction), and the System will otherwise handle an RML 
Order with a Displayed instruction as if no Displayed instruction 
was included.
    \19\ See IEX Rule 11.190(b)(14), which describes the IEX RLP 
Order. See also IEX Retail Approval Order, supra note 9.
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    As further described below, Retail Midpoint Orders and RML Orders 
would only be eligible to execute at the Midpoint Price. Additionally, 
as reflected in the proposed definitions of Retail Midpoint Order and 
RML Order, such orders would only be eligible to execute against each 
other with the exception that a Retail Midpoint Order would also be 
eligible to execute against other orders in certain limited 
circumstances (i.e., against displayed odd lot orders and/or non-
displayed orders priced more aggressively than the Midpoint Price 
resting on the MEMX Book) pursuant to proposed Exchange Rule 
11.22(c)(2), as further described below. The purpose of limiting Retail 
Midpoint Orders and RML Orders to interacting with each other (subject 
to the exception of Retail Midpoint Orders being eligible to execute 
against other orders priced more aggressively than the Midpoint Price) 
is that the proposed RML Program is designed to provide a mechanism 
whereby liquidity-providing Users can provide price-improving liquidity 
at the Midpoint Price specifically to retail investors, and liquidity-
removing RMOs submitting orders on behalf of retail investors can 
interact with such price-improving liquidity at the Midpoint Price, in 
a deterministic manner. The Exchange notes that this aspect of the 
proposed RML Program is partially different than the IEX Retail 
Program. Like an IEX RLP Order, which is only eligible to execute 
against IEX Retail Orders, the Exchange's proposed RML Order would only 
be eligible to execute against Retail Midpoint Orders. However, an IEX 
Retail Order is generally eligible to execute against order types other 
than an IEX RLP Order,\20\ whereas the Exchange's proposed Retail 
Midpoint Order would be generally limited to executing against RML 
Orders (subject to the exception of Retail Midpoint Orders being 
eligible to execute against other orders priced more aggressively than 
the Midpoint Price). While this aspect of the Exchange's proposal 
differs from the IEX Retail Program, the Exchange notes that the 
concept of an order type that is limited to interacting with a specific 
contra-side order type has previously been approved by the Commission 
both in the context of liquidity-providing orders for retail programs 
\21\ and in other contexts.\22\ The Exchange believes the proposed 
Retail Midpoint Order is analogous to such order types even though a 
Retail Midpoint Order would be eligible to execute against non-RML 
Orders where such orders are priced more aggressively than the Midpoint 
Price because orders priced more aggressively than the Midpoint Price 
comprise only a small amount of the Exchange's volume of orders, and 
thus, the Exchange expects that Retail Midpoint Orders would mostly 
interact with RML Orders. Moreover, the Exchange generally expects RMOs 
to submit Retail Midpoint Orders when the Retail Liquidity Identifier 
is disseminated, which indicates that there is available RML Interest 
of at least one round lot on the MEMX Book, and generally does not 
expect RMOs to submit Retail Midpoint Orders when the Retail Liquidity 
Identifier is not disseminated or otherwise to specifically seek to 
interact with other orders priced more aggressively than the Midpoint 
Price, particularly as any such orders would be either non-displayed 
(and therefore not known to the RMO) or less than a round lot in size, 
and RMOs could still submit Retail Orders to interact with such 
liquidity using an order type other than the Retail Midpoint Order as 
they can today.
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    \20\ See IEX Rule 11.232(e)(3), which describes the priority and 
order execution processes for IEX Retail Orders and provides that 
such orders are eligible to execute against order types other than 
an IEX RLP Order in certain circumstances, including against other 
orders during a locked or crossed market, against displayed odd lot 
orders priced at or better than the Midpoint Price, and against 
other non-displayed interest at the Midpoint Price.
    \21\ See, e.g., IEX Rule 11.190(b)(14), which states that an IEX 
RLP Order is only eligible to execute against IEX Retail Orders; 
Nasdaq PSX Rule 4702(b)(5)(A), which states that on Nasdaq PSX a 
Retail Price Improving Order may only execute against a Retail 
Order.
    \22\ See, e.g., Securities Exchange Act Release No. 82825 (March 
7, 2018), 83 FR 10937 (March 13, 2018) (SR-NASDAQ-2017-074) (Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment Nos. 1, 2, and 3, to Adopt the Midpoint Extended Life 
Order) (the ``MELO Approval Order''). As set forth in the MELO 
Approval Order, Nasdaq originally allowed executions of Midpoint 
Extended Life Orders (``MELOs'') only against other eligible MELOs. 
Pursuant to Rule 4702(b)(14)(A) Nasdaq today allows executions of 
MELOs only against eligible MELOs and MELO+CB orders.
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    As Retail Midpoint Orders and RML Orders are types of Pegged 
Orders, and are designed to execute on the Exchange against each other, 
such orders would not be eligible for routing.\23\
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    \23\ See Exchange Rule 11.8(c)(5), which provides that Pegged 
Orders are not eligible for routing.
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Retail Liquidity Identifier
    Under the RML Program, the Exchange proposes to disseminate a 
Retail Liquidity Identifier through the Exchange's proprietary market 
data feeds, MEMOIR Depth \24\ and MEMOIR Top,\25\ and the appropriate 
securities information processor (``SIP'') when designated RML Interest 
aggregated to form at least one round lot for a particular security is 
available in the System (``Retail Liquidity Identifier''), provided 
that such designated RML Interest is resting at the Midpoint Price and 
is priced at least $0.001 better than the national best bid (``NBB'') 
or national best offer (``NBO'').
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    \24\ See Exchange Rule 13.8(a).
    \25\ See Exchange Rule 13.8(b).
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    The purpose of the Retail Liquidity Identifier is to provide 
relevant market information to RMOs that there is available RML 
Interest on the Exchange, thereby incentivizing them to send Retail 
Midpoint Orders to the Exchange seeking execution at the Midpoint 
Price. The Retail Liquidity Identifier would reflect the symbol and the 
side (buy and/or sell) of the designated RML Interest but would not 
include the price or size. The Exchange does not believe that such 
market information constitutes a ``quote'' within the meaning of

[[Page 50414]]

Regulation NMS because it does not include a specific price or size of 
the interest; alternatively, if such information is deemed a quote, the 
Exchange believes that an exemption from applicable rules would be 
appropriate.\26\ While an explicit price would not be disseminated, 
because RML Orders are only eligible to execute at the Midpoint Price, 
dissemination of the Retail Liquidity Identifier would thus reflect the 
availability of price improvement at the Midpoint Price.\27\
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    \26\ The Exchange plans to submit a letter requesting no-action 
or exemptive relief from obligations set forth in Rule 602 of 
Regulation NMS.
    \27\ The Exchange notes that this aspect of the proposed Retail 
Liquidity Identifier is the same as the Retail Liquidity Identifier 
disseminated by IEX under the IEX Retail Program that was recently 
approved by the Commission. See IEX Rule 11.232(f); see also IEX 
Retail Approval Order, supra note 9, at 38167.
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    As noted above, the Exchange would only disseminate the Retail 
Liquidity Identifier when designated RML Interest would provide at 
least $0.001 of price improvement, which is consistent with the rules 
of the other exchanges that disseminate Retail Liquidity Identifiers 
\28\ as well as the SIP Plans' requirements.\29\ Because RML Orders are 
proposed to be only Midpoint Peg Orders, they will always represent at 
least $0.001 price improvement over the NBB or NBO, with two 
exceptions: (1) In a locked or crossed market; and (2) a sub-dollar 
quote when the security's spread is less than $0.002.\30\ Under 
Exchange Rule 11.8(c)(6), a Pegged Order resting on the MEMX Book is 
not eligible for execution when the market is locked or crossed; thus, 
an RML Order would not be eligible for execution when the market is 
locked or crossed and would rest on the MEMX Book and become eligible 
for execution again when the market ceases to be locked or crossed.\31\ 
Because an RML Order would not be eligible for execution when the 
market is locked or crossed, such order would not provide any price 
improvement to an incoming Retail Midpoint Order (i.e., would not be 
priced at least $0.001 better than the NBB or NBO) and therefore would 
not comprise eligible RML Interest for purposes of the Retail Liquidity 
Identifier. Similarly, when a particular security is priced less than 
$1.00 per share, its MPV is $0.0001, so the Midpoint Price will not 
always represent at least $0.001 in price improvement.\32\ Therefore, 
the Exchange would only disseminate the Retail Liquidity Identifier for 
sub-dollar securities if the spread in the security is greater than or 
equal to $0.002, meaning the Midpoint Price represents at least $0.001 
price improvement over the NBB or NBO. With respect to the requirement 
that an RML Order must be resting at the Midpoint Price in order to be 
included in the designated RML Interest to be disseminated pursuant to 
the Retail Liquidity Identifier, the Exchange notes that an RML Order 
could have a limit price that is less aggressive than the Midpoint 
Price in which case it would not be eligible to trade with an incoming 
Retail Midpoint Order and therefore should not be included for purposes 
of Retail Liquidity Identifier dissemination since it would not reflect 
interest available to trade with Retail Midpoint Orders. The Exchange 
notes that not including: (1) RML Interest for a security when the 
market for the security is locked or crossed; (2) RML Interest for a 
sub-dollar security if the spread in the security is greater [sic] than 
or equal [sic] to $0.002; and (3) RML Interest that is not resting at 
the Midpoint Price (i.e., RML Interest that is constrained by a limit 
price that is less aggressive than the Midpoint Price), for purposes of 
Retail Liquidity Identifier dissemination is consistent with the Retail 
Liquidity Identifier disseminated by IEX under the IEX Retail 
Program.\33\
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    \28\ See, e.g., IEX Rule 11.232(f), Cboe BYX Rule 11.24(e), and 
NYSE Arca Equities Rule 7.44(j).
    \29\ See January 26, 2021 CQS Participant Input Binary 
Specification Version 2.6a, available at https://www.ctaplan.com/publicdocs/ctaplan/CQS_Pillar_Input_Specification.pdf and May 2020 
UTP Data Feed Services Specification Version 1.5, available at 
https://www.utpplan.com/DOC/UtpBinaryOutputSpec.pdf.
    \30\ The Minimum Price Variation (``MPV'') for bids, offers, or 
orders in securities priced less than $1.00 per share is $0.0001. 
See Exchange Rule 11.6(g).
    \31\ See Exchange Rule 11.8(c)(6).
    \32\ For example, if a security's NBB is $0.505 and NBO is 
$0.506, the Midpoint Price would be $0.5055, which is $0.0005 more 
than the NBB and less than the NBO, so it would not represent at 
least $0.001 price improvement over the NBB or NBO, and therefore 
would not comprise eligible RML Interest for purposes of the Retail 
Liquidity Identifier.
    \33\ See IEX Rule 11.232(f); see also IEX Retail Approval Order, 
supra note 9, at 38167.
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    The Exchange also proposes to remove the Retail Liquidity 
Identifier previously disseminated through the MEMOIR Depth and MEMOIR 
Top data products and through the appropriate SIP after executions 
against Retail Midpoint Orders have depleted the available designated 
RML Interest such that the remaining designated RML Interest does not 
aggregate to form at least one round lot, or in situations where there 
is no actionable RML Interest (such as when the market is locked or 
crossed), in order to indicate to market participants that there is no 
longer designated RML Interest of at least one round lot available. The 
Exchange believes that removing the Retail Liquidity Identifier on the 
market data feeds and SIP when there is not sufficient eligible RML 
Interest available is consistent with the implementation of the other 
exchanges that disseminate Retail Liquidity Identifiers.
    As described above, the Exchange's proposed Retail Liquidity 
Identifier is substantially similar to IEX's Retail Liquidity 
Identifier. However, the Exchange notes one key distinction--the 
Exchange would enable a User to elect whether to designate an RML Order 
to be identified as such for purposes of the Retail Liquidity 
Identifier. Similar to the proposed RML Program, under the IEX Retail 
Program, eligible IEX RLP Order interest that is aggregated to form at 
least one round lot is required to cause the dissemination of the 
Retail Liquidity Identifier. Under the IEX Retail Program, a User is 
not able to elect whether an IEX RLP Order is to be identified as such 
for purposes of the Retail Liquidity Identifier, and thus, all IEX RLP 
Order interest is included in determining whether there is a sufficient 
amount of IEX RLP Order interest (i.e., one round lot) to cause the 
dissemination of the Retail Liquidity Identifier. In contrast, under 
the proposed RML Program, a User may, but is not required to, designate 
an RML Order to be identified as such for purposes of the Retail 
Liquidity Identifier. Therefore, a User would be able to elect whether 
an RML Order that it submits will be included in determining whether 
there is a sufficient amount of RML Interest (i.e., one round lot) to 
cause the dissemination of the Retail Liquidity Identifier (i.e., 
whether it constitutes designated RML Interest).\34\
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    \34\ As an example, assume the following facts: User 1 enters an 
RML Order that is designated to be identified as such for purposes 
of the Retail Liquidity Identifier to buy 50 shares of ABC; User 2 
enters an RML Order that is not designated to be identified as such 
for purposes of the Retail Liquidity Identifier to buy 100 shares of 
ABC; and such orders are the only RML Orders resting on the MEMX 
Book. In this event, the Exchange would not disseminate the Retail 
Liquidity Identifier because there is not designated RML Interest to 
buy ABC aggregated to form at least one round lot available in the 
System, as only User 1's RML Order to buy 50 shares of ABC was 
designated as such.
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    As further described below, RML Orders that are designated to be 
identified as such for purposes of the Retail Liquidity Identifier 
would receive execution priority ahead of RML Orders that are not 
designated to be identified as such. The Exchange believes that 
providing Users with the optionality to designate their RML Orders to 
be identified as such for purposes of the Retail Liquidity Identifier 
is appropriate

[[Page 50415]]

because some Users submitting RML Orders may be concerned with 
signaling to the market that there is interest to buy or sell at the 
non-displayed Midpoint Price. In particular, while a User submitting a 
smaller sized RML Order as part of a normal liquidity provision 
strategy might prefer to have its interest identified through the 
Retail Liquidity Identifier, it is possible that a larger sized RML 
Order could be entered and that the User submitting such order may 
prefer not to signal to the market that there is significant interest 
in that security at the Midpoint Price. While the Retail Liquidity 
Identifier would not identify the size associated with an RML Order, a 
larger RML Order would likely result in the Retail Liquidity Identifier 
persisting for a longer period of time despite multiple executions of 
Retail Midpoint Orders against such order. The Exchange acknowledges 
that since, as proposed, a User may elect not to designate an RML Order 
to be identified as such for purposes of the Retail Liquidity 
Identifier, RML Interest could be available without causing the 
dissemination of the Retail Liquidity Identifier. The Exchange 
nevertheless believes it is appropriate to limit dissemination of the 
Retail Liquidity Identifier to those cases when at least one round lot 
of designated RML Interest is available in order to maintain the 
proposed optionality available to Users that wish to submit RML Orders 
but do not want indications of their midpoint interest disseminated by 
the Exchange. While different than the IEX Retail Program, the Exchange 
notes that the ability for a User to elect whether to designate their 
RML Interest to be identified as such for purposes of the Retail 
Liquidity Identifier is similar in purpose and effect to the ability of 
a User to elect whether to designate their orders as displayed or non-
displayed on an exchange's order book--functionality that is offered by 
most U.S. equities exchanges, including the Exchange--as it is simply 
intended to provide Users with the ability to decide which information 
they publicize in the marketplace.
Priority and Order Execution
    Retail Midpoint Orders and RML Orders would only execute at the 
Midpoint Price, as stated in proposed Exchange Rule 11.22(c)(1) and 
further described below. As discussed above, Retail Midpoint Orders and 
RML Orders are primarily intended to interact with each other; however, 
proposed Exchange Rule 11.22(c)(2) provides that if there is: (A) A 
Limit Order \35\ of Odd Lot \36\ size that is displayed by the System 
(``Displayed Odd Lot Order'') and that is priced more aggressively than 
the Midpoint Price and/or (B) an order that is not displayed by the 
System (``Non-Displayed Order'') and that is priced more aggressively 
than the Midpoint Price, resting on the MEMX Book, then an incoming 
Retail Midpoint Order would first execute against any such orders 
pursuant to the Exchange's standard price/time priority in accordance 
with Exchange Rule 11.9 and Exchange Rule 11.10 before executing 
against RML Orders resting on the MEMX Book.\37\ Proposed Exchange Rule 
11.22(c)(2) further provides that any such executions would be at the 
Midpoint Price irrespective of the prices at which such Displayed Odd 
Lot Orders and/or Non-Displayed Orders were ranked by the System on the 
MEMX Book.
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    \35\ See Exchange Rule 11.8(b).
    \36\ See Exchange Rule 11.6(q)(2).
    \37\ The Exchange notes that Displayed Odd Lot Orders and Non-
Displayed Orders are the only types of orders that could rest on the 
MEMX Book at a price that is more aggressive than the Midpoint 
Price, as any displayed buy (sell) order that is at least one round 
lot in size would be eligible to form the NBB (NBO) as a Protected 
Quotation. The term ``Protected Quotation'' refers to a quotation 
that is a Protected Bid or Protected Offer. In turn, the term 
``Protected Bid'' or ``Protected Offer'' refers to a bid or offer in 
a stock that is (i) displayed by an automated trading center; (ii) 
disseminated pursuant to an effective national market system plan; 
and (iii) an automated quotation that is the best bid or best offer 
of a national securities exchange or association. See Exchange Rule 
1.5(z).
---------------------------------------------------------------------------

    The purpose of permitting a Retail Midpoint Order to first execute 
against Displayed Odd Lot Orders and/or Non-Displayed Orders that are 
priced more aggressively than the Midpoint Price is to ensure that the 
priority of more aggressively priced orders over less aggressively 
priced orders is maintained on the Exchange, consistent with Exchange 
Rule 11.9. The Exchange notes that its proposed handling of a Retail 
Midpoint Order in this regard is similar to Nasdaq's handling of a 
MELO, which is an order type that is similarly designed to interact 
with a specific contra-side order type at the Midpoint Price, in that 
MELOs will respect better priced liquidity, as MELOs that ``would 
otherwise be eligible to execute, will not execute if there is a more 
aggressively priced Order resting on the Nasdaq Book.'' \38\ Thus, 
because the Exchange's proposal introduces new order types that are 
designed to interact with each other at the Midpoint Price but provides 
for a mechanism to respect the priority of more aggressively priced 
liquidity on the Exchange, similar to Nasdaq's handling of a MELO, the 
Exchange believes that this aspect of the proposal does not raise any 
novel issues for the Commission to consider.
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    \38\ SR-NASDAQ-2017-074, Amendment No. 2, at page 20, available 
at https://www.sec.gov/comments/sr-nasdaq-2017-074/nasdaq2017074-2659324-161401.pdf. See also Nasdaq Rule 4702(b)(14)(A). While the 
Exchange's proposed handling of Retail Midpoint Orders when there is 
a resting order priced more aggressively than the Midpoint Price 
similarly respects the more aggressively priced resting order, it 
differs from Nasdaq's handling of MELOs in this event, in that MELOs 
will not execute and will be held for execution until such resting 
order is no longer on the Nasdaq book or the Midpoint Price matches 
the price of such resting order, and the Exchange proposes to 
execute a Retail Midpoint Order against such resting order at the 
Midpoint Price. Thus, both implementations are designed to maintain 
the priority of more aggressively priced orders.
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    The Exchange believes that it is appropriate to execute any such 
Displayed Odd Lot Orders and/or Non-Displayed Orders against a Retail 
Midpoint Order at the Midpoint Price instead of the prices at which 
such orders were ranked because RMOs that submit Retail Midpoint Orders 
to the Exchange are, by selecting an order type that is specifically 
limited to executing at the Midpoint Price, expecting to receive an 
execution at the Midpoint Price and not at any other price(s). Thus, 
the Exchange is proposing to address the needs of RMOs that focus their 
Retail Order trading on receiving executions at the Midpoint Price 
through the adoption of the Retail Midpoint Order, and the Exchange 
notes that use of this order type is completely voluntary and that RMOs 
may continue to submit their Retail Orders to the Exchange to execute 
against orders at prices different than the Midpoint Price, outside of 
the RML Program, as they can today. Moreover, based on informal 
discussions with market participants, the Exchange believes that there 
are benefits associated with executing Retail Orders submitted to the 
Exchange at one price level rather than multiple prices, such as 
simplified record-keeping for retail investors and execution reporting 
by RMOs. The Exchange also believes the Users submitting the contra-
side Displayed Odd Lot Orders and/or Non-Displayed Orders would prefer 
an execution against an incoming Retail Midpoint Order at the Midpoint 
Price, as this would provide price improvement to such orders, which 
were originally priced more aggressively than the Midpoint Price.
    After first executing against any resting Displayed Odd Lot Orders 
and/or Non-Displayed Orders priced more aggressively than the Midpoint 
Price, as described above, a Retail Midpoint Order would then execute 
against RML Orders resting on the MEMX Book in accordance with proposed 
Exchange Rule 11.22(c)(3). Specifically, Retail

[[Page 50416]]

Midpoint Orders would execute against RML Orders resting on the MEMX 
Book at the Midpoint Price in relative time priority in accordance with 
Exchange Rule 11.10 as follows: (1) First against RML Orders that are 
designated to be identified as RML Interest pursuant to proposed 
Exchange Rule 11.22(b); and (2) then against RML Orders that are not 
designated to be identified as RML Interest pursuant to proposed 
Exchange Rule 11.22(b). Thus, RML Orders that are designated to be 
identified as such for purposes of the Retail Liquidity Identifier, as 
described above, would be executed ahead of previously-received RML 
Orders that are not designated to be identified as such.\39\ The 
execution of multiple RML Orders that are designated to be identified 
as such would be determined vis-[agrave]-vis each other based on time 
priority. Similarly, the execution of multiple RML Orders that are not 
designated to be identified as such would be determined vis-[agrave]-
vis each other based on time priority.
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    \39\ The Exchange notes that this aspect of the proposed RML 
Program is different than the IEX Retail Program since the IEX 
Retail Program does not offer the ability to elect whether to 
designate an IEX RLP Order to be identified as such for purposes of 
IEX's Retail Liquidity Identifier, as described above.
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    The Exchange believes it is appropriate to provide priority to RML 
Orders that are designated to be identified as such for purposes of the 
Retail Liquidity Identifier over orders that are not so designated 
because the Retail Liquidity Identifier is likely to be an important 
factor in attracting RMOs to send Retail Midpoint Orders, and thus 
increases the likelihood of execution for resting RML Orders. Thus, 
similar to the priority afforded to orders that are displayed on the 
MEMX Book, which receive priority because they contribute to price 
discovery and attract liquidity to the Exchange, the Exchange believes 
that designated RML Orders resulting in the dissemination of the Retail 
Liquidity Identifier should receive priority over those that do not.
    The following examples, which the Exchange proposes to codify in 
proposed Exchange Rule 11.22(c)(3)(B) as slightly modified to conform 
with the Rule's context, illustrate how the Exchange would handle 
orders under the proposed RML Program:
    Assume the following facts:
     The NBBO for security ABC is $10.00-$10.10.
     User 1 enters an RML Order that is not designated to be 
identified as RML Interest to buy ABC for 500 shares. The RML Order is 
posted to the MEMX Book as an RML Order to buy ABC at $10.05.
     User 2 then enters an RML Order that is designated to be 
identified as RML Interest to buy ABC for 500 shares. The RML Order is 
posted to the MEMX Book as an RML Order to buy ABC at $10.05. The 
Exchange publishes through the MEMOIR Depth and MEMOIR Top data 
products and through the appropriate SIP a Retail Liquidity Identifier 
indicating the presence of designated RML Interest of at least one 
round lot to buy ABC.
     User 3 then enters a Pegged Order with a Midpoint Peg 
instruction to buy ABC for 500 shares. The Pegged Order is posted to 
the MEMX Book as a Pegged Order to buy ABC at $10.05.
     User 4 then enters a Limit Order with a Non-Displayed 
instruction to buy ABC at $10.07 for 100 shares, which is posted to the 
MEMX Book.
     There are no other orders resting on the MEMX Book.
    Example 1: Retail Member Organization enters a Retail Midpoint 
Order to sell 1,200 shares of ABC. The Retail Midpoint Order will 
execute in the following order:
     First, against the full size of User 4's buy order for 100 
shares at $10.05 (because it is priced more aggressively than the 
Midpoint Price, and thus, it is eligible to execute against a Retail 
Midpoint Order, it has priority over the RML Orders resting on the MEMX 
Book, and it executes at the Midpoint Price pursuant to proposed 
Exchange Rule 11.22(c)(2));
     second, against the full size of User 2's buy order for 
500 shares at $10.05 (because it has priority over User 1's RML Order 
that is not designated to be identified as RML Interest pursuant to 
proposed Exchange Rule 11.22(c)(3)(A)(i) and (ii)); and
     third, against the full size of User 1's buy order for 500 
shares at $10.05.

The Retail Midpoint Order does not execute against User 3's buy order 
because User 3's buy order is not an RML Order. The Retail Midpoint 
Order is filled for 1,100 shares and the balance of 100 shares is 
cancelled back to the Retail Member Organization. The Exchange removes 
the Retail Liquidity Identifier previously disseminated through the 
MEMOIR Depth and MEMOIR Top data products and through the appropriate 
SIP as there is no longer designated RML Interest of at least one round 
lot to buy ABC.
    Example 2: Assume the same facts above, except that User 3 enters a 
Limit Order with a Displayed instruction to buy 50 shares of ABC at 
$10.06, which is posted to the MEMX Book. The incoming Retail Midpoint 
Order to sell 1,200 shares of ABC will execute in the following order:
     First, against the full size of User 4's buy order for 100 
shares at $10.05 (because it is priced more aggressively than User 3's 
buy order and is priced more aggressively than the Midpoint Price, and 
thus, it is eligible to execute against a Retail Midpoint Order, it has 
priority over the RML Orders resting on the MEMX Book, and it executes 
at the Midpoint Price pursuant to proposed Exchange Rule 11.22(c)(2));
     second, against the full size of User 3's buy order for 50 
shares at $10.05 (because it is priced more aggressively than the 
Midpoint Price, and thus, it is eligible to execute against a Retail 
Midpoint Order, it has priority over the RML Orders resting on the MEMX 
Book, and it executes at the Midpoint Price pursuant to proposed 
Exchange Rule 11.22(c)(2));
     third, against the full size of User 2's buy order for 500 
shares at $10.05 (because it has priority over User 1's RML Order that 
is not designated to be identified as RML Interest pursuant to proposed 
Exchange Rule 11.22(c)(3)(A)(i) and (ii)); and
     fourth, against the full size of User 1's buy order for 
500 shares at $10.05.
    The Retail Midpoint Order is filled for 1,150 shares and the 
balance of 50 shares is cancelled back to the Retail Member 
Organization. The Exchange removes the Retail Liquidity Identifier 
previously disseminated through the MEMOIR Depth and MEMOIR Top data 
products and through the appropriate SIP as there is no longer 
designated RML Interest of at least one round lot to buy ABC.
Implementation
    The Exchange proposes that all securities traded on the Exchange 
would be eligible for inclusion in the RML Program. If the Commission 
approves this proposed rule change, the Exchange will implement it 
within 90 days of approval and will provide notice to Members and 
market participants of the implementation timeline.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \40\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \41\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to and perfect the

[[Page 50417]]

mechanism of a free and open market and a national market system and, 
in general, to protect investors and the public interest. Specifically, 
the Exchange believes that the proposed rule change is consistent with 
these principles because it is designed to increase competition among 
execution venues and offer the potential for meaningful price 
improvement to orders of retail investors, including through 
encouraging market participants to provide additional liquidity to 
execute against the orders of retail investors at the Midpoint Price.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78f(b).
    \41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As discussed in the Purpose section, the Exchange's proposed RML 
Program is a simple, transparent approach designed to provide retail 
investors with meaningful price improvement opportunities by executing 
at the Midpoint Price (through RMOs' use of the proposed new Retail 
Midpoint Order) by incentivizing Users who wish to interact with such 
retail liquidity to send additional non-displayed resting interest also 
designed to execute at the Midpoint Price (through such Users' use of 
the proposed new RML Order).
    As described above, the proposed RML Program is comparable in 
purpose and effect to the IEX Retail Program, and the Commission 
recently approved several changes to the IEX Retail Program that make 
certain of its features substantially similar to proposed features of 
the RML Program.\42\ Accordingly, the Exchange's proposal generally 
encourages competition between exchange venues. In this connection, the 
Exchange believes that the proposed distinctions between the Exchange's 
proposal and the approved IEX Retail Program will both enhance 
competition amongst market participants and encourage competition 
amongst exchange venues.
---------------------------------------------------------------------------

    \42\ See IEX Retail Approval Order, supra note 9.
---------------------------------------------------------------------------

    Section 6(b)(5) of the Act prohibits an exchange from establishing 
rules that treat market participants in an unfairly discriminatory 
manner. However, Section 6(b)(5) of the Act does not prohibit exchange 
members or other broker-dealers from discriminating, so long as their 
activities are otherwise consistent with the federal securities laws. 
Nor does Section 6(b)(5) of the Act require exchanges to preclude 
discrimination by broker-dealers, and the Exchange understands that 
broker-dealers commonly differentiate between customers based on the 
nature and profitability of their business.
    While the RML Program would differentiate among its Users, in that 
Retail Midpoint Orders may only be submitted by an RMO, as is the case 
with other Retail Orders on the Exchange today, the Exchange believes 
that such differentiation is not unfairly discriminatory but rather is 
designed to promote a competitive process for retail executions while 
providing retail investors with the potential to receive meaningful 
price improvement at the Midpoint Price. In addition to the Exchange's 
existing rules relating to Retail Orders,\43\ there is ample precedent 
for differentiation of retail order flow in the existing approved 
programs of other national securities exchanges,\44\ including the IEX 
Retail Program, as described in the Purpose section. As the Commission 
has recognized, retail order segmentation was designed to create 
additional competition for retail order flow, leading to additional 
retail order flow to the exchange environment and ensuring that retail 
investors benefit from the better price that liquidity providers are 
willing to give their orders.\45\
---------------------------------------------------------------------------

    \43\ See Exchange Rule 11.21.
    \44\ See infra note 47.
    \45\ See Securities Exchange Act Release No. 85160 (February 15, 
2019), 84 FR 5754 (February 22, 2019) (SR-NYSE-2018-28) (order 
approving NYSE's Retail Liquidity Program on a permanent basis).
---------------------------------------------------------------------------

    The Commission consistently highlights the need to ensure that the 
U.S. capital markets are structured with the interests of retail 
investors in mind, and highlighted its focus on the ``long-term 
interests of Main Street investors'' as its number one strategic goal 
for fiscal years 2018 to 2022 in the Commission Strategic Plan.\46\ The 
Exchange believes its proposed RML Program would serve the retail 
investing public by providing them with the opportunity for meaningful 
price improvement on eligible trades.
---------------------------------------------------------------------------

    \46\ See Commission Strategic Plan, supra note 7.
---------------------------------------------------------------------------

    The Exchange notes that several other national securities 
exchanges, including IEX as described herein, have for several years 
operated retail liquidity programs that include market segmentation 
whereby retail orders are permitted to interact with specified price-
improving liquidity or receive execution priority.\47\ The Exchange 
understands that these programs were designed to promote competition 
for retail order flow among execution venues, most of which continues 
to be executed in the OTC markets rather than on exchanges. Similarly, 
the Exchange's proposed RML Program is designed to provide an 
additional competitive alternative for retail orders to receive price 
improvement. The Exchange believes that it is appropriate to provide 
incentives to bring more retail order flow to a public exchange. As 
described in the Purpose section, these incentives include the 
opportunity for Retail Orders to receive meaningful price improvement 
at the Midpoint Price (through RMOs' use of the proposed Retail 
Midpoint Order) by providing all Users with the opportunity to provide 
price-improving liquidity to such orders (through Users' use of the 
proposed RML Order).
---------------------------------------------------------------------------

    \47\ See IEX Rule 11.232. See also NYSE Rule 107C, NYSE Arca 
Equities Rule 7.44, Cboe EDGX Rule 11.9(a)(2)(A) and (B), Cboe BYX 
Rule 11.24, and Nasdaq BX Rule 4780.
---------------------------------------------------------------------------

Definitions
    The Exchange believes that it is consistent with the Act for a 
Retail Midpoint Order to be a Retail Order that is a Midpoint Peg Order 
with a TIF instruction of IOC, as this is designed to ensure that such 
orders are entered on behalf of retail investors \48\ and will receive 
price improvement at the Midpoint Price when executing against resting 
RML Orders. Similarly, the Exchange believes that it is consistent with 
the Act for an RML Order to be a Midpoint Peg Order with a TIF 
instruction of Day, RHO, or GTT, as this is designed to ensure that 
such orders are able to post to the MEMX Book and will provide price 
improvement at the Midpoint Price to retail investors when executing 
against incoming Retail Midpoint Orders. The Exchange also believes 
that it is appropriate and consistent with the Act for Retail Midpoint 
Orders and RML Orders to not be eligible for routing because, as noted 
above, such orders are designed to execute on the Exchange against each 
other and, as Pegged Orders, are not eligible for routing under the 
Exchange's current rules relating to Pegged Orders.
---------------------------------------------------------------------------

    \48\ An RMO must exercise due diligence and monitor orders that 
it enters as Retail Orders to ensure that such orders originate from 
natural persons (i.e., retail investors). See Exchange Rule 
11.21(b)(6).
---------------------------------------------------------------------------

    The Exchange further believes that it is consistent with the Act to 
structure its RML Program such that Retail Midpoint Orders and RML 
Orders are only eligible to execute against each other (subject to the 
exception of Retail Midpoint Orders being eligible to execute against 
other orders priced more aggressively than the Midpoint Price in order 
to maintain price priority on the Exchange, as described above) to 
provide a mechanism whereby liquidity-providing Users can provide 
price-improving liquidity at the Midpoint Price specifically to retail 
investors, and liquidity-removing RMOs submitting orders on behalf of 
retail investors can interact with such price-improving liquidity at 
the Midpoint Price in a deterministic manner. This structure

[[Page 50418]]

would thus facilitate the interaction of such liquidity-providing Users 
with the orders of retail investors, which the Exchange believes is 
desirable for certain Users, as described above, while avoiding the 
possibility of such Users unintentionally interacting with another type 
of market participant. Accordingly, the Exchange believes that it is 
consistent with the Act for RML Orders to only execute against Retail 
Midpoint Orders (subject to the exception of Retail Midpoint Orders 
being eligible to execute against other orders priced more aggressively 
than the Midpoint Price) so as to incentivize the entry of RML Orders 
and thereby provide meaningful price improvement to retail investors. 
Further, as noted above, the concept of an order type that is only 
eligible to interact with a specific contra-side order type has 
previously been approved by the Commission both in the context of 
liquidity-providing orders for retail programs and in other 
contexts.\49\ The Exchange reiterates that RMOs may continue to submit 
their Retail Orders to the Exchange to execute against the various 
other order types offered by the Exchange, at prices different than the 
Midpoint Price, as they can today.
---------------------------------------------------------------------------

    \49\ See supra notes 21-22 and accompanying text.
---------------------------------------------------------------------------

    For the foregoing reasons, the Exchange believes that the proposed 
definitions of Retail Midpoint Order and RML Order, and the proposed 
structure of the RML Program whereby such orders are only eligible to 
execute against each other (subject to the exception of Retail Midpoint 
Orders being eligible to execute against other orders priced more 
aggressively than the Midpoint Price) and at the Midpoint Price, are 
designed to promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
further the investor protection and public interest objectives of 
Section 6(b) of the Act, by establishing a simple, transparent 
structure that is designed to facilitate the provision of meaningful 
price improvement (i.e., at the Midpoint Price) for orders of retail 
investors in a deterministic manner.
Retail Liquidity Identifier
    The Exchange believes that it is consistent with the Act to 
disseminate a Retail Liquidity Identifier in connection with its RML 
Program, as described in the Purpose section. The purpose of the Retail 
Liquidity Identifier is to provide relevant market information to RMOs 
that there is available RML Interest on the Exchange. The dissemination 
is thus designed to augment the total mix of information available to 
RMOs that may benefit the Retail Orders they represent by encouraging 
RMOs to send such retail liquidity as Retail Midpoint Orders designed 
to receive price improvement by executing at the Midpoint Price against 
available RML Interest.
    As noted above, the proposed Retail Liquidity Identifier is 
substantially similar to the Retail Liquidity Identifier disseminated 
by IEX, which was recently approved by the Commission, except that the 
Exchange would enable a User to elect whether to designate an RML Order 
to be identified as such for purposes of the Retail Liquidity 
Identifier. The Exchange believes that providing Users with the 
optionality to designate an RML Order to be identified as such for 
purposes of the Retail Liquidity Identifier is appropriate and 
consistent with the Act because, as described above, some Users 
submitting RML Orders, such as those with a larger sized RML Order, may 
be concerned about potential information leakage when the Retail 
Liquidity Identifier persists for extended periods of time despite 
multiple executions of Retail Midpoint Orders against such order. The 
Exchange thus believes that offering this optionality would enable such 
Users to manage their RML Orders more effectively and would therefore 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities and remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system. Further, as noted above, the ability for a User to elect 
whether to designate their RML Interest to be identified as such for 
purposes of the Retail Liquidity Identifier is similar in purpose and 
effect to the ability of a User to elect whether to designate their 
orders as displayed or non-displayed on an exchange's order book--
functionality that is offered by most U.S. equities exchanges, 
including the Exchange--as it is simply intended to provide Users with 
the ability to decide which information they publicize in the 
marketplace, and thus, the Exchange does not believe this aspect of the 
proposal raises any novel issues for the Commission to consider.
    The Exchange also believes that removing the Retail Liquidity 
Identifier previously disseminated through the MEMOIR Depth and MEMOIR 
Top data products and through the appropriate SIP after executions 
against Retail Midpoint Orders have depleted the available designated 
RML Interest such that the remaining designated RML Interest does not 
aggregate to form at least one round lot is consistent with the Act, as 
it would increase transparency in the market by indicating to RMOs that 
there is no longer designated RML Interest of at least one round lot 
available, which the Exchange believes would reduce the amount of 
Retail Midpoint Orders sent to the Exchange that are cancelled back to 
the User when there is no actionable RML Interest to execute against. 
In this regard, the Exchange believes that its proposed implementation 
of the Retail Liquidity Identifier would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and remove impediments to and perfect the mechanism of a 
free and open market and a national market system. As noted above, the 
Exchange also believes this implementation is consistent with the 
implementation of the other exchanges that disseminate Retail Liquidity 
Identifiers.
Priority and Order Execution
    The Exchange further believes that its priority and order execution 
approach for the RML Program is consistent with the Act. As discussed 
above, the RML Program is designed to incentivize RMOs to submit Retail 
Midpoint Orders to the Exchange to receive meaningful price improvement 
while simultaneously incentivizing Users and their clients to enter 
additional non-displayed interest in the form of RML Orders that will 
only trade with, and offer meaningful price improvement to, Retail 
Midpoint Orders. Thus, the proposed RML Program is designed to 
facilitate the provision of meaningful price improvement (i.e., at the 
Midpoint Price) for orders of retail investors.
    The Exchange believes that it is appropriate and consistent with 
the Act to structure its RML Program such that Retail Midpoint Orders 
and RML Orders are only eligible to execute against each other at the 
Midpoint Price, so that Retail Midpoint Orders, which are entered on 
behalf of retail investors, receive price improvement that is 
meaningful by definition, as they are guaranteed, if executed, to 
execute at the Midpoint Price. The Exchange believes that introducing a 
program that provides and encourages additional liquidity and price 
improvement to Retail Orders, in the form of Retail Midpoint Orders 
designed to execute at the Midpoint Price, is appropriate because 
retail investors are typically less sophisticated than professional 
market participants and therefore would

[[Page 50419]]

not have the type of technology to enable them to compete with such 
market participants. Therefore, the Exchange believes that it is 
consistent with the public interest and the protection of investors to 
provide retail investors with these enhanced execution opportunities. 
Additionally, as discussed above, the Exchange believes that the 
opportunity to obtain meaningful price improvement at the Midpoint 
Price should operate as a powerful incentive for RMOs to send Retail 
Orders to the Exchange in the form of Retail Midpoint Orders, thereby 
contributing to the Exchange's midpoint liquidity to the benefit of all 
Users. While the Exchange typically has resting non-displayed liquidity 
priced to execute at the Midpoint Price, a key aspect of the proposed 
RML Program is to further incentivize Users and their clients to enter 
additional non-displayed interest that will trade with Retail Orders 
and offer meaningful price improvement at the Midpoint Price (i.e., in 
the form of RML Orders) in a deterministic manner.
    In addition, the proposal to execute Retail Midpoint Orders against 
RML Orders only at the Midpoint Price is also designed to facilitate 
RMOs' compliance with their best execution obligations when acting as 
agent on behalf of a Retail Order.\50\ Specifically, as noted in FINRA 
Regulatory Notice 15-46 (Guidance on Best Execution Obligations in 
Equity, Options and Fixed Income Markets), when conducting its review 
of execution quality in any security, a firm should consider, among 
other things, whether it could obtain mid-point price improvement on 
one venue versus less price improvement on another venue.\51\ Further, 
limiting the execution of Retail Midpoint Orders against RML Orders to 
the Midpoint Price is designed to be a simple approach that does not 
introduce unnecessary complexity to the order entry and execution 
process on the Exchange, as both orders are proposed to be a type of 
Midpoint Peg Order. The Exchange notes that under the initial 
implementation of the IEX Retail Program, approved by the Commission in 
2019, IEX Retail Orders and IEX RLP Orders were only eligible to trade 
at the Midpoint Price.\52\ Accordingly, the Exchange does not believe 
this aspect of the proposal raises any novel issues that have not been 
considered by the Commission.
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    \50\ All Users that handle customer orders as agent are required 
to be FINRA members, and therefore are subject to FINRA guidance. 
See 17 CFR 240.15b9-1(a).
    \51\ See FINRA Regulatory Notice 15-46, endnote 25, available at 
https://www.finra.org/sites/default/files/notice_doc_file_ref/Notice_Regulatory_15-46.pdf.
    \52\ See Securities Exchange Act Release No. 86619 (August 9, 
2019), 84 FR 41769 (August 15, 2019) (SR-IEX-2019-05) (order 
granting approval of a proposed rule change to establish the IEX 
Retail Program). The Exchange notes that IEX subsequently amended 
the IEX Retail Program to permit executions at prices other than the 
Midpoint Price in certain limited circumstances--i.e., against 
displayed odd lots priced at or more aggressively than the Midpoint 
Price--although the Exchange is instead proposing to execute Retail 
Midpoint Orders against Displayed Odd Lot Orders priced more 
aggressively than the Midpoint Price at the Midpoint Price in this 
circumstance, as described above. See Securities Exchange Act 
Release No. 91324 (March 15, 2021), 86 FR 15015 (March 19, 2021) 
(SR-IEX-2021-03) (Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change to Allow Retail Orders to Trade with Certain 
Aggressively Priced Displayed Odd Lot Orders).
---------------------------------------------------------------------------

    The Exchange further believes that it is appropriate and consistent 
with the Act to execute Retail Midpoint Orders against Displayed Odd 
Lot Orders and/or Non-Displayed Orders priced more aggressively than 
the Midpoint Price at the Midpoint Price, rather than at the prices at 
which such orders are ranked on the MEMX Book, as doing so would ensure 
that the priority of more aggressively priced orders is maintained on 
the Exchange, as described above, in a manner that provides the 
expected execution price to RMOs that submit Retail Midpoint Orders and 
provides price improvement to Users that submit more aggressively 
priced orders. As noted above, by selecting an order type that is 
specifically limited to executing at the Midpoint Price, an RMO would 
expect to receive an execution of their Retail Midpoint Order at the 
Midpoint Price and not at any other price(s), and thus, the Exchange is 
proposing to address the needs of RMOs that focus their Retail Order 
trading on receiving executions at the Midpoint Price in a 
deterministic manner through the adoption of the Retail Midpoint Order. 
Additionally, as noted above, use of this order type is completely 
voluntary, and RMOs may continue to submit their Retail Orders to the 
Exchange to execute against orders at prices different than the 
Midpoint Price, outside of the RML Program, as they can today. 
Moreover, the Exchange believes that there are benefits associated with 
executing Retail Orders submitted to the Exchange at one price level 
rather than multiple prices, such as simplified record-keeping for 
retail investors and execution reporting by RMOs. The Exchange believes 
such benefits, in addition to the simplicity and transparency of the 
RML Program achieved by permitting executions of the proposed new order 
types only at the Midpoint Price, outweigh the potential additional 
price improvement that Retail Midpoint Orders could receive if they 
were permitted to execute against Displayed Odd Lot Orders and/or Non-
Displayed Orders priced more aggressively than the Midpoint Price at 
the prices at which such orders were ranked, in a manner consistent 
with the objectives of Section 6(b)(5) of the Act \53\ described above.
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    \53\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that first executing a Retail Midpoint Order 
against any resting Displayed Odd Lot Orders and/or Non-Displayed 
Orders priced more aggressively than the Midpoint Price ahead of RML 
Orders is consistent with the Act because, notwithstanding the RML 
Program's goal of matching Retail Midpoint Orders against RML Orders at 
the Midpoint Price in a deterministic manner, doing so ensures that the 
priority of more aggressively priced orders is maintained on the 
Exchange, as described above. Maintaining price priority in this 
regard, consistent with its current rules, reflects the Exchange's 
overall goal of incentivizing Users to submit aggressively priced 
orders to the Exchange, which contribute to the overall market quality 
and attract liquidity on the Exchange, thereby promoting just and 
equitable principles of trade and removing impediments to and 
perfecting the mechanism of a free and open market and a national 
market system. Furthermore, as the proposed RML Program provides for a 
mechanism to respect the priority of more aggressively priced liquidity 
on the Exchange prior to executing Retail Midpoint Orders against RML 
Orders at the Midpoint Price, similar to Nasdaq's handling of MELOs, as 
described above, the Exchange believes that this aspect of the proposal 
does not raise any novel issues for the Commission to consider.
    The Exchange believes that providing execution priority to RML 
Orders that are designated to be identified as such for purposes of the 
Retail Liquidity Identifier ahead of RML Orders that are not so 
designated is consistent with the Act, as the Exchange believes that 
designated RML Orders would attract additional liquidity to the 
Exchange. Specifically, as noted above, the Exchange believes that 
dissemination of the Retail Liquidity Identifier is likely to be an 
important factor in attracting incoming Retail Midpoint Orders, and 
thus increases the likelihood of execution for resting RML Orders. 
Therefore, the Exchange believes that it removes impediments to and 
perfects the mechanism of a free and open market and national market 
system to provide execution priority to designated

[[Page 50420]]

RML Orders, which cause the dissemination of the Retail Liquidity 
Identifier, over those that do not. Additionally, the Exchange believes 
that providing execution priority to designated RML Orders is not 
unfairly discriminatory since any User can designate their RML Orders 
to be identified as such for purposes of the Retail Liquidity 
Identifier, and the Exchange believes that Users would only choose not 
to designate RML Orders to be identified as such when another purpose, 
such as the potential for information leakage, outweighs the importance 
of execution priority for such orders.
    In sum, the Exchange submits that the proposed RML Program is a 
simple, transparent approach designed to provide an opportunity for 
retail customers' orders to receive meaningful price improvement in a 
manner generally consistent with the approved retail programs of other 
exchanges. Thus, the Exchange believes that the proposed RML Program is 
consistent with the Act in that it is designed to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, 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.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
Exchange believes that the proposed RML Program would enhance 
competition and execution quality for retail investors and would 
enhance competition for Users and their clients seeking to interact 
with retail liquidity.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition since competing venues 
have and can continue to adopt similar retail programs, subject to the 
SEC rule change process. The Exchange operates in a highly competitive 
market in which market participants can easily direct their orders to 
competing venues, including off-exchange venues.
    The Exchange also does not believe that the proposed rule change 
will impose any burden on intramarket competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. As described 
above, a Retail Midpoint Order may only be submitted by firms approved 
to send Retail Orders on the Exchange (i.e., RMOs), which is comparable 
to an IEX Retail Order offered under the IEX Retail Program and retail 
programs on other exchanges where specific rules have been approved 
allowing only certain participants to send Retail Orders.\54\ All Users 
would be eligible to enter an RML Order, and all Users would be 
eligible to execute against an incoming Retail Midpoint Order in price 
priority in accordance with the Exchange's existing rules. Moreover, 
the proposed rule change would provide potential benefits to all Users 
to the extent it is successful in attracting additional midpoint 
liquidity.
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    \54\ See supra note 47.
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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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MEMX-2021-10 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-2021-10. 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-2021-10 and should be submitted on 
or before September 29, 2021.
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    \55\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19294 Filed 9-7-21; 8:45 am]
BILLING CODE 8011-01-P