[Federal Register Volume 86, Number 241 (Monday, December 20, 2021)]
[Notices]
[Pages 71980-71983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27422]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93773; File No. SR-MEMX-2021-18]


Self-Regulatory Organizations; MEMX LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend the 
Exchange's Fee Schedule

December 14, 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 1, 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, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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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 amend the Exchange's fee schedule applicable to Members \3\ (the 
``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and (c). The 
Exchange proposes to implement the changes to the Fee Schedule pursuant 
to this proposal on December 1, 2021. The text of the proposed rule 
change is provided in Exhibit 5.
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    \3\ See Exchange Rule 1.5(p).
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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
    The purpose of the proposed rule change is to amend the Fee 
Schedule to provide free executions for Retail Orders \4\ with a time-
in-force (``TIF'') instruction of Day,\5\ GTT \6\ or RHO \7\ that 
remove liquidity from the Exchange upon entry into the System.
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    \4\ 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 (``RMO''), 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).
    \5\ ``Day'' is an instruction the User may attach to an order 
stating that an order to buy or sell is designated for execution 
starting with the Pre-Market Session and, if not executed, expires 
at the end of Regular Trading Hours. Any Day Order entered into the 
System before the opening for business on the Exchange as determined 
pursuant to Exchange Rule 11.1, or after the closing of Regular 
Trading Hours, will be rejected. See Exchange Rule 11.6(o)(2). 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).
    \6\ ``GTT'' or ``Good-'til-Time'' is an instruction the User may 
attach to an order specifying the time of day at which the order 
expires, which is designated for execution starting with the Pre-
Market Session. Any unexecuted portion of an order with a TIF 
instruction of GTT will be cancelled at the expiration of the User's 
specified time, which can be no later than the close of the Post-
Market Session. See Exchange Rule 11.6(o)(4).
    \7\ ``RHO'' or ``Regular Hours Only'' is instruction a User may 
attach to an order stating that an order to buy or sell is 
designated for execution only during Regular Trading Hours and, if 
not executed, expires at the end of Regular Trading Hours. Any order 
with a TIF instruction of RHO entered into the System before the 
opening or after the closing of Regular Trading Hours will be 
rejected. See Exchange Rule 11.6(o)(5).
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    The Exchange first notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of 16 registered equities exchanges, as well as a 
number of alternative trading systems and other off-exchange venues, to 
which market participants may direct their order flow. Based on 
publicly available information, no single registered equities exchange 
currently has more than approximately 16% of the total market share of 
executed volume of equities trading.\8\ Thus, in such a low-
concentrated and highly competitive market, no single equities exchange 
possesses significant pricing power in the execution of order flow, and 
the Exchange currently represents approximately 4% of the overall 
market share.\9\ The Exchange in particular operates a ``Maker-Taker'' 
model whereby it provides rebates to Members that add liquidity to the 
Exchange and charges fees to Members that remove liquidity from the 
Exchange. The Fee Schedule sets forth the standard rebates and fees 
applied per share for orders that add and remove liquidity, 
respectively. Additionally, in response to the competitive environment, 
the Exchange also offers tiered pricing, which provides Members with 
opportunities to qualify for higher rebates or lower fees where certain 
volume criteria and thresholds are met. Tiered pricing provides an 
incremental incentive for Members to strive for higher tier levels, 
which provides increasingly higher benefits or discounts for satisfying 
increasingly more stringent criteria.
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    \8\ Market share percentage calculated as of November 30, 2021. 
The Exchange receives and processes data made available through 
consolidated data feeds (i.e., CTS and UTDF).
    \9\ Id.
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    As noted above, the Exchange is proposing to provide free 
executions (i.e., the Exchange would charge no fee and provide no 
rebate) for Retail Orders with a TIF instruction of Day, GTT or RHO 
that remove liquidity from the Exchange upon entry into the System 
(such orders, ``Removing Retail Orders''). As proposed, the free 
executions would apply to Removing Retail Orders in securities priced 
at,

[[Page 71981]]

above or below $1.00 per share.\10\ Currently, executions of Removing 
Retail Orders in securities priced at or above $1.00 per share are 
assessed the standard fee of $0.0029 per share to remove liquidity from 
the Exchange (or a lower fee of $0.0027 per share if the entering User 
qualifies for the Liquidity Removal Tier 1), and executions of Removing 
Retail Orders in securities priced below $1.00 per share are assessed 
the standard fee of 0.05% of the total dollar value of the transaction 
to remove liquidity from the Exchange.
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    \10\ This proposed pricing is referred to by the Exchange on the 
Fee Schedule under the new description ``Removed volume from MEMX 
Book upon entry, Retail Order (Day/GTT/RHO)'' and such orders will 
receive a Fee Code of ``Rr0'' assigned by the Exchange.
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    The Exchange notes that multiple other equities exchanges currently 
provide free executions for retail orders that remove liquidity upon 
entry in securities priced at, above or below $1.00 per share.\11\
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    \11\ See, e.g., the Cboe EDGX Exchange, Inc. equities trading 
fee schedule (available at https://www.cboe.com/us/equities/membership/fee_schedule/edgx/), which provides for free executions 
for retail orders with a TIF instruction of Day or RHO that remove 
liquidity on arrival in securities priced at, above or below $1.00 
per share; the Investors Exchange LLC equities trading fee schedule 
(available at https://exchange.iex.io/resources/trading/fee-schedule/), which provides for free executions of retail orders that 
remove liquidity.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\12\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among its Members and other persons using its facilities 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    As discussed above, the Exchange operates in a highly fragmented 
and competitive market in which market participants can readily direct 
order flow to competing venues if they deem fee levels at a particular 
venue to be excessive or incentives to be insufficient, and the 
Exchange represents only a small percentage of the overall market. The 
Commission and the courts have repeatedly expressed their preference 
for competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and also recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \14\
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    \14\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005).
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow or discontinue to reduce use of certain categories of 
products, in response to new or different pricing structures being 
introduced into the market. The Exchange also notes that the 
competition for Retail Order flow is particularly intense, especially 
as it relates to exchange versus off-exchange venues.\15\ Accordingly, 
competitive forces constrain the Exchange's transaction fees and 
rebates, particularly as they relate to competing for Retail Order 
flow, and market participants can readily trade on competing venues if 
they deem pricing levels at those other venues to be more favorable. 
The Exchange believes the proposal reflects a reasonable and 
competitive pricing structure designed to incentivize market 
participants to direct additional order flow to the Exchange, which the 
Exchange believes would enhance liquidity and market quality on the 
Exchange to the benefit of all Members.
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    \15\ Securities Exchange Release No. 86375 (July 15, 2019), 84 
FR 34960 (SR-CboeEDGX-2019-045).
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    The Exchange believes that the proposal to provide free executions 
for Removing Retail Orders is reasonable, equitable and not unfairly 
discriminatory. Specifically, the Exchange believes such proposal is 
reasonable as it is reasonably designed to incentivize RMOs to submit 
additional Removing Retail Orders to the Exchange, and such market 
participants would not be subject to a fee for the execution of such 
orders. This is consistent with, and competitive with, fees and rebates 
assessed for retail order flow on other equities exchanges, which 
provide pricing incentives to retail orders in the form of lower fees 
(including free executions) and/or higher rebates.\16\ In addition, the 
Exchange notes that it also currently offers a separate pricing 
incentive for Retail Order flow in the form of a higher rebate of 
$0.0037 per share for Retail Orders that add displayed liquidity to the 
Exchange in securities priced at or above $1.00 per share as compared 
to the standard rebate of $0.0028 for non-retail orders that add 
displayed liquidity to the Exchange in securities priced at or above 
$1.00 per share, which is similarly designed to attract Retail Order 
flow to the Exchange.
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    \16\ See supra note 11; see also the NYSE Arca, Inc. equities 
trading fee schedule on its public website (available at [sic]), 
which provides for enhanced rebates ranging from $0.0032 to $0.0038 
per share, depending on the applicable tier, for retail orders in 
securities priced at or above $1.00 per share that add liquidity as 
compared to the standard rebate of $0.0020 per share for non-retail 
orders in securities priced at or above $1.00 per share that add 
liquidity.
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    As noted above, the Exchange believes that providing free 
executions for Removing Retail Orders is reasonably designed to 
incentivize an increase in Removing Retail Order flow. Retail Orders 
are generally submitted in smaller sizes and tend to attract liquidity-
providing market makers, as smaller size orders are easier to hedge, 
and Retail Order flow that removes liquidity additionally signals to 
liquidity providers to increase their overall provision of liquidity in 
the markets. Increased market maker activity facilitates tighter 
spreads and an increase in overall liquidity provider activity provides 
for deeper, more robust levels of liquidity, both of which signal 
additional corresponding increase in order flow from other market 
participants, contributing towards a robust, well-balanced market 
ecosystem. Indeed, increased overall order flow benefits all investors 
by continuing to deepen the Exchange's liquidity pool, potentially 
providing even greater execution incentives and opportunities, offering 
additional flexibility for all investors to enjoy cost savings, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
    The Exchange notes that the proposed free executions for Removing 
Retail Orders will be automatically and uniformly applied to all RMOs' 
qualifying orders. The Exchange additionally notes that while the 
proposed free executions are applicable only to qualifying Retail 
Orders, which may only be submitted by RMOs, the Exchange believes this 
application is equitable and not unfairly discriminatory as the 
Exchange offers other pricing incentives in the form of enhanced 
rebates and reduced fees to qualifying non-Retail Order flow that may 
be submitted by all Members.\17\ The Exchange understands that Section 
6(b)(5) of the Act \18\ prohibits an

[[Page 71982]]

exchange from establishing rules that are designed to permit unfair 
discrimination between market participants. However, Section 6(b)(5) of 
the Act \19\ does not prohibit exchange members or other broker-dealers 
from discriminating, so long as their activities are otherwise 
consistent with the federal securities laws. While the Exchange 
believes that markets and price discovery optimally function through 
the interactions of diverse flow types, it also believes that growth in 
internalization has required differentiation of Retail Order flow from 
other order flow types. The differentiation proposed herein by the 
Exchange is not designed to permit unfair discrimination, but instead 
to promote a competitive process around Retail Order executions such 
that retail investors would receive free executions for Removing Retail 
Orders on the Exchange rather than paying a fee, as they do currently, 
in order to encourage entry of Removing Retail Orders to the Exchange. 
Accordingly, the Exchange believes the proposed free executions for 
Removing Retail Orders is not unfairly discriminatory.
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    \17\ See generally, the Exchange's Fee Schedule (available at 
https://info.memxtrading.com/fee-schedule/), which provides for 
various enhanced rebates and reduced fees for non-Retail Order flow.
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ 15 U.S.C. 78f(b)(5).
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    For the reasons discussed above, the Exchange submits that the 
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of 
the Act \20\ in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among its Members and other 
persons using its facilities and is not designed to unfairly 
discriminate between customers, issuers, brokers, or dealers. As 
described more fully below in the Exchange's statement regarding the 
burden on competition, the Exchange believes that its transaction 
pricing is subject to significant competitive forces, and that the 
proposed fees and rebates described herein are appropriate to address 
such forces.
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    \20\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposal will result in any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Rather, as discussed above, the 
Exchange believes that the proposed change would encourage the 
submission of additional order flow to a public exchange, thereby 
promoting market depth, execution incentives and enhanced execution 
opportunities, as well as price discovery and transparency for all 
Members. As a result, the Exchange believes the proposal would enhance 
its competitiveness as a market that attracts Retail Orders (including 
Removing Retail Orders) and other orders seeking to interact with such 
orders, thereby making it a more desirable destination venue for its 
customers. For these reasons, the Exchange believes that the proposal 
furthers the Commission's goal in adopting Regulation NMS of fostering 
competition among orders, which promotes ``more efficient pricing of 
individual stocks for all types of orders, large and small.'' \21\
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    \21\ See supra note 14.
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Intramarket Competition
    The Exchange believes that the proposal would incentivize market 
participants to direct more order flow to the Exchange. Greater 
liquidity benefits all Members by providing more trading opportunities 
and encourages Members to send additional orders to the Exchange, 
thereby contributing to robust levels of liquidity, which benefits all 
market participants. As noted above, the proposed free executions for 
Removing Retail Orders will be automatically and uniformly applied to 
all RMOs' qualifying orders and, while such proposed free executions 
are applicable only to qualifying Retail Orders, which may only be 
submitted by RMOs, the Exchange believes this application is equitable 
and not unfairly discriminatory as the Exchange offers other pricing 
incentives in the form of enhanced rebates and reduced fees to 
qualifying non-Retail Order flow that may be submitted by all 
Members.\22\ Further, the differentiation proposed herein by the 
Exchange is not designed to permit unfair discrimination, but instead 
to promote a competitive process around Retail Order executions such 
that retail investors would receive free executions for Removing Retail 
Orders on the Exchange rather than paying a fee, as they do currently, 
in order to encourage entry of Removing Retail Orders to the Exchange. 
As such, the Exchange believes the proposal would not impose any burden 
on intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
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    \22\ See supra note 17.
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Intermarket Competition
    As noted above, the Exchange operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. Members have numerous 
alternative venues that they may participate on and direct their order 
flow to, including 15 other equities exchanges and numerous alternative 
trading systems and other off-exchange venues. As noted above, no 
single registered equities exchange currently has more than 
approximately 16% of the total market share of executed volume of 
equities trading. Thus, in such a low-concentrated and highly 
competitive market, no single equities exchange possesses significant 
pricing power in the execution of order flow. Moreover, the Exchange 
believes that the ever-shifting market share among the exchanges from 
month to month demonstrates that market participants can shift order 
flow or discontinue to reduce use of certain categories of products, in 
response to new or different pricing structures being introduced into 
the market.
    Accordingly, competitive forces constrain the Exchange's 
transaction fees and rebates, particularly as they relate to competing 
for Retail Order flow, as described above, and market participants can 
readily choose to send their orders to other exchange and off-exchange 
venues if they deem fee levels at those other venues to be more 
favorable. As described above, the proposed change is a competitive 
proposal through which the Exchange is seeking to encourage additional 
order flow to the Exchange through a pricing incentive that is 
comparable to, and competitive with, pricing programs in place at other 
exchanges.\23\ Accordingly, the Exchange believes the proposal would 
not burden, but rather promote, intermarket competition by enabling it 
to better compete with other exchanges that offer similar incentives to 
market participants to encourage the submission of Retail Order flow.
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    \23\ See supra note 11.
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    Additionally, the Commission has repeatedly expressed its 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. Specifically, 
in Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \24\ The fact 
that this market is competitive has also long been recognized by the 
courts. In NetCoalition v. SEC, the D.C. Circuit stated as follows: 
``[n]o one disputes that competition for order flow is

[[Page 71983]]

`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .''.\25\ Accordingly, the Exchange 
does not believe its proposed pricing changes impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \24\ See supra note 14.
    \25\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
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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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \26\ and Rule 19b-4(f)(2) \27\ thereunder.
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    \26\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \27\ 17 CFR 240.19b-4(f)(2).
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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 to 
determine whether the proposed rule change should be approved or 
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-2021-18 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-2021-18. 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-2021-18 and should be submitted on 
or before January 10, 2022.
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    \28\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27422 Filed 12-17-21; 8:45 am]
BILLING CODE 8011-01-P