[Federal Register Volume 87, Number 196 (Wednesday, October 12, 2022)]
[Notices]
[Pages 61637-61640]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22082]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95986; File No. SR-MEMX-2022-29]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
October 5, 2022
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 September 30, 2022, 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 October 3, 2022. 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 modify the required criteria under the Step-Up Additive
Rebate.
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 16.5% of the total market share
of executed volume of equities trading.\4\ 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 3% of the overall
market share.\5\ 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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\4\ Market share percentage calculated as of September 29, 2022.
The Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\5\ Id.
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The Exchange currently offers the Step-Up Additive Rebate under
which the Exchange provides an additive rebate of $0.0002 per share in
addition to the otherwise applicable rebate for a qualifying Member's
executions of certain orders in securities priced at or above $1.00 per
share that add displayed liquidity to the Exchange (``Added Displayed
Volume'').\6\ Currently, a Member qualifies for the Step-Up Additive
Rebate by achieving one of the following two alternative criteria: (1)
a Step-Up ADAV \7\ (excluding Retail Orders) from April 2022 that is
equal to or greater than 0.07% of the TCV; \8\ or (2) a Step-Up ADAV
from July 2022 that is equal to or greater than 0.05% of the TCV and an
ADAV that is equal to or greater than 0.30% of the TCV. The Exchange
notes that the Step-Up Additive Rebate is
[[Page 61638]]
designed to encourage Members that add liquidity on the Exchange to
increase their liquidity-adding order flow, which benefits all Members
by providing greater execution opportunities on the Exchange.
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\6\ The Step-Up Additive Rebate applies to all executions of
Added Displayed Volume other than: (i) orders that establish the
national best bid or offer (``NBBO'') if such Member qualifies for
the Exchange's NBBO Setter Tier; and (ii) Retail Orders. A ``Retail
Order'' is 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).
\7\ As set forth on the Fee Schedule, ``ADAV'' means the average
daily added volume calculated as the number of shares added per day,
which is calculated on a monthly basis, and ``Step-Up ADAV'' means
ADAV in the relevant baseline month subtracted from current ADAV.
\8\ As set forth on the Fee Schedule, ``TCV'' means total
consolidated volume calculated as the volume reported by all
exchanges and trade reporting facilities to a consolidated
transaction reporting plan for the month for which the fees apply.
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Now, the Exchange proposes to modify the required criteria such
that a Member would now qualify for the Step-Up Additive Rebate by
achieving one of the following two alternative criteria: (1) an ADAV
that is equal to or greater than 0.45% of the TCV; or (2) a Step-Up
ADAV from August 2022 that is equal to or greater than 0.10% of the TCV
and an ADAV that is equal to or greater than 0.30% of the TCV. Thus,
the proposed change would: (i) replace the first of the two alternative
criteria (i.e., the April 2022 Step-Up ADAV threshold) with an overall
ADAV threshold, and (ii) modify the second of such alternative criteria
(i.e., the July 2022 Step-Up ADAV and overall ADAV thresholds) to
increase the Step-Up ADAV threshold, reference a more recent baseline
month for such threshold, and keep the overall ADAV threshold intact.
As the proposed new alternative criteria are based on Step-Up ADAV and/
or overall ADAV thresholds, such criteria are intended to encourage
Members to maintain or increase their liquidity-adding order flow,
thereby contributing to a deeper and more liquid market to the benefit
of all Members. While the Exchange has no way of predicting with
certainty how the proposed new criteria will impact Member activity,
the Exchange expects that more Members will strive to qualify for such
tier than currently qualify, resulting in the submission of additional
order flow to the Exchange. The Exchange is not proposing to change the
rebate provided under the Step-Up Additive Rebate.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\9\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\10\ 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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\9\ 15 U.S.C. 78f.
\10\ 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.'' \11\
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\11\ 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. Accordingly, competitive forces constrain
the Exchange's transaction fees and rebates, 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, including liquidity-adding orders, to the Exchange, which the
Exchange believes would enhance liquidity and market quality on the
Exchange to the benefit of all Members.
The Exchange notes that volume-based incentives and discounts have
been widely adopted by exchanges, including the Exchange, and are
reasonable, equitable and not unfairly discriminatory because they are
open to all members on an equal basis and provide additional benefits
or discounts that are reasonably related to the value to an exchange's
market quality associated with higher levels of market activity, such
as higher levels of liquidity provision and/or growth patterns, and the
introduction of higher volumes of orders into the price and volume
discovery process. The Exchange believes that the Step-Up Additive
Rebate, as modified by the proposed changes to the required criteria
under such tier, is reasonable, equitable and not unfairly
discriminatory for these same reasons, as such tier would continue to
provide Members with an incremental incentive to achieve certain volume
thresholds on the Exchange, is available to all Members on an equal
basis, and, as described above, is designed to encourage Members to
maintain or increase their order flow, including liquidity-adding
orders, to the Exchange in order to qualify for an additive rebate for
certain executions of Added Displayed Volume, thereby contributing to a
deeper and more liquid market to the benefit of all Members. The
Exchange also believes that the proposed changes to the required
criteria under the Step-Up Additive Rebate reflect a reasonable and
equitable allocation of fees and rebates, as the Exchange believes that
the additive rebate for qualifying executions of Added Displayed Volume
under such tier remains commensurate with the corresponding required
criteria under such tier and is reasonably related to the market
quality benefits that such tier is designed to achieve, as described
above. That is, such additive rebate reasonably reflects the difficulty
in achieving the corresponding criteria, as modified.
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 \12\ 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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\12\ 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. Instead, as discussed above,
the proposal is intended to incentivize market participants to direct
additional order flow, including liquidity-adding orders, to the
Exchange, thereby enhancing liquidity and market quality on the
Exchange to the benefit of all Members. As a result, the Exchange
believes the proposal would enhance its competitiveness as a market
that attracts
[[Page 61639]]
actionable 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.'' \13\
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\13\ See supra note 11.
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Intramarket Competition
As discussed above, the Exchange believes that the proposal would
incentivize Members to submit additional order flow, including
liquidity-adding orders, to the Exchange, thereby enhancing liquidity
and market quality on the Exchange to the benefit of all Members, as
well as enhancing the attractiveness of the Exchange as a trading
venue, which the Exchange believes, in turn, would continue to
encourage market participants to direct additional 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. The opportunity to qualify for
the proposed new alternative criteria under the Step-Up Additive
Rebate, and thus receive the additive rebate for qualifying executions
of Added Displayed Volume, would continue to be available to all
Members that meet the associated volume requirements in any month. As
described above, the Exchange believes that the proposed new required
criteria under such tier remain commensurate with the additive rebate
provided for qualifying executions of Added Displayed Volume under such
tier and are reasonably related to the enhanced liquidity and market
quality that such tier is designed to promote. For the foregoing
reasons, the Exchange believes the proposed changes would not impose
any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
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 16.5% 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, including with respect to executions of
Added Displayed Volume, 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 changes represent a competitive proposal
through which the Exchange is seeking to encourage additional order
flow, including liquidity-adding orders, to the Exchange through a
volume-based tier, which have been widely adopted by exchanges,
including the Exchange. 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
pricing incentives to market participants.
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.'' \14\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. SEC, the DC Circuit stated as follows:
``[n]o one disputes that competition for order flow is `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'. . . .''.\15\ 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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\14\ See supra note 11.
\15\ 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 \16\ and Rule 19b-4(f)(2) \17\ thereunder.
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
\17\ 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-2022-29 on the subject line.
Paper Comments:
Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 61640]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MEMX-2022-29. 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-2022-29 and should be submitted on
or before November 2, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22082 Filed 10-11-22; 8:45 am]
BILLING CODE 8011-01-P