[Federal Register Volume 88, Number 179 (Monday, September 18, 2023)]
[Notices]
[Pages 64004-64007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20081]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98360; File No. SR-MEMX-2023-21]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
September 12, 2023.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on August 31, 2023, 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\ 15 U.S.C. 78a.
\3\ 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 \4\ (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 immediately. The text of the proposed rule change is
provided in Exhibit 5.
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\4\ See Exchange Rule 1.5(p).
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II. Self-Regulatory Organization's Statement of the Purpose of, and the
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Fee
Schedule to make orders that add non-displayed volume in securities
priced at or below $1.00 per share eligible to receive the Sub-Dollar
Rebate Tier. This change in the Fee Schedule would make all executions
that add volume eligible for the Sub-Dollar Rebate when a Member
reaches the applicable criteria, regardless of whether such added
volume is displayed or non-displayed.
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 15% of the total market share of
executed
[[Page 64005]]
volume of equities trading.\5\ 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.\6\ 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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\5\ Market share percentage calculated as of August 31, 2023.
The Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\6\ Id.
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Currently, the Exchange provides a rebate of 0.15% of the total
dollar value of the transaction for executions of orders in securities
priced below $1.00 per share that add displayed liquidity to the
Exchange (such orders, ``Added Displayed Sub-Dollar Volume'') for
Members that qualify for such tier by achieving a Sub-Dollar ADAV \7\
that is equal to or greater than 5,000,000 shares. A footnote in the
current Fee Schedule states that the Sub-Dollar Rebate applies to
executions of added displayed volume in securities priced below $1.00
per share. Thus, the Sub-Dollar Rebate does not currently apply to
executions of added non-displayed volume that add liquidity to the
Exchange (such orders, ``Added Non-Displayed Sub-Dollar Volume''). Now,
the Exchange proposes to modify the types of orders which qualify for
the Sub-Dollar Rebate, such that orders which add displayed liquidity
as well as orders which add non-displayed liquidity to the Exchange in
securities priced below $1.00 per share would be eligible for the Sub-
Dollar Rebate. To clarify, the Sub-Dollar Rebate would apply to
executions of both Added Displayed Sub-Dollar Volume and Added Non-
Displayed Sub-Dollar Volume when a Member meets the required criteria
for the tier. The Exchange would alter the footnote in the Sub-Dollar
Rebate Tier section of the Fee Schedule to remove the word
``displayed'', such that all executions which add volume to the
Exchange would be eligible for the Sub-Dollar Rebate. At this time, the
Exchange does not propose to change the rebate amount nor the required
criteria for the Sub-Dollar Rebate Tier.
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\7\ ``Sub-Dollar ADAV'' means ADAV with respect to orders in
securities priced below $1.00 per share. ``ADAV'' means average
daily added volume calculated as the number of shares added per day,
calculated on a monthly basis.
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The Exchange believes that this modification to the method of
applying the Sub-Dollar Rebate Tier would encourage the submission of
both displayed and non-displayed orders in securities priced below
$1.00 per share that add liquidity to the Exchange. The Exchange
believes that it would contribute to a more robust and well-balanced
market ecosystem of both displayed and non-displayed orders which add
liquidity on the Exchange, to the benefit of all Members and market
participants. The Exchange notes that the Sub-Dollar Rebate Tier would
continue to be available to all Members and, while the Exchange has no
way of predicting with certainty how the proposed new modification will
impact Member activity, the Exchange expects that more Members will
qualify or strive to qualify for the Sub-Dollar Rebate Tier than
currently do under the proposed new calculation method, as it is more
expansive and includes additional types of executions which would be
eligible to receive the rebate under the tier.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\8\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\9\ 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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\8\ 15 U.S.C. 78f.
\9\ 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.'' \10\
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\10\ 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 encourage market participants to strive for higher volume
on the Exchange, which the Exchange believes would promote price
discovery and enhance liquidity and market quality on the Exchange to
the benefit of all Members and market participants.
The Exchange notes that volume-based incentives such as the Sub-
Dollar Rebate Tier 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 discount 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 the proposal to include Added Non-Displayed
Sub-Dollar Volume in the executions eligible to qualify for the Sub-
Dollar Rebate is reasonable because, as noted above, such change would
keep the existing criteria and rebate amount intact and provide more
opportunities for a Member to achieve the rebate. Members may be
incentivized to submit additional orders which add displayed liquidity
and which add non-displayed
[[Page 64006]]
liquidity in securities priced below $1.00 per share, thereby
contributing to a more robust and well-balanced market ecosystem on the
Exchange to the benefit of all Members and market participants. The
Exchange also believes the proposal is equitable and not unfairly
discriminatory because all Members will continue to be eligible to meet
the Sub-Dollar Rebate Tier criteria, including Members who currently
receive the Sub-Dollar Rebate under the current method. As noted above,
while the Exchange has no way of predicting with certainty how the
proposed new criteria will impact Member activity, the Exchange expects
that this change will incentivize more Members to strive to qualify for
such tier under the proposed new method, as the new method is more
expansive and would make the Sub-Dollar Rebate applicable to additional
executions.
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 \11\ 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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\11\ 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 to the Exchange in the form of both displayed and
non-displayed liquidity in securities priced below $1.00 per share,
which the Exchange believes would promote price discovery and enhance
liquidity and market quality on the Exchange to the benefit of all
Members and market participants. As a result, the Exchange believes the
proposal would enhance its competitiveness as a market that attracts
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.'' \12\
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\12\ See supra note 10.
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Intramarket Competition
As discussed above, the Exchange believes that the proposal would
incentivize Members to submit additional order flow to the Exchange in
the form of both displayed and non-displayed orders in securities
priced below $1.00 per share, 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 Exchange does not believe that the proposed change to the Sub-
Dollar Rebate Tier would impose any burden on intramarket competition
because such change may incentivize Members to submit additional order
flow, thereby contributing to a more robust and well-balanced market
ecosystem 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 Sub-Dollar
Rebate Tier would be available to all Members that meet the associated
volume requirements in any month. For the foregoing reasons, the
Exchange believes the proposed change 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 15% 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 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 represents a competitive proposal
through which the Exchange is seeking to incentivize market
participants to direct additional order flow to the Exchange through
the volume-based Sub-Dollar Rebate Tier. Volume-based tiers 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 tiered pricing structures and 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.'' \13\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. SEC, the D.C. Circuit
[[Page 64007]]
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'. . . .''.\14\ Accordingly, the Exchange
does not believe its proposed pricing change imposes any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
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\13\ See supra note 10.
\14\ 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 \15\ and Rule 19b-4(f)(2) \16\ thereunder.
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\15\ 15 U.S.C. 78s(b)(3)(A)(ii).
\16\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-MEMX-2023-21 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-2023-21. 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 (https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-MEMX-2023-21 and should be
submitted on or before October 10, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20081 Filed 9-15-23; 8:45 am]
BILLING CODE 8011-01-P