[Federal Register Volume 89, Number 60 (Wednesday, March 27, 2024)]
[Notices]
[Pages 21290-21294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06453]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99826; File No. SR-MEMX-2024-10]


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

March 21, 2024.
    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 March 14, 2024, 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 March 1, 2024. 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 adopt a new Cross Asset Tier, in which a qualifying Member 
will receive an enhanced rebate for executions of orders in securities 
priced at or above $1.00 per share that add displayed liquidity to the 
Exchange (such orders, ``Added Displayed Volume''), by achieving the 
corresponding required volume criteria for such tier on the Exchange's 
equity options platform, MEMX Options, as further described below.\4\
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    \4\ The Exchange initially filed the proposed Fee Schedule 
changes on February 29, 2024 (SR-MEMX-2024-07). On March 14, 2024, 
the Exchange withdrew that filing and submitted this proposal.
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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 15% of the total market share of 
executed volume of equities trading.\5\ Thus, in such a low-
concentrated and highly competitive market, no single equities exchange 
possesses significant pricing

[[Page 21291]]

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 March 14, 2024. The 
Exchange receives and processes data made available through 
consolidated data feeds (i.e., CTS and UTDF).
    \6\ Id.
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    The Exchange proposes to adopt a new Cross Asset Tier which is 
designed to incentivize Members to increase their participation on both 
the Exchange's equities and options platforms. Currently, with respect 
to the Exchange's equities trading platform, the Exchange provides a 
base rebate of $0.0015 per share for executions of Added Displayed 
Volume. Under the proposed Cross Asset Tier 1, the Exchange will 
provide an enhanced rebate of $0.0026 for executions of Added Displayed 
Volume for Members that qualify by such tier by achieving an Options 
ADAV \7\ in the Customer \8\/Professional \9\ capacity on MEMX Options 
(i.e., both categories combined) that is equal to or greater than 
20,000 contracts. The Exchange proposes to provide Members that qualify 
for Cross Asset Tier 1 a rebate of 0.075% of the total dollar volume of 
the transaction for executions of orders in securities priced below 
$1.00 per share that add displayed liquidity to the Exchange, which is 
the same rebate that is applicable to the majority of executions on the 
Exchange for all Members (i.e., including those that do not qualify for 
any tier). In connection with the adoption of Cross Asset Tier 1, the 
Exchange proposes to incorporate a definition of ``Options ADAV'' in 
the definitions section of the Fee Schedule, where Options ADAV will be 
defined as, for purposes of equities pricing, average daily added 
volume calculated as a number of contracts added on MEMX Options per 
day, calculated on a monthly basis. The Exchange will also indicate in 
a note under the Cross Asset Tier table on the Fee Schedule that the 
definitions of ``Customer'' and ``Professional'' capacity are those 
that are defined in the MEMX Options Fee Schedule.
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    \7\ As further described below, a Member's ``Options ADAV'' for 
purposes of equities pricing means the average daily added volume 
calculated as a number of contracts added on MEMX Options per day by 
the Member, which is calculated on a monthly basis.
    \8\ As set forth on the MEMX Options Fee Schedule, ``Customer'' 
applies to any order for the account of a Priority Customer. 
Priority Customer shall have the meaning set forth in Rule 16.1 of 
the MEMX Rulebook.
    \9\ As set forth on the MEMX Options Fee Schedule, 
``Professional'' applies to any order for the account of a 
Professional.
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    The Exchange also proposes to specify in a note under the Cross 
Asset Tier table on the Fee Schedule that Members that qualify for 
Cross Asset Tier 1 based on activity in a given month will also receive 
that associated Cross Asset Tier 1 rebate during the following month. 
Effectively, this means that if a Member executes 20,000 or more 
contracts in the combined Customer/Professional categories on MEMX 
Options during a given month, that Member will receive that rebate for 
the total amount of Added Displayed Volume executed on the Exchange 
during that month and in the following month, even if such Member does 
not execute 20,000 or more combined contracts in the combined Customer/
Professional categories on MEMX Options during that following month. 
This is different from the Exchange's current practice with respect to 
the remaining of its pricing tiers, whereby the Exchange calculates 
Members' applicable criteria such as ADAV on a monthly basis, and 
Members that qualify for enhanced rebates by achieving certain criteria 
receive the enhanced rebate per share for all applicable executions in 
that previous month. Accordingly, Members do not know whether they will 
receive the enhanced rebate at the time of execution, but rather, 
receive it at the end of the month based on their activity during that 
month.
    To illustrate, the Exchange offers the following example: As 
proposed, at the end of March 2024, the Exchange will calculate a 
Member's Options ADAV for March 2024 and if that Member executed over 
20,000 contracts in the Customer and/or Professional capacity, the 
Member would receive the enhanced rebate of $0.0026 per share for the 
Added Displayed Volume it executed in securities above $1.00 on the 
Exchange in March 2024, and it would also receive the enhanced rebate 
of $0.0026 per share for the Added Displayed Volume it executes on the 
Exchange in April 2024 (regardless of the Member's Options activity in 
April 2024). Accordingly, in this example, the Member will be aware of 
the rebate it will receive under Cross Asset Tier 1 during the month of 
April 2024, regardless of what their April 2024 Options ADAV is, 
because it is awarded based on its March 2024 Options ADAV. The 
Exchange notes that although the enhanced rebate of $0.0026 per share 
would be provided to the Member in April 2024, if the Member in the 
example above did not qualify for Cross Asset Tier 1 based on their 
April 2024 Options ADAV, the Member would no longer qualify for the 
enhanced rebate of $0.0026 per share for the Added Displayed Volume the 
Member executes in May 2024.
    The tiered pricing structure for executions of Added Displayed 
Volume under the proposed Cross Asset Tier provides an incremental 
incentive for Members to strive for higher volume thresholds to receive 
higher enhanced rebates for such executions and, as such, is intended 
to encourage Members to maintain or increase their order flow, 
primarily in the form of liquidity-adding volume, to the Exchange, 
thereby contributing to a deeper and more liquid market to the benefit 
of all Members and market participants. The Exchange believes that the 
proposed Cross Asset Tier reflects a reasonable and competitive pricing 
structure that is right-sized and consistent with the Exchange's 
overall pricing philosophy of encouraging added and/or displayed 
liquidity. Additionally, the proposed process by which the enhanced 
rebate will be paid under the Cross Asset Tier allows Members to 
anticipate whether such rebate will apply at the time of execution 
based on whether the criteria was achieved in the prior month. The 
Exchange believes this method will provide Members with additional 
certainty when trading on the Exchange, which in turn, will incentivize 
Members to increase their participation on both the Exchange and MEMX 
Options on an ongoing basis.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\10\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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

[[Page 21292]]

discrimination between customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f.
    \11\ 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.'' \12\
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    \12\ 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, including with respect to 
Added Displayed Volume, 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 MEMX Options, 
which the Exchange believes would promote price discovery and enhance 
liquidity and market quality to the benefit of all Members and market 
participants.
    The Exchange notes that volume-based incentives 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 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 proposed Cross Asset Tier is reasonable, 
equitable and not unfairly discriminatory for these same reasons, as 
such tier would provide Members with an incremental incentive to 
achieve certain volume thresholds on MEMX Options, 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 on the 
Exchange, including in the form of displayed, liquidity-adding orders, 
in part due to the enhanced rebate received for executions of Added 
Displayed Volume on the Exchange, as applicable, thereby contributing 
to a deeper, more liquid and well balanced market ecosystem on the 
Exchange to the benefit of all Members and market participants. The 
Exchange also believes it is reasonable, equitable and not unfairly 
discriminatory to provide Members that qualify for the proposed Cross 
Asset Tier with same rebate for executions of orders in securities 
priced below $1.00 per share that add displayed liquidity to the 
Exchange as is applicable to the majority of executions on the Exchange 
for all Members (i.e., including those that do not qualify for any 
tier).
    To the extent a Member participates on the Exchange but not on MEMX 
Options, the Exchange believes that the proposal is still reasonable, 
equitably allocated and non-discriminatory with respect to such Member 
based on the overall benefit to the Exchange resulting from the success 
of MEMX Options. Particularly, the Exchange believes such success 
allows the Exchange to continue to provide and potentially expand its 
existing incentive programs to the benefit of all participants on the 
Exchange, whether they participate on MEMX Options or not. The proposed 
pricing program is also fair and equitable in that membership on MEMX 
Options is available to all market participants which would provide 
them with access to the benefits on MEMX Options provided by the 
proposal, even where a member of MEMX Options is not necessarily 
eligible for the proposed enhanced rebate on the Exchange. Further, the 
proposed change will result in Members receiving either the same or an 
increased rebate than they would currently receive. The Exchange also 
notes that another Exchange has similar cross asset volume tiers.\13\
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    \13\ See the Cboe EDGX Options fee schedule available at: 
https://www.cboe.com/us/equities/membership/fee_schedule/edgx/.
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    As it relates to the method by which the Exchange proposes to award 
the rebate under Cross Asset Tier 1, the Exchange believes it is 
reasonable, equitable and not unfairly discriminatory, as the tier will 
provide Members with incremental incentives to achieve certain volume 
thresholds on MEMX Options, is available to all Members on an equal 
basis, and, as described above, is reasonably designed to encourage 
Members to maintain or increase their order flow to the Exchange with 
an added layer of certainty in the rebate they will receive in the 
upcoming month, if applicable.
    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 \14\ 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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    \14\ 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 MEMX Options, thereby enhancing liquidity and 
market quality to the benefit of all Members and market participants, 
as well as to generate additional revenue in a manner that is still 
consistent with the Exchange's overall pricing philosophy of 
encouraging added displayed liquidity. 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.'' \15\
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    \15\ See supra note 12.

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Intramarket Competition
    As discussed above, the Exchange believes that the proposal would 
incentivize Members to submit additional order flow to MEMX Options, 
thereby enhancing liquidity and market quality 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 would impose 
any burden on intramarket competition because such change will apply to 
all Members uniformly, in that the proposed rebate for such executions 
would be the rebate applicable to all Members.
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, including with respect to 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 change represents a competitive proposal through which the 
Exchange is seeking to generate additional revenue with respect to its 
transaction pricing and to encourage the submission of additional order 
flow to the Exchange through volume-based tiers, 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.'' \16\ 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 `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'. . . .''.\17\ 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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    \16\ See supra note 12.
    \17\ 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 \18\ and Rule 19b-4(f)(2) \19\ thereunder.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \19\ 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-2024-10 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-2024-10. 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 (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

[[Page 21294]]

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-2024-10 and should be 
submitted on or before April 17, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06453 Filed 3-26-24; 8:45 am]
BILLING CODE 8011-01-P