[Federal Register Volume 89, Number 97 (Friday, May 17, 2024)]
[Notices]
[Pages 43494-43499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10821]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100112; File No. SR-MEMX-2024-16]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule Concerning Transaction Pricing
May 13, 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 April 30, 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 May 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: (1) increase the maximum combined rebate per share
provided by the Exchange; (2) modify the Liquidity Provision Tiers by
modifying the required criteria under both Liquidity Provision Tiers 1
and 2; (3) modify Liquidity Removal Tier 1 by modifying the required
criteria under such tier; (4) modify Non-Display Add Tier 1 by
modifying the required criteria under such tier; (5) modify NBBO Setter
Tier 1 by modifying the required criteria under such tier; (6) modify
Cross Asset Tier 2 by modifying the required criteria under such tier;
and (7) modify the DLI Additive Tier by modifying the required criteria
under such tier to correspond with the proposed changes to Liquidity
Provision Tiers 1 and 2, each as further described below.
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.\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 2.4% 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 April 30, 2024. The
Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\5\ Id.
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Maximum Combined Rebate per Share
The Exchange offers various volume-based tiers which provide
qualifying Members with enhanced or additive rebates (which apply in
addition to the otherwise applicable rebate) with respect to qualifying
executions where certain volume criteria and thresholds are met. The
Exchange caps the maximum combined rebate which a Member can achieve
when such Member achieves one or more additive rebates. Currently, the
Exchange provides a maximum combined rebate of $0.0036 per share. Now,
the Exchange proposes to increase the maximum combined rebate per share
to $0.0037. Specifically, the Exchange will modify the final bullet in
the ``Notes'' section of its Fee Schedule to change the
[[Page 43495]]
maximum combined rebate per share from $0.0036 to $0.0037.
The Exchange believes that increasing the maximum combined rebate
per share will encourage market participants to strive to achieve the
criteria under one or more additive rebate tiers by raising the rebate
cap applicable to such tiers. The Exchange offers three additive
rebates, namely, the NBBO Setter Tier (further explained below), the
Tape B Volume Tier (which provides an additive rebate for executions of
Added Displayed Volume \6\ excluding Retail Orders in securities priced
over $1.00 per share), and the DLI Additive Rebate (which provides an
additive rebate for qualifying Members' executions of Added Displayed
Volume other than Retail Orders that otherwise qualify for the
applicable rebate under Liquidity Provision Tier 1 or Liquidity
Provision Tier 2 as well as the applicable criteria under DLI Additive
Rebate Tier 1). The Exchange believes that the increase in the maximum
combined rebate provides an incremental incentive for Members to strive
for higher volume thresholds to receive additional enhanced rebates
which otherwise would have been capped at a lower rebate per share 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 maximum combined rebate,
as modified by the proposed changes described above, 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.
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\6\ The base rebate for executions of Added Displayed Volume is
referred to by the Exchange on the Fee Schedule under the existing
description ``Added displayed volume'' with a Fee Code of ``B'',
``D'' or ``J'', as applicable, on execution reports.
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Liquidity Provision Tiers
The Exchange currently provides a base rebate of $0.0015 per share
for executions of Added Displayed Volume in securities priced at or
above $1.00 per share. The Exchange also currently offers Liquidity
Provision Tiers 1-5 under which a Member may receive an enhanced rebate
for executions of Added Displayed Volume by achieving the corresponding
required volume criteria for each such tier. The Exchange now proposes
to modify the Liquidity Provision Tiers by modifying the required
criteria under Liquidity Provision Tier 1 and modifying the required
criteria under Liquidity Provision Tier 2, as further described below.
First, with respect to Liquidity Provision Tier 1, the Exchange
currently provides an enhanced rebate of $0.0033 per share for
executions of Added Displayed Volume in securities priced at or above
$1.00 per share for Members that qualify for such tier by achieving:
(1) an ADAV \7\ (excluding Retail Orders) that is equal to or greater
than 0.45% of the TCV; \8\ or (2) an ADAV that is equal to or greater
than 0.30% of the TCV and a Non-Displayed ADAV \9\ that is equal to or
greater than 7,000,000 shares.\10\ The Exchange now proposes to modify
the required criteria under Liquidity Provision Tier 1 such that a
Member would qualify for such tier by achieving: (1) an ADAV (excluding
Retail Orders) that is equal to or greater than 0.45% of the TCV; or
(2) an ADAV that is equal to or greater than 0.30% of the TCV and a
Non-Displayed ADAV that is equal to or greater than 6,000,000 shares.
Thus, such proposed change would keep criteria (1) intact and decrease
the Non-Displayed ADAV requirement in criteria (2) from 7,000,000
shares to 6,000,000 shares. The Exchange is not proposing to change the
rebate provided under such tier.
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\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 ``Displayed ADAV'' means
ADAV with respect to displayed orders.
\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.
\9\ As set forth on the Fee Schedule, ``Non-Displayed ADAV''
means ADAV with respect to non-displayed orders (including orders
subject to Display-Price Sliding that receive price improvement when
executed and Midpoint Peg orders).
\10\ The pricing for Liquidity Provision Tier 1 is referred to
by the Exchange on the Fee Schedule under the existing description
``Added displayed volume, Liquidity Provision Tier 1'' with a Fee
Code of ``B1'', ``D1'' or ``J1'', as applicable, to be provided by
the Exchange on the monthly invoices provided to Members.
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With respect to Liquidity Provision Tier 2, the Exchange currently
provides an enhanced rebate of $0.0032 per share for executions of
Added Displayed Volume in securities priced at or above $1.00 per share
for Members that qualify for such tier by achieving: (1) an ADAV that
is equal to or greater than 0.25% of the TCV and a Non-Displayed ADAV
that is equal to or greater than 4,000,000 shares; or (2) an ADAV that
is equal to or greater than 0.35% of the TCV.\11\ Now, the Exchange
proposes to modify the required criteria under Liquidity Provision Tier
2 such that Members qualify for such tier by achieving (1) an ADAV that
is equal to or greater than 0.20% of the TCV and (2) an ADV \12\ that
is equal to or greater than 0.35% of the TCV. Thus, such proposed
change would replace the existing criteria for Liquidity Provision Tier
2 with new criteria. The Exchange is not proposing to change the rebate
provided under such tier.
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\11\ The proposed pricing for Liquidity Provision Tier 2 is
referred to by the Exchange on the Fee Schedule under the existing
description ``Added displayed volume, Liquidity Provision Tier 2''
with a Fee Code of ``B2'', ``D2'' or ``J2'', as applicable, to be
provided by the Exchange on the monthly invoices provided to
Members.
\12\ As set forth on the Fee Schedule, ``ADV'' means average
daily volume calculated as the number of shares added or removed,
combined, per day, which is calculated on a monthly basis.
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The Exchange believes that the tiered pricing structure for
executions of Added Displayed Volume under the proposed modified
Liquidity Provision Tiers 1 and 2 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. Specifically, the Exchange believes
that, after giving effect to the proposed changes described above, the
rebate for executions of Added Displayed Volume provided under each of
the Liquidity Provision Tiers remains commensurate with the
corresponding required criteria under each such tier and is reasonably
related to the market quality benefits that each such tier is designed
to achieve.
Liquidity Removal Tier 1
The Exchange currently charges a standard fee of $0.0030 per share
for executions of orders in securities priced at or above $1.00 per
share that remove liquidity from the Exchange (such orders, ``Removed
Volume''). The Exchange also currently offers Liquidity Removal Tiers
under which qualifying Members are charged a discounted fee by
achieving the corresponding required volume criteria for each such
tier. The Exchange now proposes to modify Liquidity Removal Tier 1 by
changing the required criteria under such tier. Currently, a Member
qualifies for Liquidity Removal Tier 1 by achieving one of the
following two alternative criteria: (1) an ADV that is equal to or
greater than 0.60% of the TCV; or (2) a
[[Page 43496]]
Remove ADV \13\ that is equal to or greater than 0.30% of the TCV.\14\
Now, the Exchange proposes to modify Liquidity Removal Tier 1 such that
a Member qualifies for such tier by achieving (1) an ADV that is equal
to or greater than 0.70% of the TCV; or (2) a Remove ADV that is equal
to or greater than 0.35% of the TCV. Specifically, the Exchange is
changing the ADV percentage in criteria (1) to 0.70% and changing the
Remove ADV percentage in criteria (2) to 0.35%. The Exchange is not
proposing to change the rebate provided under such tier.
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\13\ As set forth on the Fee Schedule, ``Remove ADV'' means ADV
with respect to orders that remove liquidity.
\14\ The pricing for Liquidity Removal Tier 1 is referred to by
the Exchange on the Fee Schedule under the existing description
``Removed volume from MEMX Book, Liquidity Removal Tier 1'' with a
Fee Code of ``R1'' to be provided by the Exchange on the monthly
invoices provided to Members. The Exchange notes that because the
determination of whether a Member qualifies for a certain pricing
tier for a particular month will not be made until after the month-
end, the Exchange provides the Fee Codes otherwise applicable to
such transactions on the execution reports provided to Members
during the month and only designates the Fee Codes applicable to the
achieved pricing tier on the monthly invoices, which are provided
after such determination has been made, as the Exchange does for its
tier-based pricing today.
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The proposed changes to the Liquidity Removal Tiers are designed to
encourage Members to maintain or increase their order flow, including
in the form of orders that remove liquidity, to the Exchange in order
to qualify for the proposed discounted fee for executions of Removed
Volume. While the Exchange's overall pricing philosophy generally
encourages adding liquidity over removing liquidity, the Exchange
believes that providing alternative criteria that are based on
different types of volume that Members may choose to achieve, such as
the proposed new criteria which includes a Remove ADV threshold,
contributes to a more robust and well-balanced market ecosystem on the
Exchange to the benefit of all Members.
Non-Display Add Tier 1
The Exchange currently offers Non-Display Add Tiers 1-4 under which
a Member may receive an enhanced rebate for executions of Added Non-
Displayed Volume in securities priced at or above $1.00 per share by
achieving the corresponding required volume criteria for each such
tier. The Exchange now proposes to modify the Non-Display Add Tiers by
changing the criteria under Non-Display Add Tier 1. Currently, under
Non-Display Add Tier 1, the Exchange provides an enhanced rebate of
$0.0028 per share for executions of Added Non-Displayed Volume in
securities priced at or above $1.00 per share for Members that qualify
for such tier by achieving a Non-Displayed ADAV that is equal to or
greater than 8,000,000 shares.\15\ Now, the Exchange proposes to
provide the same rebate for executions of Added Non-Displayed Volume in
securities priced at or above $1.00 per share for Members that qualify
for such tier by achieving a Non-Displayed ADAV that is equal to or
greater than 6,000,000 shares. The Exchange is not proposing to change
the rebate provided under such tier.
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\15\ The pricing for Non-Display Add Tier 1 is referred to by
the Exchange on the Fee Schedule under the existing description
``Added non-displayed volume, Non-Display Add Tier 1'' with a Fee
Code of ``H1'', ``M1'' or ``P1'', as applicable, to be provided by
the Exchange on the monthly invoices provided to Members.
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The purpose of lowering the Non-Displayed ADAV requirement to
achieve Non-Display Add Tier 1 is to facilitate Members' ability to
qualify for the rebate for executions of Added Non-Displayed Volume.
The Exchange believes that more Members will be able to qualify for the
rebate at the lower Non-Displayed ADAV share requirement, which the
Exchange believes may encourage Members to maintain or increase their
order flow. The Exchange believes that this will contribute to a deeper
and more robust and well-balanced market ecosystem to the benefit of
all Members and market participants. The Exchange believes that the
Non-Display Add Tiers, as modified by the proposed changes described
above, reflect 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.
Specifically, the Exchange believes that, after giving effect to the
proposed changes described above, the rebate for executions of Added
Non-Displayed Volume provided under each of the Non-Display Add Tiers
is commensurate with the corresponding required criteria under each
such tier and is reasonably related to the market quality benefits that
each such tier is designed to achieve.
NBBO Setter Tier
The Exchange currently offers NBBO Setter Tier 1 under which a
Member may receive an additive rebate of $0.0002 per share for a
qualifying Member's executions of Added Displayed Volume (other than
Retail Orders) in securities priced at or above $1.00 per share that
establish the NBBO and have a Fee Code B \16\ (such orders, ``Setter
Volume''), and an additive rebate of $0.0001 per share for executions
of Added Displayed Volume (other than Retail Orders) that do not
establish the NBBO (i.e., Fee Codes D and J) \17\ by achieving: (1) an
ADAV with respect to orders with Fee Code B that is equal to or greater
than 0.10% of the TCV; or (2) an ADAV with respect to orders with Fee
Code B that is equal to or greater than 0.05% of the TCV or 5,000,000
shares and a Step-Up ADAV with respect to orders with a Fee Code B that
is equal to or greater than 75% of the Member's March 2024 ADAV with
respect to orders with a Fee Code B. Now, the Exchange proposes to
modify the required criteria under NBBO Setter Tier 1 such that a
Member would now qualify for such tier by achieving: (1) an ADAV with
respect to orders with Fee Code B that is equal to or greater than
5,000,000 shares; or (2) an ADAV (excluding Retail Orders) that is
equal to or greater than 0.30% of the TCV. The Exchange will also
delete the reference in the footnote to the NBBO Setter Tier portion of
the fee schedule which references the expiration of existing criteria
(2) no later than September 30, 2024; since existing criteria (2) of
the NBBO Setter Tier is being fully deleted and replaced with a new
criteria (2), this footnote is no longer relevant. The Exchange is not
proposing to change the amount of the additive rebates provided under
the NBBO Setter Tier 1.
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\16\ The Exchange notes that orders with Fee Code B include
orders, other than Retail Orders, that establish the NBBO.
\17\ The Exchange notes that orders with Fee Code J include
orders, other than Retail Orders, that establish a new BBO on the
Exchange that matches the NBBO first established on an away market.
Orders with Fee Code D include orders that add displayed liquidity
to the Exchange but that are not Fee Code B or J, and thus, orders
with Fee Code B, D or J include all orders, other than Retail
Orders, that add displayed liquidity to the Exchange.
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The Exchange believes that the proposed modified criteria provides
an incremental incentive for Members to strive for higher ADAV on the
Exchange to receive the additive rebate for qualifying executions of
Added Displayed Volume under such tier, and thus, it is designed to
encourage Members that do not currently qualify for such tier to
increase their overall orders that add liquidity to the Exchange. The
Exchange also believes that the criteria changes reflect 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. The
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Exchange believes that the proposed modified criteria would further
incentivize increased order flow to the Exchange, thereby contributing
to a deeper and more liquid market to the benefit of all Members.
Cross Asset Tiers
The Exchange currently offers Cross Asset Tiers 1, 2, and 3 under
which a Member may receive an enhanced rebate for executions of Added
Displayed Volume in securities priced at or above $1.00 per share by
achieving the corresponding required volume criteria for such tier on
the Exchange's equity options platform, MEMX Options. The Exchange now
proposes to change the required criteria by which a Member may qualify
for Cross Asset Tier 2, as described below.
Currently the Exchange provides an enhanced rebate of $0.0027 per
share for executions of Added Displayed Volume for Members that qualify
for such tier by achieving an Options ADAV \18\ in the Market Maker
\19\ capacity that is equal to or greater than 150,000 contracts on
MEMX Options. Now, the Exchange proposes to modify the required
criteria under Cross Asset Tier 2 such that such that a Member would
qualify for such tier by achieving an Options ADAV in the Market Maker
capacity that is equal to or greater than 125,000 contracts on MEMX
Options.
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\18\ As set forth on the Fee Schedule, 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.
\19\ As set forth on the MEMX Options Fee Schedule, ``Market
Maker'' applies to any order for the account of a registered Market
Maker. ``Market Maker'' shall have the meaning set forth in Rule
16.1 of the MEMX Rulebook.
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The proposed new criteria for Cross Asset Tier 2 is designed to
facilitate additional Members to meet the Options ADAV requirements for
such tier. The Exchange believes that the lowered requirements to meet
the tier will incentivize Members to maintain or increase their order
flow to the MEMX Options Exchange in the Market Maker capacity. The
Exchange also believes that the new criteria will encourage greater
participation on MEMX Equities by making it easier for Members to
qualify for Cross Asset Tier 2 via their Options ADAV, thereby
contributing to a deeper and more robust and well-balanced market
ecosystem on the Exchange to the benefit of all Members and market
participants.
Displayed Liquidity Initiative (``DLI'') Additive Rebate
The Exchange currently offers the DLI Additive Rebate Tier 1 under
which a Member may receive an additive rebate for a qualifying Member's
executions of Added Displayed Volume (other than Retail Orders) in
securities priced at or above $1.00 per share that otherwise qualify
for the applicable rebate under Liquidity Provision Tier 1 or Liquidity
Provision Tier 2 as well as the applicable criteria under DLI Tier
1.\20\ The Exchange now proposes to modify the DLI Additive Rebate Tier
1 by updating the required applicable criteria under Liquidity
Provision Tiers 1 and 2 in accordance with this proposal. The purpose
of these changes is to update the criteria to match the proposed
changes to the applicable criteria under Liquidity Provision Tiers 1
and 2 which have been described above.
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\20\ This pricing is referred to by the Exchange on the Fee
Schedule under the existing description ``DLI Additive Rebate'' with
a Fee Code of ``q'' to be appended to the otherwise applicable Fee
Code for qualifying executions.
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Currently, under DLI Additive Rebate Tier 1, the Exchange provides
an additive rebate of $0.00005 per share for executions of Added
Displayed Volume that first meet the criteria under DLI Tier 1, which
include achieving: (1) an NBBO time of at least 25% in an average of at
least 1,000 securities per trading day during the month; and (2) an
ADAV that is equal to or greater than 0.10% of the TCV,\21\ as well as
the applicable criteria under Liquidity Provision Tier 1 or Liquidity
Provision Tier 2. Under Liquidity Provision Tier 1, the Exchange is now
proposing (as described above) Members will received the enhanced
rebate by achieving: (1) an ADAV (excluding Retail Orders) that is
equal to or greater than 0.45% of the TCV; or (2) an ADAV that is equal
to or greater than 0.30% of the TCV and a Non-Displayed ADAV that is
equal to or greater than 6,000,000 shares. Thus, now, the Exchange
proposes to modify the criteria for the DLI Additive Rebate to
correspond to the modifications to Liquidity Provision Tier 1 criteria
described above. Under Liquidity Provision Tier 2, the Exchange is now
proposing (as described above) that Members will receive the enhanced
rebate by achieving: (1) an ADAV that is equal to or greater than 0.20%
of the TCV and (2) an ADV that is equal to or greater than 0.35% of the
TCV. Thus, now, the Exchange proposes to modify the criteria for the
DLI Additive Rebate to correspond to the modifications to Liquidity
Provision Tier 2 criteria described above. Again, the Exchange notes
that Members qualify for the DLI Additive rebate by achieving both the
criteria under DLI Tier 1 and either Liquidity Provision Tier 1 or
Liquidity Provision Tier 2.
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\21\ The enhanced rebate provided under DLI Tier 1 is $0.0031
per share for executions of Added Displayed Volume.
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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,\22\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\23\ 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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\22\ 15 U.S.C. 78f.
\23\ 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.'' \24\
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\24\ 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
[[Page 43498]]
direct additional order flow to the Exchange, as well as to the
Exchange's equity options platform, MEMX Options, which the Exchange
believes would promote price discovery and enhance liquidity and market
quality on the Exchange and on MEMX Options to the benefit of all
Members and market participants.
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 raising the maximum
combined rebate is reasonable, equitable, and not unfairly
discriminatory as all Members are equally eligible to achieve rebates
up to the maximum combined rebate on the Exchange. The Exchange
believes that increasing the maximum rebate which Members can achieve
will incentivize Members to maintain or increase their order flow to
the Exchange, in order to qualify for multiple additive rebates offered
by the Exchange, thus increasing liquidity and contributing to a deeper
and more liquid market ecosystem on the Exchange. The Exchange believes
that the Liquidity Provision Tiers 1 and 2, the Liquidity Removal Tier,
the Non-Display Add Tier 1, the NBBO Setter Tier 1, Cross-Asset Tier 2,
and DLI Additive Rebate, each as modified by the proposed changes to
the required criteria under each such tier as described above, are
reasonable, equitable and not unfairly discriminatory for these same
reasons. Such tiers would provide Members with an incremental incentive
to achieve certain volume thresholds on the Exchange (and in the case
of the Cross Asset Tiers, MEMX Options), are available to all Members
on an equal basis, and, as described above, are designed to encourage
Members to maintain or increase their order flow, including in the form
of displayed, non-displayed, liquidity-adding, liquidity-removing, and/
or NBBO-setting orders to the Exchange in order to qualify for an
enhanced rebate, 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 that the proposed changes to the
criteria for Cross Asset Tier 2 are reasonable, equitably allocated and
non-discriminatory with respect to all Members, as the ability to
achieve the new criteria is available to all Members. 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 rebates on the Exchange. The
Exchange also believes, as stated above, that the new criteria in
Cross-Asset Tier 2 will encourage greater participation on MEMX
Equities by qualifying participants, thereby contributing to a deeper
and more robust and well-balanced market ecosystem on the Exchange to
the benefit of all Members and market participants.
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 \25\ 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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\25\ 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, and to MEMX Options, thereby
enhancing 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.'' \26\
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\26\ See supra note 24.
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Intramarket Competition
As discussed above, the Exchange believes that the proposal would
incentivize Members to submit additional order flow, including
displayed, liquidity-adding and/or removing, and/or NBBO setting orders
to both the Exchange and MEMX Options, 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 higher maximum combined rebate and each of the proposed
modified Liquidity Provision Tiers 1 and 2, the Liquidity Removal Tier,
the Non-Display Add Tier 1, the NBBO Setter Tier 1, Cross-Asset Tier 2,
and DLI Additive Rebate would be available to all Members that meet the
associated volume requirements in any month. 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% 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
[[Page 43499]]
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 changes represent 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.'' \27\ 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'. . . .''.\28\ 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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\27\ Id.
\28\ 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 \29\ and Rule 19b-4(f)(2) \30\ thereunder.
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\29\ 15 U.S.C. 78s(b)(3)(A)(ii).
\30\ 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-2024-16 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-2024-16. 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-2024-16 and should be
submitted on or before June 7, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10821 Filed 5-16-24; 8:45 am]
BILLING CODE 8011-01-P