[Federal Register Volume 89, Number 118 (Tuesday, June 18, 2024)]
[Notices]
[Pages 51576-51580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-13319]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100320; File No. SR-MEMX-2024-24]


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

June 12, 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 May 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

[[Page 51577]]

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 June 3, 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 rebate for executions of Retail Orders 
\4\ in securities priced at or above $1.00 per share that add displayed 
liquidity to the Exchange (such orders, ``Added Displayed Retail 
Volume''); (2) modify Retail Tier 1 by increasing the rebate provided 
and modifying the required criteria under such tier; and (3) modify 
NBBO Setter Tier 1 by modifying the required criteria under such tier, 
each as further described below.
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    \4\ A ``Retail Order'' means an agency or riskless principal 
order that meets the criteria of FINRA Rule 5320.03 that originates 
from a natural person and is submitted to the Exchange by a Retail 
Member Organization (``RMO''), provided that no change is made to 
the terms of the order with respect to price or side of market and 
the order does not originate from a trading algorithm or any other 
computerized methodology. See Exchange Rule 11.21(a).
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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 14.5% 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 power in the execution of order flow, and 
the Exchange currently represents approximately 2.4% 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 May 28, 2024. The 
Exchange receives and processes data made available through 
consolidated data feeds (i.e., CTS and UTDF).
    \6\ Id.
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Increase Base Rebate for Added Displayed Retail Volume
    Currently, the Exchange provides a base rebate of $0.0032 per share 
for executions of Added Displayed Retail Volume. The Exchange now 
proposes to increase the base rebate for executions of Added Displayed 
Retail Volume to $0.0034 per share.\7\ The purpose of increasing the 
base rebate for executions of Added Displayed Retail Volume is for 
business and competitive reasons, as the Exchange believes that 
increasing such rebate as proposed would incentivize Members to submit 
additional Added Displayed Retail Volume to the Exchange, which the 
Exchange believes would promote price discovery and price formation, 
provide more trading opportunities and tighter spreads, and deepen 
liquidity that is subject to the Exchange's transparency, regulation 
and oversight, thereby enhancing market quality to the benefit of all 
Members and investors.
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    \7\ The proposed base rebate for executions of Added Displayed 
Retail Volume is referred to by the Exchange on the Fee Schedule 
under the existing description ``Added displayed volume, Retail 
Order'' with a Fee Code of ``Br'', ``Dr'' or ``Jr'', as applicable, 
on execution reports.
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Retail Tier
    As described above, the Exchange is proposing to provide a base 
rebate of $0.0034 per share for executions of Added Displayed Retail 
Volume. The Exchange also currently offers Retail Tier 1 under which 
qualifying Members may receive an enhanced rebate of $0.0034 per share 
for executions of Added Displayed Retail Volume by achieving a Retail 
Order ADAV \8\ that is equal to or greater than 0.07% of the TCV.\9\ 
Now, the Exchange proposes to modify Retail Tier 1 by increasing the 
enhanced rebate provided for executions of Added Displayed Retail 
Volume to $0.0037 per share, and by modifying the required criteria 
such that a Member would qualify for such tier by achieving: (1) a 
Retail Order ADAV that is equal to or greater than 0.20% of the TCV; or 
(2) a Retail Order ADAV that is equal to or greater than 1,000,000 
shares in the Pre-Market Session \10\ and/or the Post-Market 
Session.\11\ Thus, such proposed change would increase the Retail Order 
ADAV threshold in the first required criteria and add an alternative 
criteria (2) that provides an incentive for Members to meet a certain 
Retail Order ADAV threshold outside of regular trading hours, i.e., 
during the Pre-Market Session, the Post-Market Session, or a 
combination of both.
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    \8\ 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.
    \9\ 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. 
The pricing for Retail Tier 1 is referred to by the Exchange on the 
Fee Schedule under the description ``Retail Tier 1'' with a Fee Code 
of ``Br1, Dr1, or Jr1, as applicable,'' on executions reports.
    \10\ Exchange Rule 1.5(x) defines the Pre-Market Session as the 
time between 7:00 a.m. and 9:30 a.m. Eastern Time.
    \11\ Exchange Rule 1.5(w) defines the Post-Market Session as the 
time between 4:00 p.m. and 8:00 p.m. Eastern Time.
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    The proposed changes to the Retail Tier 1 are designed to encourage 
Members to increase their Retail Order flow, not only during regular 
trading hours but also during the Pre and Post-Market Sessions, to the 
Exchange in order to qualify for the enhanced rebate for executions of 
Added Displayed Retail Volume, thereby contributing to a

[[Page 51578]]

deeper and more liquid market to the benefit of all Members and market 
participants. The Exchange believes that Retail Tier 1 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, not only during regular trading hours but during 
the Pre and Post-Market Sessions.
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 \12\ (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) \13\ 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.\14\ 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 order greater 
than 5,000,000 shares; or (2) an ADAV in securities priced at or above 
$1.00 per share (excluding Retail Orders) that is equal to or greater 
than 0.30% of the TCV in securities priced at or above over $1.00 per 
share. Thus, such proposed change keeps the first alternative criteria 
intact with no changes but modifies the second alternative criteria by 
excluding securities priced below $1.00 per share from the ADAV 
threshold and corresponding TCV calculation.\15\ The Exchange is not 
proposing to change the amount of the additive rebates provided under 
the NBBO Setter Tier 1.
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    \12\ The Exchange notes that orders with Fee Code B include 
orders, other than Retail Orders, that establish the NBBO.
    \13\ 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.
    \14\ The pricing is referred to by the Exchange on the Fee 
Schedule under the existing description ``NBBO Setter Tier'' with a 
Fee Code of ``S1'' to be appended to the otherwise applicable Fee 
Code for qualifying executions.
    \15\ The Exchange will determine whether a security meets the 
``priced at or above $1.00 per share'' threshold for purposes of 
calculating the ADAV and TCV by using the prior day's closing price.
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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, not only in orders with a Fee Code B (i.e., criteria 1) but 
also in any security that is priced at or above $1.00 (i.e., criteria 
2) 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 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.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\16\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\17\ 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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    \16\ 15 U.S.C. 78f.
    \17\ 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.'' \18\
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    \18\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005).
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow or discontinue to reduce use of certain categories of 
products, in response to new or different pricing structures being 
introduced into the market. Accordingly, competitive forces constrain 
the Exchange's transaction fees and rebates, and market participants 
can readily trade on competing venues if they deem pricing levels at 
those other venues to be more favorable. The Exchange believes the 
proposal reflects a reasonable and competitive pricing structure 
designed to incentivize market participants to direct additional order 
flow to 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 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 increasing the base 
rebate for executions of Added Displayed Retail Volume is reasonable, 
equitable, and not unfairly discriminatory because, as described above, 
such change is designed to incentivize Members to maintain or increase 
their Retail Order flow to the Exchange, thus increasing liquidity and 
contributing to a deeper and more liquid market ecosystem on the 
Exchange. The Exchange believes that the Retail Tier 1 and NBBO Setter 
Tier 1, each as modified by the proposed changes to the rebate and/or 
required criteria under each such tier as described above, are 
reasonable, equitable and not unfairly discriminatory for these same 
reasons.

[[Page 51579]]

Such tiers would provide Members with an incremental incentive to 
achieve certain volume thresholds on the Exchange, 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, liquidity-adding, Retail and/or NBBO-setting 
orders to the Exchange in order to qualify for an enhanced or additive 
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.
    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 \19\ 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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    \19\ 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, 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.'' \20\
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    \20\ 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, Retail, and/or NBBO setting orders to the 
Exchange during both regular trading hours, the Pre-Market Session, and 
the Post-Market Session, 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 base 
rebate for Added Displayed Retail Volume and each of the proposed 
modified Retail Tier 1 and NBBO Setter Tier 1, 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 14.5% of the total market share of executed volume of 
equities trading. Thus, in such a low-concentrated and highly 
competitive market, no single equities exchange possesses significant 
pricing power in the execution of order flow. Moreover, the Exchange 
believes that the ever-shifting market share among the exchanges from 
month to month demonstrates that market participants can shift order 
flow or discontinue to reduce use of certain categories of products, in 
response to new or different pricing structures being introduced into 
the market. Accordingly, competitive forces constrain the Exchange's 
transaction fees and rebates 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.'' \21\ 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'. . . .''.\22\ 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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    \21\ Id.
    \22\ 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 \23\ and Rule 19b-4(f)(2) \24\ thereunder.
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    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \24\ 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-2024-24 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-2024-24. 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-2024-24 and should be 
submitted on or before July 9, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-13319 Filed 6-17-24; 8:45 am]
BILLING CODE 8011-01-P