[Federal Register Volume 89, Number 160 (Monday, August 19, 2024)]
[Notices]
[Pages 67124-67127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18473]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100719; File No. SR-MEMX-2024-30]


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

August 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 July 31, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 August 1, 2024. The text of the proposed rule 
change is provided in Exhibit 5.
---------------------------------------------------------------------------

    \3\ See Exchange Rule 1.5(p).
---------------------------------------------------------------------------

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Fee 
Schedule to modify the Non-Display Add Tiers by: (1) decreasing the 
rebate and modifying the required criteria under Non-Display Add Tier 
2; and (2) eliminating Non-Display Add Tiers 3 and 4, 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 15.5% of the total market share 
of executed volume of equities trading.\4\ Thus, in such a low-
concentrated and highly competitive market, no single equities exchange 
possesses significant pricing power in the execution of order flow, and 
the Exchange currently represents approximately 2.3% of the overall 
market share.\5\ The Exchange in particular operates a ``Maker-Taker'' 
model whereby it provides rebates to Members that add liquidity to the 
Exchange and charges fees to Members that remove liquidity from the 
Exchange. The Fee Schedule sets forth the standard rebates and fees 
applied per share for orders that add and remove

[[Page 67125]]

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.
---------------------------------------------------------------------------

    \4\ Market share percentage calculated as of July 25, 2024. The 
Exchange receives and processes data made available through 
consolidated data feeds (i.e., CTS and UTDF).
    \5\ Id.
---------------------------------------------------------------------------

Non-Display Add Tiers
    The Exchange currently provides a standard rebate $0.0008 per share 
for executions of orders in securities priced at or above $1.00 per 
share that add non-displayed liquidity to the Exchange (such orders, 
``Added Non-Displayed Volume''). The Exchange also currently offers 
Non-Display Add Tiers 1-4 under which a Member may receive an enhanced 
rebate for executions of Added Non-Displayed Volume by achieving the 
corresponding required volume criteria for each such tier. The Exchange 
now proposes to modify the Non-Display Add Tiers by decreasing the 
rebate and changing the required criteria under Non-Display Add Tier 2, 
and eliminating Non-Display Add Tiers 3 and 4.
    First, with respect to Non-Display Add Tier 2, the Exchange 
currently provides an enhanced rebate of $0.0027 per share for 
executions of Added Non-Displayed Volume for Members that qualify for 
such tier by achieving a Non-Displayed ADAV \6\ that is equal to or 
greater than 5,000,000 shares.\7\ Now, the Exchange proposes to modify 
Non-Display Add Tier 2 such that the Exchange would provide an enhanced 
rebate of $0.0025 per share for executions of Added Non-Displayed 
Volume for Members that qualify for such tier by achieving a Non-
Displayed ADAV that is equal to or greater than 1,000,000 shares. Thus, 
such proposed changes would decrease the rebate for executions of Added 
Non-Displayed Volume by $0.0002 per share and decrease the Non-
Displayed ADAV requirement from 5,000,000 to 1,000,000 shares. The 
Exchange also proposes to specify in a note under the Non-Display Add 
Tiers table on the Fee Schedule that Members that qualify for Non-
Display Add Tier 2 based on activity in a given month will also receive 
that associated Non-Display Add Tier 2 rebate during the following 
month.\8\
---------------------------------------------------------------------------

    \6\ 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).
    \7\ The pricing for Non-Display Add Tier 2 is referred to by the 
Exchange on the Fee Schedule under the existing description ``Added 
non-displayed volume, Non-Display Add Tier 2'' with a Fee Code of 
``H2'', ``M2'' or ``P2'', as applicable, to be provided by the 
Exchange on the monthly invoices provided to Members.
    \8\ The Exchange notes that this methodology of awarding a 
rebate under the Exchange's tiered pricing structure is currently in 
place with respect to Cross Asset Tier 3.
---------------------------------------------------------------------------

    With respect to Non-Display Add Tiers 3 and 4, under Non-Display 
Add Tier 3, the Exchange currently provides an enhanced rebate of 
$0.0024 per share for executions of Added Non-Displayed Volume for 
Members that qualify for such tier by achieving a Non-Displayed ADAV 
that is equal or greater than 2,000,000 shares, and under Non-Display 
Add Tier 4, the Exchange currently provides an enhanced rebate of 
$0.0018 per share for executions of Added Non-Displayed Volume for 
Members that qualify for such tier by achieving a Non-Displayed ADAV 
that is equal to or greater than 1,000,000 shares. The Exchange now 
proposes to eliminate Non-Display Add Tiers 3 and 4, as the Exchange no 
longer wishes to, nor is it required to, maintain such tiers.
    The purpose of decreasing the Non-Displayed ADAV requirement to 
achieve Non-Display Add Tier 2 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 purpose of reducing the rebate for executions of Added 
Non-Displayed Volume under Non-Display Add Tier 2 as proposed is for 
business and competitive reasons, as the Exchange believes that such 
rebate reduction would decrease the Exchange's expenditures with 
respect to its transaction pricing in a manner that is still consistent 
with the Exchange's overall philosophy of encouraging an overall 
increase in liquidity on the Exchange. Additionally, the proposed 
process by which the enhanced rebate will be paid under Non-Display Add 
Tier 2 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 tiered pricing structure for executions of Added Non-Displayed 
Volume under the Non-Display Add Tiers 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, 
particularly in the form of liquidity-adding non-displayed volume, to 
the Exchange, thereby contributing 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 
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.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\9\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\10\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among its Members and other persons using its facilities 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    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

[[Page 67126]]

broader forms that are most important to investors and listed 
companies.'' \11\
---------------------------------------------------------------------------

    \11\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------

    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 the proposed changes to 
the rebate and criteria under Non-Display Add Tier 2 are reasonable, 
equitable and not unfairly discriminatory, because, as described above, 
such changes are available to all Members on an equal basis, and, are 
designed to encourage Members to maintain or increase their order flow, 
including in the form of non-displayed, liquidity-adding, 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.
    As it relates to the method by which the Exchange proposes to award 
the rebate under Non-Display Add Tier 2, as modified herein, the 
Exchange believes it is reasonable, equitable and not unfairly 
discriminatory, as the tier 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 \12\ in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among its Members and other 
persons using its facilities and is not designed to unfairly 
discriminate between customers, issuers, brokers, or dealers. As 
described more fully below in the Exchange's statement regarding the 
burden on competition, the Exchange believes that its transaction 
pricing is subject to significant competitive forces, and that the 
proposed fees and rebates described herein are appropriate to address 
such forces.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

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.'' \13\
---------------------------------------------------------------------------

    \13\ See supra note 11.
---------------------------------------------------------------------------

Intramarket Competition
    As discussed above, the Exchange believes that the proposal would 
incentivize Members to submit additional order flow in the form of 
liquidity adding, non-displayed orders to the Exchange, thereby 
enhancing liquidity and market quality on the Exchange to the benefit 
of all Members, as well as enhancing the attractiveness of the Exchange 
as a trading venue, which the Exchange believes, in turn, would 
continue to encourage market participants to direct additional order 
flow to the Exchange. Greater liquidity benefits all Members by 
providing more trading opportunities and encourages Members to send 
additional orders to the Exchange, thereby contributing to robust 
levels of liquidity, which benefits all market participants. The 
opportunity to qualify for the proposed modified Non-Display Add Tier 2 
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 15.5% 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

[[Page 67127]]

Exchange believes the proposal would not burden, but rather promote, 
intermarket competition by enabling it to better compete with other 
exchanges that offer similar pricing incentives to market participants.
    Additionally, the Commission has repeatedly expressed its 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. Specifically, 
in Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \14\ The fact 
that this market is competitive has also long been recognized by the 
courts. In NetCoalition v. SEC, the 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' . . . .''.\15\ Accordingly, the Exchange does not believe its 
proposed pricing changes impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \14\ Id.
    \15\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \16\ and Rule 19b-4(f)(2) \17\ thereunder.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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-2024-30 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-2024-30. 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-2024-30 and should be 
submitted on or before September 9, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-18473 Filed 8-16-24; 8:45 am]
BILLING CODE 8011-01-P