[Federal Register Volume 89, Number 165 (Monday, August 26, 2024)]
[Notices]
[Pages 68481-68484]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19013]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100783; File No. SR-LTSE-2024-03]


Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; 
Order Approving a Proposed Rule Change To Transition to a New Trading 
Platform and Amend Its Trading Rules

August 20, 2024.

I. Introduction

    On May 9, 2024, the Long-Term Stock Exchange, Inc. (``LTSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to transition to a new trading 
platform and amend its trading rules in connection thereto. The 
proposed rule change was published for comment in the Federal Register 
on May 28, 2024.\3\ On July 11, 2024, pursuant to Section 19(b)(2) of 
the Exchange Act,\4\ the Commission designated a longer period within 
which to approve the proposal, disapprove the proposal, or institute 
proceedings to determine whether to disapprove the proposal.\5\ The 
Commission has received no comment letters on the proposal. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 100205 (May 21, 
2024), 89 FR 46225 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 100499, 89 FR 58224 
(July 17, 2024).
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II. Description of the Proposed Rule Change

    As described in detail in the Notice,\6\ the Exchange proposes to: 
(i) transition the technology supporting the Exchange's trading system 
(``System'') from its current trading platform to a new trading 
platform that uses technology provided by MEMX Technologies LLC (``MEMX 
Technologies''),\7\ an affiliate of MEMX LLC (``MEMX Exchange''), and 
(ii) modify its trading rules in connection with this transition. 
Specifically, the Exchange proposes to replace its current trading 
platform with a trading platform licensed from MEMX Technologies, on an 
outsourced basis, that is substantially similar to the trading platform 
used by the MEMX Exchange but with certain differences in functionality 
to address LTSE's unique market model.\8\
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    \6\ See Notice, supra note 3.
    \7\ MEMX Technologies is in the business of developing 
technology systems for use in the financial industry. See id. at 
46226.
    \8\ See id. For example, the Exchange will not offer routing 
functionality and is not proposing to adopt certain MEMX Exchange 
order types. See id. at 46226.
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LTSE's Operation of Its New Trading Platform as a Registered National 
Securities Exchange

    The Exchange proposes that MEMX Technologies will provide LTSE with 
MEMX Technologies' market-as-a-service trading system to operate LTSE's 
trading platform.\9\ While LTSE and MEMX Exchange will share a 
technology provider, LTSE will continue to operate as it does now, as a 
standalone national securities exchange within the national market 
system, and the fact that it is licensing a technology platform from 
MEMX Technologies will not provide any special treatment or advantage 
to MEMX Exchange.\10\ LTSE will operate on its own servers, separate 
and apart from the MEMX Exchange, with no joint or shared connections 
to participants.\11\ LTSE members will be required to utilize LTSE-
specific member gateways to connect to the System, and these will be 
distinct from those of the MEMX Exchange.\12\ Neither LTSE nor MEMX 
Exchange will gain any advantage over other market participants in 
terms of access, speed or otherwise.\13\ LTSE believes that the use of 
a common, but not functionally identical, trading platform by LTSE and 
MEMX Exchange will not in any way alter the competitive position of the 
two exchanges or establish any type of connection or opportunity for 
interaction that would be different than LTSE currently has with every 
other exchange participant in the national market system.\14\
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    \9\ The Exchange states that the Exchange and MEMX Technologies 
executed a Development, License and Services Agreement on January 
23, 2024, with accompanying schedules (collectively, the ``DLSA''). 
Among other things, the DLSA sets forth a multi-year arrangement 
that requires MEMX Technologies to provide the system and services 
to allow the Exchange to operate fair and orderly markets and 
provides for transition services to the extent either party decides 
to terminate the arrangement. See id. at 46226-46228, for additional 
background and information regarding the DLSA.
    \10\ See id. at 46226.
    \11\ See id.
    \12\ See id.
    \13\ See id. at 46228.
    \14\ See id.
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    Furthermore, LTSE will retain responsibility for overseeing the 
daily market operations of its trading system and will maintain 
operational control over the features of such system and any changes 
thereto.\15\ If MEMX Exchange

[[Page 68482]]

proposes a rule for its own market, it does not mean that LTSE will 
automatically adopt the same rule.\16\ LTSE will continue to 
independently evaluate other exchange rule filings, including MEMX 
Exchange's, to determine whether such changes should be proposed by 
LTSE. LTSE will not be obligated to accept any change to LTSE's 
technology platform that may be proposed by MEMX Exchange for its own 
market, but is not desired by LTSE; there is no incentive, monetary or 
otherwise, for LTSE to accept any changes proposed by the MEMX 
Exchange. Moreover, if LTSE seeks to implement an enhancement to its 
trading platform that is not applicable to the MEMX Exchange, MEMX 
Technologies will be obligated to develop and implement that 
enhancement (at a cost to be borne by LTSE).\17\ MEMX Technologies has 
no authority to make any changes to the System without LTSE's direct 
instruction to do so.\18\
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    \15\ See id. at 46225.
    \16\ See id. at 46228.
    \17\ See id.
    \18\ See id.
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    Finally, LTSE will continue to have regulatory responsibility for 
its trading system and will continue to fully discharge its obligations 
as a national securities exchange.\19\ LTSE will also continue to 
provide for its market and cross-market surveillance through its 
Regulatory Services Agreement (``RSA'') with the Financial Industry 
Regulatory Authority, Inc. (``FINRA'') and maintain its independent 
regulatory function to oversee the RSA and will not rely on or utilize 
MEMX Exchange or its personnel to fulfill any aspect of those 
obligations on LTSE's behalf.\20\
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    \19\ See id. at 46225.
    \20\ See id. at 46228.
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Regulation SCI

    As a registered national securities exchange, LTSE is an ``SCI 
entity'' responsible for compliance with the requirements of Regulation 
Systems Compliance and Integrity (``Regulation SCI'').\21\ Regulation 
SCI requires SCI entities to establish written policies and procedures 
reasonably designed to ensure that their applicable systems have levels 
of capacity, integrity, resiliency, availability, and security adequate 
to maintain their operational capability and promote the maintenance of 
fair and orderly markets, and that they operate in a manner that 
complies with the Exchange Act.\22\ In addition, Regulation SCI 
requires SCI entities to take corrective action with respect to SCI 
events (defined to include systems disruptions, systems compliance 
issues, and systems intrusions), notify the Commission of such events, 
and disseminate information about certain SCI events to affected 
members or participants (and, for certain major SCI events, to all 
members or participants of the SCI entity).\23\ Moreover, Regulation 
SCI requires SCI entities to conduct a review of their systems by 
objective, qualified personnel at least annually, submit quarterly 
reports regarding completed, ongoing, and planned material changes to 
their SCI systems to the Commission,\24\ and maintain certain books and 
records.\25\ It also requires SCI entities to mandate participation by 
designated members or participants in scheduled testing of the 
operation of their business continuity and disaster recovery plans, 
including backup systems, and to coordinate such testing on an 
industry- or sector-wide basis with other SCI entities.\26\
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    \21\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014).
    \22\ See 17 CFR 242.1001.
    \23\ See 17 CFR 242.1002. See also 17 CFR 242.1000 and 17 CFR 
242.1006.
    \24\ See 17 CFR 242.1003.
    \25\ See 17 CFR 242.1005. See also 17 CFR 242.1007.
    \26\ See 17 CFR 242.1004.
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    Regulation SCI applies to an SCI entity's ``SCI systems,'' which 
are systems that directly support any one of six key securities market 
functions--trading, clearance and settlement, order routing, market 
data, market regulation, and market surveillance (``SCI systems''). 
Regulation SCI also applies to ``indirect SCI systems,'' which are any 
systems that, if breached, are likely to pose a security threat to SCI 
systems. Further, certain SCI systems that are ``critical SCI systems'' 
are held to certain heightened requirements under Regulation SCI.\27\ 
The Exchange classifies several of its systems, including the System, 
as ``SCI systems'' based on the definitions under Regulation SCI. The 
Exchange has obtained commitments from MEMX Technologies in connection 
with its engagement of MEMX Technologies to develop, license, and 
operate the System on behalf of the Exchange \28\ to, among other 
things, address how this arrangement is consistent with the 
requirements of Regulation SCI.\29\ The Exchange acknowledges that the 
System is the responsibility of the Exchange, and that the contractual 
arrangements, including the DLSA, between the Exchange and MEMX 
Technologies do not relieve the Exchange of any responsibilities it may 
have for its SCI systems and, as applicable, indirect SCI systems under 
Regulation SCI.\30\ In addition, and as more fully summarized in the 
Notice, the DLSA includes commitments from MEMX Technologies as 
developer, licensor, and operator of the System to cooperate with the 
Exchange and provide the Exchange with the information and access that 
will allow the Exchange to satisfy its obligations under Regulation 
SCI.\31\
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    \27\ See 17 CFR 242.1000 (definitions of ``SCI systems,'' 
``indirect SCI systems,'' and ``critical SCI systems'').
    \28\ The System has been developed and licensed to meet the 
Exchange's requirements and operate in accordance with the rules of 
the Exchange, including those approved herein. See Notice, supra 
note 3, at 46226-46228.
    \29\ See section entitled ``Compliance with Regulation SCI'' in 
the Notice, supra note 3, at 46228-46229.
    \30\ See Notice, supra note 3, at 46225 and 46228.
    \31\ See id. at 46228-46229.
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The Proposed Rule Changes To Effect the Transition to the New Trading 
Platform

    The proposed rule changes to the LTSE trading rules to effect the 
transition to the new trading platform are based on rules already 
approved by or filed for immediate effectiveness with the Commission 
for use by MEMX Exchange.\32\ In particular, the Exchange is proposing 
to delete the following LTSE Rules and replace them with an identical 
or substantially similar version of the corresponding MEMX Exchange 
rule, as summarized below and discussed fully in the Notice:\33\
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    \32\ See id. at 46226.
    \33\ See id. at 46230-46241.
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     LTSE Rule 11.151 (Market Maker Obligations) is being 
amended to delete the definitions of ``Crossing Quotation'' and 
``Locking Quotation'' and relocate them to newly proposed Rule 11.180 
(Definitions), where those terms will conform to MEMX's definitions of 
the same terms.
     LTSE Rule 11.180 (Units of Trading) is being renamed to 
(Definitions), deleted in its entirety and replaced with MEMX Exchange 
Rule 11.6 (Definitions).
     LTSE Rule 11.190 (Orders and Modifiers) is being amended 
to conform with MEMX Exchange Rule 11.8 (Order Types and Modifiers).
     LTSE Rule 11.210 (Minimum Price Variant) is being deleted 
and the definition is being relocated to newly proposed LTSE Rule 
11.180 (Definitions) and is identical to MEMX Exchange Rule 11.6(g) 
(Minimum Price Variation).
     LTSE Rule 11.220 (Priority of Orders) is being deleted in 
its entirety and replaced with MEMX Exchange Rule 11.9 (Priority of 
Orders).

[[Page 68483]]

     LTSE Rule 11.230 (Order Execution) is being amended to 
conform with MEMX Exchange Rule 11.10 (Order Execution).\34\
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    \34\ MEMX Exchange rules related to the routing of orders are 
not being adopted, as the Exchange is not offering that 
functionality.
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     LTSE Rule 11.271 (Trading Halts) is being deleted in its 
entirety because the substance of the rule will be adopted in newly 
proposed LTSE Rule 11.281 (Limit Up-Limit Down Plan and Trading Halts 
on the Exchange).
     LTSE Rules 11.281 (Limit Up-Limit Down Mechanism) and 
11.282 (Regulatory Trading Halts) are being amended to conform with 
MEMX Exchange Rule 11.22 (Limit Up-Limit Down Plan and Trading Halts) 
and the Nasdaq UTP Plan, as amended.\35\
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    \35\ See Securities Exchange Act Release No. 92071 (May 28, 
2021), 86 FR 29846 (June 3, 2021) (Order Approving the Fiftieth 
Amendment to the Joint Self-Regulatory Organization Plan Governing 
the Collection, Consolidation and Dissemination of Quotation and 
Transaction Information for Nasdaq-Listed Securities Traded on 
Exchanges on an Unlisted Trading Privileges Basis, as Modified by 
Amendments Nos. 1 and 2).
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     LTSE Rule 11.310 (Locking or Crossing Quotations in NMS 
Stocks) is being amended to conform with MEMX Exchange Rule 11.10(f) 
(Locking Quotation or Crossing Quotation in NMS Stocks).
     LTSE Rule 11.320 (Input of Accurate Information) is being 
amended to conform with MEMX Exchange Rule 11.5 (Input of Accurate 
Information).
     LTSE Rule 11.330 (Data Products) is being amended to 
conform with MEMX Exchange Rule 13.8 (Data Products).
     LTSE Rule 11.380 (Risk Management) is being deleted in its 
entirety and replaced with Interpretation and Policies .01 and .02 of 
MEMX Exchange Rule 11.10 (Order Execution).
     LTSE Rule 11.410 (Use of Market Data Feeds and 
Calculations of Necessary Price Reference Points) is being amended to 
conform with MEMX Exchange Rule 13.4 (Usage of Data Feeds).\36\
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    \36\ LTSE is not adopting the language in MEMX Exchange Rule 
13.4 (Usage of Data Feeds) related to the routing of orders.
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    In addition to the above rule changes, the Exchange is also 
deleting certain rules that relate to functionality not provided by the 
new System and relocating certain rules to other places in the 
rulebook.\37\
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    \37\ LTSE Rule 11.231 (Regular Market Session Opening Process 
for Non-LTSE Primary Listed Securities) is being deleted in its 
entirety as this functionality is not supported in the new System. 
LTSE Rule 11.240(c) (Trade Execution, Reporting, and Dissemination 
of Quotations) is being deleted because it appears in newly proposed 
LTSE Rule 11.230. See Notice, supra note 3, at 46226.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Exchange Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\38\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Exchange Act,\39\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers. The 
Commission also finds that the proposed rule change is consistent with 
Section 6(b)(1) of the Exchange Act,\40\ which requires an exchange to 
be so organized and have the capacity to carry out the purposes of the 
Exchange Act and to comply and enforce compliance by its members and 
persons associated with its members with the Exchange Act and the rules 
thereunder.
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    \38\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \39\ 15 U.S.C. 78f(b)(5).
    \40\ 15 U.S.C. 78f(b)(1).
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    With respect to the transition of LTSE's System to the new trading 
platform licensed by MEMX Technologies, the arrangements between LTSE 
and MEMX Technologies are reasonably designed not to confer upon either 
LTSE or MEMX Exchange any advantage over other market participants in 
terms of access, speed or otherwise to the other market, and LTSE has 
represented the same.\41\ While LTSE will use the same technology 
provider as MEMX Exchange, LTSE will operate its System on separate 
servers, under its control, and there will be no joint or shared 
connections between LTSE and MEMX Exchange; participants will have to 
access each market separately.\42\ LTSE will retain responsibility for 
overseeing the daily market operations of its trading system and will 
maintain operational control over the features of such system and any 
changes thereto; MEMX Technologies will not be allowed to change LTSE's 
System without LTSE's direct instruction and will also be obligated to 
modify the platform in response to changes LTSE wishes to make.
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    \41\ See supra note 9.
    \42\ Furthermore, MEMX Technologies will be required, as part of 
the DLSA, to keep confidential all Confidential Information (as 
defined in the DLSA) of LTSE and, except as expressly authorized, 
not use such Confidential Information or make any such Confidential 
Information available to any third party, including MEMX Exchange. 
In other words, the conditions are reasonably designed to not allow 
either LTSE or MEMX Exchange to gain any special advantage, insight, 
or connection as a result of the technology services being provided 
by MEMX Technologies, as a third-party service provider. See Notice, 
supra note 3, at 46227.
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    LTSE will retain regulatory responsibility for its System and it 
will maintain its independent function to oversee its RSA with FINRA. 
LTSE also acknowledges that it will remain fully responsible for 
discharging its obligations as a registered national securities 
exchange. Thus, the Commission believes that LTSE will not be altering 
any of its self-regulatory responsibilities as a result of the 
provision of technology services by MEMX Technologies and will continue 
to be so organized and have the capacity to carry out the purposes of 
the Exchange Act and to comply and enforce compliance by its members 
and persons associated with its members with the Exchange Act and the 
rules thereunder.
    Based on the acknowledgements LTSE has made with respect to its 
obligations under Regulation SCI, as well as the legal agreements and 
contractual arrangements underlying the relationship between LTSE and 
MEMX Technologies as described above, the Commission believes that 
LTSE's proposal regarding the engagement of a third party to develop, 
license, and operate the System is designed to support the Exchange's 
ability to comply with its regulatory obligations under Regulation SCI.
    For the reasons discussed above, the Commission believes that the 
aspect of LTSE's proposal to move to a new trading platform with 
technology provided by MEMX Technologies is designed to prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, 
protect investors and the public interest, and thus, is consistent with 
the Exchange Act. In addition, for the reasons discussed above, the 
Commission finds that LTSE will be capable of exercising sufficient 
control over the operation of its System, and will be sufficiently 
independent from MEMX Technologies, to enable LTSE to

[[Page 68484]]

comply with the requirements under the Exchange Act and applicable 
rules.
    Finally, LTSE proposes numerous changes to conform, as applicable, 
its trading rules to the trading rules on MEMX Exchange to effect the 
transition to the new trading platform. The Commission notes that the 
proposed changes to LTSE's rules to effect the transition of LTSE's 
trading platform are based on rules already approved by, or filed for 
immediate effectiveness with, the Commission by MEMX Exchange. 
Therefore, since this aspect of the proposal raises no new or novel 
legal or regulatory issues, the Commission believes it is reasonably 
designed to protect investors and the public interest and is consistent 
with the Exchange Act.
    Accordingly, for the foregoing reasons, the Commission finds that 
this proposed rule change is consistent with the Exchange Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\43\ that the proposed rule change (SR-LTSE-2024-03) be, 
and hereby is, approved.
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    \43\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\44\
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    \44\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19013 Filed 8-23-24; 8:45 am]
BILLING CODE 8011-01-P