[Federal Register Volume 89, Number 167 (Wednesday, August 28, 2024)]
[Notices]
[Pages 68956-68959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19266]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100804; File No. SR-MEMX-2024-32]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the Fee
Schedule Concerning Options Transaction Fees
August 22, 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 August 9, 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\ pursuant
to Exchange Rules 15.1(a) and (c). Specifically, the Exchange proposes
to amend the Options Fee Schedule to (i) increase the transaction
rebate for executions of contracts where the underlying security of the
applicable option is not in the Penny Interval program (``Non-Penny
options'') \4\ which add liquidity to the MEMX Options Book \5\ and
which are made in the Customer capacity (``Customer''); \6\ and (ii)
increase the transaction fee for executions of contracts where the
underlying security of the applicable option is a Non-Penny option
which remove liquidity from the MEMX Options Book \7\ and which are not
made in the Customer capacity (``Non-Customer''),\8\ each as further
described below. The Exchange proposes to implement the changes to the
Options Fee Schedule pursuant to this proposal immediately. The text of
the proposed rule change is provided in Exhibit 5.
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\3\ See Exchange Rule 1.5(p).
\4\ MEMX Options provides Fee Code ``N'' for transactions in
Non-Penny options. Fee Codes are provided by the Exchange on the
monthly invoices provided to Options Members.
\5\ MEMX Options provides Fee Code ``D'' for transactions which
add liquidity to the MEMX Options Book.
\6\ Customer capacity applies to any order for the account of a
Priority Customer. ``Priority Customer'' means any person or entity
that is neither a broker or dealer in securities nor a Professional.
See Rule 16.1 of the MEMX Rulebook. MEMX Options provides fee
qualifier ``c'' for Customer transactions.
\7\ MEMX Options provides Fee Code ``R'' for transactions that
remove liquidity from the MEMX Options Book.
\8\ Non-Customer capacity applies to any transaction that is not
a Customer order. Each of market maker transactions, professional
transactions, firm transactions, away market maker transactions, and
broker-dealer transactions shall be referred to as ``Non-Customer''
transactions. MEMX Options provides fee qualifier ``m'' for market
maker transactions, fee qualifier ``p'' for professional
transactions, fee qualifier ``f'' for firm transactions, fee
qualifier ``a'' for away market maker transactions, and fee
qualifier ``b'' for broker-dealer transactions. Fee qualifiers are
provided by the Exchange on the monthly invoices provided to Options
Members.
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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 Options Fee
Schedule to (i) increase the transaction rebate for executions of
contracts where the underlying security of the applicable option is not
in the Penny Interval program (``Non-Penny options'') \9\ which add
liquidity to the MEMX Options Book \10\ and which are made in the
Customer capacity (``Customer''); \11\ and
[[Page 68957]]
(ii) increase the transaction fee for executions of contracts where the
underlying security of the applicable option is a Non-Penny option
which remove liquidity from the MEMX Options Book \12\ and which are
not made in the Customer capacity (``Non-Customer''),\13\ each as
further described below.\14\
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\9\ MEMX Options provides Fee Code ``N'' for transactions in
Non-Penny options. Fee Codes are provided by the Exchange on the
monthly invoices provided to Options Members.
\10\ MEMX Options provides Fee Code ``D'' for transactions which
add liquidity to the MEMX Options Book.
\11\ Customer capacity applies to any order for the account of a
Priority Customer. ``Priority Customer'' means any person or entity
that is neither a broker or dealer in securities nor a Professional.
See Rule 16.1 of the MEMX Rulebook. MEMX Options provides fee
qualifier ``c'' for Customer transactions.
\12\ MEMX Options provides Fee Code ``R'' for transactions that
remove liquidity from the MEMX Options Book.
\13\ Non-Customer capacity applies to any transaction that is
not a Customer order. Each of market maker transactions,
professional transactions, firm transactions, away market maker
transactions, and broker-dealer transactions shall be referred to as
``Non-Customer'' transactions. MEMX Options provides fee qualifier
``m'' for market maker transactions, fee qualifier ``p'' for
professional transactions, fee qualifier ``f'' for firm
transactions, fee qualifier ``a'' for away market maker
transactions, and fee qualifier ``b'' for broker-dealer
transactions. Fee qualifiers are provided by the Exchange on the
monthly invoices provided to Options Members.
\14\ The Exchange initially filed the proposed Fee Schedule
changes on July 30, 2024 (SR-MEMX-2024-29). On August 9, 2024, the
Exchange withdrew that filing and submitted this proposal.
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The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. The Exchange is one of only
17 options venues to which market participants may direct their order
flow. Based on publicly available information, no single options
exchange has more than 17.16% of the market share and currently the
Exchange represents only approximately 3.34% of the market share.\15\
In such a low-concentrated and highly competitive market, no single
options exchange, including the Exchange, possesses significant pricing
power in the execution of option order flow. The Exchange believes that
the ever-shifting market share among the exchanges from month to month
demonstrates that market participants can shift order flow,
discontinue, or reduce use of certain categories of products in
response to fee changes. Accordingly competitive forces constrain the
Exchange's transaction fees, and market participants can readily trade
on competing venues if they deem pricing levels at those other venues
to be more favorable. The Exchange's Fee Schedule sets forth standard
rebates and rates applied per contract.
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\15\ Market share percentage calculated as of July 30, 2024. The
Exchange receives and processes data made available through the
consolidated data feeds (i.e., OPRA).
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Increased Transaction Rebate for Executions Non-Penny Options in the
Customer Capacity Which Add Liquidity to the MEMX Options Book
Currently, the Exchange provides a standard transaction rebate of
$1.04 per contract on Non-Penny options (as defined above) in the
Customer capacity which add liquidity to the MEMX Options Book. Now,
the Exchange proposes to amend the standard transaction rebate on such
contracts from $1.04 per contract to $1.15 per contract. The purpose of
increasing the rebate is to incentivize Members to execute additional
contracts in Non-Penny names in the Customer capacity which add
liquidity. The Exchange's proposal is designed to encourage the
execution of additional contracts on the Exchange in order to enhance
volume, deepen liquidity and promote price discovery on the MEMX
Options platform. The Exchange believes that the increased rebate is in
line with the rebates provided by other national securities
exchanges.\16\
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\16\ See infra note 16.
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Increased Transaction Fee for Executions of Non-Penny Options in the
Non-Customer Capacity Which Remove Liquidity to the MEMX Options Book
Currently, the Exchange assesses a standard transaction fee of
$1.10 per contract on Non-Penny options (as defined above) in non-
Customer capacities which remove liquidity from the MEMX Options Book.
Now, the Exchange proposes to amend the standard transaction fee on
such contracts from $1.10 per contract to $1.21 per contract. The
purpose of increasing the fee is for business and competitive reasons.
The Exchange believes that the increased fee is in line with or below
the fees charged by other national securities exchanges and remains
commensurate with the market quality benefits that such discounted fee
is intended to achieve.\17\ The Exchange believes that increasing the
fee would generate additional revenue to offset costs associated with
the operation of the MEMX Options platform. Furthermore, the increased
fee would facilitate the provision of the increased rebate described
above, which the Exchange believes will improve market quality and
incentivize additional liquidity in Non-Penny symbols on the Exchange.
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\17\ See infra note 17.
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2. Statutory Basis
The Exchange believes that its proposal to amend its Options Fee
Schedule is consistent with the provisions of Section 6 of the Act,\18\
in general, and with Sections 6(b)(4) and 6(b)(5) of the Act,\19\ in
particular, in that it provides for the equitable allocation of
reasonable dues, fees and other charges among Options Members and other
persons using its facilities. The Exchange also believes the proposal
furthers the objectives of Section 6(b)(5) of the Act in that it is
designed 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 is not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4) and (5).
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MEMX Options 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.'' \20\
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\20\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
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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 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 believes that the proposed change to increase the
rebate for executions on Non-Penny options in the Customer capacity
that add liquidity to the Exchange to $1.15 per contract is reasonable
and equitable because it is designed to incentivize Members to submit
additional liquidity-adding
[[Page 68958]]
orders in Non-Penny options to the Exchange in the Customer capacity,
which would enhance liquidity on the Exchange and promote price
discovery and price formation, and would be applicable to all Members.
The Exchange further believes the proposed increased rebate is
appropriate because it is comparable to, and competitive with, the
rebates provided by other exchanges for executions in the Customer
capacity in Non-Penny options which add liquidity.\21\
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\21\ See, e.g., note 10 of the Nasdaq Options Market trading fee
schedule on its public website (available at: https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-options-7)
which reflects a $1.15 per contract Rebate to Add Liquidity in Non-
Penny Symbols as Customer for Nasdaq Options Market participants who
meet certain volume requirements on the Nasdaq Options Market. As
MEMX Options is a comparatively new market, the Exchange believes
that by providing an increased rebate for Customer executions which
add liquidity in Non-Penny options without requiring Members to
achieve specific volume requirements, such increased rebate will
incentivize additional order flow to the Exchange.
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The Exchange believes that the proposed change to increase the fee
for executions on Non-Penny options in non-Customer capacities that
remove liquidity from the Exchange to $1.21 per contract is equitable
because such fee would continue to be charged uniformly to all
executions of such contracts for all Members. The Exchange further
believes the proposed increased fee is reasonable and appropriate
because it is comparable to, and competitive with, the fees charged by
other exchanges for executions in the non-Customer capacity in Non-
Penny options which remove liquidity.\22\
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\22\ See, e.g., the Nasdaq Options Market trading fee schedule
on its public website (available at: https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-options-7)
which reflects a standard fee of $1.25 per contract for executions
in Non-Penny options in the Market Maker, Broker-Dealer, and Firm
capacities that remove liquidity. The Exchange notes that this
standard fee does not apply to executions in Non-Penny options in
the Professional capacity for which the Nasdaq Options Market
charges a fee of $0.85 per contract. See also the Nasdaq BX options
trading fee schedule (available at: https://listingcenter.nasdaq.com/rulebook/bx/rules/bx-options-7) which
reflects a standard fee of $1.25 per contract for executions in Non-
Penny options that remove liquidity for all non-Customer capacities,
including Professionals.
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Further, the Exchange believes it is reasonable, equitable, and not
unfairly discriminatory for Members to receive a higher rebate for
executions of contracts in Non-Penny options in the Customer capacity
which add liquidity to the Exchange, as compared to the rebate provided
for executions of contracts in Non-Penny options in non-Customer
capacities (i.e., Market Maker, Professional, Firm, Away Market Maker,
or Broker-Dealer capacities) which add liquidity to the Exchange. The
Exchange also believes it is reasonable, equitable, and not unfairly
discriminatory for Members to pay a higher fee for executions of
contracts in Non-Penny options in non-Customer capacities which remove
liquidity from the Exchange, as compared to the fee for executions of
contracts in Non-Penny options in Customer capacities which remove
liquidity from the Exchange. The securities markets generally, and the
Exchange in particular, have historically aimed to improve markets for
investors and develop various features within the market structure for
the benefit of public customers (i.e., the Customer capacity on the
Exchange) who are not professionals.\23\ As such, the Exchange believes
the proposed fees and rebates for non-Customer transactions are
appropriate and not unfairly discriminatory. The Exchange believes it
promotes the best interests of investors to charge lower transaction
costs and provide higher rebates for Customers, who are not
Professionals, and that the Exchange's proposed fee structure provides
right-sized incentives which will continue to attract Customer order
flow to the Exchange.
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\23\ The Exchange notes that, since the inception of MEMX
Options, it has historically imposed different, and higher,
transaction fees for executions in the non-Customer capacity than
for executions in the Customer capacity. Similarly, since the
inception of MEMX Options, the Exchange has historically provided
different, and lower, rebates for executions in the non-Customer
capacity than in the Customer capacity. See Securities Exchange Act
Release No. 34-98533 (September 26, 2023), 88 FR 67846 (October 2,
2023) (adopting a $1.10 per contract fee for non-Customers (Market
Makers, Professionals, Firms, Away Market Makers, and Broker-
Dealers) to remove liquidity in Non-Penny options as compared to a
$0.85 per contract fee for Customers to remove liquidity in Non-
Penny options, and a $0.80 per contract rebate for non-Customers to
add liquidity in Non-Penny options as compared to a $1.04 per
contract rebate for Customers to add liquidity in Non-Penny options.
The Exchange notes that similar fee structures are common at other
options exchanges. See, e.g., the Cboe BZX Options fee schedule on
its public website (available at: https://www.cboe.com/us/options/membership/fee_schedule/bzx/), which reflects a higher $1.15 fee for
Professional, Firm, Broker-Dealer, JBO, Market Maker, and Away
Market Maker executions which remove liquidity in Non-Penny options
and a lower $0.85 fee for Customer executions which remove liquidity
in Non-Penny options. The Cboe BZX Options fee schedule also
reflects lower rebates ranging from $0.30 to $0.88 for non-Customer
executions which add liquidity in non-Penny options and a higher
$1.05 rebate for Customer executions which add liquidity in Non-
Penny options.
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For the reasons discussed above, the Exchange submits that its
proposed changes to the Options Transaction Fee Schedule satisfy the
requirements of Sections 6(b)(4) and 6(b)(5) of the Act \24\ in that
they provide for the equitable allocation of reasonable dues, fees and
other charges among its Members and other persons using its facilities
and are not designed to unfairly discriminate between customers,
issuers, brokers, or dealers. As described more fully below in the
Exchange's statement regarding 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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\24\ 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. As a relatively new entrant in
the already highly competitive environment for options trading, the
Exchange believes that the proposed changes would encourage the
submission of additional order flow to the Exchange, thereby promoting
market depth, execution incentives and enhanced execution
opportunities, as well as price discovery and transparency for all
Members. Further, MEMX Options' proposed modified transaction rebates
and modified transaction fees are comparable to the transaction fees
and rebates assessed by other options exchanges.\25\ As a result, 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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\25\ See supra notes 16 and 17.
\26\ See supra note 15.
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Intramarket Competition
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed fees and rebates apply equally to all Options Members. The
proposed pricing structure is intended to encourage participants to
trade on MEMX Options by providing rebates that are comparable to those
offered by other exchanges as well as providing competitive fees. The
Exchange believes that the proposed rebates and fees will help to
encourage Options Members to send orders to the Exchange to the benefit
of all Exchange participants. As the proposed fees and rebates are
equally applicable to all market participants, the Exchange does not
believe there is any burden on intramarket competition.
[[Page 68959]]
Intermarket Competition
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. To the contrary,
the Exchange believes that the proposed pricing structure will increase
competition and is intended to encourage market participants to trade
on the exchange by providing rebates and assessing fees that are
comparable to those offered by other exchanges, which the Exchange
believes will help to encourage Members to send orders to the Exchange
to the benefit of all Exchange participants. As the proposed rates are
equally applicable to all market participants, the Exchange does not
believe there is any burden on intramarket competition.
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\ See supra note 15.
\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-2024-32 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-2024-32. 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-2024-32 and should be
submitted on or before September 18, 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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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-19266 Filed 8-27-24; 8:45 am]
BILLING CODE 8011-01-P