[Federal Register Volume 89, Number 180 (Tuesday, September 17, 2024)]
[Notices]
[Pages 76167-76171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21036]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100999; File No. SR-MEMX-2024-36]


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

September 11, 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 September 6, 2024, MEMX LLC (``MEMX'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposed rule change 
to amend the Exchange's fee schedule applicable to Members \3\ (the 
``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and (c). The 
Exchange proposes to implement the changes to the Fee Schedule pursuant 
to this proposal immediately. 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 (i) modify the required criteria under Liquidity Provision 
Tier 1; and (ii) reduce the fee and modify the required criteria under 
Liquidity Removal Tier 1, as further described below.\4\
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    \4\ The Exchange initially filed the proposed Fee Schedule 
changes on August 30, 2024 (SR-MEMX-2024-35). On September 6, 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. 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 15.77% 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 2.59% 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

[[Page 76168]]

increasingly higher benefits or discounts for satisfying increasingly 
more stringent criteria.
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    \5\ Market share percentage calculated as of September 6, 2024. 
The Exchange receives and processes data made available through 
consolidated data feeds (i.e., CTS and UTDF).
    \6\ Id.
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Liquidity Provision Tiers
    The Exchange currently provides a standard rebate of $0.0015 per 
share for executions of orders in securities priced at or above $1.00 
per share that add displayed liquidity to the Exchange (such orders, 
``Added Displayed Volume'').\7\ The Exchange also currently offers 
Liquidity Provision Tiers 1-6, among other volume-based tiers, under 
which a Member may receive an enhanced rebate for executions of Added 
Displayed Volume by achieving the corresponding required volume 
criteria for each such tier. The Exchange now proposes to modify the 
required criteria under Liquidity Provision Tier 1, as further 
described below.
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    \7\ The base rebate for executions of Added Displayed Volume is 
referred to by the Exchange on the Fee Schedule under the existing 
description ``Added displayed volume'' with a Fee Code of ``B'', 
``D'' or ``J'', as applicable, on execution reports.
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    The Exchange currently provides an enhanced rebate of $0.0034 per 
share for executions of Added Displayed Volume for Members that qualify 
for such tier by achieving (1) an ADAV \8\ (excluding Retail Orders) 
that is equal to or greater than 0.50% of the TCV; \9\ or (2) a Step-Up 
ADAV \10\ from June 2024 (excluding Retail Orders) of the TCV that is 
equal to or greater than 0.07% of the TCV in securities priced at or 
above $1.00 per share and an ADAV that is equal to or greater than 
0.20% of the TCV in securities priced at or above $1.00 per share. Now, 
the Exchange proposes to modify alternative criteria (2) of Liquidity 
Provision Tier 1, such that a Member may qualify for such alternative 
criteria by achieving both the current requirements of alternative 
criteria (2) and also achieving a Remove ADV \11\ that is equal to or 
greater than 0.45% of the TCV. Thus, the Exchange now proposes to keep 
existing alternative criteria (1) intact while adding an additional 
requirement to the current alternative criteria (2), such that a Member 
meets alternative criteria (2) of such tier by achieving (i) a Step-Up 
ADAV from June 2024 (excluding Retail Orders) of the TCV that is equal 
to or greater than 0.07% of the TCV in securities priced at or above 
$1.00 per share, (ii) an ADAV that is equal to or greater than 0.20% of 
the TCV in securities priced at or above $1.00 per share, and (iii) a 
Remove ADV that is equal to or greater than 0.45% of the TCV.
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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, and ``Displayed ADAV'' means 
ADAV with respect to displayed orders.
    \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.
    \10\ As set forth on the Fee Schedule, ``Step-Up ADAV'' means 
ADAV in the relevant baseline month subtracted from current ADAV.
    \11\ As set forth on the Fee Schedule, ``Remove ADV'' means ADV 
with respect to orders that remove liquidity.
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    The proposed change to Liquidity Provision Tier 1 is designed to 
encourage Members to maintain or increase their order flow, including 
in the form of orders that both add and remove liquidity, on the 
Exchange in order to qualify for the enhanced Liquidity Provision Tier 
1 rebate. While the Exchange's overall pricing philosophy generally 
encourages adding liquidity over removing liquidity, the Exchange 
believes that adding a requirement to criteria (2) of Liquidity 
Provision Tier 1 which encourages both liquidity-adding and liquidity-
removing volume may contribute to a more robust and well-balanced 
market ecosystem on the Exchange to the benefit of all Members.
Liquidity Removal Tiers
    The Exchange currently charges a standard fee of 0.0030 per share 
for executions of orders in securities priced at or above $1.00 per 
share that remove liquidity from the Exchange (such orders, ``Removed 
Volume''). The Exchange also currently offers Liquidity Removal Tier 1 
under which qualifying Members are charged a discounted fee by 
achieving the corresponding required volume criteria for each such 
tier. The Exchange now proposes to modify Liquidity Removal Tier 1 by 
reducing the fee charged for executions of Removed Volume and by 
modifying the required criteria under such tier, as further described 
below.
    Under Liquidity Removal Tier 1, the Exchange currently charges a 
discounted fee of $0.00295 per share for executions of Removed Volume 
by achieving (1) an ADV \12\ that is equal to or greater than 0.70% of 
the TCV and (2) a Remove ADV that is equal to or greater than 0.35% of 
the TCV.\13\ Now, the Exchange proposes to reduce the fee charged for 
executions of Removed Volume under Liquidity Removal Tier 1 to $0.0029 
per share, and to modify the required criteria such that a Member would 
now qualify for such tier by achieving 1) an ADV that is equal to or 
greater than 0.70% of the TCV and (2) a Remove ADV that is equal to or 
greater than 0.50% of the TCV. Thus, the proposed change would reduce 
the fee charged from $0.00295 to $0.0029 per share and increase the 
Remove ADV threshold by 0.15% (i.e., from 0.35% to 0.50%) of the TCV.
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    \12\ As set forth on the Fee Schedule, ``ADV'' means average 
daily volume calculated as the number of shares added or removed, 
combined, per day, which is calculated on a monthly basis.
    \13\ The pricing for Liquidity Removal Tier 1 is referred to by 
the Exchange on the Fee Schedule under the existing description 
``Removed volume from MEMX Book, Liquidity Removal Tier 1'' with a 
Fee Code of ``R1'' to be provided by the Exchange on the monthly 
invoices provided to Members. The Exchange notes that because the 
determination of whether a Member qualifies for a certain pricing 
tier for a particular month will not be made until after the month-
end, the Exchange will provide the Fee Codes otherwise applicable to 
such transactions on the execution reports provided to Members 
during the month and will only designate the Fee Codes applicable to 
the achieved pricing tier on the monthly invoices, which are 
provided after such determination has been made, as the Exchange 
does for its tier-based pricing today.
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    The proposed changes to Liquidity Removal Tier 1 are designed to 
encourage Members to maintain or increase their order flow, including 
in the form of orders that remove liquidity, to the Exchange in order 
to qualify for the proposed reduction in the fee for executions of 
Removed Volume. While (as mentioned above) the Exchange's overall 
pricing philosophy generally encourages adding liquidity over removing 
liquidity, the Exchange believes that providing criteria under certain 
tiers that are based on different types of volume that Members may 
choose to achieve, such as the existing criteria that includes a Remove 
ADV threshold, contributes to a more robust and well-balanced market 
ecosystem on the Exchange to the benefit of all Members. The Exchange 
believes that the proposed reduction in the fee for executions of 
Removed Volume by $0.00005 per share represents a modest reduction and 
remains commensurate with the proposed new required criteria. The 
Exchange believes that the proposed increase in the Remove ADV 
requirement will encourage the submission of additional Removed Volume, 
thereby contributing to a deeper and more robust and well-balanced 
market ecosystem on the Exchange to the benefit of all Members and 
market participants.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\14\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\15\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other

[[Page 76169]]

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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    \14\ 15 U.S.C. 78f.
    \15\ 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.'' \16\
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    \16\ 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 the proposed changes to 
Liquidity Provision Tier 1 and Liquidity Removal Tier 1 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 displayed, liquidity-adding and/or liquidity 
removing orders, to the Exchange in order to qualify for an enhanced 
rebate for executions of Added Displayed Volume or a discounted fee for 
executions of Removed Volume, as applicable, thereby contributing to a 
deeper, more liquid and well balanced market ecosystem on the Exchange 
to the benefit of all Members and market participants.
    The Exchange also believes that such tiers reflect a reasonable and 
equitable allocation of fees and rebates, as the Exchange believes that 
the modification to the criteria under Liquidity Provision Tier 1 and 
the reduced fee under Liquidity Removal Tier 1 remain commensurate with 
the corresponding required criteria under each such tier and are 
reasonably related to the market quality benefits that each such tier 
is designed to achieve, as described above. The proposal to modify the 
criteria under Liquidity Provision Tier 1, to modify the criteria under 
Liquidity Removal Tier 1, and to reduce the fee under Liquidity Removal 
Tier 1 is not unfairly discriminatory because it applies equally to all 
Members.
    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 \17\ 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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    \17\ 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 liquidity-adding and liquidity-removing 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.'' \18\
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    \18\ See supra note 16.
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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 Liquidity Provision 
Tier 1 and the proposed modified Liquidity Removal Tier 1 would be 
available to all Members that meet the associated volume requirements 
in any month. As described above, the Exchange believes that the 
proposed new required criteria under each such tier are commensurate 
with the corresponding rebate for liquidity-adding order flow and 
proposed reduced fee for liquidity-removing order flow, as applicable. 
Additionally, as noted above, the proposed changes to Liquidity 
Provision Tier 1 and Liquidity Removal Tier 1

[[Page 76170]]

would apply to all Members equally. 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 15.6% 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.'' \19\ 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'. . . .''.\20\ 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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    \19\ Id.
    \20\ 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 \21\ and Rule 19b-4(f)(2) \22\ thereunder.
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    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \22\ 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-2024-36 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-2024-36. 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-2024-36 and should be 
submitted on or before October 8, 2024.


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-21036 Filed 9-16-24; 8:45 am]
BILLING CODE 8011-01-P