[Federal Register Volume 90, Number 149 (Wednesday, August 6, 2025)]
[Notices]
[Pages 37936-37939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-14853]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103616; File No. SR-MX2-2025-02]
Self-Regulatory Organizations; MX2 LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change to Amend Rule 11.3
Regarding Sponsored Access
August 1, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 28, 2025, MX2 LLC (``MX2'' 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 Exchange filed the proposal as
a ``non-controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 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 proposal to amend
Exchange Rules 11.3(a)-(b) to define the term ``Sponsored Access'' and
to codify that the agreement required by and between the Sponsoring
Member and Sponsored Participant must include a provision that any
Sponsored Access relationship must follow the requirements of SEC Rule
15c3-5, the Market Access Rule (``MAR'').\5\ The text of the proposed
rule change is provided in Exhibit 5 and is available on the Exchange's
website at https://info.memxtrading.com/regulation/rules-and-filings/.\6\
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\5\ 17 CFR 240.15c3-5.
\6\ The Exchange proposes to implement the proposed changes to
Exchange Rules 11.3(a)-(b) on a date that will be announced via
Regulatory Notice, notifying both existing and prospective
Sponsoring Members and Sponsored Participants, of the new rule
language and required contractual provisions.
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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
[[Page 37937]]
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 those 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to amend Exchange Rules 11.3(a)-(b)
to define the term ``Sponsored Access'' and to codify that the
agreement required by and between the Sponsoring Member and Sponsored
Participant must include a provision that any Sponsored Access
relationship must follow the requirements of the MAR.
Sponsored Access Definition
Per current Exchange rules a Sponsored Participant \7\ may be a
Member \8\ or non- Member of the Exchange whose direct electronic
access to the Exchange is authorized by a Sponsoring Member \9\
pursuant to the requirements set forth in Exchange Rules 11.3(b)(1)-
(3). The Exchange proposes to amend Exchange Rule 11.3(a) to include
the following definition, ``Sponsored Access shall mean an arrangement
whereby a Member permits its Sponsored Participants to enter orders
into the Exchange's System that bypass the Member's trading system and
are routed directly to the Exchange, including through a service bureau
or other third-party technology provider.'' The Exchange notes that the
proposed definition of Sponsored Access is identical to that adopted
\10\ by Cboe BZX Exchange, Inc. (``Cboe BZX'') and substantively
identical to that adopted \11\ by The Nasdaq Stock Market LLC
(``Nasdaq''). The Exchange believes defining Sponsored Access will
provide Sponsoring Members with greater clarity in understanding which
types of market access relationships \12\ are subject to Exchange Rules
11.3(a)-(b) and what obligations Sponsoring Members and Sponsored
Participants must satisfy when establishing a Sponsored Access
relationship.
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\7\ The term ``Sponsored Participant'' means a person which has
entered into a sponsorship arrangement with a Sponsoring Member
pursuant to Rule 11.3. See Exchange Rule 1.5(dd).
\8\ The term ``Member'' means any registered broker or dealer
that has been admitted to membership in the Exchange. A Member will
have the status of a ``member'' of the Exchange as that term is
defined in Section 3(a)(3) of the Act. Membership may be granted to
a sole proprietor, partnership, corporation, limited liability
company or other organization which is a registered broker or dealer
pursuant to Section 15 of the Act, and which has been approved by
the Exchange. See Exchange Rule 1.5(p).
\9\ The term ``Sponsoring Member'' shall mean a Member that is a
registered broker-dealer and that has been designated by a Sponsored
Participant to execute, clear and settle transactions from the
System. The Sponsoring Member shall be either (i) a clearing firm
with membership in a clearing agency registered with the Commission
that maintains facilities through which transactions may be cleared
or (ii) a correspondent firm with a clearing arrangement with any
such clearing firm. See Exchange Rule 1.5(ee).
\10\ See Securities and Exchange Act Release No. 34-97146)
(March 15, 2023) 88 FR 17065 (March 21, 2023) (SR-CboeBZX-2023-015)
(Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Amend Its Sponsored Participant Rules 11.3(a) and
11.3(b)(2)); Cboe BZX Rule 11.3(a), available at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf.
\11\ See Securities and Exchange Act Release No. 34-76449)
(November 27, 2015) 80 FR 73011 (November 23, 2015) (SR-NASDAQ-2015-
140) (Notice of Filing and Immediate Effectiveness of the Proposed
Rule Change Relating to Sponsored Access); Nasdaq General Equity and
Options Rule, General 2: General Provisions, Section 22(a),
available at: https://listingcenter.nasdaq.com/rulebook/Nasdaq/rules.
\12\ Consistent with the proposed definition, such relationships
generally include where a broker-dealer allows its customer--such as
a hedge fund, mutual fund, bank or insurance company, an Exchange
registered market maker, an individual, or another broker-dealer--to
use the broker-dealer's market participant identifier (``MPID'') or
other mechanism or mnemonic to enter orders into the Exchange's
System that bypass the Sponsoring Member's order handling system and
are electronically routed directly to the Exchange by the Sponsored
Participant, including through a service bureau or other third-party
technology provider. For the avoidance of doubt, in a scenario where
a Sponsored Participant is also an Exchange Member (e.g., where a
Sponsored Member provides market access to an Exchange Member Market
Maker), (i) the Sponsored Participant will be subject to all
Exchange rules and regulations applicable to Members acting in their
own capacity, whether the Sponsored Participant accesses the
Exchange via their own Membership or via a Sponsored Access
arrangement; and (ii) the Sponsoring Member will be responsible for
the Sponsored Participant activity just as it would for any other
non-Member Sponsored Participant under Rule 11.3(b), including
compliance with the MAR requirements and for compliance with the
applicable Member-related activity electronically routed to the
Exchange via the Sponsored Access arrangement (e.g., the Sponsoring
Member would be required to hold appointments and would be subject
to applicable requirements as an Exchange Market Maker in the
products for which the Sponsored Participant Market Maker is
registered and routes orders/quotes via the Sponsored Access
arrangement).
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Market Access Rule
The Exchange seeks to codify that the agreement currently required
under Exchange Rule 11.3(b)(2), by and between the Sponsoring Member
and Sponsored Participant, must include a provision that any Sponsored
Access relationship must follow the requirements of the MAR. While
Sponsoring Members have existing obligations under the MAR because they
are providing market access to their Sponsored Participants, the
Exchange believes the proposed amendment will help to reinforce such
obligations. Sponsored Participants will now be required to
contractually agree with their Sponsoring Members to follow the
requirements of the MAR.
The Exchange believes that the proposed addition of Exchange Rule
11.3(b)(2)(J) will reinforce to Sponsoring Members that Sponsored
Access relationships must comply with the SEC's MAR, as well as
Exchange rules regarding the provision of market access. As noted
above, such relationships generally include where a broker-dealer
allows its customer to use the broker-dealer's MPID or other mechanism
or mnemonic to enter orders into the Exchange's System that bypass the
Sponsoring Member's order handling system and are electronically routed
directly to the Exchange by the Sponsored Participant, including
through a service bureau or other third-party technology provider.
The Exchange notes further that the proposed addition of Exchange
Rule 11.3(b)(2)(J) is non-substantive in nature for Sponsoring Members
because as broker-dealers providing market access, Sponsoring Members
are already required to comply with the MAR, as well as with existing
Exchange rules regarding market access. Indeed, per the Exchange's
current Sponsored Participant rules the Sponsoring Member is already
responsible for all its Sponsored Participant's activity on the
Exchange \13\ and is required to comply with the Exchange's Certificate
of Incorporation, Exchange LLC Agreement, Rules and procedures.\14\
This includes compliance with Exchange Rule 2.2, which requires, among
other things, compliance with the Act and the regulations thereunder,
including the MAR.
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\13\ See Exchange Rule 11.3(b)(2)(B).
\14\ See Exchange Rule 11.3(b)(2)(C).
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The proposed addition of Exchange Rule 11.3(b)(2)(J) is potentially
substantive in nature to Sponsored Participants in that the proposed
amendment adds a requirement to the agreement by and between the
Sponsoring Member and Sponsored Participant, requiring the Sponsored
Participant to contractually agree to follow the requirements of the
MAR. Importantly, as part of their obligation to comply with Exchange
Rules and
[[Page 37938]]
procedures, existing Sponsoring Members will be expected to amend any
existing contractual arrangements with their Sponsored Participants to
include the new contractual provision proposed by the Exchange.\15\ The
Exchange notes that the contractual requirement under proposed Exchange
Rule 11.3(b)(2)(J) is also included, with substantively identical
language, in the rulebooks of Cboe BZX \16\ and Nasdaq.\17\
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\15\ The Exchange notes that in connection with this proposed
change, the Exchange will also amend its Sponsored Access
Application form. The amendments to this form will include the
deletion of the requirement that a Sponsoring Member provide the
Exchange with a copy of its policies and procedures addressing the
MAR and a detailed description of how it will comply with the MAR,
but will further clarify that Sponsoring Members and Sponsored
Participants must satisfy their regulatory obligations arising from
the Sponsored Access relationship, including compliance with the MAR
and, where a Sponsored Participant is an Exchange registered Market
Maker, compliance with the Market Maker obligations required by
applicable Exchange rules.
\16\ See Cboe BZX Rule 11.3(b)(2)(J), available at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf.
\17\ See Nasdaq General Equity and Options Rule, General 2:
General Provisions, Section 22(b)(ii)(A), available at: https://listingcenter.nasdaq.com/rulebook/Nasdaq/rules.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\18\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \19\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, 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.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \20\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
\20\ Id.
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Defining Sponsored Access
As noted above, the Exchange believes that defining Sponsored
Access will provide Sponsoring Members with greater clarity as to which
types of market access relationships \21\ are subject to Exchange Rules
11.3(a)-(b) and what obligations Sponsoring Members and Sponsored
Participants must satisfy when establishing a Sponsored Access
relationship. As such, the proposed rule change is designed to prevent
fraudulent and manipulative acts and practices and serves to promote
just and equitable principles of trade.
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\21\ Supra note 12.
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The proposed change will also help to reduce confusion by codifying
a definition for such activity on the Exchange that is consistent with
other industry practices currently in place elsewhere. The Exchange
further notes that the proposed Sponsored Access definition is
reasonable and does not affect investor protection because the proposed
change does not present any novel or unique issues, as the proposed
Sponsored Access definition has previously been adopted by both Cboe
BZX and Nasdaq.\22\
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\22\ Supra notes 10-11.
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Market Access Rule
As noted above, the proposed addition of Exchange Rule
11.3(b)(2)(J) will reinforce to Sponsoring Members that Sponsored
Access relationships must comply with the SEC's MAR, as well as
Exchange Rules regarding the provision of market access. Also, by
adding proposed Exchange Rule 11.3(b)(2)(J), Sponsored Participants are
now required to contractually agree that their Sponsored Access to the
Exchange must follow the requirements of the MAR.
In this regard, the proposed amendment will help to ensure that by
and between the Sponsoring Member and Sponsored Participant all orders
entered onto the Exchange pursuant to a Sponsored Access relationship
will follow the requirements of the MAR. As discussed, the Exchange
believes the proposed addition of Exchange Rule 11.3(b)(2)(J) is non-
substantive in nature for Sponsoring Members because as broker-dealers
providing market access, Sponsoring Members are already required to
comply with the MAR, as well as with existing Exchange Rules regarding
market access. The proposed addition of Exchange Rule 11.3(b)(2)(J) is
potentially substantive in nature to Sponsored Participants in that the
proposed amendment adds a new requirement to the relationship by and
between the Sponsoring Member and Sponsored Participant, requiring the
Sponsored Participant to contractually agree to follow the requirements
of the MAR.
The Exchange further notes that this aspect of the proposed rule
change is reasonable and does not affect investor protection because
the proposed change does not present any novel or unique issues, as the
proposed contractual requirement also exists in the rulebooks of Cboe
BZX and Nasdaq.\23\
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\23\ Supra notes 16-17.
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Accordingly, the proposed rule change will help to promote just and
equitable principles of trade, remove impediments to and perfect the
mechanism of a free and open market and national market system, and, in
general to protect investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
For the reasons noted below, the Exchange does not believe that the
proposed rule change will impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
The proposed Sponsored Access definition does not impose any burden
on intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed definition merely
seeks to make clear to Sponsoring Members that Sponsored Access is a
relationship subject to Exchange Rule 11.3(a)-(b). Moreover, Sponsored
Access is a voluntary arrangement that a Sponsoring Member voluntarily
elects to enter with its Sponsoring Participant. A Member is not
required to become a Sponsoring Member, and in fact, may decline to
enter such a relationship with its customers.
Additionally, 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.
Notably, other exchanges have in place similar rules and documentation
requirements applicable to sponsored participants and their sponsoring
members.\24\ Moreover, as described above, the proposed Sponsored
Access definition is identical to that adopted by Cboe BZX and
substantively identical to that adopted by Nasdaq, and the proposed
requirement for Sponsored Participants to contractually agree that
their Sponsored Access to the Exchange must follow the requirements of
the MAR also exists in the rulebooks of Cboe BZX and Nasdaq.
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\24\ Supra notes 10-11 and 16-17.
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The proposed rule change to explicitly cite the MAR in Exchange
Rule 11.3(b)(2)(J) does not impose any
[[Page 37939]]
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. As noted above, this change
is non-substantive as Sponsoring Members are currently responsible for
complying with the MAR with respect to their provision of Sponsored
Access to Sponsored Participants. While the proposed addition of
Exchange Rule 11.3(b)(2)(J) is potentially substantive in nature to
Sponsored Participants because it requires a Sponsored Participant to
contractually agree with its Sponsoring Member to follow the
requirements of the MAR, the Exchange reiterates that the proposed
contractual requirement also exists in the rulebooks of Cboe BZX and
Nasdaq, and as such, should not raise any new or novel issues for
consideration by Sponsored Participants.
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 proposed rule change is filed for immediate effectiveness
pursuant to Section 19(b)(3)(A) of Act \25\ and Rule 19b-4(f)(6) \26\
thereunder. The Exchange designates that the proposed rule change
effects a change that (i) does not significantly affect the protection
of investors or the public interest; (ii) does not impose any
significant burden on competition; and (iii) by its terms, does not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest. Additionally, the
Exchange has given the Commission written notice of its intent to file
the proposed rule change, along with a brief description and text of
the proposed rule change, at least five business days prior to the date
of filing of the proposed rule change, or such shorter time as
designated by the Commission.
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f)(6).
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As noted above, the proposed Sponsored Access definition is
intended only to provide additional clarity as to the type of market
access subject to Exchange Rule 11.3(a)-(b). Moreover, as noted above,
the proposed definition does not present any unique or novel issues, as
it is identical in nature to the definition of Sponsored Access in the
rulebooks of Cboe BZX and Nasdaq. In addition, the proposed MAR change
is non-substantive in nature, as Sponsoring Members are already
required to comply with the MAR. While the proposed addition of
Exchange Rule 11.3(b)(2)(J) is potentially substantive in nature to
Sponsored Participants because they must now contractually agree with
the Sponsoring Member to follow the requirements of the MAR, as noted
above, such requirement also exists in the rulebooks of Cboe BZX and
Nasdaq, and, therefore, should not raise any new or novel issues for
Sponsored Participants. Accordingly, the Exchange believes proposed
Exchange Rule 11.3(b)(2)(J) will help to promote just and equitable
principles of trade, remove impediments to and perfect the mechanism of
a free and open market and national market system, and, in general to
protect investors and the public interest.
Furthermore, Rule 19b-4(f)(6)(iii) \27\ requires a self-regulatory
organization to give the Commission written notice of its intent to
file a proposed rule change under that subsection at least five
business days prior to the date of filing, or such shorter time as
designated by the Commission. The Exchange has provided such notice.
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\27\ 17 CFR 240.19b-4(f)(6)(iii).
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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 will 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-MX2-2025-02 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-MX2-2025-02. 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 filing 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-MX2-2025-02 and
should be submitted on or before August 27, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-14853 Filed 8-5-25; 8:45 am]
BILLING CODE 8011-01-P