[Federal Register Volume 90, Number 185 (Friday, September 26, 2025)]
[Notices]
[Pages 46437-46444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-18673]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104018; File No. SR-24X-2025-04]
Self-Regulatory Organizations; 24X National Exchange LLC; Notice
of Filing of a Proposed Rule Change To Implement a Warrant Performance
Incentive Program
September 23, 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 September 10 2025, 24X National Exchange LLC (``24X'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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 text of the proposed rule change is available on the Exchange's
website (https://equities.24exchange.com/regulation) and at the
principal office of the Exchange.
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 Exchange proposes to implement the Program to allow Members of
the Exchange who participate in the Program (``Participants'') to earn
the right to purchase Non-Voting Common Units \3\ of 24X US Holdings
LLC (``24X US Holdco''), the Exchange's parent company. As described in
more detail below, each Member of the Exchange may become a Participant
in the Program by prepaying $500,000 in Exchange fees (``Prepayment
Fee'') and satisfying the Program eligibility requirements. Upon
joining the Program, each Participant will receive a warrant that vests
based on the Participant's achievement of certain minimum trading
volumes (``Target Volume'') \4\ on the Exchange during each designated
pre-determined period in which the Program is in effect (``Measurement
Period'') \5\ and the Exchange's achievement of a minimum market share
during such Measurement Periods (``24X Minimum Overall Market
Share'').\6\ When the warrants vest, Participants will have the right
to exercise the warrants to purchase a certain number of 24X US Holdco
Non-Voting Common Units. It is anticipated that the Program will
commence on and including September 29, 2025 and will end on and
including December 31, 2027 (``Program Period'').
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\3\ 24X notes that it will submit a separate proposed rule
change to make changes to the Limited Liability Company Agreement of
24X US Holdings LLC, as amended (``24X US Holdco LLC Agreement'') to
accommodate aspects of the proposal that affect the 24X US Holdco
LLC Agreement. Such proposed changes will include amendments to
authorize the issuance of Non-Voting Common Units as well as the
implementation of the liquidity program discussed below.
\4\ As discussed in more detail below, the ``Target Volume'' is
5% of the average daily trading volume on the Exchange, where the
daily trading volume is calculated based on total aggregated average
daily volume traded over each Measurement Period.
\5\ As discussed in more detail below, the ``Measurement
Period'' for Year 1 (2025) is September 29, 2025 through December
31, 2025 (subject to the Exchange commencing trading on or prior to
October 15, 2025); the Measurement Periods for Year 2 (2026) are (1)
January 1-March 31, 2026, (2) April 1-June 30, 2026, (3) July 1-
September 30, 2026, and (4) October 1-December 31, 2026; and the
Measurement Periods for Year 3 (2027) are (1) January 1-March 31,
2027, (2) April 1-June 30, 2027, (3) July 1-September 30, 2027, and
(4) October 1-December 31, 2027.
\6\ As discussed in more detail below, the ``24X Minimum Overall
Market Share'' is defined as follows: (1) for each Measurement
Period of Year 2, the 24X Minimum Overall Market Share is 0.50% of
the Consolidated Average Daily Volume (``CADV'') for all NMS Stocks
eligible for trading on 24X; and (2) for each Measurement Period of
Year 3, the 24X Minimum Overall Market Share is 1.00% of the CADV
for all NMS Stocks eligible for trading on 24X.
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The purpose of the Program is to promote the long-term interests of
the Exchange by providing incentives designed to encourage 24X Members
to contribute to the growth and success of the Exchange via actively
providing liquidity on the 24X market. The warrants held by
Participants in the Program will vest and become exercisable for Non-
Voting Common Units of 24X US Holdco through the process described in
the following paragraphs and consequently the Participants will have
the opportunity to share in the benefits of 24X's increased enterprise
value.
a. Requirements for Participation in Program
The Program which provides equity-like consideration in exchange
for market making or the provision of liquidity, order flow or volume
is open to all 24X Members. All 24X Members may participate subject to
their satisfaction of certain eligibility requirements. All applicants
for participation in the Program will be subject to the same
eligibility criteria, and all Participants will participate in the
Program on the same terms, conditions and restrictions.
To be eligible to be a Participant, an applicant must (i) be a
Member in good standing \7\ of 24X; (ii) be a registered broker-dealer
pursuant to Section 15 of the Exchange Act; \8\ (iii) qualify as an
``accredited investor'' as such term is defined in Regulation D of the
Securities Act of 1933; \9\ (iv) have executed the required
documentation for participation in the Program--the subscription
agreement and confidentiality agreement; and (v)
[[Page 46438]]
tendered the Prepayment Fee no later than September 26, 2025 to
participate in the Program at its commencement, or by the first day of
each subsequent quarter of the Program Period to participate in the
Program as of such subsequent quarter until October 1, 2027.\10\
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\7\ For these purposes with regard to the Program, the term
``good standing'' means that a Member is not delinquent with respect
to Exchange fees or other charges and is not suspended or barred
from being a Member.
\8\ 15 U.S.C. 78o.
\9\ The purpose of this criterion relates to the ability of 24X
US Holdco to sell securities (in this case, Non-Voting Common Units)
pursuant to an exemption from registration under the Securities Act
of 1933. The definition of ``accredited investor'' under Rule
501(a)(1) of the Securities Act of 1933 includes any broker or
dealer registered pursuant to Section 15 of the Act. As noted above,
a Participant will be required to be registered as a broker or
dealer pursuant to Section 15 of the Exchange Act. Therefore, all
Participants will satisfy this criterion.
\10\ The following are examples of the timing of participation
in the Program: (1) if Participant A joins the Program by tendering
the Prepayment Fee and executing the required documentation on
September 26, 2025, then Participant A's trading starting on
September 29, 2025 (assuming the Program commences on September 29,
2025) will be counted toward meeting the Target Volumes for Year 1
and thereafter until the end of the Program Period; (2) if
Participant B joins the Program by tendering the Prepayment Fee and
executing the required documentation on July 22, 2026, then
Participant B's trading starting on October 1, 2026 will be counted
toward the Target Volume for the fourth quarter of Year 2 (i.e., the
last Measurement Period for Year 2) and thereafter until the end of
the Program Period; and (3) if Participant C joins the Program by
tendering the Prepayment Fee and executing the required
documentation on October 1, 2027, then Participant C's trading
starting on October 1, 2027 will be counted toward the Target Volume
for the final quarter of Year 3 (i.e., the last Measurement Period
for Year 3). No Member may become a Participant after October 1,
2027.
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Once an eligible applicant for the Program has executed all
required documentation for participation in the Program and has paid
the Prepayment Fee no later than September 26, 2025 (or by the first
day of subsequent quarters for the rolling application process as
discussed above), the applicant would be accepted into the Program as a
Participant and granted a warrant.
b. Application of Prepayment Fee
The Exchange will apply the Prepayment Fee to any fees charged the
Participant by 24X as set forth on the 24X Fee Schedule, including, but
not limited to, fees related to connectivity, market data, members and
transactions, but excluding rebates \11\ and CAT fees (each as
applicable) (``Program Exchange Fees'').\12\ The Exchange will apply
the Prepayment Fee to the Program Exchange Fees automatically on the
Participant's fee invoice. The Prepayment Fee does not expire, so there
is no time limit on when the Prepayment Fee may be applied to any
Program Exchange Fees. The Exchange will apply the Prepayment Fee to a
Participant's Program Exchange Fees regardless of whether the
Participant achieves Target Volumes, the Exchange meets the 24X Minimum
Overall Market Share, the 24X Overnight Trading (as defined below) has
commenced, or if trading does not commence on the Exchange by October
15, 2025. Once a Participant has incurred Program Exchange Fees whereby
the total accumulated Program Exchange Fees equal $500,000, all
subsequently incurred Program Exchange Fees will be billed and
collected at the appropriate rates as defined in the 24X Fee Schedule.
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\11\ For avoidance of doubt, Participants remain eligible to
receive rebates as set forth on the 24X Fee Schedule.
\12\ To date, the Exchange has filed proposed rule changes to
implement certain transaction fees and membership fees for the
Exchange. See SR-24X-2025-02 (transaction fees) and SR-24X-2025-03
(membership fee). The Exchange notes that it may file additional
proposed rule change(s) to implement additional fees with the
Commission pursuant to Section 19(b)(3)(A)(iii) of the Exchange Act
and Rule 19b-4(f)(2) thereunder prior to the commencement of trading
currently anticipated for September 29, 2025. The Exchange has
provided (and will continue to provide) a draft of the 24X Fee
Schedule to any current or potential Participant that expresses
interest in joining the Program (with the condition that additional
fees are subject to filing with the Commission), so that such
Participant can evaluate the proposed fees and make a fully-informed
decision on whether it wishes to join the Program.
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c. Number of Non-Voting Common Units Available for Program and Program
Time Periods
Warrants received by Participants when they join the Program vest
when (1) 24X has met any applicable 24X Minimum Overall Market Share,
and (2) a Participant has met the Target Volume for each relevant
Measurement Period. When the warrants vest for a Measurement Period,
Participants will have the right to exercise the warrants to purchase a
certain number of 24X US Holdco Non-Voting Common Units for that
Measurement Period. The number of Non-Voting Common Units that may be
exercised for each Measurement Period by each Participant will be
determined as follows.
A total of 1,098,040 Non-Voting Common Units representing 10% of
the outstanding total Units on a fully diluted basis of 24X US Holdco
as of September 29, 2025 may be purchased by Participants throughout
the Program Period. This total number of Non-Voting Common Units will
be allocated among the Measurement Periods for each of the three years
of the Program and among Participants as set forth below.
(1) Year 1
Provided that the Exchange commences trading on or prior to October
15, 2025, an aggregate of 219,608 Non-Voting Common Units, which
represent 2% of the fully diluted outstanding Units of 24X US Holdco as
of September 29, 2025, would be available to be purchased upon the
exercise of warrants that vest in accordance with the Program based on
trading that occurred during the period from and including September
29, 2025 (or such later date, if the date when trading commences is
after September 29, 2025) through and including December 31, 2025,
which is the only Measurement Period for Year 1. Such aggregate number
of Non-Voting Common Units will be allocated among Participants who
qualify by meeting the Target Volume described below. If trading does
not commence on the Exchange by October 15, 2025, no warrants would
vest in Year 1 and, therefore, Participants would not have the right to
purchase Non-Voting Common Units via the Program in Year 1. If trading
does not commence on the Exchange by October 15, 2025, then such
219,608 Non-Voting Common Units for Year 1 would be excluded from the
Program entirely; they cannot be earned at a later date under the
Program. In addition, for purposes of clarity, Year 1 is not subject to
the 24X Minimum Overall Market Share requirement.
(2) Year 2
An aggregate of 329,412 Non-Voting Common Units, which represent 3%
of the fully diluted outstanding Units of 24X US Holdco as of September
29, 2025, would be available to be purchased upon the exercise of
warrants that vest in accordance with the Program based on trading that
occurred during the period from and including January 1, 2026 through
and including December 31, 2026 (``Year 2''), except as provided below.
Provided that the Exchange meets the 24X Minimum Overall Market Share
requirement, such aggregate number of Non-Voting Common Units will be
allocated among Participants who qualify by meeting the Target Volume
described below. Such 3% of the fully diluted outstanding Units of 24X
US Holdco (329,412 Non-Voting Common Units) will be allocated to each
of the four Measurement Periods for Year 2; therefore, 0.75% of the
fully diluted outstanding Unit count (82,353 Non-Voting Common Units)
will be allocated to each of the four Measurement Periods for Year 2.
For purposes of clarity, if 24X does not achieve the 24X Minimum
Overall Market Share for any particular Measurement Period in Year 2,
no warrants would vest for such Measurement Period in Year 2 and,
therefore, Participants would not have the right to purchase Non-Voting
Common Units via the Program in such Measurement Period in Year 2, even
if a Participant meets its Target Volume for such Measurement Period.
In such case, the 82,353 Non-Voting Common Units allocated to such
Measurement Period in Year 2 would be excluded from the Program
entirely; they cannot
[[Page 46439]]
be earned at a later date under the Program.
(3) Year 3
An aggregate of 549,020 Non-Voting Common Units, which represent 5%
of the fully diluted outstanding Units of 24X US Holdco as of September
29, 2025, would be available to be purchased upon the exercise of
warrants that vest in accordance with the Program based on trading that
occurred during the period from and including January 1, 2027 through
and including December 31, 2027 (``Year 3''), except as provided below.
Provided that the Exchange meets the 24X Minimum Overall Market Share
requirement, such aggregate number of Non-Voting Common Units will be
allocated among Participants who qualify by meeting the Target Volume
described below. Such 5% of the fully diluted outstanding Units of 24X
US Holdco (549,020 Non-Voting Common Units) will be allocated to each
of the four Measurement Periods for Year 3; therefore, 1.25% of the
fully diluted outstanding Unit count (137,255 Non-Voting Common Units)
will be allocated to each of the four Measurement Periods for Year 3.
For purposes of clarity, if 24X does not achieve the 24X Minimum
Overall Market Share for any particular Measurement Period in Year 3,
no warrants would vest for such Measurement Period in Year 3 and,
therefore, Participants would not have the right to purchase Non-Voting
Common Units via the Program in such Measurement Period in Year 3, even
if a Participant meets its Target Volume for such Measurement Period.
In such case, the 137,255 Non-Voting Common Units allocated to such
Measurement Period in Year 3 would be excluded from the Program
entirely; they cannot be earned at a later date under the Program.
Notwithstanding the above, the number of Non-Voting Common Units
available to be purchased upon the exercise of warrants that vest in
accordance with the Program for Year 3 will vary depending on when 24X
Overnight Trading commences. ``24X Overnight Trading'' would be a
trading session in which trading is permitted during the period from
the 8 p.m. ET to 9:30 a.m. ET for each overnight period except for
Friday to Saturday and Saturday to Sunday. \13\
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\13\ 24X anticipates commencing trading during the Pre-Market
Session, Post-Market Session and Core Market Session on September
29, 2025. 24X Overnight Trading refers to a new trading session
covering the entire period from 8 p.m. ET to 9:30 a.m. ET each
overnight period except for Friday to Saturday and Saturday to
Sunday. For purposes of clarity, 24X Overnight Trading requires the
implementation of a new trading session that covers these trading
hours. When it commences, 24X Overnight Trading is anticipated to
include the current hours of the Pre-Market Session as well as the
additional overnight hours of 8 p.m. through 4 a.m. for each
overnight period except for Friday to Saturday and Saturday to
Sunday. For purposes of this filing, 24X Overnight Trading is
separate and distinct from the existing Pre-Market Session and
therefore until the 24X Overnight Trading session is implemented
trading during the hours of the existing Pre-Market Session shall
not be deemed to constitute 24X Overnight Trading for purposes of
the Program.
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If 24X Overnight Trading is not available for all or a portion of
Year 3, the number of Non-Voting Common Units that would be available
to be purchased upon the exercise of warrants that vest in accordance
with the Program would be as follows:
For each full Measurement Period of Year 3 before 24X
Overnight Trading commences, only one quarter of 3% (0.75%) of the
fully diluted outstanding Units of 24X US Holdco (82,353 Non-Voting
Common Units) would be available to be purchased upon the exercise of
warrants that vest in accordance with the Program for that Measurement
Period (rather than one quarter of 5% (or 1.25%) of the fully diluted
outstanding Units of 24 US Holdco (137,255 Non-Voting Common Units)).
For each full Measurement Period of Year 3 after 24X
Overnight Trading commences, one quarter of 5% (or 1.25%) of the fully
diluted outstanding Units of 24X US Holdco (137,255 Non-Voting Common
Units) would be available to be purchased upon the exercise of warrants
that vest in accordance with the Program for that Measurement Period.
If 24X Overnight Trading commences during a Measurement
Period of Year 3 but is not available for the entire Measurement
Period, only one quarter of 3% (or 0.75%) of the fully diluted
outstanding Units of 24X US Holdco (82,353 Non-Voting Common Units)
would be available to be purchased upon the exercise of warrants that
vest in accordance with the Program for that Measurement Period (rather
than one quarter of 5% (or 1.25%) of the fully diluted outstanding
Units of 24 US Holdco (137,255 Non-Voting Common Units)).
The 5X Overnight Multiplier (described below) will apply to the
calculation of the Participant's Target Volume from and including the
date that 24X Overnight Trading commences.
d. Program Thresholds
(1) 24X Minimum Overall Market Share
The 24X Minimum Overall Market Share is the designated target
percentage of the CADV for all NMS Stocks eligible for trading on 24X
for each relevant Measurement Period.\14\ The 24X Minimum Overall
Market Share is defined as follows:
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\14\ If a security is not traded on the Exchange, then the
trading volume in that security will be omitted from the calculation
of the CADV.
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For each Measurement Period of Year 2, the 24X Minimum
Overall Market Share is 0.50% of the CADV for all NMS Stocks eligible
for trading on 24X; and
For each Measurement Period of Year 3, the 24X Minimum
Overall Market Share is 1.00% of the CADV for all NMS Stocks eligible
for trading on 24X.
The CADV is calculated based on the volume reported by all
exchanges and trade reporting facilities to a consolidated transaction
reporting plan for the relevant Measurement Period.
The 24X Minimum Overall Market Share requirement for Years 2 and 3
would prevent Participants from earning the right to exercise warrants
for Non-Voting Common Units via the Program if 24X does not reach a
designated level of trading, even if a Participant meets the Target
Volume. Without such a requirement, Participants potentially would be
eligible to earn warrants for limited trading activity and purchase
equity in 24X US Holdco.
For illustrative purposes only, the following are examples of the
application of the 24X Minimum Overall Market Share:
Assume that the CADV for the US equities market is 14.0
billion shares, and the CADV for 24X is 80 million shares, for Q1 of
Year 2. 24X would satisfy the 24X Minimum Overall Market Share of 0.50%
(0.50% of 14 billion shares = 70 million shares).
Assume that the CADV for the US equities market is 14.0
billion shares, and the CADV for 24X is 100 million, for Q1 of Year 3.
24X would not satisfy the 24X Minimum Overall Market Share of 1.00%
(1.00% of 14 billion shares = 140 million shares).
(2) Target Volume
Participants are required to meet specific volume targets in order
for their warrants to vest. Specifically, each Participant would be
required to meet the Target Volume for each Measurement Period, where
the Target Volume is 5% of the average daily trading volume on the
Exchange, where the daily trading volume is calculated based on total
aggregated average daily volume traded over each Measurement Period.
Subject to the Program requirements, including those related to
[[Page 46440]]
the 24X Minimum Overall Market Share and 24X Overnight Trading
requirements, the Non-Voting Common Units subject to the Program would
be allocated among Participants who have met or outperformed the Target
Volume during each Measurement Period on a pro rata basis based on
volume contributions to the 24X market. Specifically, the volumes for
each Participant will be calculated for each of the following
Measurement Periods,\15\ and the Non-Voting Common Units indicated will
be allocated among Participants after the end of each Measurement
Period.
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\15\ The volume for the Exchange also will be calculated for
each of the following Measurement Periods.
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For Year 1: The Non-Voting Common Units that are available
to be purchased for Year 1 in accordance with the Program (as described
above) would be allocated among Participants that meet the Target
Volume on a pro rata basis based on volume calculations as follows:
[cir] Allocations will occur on or before January 5, 2026 and after
December 31, 2025 based on trading during the only Measurement Period
for Year 1, which is the period from September 29, 2025 through
December 31, 2025 (subject to the Exchange commencing trading on or
prior to October 15, 2025).
For Year 2: The Non-Voting Common Units that are available
to be purchased for each of the four Measurement Periods of Year 2 in
accordance with the Program (as described above) would be allocated
among Participants that meet the Target Volume on a pro rata basis
based on volume calculations as follows:
[cir] Allocations will occur on or before April 5, 2026 and after
March 31, 2026, based on trading during the first Measurement Period of
Year 2, which is the quarterly period from January 1, 2026 through
March 31, 2026;
[cir] Allocations will occur on or before July 5, 2026 and after
June 30, 2026, based on trading during the second Measurement Period of
Year 2, which is the quarterly period from April 1, 2026 through June
30, 2026;
[cir] Allocations will occur on or before October 5, 2026 and after
September 30, 2026, based on trading during the third Measurement
Period of Year 2, which is the quarterly period from July 1, 2026
through September 30, 2026; and
[cir] Allocations will occur on or before January 5, 2027 and after
December 31, 2026, based on trading during the fourth Measurement
Period of Year 2, which is the quarterly period from October 1, 2026
through December 31, 2026.
For Year 3: The Non-Voting Common Units that are available
to be purchased for each of the four Measurement Periods of Year 3 in
accordance with the Program (as described above) would be allocated
among Participants that meet the Target Volume on a pro rata basis
based on volume calculations as follows:
[cir] Allocations will occur on or before April 5, 2027 and after
March 31, 2027, based on trading during the first Measurement Period of
Year 3, which is the quarterly period from January 1, 2027 through
March 31, 2027;
[cir] Allocations will occur on or before July 5, 2027 and after
June 30, 2027, based on trading during the second Measurement Period of
Year 3, which is the quarterly period from April 1, 2027 through June
30, 2027;
[cir] Allocations will occur on or before October 5, 2027 and after
September 30, 2027 based on trading during the third Measurement Period
of Year 3, which is the quarterly period from July 1, 2027 through
September 30, 2027; and
[cir] Allocations will occur on or before January 5, 2028 and after
December 31, 2027, based on trading during the fourth Measurement
Period of Year 3, which is the quarterly period from October 1, 2027
through December 31, 2027.
The Target Volume may be met by trading activity in any security
traded on 24X. Participants that trade securities on 24X during 24X
Overnight Trading will receive quintuple credit (i.e., multiplied by
five) (``5X Overnight Multiplier'') for such trading for purposes of
calculating the Participant's performance during the Measurement
Period. The 5X Overnight Multiplier is intended to incentivize
participation in 24X Overnight Trading. A cap of 50% of the Target
Volume (post the 5X Overnight Multiplier) will be placed on trading
contributions during 24X Overnight Trading to ensure liquidity during
the Core Market Session and Post-Market Session remains strong.\16\
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\16\ Suppose that the 24X CADV is 70 million for Q1 of Year 2.
As a result, the Target Volume is 3.5 million for Q1 of Year 2 (70
million x 5% = 3.5 million), and the cap of 50% on the Target Volume
is 1.75 million (3.5 million x 50% = 1.75 million). Suppose that a
Participant trades 2 million shares during trading hours other than
24X Overnight Trading and 500,000 shares during 24X Overnight
Trading. The Participant's 24X Overnight Trading is subject to the
5X Overnight Multiplier (500,000 shares x 5 = 2.5 million). However,
the Participant's 24X Overnight Trading is capped at 1.75 million.
Accordingly, the Participants total volume for the quarter counted
for the Program is 3.75 million (2.0 million + 1.75 million).
Therefore, the Participant would satisfy the 5% Target Volume of 3.5
million for the quarter.
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e. Exercising Vested Warrants
Participants will be entitled to exercise their warrants for the
number of Non-Voting Common Units of 24X US Holdco that vested under
the underlying warrants at an exercise price of $0.01 per Unit. Each
vested warrant shall be exercisable from the time of vesting until
September 29, 2032, the seventh anniversary of September 29, 2025.
Warrants received by Participants when they join the Program vest when
(1) 24X has met any applicable 24X Minimum Overall Market Share, and
(2) a Participant has met the Target Volume, for each relevant
Measurement Period.
A Participant's total equity ownership of 24X US Holdco Units,
including any purchased through the exercise of vested warrants via the
Program, shall be subject to the ownership limitations of the 24X US
Holdco LLC Agreement.\17\ Accordingly, a Participant will not be able
to exercise warrants for Non-Voting Common Units to the extent that
such exercise would violate such ownership limitations.
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\17\ See, e.g., Section III of the 24X US Holdco LLC Agreement.
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Warrants and Non-Voting Common Units have not been registered under
the Securities Act of 1933. The Non-Voting Common Units may not be
transferred except pursuant to an effective registration statement
under the Securities Act of 1933 and such state securities laws, or an
exemption from such registration thereunder, and are subject to
transfer restrictions set forth in the 24X US Holdco LLC Agreement.\18\
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\18\ Id.
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f. Examples of the Program
The following provides three examples of how the Program will
operate. These examples are for illustrative purposes only, and do not
reflect any actual volumes or other facts.
(1) Scenario A
Suppose that the CADV for the US equities market is 14.0 billion
shares, and the CADV for 24X is 70 million shares, for Q1 of Year 2.
The Exchange meets the 24X Minimum Overall Market Share
target of 0.50% of CADV for Q1 of Year 2: 0.50% of 14 billion shares =
70 million shares.
There are two Participants who meet the 5% Target Volume
threshold of at least 3.5 million shares (i.e., 5% of Exchange's
quarterly volume of 70 million shares) for this quarter. Each traded
the following:
[cir] Regular hours trading: 2.0 million shares
[[Page 46441]]
[cir] 24X Overnight Trading: 500,000 shares x 5 = 2.50 million
shares, which is capped at 1.75 million shares
[cir] Total countable: 2.0 million shares + 1.75 million shares =
3.75 million shares
Based on these facts, both Participants qualify to exercise their
warrants for Non-Voting Common Units. Of the 82,353 Non-Voting Common
Units available for Q1 of Year 2, Participant 1 would be allocated 50%
of these Units and Participant 2 would be allocated 50% of these Units.
(2) Scenario B
Suppose that the CADV for the US equities market is 14.0 billion
shares, and the CADV for 24X is 70 million shares, for Q2 of Year 2.
The Exchange meets the 24X Minimum Overall Market Share
target of 0.50% of CADV for Q2 of Year 2: 0.50% of 14 billion shares =
70 million shares.
There are two Participants who do not meet the 5% Target
Volume threshold of at least 3.5 million (i.e., 5% of Exchange's
quarterly volume of 70 million shares) for this quarter. Each traded
the following during the quarter:
[cir] Regular hours trading: 2.0 million shares
[cir] 24X Overnight Trading: 250,000 shares x 5 = 1.25 million
shares (which is less than 1.75 million shares (50% of the Target
Volume), so no cap on 24X Overnight Trading is applied)
[cir] Total countable: 2.0 million shares + 1.25 million shares =
3.25 million shares
Based on these facts, because neither Participant met the 5% Target
Volume threshold of 3.5 million shares for Q2 of Year 2, neither
Participants' warrants would vest, and therefore, neither Participant
may exercise its warrants for Non-Voting Common Units for Q2 of Year 2.
As a result, no Non-Voting Common Units may be purchased via the
Program for this quarter. Accordingly, the 82,353 Non-Voting Common
Units available for Q2 of Year 2 would be excluded from the Program
entirely; they cannot be purchased at a later date under the Program.
(3) Scenario C
Suppose that the CADV for the US equities market is 14.0 billion
shares, and the CADV for 24X is 60 million shares, for Q3 of Year 2.
The Exchange does not meet the 24X Minimum Overall Market
Share target of 0.50% of CADV for Q3 of Year 2: 0.50% of 14 billion
shares = 70 million shares.
There are two Participants who meet the 5% Target Volume
threshold of at least 3 million shares (i.e., 5% of Exchange's
quarterly volume of 60 million shares) for this quarter. Each traded
the following:
[cir] Regular hours trading: 2.25 million shares
[cir] 24X Overnight Trading: 500,000 shares x 5 = 2.50 million
shares, which is capped at 1.5 million shares
[cir] Total countable: 2.25 million shares + 1.5 million shares =
3.75 million shares
Based on these facts, because the Exchange did not meet the 24X Minimum
Overall Market Share requirement for Q3 of Year 2, neither
Participants' warrants would vest and, therefore, neither Participant
may exercise its warrants for Non-Voting Common Units for Q3 of Year 2.
As a result, no Non-Voting Common Units may be purchased via the
Program for this quarter. This is the case notwithstanding that both
Participants met the Target Volume for this quarter. Accordingly, the
82,353 Non-Voting Common Units available for Q3 of Year 2 would be
excluded from the Program entirely; they cannot be purchased at a later
date under the Program.
g. Liquidity Program
Beginning after January 1, 2029, each Participant who exercised a
warrant via the Program and owns Non-Voting Common Units in 24X US
Holdco (a ``Qualifying Participant'') will have a right to sell a
portion of its Non-Voting Common Units to 24X US Holdco at a price per
Unit equal to a fixed percentage of the Fair Market Value of such
Units. For these purposes, Fair Market Value means the value of one
Non-Voting Common Unit of 24X US Holdco LLC as determined below:
(a) If a Non-Voting Common Unit is a publicly traded security that
may be immediately sold in the public markets without any restrictions
or limitations, the average, over a period of twenty-one (21) business
days consisting of the date of valuation and the twenty (20)
consecutive business days prior to that date, of the average of the
closing prices of the sales of such securities on the primary
securities exchange on which such securities may at that time be
listed, or, if there have been no sales on such exchange on any
business day, the average of the highest bid and lowest asked prices on
such exchange at the end of such business day;
(b) if a Non-Voting Common Unit is not a publicly traded security
covered by clause (a), the fair value of a Non-Voting Common Unit, as
determined by the Manager \19\ of the Company \20\ in good faith based
on such factors as the Manager, in the exercise of its reasonable
business judgment, considers relevant but without taking into account
any discounts for lack of liquidity or minority interest or similar
discounts; provided, that a Qualifying Participant may, within fifteen
(15) business days following its receipt of the Manager's determination
of Fair Market Value, direct the Manager to obtain an independent
third-party appraisal of the determination, with the determination by
the independent appraiser binding on the parties.
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\19\ The term ``Manager'' is defined in the 24X US Holdco LLC
Agreement as 24X Bermuda Holdco.
\20\ For these purposes, ``the Company'' is defined as 24X US
Holdco in the 24X US Holdco LLC Agreement.
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No later than 30 days after 24X US Holdco receives the
determination of Fair Market Value, 24X US Holdco will provide notice
to each Qualifying Participant of such Fair Market Value and such
Qualifying Participant will have 90 days from the date of notice to
provide written notice to 24X US Holdco that it wishes to sell a
certain number of its Non-Voting Common Units to 24X US Holdco.
For each of 2029 and 2030, each Qualifying Participant may
sell up to 10% of its then total Non-Voting Common Units at a price
equal to 50% of the Fair Market Value of a Non-Voting Common Unit.
For 2031, each Qualifying Participant may sell up to 30%
of its then total Non-Voting Common Units at a price equal to 60% of
the Fair Market Value of a Non-Voting Common Unit.
For 2032, each Qualifying Participant may sell up to 60%
of its then total Non-Voting Common Units at a price equal to 70% of
the Fair Market Value of a Non-Voting Common Unit.
For 2033, each Qualifying Participant may sell up to 90%
of its then total Non-Voting Common Units at a price equal to 80% of
the Fair Market Value of a Non-Voting Common Unit.
For 2034, each Qualifying Participant may sell up to 100%
of its then total Non-Voting Common Units at a price equal to 90% of
the Fair Market Value of a Non-Voting Common Unit.
If there is a Change of Control \21\ of 24X US Holdco, 24X Bermuda
Holdings
[[Page 46442]]
LLC (``24X Bermuda Holdco''), or the Exchange, 24X US Holdco would have
the right to purchase 100% of all Qualifying Participants' Non-Voting
Common Units at a price equal to the then applicable percentage of the
Fair Market Value of a Non-Voting Common Unit, and if the Change of
Control occurs after 2034, at 100% of the Fair Market Value of a Non-
Voting Common Unit. At least 15 days prior to the expected closing date
of the Change of Control, 24X US Holdco shall provide written notice of
its intention to purchase or not to purchase 100% of all Qualifying
Participants' Non-Voting Common Units. If 24X US Holdco indicates its
intention to exercise its right to purchase all Non-Voting Common
Units, it shall pay in cash the applicable Fair Market Value for each
Non-Voting Common Unit on or before the closing of the Change of
Control against delivery of all documents as requested by 24X US Holdco
(which may be similar to those executed and delivered in a Sale of 24X
US Holdco). For the avoidance of doubt, 24X US Holdco is only obligated
to make the payment upon due execution and delivery of all requested
documents.
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\21\ Change of Control would mean (i) a Sale of the Company, as
applied to the Company, (ii) a Deemed Liquidation Event as applied
to 24X Bermuda Holdco and as defined in the Third Amended and
Restated 24X Bermuda Holdings LLC Limited Liability Company
Operating Agreement, as may be amended, or (iii) a Sale of the
Company, as applied to 24X National Exchange, and in each of clauses
(i), (ii) and (iii) as indicated by the Company in its written
notice to each Qualifying Participant who holds a Non-Voting Common
Unit.
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If 24X US Holdco indicates in its written notice that it will not
exercise its right to purchase 100% of all Qualifying Participants'
Non-Voting Common Units, each Qualifying Participant has 10 days after
receipt of notice to indicate in writing to 24X US Holdco that it
wishes to sell to 24X US Holdco 100% of all such Qualifying
Participant's Non-Voting Common Units at a price equal to the then
applicable percentage of the Fair Market Value and if the Change of
Control occurs after 2034, at 100% of the Fair Market Value of a Non-
Voting Common Unit. 24X US Holdco shall pay in cash the applicable Fair
Market Value for each Non-Voting Common Unit on or before the closing
of the Change of Control against delivery of all documents as requested
by 24X US Holdco (which may be similar to those executed and delivered
in a Sale of the 24X US Holdco). For the avoidance of doubt, 24X US
Holdco is only obligated to make the payment upon due execution and
delivery of all requested documents.
Notwithstanding the above, instead of the above two paragraphs
applying, 24X US Holdco, in its discretion, can have the Non-Voting
Common Units receive what each such Unit is entitled to receive in the
Change of Control transaction at the closing of such transaction.
h. Purposes of the Program
As discussed above, the purpose of the Program is to encourage
Participants to direct greater trade volume to the Exchange to enhance
trading volume in 24X's market. Increased volume will provide for
greater liquidity and enhanced price discovery, which benefits all
market participants. Other exchanges have previously engaged in the
practice of incentivizing increased order flow to attract liquidity
providers through equity sharing arrangements.\22\ The Program
similarly intends to attract order flow, which will increase liquidity,
thereby providing greater trading opportunities and tighter spreads for
other market participants and causing a corresponding increase in order
flow from these other market participants. The Program will similarly
reward the liquidity providers that provide this additional volume with
a potential proprietary interest in the parent company of 24X.
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\22\ See, e.g., Securities Exchange Act Release Nos. 62358 (June
22, 2010), 75 FR 37861 (June 30, 2010) (SR-NSX-2010-06); 64742 (June
24, 2011), 76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-18); 69200
(March 21, 2013), 78 FR 18657 (March 27, 2013) (SR-CBOE-2013-031);
74095 (January 20, 2015). 80 FR 4011 (January 26, 2015) (SR-MIAX-
2015-02); 74114 (January 22, 2015), 80 FR 4611 (January 28, 2015)
(SR-BOX-2015-03); 74576 (March 25, 2015), 80 FR 17122 (March 31,
2015) (SR-BOX-2015-16); 80909 (June 12, 2017), 82 FR 27743 (June 16,
2017) (SR-MIAX-2017-28); 83012 (April 9, 2018), 83 FR 16163 (April
13, 2018) (SR-PEARL-2018-08); 89730 (September 1, 2020), 85 FR 55530
(September 8, 2020) (SR-PEARL-2020-10); 100247 (May 30, 2024), 89 FR
48203 (June 5, 2024) (SR-MEMX-2024-21); and 103210 (June 9, 2025),
90 FR 25107 (June 13, 2025) (SR-MEMX-2025-14).
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2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Exchange Act \23\ in general, and furthers the
objectives of Section 6(b)(5) of the Exchange Act \24\ in particular,
in that it is 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 facilitating
transactions in securities, to remove impediments to and perfect the
mechanisms 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) of the Exchange Act \25\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. The Exchange also believes the
proposed rule change is consistent with Section 6(b)(4) of the Exchange
Act,\26\ which requires that Exchange rules provide for the equitable
allocation of reasonable dues, fees, and other charges among its
members and other persons using its facilities.
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\23\ 15 U.S.C. 78f.
\24\ 15 U.S.C. 78f(b)(5).
\25\ See id.
\26\ 15 U.S.C. 78f(b)(4).
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The Exchange believes that the proposed rule change is equitable
and not unfairly discriminatory, because all Exchange Members may elect
to participate (or elect not to participate) in the Program on the same
terms and conditions, assuming they satisfy the same eligibility
criteria as described above. All Participants may receive warrants that
provide the Participants with the right to purchase Non-Voting Common
Units on the same terms and conditions. The eligibility criteria are
objective; any Exchange Member that pays the Prepayment Fee and
otherwise satisfies the eligibility criteria described above has the
same opportunity for their warrants to vest through volume
contributions. The Target Volume is the same for all Participants; all
Participants have the same opportunity to have their warrants vest and
then exercise their warrants for Non-Voting Common Units on a
proportional basis based upon meeting the Target Volumes during the
Measurement Periods. The application of the 24X Minimum Overall Market
Share has the same effect for all Participants, and is included to
prevent Participants from earning the right to exercise warrants to
purchase Non-Voting Common Units via the Program if 24X does not reach
a designated level of trading. Without such a requirement, Participants
potentially would be eligible to earn the right to exercise warrants to
purchase equity in 24X US Holdco for limited trading activity.
Furthermore, the 24X Minimum Overall Market Share requirement provides
an additional incentive for all Participants to engage in market
activity on 24X. Whether 24X satisfies the 24X Minimum Overall Market
Share is directly related to the trading activity of all Members of the
Exchange; the Exchange itself does not directly impact the volume of
trading on the Exchange. The liquidity program also applies equally to
all Participants that have exercised a warrant and hold Non-Voting
Common Units. With each of these aspects of the Program, all
Participants will have the same opportunity to vest warrants and to
exercise those warrants to purchase Non-Voting Common Units if they so
[[Page 46443]]
choose, and to participate in the liquidity program if they so choose.
The Exchange believes that the methodology used to calculate the
volume thresholds is fair, reasonable and not unfairly discriminatory
because it is based on objective criteria that is designed to increase
trading volume on the Exchange's market. The Program is designed to
reward Participants for bringing their orders and quotes to the
Exchange to be executed on the Exchange. The Exchange also believes it
is appropriate to provide a multiple of credit for activity during the
24X Overnight Trading for purposes of calculating the Participant's
performance during the Measurement Periods to encourage and reward such
activity because the Exchange is seeking to enhance exchange overnight
trading. The Exchange also believes that it is appropriate to apply a
cap on the 24X Overnight Multiplier to ensure continued strong trading
on the Exchange during regular trading hours.
The Exchange believes the Program is equitable and reasonable
because an increase in volume and liquidity would benefit all market
participants by providing more trading opportunities and tighter
spreads, even to those market participants that do not participate in
the Program. Additionally, the Exchange believes the proposed rule
change is consistent with the Exchange Act because, as described above,
the Program is designed to bring greater volume and liquidity to the
Exchange, which will benefit all market participants by providing
tighter quoting and better prices, all of which perfects the mechanism
for a free and open market and national market system.
A Participant's total equity ownership of 24X US Holdco Units,
including any purchased through the exercise of vested warrants via the
Program, shall be subject to the ownership limitations of the 24X US
Holdco LLC Agreement.\27\ Accordingly, a Participant will not be able
to exercise warrants for Non-Voting Common Units to the extent that
such exercise would violate such ownership limitations.
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\27\ See, e.g., Section III of the 24X US Holdco LLC Agreement.
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B. Self-Regulatory Organization's Statement on Burden on Competition
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 Exchange Act. The Exchange
believes that the proposed rule change will improve competition by
providing market participants the opportunity to execute orders and
post liquidity on the Exchange's market.
The Exchange believes that the proposed rule change would increase
both intermarket and intramarket competition by incentivizing
Participants to direct their orders to the Exchange, which will enhance
the quality of quoting and increase the volume of securities traded on
the Exchange. To the extent that there is an additional competitive
burden on non-Participants, the Exchange believes that this is
appropriate because the Program should incent Participants to direct
additional order flow to the Exchange and thus provide additional
liquidity that enhances the quality of its market and increases the
volume of securities traded on the Exchange. To the extent that this
purpose is achieved, the Exchange believes that all of the Exchange's
market participants would benefit from the improved market liquidity.
Enhanced market quality and increased transaction volume that results
from the anticipated increase in order flow directed to the Exchange
will benefit all market participants and improve competition on the
Exchange.
Given the robust competition for volume among equities markets,
implementing a program to attract order flow like the one proposed in
this filing is consistent with the above-mentioned goals of the
Exchange Act. This is especially true for the smaller exchange markets,
such as 24X, which are competing for volume with much larger exchanges
that dominate the equities trading industry. As a new exchange, 24X
will likely have a nominal percentage of the average daily trading
volume in equities in the near term, so it is unlikely that the Program
could cause any competitive harm to the equities market or to market
participants. Rather, the Program is a modest attempt to attract order
volume away from larger competitors by adopting an innovative pricing
strategy. The Exchange notes that if the Program results in a modest
percentage increase in the average daily trading volume on 24X, while
such percentage would represent a large volume increase for 24X, it
would represent a minimal reduction in volume of its larger competitors
in the industry. The Exchange believes that the Program will help
further competition, because market participants will have yet another
additional option in determining where to execute orders and post
liquidity if they factor the benefits of 24X equity participation into
the determination.
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 Exchange Act \28\ and Rule 19b-4(f)(2) \29\
thereunder. 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.
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\28\ 15 U.S.C. 78s(b)(3)(A)(ii).
\29\ 17 CFR 240.19b-4(f)(2).
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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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-24X-2025-04 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-24X-2025-04. 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
[[Page 46444]]
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-24X-2025-04 and should be
submitted on or before October 17, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-18673 Filed 9-25-25; 8:45 am]
BILLING CODE 8011-01-P