[Federal Register Volume 85, Number 244 (Friday, December 18, 2020)]
[Notices]
[Pages 82557-82560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27841]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90660; File No. SR-MEMX-2020-15]


Self-Regulatory Organizations; MEMX LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change to Amend the 
Exchange's Fee Schedule

December 14, 2020.
    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 December 4, 2020, 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 fee schedule applicable to Members \3\ pursuant to 
Exchange Rules 15.1(a) and (c) in order to modify its pricing for 
transactions in securities priced below $1.00 per share that are 
executed on the Exchange. 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 Exchange proposes to modify its fee schedule to modify the fees 
and rebates applicable to transactions in securities priced below $1.00 
per share (``Sub-Dollar Securities'') that are executed on the 
Exchange, effective as of December 4, 2020.
    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 16% of the total market share of 
executed volume of equities trading.\4\ Thus, in such a low-
concentrated and highly competitive market, no single equities exchange 
possesses significant pricing power in the execution of order flow.
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    \4\ Market share percentage calculated as of December 3, 2020. 
The Exchange receives and processes data made available through 
consolidated data feeds (i.e., CTS and UTDF).
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    The Exchange recently adopted a proposal \5\ to charge a standard 
fee of 0.30% of the total dollar value of any transaction in Sub-Dollar 
Securities that removes liquidity from the Exchange (``Removed Sub-
Dollar Volume'').\6\ The Exchange also adopted pricing to provide a 
standard rebate of 0.30% of the total dollar value of any transaction 
in Sub-Dollar Securities that adds liquidity, displayed or non-
displayed, to the Exchange (``Added Sub-Dollar Volume'').\7\
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    \5\ See Securities Exchange Act Release No. 90555 (December 3, 
2020) (SR-MEMX-2020-13) [sic].
    \6\ This pricing is referred to by the Exchange on the fee 
schedule under the existing description ``Removed volume from MEMX 
Book'' with a fee code of ``RB'' or ``RrB'', as applicable, assigned 
by the Exchange.
    \7\ This pricing is referred to by the Exchange on the fee 
schedule under ``Added displayed volume'', ``Added non-displayed 
volume'' or ``Added displayed volume, Retail Order'', as applicable, 
with a fee code of ``BB'', ``BrB'', ``DB'', ``DrB'', ``JB'', 
``JrB'', ``HB'', ``HrB'', ``MB'' or ``MrB'', as applicable, assigned 
by the Exchange.
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    The current rebate for executions of Added Sub-Dollar Volume was 
adopted to increase order flow in Sub-Dollar Securities to the Exchange 
by incentivizing Members to increase the liquidity-providing orders in 
Sub-Dollar Securities they submit to the Exchange, which would support 
price discovery on the Exchange and provide additional liquidity for 
incoming orders. The current fee for executions of Removed Sub-Dollar 
Volume, in turn, was intended to be a direct offset of the

[[Page 82558]]

rebate provided for Added Sub-Dollar Volume so that the Exchange could 
remain revenue neutral with respect to such transactions while 
attempting to compete with other venues to attract this order flow. 
While the pricing adopted by the Exchange was successful in attracting 
liquidity, based on activity that has occurred on the Exchange in the 
first several days of such pricing, the Exchange believes that a rebate 
of 0.30% of the total dollar value of any transaction might provide an 
out-sized incentive to trade certain high-volume Sub-Dollar Securities, 
particularly those with a lower bid-ask spread. Accordingly, the 
Exchange is proposing to modify its rebate for Added Sub-Dollar Volume 
to provide a rebate of 0.05% of the total dollar value of any 
transaction. The Exchange still believes that providing a rebate is 
important to attract displayed liquidity in Added Sub-Dollar Volume but 
is reducing the amount of the rebate in order to further analyze the 
optimal way to attract on-exchange order flow in Sub-Dollar Securities. 
In connection with this change, the Exchange proposes to maintain a 
revenue-neutral fee structure for executions in Sub-Dollar Securities, 
and thus proposes to reduce the fee to for Removed Sub-Dollar Volume to 
0.05% of the total dollar value of any transaction.
    The proposed pricing for Removed Sub-Dollar Volume and Added Sub-
Dollar Volume would only apply to transactions that are executed on the 
Exchange, and as such there would continue to be no fee charged or 
rebate provided for transactions in Sub-Dollar Securities that are 
routed to and executed at another market center. The proposed rule 
change does not include different fees or rebates for Sub-Dollar 
Securities that depend on the amount of orders submitted to, and/or 
transactions executed on or through, the Exchange. Accordingly, all 
fees and rebates described above are applicable to all Members, 
regardless of the overall volume of a Member's trading activities on 
the Exchange.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\8\ in general, and 
furthers the objectives of Sections 6(b)(4) and (5) of the Act,\9\ in 
particular, in that it is designed to provide 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.
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    \8\ 15 U.S.C. 78f.
    \9\ 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.'' \10\
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    \10\ 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, including with respect to 
transactions in Sub-Dollar Securities, 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 proposed 
rule change reflects a reasonable and competitive pricing structure 
designed to incentivize market participants to direct order flow to the 
Exchange, which the Exchange believes would enhance market quality to 
the benefit of all Members and investors. The Exchange notes that the 
proposal does not include different fees or rebates for transactions in 
Sub-Dollar Securities depending on the amount of orders submitted to, 
and/or transactions executed on or through, the Exchange. Accordingly, 
the proposed pricing structure is applicable to all Members, regardless 
of the overall volume of a Member's trading activities on the Exchange.
    The Exchange believes that the proposed changes with respect to 
pricing for executions of transactions in Sub-Dollar Securities would 
continue to incentivize submission of additional liquidity in Sub-
Dollar Securities to the Exchange through the proposed rebate of 0.05% 
of the total dollar value of any Added Sub-Dollar Volume transactions, 
thereby promoting price discovery and transparency, and enhancing order 
execution opportunities for all Members. The Exchange believes that the 
proposed rebate for Added Sub-Dollar Volume is reasonable because it 
would continue to incentivize Members to direct order flow in Sub-
Dollar Securities to the Exchange. The Exchange notes that at least one 
other exchange provides tiered rebates for liquidity-adding 
transactions in Sub-Dollar Securities equal to and better than the 
proposed rebate.\11\
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    \11\ See the NYSE Arca, Inc. (``NYSE Arca'') equities trading 
fee schedule on its public website (available at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf), which reflects a standard rebate of 
$0.00004 per share for liquidity-adding transactions in securities 
priced below $1.00 per share; the NYSE Arca equities trading fee 
schedule also permits participants to qualify for tiered rebates 
reflected as a percentage of the total dollar value of such 
transactions enabling participants to receive a rebate of 0.05% of 
the total dollar value per transaction (i.e., the same rebate 
proposed by the Exchange) or higher rebates ranging from 0.10% to 
0.15% of the total dollar value per transaction.
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    The Exchange also believes that the proposed fee for Removed Sub-
Dollar Volume is reasonable because it is in lower than \12\ or within 
the range of \13\ fees charged by other exchanges for liquidity-
removing transactions in Sub-Dollar Securities. The Exchange believes 
that, given the competitive environment in which the Exchange currently 
operates, the proposed pricing structure,

[[Page 82559]]

with an offsetting fee and rebate with respect to executions of 
transactions in Sub-Dollar Securities, is a reasonable attempt to 
encourage liquidity in Sub-Dollar Securities on the Exchange while 
remaining revenue neutral with respect to such transactions.
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    \12\ See, e.g., the Cboe EDGX Exchange, Inc. equities trading 
fee schedule on its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/), which 
reflects a fee of 0.30% of the total dollar value of the transaction 
for liquidity-removing transactions in securities priced below $1.00 
per share; the NYSE Arca equities trading fee schedule on its public 
website (available at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf), which reflects a fee of 
0.295% of the total dollar value of the transaction for liquidity-
taking transactions in securities priced below $1.00 per share.
    \13\ See, e.g., the Cboe BYX Exchange, Inc. equities trading fee 
schedule on its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/byx/), which 
reflects a fee of 0.10% of the total dollar value of the transaction 
for liquidity-removing transactions in securities priced below $1.00 
per share; the Cboe EDGA Exchange, Inc. equities trading fee 
schedule on its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/edga/), which 
reflects no fee or rebate for liquidity-removing transactions in 
securities priced below $1.00 per share; the NYSE National, Inc. 
equities trading fee schedule on its public website (available at 
https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf), which reflects no fee or rebate for 
liquidity-removing transactions in securities priced below $1.00 per 
share.
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    The Exchange also believes that the proposed fee and rebate 
structure applicable to executions of transactions in Sub-Dollar 
Securities is equitably allocated and not unfairly discriminatory 
because it applies equally to all Members and is reasonably related to 
the value of the Exchange's market quality associated with higher 
volume. A number of Members currently transact in Sub-Dollar Securities 
and they, along with additional Members that choose to direct order 
flow in Sub-Dollar Securities to the Exchange, would all qualify for 
the proposed fee and rebate. The Exchange still believes that providing 
a rebate is important to attract displayed liquidity in Added Sub-
Dollar Volume but is reducing the amount of the rebate in order to 
further analyze the optimal way to attract on-exchange order flow in 
Sub-Dollar Securities. The Exchange believes that maintaining 
competitive pricing for transactions in Sub-Dollar Securities would 
benefit all investors by deepening the Exchange's liquidity pool, which 
would support price discovery, promote market transparency and improve 
investor protection, further rendering the proposed changes reasonable 
and equitable.
    In conclusion, the Exchange also submits that its proposed fee 
structure satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of 
the Act for the reasons discussed above 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, including with respect to transactions in Sub-
Dollar Securities, is subject to significant competitive forces, and 
that the proposed fees and rebates described herein are appropriate to 
address such forces.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change 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 Exchange believes that the proposed change would 
encourage the continued submission of orders in Sub-Dollar Securities 
to the Exchange, thereby promoting market depth, enhanced execution 
opportunities, as well as price discovery and transparency for all 
Members. Furthermore, the Exchange believes that the proposed changes 
would allow the Exchange to continue to compete with other execution 
venues by providing competitive pricing for transactions in Sub-Dollar 
Securities, thereby making it a desirable destination venue for its 
customers. As a result, the Exchange believes that the proposed change 
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.'' \14\
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    \14\ See supra note 10.
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Intramarket Competition
    The Exchange believes that the proposed changes would continue to 
incentivize market participants to direct order flow to the Exchange. 
Greater liquidity benefits all Members by providing more trading 
opportunities and encourages Members to send orders to the Exchange, 
thereby contributing to robust levels of liquidity, which benefits all 
Members. The proposed fees and rebates for transactions in Sub-Dollar 
Securities would be available to all market participants, and, as such, 
the proposed change would not impose a disparate burden on competition 
among market participants on the Exchange. As such, 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
    The Exchange operates in a highly competitive market. 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 16% 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, including with respect to transactions in 
Sub-Dollar Securities, 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 are competitive proposals through 
which the Exchange is seeking to encourage certain order flow to be 
sent to the Exchange.
    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.'' \15\ 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'. . ..''.\16\ Accordingly, the Exchange does not believe its 
proposed fee change imposes any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \15\ See supra note 10.
    \16\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC 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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[[Page 82560]]

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 \17\ and Rule 19b-4(f)(2) \18\ thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 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 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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#92e0e7fef7bff1fdfffff7fce6e1d2e1f7f1bcf5fde4"><span class="__cf_email__" data-cfemail="e092958c85cd838f8d8d858e9493a0938583ce878f96">[email protected]</span></a>. Please include 
File Number
    SR-MEMX-2020-15 on the subject line.

Paper Comments

    <bullet> 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-2020-15. 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 (http://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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MEMX-2020-15 and should be submitted on 
or before January 8, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27841 Filed 12-17-20; 8:45 am]
BILLING CODE 8011-01-P


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