Federal Register / Vol. 89, No. 180 / Tuesday, September 17, 2024 / Notices 76167 

56 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Exchange Rule 1.5(p). 

4The Exchange initially filed the proposed Fee 

Schedule changes on August 30, 2024 (SR–MEMX– 

2024–35). On September 6, 2024, the Exchange 

withdrew that filing and submitted this proposal. 

5Market share percentage calculated as of 

September 6, 2024. The Exchange receives and 

processes data made available through consolidated 

data feeds (i.e., CTS and UTDF). 

6 Id. 

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 rule-comments@

sec.gov. Please include file number SR– 

MRX–2024–35 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–MRX–2024–35. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–MRX–2024–35 and should be 

submitted on or before October 8, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.56

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2024–21034 Filed 9–16–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–100999; File No. SR– 

MEMX–2024–36] 

Self-Regulatory Organizations; MEMX 

LLC; Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend the Exchange’s Fee 

Schedule Concerning Transaction 

Pricing 

September 11, 2024. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that, on 

September 6, 2024, MEMX LLC 

(‘‘MEMX’’ or the ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing with the 

Commission a proposed rule change to 

amend the Exchange’s fee schedule 

applicable to Members 3 (the ‘‘Fee 

Schedule’’) pursuant to Exchange Rules 

15.1(a) and (c). The Exchange proposes 

to implement the changes to the Fee 

Schedule pursuant to this proposal 

immediately. The text of the proposed 

rule change is provided in Exhibit 5. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to amend the Fee Schedule to 

(i) modify the required criteria under 

Liquidity Provision Tier 1; and (ii) 

reduce the fee and modify the required 

criteria under Liquidity Removal Tier 1, 

as further described below.4

The Exchange first notes that it 

operates in a highly competitive market 

in which market participants can 

readily direct order flow to competing 

venues if they deem fee levels at a 

particular venue to be excessive or 

incentives to be insufficient. More 

specifically, the Exchange is only one of 

16 registered equities exchanges, as well 

as a number of alternative trading 

systems and other off-exchange venues, 

to which market participants may direct 

their order flow. Based on publicly 

available information, no single 

registered equities exchange currently 

has more than approximately 15.77% of 

the total market share of executed 

volume of equities trading.5 Thus, in 

such a low-concentrated and highly 

competitive market, no single equities 

exchange possesses significant pricing 

power in the execution of order flow, 

and the Exchange currently represents 

approximately 2.59% of the overall 

market share.6 The Exchange in 

particular operates a ‘‘Maker-Taker’’ 

model whereby it provides rebates to 

Members that add liquidity to the 

Exchange and charges fees to Members 

that remove liquidity from the 

Exchange. The Fee Schedule sets forth 

the standard rebates and fees applied 

per share for orders that add and remove 

liquidity, respectively. Additionally, in 

response to the competitive 

environment, the Exchange also offers 

tiered pricing, which provides Members 

with opportunities to qualify for higher 

rebates or lower fees where certain 

volume criteria and thresholds are met. 

Tiered pricing provides an incremental 

incentive for Members to strive for 

higher tier levels, which provides 


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76168 Federal Register / Vol. 89, No. 180 / Tuesday, September 17, 2024 / Notices 

7The base rebate for executions of Added 

Displayed Volume is referred to by the Exchange on 

the Fee Schedule under the existing description 

‘‘Added displayed volume’’ with a Fee Code of ‘‘B’’, 

‘‘D’’ or ‘‘J’’, as applicable, on execution reports. 

8As set forth on the Fee Schedule, ‘‘ADAV’’ 

means the average daily added volume calculated 

as the number of shares added per day, which is 

calculated on a monthly basis, and ‘‘Displayed 

ADAV’’ means ADAV with respect to displayed 

orders. 

9As set forth on the Fee Schedule, ‘‘TCV’’ means 

total consolidated volume calculated as the volume 

reported by all exchanges and trade reporting 

facilities to a consolidated transaction reporting 

plan for the month for which the fees apply. 

10As set forth on the Fee Schedule, ‘‘Step-Up 

ADAV’’ means ADAV in the relevant baseline 

month subtracted from current ADAV. 

11As set forth on the Fee Schedule, ‘‘Remove 

ADV’’ means ADV with respect to orders that 

remove liquidity. 

12As set forth on the Fee Schedule, ‘‘ADV’’ means 

average daily volume calculated as the number of 

shares added or removed, combined, per day, 

which is calculated on a monthly basis. 

13The pricing for Liquidity Removal Tier 1 is 

referred to by the Exchange on the Fee Schedule 

under the existing description ‘‘Removed volume 

from MEMX Book, Liquidity Removal Tier 1’’ with 

a Fee Code of ‘‘R1’’ to be provided by the Exchange 

on the monthly invoices provided to Members. The 

Exchange notes that because the determination of 

whether a Member qualifies for a certain pricing tier 

for a particular month will not be made until after 

the month-end, the Exchange will provide the Fee 

Codes otherwise applicable to such transactions on 

the execution reports provided to Members during 

the month and will only designate the Fee Codes 

applicable to the achieved pricing tier on the 

monthly invoices, which are provided after such 

determination has been made, as the Exchange does 

for its tier-based pricing today. 

14 15 U.S.C. 78f. 

15 15 U.S.C. 78f(b)(4) and (5). 

increasingly higher benefits or discounts 

for satisfying increasingly more 

stringent criteria. 

Liquidity Provision Tiers 

The Exchange currently provides a 

standard rebate of $0.0015 per share for 

executions of orders in securities priced 

at or above $1.00 per share that add 

displayed liquidity to the Exchange 

(such orders, ‘‘Added Displayed 

Volume’’).7 The Exchange also currently 

offers Liquidity Provision Tiers 1–6, 

among other volume-based tiers, under 

which a Member may receive an 

enhanced rebate for executions of 

Added Displayed Volume by achieving 

the corresponding required volume 

criteria for each such tier. The Exchange 

now proposes to modify the required 

criteria under Liquidity Provision Tier 

1, as further described below. 

The Exchange currently provides an 

enhanced rebate of $0.0034 per share for 

executions of Added Displayed Volume 

for Members that qualify for such tier by 

achieving (1) an ADAV 8 (excluding 

Retail Orders) that is equal to or greater 

than 0.50% of the TCV; 9 or (2) a StepUp ADAV 10 from June 2024 (excluding 

Retail Orders) of the TCV that is equal 

to or greater than 0.07% of the TCV in 

securities priced at or above $1.00 per 

share and an ADAV that is equal to or 

greater than 0.20% of the TCV in 

securities priced at or above $1.00 per 

share. Now, the Exchange proposes to 

modify alternative criteria (2) of 

Liquidity Provision Tier 1, such that a 

Member may qualify for such alternative 

criteria by achieving both the current 

requirements of alternative criteria (2) 

and also achieving a Remove ADV 11

that is equal to or greater than 0.45% of 

the TCV. Thus, the Exchange now 

proposes to keep existing alternative 

criteria (1) intact while adding an 

additional requirement to the current 

alternative criteria (2), such that a 

Member meets alternative criteria (2) of 

such tier by achieving (i) a Step-Up 

ADAV from June 2024 (excluding Retail 

Orders) of the TCV that is equal to or 

greater than 0.07% of the TCV in 

securities priced at or above $1.00 per 

share, (ii) an ADAV that is equal to or 

greater than 0.20% of the TCV in 

securities priced at or above $1.00 per 

share, and (iii) a Remove ADV that is 

equal to or greater than 0.45% of the 

TCV. 

The proposed change to Liquidity 

Provision Tier 1 is designed to 

encourage Members to maintain or 

increase their order flow, including in 

the form of orders that both add and 

remove liquidity, on the Exchange in 

order to qualify for the enhanced 

Liquidity Provision Tier 1 rebate. While 

the Exchange’s overall pricing 

philosophy generally encourages adding 

liquidity over removing liquidity, the 

Exchange believes that adding a 

requirement to criteria (2) of Liquidity 

Provision Tier 1 which encourages both 

liquidity-adding and liquidity-removing 

volume may contribute to a more robust 

and well-balanced market ecosystem on 

the Exchange to the benefit of all 

Members. 

Liquidity Removal Tiers 

The Exchange currently charges a 

standard fee of 0.0030 per share for 

executions of orders in securities priced 

at or above $1.00 per share that remove 

liquidity from the Exchange (such 

orders, ‘‘Removed Volume’’). The 

Exchange also currently offers Liquidity 

Removal Tier 1 under which qualifying 

Members are charged a discounted fee 

by achieving the corresponding required 

volume criteria for each such tier. The 

Exchange now proposes to modify 

Liquidity Removal Tier 1 by reducing 

the fee charged for executions of 

Removed Volume and by modifying the 

required criteria under such tier, as 

further described below. 

Under Liquidity Removal Tier 1, the 

Exchange currently charges a 

discounted fee of $0.00295 per share for 

executions of Removed Volume by 

achieving (1) an ADV 12 that is equal to 

or greater than 0.70% of the TCV and (2) 

a Remove ADV that is equal to or greater 

than 0.35% of the TCV.13 Now, the 

Exchange proposes to reduce the fee 

charged for executions of Removed 

Volume under Liquidity Removal Tier 1 

to $0.0029 per share, and to modify the 

required criteria such that a Member 

would now qualify for such tier by 

achieving 1) an ADV that is equal to or 

greater than 0.70% of the TCV and (2) 

a Remove ADV that is equal to or greater 

than 0.50% of the TCV. Thus, the 

proposed change would reduce the fee 

charged from $0.00295 to $0.0029 per 

share and increase the Remove ADV 

threshold by 0.15% (i.e., from 0.35% to 

0.50%) of the TCV. 

The proposed changes to Liquidity 

Removal Tier 1 are designed to 

encourage Members to maintain or 

increase their order flow, including in 

the form of orders that remove liquidity, 

to the Exchange in order to qualify for 

the proposed reduction in the fee for 

executions of Removed Volume. While 

(as mentioned above) the Exchange’s 

overall pricing philosophy generally 

encourages adding liquidity over 

removing liquidity, the Exchange 

believes that providing criteria under 

certain tiers that are based on different 

types of volume that Members may 

choose to achieve, such as the existing 

criteria that includes a Remove ADV 

threshold, contributes to a more robust 

and well-balanced market ecosystem on 

the Exchange to the benefit of all 

Members. The Exchange believes that 

the proposed reduction in the fee for 

executions of Removed Volume by 

$0.00005 per share represents a modest 

reduction and remains commensurate 

with the proposed new required criteria. 

The Exchange believes that the 

proposed increase in the Remove ADV 

requirement will encourage the 

submission of additional Removed 

Volume, thereby contributing to a 

deeper and more robust and wellbalanced market ecosystem on the 

Exchange to the benefit of all Members 

and market participants. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6 of the Act,14

in general, and with Sections 6(b)(4) and 

6(b)(5) of the Act,15 in particular, in that 

it provides for the equitable allocation 

of reasonable dues, fees and other 


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Federal Register / Vol. 89, No. 180 / Tuesday, September 17, 2024 / Notices 76169 

16Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005). 17 15 U.S.C. 78f(b)(4) and (5). 18See supra note 16. 

charges among its Members and other 

persons using its facilities and is not 

designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

As discussed above, the Exchange 

operates in a highly fragmented and 

competitive market in which market 

participants can readily direct order 

flow to competing venues if they deem 

fee levels at a particular venue to be 

excessive or incentives to be 

insufficient, and the Exchange 

represents only a small percentage of 

the overall market. The Commission and 

the courts have repeatedly expressed 

their preference for competition over 

regulatory intervention in determining 

prices, products, and services in the 

securities markets. In Regulation NMS, 

the Commission highlighted the 

importance of market forces in 

determining prices and SRO revenues 

and also recognized that current 

regulation of the market system ‘‘has 

been remarkably successful in 

promoting market competition in its 

broader forms that are most important to 

investors and listed companies.’’ 16

The Exchange believes that the evershifting market share among the 

exchanges from month to month 

demonstrates that market participants 

can shift order flow or discontinue to 

reduce use of certain categories of 

products, in response to new or 

different pricing structures being 

introduced into the market. 

Accordingly, competitive forces 

constrain the Exchange’s transaction 

fees and rebates, and market 

participants can readily trade on 

competing venues if they deem pricing 

levels at those other venues to be more 

favorable. The Exchange believes the 

proposal reflects a reasonable and 

competitive pricing structure designed 

to incentivize market participants to 

direct additional order flow to the 

Exchange, which the Exchange believes 

would promote price discovery and 

enhance liquidity and market quality on 

the Exchange to the benefit of all 

Members and market participants. 

The Exchange notes that volumebased incentives and discounts have 

been widely adopted by exchanges, 

including the Exchange, and are 

reasonable, equitable and not unfairly 

discriminatory because they are open to 

all members on an equal basis and 

provide additional benefits or discounts 

that are reasonably related to the value 

to an exchange’s market quality 

associated with higher levels of market 

activity, such as higher levels of 

liquidity provision and/or growth 

patterns, and the introduction of higher 

volumes of orders into the price and 

volume discovery process. The 

Exchange believes that the proposed 

changes to Liquidity Provision Tier 1 

and Liquidity Removal Tier 1 are 

reasonable, equitable and not unfairly 

discriminatory because, as described 

above, such changes are available to all 

Members on an equal basis, and are 

designed to encourage Members to 

maintain or increase their order flow, 

including in the form of displayed, 

liquidity-adding and/or liquidity 

removing orders, to the Exchange in 

order to qualify for an enhanced rebate 

for executions of Added Displayed 

Volume or a discounted fee for 

executions of Removed Volume, as 

applicable, thereby contributing to a 

deeper, more liquid and well balanced 

market ecosystem on the Exchange to 

the benefit of all Members and market 

participants. 

The Exchange also believes that such 

tiers reflect a reasonable and equitable 

allocation of fees and rebates, as the 

Exchange believes that the modification 

to the criteria under Liquidity Provision 

Tier 1 and the reduced fee under 

Liquidity Removal Tier 1 remain 

commensurate with the corresponding 

required criteria under each such tier 

and are reasonably related to the market 

quality benefits that each such tier is 

designed to achieve, as described above. 

The proposal to modify the criteria 

under Liquidity Provision Tier 1, to 

modify the criteria under Liquidity 

Removal Tier 1, and to reduce the fee 

under Liquidity Removal Tier 1 is not 

unfairly discriminatory because it 

applies equally to all Members. 

For the reasons discussed above, the 

Exchange submits that the proposal 

satisfies the requirements of Sections 

6(b)(4) and 6(b)(5) of the Act 17 in that 

it provides for the equitable allocation 

of reasonable dues, fees and other 

charges among its Members and other 

persons using its facilities and is not 

designed to unfairly discriminate 

between customers, issuers, brokers, or 

dealers. As described more fully below 

in the Exchange’s statement regarding 

the burden on competition, the 

Exchange believes that its transaction 

pricing is subject to significant 

competitive forces, and that the 

proposed fees and rebates described 

herein are appropriate to address such 

forces. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposal will result in any burden 

on competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. Instead, as 

discussed above, the proposal is 

intended to incentivize market 

participants to direct additional 

liquidity-adding and liquidity-removing 

order flow to the Exchange, thereby 

enhancing liquidity and market quality 

on the Exchange to the benefit of all 

Members and market participants. As a 

result, the Exchange believes the 

proposal would enhance its 

competitiveness as a market that attracts 

actionable orders, thereby making it a 

more desirable destination venue for its 

customers. For these reasons, the 

Exchange believes that the proposal 

furthers the Commission’s goal in 

adopting Regulation NMS of fostering 

competition among orders, which 

promotes ‘‘more efficient pricing of 

individual stocks for all types of orders, 

large and small.’’ 18

Intramarket Competition 

As discussed above, the Exchange 

believes that the proposal would 

incentivize Members to submit 

additional order flow in the form of 

liquidity adding, non-displayed orders 

to the Exchange, thereby enhancing 

liquidity and market quality on the 

Exchange to the benefit of all Members, 

as well as enhancing the attractiveness 

of the Exchange as a trading venue, 

which the Exchange believes, in turn, 

would continue to encourage market 

participants to direct additional order 

flow to the Exchange. Greater liquidity 

benefits all Members by providing more 

trading opportunities and encourages 

Members to send additional orders to 

the Exchange, thereby contributing to 

robust levels of liquidity, which benefits 

all market participants. The opportunity 

to qualify for the proposed modified 

Liquidity Provision Tier 1 and the 

proposed modified Liquidity Removal 

Tier 1 would be available to all 

Members that meet the associated 

volume requirements in any month. As 

described above, the Exchange believes 

that the proposed new required criteria 

under each such tier are commensurate 

with the corresponding rebate for 

liquidity-adding order flow and 

proposed reduced fee for liquidityremoving order flow, as applicable. 

Additionally, as noted above, the 

proposed changes to Liquidity Provision 

Tier 1 and Liquidity Removal Tier 1 


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76170 Federal Register / Vol. 89, No. 180 / Tuesday, September 17, 2024 / Notices 

19 Id. 

20NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. 

Cir. 2010) (quoting Securities Exchange Act Release 

No. 59039 (December 2, 2008), 73 FR 74770, 74782– 

83 (December 9, 2008) (SR–NYSE–2006–21)). 

21 15 U.S.C. 78s(b)(3)(A)(ii). 

22 17 CFR 240.19b–4(f)(2). 

would apply to all Members equally. 

For the foregoing reasons, the Exchange 

believes the proposed changes would 

not impose any burden on intramarket 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

Intermarket Competition 

As noted above, the Exchange 

operates in a highly competitive market 

in which market participants can 

readily direct order flow to competing 

venues if they deem fee levels at a 

particular venue to be excessive or 

incentives to be insufficient. Members 

have numerous alternative venues that 

they may participate on and direct their 

order flow to, including 15 other 

equities exchanges and numerous 

alternative trading systems and other 

off-exchange venues. As noted above, no 

single registered equities exchange 

currently has more than approximately 

15.6% of the total market share of 

executed volume of equities trading. 

Thus, in such a low-concentrated and 

highly competitive market, no single 

equities exchange possesses significant 

pricing power in the execution of order 

flow. Moreover, the Exchange believes 

that the ever-shifting market share 

among the exchanges from month to 

month demonstrates that market 

participants can shift order flow or 

discontinue to reduce use of certain 

categories of products, in response to 

new or different pricing structures being 

introduced into the market. 

Accordingly, competitive forces 

constrain the Exchange’s transaction 

fees and rebates and market participants 

can readily choose to send their orders 

to other exchange and off-exchange 

venues if they deem fee levels at those 

other venues to be more favorable. As 

described above, the proposed changes 

represent a competitive proposal 

through which the Exchange is seeking 

to generate additional revenue with 

respect to its transaction pricing and to 

encourage the submission of additional 

order flow to the Exchange through 

volume-based tiers, which have been 

widely adopted by exchanges, including 

the Exchange. Accordingly, the 

Exchange believes the proposal would 

not burden, but rather promote, 

intermarket competition by enabling it 

to better compete with other exchanges 

that offer similar pricing incentives to 

market participants. 

Additionally, the Commission has 

repeatedly expressed its preference for 

competition over regulatory 

intervention in determining prices, 

products, and services in the securities 

markets. Specifically, in Regulation 

NMS, the Commission highlighted the 

importance of market forces in 

determining prices and SRO revenues 

and, also, recognized that current 

regulation of the market system ‘‘has 

been remarkably successful in 

promoting market competition in its 

broader forms that are most important to 

investors and listed companies.’’ 19 The 

fact that this market is competitive has 

also long been recognized by the courts. 

In NetCoalition v. SEC, the D.C. Circuit 

stated as follows: ‘‘[n]o one disputes 

that competition for order flow is 

‘fierce.’ . . . As the SEC explained, ‘[i]n 

the U.S. national market system, buyers 

and sellers of securities, and the brokerdealers that act as their order-routing 

agents, have a wide range of choices of 

where to route orders for execution’; 

[and] ‘no exchange can afford to take its 

market share percentages for granted’ 

because ‘no exchange possesses a 

monopoly, regulatory or otherwise, in 

the execution of order flow from broker 

dealers’. . . .’’.20 Accordingly, the 

Exchange does not believe its proposed 

pricing changes impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act 21 and Rule 

19b–4(f)(2) 22 thereunder. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

MEMX–2024–36 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–MEMX–2024–36. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–MEMX–2024–36 and should be 

submitted on or before October 8, 2024. 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 180 / Tuesday, September 17, 2024 / Notices 76171 

23 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 100584 

(July 24, 2024), 89 FR 61211 (July 30, 2024) (File 

No. SR–OCC–2024–009) (‘‘Notice of Filing’’). 

4OCC describes itself as ‘‘the sole clearing agency 

for standardized equity options listed on a national 

securities exchange registered with the Commission 

(‘listed options’).’’ See Securities Exchange Act 

Release No. 96533 (Dec. 19, 2022), 87 FR 79015 

(Dec. 23, 2022) (File No. SR–OCC–2022–012). 

5Capitalized terms have the same meaning as 

provided in OCC’s By-Laws and Rules, which can 

be found on OCC’s public website: https://

www.theocc.com/Company-Information/ 

Documents-and-Archives/By-Laws-and-Rules. 

6Under the rules applicable to OCC, backtesting 

means an ex-post comparison of actual outcomes 

with expected outcomes derived from the use of 

margin models. 17 CFR 240.17ad–22(a) 

(‘‘Backtesting’’). 

7See Notice of Filing, 89 FR at 61212. 

8Under the Proposed Rule Change, OCC also 

would make conforming changes to its rules and 

internal policies and procedures to reflect these 

amendments and facilitate implementation, 

including consolidating internal procedures for all 

backtesting into a Backtesting Procedure and 

associated technical document, updating references 

and descriptions, and inserting headings. See 

Notice of Filing, 89 FR at 61219–20. OCC provided 

the new Backtesting Procedure as confidential 

Exhibit 3B, and the updated technical document as 

confidential Exhibit 3C to File No. SR–OCC–2024– 

009. 

9OCC’s margin methodology, adopted in 2006, is 

titled the System for Theoretical Analysis and 

Numerical Simulation (‘‘STANS’’). See Notice of 

Filing, 89 FR at 61212–13. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2024–21036 Filed 9–16–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–100998; File No. SR–OCC– 

2024–009] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Order 

Granting Approval of Proposed Rule 

Change by The Options Clearing 

Corporation Concerning Its 

Backtesting Framework and To 

Establish a Resource Backtesting 

Margin Charge 

September 11, 2024. 

I. Introduction 

On July 11, 2024, the Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change SR–OCC–2024– 

009 (‘‘Proposed Rule Change’’) pursuant 

to Section 19(b) of the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’) 1 and Rule 19b–4 2 thereunder. 

The Proposed Rule Change would 

amend the OCC rules to more 

comprehensively describe its approach 

to backtesting, including underlying 

assumptions; establish a new category of 

backtesting regarding the maintenance 

of sufficient margin resources; 

implement a new margin add-on charge 

based on breaches of the new category 

of resource backtesting; and clarify 

governance and escalation criteria 

related to the updated backtesting 

framework. The Proposed Rule Change 

was published for public comment in 

the Federal Register on July 30, 2024.3

The Commission has received no 

comments regarding the Proposed Rule 

Change. This order approves the 

Proposed Rule Change. 

II. Description of the Proposed Rule 

Change 

OCC is a central counterparty 

(‘‘CCP’’), which means that as part of its 

function as a clearing agency it 

interposes itself as the buyer to every 

seller and the seller to every buyer for 

certain financial transactions. As the 

CCP for the listed options markets in the 

U.S.,4 as well as for certain futures and 

stock loans, OCC is exposed to certain 

risks arising from providing settlement 

and clearing services to its Clearing 

Members.5 Because OCC is obligated to 

perform on the contracts it clears even 

where one of its Clearing Members 

defaults, one such risk to which OCC is 

exposed is credit risk in the form of 

exposure to its members’ trading 

activities. OCC manages such credit 

risk, in part, by collecting collateral 

from its members in the form of margin. 

OCC evaluates the margin requirements 

it imposes on members by periodically 

comparing such requirements to the 

potential risk of loss arising out of a 

member default (i.e., backtesting).6

While backtesting does not directly 

establish a member’s margin 

requirements, OCC maintains authority 

under its rules to collect additional 

margin if OCC identifies—through 

backtesting results or otherwise—issues 

with its margin coverage.7

OCC’s current backtesting framework 

measures its Clearing Members’ losses 

in excess of calculated margin 

requirements to evaluate the adequacy 

of OCC’s model performance, improve 

margin methodology and risk 

assessment processes, and identify 

trends in exceedances that may indicate 

broader behavioral changes by market 

participants. However, OCC’s current 

backtesting framework does not provide 

detailed descriptions of the backtesting 

process, nor does it require OCC to 

measure whether it has collected 

sufficient margin resources in the event 

of a Clearing Member default (a process 

often referred to as ‘‘resource 

sufficiency’’ evaluation), or detail the 

underlying assumptions and governance 

process for the framework. To address 

these issues, the Proposed Rule Change 

would update OCC’s current backtesting 

framework by: 

• updating the current backtesting 

framework to more comprehensively 

describe material aspects of model 

backtesting; 

• providing for a new category of 

backtesting—‘‘Resource Backtesting’’— 

that assesses the adequacy of OCC’s 

margin resources to cover its credit 

exposure at the Clearing Member level; 

and 

• detailing the underlying 

assumptions and reporting structure for 

the entire backtesting framework to 

provide for clearer governance 

procedures, including escalation 

criteria. 

Additionally, OCC lacks a mechanism 

with which to collect additional margin 

resources in instances where backtesting 

suggests that OCC may otherwise not 

have sufficient resources to cover its 

credit exposure during a Clearing 

Member’s default. To that end, OCC 

proposes to implement a new add-on 

charge called the ‘‘Resource Backtesting 

Margin Charge.’’ Although this add-on 

would not be part of the backtesting 

framework, OCC would use the 

proposed Resource Backtesting category 

of backtesting to determine if additional 

margin in the form of the Resource 

Backtesting Margin Charge is necessary 

and in what amount. Specifically, OCC 

would apply the Resource Backtesting 

Margin Charge to Clearing Members 

who experience Resource Backtesting 

deficiencies that bring their margin 

coverage rates below a 99% coverage 

target. OCC also proposes to include in 

the backtesting framework governance 

procedures related to the Resource 

Backtesting Margin Charge.8

A. OCC’s Current Backtesting 

Framework 

OCC conducts daily backtesting of 

collateral requirements generated by its 

margin methodology using standard 

predetermined parameters and 

assumptions. OCC uses such backtesting 

to update its credit risk management 

and margin methodology 9 or to adjust 

model parameters. OCC relies on 

backtesting to evaluate the accuracy of 

its margin models by comparing the 

calculated margin coverage for each 

margin account against the realized 

profit and loss on the margined 


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