[Federal Register Volume 89, Number 203 (Monday, October 21, 2024)]
[Notices]
[Pages 84218-84220]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-24204]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101338; File No. SR-MEMX-2024-38]


Self-Regulatory Organizations; MEMX LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend the Fee 
Schedule Concerning Options Transaction Fees

October 15, 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 30, 2024, MEMX LLC (``MEMX'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposed rule change 
to amend the Exchange's fee schedule applicable to Members \3\ pursuant 
to Exchange Rules 15.1(a) and (c). The Exchange proposes to implement 
the changes to the MEMX Options Fee Schedule (the ``Options Fee 
Schedule'') pursuant to this proposal immediately. The text of the 
proposed rule change is provided in Exhibit 5.
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    \3\ See Exchange Rule 1.5(p).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Options Fee 
Schedule to increase the transaction rebate for executions of contracts 
where the underlying security of the applicable option is not in the 
Penny Interval program (``Non-Penny options'') \4\ which add liquidity 
to the MEMX Options Book \5\ and which are made in the Customer 
capacity (``Customer''),\6\ as further described below.
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    \4\ MEMX Options provides Fee Code ``N'' for transactions in 
Non-Penny options. Fee Codes are provided by the Exchange on the 
monthly invoices provided to Options Members.
    \5\ MEMX Options provides Fee Code ``D'' for transactions which 
add liquidity to the MEMX Options Book.
    \6\ Customer capacity applies to any order for the account of a 
Priority Customer. ``Priority Customer'' means any person or entity 
that is neither a broker or dealer in securities nor a Professional. 
See Rule 16.1 of the MEMX Rulebook. MEMX Options provides fee 
qualifier ``c'' for Customer transactions.
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    The Exchange first notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. The Exchange is one of only 
17 options venues to which market participants may direct their order 
flow. Based on publicly available information, no single options 
exchange has more than approximately 17% of the market share and 
currently the Exchange represents only approximately 3% of the market 
share.\7\ In such a low-concentrated and highly competitive market, no 
single options exchange, including the Exchange, possesses significant 
pricing power in the execution of option order flow. The Exchange 
believes that the ever-shifting market share among the exchanges from 
month to month demonstrates that market participants can shift order 
flow, discontinue, or reduce use of certain categories of products in 
response to fee changes. Accordingly competitive forces constrain the 
Exchange's transaction fees, and market participants can readily trade 
on competing venues if they deem pricing levels at those other venues 
to be more favorable. The Exchange's Fee Schedule sets forth standard 
rebates and rates applied per contract.
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    \7\ Market share percentage calculated as of September 30, 2024. 
The Exchange receives and processes data made available through the 
consolidated data feeds (i.e., OPRA).
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Increased Transaction Rebate for Executions of Non-Penny Options in the 
Customer Capacity Which Add Liquidity to the MEMX Options Book
    Currently, the Exchange provides a standard transaction rebate of 
$1.15 per contract on Non-Penny options (as defined above) in the 
Customer capacity which add liquidity to the MEMX Options Book. Now, 
the Exchange proposes to amend the standard transaction rebate on such 
contracts from $1.15 per contract to $1.19 per contract. The purpose of 
increasing the rebate is to incentivize Members to execute additional 
contracts in Non-Penny names in the Customer capacity which add 
liquidity. The Exchange's proposal is designed to encourage the 
execution of additional contracts on the Exchange in order to enhance 
volume, deepen liquidity and promote price discovery on the MEMX 
Options platform. The Exchange believes that the increased rebate is in 
line with or exceeds the rebates provided by other national securities 
exchanges and will incentivize Members to route additional order flow 
to the Exchange.\8\
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    \8\ See, e.g., note 10 of the of the Nasdaq Options Market 
trading fee schedule on its public website (available at: https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-options-7) 
which reflects a $1.15 per contract Rebate to Add Liquidity in Non-
Penny Symbols as Customer for Nasdaq Options Market participants who 
meet certain volume requirements on the Nasdaq Options Market. As 
MEMX Options is a comparatively new market, the Exchange believes 
that providing a higher rebate ($1.19) for Customer executions which 
add liquidity in Non-Penny options without requiring Members to 
achieve specific volume requirements will incentivize additional 
order flow to the Exchange.

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[[Page 84219]]

2. Statutory Basis
    The Exchange believes that its proposal to amend its Options Fee 
Schedule is consistent with the provisions of Section 6 of the Act,\9\ 
in general, and with Sections 6(b)(4) and 6(b)(5) of the Act,\10\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Options Members and other 
persons using its facilities. The Exchange also believes the proposal 
furthers the objectives of Section 6(b)(5) of the Act in that it is 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general to protect investors and the 
public interest and is not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    MEMX Options 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.'' \11\
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    \11\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005).
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    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 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 believes that the proposed change to increase the 
rebate for executions on Non-Penny options in the Customer capacity 
that add liquidity to the Exchange to $1.19 per contract is reasonable 
and equitable because it is designed to incentivize Members to submit 
additional liquidity-adding orders in Non-Penny options to the Exchange 
in the Customer capacity, which would enhance liquidity on the Exchange 
and promote price discovery and price formation, and would be 
applicable to all Members. The Exchange further believes the proposed 
increased rebate is appropriate because it exceeds or is comparable to, 
and competitive with, the rebates provided by other exchanges for 
executions in the Customer capacity in Non-Penny options which add 
liquidity.\12\
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    \12\ See supra note 8.
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    Further, the Exchange believes it is reasonable, equitable, and not 
unfairly discriminatory for Members to receive a higher rebate for 
executions of contracts in Non-Penny options in the Customer capacity 
which add liquidity to the Exchange, as compared to the rebate provided 
for executions of contracts in Non-Penny options in non-Customer 
capacities (i.e., Market Maker, Professional, Firm, Away Market Maker, 
or Broker-Dealer capacities) which add liquidity to the Exchange. The 
securities markets generally, and the Exchange in particular, have 
historically aimed to improve markets for investors and develop various 
features within the market structure for the benefit of public 
customers (i.e., the Customer capacity on the Exchange) who are not 
professionals.\13\ The Exchange believes it promotes the best interests 
of investors to charge lower transaction costs and provide higher 
rebates for Customers, who are not Professionals, and that the 
Exchange's proposed fee structure provides right-sized incentives which 
will continue to attract Customer order flow to the Exchange.
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    \13\ The Exchange notes that, since the inception of MEMX 
Options, it has historically imposed different, and higher, 
transaction fees for executions in the non-Customer capacity than 
for executions in the Customer capacity. Similarly, since the 
inception of MEMX Options, the Exchange has historically provided 
different, and lower, rebates for executions in the non-Customer 
capacity than in the Customer capacity. See Securities Exchange Act 
Release No. 34-98533 (September 26, 2023), 88 FR 67846 (October 2, 
2023) (adopting a $1.10 per contract fee for non-Customers (Market 
Makers, Professionals, Firms, Away Market Makers, and Broker-
Dealers) to remove liquidity in Non-Penny options as compared to a 
$0.85 per contract fee for Customers to remove liquidity in Non-
Penny options, and a $0.80 per contract rebate for non-Customers to 
add liquidity in Non-Penny options as compared to a $1.04 per 
contract rebate for Customers to add liquidity in Non-Penny options. 
The Exchange notes that similar fee structures are common at other 
options exchanges. See, e.g., the Cboe BZX Options fee schedule on 
its public website (available at: https://www.cboe.com/us/options/membership/fee_schedule/bzx/), which reflects a higher $1.15 fee for 
Professional, Firm, Broker-Dealer, JBO, Market Maker, and Away 
Market Maker executions which remove liquidity in Non-Penny options 
and a lower $0.85 fee for Customer executions which remove liquidity 
in Non-Penny options. The Cboe BZX Options fee schedule also 
reflects lower rebates ranging from $0.30 to $0.88 for non-Customer 
executions which add liquidity in non-Penny options and a higher 
$1.05 rebate for Customer executions which add liquidity in Non-
Penny options.
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    For the reasons discussed above, the Exchange submits that its 
proposed change to the Options Transaction Fee Schedule satisfies the 
requirements of Sections 6(b)(4) and 6(b)(5) of the Act \14\ 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 are not designed to unfairly discriminate between customers, 
issuers, brokers, or dealers. As described more fully below in the 
Exchange's statement regarding burden on competition, the Exchange 
believes that its transaction pricing is subject to significant 
competitive forces, and that the proposed rebate described herein is 
appropriate to address such forces.
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    \14\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposal will result in any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. As a relatively new entrant in 
the already highly competitive environment for options trading, the 
Exchange believes that the proposed change would encourage the 
submission of additional order flow to the Exchange, thereby promoting 
market depth, execution incentives and enhanced execution 
opportunities, as well as price discovery and transparency for all 
Members. Further, MEMX Options' proposed modified transaction rebate 
exceeds or is comparable to the transaction rebates assessed by other 
options exchanges.\15\ As a result, 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.'' \16\
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    \15\ See supra note 8.
    \16\ See supra note 11.

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[[Page 84220]]

Intramarket Competition
    The Exchange does not believe that the proposed rule change will 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed rebate applies equally to all Options Members. The proposed 
pricing structure is intended to encourage participants to trade on 
MEMX Options by providing rebates that are comparable to those offered 
by other exchanges as well as providing competitive fees. The Exchange 
believes that the proposed rebate will help to encourage Options 
Members to send orders to the Exchange to the benefit of all Exchange 
participants. As the proposed rebate is equally applicable to all 
market participants, the Exchange does not believe there is any burden 
on intramarket competition.
Intermarket Competition
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. To the contrary, 
the Exchange believes that the proposed pricing structure will increase 
competition and is intended to encourage market participants to trade 
on the exchange by providing rebates that are comparable to those 
offered by other exchanges, which the Exchange believes will help to 
encourage Members to send orders to the Exchange to the benefit of all 
Exchange participants. As the proposed rebate is equally applicable to 
all market participants, the Exchange does not believe there is any 
burden on intramarket competition.
    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.'' \17\ 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'. . . .''.\18\ Accordingly, the Exchange does not believe its 
proposed pricing changes impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \17\ See supra note 11.
    \18\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \19\ and Rule 19b-4(f)(2) \20\ thereunder.
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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \20\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a8daddc4cd85cbc7c5c5cdc6dcdbe8dbcdcb86cfc7de"><span class="__cf_email__" data-cfemail="c6b4b3aaa3eba5a9ababa3a8b2b586b5a3a5e8a1a9b0">[email protected]</span></a>. Please include 
file number SR-MEMX-2024-38 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-2024-38. 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-2024-38 and should be 
submitted on or before November 12, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-24204 Filed 10-18-24; 8:45 am]
BILLING CODE 8011-01-P


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