[Federal Register Volume 87, Number 30 (Monday, February 14, 2022)]
[Notices]
[Pages 8305-8314]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03022]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94189; File No. SR-MEMX-2021-10]


Self-Regulatory Organizations; MEMX LLC; Notice of Filing of 
Amendment No. 1 to, and Designation of a Longer Period for Commission 
Action on Proceedings To Determine Whether To Approve or Disapprove, a 
Proposed Rule Change To Establish a Retail Midpoint Liquidity Program

February 8, 2022.
    On August 18, 2021, MEMX LLC (``MEMX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to establish a 
Retail Midpoint Liquidity Program (``Program''). The proposed rule 
change was published for comment in the Federal Register on September 
8, 2021.\3\ On October 19, 2021, the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\4\ On December 7, 2021, the 
Commission instituted proceedings under Section 19(b)(2)(B) of the Act 
to determine whether to approve or disapprove the proposed rule 
change.\5\ On January 27, 2022, the Exchange filed Amendment No. 1 to 
the proposed rule change, which supersedes the original filing in its 
entirety, and is described in Items I and II below, which Items have 
been prepared by the Exchange.\6\ The Commission is

[[Page 8306]]

publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 1, from interested persons, and is 
designating a longer period within which to approve or disapprove the 
proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92844 (September 1, 
2021), 86 FR 50411 (September 8, 2021). Comments on the proposed 
rule change can be found at: https://www.sec.gov/comments/sr-memx-2021-10/srmemx202110.htm.
    \4\ See Securities Exchange Act Release No. 93383 (October 19, 
2021), 86 FR 58964 (October 25, 2021).
    \5\ See Securities Exchange Act Release No. 93727 (December 7, 
2021), 86 FR 70874 (December 13, 2021).
    \6\ In Amendment No. 1, the Exchange, among other things: (1) 
Eliminated the ability for Users (defined below) to elect whether to 
designate an RML Order to be identified as such for purposes of the 
Retail Liquidity Identifier, (2) proposes to allow Retail Midpoint 
Orders to trade with both displayed odd lot and non-displayed orders 
priced better than the Midpoint Price (defined below) at those 
orders' ranked prices rather than at the less aggressive Midpoint 
Price, and (3) proposes to allow a Retail Midpoint Order to interact 
with midpoint peg orders (i.e., non-RML Orders) that have elected to 
be able to execute in the Retail Midpoint Liquidity Program, though 
only after the Retail Midpoint Order has executed against any better 
priced liquidity and any RML Orders. Cf. Investors Exchange Rule 
11.232(e)(3)(A)(iii) (providing that Retail Liquidity Provider 
orders (the equivalent to MEMX's proposed RML Orders) do not have a 
priority advantage over other non-displayed orders priced to execute 
at the midpoint of the national best bid and offer; they instead are 
ranked in time priority with other midpoint interest).
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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 establish a Retail Midpoint Liquidity Program. This Amendment No. 1 
supersedes the original filing in its entirety. 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 Exchange is filing this Amendment No. 1 to SR-MEMX-2021-10 \7\ 
in order to address issues the Commission raised in the OIP and make 
other related modifications.
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    \7\ Securities Exchange Act Release No. 92844 (September 1, 
2021), 86 FR 50411 (September 8, 2021) (the ``Initial Proposal''). 
The Commission issued an Order Instituting Proceedings to Determine 
Whether to Approve or Disapprove the Initial Proposal. See 
Securities Exchange Act Release No. 93727 (December 7, 2021), 86 FR 
70874 (December 13, 2021) (the ``OIP'').
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Background
    The Exchange proposes to adopt new Exchange Rule 11.22 to establish 
a Retail Midpoint Liquidity Program (the ``RML Program''). As proposed, 
the RML Program is designed to provide retail investors with meaningful 
price improvement opportunities such that liquidity-providing Users \8\ 
will be incentivized to direct additional orders designed to execute at 
the midpoint of the national best bid and offer (``NBBO'') (such price, 
the ``Midpoint Price'') to the Exchange to interact with orders that 
originate from retail investors that are also designed to execute at 
the Midpoint Price.
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    \8\ As defined in Exchange Rule 1.5(jj), a ``User'' is a member 
of the Exchange (``Member'') or sponsored participant of a Member 
who is authorized to obtain access to the System pursuant to 
Exchange Rule 11.3. The term ``System'' refers to the electronic 
communications and trading facility designated by the Board through 
which securities orders of Users are consolidated for ranking, 
execution and, when applicable, routing. See Exchange Rule 1.5(gg).
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    As former Commission Chairman Jay Clayton noted in a 2018 speech, 
forty-three million U.S. households hold a retirement or brokerage 
account, with $3.6 trillion in balance sheet assets in 128 million 
customer accounts serviced by more than 2,800 registered broker-
dealers.\9\ He also noted the importance of continued broad, long-term 
retail participation in our capital markets, and that retail investors 
count on the capital markets to fund major life events such as paying 
for their children's higher education or funding their own 
retirements.\10\
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    \9\ See The Evolving Market for Retail Investment Services and 
Forward-Looking Regulation--Adding Clarity and Investor Protection 
while Ensuring Access and Choice, Chairman Jay Clayton, Commission 
(May 2, 2018), available at https://www.sec.gov/news/speech/speech-clayton-2018-05-02.
    \10\ Id.
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    Against this backdrop, the RML Program is designed to provide 
retail investors with access to a pool of midpoint liquidity on the 
Exchange by introducing a new mechanism for retail-oriented liquidity 
provision in which liquidity-providing Users can provide price-
improving liquidity at the Midpoint Price specifically to retail 
investors, and liquidity-removing RMOs submitting orders on behalf of 
retail investors can interact with such price-improving liquidity, 
thereby providing enhanced opportunities for meaningful price 
improvement for retail investors. The Exchange believes that 
introducing the RML Program could provide retail investors with a 
competitive alternative to existing exchange and over-the-counter 
(``OTC'') retail programs, by attracting counterparty liquidity to the 
Exchange from Users and their clients seeking to interact with retail 
liquidity.
    The Exchange understands that many professional market 
participants, such as market makers, view interacting with orders of 
retail investors as more desirable than interacting with orders of 
other professional market participants. For example, as the Commission 
staff noted in a 2016 memorandum to the Equity Market Structure 
Advisory Committee (``EMSAC Memorandum''), ``[m]arket makers are 
interested in retail customer order flow because retail investors are, 
on balance, less informed than other traders about short-term price 
movements . . . [and t]rading against retail customer order flow 
enables market makers to avoid adverse selection by informed 
professional traders and to more reliably profit from market-making 
activity.'' \11\ Consistent with the EMSAC Memorandum's conclusions, 
and based on informal discussions with market participants and the 
knowledge and experience of its staff, the Exchange believes that 
market makers and other sophisticated market participants generally 
value interacting with retail orders because they are smaller and not 
likely to be part of a larger parent order that can move a stock price, 
causing a loss to the market maker. The proposed rule change thus seeks 
to provide enhanced price improvement opportunities for retail 
customers by incentivizing Users and their clients to provide price-
improving liquidity to interact with the orders of retail investors at 
the Midpoint Price. The RML Program would therefore be consistent with 
the goals of the Commission to encourage markets that are structured to 
benefit ordinary investors,\12\ while facilitating order interaction to 
the benefit of all market participants.
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    \11\ See January 26, 2016 Memorandum entitled ``Certain Issues 
Affecting Customers in the Current Equity Market Structure'' from 
the staff of the Commission's Division of Trading and Markets, 
available at https://www.sec.gov/spotlight/equity-market-structure/issues-affecting-customers-emsac-012616.pdf.
    \12\ See, e.g., U.S. Securities and Exchange Commission, 
Strategic Plan, Fiscal Years 2018-2022, available at https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf 
(``Commission Strategic Plan'').
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    As proposed, through the RML Program, the Exchange would enable 
Retail Member Organizations \13\ to submit a new type of Retail Order 
designed to execute at the Midpoint Price (i.e., a Retail Midpoint 
Order, described below) to the Exchange, and any User would be 
permitted to provide

[[Page 8307]]

price improvement to such order in the form of another new order type 
that is designed to execute at the Midpoint Price and that is only 
eligible to execute against a Retail Midpoint Order (i.e., an RML 
Order, described below). The Exchange expects that the introduction of 
Retail Midpoint Orders and RML Orders, through the proposed RML 
Program, would result in a balanced mix of retail brokerage firms and 
their wholesaling partners submitting Retail Midpoint Orders to the 
Exchange to access the additional midpoint liquidity provided by RML 
Orders that the Exchange anticipates resulting from the RML Program.
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    \13\ A ``Retail Member Organization'' or ``RMO'' is a Member (or 
a division thereof) that has been approved by the Exchange under 
Exchange Rule 11.21 to submit Retail Orders. A ``Retail Order'' 
means an agency or riskless principal order that meets the criteria 
of FINRA Rule 5320.03 that originates from a natural person and is 
submitted to the Exchange by a Retail Member Organization, provided 
that no change is made to the terms of the order with respect to 
price or side of market and the order does not originate from a 
trading algorithm or any other computerized methodology. See 
Exchange Rule 11.21(a).
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    The Exchange notes that the proposed RML Program is comparable in 
purpose and effect to the Investors Exchange LLC (``IEX'') Retail Price 
Improvement Program (the ``IEX Retail Program''), which is also 
designed to provide retail investors with meaningful price improvement 
opportunities.\14\ Further, the Commission recently approved several 
changes to the IEX Retail Program that make certain features of the IEX 
Retail Program substantially similar to proposed features of the RML 
Program.\15\ The Exchange will describe certain differences between the 
proposed RML Program and the IEX Retail Program under the appropriate 
headings below.
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    \14\ See IEX Rule 11.232; see also Securities Exchange Act 
Release No. 92398 (July 13, 2021), 86 FR 38166 (July 19, 2021) (SR-
IEX-2021-06) (order approving changes to the IEX Retail Program 
including dissemination of a retail liquidity identifier and 
limiting IEX Retail Liquidity Provider orders to midpoint peg 
orders) (the ``IEX Retail Approval Order''). The Exchange notes that 
the IEX Retail Program, as amended, supports executions of retail 
orders described in IEX Rule 11.190(b)(15) (``IEX Retail Orders'') 
at the Midpoint Price as well as prices that are more aggressive 
than the Midpoint Price. The Exchange notes that this aspect of the 
IEX Retail Program is similar to the proposed RML Program in that 
executions of Retail Midpoint Orders would be supported at the 
Midpoint Price as well as prices that are more aggressive than the 
Midpoint Price, as further described below. The Exchange further 
notes that Retail Orders would still be eligible to execute at any 
prices (including prices that are less aggressive than the Midpoint 
Price) outside of the RML Program as they are today.
    \15\ See IEX Retail Approval Order, supra note 14.
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    The Exchange will submit a separate proposal to amend its Fee 
Schedule in connection with the proposed RML Program. Under that 
proposal, the Exchange expects to provide free executions or charge a 
fee to Users for executions of their orders against Retail Midpoint 
Orders at the Midpoint Price (i.e., RML Orders or Eligible Midpoint Peg 
Orders, as defined below), and in turn would provide a rebate or free 
executions to RMOs for executions of their Retail Midpoint Orders 
against such orders.
Definitions
    The Exchange proposes to adopt the following definitions under 
paragraph (a) of proposed Exchange Rule 11.22 (Retail Midpoint 
Liquidity Program). First, the term ``Retail Midpoint Order'' would be 
defined as a Retail Order submitted by an RMO that is a Pegged Order 
\16\ with a Midpoint Peg \17\ instruction (``Midpoint Peg Order'') and 
that is only eligible to execute against RML Orders (a proposed new 
order type described below), orders priced more aggressively than the 
Midpoint Price, and Midpoint Peg Orders that are not RML Orders but are 
designated as eligible to execute against Retail Midpoint Orders (i.e., 
Eligible Midpoint Peg Orders, which are further described below), 
through the execution process described in proposed Exchange Rule 
11.22(c). As proposed, a Retail Midpoint Order must have a time-in-
force (``TIF'') instruction of IOC.\18\
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    \16\ Pegged Orders are described in Exchange Rules 11.6(h) and 
11.8(c) and generally defined as an order that is pegged to a 
reference price and automatically re-prices in response to changes 
in the NBBO.
    \17\ A Midpoint Peg instruction is an instruction that may be 
placed on a Pegged Order that instructs the Exchange to peg the 
order to the midpoint of the NBBO. See Exchange Rule 11.6(h)(2).
    \18\ ``IOC'' is an instruction the User may attach to an order 
stating the order is to be executed in whole or in part as soon as 
such order is received, and the portion not executed immediately on 
the Exchange or another trading center is treated as cancelled and 
is not posted to the MEMX Book. See Exchange Rule 11.6(o)(1). The 
term ``MEMX Book'' refers to the System's electronic file of orders. 
See Exchange Rule 1.5(q).
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    Second, the term ``Retail Midpoint Liquidity Order'' or ``RML 
Order'' would be defined as a Midpoint Peg Order that is only eligible 
to execute against Retail Midpoint Orders through the execution process 
described in proposed Exchange Rule 11.22(c). As proposed, an RML Order 
must have a TIF instruction of Day,\19\ RHO,\20\ or GTT \21\ and may 
not include a Minimum Execution Quantity \22\ instruction. Any User 
would be permitted, but not required, to submit RML Orders. RML Orders 
would only execute at the Midpoint Price, as stated in proposed 
Exchange Rule 11.22(c)(1). The Exchange notes that an RML Order is 
substantially similar in effect to IEX's Retail Liquidity Provider 
Order (``IEX RLP Order'') offered under the IEX Retail Program, in that 
an RML Order is an order that is designed to execute at the Midpoint 
Price, is only eligible to execute against retail order interest, and 
may be submitted by any User.\23\
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    \19\ See Exchange Rule 11.6(o)(2).
    \20\ See Exchange Rule 11.6(o)(5).
    \21\ See Exchange Rule 11.6(o)(4).
    \22\ The Minimum Execution Quantity instruction is described in 
Exchange Rule 11.6(f) and is generally defined as an instruction a 
User may attach to an order with a Non-Displayed instruction or a 
TIF of IOC instruction requiring the System to execute the order 
only to the extent that a minimum quantity can be satisfied. A Non-
Displayed instruction is an instruction a User may attach to an 
order stating that the order is not to be displayed by the System on 
the MEMX Book. See Exchange Rule 11.6(c)(2).
    \23\ See IEX Rule 11.190(b)(14), which describes the IEX RLP 
Order. See also IEX Retail Approval Order, supra note 14.
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    Third, the term ``Eligible Midpoint Peg Order'' would be defined as 
a Midpoint Peg Order that is not an RML Order but includes an 
instruction that such order is eligible to execute against Retail 
Midpoint Orders through the execution process described in proposed 
Exchange Rule 11.22(c). Thus, as proposed, a User submitting a Midpoint 
Peg Order that is not an RML Order would have the ability, but is not 
required, to include an instruction that such order is eligible to 
execute against Retail Midpoint Orders (i.e., to designate such order 
as an Eligible Midpoint Peg Order).\24\
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    \24\ The Exchange is also proposing to amend Exchange Rule 
11.6(h)(2), which describes Midpoint Peg Orders generally, to 
reflect that a User may, but is not required to, include an 
instruction that a Midpoint Peg Order that is not an RML Order is 
eligible to execute against a Retail Midpoint Order.
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    The RML Program is generally intended to facilitate the execution 
of Retail Midpoint Orders against RML Orders at the Midpoint Price. 
Nevertheless, the Exchange believes that it is appropriate to permit 
Retail Midpoint Orders to also execute against non-RML Midpoint Peg 
Orders resting on the MEMX Book that are designated as eligible to 
execute against Retail Midpoint Orders (i.e., Eligible Midpoint Peg 
Orders). While retail orders are typically smaller in size, and would 
thus generally be fully executed through interactions with RML Orders 
and/or orders priced more aggressively than the Midpoint Price, 
allowing Retail Midpoint Orders to trade with Eligible Midpoint Orders 
would increase the potential pool of liquidity that larger Retail 
Midpoint Orders may interact with to the benefit of retail investors. 
At the same time, although many market participants that post liquidity 
at the Midpoint Price through Midpoint Peg Orders may be willing to 
trade with retail order flow that is generally considered less 
informed, the Exchange believes that it is important to allow Users to 
choose whether they would like their Midpoint Peg Orders to execute 
against Retail Midpoint Orders

[[Page 8308]]

in the RML Program where such orders may be subject to a different fee 
structure.\25\ Similar to liquidity swap instructions available on 
other U.S. equity exchanges,\26\ the Exchange would therefore allow 
these Users to control their economics by choosing to opt in or out of 
interacting with Retail Midpoint Orders entered into the RML Program. 
The Exchange notes that regardless of whether the User chooses to opt 
in (i.e., designate a non-RML Midpoint Peg Order as an Eligible 
Midpoint Peg Order), such order would remain available on the MEMX Book 
where it is accessible to all market participants outside of the RML 
Program, including market participants submitting orders on behalf of 
retail investors, as it is today.\27\ The Exchange notes that enabling 
a User to choose whether its Midpoint Peg Orders may interact with 
Retail Midpoint Orders is different than the IEX Retail Program in 
which all such orders are eligible to interact against incoming Retail 
Orders; however, the Exchange believes that providing such optionality 
is appropriate for the reasons described above.
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    \25\ As noted above, the Exchange will submit a separate 
proposal to amend its Fee Schedule in connection with the 
implementation of the RML Program. Under that proposal, the Exchange 
expects to provide free executions or charge a fee to Users for 
executions of their liquidity-providing Eligible Midpoint Peg Orders 
against incoming Retail Midpoint Orders, whereas liquidity-providing 
Midpoint Peg Orders ordinarily receive a rebate under the Exchange's 
pricing.
    \26\ See, e.g., Cboe BZX Exchange, Inc. (``Cboe BZX'') Rule 
11.3(c)(12) (Non-Displayed Swap Order). A Non-Displayed Swap 
(``NDS'') Order entered on Cboe BZX elects to remove liquidity 
against an incoming Post Only Order that would otherwise not trade 
on entry. In such situations the NDS Order is treated as liquidity 
remover and would pay associated fees.
    \27\ For example, a Retail Order could be entered onto the MEMX 
Book outside of the RML Program where it would be eligible to trade 
with other liquidity-providing orders, including Midpoint Peg Orders 
that have not opted into trading with Retail Midpoint Orders.
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    As Retail Midpoint Orders and RML Orders are types of Pegged 
Orders, and are designed to execute on the Exchange against each other 
through the RML Program, such orders would not be eligible for 
routing.\28\
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    \28\ See Exchange Rule 11.8(c)(5), which provides that Pegged 
Orders are not eligible for routing.
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Retail Liquidity Identifier
    Under the RML Program, the Exchange proposes to disseminate a 
Retail Liquidity Identifier through the Exchange's proprietary market 
data feeds, MEMOIR Depth \29\ and MEMOIR Top,\30\ and the appropriate 
securities information processor (``SIP'') when RML Order interest 
(``RML Interest'') aggregated to form at least one round lot for a 
particular security is available in the System (``Retail Liquidity 
Identifier''), provided that such RML Interest is resting at the 
Midpoint Price and is priced at least $0.001 better than the national 
best bid (``NBB'') or national best offer (``NBO''). The purpose of the 
Retail Liquidity Identifier is to provide relevant market information 
to RMOs that there is available RML Interest on the Exchange, thereby 
incentivizing them to send Retail Midpoint Orders to the Exchange 
seeking execution at the Midpoint Price. The Retail Liquidity 
Identifier would reflect the symbol and the side (buy and/or sell) of 
the RML Interest but would not include the price or size.\31\ While an 
explicit price would not be disseminated, because RML Orders are only 
eligible to execute at the Midpoint Price, dissemination of the Retail 
Liquidity Identifier would thus reflect the availability of price 
improvement at the Midpoint Price. The Exchange notes that the 
Exchange's proposed Retail Liquidity Identifier is substantively 
identical to the Retail Liquidity Identifier disseminated by IEX under 
the IEX Retail Program.\32\
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    \29\ See Exchange Rule 13.8(a).
    \30\ See Exchange Rule 13.8(b).
    \31\ The Exchange plans to submit a letter requesting exemptive 
relief from obligations set forth in Rule 602 of Regulation NMS.
    \32\ See IEX Rule 11.232(f); see also IEX Retail Approval Order, 
supra note 14, at 38167.
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    As noted above, the Exchange would only disseminate the Retail 
Liquidity Identifier when RML Interest would provide at least $0.001 of 
price improvement, which is consistent with the rules of the other 
exchanges that disseminate Retail Liquidity Identifiers \33\ as well as 
the SIP Plans' requirements.\34\ Because RML Orders are proposed to be 
only Midpoint Peg Orders, they will always represent at least $0.001 
price improvement over the NBB or NBO, with two exceptions: (1) In a 
locked or crossed market; and (2) a sub-dollar quote when the 
security's spread is less than $0.002.\35\ Under Exchange Rule 
11.8(c)(6), a Pegged Order resting on the MEMX Book is not eligible for 
execution when the market is locked or crossed; thus, an RML Order 
would not be eligible for execution when the market is locked or 
crossed and would rest on the MEMX Book and become eligible for 
execution again when the market ceases to be locked or crossed.\36\ 
Because an RML Order would not be eligible for execution when the 
market is locked or crossed, such order would not provide any price 
improvement to an incoming Retail Midpoint Order (i.e., would not be 
priced at least $0.001 better than the NBB or NBO) and therefore would 
not comprise eligible RML Interest for purposes of the Retail Liquidity 
Identifier. Similarly, when a particular security is priced less than 
$1.00 per share, its MPV is $0.0001, so the Midpoint Price will not 
always represent at least $0.001 in price improvement.\37\ Therefore, 
the Exchange would only disseminate the Retail Liquidity Identifier for 
sub-dollar securities if the spread in the security is greater than or 
equal to $0.002, meaning the Midpoint Price represents at least $0.001 
price improvement over the NBB or NBO. With respect to the requirement 
that an RML Order must be resting at the Midpoint Price in order to be 
included in the RML Interest to be disseminated pursuant to the Retail 
Liquidity Identifier, the Exchange notes that an RML Order could have a 
limit price that is less aggressive than the Midpoint Price in which 
case it would not be eligible to trade with an incoming Retail Midpoint 
Order and therefore should not be included for purposes of Retail 
Liquidity Identifier dissemination since it would not reflect interest 
available to trade with Retail Midpoint Orders. The Exchange notes that 
not including: (1) RML Interest for a security when the market for the 
security is locked or crossed; (2) RML Interest for a sub-dollar 
security if the spread in the security is greater [sic] than or equal 
[sic] to $0.002; and (3) RML Interest that is not resting at the 
Midpoint Price (i.e., RML Interest that is constrained by a limit price 
that is less aggressive than the Midpoint Price), for purposes of 
Retail Liquidity Identifier dissemination is consistent with the Retail 
Liquidity Identifier disseminated by IEX under the IEX Retail 
Program.\38\
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    \33\ See, e.g., IEX Rule 11.232(f), Cboe BYX Rule 11.24(e), and 
NYSE Arca Equities Rule 7.44(j).
    \34\ See January 26, 2021 CQS Participant Input Binary 
Specification Version 2.6a, available at https://www.ctaplan.com/publicdocs/ctaplan/CQS_Pillar_Input_Specification.pdf and May 2020 
UTP Data Feed Services Specification Version 1.5, available at 
https://www.utpplan.com/DOC/UtpBinaryOutputSpec.pdf.
    \35\ The Minimum Price Variation (``MPV'') for bids, offers, or 
orders in securities priced less than $1.00 per share is $0.0001. 
See Exchange Rule 11.6(g).
    \36\ See Exchange Rule 11.8(c)(6).
    \37\ For example, if a security's NBB is $0.505 and NBO is 
$0.506, the Midpoint Price would be $0.5055, which is $0.0005 more 
than the NBB and less than the NBO, so it would not represent at 
least $0.001 price improvement over the NBB or NBO, and therefore 
would not comprise eligible RML Interest for purposes of the Retail 
Liquidity Identifier.
    \38\ See IEX Rule 11.232(f); see also IEX Retail Approval Order, 
supra note 14, at 38167.
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    The Exchange also proposes to remove the Retail Liquidity 
Identifier previously disseminated through the

[[Page 8309]]

MEMOIR Depth and MEMOIR Top data products and through the appropriate 
SIP after executions against and/or cancellations of Retail Midpoint 
Orders have depleted the available RML Interest such that the remaining 
RML Interest does not aggregate to form at least one round lot, or in 
situations where there is no actionable RML Interest (such as when the 
market is locked or crossed), in order to indicate to market 
participants that there is no longer RML Interest of at least one round 
lot available. The Exchange believes that removing the Retail Liquidity 
Identifier on the market data feeds and SIP when there is not 
sufficient eligible RML Interest available is consistent with the 
implementation of the other exchanges that disseminate Retail Liquidity 
Identifiers.
    The Exchange anticipates that Retail Midpoint Orders would mostly 
interact with RML Orders due to the Retail Liquidity Identifier. In 
this regard, the Exchange generally expects RMOs to submit Retail 
Midpoint Orders when the Retail Liquidity Identifier is disseminated, 
which indicates that there is available RML Interest of at least one 
round lot on the MEMX Book. In turn, the Exchange generally does not 
expect RMOs to submit Retail Midpoint Orders when the Retail Liquidity 
Identifier is not disseminated or otherwise to specifically seek to 
interact with other orders priced more aggressively than the Midpoint 
Price or Eligible Midpoint Peg Orders, particularly as any such orders 
would be either non-displayed (and therefore not known to the RMO) or 
less than a round lot in size.
Priority and Order Execution
    The proposed priority and order execution under the RML Program 
when a Retail Midpoint Order is received by the Exchange is as follows:
    <bullet> First, a Retail Midpoint Order would execute against 
orders resting on the MEMX Book that are priced more aggressively than 
the Midpoint Price. More specifically, proposed Exchange Rule 
11.22(c)(2) provides that if there is: (A) A Limit Order \39\ of Odd 
Lot \40\ size that is displayed by the System (``Displayed Odd Lot 
Order'') and that is priced more aggressively than the Midpoint Price 
and/or (B) an order that is not displayed by the System (``Non-
Displayed Order'') and that is priced more aggressively than the 
Midpoint Price, resting on the MEMX Book, then an incoming Retail 
Midpoint Order would first execute against any such orders pursuant to 
the Exchange's standard price/time priority in accordance with Exchange 
Rule 11.9 and Exchange Rule 11.10.\41\ Retail Midpoint Orders would be 
executed against such Displayed Odd Lot Orders and/or Non-Displayed 
Orders at the prices that such resting orders are ranked on the MEMX 
Book.
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    \39\ See Exchange Rule 11.8(b).
    \40\ See Exchange Rule 11.6(q)(2).
    \41\ The Exchange notes that Displayed Odd Lot Orders and Non-
Displayed Orders are the only types of orders that could rest on the 
MEMX Book at a price that is more aggressive than the Midpoint 
Price, as any displayed buy (sell) order that is at least one round 
lot in size would be eligible to form the NBB (NBO) as a Protected 
Quotation. The term ``Protected Quotation'' refers to a quotation 
that is a Protected Bid or Protected Offer. In turn, the term 
``Protected Bid'' or ``Protected Offer'' refers to a bid or offer in 
a stock that is (i) displayed by an automated trading center; (ii) 
disseminated pursuant to an effective national market system plan; 
and (iii) an automated quotation that is the best bid or best offer 
of a national securities exchange or association. See Exchange Rule 
1.5(z).
---------------------------------------------------------------------------

    <bullet> Next, after executing against orders priced more 
aggressively than the Midpoint Price pursuant to proposed Exchange Rule 
11.22(c)(2), a Retail Midpoint Order would then execute against RML 
Orders resting on the MEMX Book at the Midpoint Price in time priority 
pursuant to proposed Exchange Rule 11.22(c)(3).
    <bullet> Finally, after executing against orders priced more 
aggressively than the Midpoint Price pursuant to proposed Exchange Rule 
11.22(c)(2) and RML Orders pursuant to proposed Exchange Rule 
11.22(c)(3), a Retail Midpoint Order would then execute against 
Eligible Midpoint Peg Orders at the Midpoint Price in time priority 
pursuant to proposed Exchange Rule 11.22(c)(4).\42\
---------------------------------------------------------------------------

    \42\ Any remaining portion of a Retail Midpoint Order that is 
not executed pursuant to the execution process described in proposed 
Exchange Rule 11.22(c) would be cancelled back to the entering RMO 
since a Retail Midpoint Order may only be entered with a TIF of IOC 
and is not eligible for routing. See Exchange Rule 11.6(o)(1).
---------------------------------------------------------------------------

    The purpose of permitting a Retail Midpoint Order to first execute 
against Displayed Odd Lot Orders and/or Non-Displayed Orders that are 
priced more aggressively than the Midpoint Price is to ensure that the 
priority of more aggressively priced orders over less aggressively 
priced orders is maintained on the Exchange, consistent with Exchange 
Rule 11.9. The Exchange believes that this aspect of the RML Program is 
appropriate because it would enable an RMO entering a Retail Midpoint 
Order to capture better prices available on the MEMX Book while seeking 
out midpoint liquidity through the RML Program. Passing along this 
additional available price improvement to retail investors is 
consistent with the RML Program's overall objective to provide 
meaningful price improvement opportunities to retail investors and the 
Commission's goal to encourage markets that are structured to benefit 
ordinary investors.
    At the Midpoint Price, the Exchange believes it is appropriate to 
execute RML Orders, which contribute to the dissemination of the Retail 
Liquidity Identifier, ahead of Eligible Midpoint Peg Orders, which do 
not contribute to the dissemination of the Retail Liquidity Identifier 
and are not displayed on the MEMX Book. As previously discussed, the 
Retail Liquidity Identifier is likely to be the principal factor in 
attracting RMOs to send Retail Midpoint Orders as it signals to the 
market that there is available midpoint liquidity on the Exchange and 
thus increases the likelihood of execution for such orders on the 
Exchange.
    Although certain market participants may not ordinarily post 
liquidity at the Midpoint Price on exchanges due to adverse selection 
risks, the Exchange believes that they may be willing to do so if they 
can limit their interactions to Retail Orders (i.e., through the use of 
RML Orders), which are generally considered to be less informed, as 
described above. However, entering RML Orders involves some additional 
risk for those market participants as the Retail Liquidity Identifier 
will signal that there is a buyer or seller that is willing to trade 
with retail investors at the Midpoint Price. The proposed RML Program 
therefore appropriately balances the risks and incentives associated 
with entering RML Orders such that market participants that wish to 
interact with Retail Midpoint Order flow would be free to determine 
whether to submit RML Orders that contribute to the dissemination of 
the Retail Liquidity Identifier and have execution priority when 
trading with incoming Retail Midpoint Orders, or instead enter Eligible 
Midpoint Peg Orders that remain non-displayed but cede execution 
priority to those RML Orders. Thus, similar to the priority afforded to 
orders that are displayed on the MEMX Book, which receive priority over 
non-displayed orders because they contribute to price discovery and 
attract liquidity to the Exchange, the Exchange believes that RML 
Orders, which contribute to the dissemination of the Retail Liquidity 
Identifier that signals to RMOs that there is available midpoint 
liquidity on the Exchange, should receive priority over Eligible 
Midpoint Peg Orders for the same reasons.
    The Exchange notes that this aspect of the proposed RML Program is 
partially different than the IEX Retail Program in that the IEX Retail 
Program does not provide priority to an IEX RLP Order

[[Page 8310]]

over other orders at the Midpoint Price, whereas the Exchange has 
proposed providing RML Orders with priority over Eligible Midpoint Peg 
Orders. However, the Exchange submits that the proposed order priority 
under the RML Program, as described above, is consistent with general 
principles of order priority on the Exchange and other U.S. equity 
exchanges, where orders at superior prices receive first priority and, 
at any particular price, orders that contribute to price discovery 
receive priority ahead of non-displayed orders that do not contribute 
to market transparency. As such, the Exchange does not believe that the 
proposed order priority under the RML Program raises any novel issues 
for the Commission to consider.
    The following example, which the Exchange proposes to codify in 
proposed Exchange Rule 11.22(c)(5) as slightly modified to conform with 
the Rule's context, illustrates how the Exchange would handle orders 
under the proposed RML Program:
    Assume the following facts:
    <bullet> The NBBO for security ABC is $10.00-$10.10.
    <bullet> User 1 enters an RML Order to buy ABC for 500 shares. The 
order is posted to the MEMX Book as an RML Order to buy ABC at $10.05. 
The Exchange publishes through the MEMOIR Depth and MEMOIR Top data 
products and through the appropriate SIP a Retail Liquidity Identifier 
indicating the presence of RML Interest of at least one round lot to 
buy ABC.
    <bullet> User 2 then enters a Pegged Order with a Midpoint Peg 
instruction to buy ABC for 500 shares that includes an instruction that 
such order is eligible to execute against Retail Midpoint Orders (i.e., 
an Eligible Midpoint Peg Order). The order is posted to the MEMX Book 
as an Eligible Midpoint Peg Order to buy ABC at $10.05.
    <bullet> User 3 then enters a Limit Order with a Displayed 
instruction \43\ to buy 50 shares of ABC at $10.06, which is posted to 
the MEMX Book.
---------------------------------------------------------------------------

    \43\ A Displayed instruction is an instruction a User may attach 
to an order stating that the order is to be displayed by the System 
on the MEMX Book. See Exchange Rule 11.6(c)(1).
---------------------------------------------------------------------------

    <bullet> User 4 then enters a Pegged Order with a Midpoint Peg 
instruction to buy ABC for 500 shares that is not an RML Order and does 
not include an instruction that such order is eligible to execute 
against Retail Midpoint Orders (i.e., a Midpoint Peg Order that is not 
an Eligible Midpoint Peg Order). The order is posted to the MEMX Book 
as a Pegged Order to buy ABC at $10.05.
    <bullet> User 5 then enters a Limit Order with a Non-Displayed 
instruction to buy ABC at $10.07 for 100 shares, which is posted to the 
MEMX Book.
    <bullet> There are no other orders resting on the MEMX Book.
    Example: Retail Member Organization enters a Retail Midpoint Order 
to sell 1,200 shares of ABC. The Retail Midpoint Order will execute in 
the following order:
    <bullet> First, against the full size of User 5's buy Limit Order 
for 100 shares at $10.07 (because it is priced more aggressively than 
the Midpoint Price, and thus, it is eligible to execute against a 
Retail Midpoint Order and it is also the most aggressively priced 
order);
    <bullet> second, against the full size of User 3's buy Limit Order 
for 50 shares at $10.06 (because it is priced more aggressively than 
the Midpoint Price, and thus, it is eligible to execute against a 
Retail Midpoint Order and it is the next most aggressively priced 
order);
    <bullet> third, against the full size of User 1's buy RML Order for 
500 shares at $10.05; and
    <bullet> fourth, against the full size of User 2's buy Pegged Order 
for 500 shares at $10.05 (because it is an Eligible Midpoint Peg 
Order).
    The Retail Midpoint Order does not execute against User 4's buy 
Pegged Order because User 4's buy Pegged Order is not an RML Order or 
an Eligible Midpoint Peg Order. The Retail Midpoint Order is filled for 
1,150 shares and the balance of 50 shares is cancelled back to the 
Retail Member Organization. The Exchange removes the Retail Liquidity 
Identifier previously disseminated through the MEMOIR Depth and MEMOIR 
Top data products and through the appropriate SIP as there is no longer 
RML Interest of at least one round lot to buy ABC.
Implementation
    The Exchange proposes that all securities traded on the Exchange 
would be eligible for inclusion in the RML Program. If the Commission 
approves this proposed rule change, the Exchange will implement it 
within 90 days of approval and will provide notice to Members and 
market participants of the implementation timeline.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \44\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \45\ 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 
mechanism of a free and open market and a national market system and, 
in general, to protect investors and the public interest. Specifically, 
the Exchange believes that the proposed rule change is consistent with 
these principles because it is designed to increase competition among 
execution venues and offer the potential for meaningful price 
improvement to orders of retail investors, including through 
encouraging market participants to provide additional liquidity to 
execute against the orders of retail investors at the Midpoint Price.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78f(b).
    \45\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As discussed in the Purpose section, the Exchange's proposed RML 
Program is a simple, transparent approach designed to provide retail 
investors with meaningful price improvement opportunities, through 
RMOs' use of the proposed new Retail Midpoint Order, by incentivizing 
Users who wish to interact with such retail liquidity to send 
additional non-displayed resting interest designed to execute at the 
Midpoint Price, through such Users' use of the proposed new RML Order.
    As described above, the proposed RML Program is comparable in 
purpose and effect to the IEX Retail Program, and the Commission 
recently approved several changes to the IEX Retail Program that make 
certain of its features substantially similar or substantively 
identical to proposed features of the RML Program.\46\ Accordingly, the 
Exchange's proposal generally encourages competition between exchange 
venues. In this connection, the Exchange believes that the proposed 
distinctions between the Exchange's proposal and the approved IEX 
Retail Program will both enhance competition amongst market 
participants and encourage competition amongst exchange venues.
---------------------------------------------------------------------------

    \46\ See IEX Retail Approval Order, supra note 14.
---------------------------------------------------------------------------

    Section 6(b)(5) of the Act prohibits an exchange from establishing 
rules that treat market participants in an unfairly discriminatory 
manner. While the RML Program would differentiate among its Users, in 
that Retail Midpoint Orders may only be submitted by an RMO, as is the 
case with other Retail Orders on the Exchange today, the Exchange 
believes that such differentiation is not unfairly discriminatory but 
rather is designed to promote a competitive process for retail 
executions while providing retail investors with the potential to 
receive meaningful price improvement. In addition to the

[[Page 8311]]

Exchange's existing rules relating to Retail Orders,\47\ there is ample 
precedent for differentiation of retail order flow in the existing 
approved programs of other national securities exchanges,\48\ including 
the IEX Retail Program, as described in the Purpose section. As the 
Commission has recognized, retail order segmentation was designed to 
create additional competition for retail order flow, leading additional 
retail order flow to the exchange environment and ensuring that retail 
investors benefit from the better price that liquidity providers are 
willing to give their orders.\49\
---------------------------------------------------------------------------

    \47\ See Exchange Rule 11.21.
    \48\ See infra note 51.
    \49\ See Securities Exchange Act Release No. 85160 (February 15, 
2019), 84 FR 5754 (February 22, 2019) (SR-NYSE-2018-28) (order 
approving NYSE's Retail Liquidity Program on a permanent basis).
---------------------------------------------------------------------------

    The Commission consistently highlights the need to ensure that the 
U.S. capital markets are structured with the interests of retail 
investors in mind, and highlighted its focus on the ``long-term 
interests of Main Street investors'' as its number one strategic goal 
for fiscal years 2018 to 2022 in the Commission Strategic Plan.\50\ The 
Exchange believes its proposed RML Program would serve the retail 
investing public by providing them with the opportunity for meaningful 
price improvement on eligible trades.
---------------------------------------------------------------------------

    \50\ See Commission Strategic Plan, supra note 12.
---------------------------------------------------------------------------

    The Exchange notes that several other national securities 
exchanges, including IEX as described herein, have for several years 
operated retail liquidity programs that include market segmentation 
whereby retail orders are permitted to interact with specified price-
improving liquidity or receive execution priority.\51\ The Exchange 
understands that these programs were designed to promote competition 
for retail order flow among execution venues, most of which continues 
to be executed in the OTC markets rather than on exchanges. Similarly, 
the Exchange's proposed RML Program is designed to provide an 
additional competitive alternative for retail orders to receive price 
improvement. The Exchange believes that it is appropriate to provide 
incentives to bring more retail order flow to a public exchange. As 
described in the Purpose section, these incentives include the 
opportunity for Retail Orders to receive meaningful price improvement 
at the Midpoint Price (or better if there is resting liquidity priced 
more aggressively than the Midpoint Price) through RMOs' use of the 
proposed Retail Midpoint Order by providing all Users with the 
opportunity to provide price-improving liquidity to such orders through 
Users' use of the proposed RML Order.
---------------------------------------------------------------------------

    \51\ See IEX Rule 11.232. See also NYSE Rule 107C, NYSE Arca 
Equities Rule 7.44, Cboe EDGX Rule 11.9(a)(2)(A) and (B), Cboe BYX 
Rule 11.24, and Nasdaq BX Rule 4780.
---------------------------------------------------------------------------

Definitions
    The Exchange believes that it is consistent with the Act for a 
Retail Midpoint Order to be a Retail Order that is a Midpoint Peg Order 
with a TIF instruction of IOC, as this is designed to ensure that such 
orders are entered on behalf of retail investors \52\ and will receive 
price improvement at the Midpoint Price when executing against resting 
RML Orders and Eligible Midpoint Peg Orders. Similarly, the Exchange 
believes that it is consistent with the Act for an RML Order to be a 
Midpoint Peg Order with a TIF instruction of Day, RHO, or GTT, as this 
is designed to ensure that such orders are able to post to the MEMX 
Book and will provide price improvement at the Midpoint Price to retail 
investors when executing against incoming Retail Midpoint Orders. The 
Exchange also believes that it is appropriate and consistent with the 
Act for Retail Midpoint Orders and RML Orders to not be eligible for 
routing because, as noted above, such orders are designed to execute on 
the Exchange against each other and, as Pegged Orders, are not eligible 
for routing under the Exchange's current rules relating to Pegged 
Orders.
---------------------------------------------------------------------------

    \52\ An RMO must exercise due diligence and monitor orders that 
it enters as Retail Orders to ensure that such orders originate from 
natural persons (i.e., retail investors). See Exchange Rule 
11.21(b)(6).
---------------------------------------------------------------------------

    The Exchange further believes that it is consistent with the Act to 
structure its RML Program to provide a mechanism whereby liquidity-
providing Users can provide price-improving liquidity at the Midpoint 
Price specifically to retail investors (i.e., through the use of RML 
Orders), and liquidity-removing RMOs submitting orders on behalf of 
retail investors can interact with such price-improving liquidity. This 
structure would thus facilitate the interaction of such liquidity-
providing Users with the orders of retail investors, which the Exchange 
believes is desirable for certain Users, as described above, while 
avoiding the possibility of such liquidity-providing Users 
unintentionally interacting with another type of market participant. 
Accordingly, the Exchange believes that it is consistent with the Act 
for RML Orders to only execute against Retail Midpoint Orders so as to 
incentivize the entry of RML Orders and thereby provide meaningful 
price improvement to retail investors. Further, as noted above, the 
concept of an order type that is only eligible to interact with a 
specific contra-side order type has previously been approved by the 
Commission in the context of liquidity-providing orders for retail 
programs.\53\
---------------------------------------------------------------------------

    \53\ See supra note 23 and accompanying text (describing the IEX 
RLP Order).
---------------------------------------------------------------------------

    The Exchange notes that use of the RML Order and Retail Midpoint 
Order types is completely voluntary and reiterates that Users 
(including RMOs) may continue to submit their orders (including Retail 
Orders) to the Exchange to execute against the various other order 
types offered by the Exchange, at prices different than the Midpoint 
Price, outside of the RML Program as they can today.
    The Exchange also believes that it is consistent with the Act to 
enable a User submitting a non-RML Midpoint Peg Order to include an 
instruction that such order is eligible to execute against Retail 
Midpoint Orders through the execution process described in proposed 
Exchange Rule 11.22(c) (i.e., to designate such order as an Eligible 
Midpoint Peg Order) so that incoming Retail Midpoint Orders submitted 
on behalf of retail investors have a larger potential pool of midpoint 
liquidity to interact with, and thus, a greater chance of being filled. 
Additionally, the Exchange believes that allowing Users to choose 
whether they would like their non-RML Midpoint Peg Orders to execute 
against Retail Midpoint Orders in the RML Program where such orders may 
be subject to a different fee structure, as described above, would 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities and would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, as such optionality would enable these Users to more 
effectively control their economics in a manner that is consistent with 
order instructions available on other U.S. equity exchanges today.\54\ 
The Exchange reiterates that regardless of whether the User chooses to 
designate a non-RML Midpoint Peg Order as an Eligible Midpoint Peg 
Order, such order would remain available on the MEMX Book where it is 
accessible to all market participants outside of the RML Program as it 
is today.
---------------------------------------------------------------------------

    \54\ See supra note 26 and accompanying text.
---------------------------------------------------------------------------

    For the foregoing reasons, the Exchange believes that the proposed 
definitions of Retail Midpoint Order, RML Order, and Eligible Midpoint 
Peg Order, as well as the proposed structure of the RML Program, which 
is designed

[[Page 8312]]

to facilitate executions of Retail Midpoint Orders and RML Orders 
against each other at the Midpoint Price (and also permits Retail 
Midpoint Orders to execute against other orders priced more 
aggressively than the Midpoint Price and against Eligible Midpoint Peg 
Orders at the Midpoint Price), are designed to promote just and 
equitable principles of trade, foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and further the investor protection and 
public interest objectives of Section 6(b) of the Act, by establishing 
a simple, transparent structure that is designed to facilitate the 
provision of meaningful price improvement for orders of retail 
investors.
Retail Liquidity Identifier
    The Exchange believes that it is consistent with the Act to 
disseminate a Retail Liquidity Identifier in connection with its RML 
Program, as described in the Purpose section. The purpose of the Retail 
Liquidity Identifier is to provide relevant market information to RMOs 
that there is available RML Interest on the Exchange. The dissemination 
is thus designed to augment the total mix of information available to 
RMOs that may benefit the Retail Orders they represent by encouraging 
RMOs to send such retail liquidity as Retail Midpoint Orders designed 
to receive price improvement by executing at the Midpoint Price against 
available RML Interest. As noted above, the proposed Retail Liquidity 
Identifier is substantively identical to the Retail Liquidity 
Identifier disseminated by IEX, which was recently approved by the 
Commission, and is consistent with the SIP Plans' requirements. As 
such, the Exchange believes that adopting this same implementation for 
its Retail Liquidity Identifier is consistent with the Act, as it would 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities and would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and does not raise any novel issues for the Commission 
to consider.
    The Exchange also believes that removing the Retail Liquidity 
Identifier previously disseminated through the MEMOIR Depth and MEMOIR 
Top data products and through the appropriate SIP after executions 
against Retail Midpoint Orders have depleted the available RML Interest 
such that the remaining RML Interest does not aggregate to form at 
least one round lot is consistent with the Act, as it would increase 
transparency in the market by indicating to RMOs that there is no 
longer RML Interest of at least one round lot available, which the 
Exchange believes would reduce the amount of Retail Midpoint Orders 
sent to the Exchange that are cancelled back to the User when there is 
no actionable RML Interest to execute against. In this regard, the 
Exchange believes that its proposed implementation of the Retail 
Liquidity Identifier would foster cooperation and coordination with 
persons engaged in facilitating transactions in securities and remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. As noted above, the Exchange also believes 
this implementation is consistent with the implementation of the other 
exchanges that disseminate Retail Liquidity Identifiers.
Priority and Order Execution
    The Exchange further believes that its priority and order execution 
approach for the RML Program is consistent with the Act. As discussed 
above, the RML Program is designed to incentivize RMOs to submit Retail 
Midpoint Orders to the Exchange to receive meaningful price improvement 
while simultaneously incentivizing Users and their clients to enter 
additional non-displayed interest in the form of RML Orders that will 
only trade with, and offer meaningful price improvement to, Retail 
Midpoint Orders. Thus, the proposed RML Program is designed to 
facilitate the provision of meaningful price improvement for orders of 
retail investors.
    The Exchange believes that it is appropriate and consistent with 
the Act to structure its RML Program such that Retail Midpoint Orders 
and RML Orders are only eligible to execute against each other at the 
Midpoint Price, so that Retail Midpoint Orders, which are entered on 
behalf of retail investors, receive price improvement that is 
meaningful by definition, as they are guaranteed, if executed against 
an RML Order, to execute at the Midpoint Price (or better if there is 
more aggressively priced liquidity resting on the MEMX Book that it 
executes against first). The Exchange believes that introducing a 
program that provides and encourages additional liquidity and price 
improvement to Retail Orders, in the form of Retail Midpoint Orders 
designed to execute at the Midpoint Price, is appropriate because 
retail investors are typically less sophisticated than professional 
market participants and therefore would not have the type of technology 
to enable them to compete with such market participants. Therefore, the 
Exchange believes that it is consistent with the public interest and 
the protection of investors to provide retail investors with these 
enhanced execution opportunities.
    Additionally, as discussed above, the Exchange believes that the 
opportunity to obtain meaningful price improvement should operate as a 
powerful incentive for RMOs to send Retail Orders to the Exchange in 
the form of Retail Midpoint Orders, thereby contributing to the 
Exchange's midpoint activity to the benefit of all Users. While the 
Exchange currently permits Users to post non-displayed liquidity priced 
to execute at the Midpoint Price, a key aspect of the proposed RML 
Program is to further incentivize Users and their clients that do not 
typically post orders at the Midpoint Price on the Exchange to enter 
additional non-displayed interest that will trade with incoming Retail 
Orders and offer meaningful price improvement at the Midpoint Price.
    In addition, the proposal to execute Retail Midpoint Orders against 
RML Orders at the Midpoint Price is also designed to facilitate RMOs' 
compliance with their best execution obligations when acting as agent 
on behalf of a Retail Order.\55\ Specifically, as noted in FINRA 
Regulatory Notice 15-46 (Guidance on Best Execution Obligations in 
Equity, Options and Fixed Income Markets), when conducting its review 
of execution quality in any security, a firm should consider, among 
other things, whether it could obtain mid-point price improvement on 
one venue versus less price improvement on another venue.\56\ For these 
reasons, the Exchange believes that this aspect of the proposal would 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities and remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system.
---------------------------------------------------------------------------

    \55\ All Users that handle customer orders as agent are required 
to be FINRA members, and therefore are subject to FINRA guidance. 
See 17 CFR 240.15b9-1(a).
    \56\ See FINRA Regulatory Notice 15-46, endnote 25, available at 
https://www.finra.org/sites/default/files/notice_doc_file_ref/Notice_Regulatory_15-46.pdf.
---------------------------------------------------------------------------

    The Exchange believes that first executing a Retail Midpoint Order 
against any resting Displayed Odd Lot Orders and/or Non-Displayed 
Orders priced more aggressively than the Midpoint Price ahead of RML 
Orders is consistent with the Act because doing

[[Page 8313]]

so ensures that the priority of more aggressively priced orders is 
maintained on the Exchange, as described above. Maintaining price 
priority in this regard, consistent with its current rules and general 
principles of order execution on other U.S. equity exchanges, as 
described above, reflects the Exchange's overall goal of incentivizing 
Users to submit aggressively priced orders to the Exchange, which 
contribute to the overall market quality and attract liquidity on the 
Exchange, thereby promoting just and equitable principles of trade and 
removing impediments to and perfecting the mechanism of a free and open 
market and a national market system.
    The Exchange further believes that it is appropriate and consistent 
with the Act to execute a Retail Midpoint Order against resting 
Displayed Odd Lot Orders and/or Non-Displayed Orders priced more 
aggressively than the Midpoint Price at the prices at which such orders 
are ranked on the MEMX Book as doing so would maintain price priority 
on the Exchange, as described above, in a manner that would enable an 
RMO entering a Retail Midpoint Order to capture better prices available 
on the MEMX Book while seeking out midpoint liquidity through the RML 
Program, and then pass along this additional price improvement to 
retail investors. In this regard, the Exchange believes that providing 
retail investors with these enhanced execution opportunities is 
consistent with the public interest and the protection of investors as 
well as the Commission's goal to encourage markets that are structured 
to benefit ordinary investors. In addition, the proposal to execute 
Retail Midpoint Orders against Displayed Odd Lot Orders and/or Non-
Displayed Orders priced more aggressively than the Midpoint Price at 
the prices at which such orders are ranked on the MEMX Book would also 
facilitate RMOs' compliance with their best execution obligations when 
acting as agent on behalf of a Retail Order for the same reasons 
described above with respect to execution against RML Orders at the 
Midpoint Price, thereby fostering cooperation and coordination with 
persons engaged in facilitating transactions in securities and removing 
impediments to and perfecting the mechanism of a free and open market 
and a national market system.
    The Exchange believes that executing Retail Midpoint Orders against 
RML Orders, which contribute to the dissemination of the Retail 
Liquidity Identifier, ahead of Eligible Midpoint Peg Orders, which do 
not contribute to the dissemination of the Retail Liquidity Identifier, 
is consistent with the Act, because, as noted above, the Exchange 
believes that dissemination of the Retail Liquidity Identifier is 
likely to be the principal factor in attracting RMOs to send Retail 
Midpoint Orders, as it signals to the market that there is available 
midpoint liquidity on the Exchange and thus increases the likelihood of 
execution for such orders. As noted above, while certain market 
participants may not ordinarily post liquidity at the Midpoint Price on 
exchanges due to adverse selection risks, the Exchange believes that 
they may be willing to do so if they can limit their interactions to 
Retail Orders (i.e., through the use of RML Orders). However, the 
Exchange recognizes that entering RML Orders involves some additional 
risk for those market participants as the Retail Liquidity Identifier 
will signal that there is a buyer or seller that is willing to trade 
with retail investors at the Midpoint Price. Thus, the RML Program 
seeks to balance the risks and incentives associated with entering RML 
Orders, which contribute to the dissemination of the Retail Liquidity 
Identifier but only interact with Retail Midpoint Orders, and Eligible 
Midpoint Peg Orders, which do not contribute to the dissemination of 
the Retail Liquidity Identifier but can interact with various market 
participants, through the relative execution priority of such orders.
    Further, as described above, the proposed execution priority of RML 
Orders over Eligible Midpoint Peg Orders is similar to the priority 
afforded to orders that are displayed on the MEMX Book, which receive 
priority over non-displayed orders because they contribute to price 
discovery and attract additional liquidity to the Exchange. Therefore, 
the Exchange believes that it removes impediments to and perfects the 
mechanism of a free and open market and national market system to 
provide execution priority to RML Orders over Eligible Midpoint Orders 
to incentivize the submission of RML Orders, which contribute to market 
transparency and attract the submission of Retail Midpoint Orders. 
Additionally, the Exchange believes that providing such execution 
priority to RML Orders is not unfairly discriminatory since Users that 
wish to interact with Retail Midpoint Order flow would be free to 
determine whether to submit RML Orders that contribute to the 
dissemination of the Retail Liquidity Identifier and have execution 
priority when trading with incoming Retail Midpoint Orders, or instead 
enter Eligible Midpoint Peg Orders that remain non-displayed but cede 
execution priority to those RML Orders.
    For the reasons set forth above, the Exchange believes that the 
proposed order priority under the RML Program is consistent with 
general principles of order priority on the Exchange and other U.S. 
equity exchanges, where orders at superior prices receive first 
priority and, at any particular price, orders that contribute to price 
discovery receive priority ahead of non-displayed orders that do not 
contribute to market transparency. As such, the Exchange believes that 
the proposed order priority under the RML Program is consistent with 
the Act and does not raise any novel issues for the Commission to 
consider.
    In sum, the Exchange submits that the proposed RML Program is a 
simple, transparent approach designed to provide an opportunity for 
retail customers' orders to receive meaningful price improvement in a 
manner generally consistent with the approved retail programs of other 
exchanges as well as general principles of order priority on the 
Exchange and other U.S. equity exchanges. Thus, the Exchange believes 
that the proposed RML Program is consistent with the Act in that it is 
designed 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 
mechanism of a free and open market and a national market system and, 
in general, to protect investors and the public interest.

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 Act. To the contrary, the 
Exchange believes that the proposed RML Program would enhance 
competition and execution quality for retail investors and would 
enhance competition for Users and their clients seeking to interact 
with retail liquidity.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition since competing venues 
have and can continue to adopt similar retail programs, subject to the 
SEC rule change process. The Exchange operates in a highly competitive 
market in which market participants can easily direct their orders to 
competing venues, including off-exchange venues.
    The Exchange also does not believe that the proposed rule change 
will impose any burden on intramarket

[[Page 8314]]

competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. As described above, a Retail Midpoint Order may 
only be submitted by firms approved to send Retail Orders on the 
Exchange (i.e., RMOs), which is comparable to an IEX Retail Order 
offered under the IEX Retail Program and retail programs on other 
exchanges where specific rules have been approved allowing only certain 
participants to send Retail Orders.\57\ All Users would be eligible to 
enter an RML Order or an Eligible Midpoint Peg Order that would be 
eligible to execute against an incoming Retail Midpoint Order. 
Moreover, the proposed rule change would provide potential benefits to 
all Users to the extent it is successful in attracting additional 
midpoint liquidity.
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    \57\ See supra note 51.
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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. Notice of Designation of a Longer Period for Commission Action on 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change, as Modified by Amendment No. 1

    Section 19(b)(2) of the Act \58\ provides that, after initiating 
proceedings, the Commission shall issue an order approving or 
disapproving the proposed rule change not later than 180 days after the 
date of publication of notice of filing of the proposed rule change. 
The Commission may extend the period for issuing an order approving or 
disapproving the proposed rule change, however, by not more than 60 
days if the Commission determines that a longer period is appropriate 
and publishes the reasons for such determination. The Initial Proposal 
was published for comment in the Federal Register on September 8, 
2021.\59\ The 180th day after publication of the Initial Proposal is 
March 7, 2022. The Commission is extending the time period for 
approving or disapproving the proposed rule change for an additional 60 
days.
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    \58\ 15 U.S.C. 78s(b)(2).
    \59\ See supra note 3.
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    The Commission finds that it is appropriate to designate a longer 
period within which to issue an order approving or disapproving the 
proposed rule change so that it has sufficient time to consider the 
proposed rule change, as modified by Amendment No. 1, and the comments 
that have been submitted in connection therewith, including the 
comments received after the Commission instituted proceedings. 
Accordingly, the Commission, pursuant to Section 19(b)(2) of the 
Act,\60\ designates May 6, 2022, as the date by which the Commission 
shall either approve or disapprove the proposed rule change, as 
modified by Amendment No. 1 (File Number SR-MEMX-2021-10).
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    \60\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether the proposed rule change, as modified by 
Amendment No. 1, 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#f98b8c959cd49a9694949c978d8ab98a9c9ad79e968f"><span class="__cf_email__" data-cfemail="e496918881c9878b8989818a9097a4978187ca838b92">[email protected]</span></a>. Please include 
File Number SR-MEMX-2021-10 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-2021-10. 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-2021-10 and should be submitted on 
or before March 7, 2022.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\61\
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    \61\ 17 CFR 200.30-3(a)(12) and (57).

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03022 Filed 2-11-22; 8:45 am]
BILLING CODE 8011-01-P


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