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[Federal Register Volume 89, Number 235 (Friday, December 6, 2024)]
[Notices]
[Pages 97092-97119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28551]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101777; File No. 10-242]

In the Matter of the Application of 24X National Exchange LLC for 
Registration as a National Securities Exchange; Findings, Opinion, and 
Order of the Commission

November 27, 2024.

I. Introduction and Procedural History

    On February 6, 2024, 24X National Exchange LLC (``24X'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a Form 1 application under the Securities Exchange Act 
of 1934 (``Exchange Act'') seeking registration as a national 
securities exchange under section 6 of the Exchange Act.\1\ Notice of 
the application was published for comment in the Federal Register on 
March 4, 2024.\2\ The Commission received five comments on the Notice 
\3\ and a letter responding to the comments from 24X.\4\ On May 31, 
2024, the Commission instituted proceedings pursuant to section 
19(a)(1)(B) of the Exchange Act \5\ to determine whether to grant or 
deny 24X's application for registration as a national securities 
exchange under section 6 of the Exchange Act (the ``OIP'').\6\ After 
issuance of the OIP, the Commission received six comment letters \7\ 
and a letter responding to the comments from 24X.\8\ On August 21, 
2024, 24X filed an amendment to its Form 1 application (``Amendment No. 
1''),\9\ which was published for comment in the Federal Register on 
September 3, 2024.\10\ On August 30, 2024, the Commission extended, 
pursuant to section 19(a)(1)(B) of the Exchange

[[Page 97093]]

Act,\11\ the time period for granting or denying 24X's Form 1 
application for an additional 90 days, until November 29, 2024.\12\ 
After issuance of Amendment No. 1, the Commission received three 
comment letters \13\ and a letter responding to the comments from 
24X.\14\ On October 23, 2024, 24X filed a second amendment to its Form 
1 application (``Amendment No. 2''),\15\ which was published for 
comment in the Federal Register on October 30, 2024.\16\ After issuance 
of Amendment No. 2, the Commission received two comment letters \17\ 
and a letter responding to the comments from 24X.\18\
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    \1\ 15 U.S.C. 78f. The Form 1 is available on the Commission's 
website at: https://www.sec.gov/rules-regulations/other-commission-orders-notices-information/24x-form-1.
    \2\ See Securities Exchange Act Release No. 99614 (Feb. 27, 
2024), 89 FR 15621 (Mar. 4, 2024) (``Notice'').
    \3\ See letters from James J. Angel, Ph.D., CFP, CFA, Associate 
Professor of Finance, Georgetown University, McDonough School of 
Business, dated Apr. 5, 2024 (``Angel Letter I'') and dated May 13, 
2024 (``Angel Letter II''); Stan Sater, Senior Legal Counsel, 
Polygon.io, Inc., dated Apr. 25, 2024 (``Polygon Letter''); Andrew 
Glover, University of Washington and Ed deHaan, Professor of 
Accounting, Stanford University, dated Apr. 22, 2024 (``Glover and 
deHaan Letter''); Eun Ah Choi, Senior Vice President, Nasdaq, Inc., 
dated Apr. 25, 2024 (``Nasdaq Letter''). The public comment file for 
24X's Form 1 (File No. 10-242) is available on the Commission's 
website at: https://www.sec.gov/comments/10-242/10-242.htm.
    \4\ See letter from David Sassoon, General Counsel, 24X, dated 
May 30, 2024 (``24X Letter'').
    \5\ 15 U.S.C. 78s(a)(1)(B).
    \6\ See Securities Exchange Act Release No. 100254 (May 31, 
2024), 89 FR 48466 (June 6, 2024).
    \7\ See letters from Richard Montone, JD/MBA student, Hofstra 
University, dated June 26, 2024 (``Montone Letter''); Ellen Greene, 
Managing Director, Equity and Options Market Structure, Securities 
Industry and Financial Markets Association (``SIFMA''), dated June 
27, 2024 (``SIFMA Letter''); Benjamin L. Schiffrin, Director of 
Securities Policy, Better Markets, Inc., dated June 27, 2024 
(``Better Markets Letter''); Chris Nagy, Research Director, and 
Tyler Gellasch, President and Chief Executive Officer, Healthy 
Markets Association, dated June 28, 2024 (``Healthy Markets 
Letter''); Jeffrey M. Pasquerella, Chief Legal Officer, DriveWealth, 
LLC., dated June 28, 2024 (``DriveWealth Letter''); Joanna Mallers, 
Secretary, FIA Principal Traders Group, dated July 26, 2024 (``FIA 
PTG Letter'').
    \8\ See letter from David Sassoon, General Counsel, 24X, dated 
Aug. 21, 2024 (``24X Letter II'').
    \9\ Amendment No. 1 is available on the Commission's website at: 
https://www.sec.gov/rules-regulations/other-commission-orders-notices-information/24x-form-1. In Amendment No. 1, 24X amended 
Exhibits B, B-1, C, C-2, D, D-1, D-2, D-3, D-4, E, E-1 and N. For 
purposes of this Order, references to Exhibits C, C-2, D, D-1, D-3, 
and N will be to the amended Exhibits filed with Amendment No. 1. 
See infra note 15 (describing references to Exhibits B, B-1, E and 
E-1 for purposes of this Order).
    \10\ See Securities Exchange Act Release No. 100839 (Aug. 27, 
2024), 89 FR 71471 (Sept. 3, 2024).
    \11\ 15 U.S.C. 78s(a)(1)(B).
    \12\ See Securities Exchange Act Release No. 100884 (Aug. 30, 
2024), 89 FR 72917 (Sept. 6, 2024).
    \13\ See letters from Patrick Blonien, Instructor of Finance, 
Carnegie Mellon University, and Alexander Ober, Ph.D. Candidate in 
Finance, Rice University, undated (``Blonien and Ober Letter''); 
John Ramsay, Chief Market Policy Officer, Investors' Exchange LLC 
(`IEX''), dated Oct. 9, 2024 (``IEX Letter''); Joanna Mallers, 
Secretary, FIA Principal Traders Group, dated Oct. 11, 2024 (``FIA 
PTG Letter II'').
    \14\ See letter from David Sassoon, General Counsel, 24X, dated 
Nov. 1, 2024 (``24X Letter III'').
    \15\ Amendment No. 2 is available on the Commission's website 
at: https://www.sec.gov/rules-regulations/other-commission-orders-notices-information/24x-form-1. In Amendment No. 2, 24X amended 
Exhibits B, B-1, E, and E-1. For purposes of this Order, references 
to these listed Exhibits will be to the amended Exhibits filed with 
Amendment No. 2.
    \16\ See Securities Exchange Act Release No. 101431 (Oct. 24, 
2024), 89 FR 86400 (Oct. 30, 2024).
    \17\ See letters from Ellen Green, Managing Director, Equities 
and Options Market Structure, SIFMA, dated Oct. 29, 2024 (``SIFMA 
Letter II''); Adrian Griffiths, Head of Market Structure, MEMX LLC 
(``MEMX Letter''), dated Oct. 29, 2024.
    \18\ See letter from David Sassoon, General Counsel, 24X, dated 
Nov. 18, 2024 (``24X Letter IV'').
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    The Commission has reviewed 24X's Form 1 application, as amended, 
together with the comment letters received, in order to make a 
determination whether to grant such registration. For the reasons set 
forth below and based on the representations set forth in 24X's Form 1 
application, as amended, this order grants 24X's Form 1 application, as 
amended, for registration as a national securities exchange.

II. Statutory Standards

    Pursuant to sections 6(b) and 19(a) of the Exchange Act,\19\ the 
Commission shall by order grant an application for registration as a 
national securities exchange if the Commission finds, among other 
things, that the proposed exchange is so organized and has the capacity 
to carry out the purposes of the Exchange Act and can comply, and can 
enforce compliance by its members and persons associated with its 
members, with the provisions of the Exchange Act, the rules and 
regulations thereunder, and the rules of the exchange.\20\
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    \19\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(a), respectively.
    \20\ 15 U.S.C. 78f(b)(1).
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    As discussed in greater detail below, the Commission finds that 
24X's application, as amended, for registration as a national 
securities exchange meets the requirements of the Exchange Act and the 
rules and regulations thereunder. Further, the Commission finds that 
the proposed rules of 24X are consistent with section 6 of the Exchange 
Act in that, among other things, they are designed to: (1) assure fair 
representation of the exchange's members in the selection of its 
directors and administration of its affairs and provide that, among 
other things, one or more directors shall be representative of 
investors and not be associated with the exchange, or with a broker or 
dealer; \21\ (2) prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, and remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system; \22\ (3) not permit unfair discrimination between customers, 
issuers, or dealers; \23\ and (4) protect investors and the public 
interest.\24\ The Commission also finds that the proposed rules of 24X 
are consistent with section 11A of the Exchange Act.\25\ Finally, the 
Commission finds that 24X's proposed rules do not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act.\26\
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    \21\ See U.S.C. 78f(b)(3).
    \22\ See U.S.C. 78f(b)(5).
    \23\ See id.
    \24\ See id.
    \25\ See 15 U.S.C. 78k-1.
    \26\ See 15 U.S.C. 78f(b)(8).
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III. Discussion

A. Ownership and Governance of 24X

    24X is a Delaware limited liability company,\27\ which is wholly-
owned by its sole member, 24X US Holdings LLC (``24X US''), which also 
is a Delaware limited liability company.\28\ 24X US, in turn, is 
wholly-owned by 24X Bermuda Holdings LLC (``24X Bermuda''), which is a 
limited liability company formed under the laws of Bermuda.\29\ 24X US 
will be managed by, and all decisions regarding 24X US will be made by, 
24X Bermuda.\30\ Generally, the members of 24X Bermuda include holders 
of ``Preferred Units,'' \31\ ``Common Units'' \32\ and ``Non-Voting 
Units.'' \33\ Common Units and Preferred Units except Series Seed-2 
Units have general voting power, and are defined as ``Voting Units.'' 
\34\ Each Voting Unit has one vote.\35\
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    \27\ See Certificate of Formation of 24X National Exchange LLC.
    \28\ See Certificate of Formation of 24X US Holdings LLC.
    \29\ See Certificate of Formation of 24X Bermuda Holdings LLC.
    \30\ See Second Amended and Restated Limited Liability Company 
Agreement of 24X US Holdings LLC (``24X US LLC Agreement''), Section 
VI(a).
    \31\ ``Preferred Units'' means ``Series A Units and the Series 
Seed Units.'' See Third Amended and Restated Limited Liability 
Company Agreement of 24X Bermuda LLC (``24X Bermuda LLC 
Agreement''), Article 1, 1.45. See also id. at Article 1, 1.55 and 
1.60 defining Series A Units and Series Seed Units.
    \32\ ``Common Units'' means ``[u]nits of common membership 
interests of the Company, or any other ownership interests of the 
Company into which such units are reclassified, reconstituted or 
exchanged.'' See id. at Article 1, 1.16.
    \33\ ``Non-Voting Units'' means ``units of non-voting membership 
interests of the Company, or any other ownership interests of the 
Company into which such units are reclassified, reconstituted or 
exchanged.'' See id. at Article 1, 1.38. A description of the 
members of 24X Bermuda and their respective ownership levels is set 
forth in Exhibit K. See also infra section III.B.1.
    \34\ See 24X Bermuda LLC Agreement, Article 1, 1.75. See also 
id. at Article 1, Section 1.64 defining Series Seed-2 Units.
    \35\ See 24X Bermuda LLC Agreement, Article 1, 1.75.
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1. 24X Board of Directors
    24X proposed that its business and affairs as a national securities 
exchange will be managed by a Board \36\ comprised of a minimum of 
seven Directors \37\ (``24X Board'').\38\ The 24X Board will consist 
of:
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    \36\ See Amended and Restated Limited Liability Company 
Agreement of 24X National Exchange LLC (``24X LLC Agreement''), 
Article I, (d).
    \37\ See id., at Article I, (l).
    \38\ See id., at Article VI, Section 6.1(b).
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    (A) one Director who is the Chief Executive Officer of the Exchange 
and who shall be deemed to be an Industry Director; \39\
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    \39\ See id., at Article VI, Section 6.1(c)(i)(A). See also id. 
at Article I, (w).
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    (B) Non-Industry Directors,\40\ including at least one (1) 
Independent Director,\41\ the number of which shall equal or exceed the 
sum of the number of Industry Directors and Member Representative 
Directors; \42\
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    \40\ See id., at Article VI, Section 6.1(c)(i)(B)(1). See also 
id. at Article I, (ee).
    \41\ See id., at Article I, (v).
    \42\ See id., at Article VI, Section 6.1(c)(i)(B)(1). See also 
id. at Article I, (bb).

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[[Page 97094]]

    (C) Member Representative Directors, the number of which must be at 
least twenty percent of the 24X Board; \43\ and
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    \43\ See id., at Article VI, Section 6.1(c)(1)(B)(2). If twenty 
percent of the Directors then serving on the 24X Board is not a 
whole number, such minimum number of Member Representative Directors 
shall be rounded up to the next whole number. Id.
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    (D) at least one of the Non-Industry Directors shall be 
representative of issuers and investors and not associated with an 
Exchange Member, a broker, or a dealer.\44\
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    \44\ See id., at Article VI, Section 6.1(c)(1)(B)(3).
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    The first annual meeting of 24X will be held within 90 days after 
the Commission grants 24X's exchange registration.\45\
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    \45\ See 24X LLC Agreement, Article III, Section 3.4(a).
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    In addition, 24X US will appoint the initial Nominating Committee 
and Member Nominating Committee, consistent with each committee's 
compositional requirements, to nominate candidates for election to the 
24X Board.\46\ The Nominating Committee and Member Nominating 
Committee, after completion of their respective duties for nominating 
directors for election to the 24X Board for that year, will recommend 
candidates to serve on the succeeding year's Nominating Committee or 
Member Nominating Committee, as applicable.\47\ Exchange Members \48\ 
will have rights to nominate and elect additional candidates for the 
Member Nominating Committee pursuant to a petition process.\49\
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    \46\ See 24X LLC Agreement, Article VI, Section 6.2(g)(ii).
    \47\ Id.
    \48\ ``Exchange Member'' means ``any registered broker or dealer 
that has been admitted to membership in the national securities 
exchange operated by the Company. An Exchange Member is not a member 
of the Company by reason of being an Exchange Member. An Exchange 
Member will have the status of a `member' of the Exchange as that 
term is defined in Section 3(a)(3) of the Exchange Act.'' See 24X 
LLC Agreement, Article I, (o).
    \49\ See 24X LLC Agreement, Article VI, Section 6.1(d)(iii).
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    The Nominating Committee will nominate candidates for election to 
the 24X Board.\50\ For the Member Representative Director positions, 
the Member Nominating Committee, composed solely of Member 
Representative Committee or Panel Members,\51\ shall consult with the 
Nominating Committee and the Chairman of the 24X Board and solicit 
comments from Exchange Members for the purpose of approving and 
submitting names of candidates for election to the position of Member 
Representative Director.\52\ If no candidates are nominated pursuant to 
a petition process, then the initial nominees approved and submitted by 
the Member Nominating Committee will be nominated as Member 
Representative Directors by the Nominating Committee.\53\ If a petition 
process produces additional candidates, then the candidates nominated 
pursuant to the petition process, together with those nominated by the 
Member Nominating Committee, will be presented to Exchange Members for 
election to determine the final designees for any open Member 
Representative Director positions.\54\ In the event of a contested 
election, the candidates who receive the most votes will be selected as 
the Member Representative Director designees by the Member Nominating 
Committee.\55\
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    \50\ See 24X LLC Agreement, Article VI, Section 6.1(d)(i).
    \51\ ``Member Representative Committee or Panel Members'' means 
a member of any Committee or hearing panel who is an officer, 
director, employee or agent of an Exchange Member that does not own, 
directly or indirectly, any Units. See 24X LLC Agreement, Article I 
(aa).
    \52\ See 24X LLC Agreement, Article VI, Section 6.1(d)(ii).
    \53\ See 24X LLC Agreement, Article VI, Section 6.1(d)(v).
    \54\ Id.
    \55\ See 24X LLC Agreement, Article VI, Section 6.1(d)(vi).
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    The 24X governance provisions are consistent with the Exchange Act. 
In particular, the requirement that the number of Member Representative 
Directors must be at least 20% of the 24X Board and the means by which 
they will be chosen by Exchange Members provides for the fair 
representation of members in the selection of directors and the 
administration of 24X and therefore are consistent with section 6(b)(3) 
of the Exchange Act.\56\ This requirement helps to ensure that members 
of an exchange have a voice in an exchange's self-regulatory program, 
and that an exchange is administered in a way that is equitable to all 
those who trade on its market or through its facilities.\57\
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    \56\ 15 U.S.C. 78f(b)(3).
    \57\ See, e.g., Securities Exchange Act Release Nos. 100539 
(July 15, 2024), 89 FR 58848 (July 19, 2024) (File No. 10-240) 
(order granting registration of MIAX Sapphire, LLC) (``Sapphire 
Order''); 88806 (May 4, 2020), 85 FR 27451 (May 8, 2020) (File No. 
10-237) (order granting registration of MEMX LLC (``MEMX 
Exchange''))(``MEMX Order''); 85828 (May 10, 2019), 84 FR 21841 (May 
15, 2019) (File No. 10-234) (order granting registration of Long 
Term Stock Exchange, Inc. (``LTSE Exchange'') (``LTSE Order''); 
79543 (Dec. 13, 2016), 81 FR 92901, 92903 (Dec. 20, 2016) (File No. 
10-227) (order granting registration of MIAX PEARL, LLC) (``MIAX 
PEARL Order''); 68341 (Dec. 3, 2012), 77 FR 73065, 73067 (Dec. 7, 
2012) (File No. 10-207) (order granting the registration of Miami 
International Securities Exchange, LLC (``MIAX Exchange'')) (``MIAX 
Order''); 58375 (Aug. 18, 2008), 73 FR 49498, 49501 (Aug. 21, 2008) 
(File No. 10-182) (order granting the registration of BATS Exchange, 
Inc.) (``BATS Order''); 53128 (Jan. 13, 2006), 71 FR 3550, 3553 
(Jan. 23, 2006) (File No. 10-131) (granting the exchange 
registration of Nasdaq Stock Market, Inc.) (``Nasdaq Order'').
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    In addition, the requirements that the number of Non-Industry 
Directors equal or exceed the sum of the number of Industry Directors 
and Member Representative Directors, that at least one Non-Industry 
Director shall also qualify as an Independent Director, and that at 
least one of the Non-Industry Directors shall be representative of 
issuers and investors and not associated with an Exchange Member, a 
broker, or a dealer on the 24X Board satisfy the requirements in 
section 6(b)(3) of the Exchange Act,\58\ which requires in part that 
one or more directors be representative of issuers and investors and 
not be associated with a member of the exchange, or with a broker or 
dealer. The Commission previously has stated that the inclusion of 
public, non-industry representatives on exchange oversight bodies is an 
important mechanism to support an exchange's ability to protect the 
public interest.\59\ Further, the presence of public, non-industry 
representatives can help to ensure that no single group of market 
participants has the ability to systematically disadvantage other 
market participants through the exchange governance process. Public 
directors can provide unbiased perspectives, which may enhance the 
ability of the 24X Board to address issues in a non-discriminatory 
fashion and foster the integrity of the Exchange.
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    \58\ 15 U.S.C. 78f(b)(3).
    \59\ See, e.g., Sapphire Order, supra note 57, at 58850; MEMX 
Order, supra note 57, at 27452; LTSE Order, supra note 57, at 21843, 
MIAX PEARL Order, supra note 57, at 92903; MIAX Order, supra note 
57, at 73067; BATS Order, supra note 57, at 49501; Nasdaq Order, 
supra note 57, at 3553.
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2. Exchange Committees
    24X has proposed to establish several named committees of the 24X 
Board, including an Appeals Committee \60\ and a Regulatory Oversight 
Committee,\61\ as well as the Nominating Committee and Member 
Nominating Committee, discussed above.\62\ The Appeals

[[Page 97095]]

Committee will consist of two Independent Directors and one Member 
Representative Director.\63\ Each member of the Regulatory Oversight 
Committee must be an Independent Director.\64\
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    \60\ See 24X LLC Agreement, Article VI, Section 6.2(f). The 
Appeals Committee will preside over all appeals related to 
disciplinary and adverse action determinations in accordance with 
24X rules. Id.
    \61\ See 24X LLC Agreement, Article VI, Section 6.2(h). The 
Regulatory Oversight Committee will be responsible for overseeing 
the adequacy and effectiveness of the Exchange's regulatory and 
self-regulatory organization responsibilities, assessing the 
Exchange's regulatory performance, and assisting the 24X Board and 
Committees in reviewing the regulatory plan and the overall 
effectiveness of the Exchange's regulatory functions. Id. See also 
infra section III.B.3.
    \62\ The 24X Board could also establish additional committees. 
See 24X LLC Agreement, Article VI, Section 6.2(a). All committees of 
the 24X Board will be subject to the control and supervision of the 
24X Board. Id.
    \63\ See 24X LLC Agreement, Article VI, Section 6.2(f).
    \64\ See 24X LLC Agreement Article VI, Section 6.2(h)(v).
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    The named committees that 24X proposed, which are similar to the 
named committees maintained by other exchanges,\65\ are designed to 
help enable the Exchange to carry out its responsibilities under the 
Exchange Act and are consistent with the Exchange Act, including 
section 6(b)(1), which requires, in part, an exchange to be so 
organized and have the capacity to carry out the purposes of the 
Exchange Act.\66\
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    \65\ See, e.g., Securities Exchange Act Release No. 78101 (June 
17, 2016), 81 FR 41142 (June 23, 2016) (File No. 10-222) (order 
granting the registration of IEX (``IEX Order'')); Article IV, 
Section 4.1 of the Eleventh Amended and Restated Bylaws of Cboe 
Exchange, Inc.
    \66\ 15 U.S.C. 78f(b)(1).
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    The Commission received one comment on Exhibit J of 24X's Form 
1.\67\ Regarding the proposed 24X Board and committees, this commenter 
stated that filling in the charts set forth in Exhibit J of 24X's Form 
1 with ``TBD'' and ``TO BE PROVIDED'' ``does not provide the Commission 
with sufficient information with which to assess compliance with the 
law or Commission Rules.'' \68\ The commenter further stated that 
``[t]he Exchange failed to provide the names, classifications, terms, 
and types of businesses of the persons to fill the required roles. The 
point of the chart is to have those boxes filled in. They are `to be 
provided' now--not in the future. What would be the basis for the 
Commission's approval?'' \69\ 24X stated that it has not commenced 
operations and that ``[o]nce directors and committee members are 
determined,'' 24X will update its Form 1 as required under Rule 6a-2 
under the Exchange Act.\70\
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    \67\ See Healthy Markets Letter at 2-6.
    \68\ Id. at 5.
    \69\ Id. at 5.
    \70\ See 24X Letter II at 16-17.
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    Exhibit J requires certain information for officers, governors, 
members of all standing committees, or persons performing similar 
functions, who ``presently hold or have held their offices or positions 
during the previous year.'' \71\ Exhibit J of 24X's Form 1 application 
indicates that Dmitri Galinov will be the ``Industry/Chief Executive 
Officer'' of 24X. Exhibit J also lists Dmitri Galinov as the Head of 
Equities for 24X, and other officers of 24X including David Sassoon as 
General Counsel; Jeremy Sanchez as Chief Regulatory Officer; and Jason 
Woerz as Chief Operating Officer.
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    \71\ For any individual that presently holds or has held their 
offices or positions during the previous year, Exhibit J requires 
their name, title, dates of commencement and termination of term of 
office or position, and type of business in which each is primarily 
engaged (e.g., floor broker, specialist, odd lot dealer, etc.).
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    24X has not yet commenced operations, and therefore, the nomination 
and election processes to fill the rest of 24X's Board and committees, 
as set forth in the 24X LLC Agreement, have not been initiated. Upon 
approval of 24X's Form 1 application, however, 24X US, as the sole 
owner of 24X, is required to elect only those persons to the 24X Board 
and committees that meet the stated compositional requirements set 
forth in the 24X LLC Agreement, and pursuant to Rule 6a-2 of the 
Exchange Act, 24X must file an amendment to its Form 1 providing the 
name, classification, term, and type of business of each person who 
will be on the 24X Board and 24X committees within 10 days after 24X US 
elects such persons to the 24X Board, or the Chairman of the 24X Board 
appoints individuals to the various 24X committees.\72\ The information 
provided by 24X in Exhibit J is consistent with the requirements of the 
form and the Exchange Act.
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    \72\ See 17 CFR 240.6a-2. See also 24X LLC Agreement, Article 
VI, Section 6.2(b)(i).
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B. 24X Bermuda and Regulation of the Exchange

    When 24X commences operations as a national securities exchange, it 
will have all of the attendant regulatory obligations under the 
Exchange Act. In particular, 24X will be responsible for the operation 
and regulation of its trading system and the regulation of its members. 
Certain provisions in both the 24X and 24X Bermuda governing documents 
are designed to facilitate the ability of 24X to fulfill its regulatory 
obligations and to help facilitate Commission oversight of 24X. The 
discussion below summarizes some of these key provisions.\73\
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    \73\ Because 24X US is the sole member of 24X (see 24X LLC 
Agreement), and 24X Bermuda is the sole member of 24X US (see 24X US 
LLC Agreement) and thus indirectly wholly owns and controls 24X, for 
purposes of this Order, the Commission bases its findings on 
provisions in the 24X Bermuda LLC Agreement, as the ultimate owner 
of 24X.
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1. Ownership Structure; Ownership and Voting Limitations
    As stated above, 24X will be owned indirectly by 24X Bermuda. The 
24X Bermuda LLC Agreement includes restrictions on the ability to own 
and vote units representing a fractional part of the interest in 24X 
Bermuda (``Units'').\74\ These limitations are designed to prevent any 
party to the 24X Bermuda LLC Agreement from exercising undue control 
over the operation of the Exchange and to ensure that the Exchange and 
the Commission are able to carry out their regulatory obligations under 
the Exchange Act.\75\
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    \74\ ``Unit'' means ``(i) any Common Units (including Profits 
Units), Non-Voting Units or Preferred Units purchased or otherwise 
acquired by any Member; (ii) any equity securities issued or 
issuable directly or indirectly with respect to any of the foregoing 
Units by way of Unit distribution or split or in connection with a 
combination of Units, recapitalization, merger, consolidation or 
other reorganization; and (iii) any other units of any class or 
series of ownership interests of the Company held by a Member, 
including with respect to Convertible Securities or Options.'' See 
24X Bermuda LLC Agreement, Article 1, 1.72
    \75\ These provisions are consistent with ownership and voting 
limits approved by the Commission for other SROs. See, e.g., 
Sapphire Order, MEMX Order, LTSE Order, MIAX PEARL Order, MIAX 
Order, and BATS Order supra note 57; IEX Order, supra note 65, see 
also Securities Exchange Release Nos. 6068 (Feb. 4, 2016) (File No. 
10-221) (order granting exchange registration of ISE Mercury, LLC) 
(``ISE Mercury Order''); 70050 (July 26, 2013), 78 FR 46622, 46624 
(Aug. 1, 2013) (File No. 10-209) (order granting the exchange 
registration of ISE Gemini, LLC) (``ISE Gemini Order''); 62158 (May 
24, 2010), 75 FR 30082 (May 28, 2010) (CBOE-2008-88) (Cboe 
demutualization order); 53963 (June 8, 2006), 71 FR 34660 (June 15, 
2006) (SR-NSX-2006-03) (NSX demutualization order); 51149 (Feb. 8, 
2005), 70 FR 7531 (Feb. 14, 2005) (SR-CHX-2004-26) (CHX 
demutualization order); 49098 (Jan. 16, 2004), 69 FR 3974 (Jan. 27, 
2004) (SR-Phlx-2003-73) (Phlx demutualization order).
---------------------------------------------------------------------------

    In particular, for so long as 24X Bermuda shall control, directly 
or indirectly, 24X, no Person,\76\ either alone or together with its 
Related Persons,\77\ will be permitted to own,

[[Page 97096]]

directly or indirectly, of record or beneficially, more than 40% of the 
then issued and outstanding Units.\78\ A more restrictive condition 
will apply to Exchange Members, who either alone or together with their 
Related Persons, will be prohibited from owning, directly or 
indirectly, of record or beneficially, more than 20% of the then issued 
and outstanding Units.\79\ If any party to the 24X Bermuda LLC 
Agreement purports to transfer \80\ any Units in violation of these 
ownership limits, 24X Bermuda will be required (to the extent funds are 
legally available) to redeem the Units in excess of the applicable 
ownership limit.\81\
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    \76\ ``Person'' means ``any individual, partnership, joint 
venture, company, limited liability company, trust, or other 
association or entity.'' See 24X Bermuda LLC Agreement, Article 1, 
1.41.
    \77\ ``Related Persons'' means ``[with] respect to any Person: 
(a) any `affiliate' of such Person (as such term is defined in Rule 
12b-2 under the Exchange Act); (b) any other Person with which such 
first Person has any agreement, arrangement or understanding 
(whether or not in writing) to act together for the purpose of 
acquiring, voting, holding or disposing of Units; (c) in the case of 
a Person that is a company, corporation or similar entity, any 
executive officer (as defined under Rule 3b-7 under the Exchange 
Act) or director of such Person and, in the case of a Person that is 
a partnership or limited liability company, any general partner, 
managing member or manager of such Person, as applicable; (d) in the 
case of any Person that is a registered broker or dealer that has 
been admitted to membership in the national securities exchange 
known as 24X National Exchange, any Person that is associated with 
such member (as determined using the definition of `person 
associated with a member' as defined under Section 3(a)(21) of the 
Exchange Act); (e) in the case of a Person that is a natural person 
and member of 24X National Exchange, any broker or dealer that is 
also a member of 24X National Exchange with which such Person is 
associated; (f) in the case of a Person that is a natural person, 
any relative or spouse of such Person, or any relative of such 
spouse who has the same home as such Person or who is a manager or 
officer of the Company, any subsidiary of the Company, or any of the 
Company's parent companies; (g) in the case of a Person that is an 
executive officer (as defined under Rule 3b-7 under the Exchange 
Act) or a director of a company, corporation or similar entity, such 
company, corporation or entity, as applicable; or (h) in the case of 
a Person that is a general partner, managing member or manager of a 
partnership or limited liability company, such partnership or 
limited liability company, as applicable.'' See 24X Bermuda LLC 
Agreement, Article 1, 1.49.
    \78\ See 24X Bermuda LLC Agreement, Article 9, Section 
9.2(a)(i). There are limited exceptions to these prohibitions. See 
infra notes 84-85 and accompanying text.
    \79\ See 24X Bermuda LLC Agreement, Article 9, Section 
9.2(a)(ii). This restriction on ownership by Exchange Members cannot 
be waived. See id. at Article 9, Section 9.2(b)(ii).
    \80\ ``Transfer'' means ``any sale, transfer, conveyance, 
exchange, pledge, gift, donation, assignment, or other disposition 
of Units, whether voluntary or involuntary, and whether during the 
lifetime of the Person involved or upon or after his death, 
including, but not limited to, any disposition by operation of law, 
by court order, by judicial process, or by foreclosure, levy, or 
attachment. `Transfer' when used as a verb shall have a correlative 
meaning. `Transferor' and `Transferee' mean a Person who makes or 
receives a Transfer, respectively.'' See 24X Bermuda LLC Agreement, 
Article 1, Section 1.71. See also id. at Article 9, Section 
9.2(f)(i).
    \81\ See 24X Bermuda LLC Agreement, Article 9, Section 
9.2(f)(iii). The price of the redeemed Units or Unit Equivalents is 
also prescribed in the 24X Bermuda LLC Agreement. See id. The number 
of Units or Unit Equivalents to be redeemed is to be calculated 
after taking into account that the redeemed Units or Unit 
Equivalents will become treasury shares and will no longer be deemed 
to be outstanding. See id. It is further provided in the 24X Bermuda 
LLC Agreement that any Units or Unit Equivalents that have been 
called for redemption may not be deemed outstanding Units or Unit 
Equivalents if a sum sufficient to redeem the Units or Unit 
Equivalents has been irrevocably deposited or set aside to pay the 
redemption price. From and after the redemption date (unless 24X 
Bermuda defaults in providing funds for the payment of the 
redemption price), the redeemed Units or Unit Equivalents that have 
been redeemed will become treasury shares, and all rights of the 
holder of the redeemed Units or Unit Equivalents in 24X Bermuda 
(except the right to receive from 24X Bermuda the redemption price 
against delivery to 24X Bermuda of evidence of ownership of the 
shares) will cease. See id. In addition, in the event that any 
redemption has resulted in any person owning such number of Units or 
Unit Equivalents that is in violation of the ownership limits, 24X 
Bermuda will be required to redeem those Units or Unit Equivalents 
pursuant to the limitation provisions. See id.
---------------------------------------------------------------------------

    In addition, no Person, alone or together with its Related Persons, 
may, directly, indirectly, or pursuant to any voting trust, agreement, 
plan or other arrangement, vote or cause the voting of Units or give 
any consent or proxy with respect to Units representing more than 20% 
of the voting power of the then issued and outstanding Units (``Voting 
Limitation'').\82\ Further, no Person, either alone or together with 
its Related Persons, under circumstances that would result in the Units 
that are subject to such agreement, plan, or other arrangement not 
being voted on any matter or matters or any proxy relating thereto 
being withheld, where the effect of such agreement, plan, or other 
arrangement would be to enable any Person, either alone or together 
with its Related Persons, to vote, possess the right to vote, or cause 
the voting of Units that would represent more than 20% of such voting 
power.\83\
---------------------------------------------------------------------------

    \82\ See 24X Bermuda LLC Agreement, Article 9, Section 
9.2(a)(iii).
    \83\ See id.
---------------------------------------------------------------------------

    The 24X Bermuda Board of Managers will be permitted to waive the 
40% ownership limitation and the 20% Voting Limitation pursuant to a 
resolution duly adopted by the 24X Bermuda Board of Managers if it 
makes certain determinations.\84\ Any such waiver will not be effective 
unless and until approved by the Commission.\85\
---------------------------------------------------------------------------

    \84\ See 24X Bermuda LLC Agreement, Article 9, Section 
9.2(b)(ii). See also supra note 79 (concerning the inability to 
waive restrictions for Exchange Members). The required 
determinations are that such waiver will not impair the ability of 
the Exchange to carry out its functions and responsibilities as an 
``exchange'' under the Exchange Act and the rules and regulations 
promulgated thereunder; that such waiver is otherwise in the best 
interests of 24X Bermuda, its members, and the Exchange; that such 
waiver will not impair the ability of the Commission to enforce the 
Exchange Act and the rules and regulations promulgated thereunder; 
and that such Person and its Related Persons are not subject to any 
applicable ``statutory disqualification'' within the meaning of 
Section 3(a)(39) of the Exchange Act. See id. See also 24X US LLC 
Agreement, Section III(b)(ii)(B). These provisions are consistent 
with ownership and voting limits approved by the Commission for 
other SROs. See, e.g., Sapphire Order, MEMX Order, LTSE Order, MIAX 
PEARL Order, MIAX Order, and BATS Order, supra note 57, IEX Order, 
supra note 65, ISE Mercury Order and ISE Gemini Order, supra note 
75; and Securities Exchange Act Release No. 61698 (Mar. 12, 2010), 
75 FR 13151 (Mar. 18, 2010) (File Nos. 10-194 and 10-196) (order 
approving DirectEdge exchanges) (``DirectEdge Exchanges Order'').
    \85\ See 24X Bermuda LLC Agreement, Article 9, Section 
9.2(b)(ii).
---------------------------------------------------------------------------

    Any Person that proposes to own Units in excess of the 40% 
ownership limitation, or to vote or grant any proxies or consents with 
respect to Units constituting more than 20% of the voting power of the 
then outstanding Units, will be required to deliver written notice to 
the 24X Bermuda Board of Managers of its intention.\86\ The notice must 
be delivered to the 24X Bermuda Board of Managers not less than 45 days 
(or any shorter period to which the Board of Managers expressly 
consents) before the proposed ownership of such Units or the proposed 
vote.\87\
---------------------------------------------------------------------------

    \86\ See 24X Bermuda LLC Agreement, Article 9, Section 9.2(d).
    \87\ See id.
---------------------------------------------------------------------------

    The 24X Bermuda LLC Agreement also contains provisions that are 
designed to further safeguard the ownership limitation and Voting 
Limitation described above or are otherwise related to direct and 
indirect changes in control. Specifically, any Person that, either 
alone or together with its Related Persons beneficially owns, directly 
or indirectly (whether by acquisition or a change in the number of 
Units outstanding), of record or beneficially 5% or more of the then 
outstanding Units will be required to notify the 24X Bermuda Board of 
Managers in writing of such ownership.\88\ Thereafter, such persons 
will be required to update 24X Bermuda of any increase or decrease of 
1% or more in their previously reported ownership percentage.\89\
---------------------------------------------------------------------------

    \88\ See 24X Bermuda LLC Agreement, Article 9, Section 
9.2(e)(i). The notice will require the Person's full legal name; the 
Person's title or status and the date on which such title or status 
was acquired; the Person's and its Related Person's) approximate 
ownership interest in 24X Bermuda; and whether the person has power, 
directly or indirectly, to direct the management or policies of 24X 
Bermuda, whether through ownership of securities, by contract or 
otherwise. See id.
    \89\ See 24X Bermuda LLC Agreement, Article 9, Section 
9.2(e)(ii). Changes of less than 1% must also be reported to 24X 
Bermuda if they result in such Person crossing a 20% or 40% 
ownership threshold. See id. In addition, the Exchange's rules also 
impose limits on affiliation between the Exchange and a Member of 
the Exchange. See 24X Rule 2.10 (No Affiliation between Exchange and 
any Member).
---------------------------------------------------------------------------

    The 24X LLC Agreement does not include change of control provisions 
that are similar to those in the 24X Bermuda LLC Agreement and the 24X 
US LLC Agreement because the 24X LLC Agreement instead explicitly 
identifies its sole owner as 24X US, and in turn the 24X US LLC 
Agreement explicitly identifies 24X Bermuda as its sole owner.\90\ 
Thus, any changes in the ownership of 24X would require the 24X LLC 
Agreement to be amended. Any amendment to the 24X LLC Agreement, 
including to ownership of

[[Page 97097]]

24X, would constitute a proposed rule change under section 19(b) of the 
Exchange Act \91\ and Rule 19b-4 \92\ thereunder that will be required 
to be filed with, or filed with and approved by, the Commission.\93\ 
Moreover, pursuant to the 24X LLC Agreement, any transfer of limited 
liability company interests of 24X will be subject to prior approval by 
the Commission pursuant to the rule filing procedure under section 19 
of the Exchange Act.\94\
---------------------------------------------------------------------------

    \90\ See 24X LLC Agreement (introductory text) and Second 
Amended and Restated Limited Liability Company Agreement of 24X US 
(introductory text).
    \91\ 15 U.S.C. 78s(b).
    \92\ 17 CFR 240.19b-4.
    \93\ See 24X LLC Agreement, Article X, Section 10.3.
    \94\ See 24X LLC Agreement, Article V, Section 5.2(a).
---------------------------------------------------------------------------

    Although 24X Bermuda is not directly responsible for regulation, 
its activities with respect to the operation of 24X must be consistent 
with, and must not interfere with, the self-regulatory obligations of 
24X.\95\ As described above, the provisions applicable to changes in 
control of 24X Bermuda (through changes in ownership of Units in 24X 
Bermuda) as well as the Voting Limitation imposed on owners of 24X 
Bermuda who also are Exchange Members, are designed to help prevent any 
owner of 24X Bermuda from exercising undue influence or control, either 
direct or indirect, over the operation of the Exchange and to help 
ensure that the Exchange retains a sufficient degree of independence to 
effectively carry out its regulatory obligations under the Exchange 
Act.
---------------------------------------------------------------------------

    \95\ See, e.g., Sapphire Order, supra note 57, IEX Order, supra 
note 65.
---------------------------------------------------------------------------

    In addition, these limitations are designed to address the 
conflicts of interests that might result from a member of a national 
securities exchange owning interests in the exchange. As the Commission 
has stated in the past, an exchange member's ownership interest in an 
entity that controls an exchange could become so large as to cast doubt 
on whether the exchange may fairly and objectively exercise its self-
regulatory responsibilities with respect to such member.\96\ An 
exchange member that is a controlling shareholder of an exchange could 
seek to exercise that controlling influence by directing the exchange 
to refrain from, or the exchange may hesitate to, diligently monitor 
and conduct surveillance of the member's conduct or diligently enforce 
the exchange's rules and the federal securities laws with respect to 
conduct by the member that violates such provisions. As such, these 
requirements are designed to minimize the potential that a person or 
entity can improperly interfere with or restrict the ability of the 
Exchange to effectively carry out its regulatory oversight 
responsibilities under the Exchange Act.
---------------------------------------------------------------------------

    \96\ See, e.g., Sapphire Order, MEMX Order, LTSE Order, MIAX 
PEARL Order, MIAX Order, and BATS Order, supra note 57, ISE Mercury 
Order, supra note 75, IEX Order, supra note 65; and DirectEdge 
Exchanges Order, supra note 84.
---------------------------------------------------------------------------

    The Commission received one comment addressing the governance 
structure proposed by 24X.\97\ This commenter stated 24X's ownership 
and voting structure ``facially violate Commission Rules and the law.'' 
\98\ According to this commenter ``[24X] asserts that if the Commission 
approves its application, it has internal company documents that 
promise (to itself) that it will come into compliance with the law and 
Commission Rules within nine months of the approval. It is unclear 
whether or how this promise for future compliance would be enforceable, 
much less by whom.'' \99\
---------------------------------------------------------------------------

    \97\ See Healthy Markets Letter at 2-6.
    \98\ Id. at 2.
    \99\ Id.
---------------------------------------------------------------------------

    In response to the commenter's concern about 24X's ownership and 
voting structure, 24X explained that ``although the Exchange Act does 
not set forth any specific ownership and voting limitations applicable 
to exchanges, the Commission typically has expected exchanges to 
include in their governing documents certain limitations on ownership 
and voting. 24X's application includes each of these typical 
limitations on ownership and voting.'' \100\ 24X stated that ``[t]he 
only exception to such limitations is a request for a very brief, 
temporary exemption from certain ownership and voting limitation[s].'' 
\101\
---------------------------------------------------------------------------

    \100\ 24X Letter II at 16.
    \101\ Id. See also infra section III.B.1.a.
---------------------------------------------------------------------------

    24X's and 24X Bermuda's proposed governance provisions are 
consistent with the Exchange Act, including section 6(b)(1), which 
requires, in part, an exchange to be so organized and have the capacity 
to carry out the purposes of the Exchange Act.\102\ In particular, 
these requirements are designed to minimize the potential that a person 
could improperly interfere with or restrict the ability of the 
Commission or 24X to effectively carry out their regulatory oversight 
responsibilities under the Exchange Act.
---------------------------------------------------------------------------

    \102\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    24X has proposed ownership and voting limitations in Article 9, 
Section 9.2 of the 24X Bermuda LLC Agreement that are consistent with 
the ownership and voting limitations in place across all other national 
securities exchanges,\103\ and thus are designed to enable 24X to meet 
its obligations under the Exchange Act.
---------------------------------------------------------------------------

    \103\ See supra note 75.
---------------------------------------------------------------------------

a. Temporary Exemption
    24X proposes that Dmitri Galinov and his Related Persons \104\ have 
a temporary exemption from the ownership limitation set forth in 
Section 9.2 of the 24X Bermuda LLC Agreement until nine (9) months 
after the Commission grants 24X's application for registration as a 
national securities exchange or until 24X commences operation, if later 
than nine (9) months.\105\ Further, 24X proposes in the 24X Bermuda LLC 
Agreement that if Dmitri Galinov and his Related Persons do not comply 
with the ownership limitation in Section 9.2 of the 24X Bermuda LLC 
Agreement within the applicable time period, then 24X Bermuda shall 
redeem all of the Units the holding of which by Dmitri Galinov and/or 
his Related Persons results in a violation of Section 9.2 for a price 
per Unit, as applicable, equal to the lesser of (a) book value or (b) 
Fair Market Value of such Units.\106\ 24X also proposes that Dmitri 
Galinov and his Related Persons shall have a temporary exemption from 
the Voting Limitation set forth in Section 9.2 of the 24X Bermuda LLC 
Agreement until nine (9) months after the Commission grants 24X's 
application for registration as a national securities exchange or until 
24X commences operation, if later than nine (9) months, but only with 
respect to any vote regarding any merger, consolidation or dissolution 
of the 24X Bermuda or any sale of all or substantially all of the 
assets of the 24X Bermuda.\107\
---------------------------------------------------------------------------

    \104\ See infra notes 108-110 and accompanying text for a 
description of the Related Persons of Dmitri Galinov.
    \105\ See 24X Bermuda LLC Agreement, Article 9, Section 
9.2(g)(i). While 24X Bermuda LLC Agreement, Article 9, Section 
9.2(a)(ii) sets forth an ownership restriction that applies to 24X 
Exchange Members, this provision does not apply to Mr. Galinov; the 
ownership limitation that does apply to Dmitri Galinov and his 
Related Persons is set forth in 24X Bermuda LLC Agreement, Article 
9, Section 9.2(a)(i).
    \106\ See 24X Bermuda LLC Agreement, Article 9, Section 
9.2(g)(i).
    \107\ See 24X Bermuda LLC Agreement, Article 9, Section 
9.2(g)(ii).
---------------------------------------------------------------------------

    Exhibit K of 24X's Form 1 application provides that ``Dmitri 
Galinov owns 7,000,000 Common Units and 179,215 Seed-3 Preferred Units, 
for a total of 7,179,215 Units for all classes outstanding,'' \108\ and 
that ``Dmitri Galinov is a Related Person of KNG CAPITAL LLC, Tanya 
Nazarov-Kenneally, and Vladimir Nazarov. KNG CAPITAL LLC owns 320,616 
Seed-1 Preferred Units, which represents 1.85% of all classes of 
outstanding Units.

[[Page 97098]]

Tanya Nazarov-Kenneally owns 1794 Seed-3 Preferred Units, which 
represents 0.01% of all classes of outstanding Units. Vladimir Nazarov 
owns 7176 Seed-3 Preferred Units, which represents 0.04% of all classes 
of outstanding Units.'' \109\ Accordingly, Exhibit K states that ``on 
an aggregate basis, Dmitri Galinov, together with his Related Persons, 
owns 43.29% of the Units of all classes of outstanding Units.'' \110\
---------------------------------------------------------------------------

    \108\ See Exhibit K, footnote 2.
    \109\ Id.
    \110\ Id.
---------------------------------------------------------------------------

    In a letter, 24X stated that the temporary exemption would provide 
it with a brief period to bring its ownership and voting structure in 
line with the ownership and voting restrictions upon SEC approval.\111\ 
24X also stated that the Commission had granted ``prior exchange 
applications with such limited exceptions to the ownership and voting 
restrictions.'' \112\
---------------------------------------------------------------------------

    \111\ See 24X Letter II at 16.
    \112\ Id. 24X cited Securities Exchange Act Release No. 42455 
(Feb. 24, 2000) as support for its statement.
---------------------------------------------------------------------------

    The Commission finds that the limited temporary exemption in 
Article 9, Section 9.2(g) of the 24X Bermuda LLC Agreement from the 
ownership limitation and Voting Limitation set forth in Article 9, 
Section 9.2 of the 24X Bermuda LLC Agreement for Dmitri Galinov and his 
Related Persons is consistent with the Exchange Act. As discussed 
above, the ownership limitation and Voting limitation are designed to 
prevent any party from exercising undue control over the operation of 
the 24X and ensure that 24X is able to carry out its regulatory 
obligations under the Exchange Act. The exemption is designed to 
prevent Dmitri Galinov and his Related Persons from exercising undue 
control over 24X and minimize the possibility that 24X's ability to 
carry out its self-regulatory responsibilities under the Exchange Act 
could be impaired. Specifically, the exemption is for a defined period 
of time that is based on 24X's approval as a national securities 
exchange or commencement of its exchange operations. Thus, the 
exemption is designed to ensure that once 24X is a self-regulatory 
organization (``SRO''), the exemption will terminate within a specified 
period of time. In addition, the exemption from the Voting Limitation 
applies only with respect to the limited situations involving any 
merger, consolidation or dissolution of the 24X Bermuda or any sale of 
all or substantially all of the assets of the 24X Bermuda that will not 
permit undue control over 24X or impair the regulatory responsibilities 
of 24X. The temporary exemption is designed to afford Dmitri Galinov 
and his Related Persons the ability to protect the investment they have 
already made in the establishment of 24X that is over the current 
ownership limitation, represented by 24X to be 3.29% of the Units of 
all outstanding Units.\113\
---------------------------------------------------------------------------

    \113\ See Exhibit K, footnote 2. The Commission has approved 
other temporary exemptions from the ownership or voting limitations 
included in the governance documents of owners of a national 
securities exchange. See Securities Exchange Act Release No. 49067 
(Jan. 13, 2004), 69 FR 2761 (Jan. 20, 2004) (order granting approval 
to a proposed rule change by the Boston Stock Exchange Inc. Relating 
to the LLC Operating Agreement of the Proposed New Exchange Facility 
to be Operated by the Boston Options Exchange Group LLC)(approval of 
an exemption from a voting limitation for a period of 10 years for 
an owner of the BOX facility). See also Securities Exchange Act 
Release No. 42455 (Feb. 24, 2000), 65 FR 11388 (Mar. 2, 2000) (File 
No. 10-127) (order granting registration of the International 
Securities Exchange LLC)(approval of an exemption from an ownership 
limitation for period of 10 years for certain founders of the 
exchange).
---------------------------------------------------------------------------

    As part of its Form 1 application, 24X also has included in the 24X 
Bermuda LLC Agreement a representation that 24X Bermuda will redeem all 
of the Units the holding of which by Dmitri Galinov and/or his Related 
Persons results in a violation of the applicable 40% ownership 
limitation for a price per Unit, as applicable, equal to the lesser of 
(a) book value or (b) Fair Market Value of such Units. The 24X Bermuda 
LLC Agreement further provides that such redemption shall occur nine 
(9) months after the date of approval by the Commission of 24X's Form 1 
application or until commencement of the operation of 24X, if later 
than nine (9) months. Thus, in response to the commenter, 24X has 
established a mechanism to ensure compliance with the ownership 
limitation and Voting Limitation set forth in the 24X Bermuda LLC 
Agreement upon expiration of the stated time period. 24X Bermuda's 
Managers and officers must comply with the federal securities laws and 
the rules and regulations promulgated thereunder and are deemed to 
agree to cooperate with the Commission and 24X in respect of the 
Commission's oversight responsibilities regarding 24X and the self-
regulatory functions and responsibilities of 24X.\114\ Therefore, 
should there be a need to pursue enforcement of the redemption 
requirement required of 24X Bermuda, 24X Bermuda's Managers and 
officers must comply with the obligation and must cooperate with those 
efforts by the Commission and 24X to ensure that such redemption 
occurs. Finally, should 24X Bermuda not redeem the Units owned by 
Dmitri Galinov and his Related Persons within the specified time 
period, the Commission may take action against 24X under section 19(h) 
of the Exchange Act.\115\
---------------------------------------------------------------------------

    \114\ See 24X Bermuda LLC Agreement, Article 3, Section 3.4(b).
    \115\ See infra Section III.B.2.
---------------------------------------------------------------------------

2. Regulatory Independence and Oversight
    Although 24X Bermuda will not itself carry out regulatory 
functions, its activities with respect to the operation of 24X must be 
consistent with, and must not interfere with, 24X's self-regulatory 
obligations. In this regard, 24X and 24X Bermuda propose to adopt 
certain provisions in their respective governing documents that are 
designed to help maintain the independence of the regulatory functions 
of 24X. These proposed provisions are substantially similar to those 
included in the governing documents of other exchanges that recently 
have been granted registration.\116\ Specifically:
---------------------------------------------------------------------------

    \116\ See, e.g., Sapphire Order, MEMX Order, LTSE Order, MIAX 
Order, supra note 57, IEX Order, supra note 65; and DirectEdge 
Exchanges Order, supra note 84.
---------------------------------------------------------------------------

     the managers, officers, employees, and agents of 24X 
Bermuda must give due regard to the preservation of the independence of 
the self-regulatory function of 24X and to its obligations to investors 
and the general public and must not take actions which would interfere 
with the effectuation of decisions by the Exchange Board relating to 
its regulatory functions (including disciplinary matters) or which 
would interfere with 24X's ability to carry out its responsibilities 
under the Exchange Act.\117\
---------------------------------------------------------------------------

    \117\ See 24X Bermuda LLC Agreement, Article 3, Section 3.4(a). 
Similarly, Article VI, Section 6.1(a)(ii) of the 24X LLC Agreement 
requires the Exchange Board and each Director, when managing the 
business and affairs of 24X, to consider the requirements of Section 
6(b) of the Exchange Act and requires each Director, officer, or 
employee of 24X to comply with the federal securities laws and 
regulations thereunder and cooperate with the Commission, and 24X 
pursuant to its regulatory authority. Article VI, Section 
6.1(a)(iii) of the 24X LLC Agreement also requires the Exchange 
Board, when evaluating any proposal to take into account all factors 
that the Exchange Board deems relevant, including, without 
limitation, to the extent deemed relevant: the potential impact on 
the integrity, continuity and stability of the national securities 
exchange operated by 24X and the other operations of 24X, on the 
ability to prevent fraudulent and manipulative acts and practices, 
and on investors and the public, and whether such proposal would 
promote just and equitable principles of trade, foster cooperation 
and coordination with Persons engaged in regulating, clearing, 
settling, processing information with respect to and facilitating 
transactions in securities or assist in the removal of impediments 
to or perfection of the mechanisms for a free and open market and a 
national market system.

---------------------------------------------------------------------------

[[Page 97099]]

     24X Bermuda must comply with the federal securities laws 
and the rules and regulations promulgated thereunder, and must 
cooperate with the Commission, 24X, Financial Industry Regulatory 
Authority, Inc. (``FINRA''), and any other SRO of which any routing 
broker for 24X is a member, pursuant to and to the extent of their 
respective regulatory authority.\118\ In addition, 24X Bermuda's 
managers, officers, employees, and agents must comply with the federal 
securities laws and the rules and regulations promulgated thereunder 
and are deemed to agree to cooperate with: (1) the Commission and 24X 
in respect of the Commission's oversight responsibilities regarding 24X 
and the self-regulatory functions and responsibilities of 24X; and (2) 
FINRA, any other SROs of which any routing broker of 24X is a member, 
and any routing broker of 24X in respect of FINRA's and any such other 
SRO's oversight responsibilities regarding any routing broker of 24X, 
as applicable.\119\ 24X Bermuda shall take reasonable steps necessary 
to cause its managers, officers, employees and agents to so 
cooperate.\120\
---------------------------------------------------------------------------

    \118\ See 24X Bermuda LLC Agreement, Article 3, Section 3.4(b).
    \119\ See id.
    \120\ See id.
---------------------------------------------------------------------------

     24X Bermuda, and its managers, officers, employees, and 
agents must submit to the jurisdiction of the U.S. federal courts, the 
Commission, and 24X, for purposes of any suit, action or proceeding 
pursuant to the U.S. federal securities laws, and the rules and 
regulations thereunder, arising out of, or relating to, 24X 
activities.\121\
---------------------------------------------------------------------------

    \121\ See 24X Bermuda LLC Agreement, Article 3, Section 3.4(c).
---------------------------------------------------------------------------

     All books and records of 24X reflecting confidential 
information pertaining to the self-regulatory function of 24X 
(including but not limited to disciplinary matters, trading data, 
trading practices, and audit information) must be retained in 
confidence by 24X and its personnel, including its Directors, officers, 
employees, and agents, and will not be used by 24X for any non-
regulatory purposes and shall not be made available to any person 
(including, without limitation, any Exchange Member) other than 
personnel of the SEC, and those personnel of 24X, members of 
Committees, members of the 24X Board, hearing officers and other agents 
of 24X to the extent necessary or appropriate to properly discharge the 
self-regulatory responsibilities of 24X.\122\ Similar provisions apply 
to 24X Bermuda and its personnel, managers, officers, employees, and 
agents.\123\
---------------------------------------------------------------------------

    \122\ See 24X LLC Agreement, Article IX, Section 9.2.
    \123\ The 24X Bermuda LLC Agreement provides that all books and 
records of 24X reflecting confidential information pertaining to the 
self-regulatory function of 24X that come into the possession of 24X 
Bermuda, and the information contained in those books and records, 
will be subject to confidentiality restrictions and will not be used 
for any non-regulatory purposes. See 24X Bermuda LLC Agreement, 
Article 12, Section 12.2(c). The 24X and 24X Bermuda governing 
documents acknowledge that requirements to keep such information 
confidential shall not limit or impede the rights of the Commission 
to access and examine such information or limit the ability of 
Directors, Officers, employees, or agents of 24X to disclose such 
information to the Commission, or the manager, officers, employees 
or agents of 24X Bermuda to disclose such information to the 
Commission or 24X. See 24X LLC Agreement, Article IX, Section 9.2 
and 24X Bermuda LLC Agreement, Article 12, Section 12.2(c).
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     The books and records of 24X and 24X Bermuda must be 
maintained in the United States \124\ and, to the extent they are 
related to the operation or administration of 24X, 24X Bermuda's books 
and records will be subject at all times to inspection and copying by 
the Commission and 24X.\125\
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    \124\ See 24X LLC Agreement, Article IX, Section 9.2; and 24X 
Bermuda LLC Agreement, Article 12, Section 12.2(b).
    \125\ See 24X Bermuda LLC Agreement, Article 12, Section 
12.2(b).
---------------------------------------------------------------------------

     Furthermore, to the extent 24X Bermuda's corporate, 
financial and similar records, reports and documents, including all 
financial statements, books and records and minutes of proceedings, are 
related to the activities of 24X, such corporate, financial and similar 
records, reports and documents, including all financial statements, 
books and records and minutes of proceedings, as well as premises, 
managers, officers, employees and agents of 24X Bermuda shall be deemed 
to be the corporate, financial and similar records, reports and 
documents, including all financial statements, books and records and 
minutes of proceedings, as well as premises, managers, officers, 
employees or agents, as applicable, of 24X for the purposes of, and 
subject to oversight pursuant to, the Exchange Act.\126\
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    \126\ See 24X Bermuda LLC Agreement, Article 12, Section 
12.2(a).
---------------------------------------------------------------------------

     24X Bermuda will take reasonable steps necessary to cause 
its manager, officers, employees, and agents, prior to accepting a 
position as a manager, officer, employee or agent (as applicable) with 
24X Bermuda to consent in writing to the applicability of provisions 
regarding non-interference, confidentiality, books and records, 
compliance and cooperation, jurisdiction, and regulatory obligations, 
with respect to their activities related to 24X.\127\
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    \127\ See 24X Bermuda LLC Agreement, Article 3, Section 3.2.
---------------------------------------------------------------------------

     The 24X Bermuda LLC Agreement requires that, so long as 
24X Bermuda controls 24X, any changes to that document must be 
submitted to the Exchange Board for approval, and, if such change is 
required to be filed with the Commission pursuant to section 19(b) of 
the Exchange Act and the rules and regulations thereunder, such change 
shall not be effective until filed with and effective by operation of 
law, or filed with, and approved by, the Commission.\128\
---------------------------------------------------------------------------

    \128\ See 24X Bermuda LLC Agreement, Article 12, Section 
12.10(b).
---------------------------------------------------------------------------

    The provisions discussed in this section, which are designed to 
help ensure the independence of 24X's regulatory function and 
facilitate the ability of 24X to carry out its regulatory 
responsibilities under, and operate in a manner consistent with, the 
Exchange Act, are appropriate and consistent with the requirements of 
the Exchange Act, particularly with Section 6(b)(1), which requires, in 
part, an exchange to be so organized and have the capacity to carry out 
the purposes of the Exchange Act.\129\
---------------------------------------------------------------------------

    \129\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    Further, section 19(h)(1) of the Exchange Act \130\ provides the 
Commission with the authority ``to suspend for a period not exceeding 
twelve months or revoke the registration of [an SRO], or to censure or 
impose limitations upon the activities, functions, and operations of 
[an SRO], if [the Commission] finds, on the record after notice and 
opportunity for hearing, that [the SRO] has violated or is unable to 
comply with any provision of the Exchange Act, the rules or regulations 
thereunder, or its own rules or without reasonable justification or 
excuse has failed to enforce compliance . . . '' with any such 
provision by its members (including associated persons thereof). If the 
Commission were to find, or become aware of, through staff review and 
inspection or otherwise, facts indicating any violations of the 
Exchange Act, including without limitation sections 6(b)(1) and 
19(g)(1),\131\ these matters could provide the basis for a disciplinary 
proceeding under section 19(h)(1) of the Exchange Act.\132\
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    \130\ See 15 U.S.C. 78s(h)(1).
    \131\ 15 U.S.C. 78f(b)(1); 15 U.S.C. 78s(g)(1).
    \132\ 15 U.S.C. 78s(h)(1).
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    Even in the absence of the governance provisions described above, 
under section 20(a) of the Exchange Act,\133\ any person with a 
controlling interest in 24X would be jointly and severally

[[Page 97100]]

liable with and to the same extent that 24X is liable under any 
provision of the Exchange Act, unless the controlling person acted in 
good faith and did not directly or indirectly induce the act or acts 
constituting the violation or cause of action. In addition, section 
20(e) of the Exchange Act \134\ creates aiding and abetting liability 
for any person who knowingly provides substantial assistance to another 
person in violation of any provision of the Exchange Act or rule 
thereunder. Further, section 21C of the Exchange Act \135\ authorizes 
the Commission to enter a cease-and-desist order against any person who 
has been ``a cause of'' a violation of any provision of the Exchange 
Act through an act or omission that the person knew or should have 
known would contribute to the violation. These provisions are 
applicable to 24X Bermuda.
---------------------------------------------------------------------------

    \133\ 15 U.S.C. 78t(a).
    \134\ 15 U.S.C. 78t(e).
    \135\ 15 U.S.C. 78u-3.
---------------------------------------------------------------------------

3. Regulatory Oversight Committee
    The regulatory operations of 24X will be monitored by the 
Regulatory Oversight Committee of the Exchange Board. As mentioned 
above, the Regulatory Oversight Committee will consist only of 
Independent Directors.\136\ The Regulatory Oversight Committee will be 
responsible for overseeing the adequacy and effectiveness of 24X's 
regulatory and SRO responsibilities, assessing 24X's regulatory 
performance, and assisting the 24X Board (and committees of the 24X 
Board) in reviewing 24X's regulatory plan and the overall effectiveness 
of 24X's regulatory functions.\137\
---------------------------------------------------------------------------

    \136\ See supra note 61 and accompanying text.
    \137\ See 24X LLC Agreement, Article VI, Section 6.2(h)(i).
---------------------------------------------------------------------------

    Further, the Chief Regulatory Officer (``CRO'') of 24X will have 
general supervision over 24X's regulatory operations, including 
responsibility for overseeing 24X's surveillance, examination, and 
enforcement functions and for administering any regulatory services 
agreements with another SRO to which 24X is a party.\138\ The 
Regulatory Oversight Committee, in consultation with the Chief 
Executive Officer of 24X, will be responsible for establishing the 
goals, assessing the performance, and fixing the compensation of the 
CRO and for recommending personnel actions involving the CRO and senior 
regulatory personnel.\139\
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    \138\ See 24X LLC Agreement, Article VIII, Section 8.5.
    \139\ See 24X LLC Agreement, Article VI, Section 6.2(h)(iii). To 
the extent that the Chief Executive Officer of 24X has any indirect 
supervisory responsibility for the role or function of the CRO, 
including implementation of the budget for the regulatory function 
or regulatory personnel matters, the Regulatory Oversight Committee 
shall take all steps reasonably necessary to ensure that the Chief 
Executive Officer does not compromise the regulatory autonomy and 
independence of the Chief Regulatory Officer or the regulatory 
function. See 24X LLC Agreement, Article VI, Section 6.2(h)(4).
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C. Regulatory Funding and Services

    As a prerequisite for the Commission's granting of an exchange's 
application for registration, an exchange must be organized and have 
the capacity to carry out the purposes of the Exchange Act.\140\ 
Specifically, an exchange must be able to enforce compliance by its 
members, and persons associated with its members, with the federal 
securities laws and rules thereunder and the rules of the 
exchange.\141\ The discussion below summarizes how 24X proposes to 
conduct and structure its regulatory operations.
---------------------------------------------------------------------------

    \140\ See 15 U.S.C. 78f(b)(1).
    \141\ See id. See also Section 19(g) of the Exchange Act, 15 
U.S.C. 78s(g).
---------------------------------------------------------------------------

1. Regulatory Funding
    To help ensure that 24X has and will continue to have adequate 
funding to be able to meet its responsibilities under the Exchange Act, 
24X stated that, if the Commission approves 24X's application for 
registration as a national securities exchange, 24X Bermuda, through 
24X US, will allocate sufficient assets to 24X to enable the Exchange's 
operation.\142\ Specifically, 24X stated that 24X Bermuda shall make 
prior to the launch of the Exchange a cash contribution of $5 million 
(in addition to any previously provided in-kind contributions, such as 
legal, regulatory, and infrastructure-related services) to 24X US. In 
turn, 24X US will make a corresponding cash contribution of $5 million 
(in addition to any previously provided in-kind contributions, such as 
legal, regulatory, and infrastructure-related services) to the 
Exchange. The Exchange represented that such cash and in-kind 
contributions will be adequate to operate the Exchange, including the 
regulation of the Exchange.\143\
---------------------------------------------------------------------------

    \142\ See Form 1, Exhibit I.
    \143\ See id.
---------------------------------------------------------------------------

    24X also represented that there will be a written agreement among 
24X Bermuda, 24X US and 24X that requires 24X Bermuda and 24X US to 
provide adequate funding for the Exchange's operations, including the 
regulation of the Exchange.\144\ Further, 24X stated that the agreement 
will provide that 24X will receive all fees, including regulatory fees 
and trading fees payable by the Exchange's members as well as any funds 
received from any market data fees and tape revenue. In addition, the 
agreement will provide that 24X Bermuda and 24X US will reimburse 24X 
for its costs and expenses to the extent that 24X's assets are 
insufficient to meet its costs and expenses.
---------------------------------------------------------------------------

    \144\ See id.
---------------------------------------------------------------------------

    Further, the 24X LLC Agreement requires that any Regulatory Funds 
received by 24X shall not be used for non-regulatory purposes or 
distributed, advanced or allocated to any Company Member,\145\ but 
rather, shall be applied to fund regulatory operations of the 24X 
(including surveillance and enforcement activities), or, as the case 
may be, shall be used to pay restitution and disgorgement of funds 
intended for customers.\146\ Excess non-regulatory funds, as solely 
determined by the 24X, will be remitted to 24X US in accordance with 
the 24X LLC Agreement.\147\
---------------------------------------------------------------------------

    \145\ Under the 24X LLC Agreement, the Company Member is 24X US.
    \146\ See 24X LLC Agreement, Article XI, Section 11.4(b). 
``Regulatory Funds'' in the 24X LLC Agreement means ``fees, fines or 
penalties derived from the regulatory operations of the Company. 
``Regulatory Funds'' shall not be construed to include revenues 
derived from listing fees, market data revenues, transaction 
revenues, or any other aspect of the commercial operations of the 
Company, even if a portion of such revenues are used to pay costs 
associated with the regulatory operations of the Company.'' Article 
I, ll of the 24X LLC Agreement. This definition is consistent with 
the rules of other SROs. See, e.g., LTSE Bylaws, Article I(bb); 
Amended and Restated By-Laws of MIAX Exchange, Article 1(ll); By-
Laws of NASDAQ PHLX LLC, Article I(ii); By-Laws of NASDAQ BX, Inc., 
Article I(ii). See also 24X Rule 15.2.
    \147\ See Form 1, Exhibit I.
---------------------------------------------------------------------------

    One commenter stated that 24X did not provide audited financial 
statements.\148\ 24X stated that it believed that it complied with the 
requirements of Exhibit I regarding financial statements because while 
24X has been formed it has not commenced operations and does not have 
audited financial statements for any fiscal year.\149\ 24X also stated 
that the approach it has taken with regard to Exhibit I is consistent 
with prior exchange applications that have been approved by the SEC 
based on the same provided information.\150\
---------------------------------------------------------------------------

    \148\ See Healthy Markets Letter at 2.
    \149\ See 24X Letter II at 16.
    \150\ Id.
---------------------------------------------------------------------------

    The 24X Form 1 provides the Commission with information necessary 
to make a finding that 24X will operate consistent with its obligations 
under the Exchange Act.\151\ 24X has filed financial information about 
how it intends to fund its operations and has filed financial 
information in Exhibit D about its owners, 24X Bermuda and 24X US.

[[Page 97101]]

Exhibit I of Form 1 requires that the applicant submit ``[f]or the 
latest fiscal year of the applicant, audited financial statements which 
are prepared in accordance with, or in the case of a foreign applicant, 
reconciled with, United States generally accepted accounting 
principles, and are covered by a report prepared by an independent 
public accountant.'' \152\ 24X has not provided audited financial 
statements nor the report prepared by an independent public accountant 
because, as it stated in the Form 1, the ``Exchange has been formed but 
has not commenced operations and does not yet have audited financial 
statements for any fiscal year.'' \153\ As stated in the instructions 
for Form 1, ``Form 1 is designed to enable the Commission to determine 
whether an exchange applying for registration is in compliance with the 
provisions of sections 6 \154\ and 19 \155\ of the Exchange Act.'' 
\156\ In this case, the applicant exchange has no past operations or 
activity. Moreover, the Commission has approved prior Form 1 
applications with similar circumstances.\157\ In addition, pursuant to 
Rule 6a-2(b)(1) of the Exchange Act,\158\ as a registered national 
securities exchange, 24X must file an amendment to its Form 1 
application. Exhibits D and I must be filed on or before June 30 of 
each year and include audited financial information as of the end of 
the latest fiscal year of the Exchange; thus, the Commission and the 
public will be informed of 24X's financial activity going forward.\159\
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    \151\ 15 U.S.C. 78f(b)(1).
    \152\ 17 CFR 249.1.
    \153\ See Form 1, Exhibit I.
    \154\ 15 U.S.C. 78f.
    \155\ 15 U.S.C. 78s.
    \156\ 17 CFR 249.1.
    \157\ See e.g., Exhibit I for MIAX Sapphire, LLC Form 1 
Application and Exhibits, available at https://www.sec.gov/files/rules/other/2023/exhibit-i.pdf (stating that applicant MIAX 
Sapphire, LLC has been formed but has not commenced operations and 
does not yet have audited financial statements for any fiscal year); 
Exhibit I for MEMX LLC Form 1 Application and Exhibits, available at 
https://www.sec.gov/files/rules/other/2019/memx/exhibit-i.pdf 
(stating that applicant MEMX LLC has been formed but has not 
commenced operations and so does not yet have audited financial 
statements for any fiscal year).
    \158\ 17 CFR 240.6a-2(b)(1).
    \159\ Form 1 filings are made available to the public. See 
Securities Exchange Act Release No. 97182 (Mar. 22, 2023), 88 FR 
23920, 23928 (Apr. 18, 2023).
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2. Regulatory Contract With FINRA
    Although 24X will be an SRO with all of the attendant regulatory 
obligations under the Exchange Act, it has represented to the 
Commission that it intends to enter into a regulatory services 
agreement (``RSA'') with FINRA, under which FINRA as a regulatory 
services provider will perform certain regulatory functions on 24X's 
behalf.\160\ Specifically, 24X expects that such services will include 
the performance of investigation, disciplinary, and hearing 
services.\161\ Notwithstanding the RSA, 24X will retain legal 
responsibility for the regulation of its members and its market and the 
performance of FINRA as its regulatory services provider. Because 24X 
anticipates entering into an RSA with FINRA, it has not made provisions 
to fulfill the regulatory services that will be undertaken by FINRA. 
Accordingly, the Commission is conditioning the operation of 24X on a 
final RSA that specifies the services that will be provided to 24X.
---------------------------------------------------------------------------

    \160\ See Form 1, Exhibit L. See also 24X Rules 9.8 and 13.7.
    \161\ See Form 1, Exhibit L.
---------------------------------------------------------------------------

    It is consistent with the Exchange Act for 24X to contract with 
FINRA to perform certain examination, enforcement, and disciplinary 
functions.\162\ These functions are fundamental elements of a 
regulatory program and constitute core self-regulatory functions. FINRA 
has the expertise and experience to perform these functions for 
24X.\163\ However, 24X, unless relieved by the Commission of its 
responsibility, bears the self-regulatory responsibilities and primary 
liability for self-regulatory failures, not the SRO retained to perform 
regulatory functions on 24X's behalf.\164\ In performing these 
regulatory functions, however, FINRA may nonetheless bear liability for 
causing or aiding and abetting the failure of 24X to perform its 
regulatory functions.\165\ Accordingly, although FINRA will not act on 
its own behalf under its SRO responsibilities in carrying out these 
regulatory services for 24X, FINRA may have secondary liability if, for 
example, the Commission finds that the contracted functions are being 
performed so inadequately as to cause a violation of the federal 
securities laws or rules thereunder by 24X.\166\
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    \162\ For example, LTSE, MEMX Exchange, IEX, MIAX Exchange, MIAX 
PEARL, LLC, Nasdaq MRX, LLC, Cboe EDGA Exchange, Inc., Cboe EDGX 
Exchange, Inc. (``Cboe EDGX''), and Cboe BZX Exchange, Inc. (``Cboe 
BZX'') have entered into RSAs with FINRA.
    \163\ See, e.g., MEMX Order, supra note 57; LTSE Order, supra 
note 57; IEX Order, supra note 65; DirectEdge Exchanges Order, supra 
note 84; Nasdaq Order, supra note 57. The Commission is not 
approving the RSA or any of its specific terms.
    \164\ See 15 U.S.C. 78s(g)(1).
    \165\ For example, if failings by FINRA have the effect of 
leaving 24X in violation of any aspect of 24X's self-regulatory 
obligations, 24X would bear direct liability for the violation, 
while FINRA may bear liability for causing or aiding and abetting 
the violation. See, e.g., MEMX Order, supra note 57; LTSE Order, 
supra note 57; IEX Order, supra note 65; Nasdaq Order, supra note 
57; BATS Order, supra note 57; DirectEdge Exchanges Order, supra 
note 84.
    \166\ See, e.g., MEMX Order, supra note 57; LTSE Order, supra 
note 57; IEX Order, supra note 65; and Nasdaq Order, supra note 57.
---------------------------------------------------------------------------

3. Rule 17d-2 Agreements
    Section 19(g)(1) of the Exchange Act,\167\ among other things, 
requires every SRO registered as either a national securities exchange 
or national securities association to comply with the Exchange Act, the 
rules and regulations thereunder, and the SRO's own rules, and, absent 
reasonable justification or excuse, enforce compliance by its members 
and persons associated with its members.\168\ Rule 17d-2 of the 
Exchange Act permits SROs to propose joint plans to allocate regulatory 
responsibilities amongst themselves for their common rules with respect 
to their common members.\169\ These agreements, which must be filed 
with and declared effective by the Commission, generally cover areas 
where each SRO's rules substantively overlap, including such regulatory 
functions as personnel registration and sales practices. For example, 
the Commission declared effective a plan to allocate regulatory 
responsibilities between FINRA and LTSE pursuant to which FINRA assumes 
examination and enforcement responsibility for broker-dealers that are 
members of both FINRA and LTSE with respect to the rules of LTSE that 
are substantially similar to the applicable rules of FINRA, as well as 
certain specified provisions of the federal securities laws.\170\
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    \167\ 15 U.S.C. 78s(g)(1).
    \168\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
    \169\ See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section 
17(d)(1) of the Exchange Act allows the Commission to relieve an SRO 
of certain responsibilities with respect to members of the SRO who 
are also members of another SRO (``common members''). Specifically, 
Section 17(d)(1) allows the Commission to relieve an SRO of its 
responsibilities to: (i) receive regulatory reports from such 
members; (ii) examine such members for compliance with the Exchange 
Act and the rules and regulations thereunder, and the rules of the 
SRO; or (iii) carry out other specified regulatory responsibilities 
with respect to such members.
    \170\ See Securities Exchange Act Release No. 86587 (Aug. 7, 
2019), 84 FR 39883 (Aug. 12, 2019) (File No. 4-747). See also, e.g., 
Securities Exchange Act Release Nos. 83696 (July 24, 2018), 83 FR 
35682 (July 27, 2018) (FINRA/MIAX Exchange/MIAX PEARL); 77321 (Mar. 
8, 2016), 81 FR 13434 (Mar. 14, 2016) (File No. 4-697) (FINRA/ISE 
Mercury, LLC); 73641 (Nov. 19, 2014), 79 FR 70230 (Nov. 25, 2014) 
(File No. 4-678) (FINRA/MIAX Exchange); 70053 (July 26, 2013), 78 FR 
46656 (Aug. 1, 2013) (File No. 4-663) (FINRA/Topaz Exchange n/k/a 
ISE Gemini, LLC); 59218 (Jan. 8, 2009), 74 FR 2143 (Jan. 14, 2009) 
(File No. 4-575) (FINRA/Boston Stock Exchange, Inc. (``BSE'')); 
58818 (Oct. 20, 2008), 73 FR 63752 (Oct. 27, 2008) (File No. 4-569) 
(FINRA/BATS Exchange, Inc.); 55755 (May 14, 2007), 72 FR 28087 (May 
18, 2007) (File No. 4-536) (National Association of Securities 
Dealers, Inc. (``NASD'') n/k/a FINRA) and Chicago Board of Options 
Exchange, Inc. concerning the CBOE Stock Exchange, LLC); 55367 (Feb. 
27, 2007), 72 FR 9983 (Mar. 6, 2007) (File No. 4-529) (NASD/
International Securities Exchange, LLC); 54136 (July 12, 2006), 71 
FR 40759 (July 18, 2006) (File No. 4-517) (NASD/Nasdaq).

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[[Page 97102]]

    A Rule 17d-2 plan that is declared effective by the Commission 
relieves the specified SRO of those regulatory responsibilities 
allocated by the plan to another SRO.\171\ 24X has represented to the 
Commission that it will join all applicable plans, including Rule 17d-2 
plans for the allocation of regulatory responsibilities.\172\ Similar 
to other exchanges, the Commission understands from 24X that it will 
enter into a bilateral Rule 17d-2 agreement covering common members of 
24X and FINRA. This agreement will allocate to FINRA regulatory 
responsibility, with respect to common members, for specified 
regulatory and enforcement matters arising out of specified common 
rules and specified provisions of the Exchange Act and the rules and 
regulations thereunder. In addition, the Commission is conditioning 
operation of 24X as an exchange on 24X first joining the applicable 
multilateral Rule 17d-2 plans, including the multi-party Rule 17d-2 
plan for the allocation of regulatory responsibilities with respect to 
certain Regulation NMS and Consolidated Audit Trail Rules and the 
multi-party Rule 17d-2 plan for the surveillance, investigation, and 
enforcement of common insider trading rules.\173\
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    \171\ See supra notes 169-170 and accompanying text.
    \172\ See Form 1, Exhibit E.
    \173\ See Securities Exchange Act Release Nos. 88366 (Mar. 12, 
2020), 85 FR 15238 (Mar. 17, 2020) (File No. 4-618) (order approving 
and declaring effective a proposed amendment to the multi-party Rule 
17d-2 plan relating to covered Regulation NMS and Consolidated Audit 
Trail Rules); 86542 (Aug. 1, 2019), 84 FR 38679 (Aug. 7, 2019) (File 
No. 4-566) (notice of filing and order approving and declaring 
effective an amendment to the multi-party Rule 17d-2 plan relating 
to the surveillance, investigation, and enforcement of insider 
trading rules).
---------------------------------------------------------------------------

    Because 24X anticipates entering into these Rule 17d-2 agreements, 
it has not made provision to fulfill the regulatory obligations that 
will be undertaken by FINRA and other SROs under these agreements with 
respect to common members.\174\ Accordingly, the Commission is 
conditioning the operation of 24X on approval by the Commission of a 
Rule 17d-2 agreement that allocates the above specified matters to 
FINRA, and the approval of an amendment to the existing multi-party 
Rule 17d-2 plans specified above to add 24X as a party.
---------------------------------------------------------------------------

    \174\ For common members, the regulatory obligations will be 
covered by the Rule 17d-2 agreements, and for 24X Exchange Members 
that are not also members of FINRA, the regulatory obligations will 
be covered by the RSA.
---------------------------------------------------------------------------

D. 24X Trading System

1. Overview of Trading System 175
---------------------------------------------------------------------------

    \175\ A more detailed description of the manner of operation of 
24X's trading system can be found in Form 1, Exhibit E. The proposed 
rulebook for 24X can be found in Exhibit B to 24X's Form 1, and the 
governing documents for 24X, 24X US and 24X Bermuda can be found in 
Form 1, Exhibit A and Exhibit C. A complete set of forms concerning 
membership and access can be found in Form 1, Exhibit F.
---------------------------------------------------------------------------

    24X proposes to operate a fully automated electronic trading 
platform \176\ for the trading of listed NMS stocks \177\ pursuant to 
unlisted trading privileges (``UTP'') \178\ 23 hours per day,\179\ five 
(5) days per week, subject to certain trading pauses, as provided in 
the 24X rules.\180\ Similar to other U.S. national securities 
exchanges, 24X will operate three different trading sessions that span 
from 4 a.m. to 7 p.m. on each U.S. Business Day: \181\ (1) a ``Core 
Market Session'' between 9:30 a.m. and 4 p.m.,\182\ (2) a ``Pre-Market 
Session'' between 4 a.m. and 9:30 a.m.,\183\ and (3) a ``Post-Market 
Session'' between 4 p.m. and 7 p.m.\184\ 24X also will operate a fourth 
trading session, the 24X Market Session,\185\ which, as discussed in 
greater detail below,\186\ will operate between 8 p.m. and 4 a.m. 
Sunday, Monday, Tuesday, Wednesday, and Thursday nights that precede a 
U.S. Business Day.\187\
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    \176\ See Form 1, Exhibit E. See also 24X Rule 11.9(b).
    \177\ See 17 CFR 242.600(b)(55) (defining ``NMS Stock'').
    \178\ See 24X Rule 14.1.
    \179\ As discussed below, 24X will pause trading from 7 p.m. 
until 8 p.m. Monday, Tuesday, Wednesday, and Thursday nights. See 
24X Rule 11.15(c)(2). Unless otherwise noted, all times referred to 
in this order are Eastern Time (``ET'').
    \180\ See, e.g., 24X Rule 11.15(c); Form 1, Exhibit E-1 at 4. 
See also infra notes 329-338 (discussing 24X's trading pauses).
    \181\ See 24X Rule 1.5(ll) defining ``U.S. Business Day.'' In 
addition, 24X proposes, among others, the following terms: ``24X 
Trading Day'' (see 24X Rule (1.5(b)); ``Exchange Trading Hours other 
than the 24X Market Session'' (see 24X Rule 1.5(r)); ``Extended 
Hours Trading'' (see 24X Rule 1.5(s)); ``Regular Trading Hours'' 
(see 24X Rule 1.5(dd)). 24X Rule 1.5(s) defines ``Extended Hours 
Trading'' as ``trading during the Pre-Market Session, Post-Market 
Session and 24X Market Session.''
    \182\ See 24X Rule 1.5(l) defining the ``Core Market Session.''
    \183\ See 24X Rule 1.5(z) defining the ``Pre-Market Session.'' 
See, e.g., NYSE Arca, Inc., Cboe EDGX Exchange, Inc., The Nasdaq 
Stock Market LLC.
    \184\ See 24X Rule 1.5(y) defining the ``Post-Market Session.'' 
See, also e.g., NYSE Arca, Inc., NYSE American LLC, NYSE Chicago, 
Inc., NYSE National, Inc., Cboe BZX Exchange, Inc., Cboe BYX 
Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., 
The Nasdaq Stock Market LLC. These national securities exchanges 
operate post-market sessions until 8 p.m. As discussed above, 24X 
will end its Post-Market Session at 7 p.m.
    \185\ See 24X Rule 1.5(c) defining the ``24X Market Session.''
    \186\ See infra section III.D.2.
    \187\ See 24X Rule 1.5(c). 24X initially proposed to operate the 
24X Market Session on weekends and holidays as well as overnight. In 
Amendment No, 2, 24X revised the 24X Rule 1.5(c) definition of 24X 
Market Session to include only overnight hours, as discussed above, 
and to remove its proposal to provide trading on weekends and 
holidays.
---------------------------------------------------------------------------

    24X will not maintain a physical trading floor.\188\ One commenter 
stated that the Form 1 was unclear about 24X's physical locations.\189\ 
24X responded that it ``clearly'' provided information on the Form 1 
execution page as well as Exhibit E.\190\ Specifically, 24X stated that 
its primary address is in Connecticut and that the Exchange will 
operate out of a third-party data center in New Jersey, with a 
secondary site located in Illinois.\191\ Further, 24X stated that 24X 
personnel will operate out of its New York office as well as its 
Connecticut office.\192\
---------------------------------------------------------------------------

    \188\ See Form 1, Exhibit E-1 at 2.
    \189\ See Healthy Markets Letter at 6.
    \190\ See 24X Letter II at 17.
    \191\ Id. See also Form 1, Execution Page (listing Stamford, 
Connecticut as its primary address); Form 1, Exhibit E (describing 
the locations of its Systems and personnel); Form 1, Exhibit E-1 
(describing the locations of the trading Systems).
    \192\ See 24X Letter II at 17; see also Form 1, Exhibit E.
---------------------------------------------------------------------------

    The Form 1 and exhibits provide information about the location of 
24X Systems and personnel. The Form 1 Execution Page states that 24X's 
primary address is in Stamford, Connecticut. Exhibit E states that 24X 
will operate out of data centers in New Jersey and Illinois and that 
its personnel will operate out of offices in Connecticut and New York. 
Exhibit E-1 states that 24X's trading platform will be located in the 
Equinix data center in New Jersey (NY4) and that its secondary back-up 
data center will be located in Chicago, Illinois (CH4).\193\ 24X has 
provided information about the location of its platform and its 
personnel.
---------------------------------------------------------------------------

    \193\ See also Form 1, Exhibit E.
---------------------------------------------------------------------------

    Only broker-dealer members of 24X and entities that enter into 
market access arrangements with members (collectively ``Users'' \194\) 
will have access to the 24X System,\195\ and only Authorized Traders 
\196\ may obtain access to the 24X System on behalf of Users.\197\ 
Liquidity will be derived from quotes and orders to buy and sell

[[Page 97103]]

submitted to 24X electronically by Exchange Members.\198\ 24X proposes 
to operate a fully automated electronic limit order book with a 
continuous matching function \199\ and orders resting on the book would 
be ranked and executed in price/time priority.\200\
---------------------------------------------------------------------------

    \194\ See 24X Rule 1.5(mm) defining ``User.''
    \195\ To obtain authorized access to the 24X System, each User 
must enter into a User Agreement with 24X. See 24X Rule 11.3(a). See 
also 24X Rule 1.5(hh) defining ``System.''
    \196\ See 24X Rule 1.5(g).
    \197\ See 24X Rule 11.4.
    \198\ 24X proposes to have one class of membership open to 
registered broker-dealers. See 24X Rule 2.3 (stating, in part, that 
``any registered broker or dealer that is and remains a member of a 
national securities association registered under Section 15A(a) of 
the Exchange Act or a member of another national securities exchange 
registered under Section 6(a) of the Exchange Act or any person 
associated with such a registered broker or dealer shall be eligible 
to be, and to remain, a Member'').
    \199\ See Form 1, Exhibit E-1 at 2.
    \200\ See 24X Rule 11.8(a) and 24X Rule 11.9(a)(4).
---------------------------------------------------------------------------

    24X proposes certain rules to govern trading during Exchange 
Trading Hours other than the 24X Market Session,\201\ while other rules 
and requirements would apply exclusively to trading during the 24X 
Market Session.\202\ For example, 24X proposes to accept Market 
Orders,\203\ Limit Orders \204\ and Pegged Orders \205\ with various 
modifiers and time-in-force instructions, although subject to certain 
limitations \206\ during various trading sessions.\207\ Specifically, 
Market Orders would be accepted only during the Core Market Session; 
Pegged Orders would be accepted only during the Pre-Market Session, the 
Core Market Session, and the Post-Market Session; and Limit Orders 
would be accepted during all sessions.\208\ Further, pursuant to 24X 
Rule 11.16, Market Orders and Pegged Orders are not eligible for 
execution during the 24X Market Session. Orders may be submitted in 
round lots, odd lots, or mixed lots.\209\ 24X will permit orders to be 
entered, canceled, modified, executed on or routed away from 24X during 
the Pre-Market Session, the Core Market Session, and the Post-Market 
Session.\210\ 24X would also permit orders to be entered, canceled, 
modified or executed on the Exchange during the 24X Market 
Session.\211\
---------------------------------------------------------------------------

    \201\ See 24X Rule 11.1(a).
    \202\ See 24X Rule 11.16(a) (stating, ``[e]xcept as explicitly 
set forth herein, each of the rules and requirements set forth in 
this Chapter 11 applies to trading activity during the 24X Market 
Session.''). The 24X rules make specific provisions for the 24X 
Market Session with respect to, for example, matters such as order 
types permitted. See, e.g., Exhibit E-1 to 24X's Form 1; 24X Rule 
11.7.
    \203\ 24X defines the term ``Market Order,'' in part, as ``[a]n 
order to buy or sell a stated amount of a security that is to be 
executed at the NBBO or better when the order reaches the 
Exchange.'' See 24X Rule 11.7(a).
    \204\ 24X defines the term ``Limit Order'' as ``[a]n order to 
buy or sell a stated amount of a security at a specified price or 
better. A marketable Limit Order is a Limit Order to buy (sell) at 
or above (below) the lowest (highest) Protected Offer (Protected 
Bid) for the security.'' See 24X Rule 11.7(b).
    \205\ 24X defines the term ``Pegged Order,'' in part, as ``[a] 
User may indicate to peg an order to a reference price, including an 
instruction of Primary Peg (the NBB for buy orders and NBO for sell 
orders, with or without offsets) or an instruction of Midpoint Peg 
(the midpoint of the NBBO). The System's calculation of the NBBO 
would not take into account any Pegged Orders that are resting on 
the 24X Book. A new timestamp is created for a Pegged Order each 
time it is automatically re-priced.'' See 24X Rule 11.7(c).
    \206\ See 24X Rule 11.7 (describing, among other things, order 
types eligible for the various 24X trading sessions). See also Form 
1, Exhibit E-1 at 7.
    \207\ See, e.g., 24X Rule 11.7; Form 1, Exhibit B.
    \208\ See 24X Rule 11.7(a)(4) for Market Orders, 24X Rule 
11.7(c)(4) for Pegged Orders, and 24X Rule 11.7(b) for Limit Orders.
    \209\ See 24X Rule 11.6(q). See also Form 1, Exhibit E-1 at 5.
    \210\ See 24X Rule 11.1(b).
    \211\ See 24X Rule 11.1(c) (providing, in part, that ``to the 
extent that other Trading Centers are open during the 24X Market 
Session, orders may be routed away to such Trading Centers during 
the 24X Market Session'').
---------------------------------------------------------------------------

    With respect to the price of executions that would occur on the 
Exchange,\212\ the 24X rules are designed to comply with short sale 
price test restriction under Rule 201 of Regulation SHO,\213\ the order 
protection requirements of Rule 611 of Regulation NMS,\214\ and the 
National Market System Plan to Address Extraordinary Market Volatility 
pursuant to Rule 608 of Regulation NMS (``LULD Plan'').\215\ 24X will 
permit the use of self-trade protection (``STP'') modifiers to prevent 
an incoming order from executing against a resting order originating 
from the same market participant.\216\
---------------------------------------------------------------------------

    \212\ As discussed above, certain rules govern trading during 
Exchange Trading Hours other than the 24X Market Session, while 
other rules and requirements apply exclusively to trading during the 
24X Market Session. See supra note 201 and accompanying text. See 
also 24X Rule 11.1(a).
    \213\ See 24X Rule 11.9(a)(1). See also 24X Rule 11.9(a)(5), 24X 
Rule 11.23, and 24X Rule 13.2. See also supra section III.D.2.f.
    \214\ See 24X Rule 11.9(a)(2).
    \215\ See 24X Rule 11.9(a)(3). See also section III.D.2.b.
    \216\ See 24X Rule 11.9(d).
---------------------------------------------------------------------------

    In addition, 24X will permit firms to register as Market Makers 
with affirmative and negative market making obligations.\217\ In 
particular, Market Makers will be required to maintain continuous two-
sided quotes of at least 100 shares only during Regular Trading 
Hours.\218\ While Market Makers would have no such obligations during 
the Pre-Market, Post-Market or 24X Market Sessions, 24X's proposed 
rules relating to Market Makers are similar to the rules of other 
national securities exchanges, which do not extend Market Maker 
obligations to extended hours trading sessions.\219\
---------------------------------------------------------------------------

    \217\ See 24X Rules 11.17 through 11.20.
    \218\ See 24X Rule 11.20(a)(1). The term ``Regular Trading 
Hours'' is defined as ``the time between 9:30 a.m. and 4:00 p.m. 
Eastern Time each U.S. Business Day.'' See 24X Rule 1.5(dd).
    \219\ See, e.g., MEMX Exchange Rules 11.17 through 11.20; Cboe 
EDGX Rules 11.17 through 11.20.
---------------------------------------------------------------------------

    In its Form 1, 24X stated that it will join and participate in any 
applicable national market system plan that other national securities 
exchanges and/or market centers have joined, including, for example, 
the three Equity Data Plans \220\ that currently govern the collection, 
consolidation, processing, and dissemination of core data.\221\ 24X 
further states that it would ``likewise join all other applicable Plans 
as deemed necessary and in the interest of its Users.'' \222\
---------------------------------------------------------------------------

    \220\ The three equity data plans that currently govern the 
collection, consolidation, processing, and dissemination of national 
market system data by the exclusive Securities Information 
Processors (``SIPs'') are (1) the Consolidated Tape Association Plan 
(``CTA Plan''), (2) the Consolidated Quotation Plan (``CQ Plan''), 
and (3) the Joint Self-Regulatory Organization Plan Governing the 
Collection, Consolidation, and Dissemination of Quotation and 
Transaction Information for Nasdaq-Listed Securities Traded on 
Exchanges on an Unlisted Trading Privileges Basis (``UTP Plan'') 
(collectively, the ``Equity Data Plans''). See also 24X Rule 1.5(o).
    \221\ See Form 1, Exhibit E. See also 24X Rule 11.11 (providing, 
in part, that 24X will report executions to the appropriate 
consolidated transaction reporting system ``to the extent required 
by the Exchange Act and the rules and regulations thereunder.''). 
See also infra section III.D.2.a.i. (discussing the availability of 
the Equity Data Plans during the 24X Market Session).
    \222\ See Form 1, Exhibit E (stating, ``including, but not 
limited to, the NMS Plan to Address Extraordinary Market Volatility 
(``Limit Up-Limit Down Plan''), the NMS Plan Governing the 
Consolidated Audit Trail (the `CAT NMS Plan'), the NMS Plan for the 
Selection and Reservation of Securities Symbols, and the 17d-2 Plans 
for Allocation of Regulatory Responsibilities'').
---------------------------------------------------------------------------

    One commenter stated that the Exchange proposal was ``somewhat 
vague'' with regard to transaction fees and that 24X ``should give a 
range of where fees will land compared to other exchanges.'' \223\ 24X 
responded that its approach to fees is ``typical for exchange 
applications'' and that Exhibit E states that it ``intends to establish 
a Fee Schedule setting forth all applicable transaction and other fees 
. . . close to launch of the Exchange'' so that the fees reflect the 
``competitive landscape at that time.'' \224\
---------------------------------------------------------------------------

    \223\ See Montone Letter at 9.
    \224\ See 24X Letter II at 15.
---------------------------------------------------------------------------

    Form 1 requires an applicant to provide a description of proposed 
fees.\225\ In its Exhibit E, 24X described its proposed fees, including 
transaction fees, membership fees, regulatory charges, permit 
application fees, market

[[Page 97104]]

data fees, co-location fees, connectivity fees, and bandwidth 
fees.\226\ Further, 24X Rule 15.1, which establishes the Exchange's 
authority to impose fees, dues, assessments and other charges that 24X 
may prescribe, lists the following fees that 24X will impose: 
``membership dues, transaction fees, communication and technology fees, 
regulatory charges, listing fees, and other fees and charges as the 
Exchange may determine.'' \227\ 24X also stated that it intends to 
establish a fee schedule that sets forth all fees, and that the actual 
fee amounts and types will be determined at a time closer to 
launch.\228\
---------------------------------------------------------------------------

    \225\ See Form 1, Exhibit E (requiring a description of the 
manner of operation of the System and that the description should 
include proposed fees).
    \226\ See Form 1, Exhibit E.
    \227\ See 24X Rule 11.15(a).
    \228\ See Form 1, Exhibit E.
---------------------------------------------------------------------------

    24X's Form 1 satisfies the requirements of the Form 1 as it 
describes the fees that 24X may prescribe. However, any fees, dues or 
other charges that 24X intends to assess must be filed as a proposed 
rule change pursuant to section 19(b) of the Exchange Act \229\ and 
Rule 19b-4 thereunder.\230\ Exchange fees are subject to the 
requirements of the Exchange Act, including sections 6(b)(4) and 
6(b)(5).\231\
---------------------------------------------------------------------------

    \229\ 15 U.S.C. 78s(b).
    \230\ 17 CFR 240.19b-4.
    \231\ 15 U.S.C. 78f(b)(4), (b)(5).
---------------------------------------------------------------------------

2. 24X Market Session
    As discussed above, 24X will operate the 24X Market Session, a 
fourth trading session that will extend the hours of exchange trading 
for NMS stocks beyond the existing extended hours sessions.\232\ In 
Amendment No. 2, 24X modified its original proposal for the 24X Market 
Session to include overnight trading only on certain nights of the 
week--Sunday through Thursday--that precede a U.S. Business Day.\233\ 
As discussed above,\234\ while several exchanges offer a pre-market 
trading session that may start as early as 4 a.m. on each U.S. Business 
Day, and most exchanges offer a post-close trading session that ends at 
8 p.m. on each U.S. Business Day, 24X's model, as amended, will expand 
exchange trading hours such that trading on 24X will be conducted on a 
largely continuous basis during the week subject to a daily one hour 
trading pause.\235\ 24X will operate the 24X Market Session, as 
amended, in a manner that is consistent with current extended hours 
sessions.\236\ Further, as discussed below, 24X will require that 24X 
Members make disclosures to their customers concerning risks associated 
with trading during Extended Hours Trading, and has included tailored 
disclosures that 24X Members must provide to their customers to reflect 
the potential risks associated with the 24X Market Session, as 
amended.\237\
---------------------------------------------------------------------------

    \232\ See 24X Rule 11.2(a); see also section III.D.2.d. 
(discussing securities eligible for trading during the 24X Market 
Session). See also supra notes 183 and 184 (describing the existing 
exchanges' extended hours sessions).
    \233\ See 24X Rule 1.5(c).
    \234\ See supra notes 183 and 184 and accompanying text.
    \235\ See 24X Rule 11.15(c). See also infra section III.D.2.c.
    \236\ For example, 24X will not accept Market Orders or Pegged 
Orders in the 24X Market Session and 24X will utilize the same 
clearly erroneous execution rules that apply on other venues that 
have extended hours sessions.
    \237\ See 24X Rule 3.21. See also infra section III.D.2.e.
---------------------------------------------------------------------------

    The Commission received several comment letters about the proposed 
operation of the 24X Market Session, which, as initially proposed, 
would have operated 8 p.m. until 4 a.m. during every U.S. Business Day 
as well as most of the day on weekends and holidays, subject to 
proposed trading pauses. Some commenters supported the originally 
proposed expansion of trading hours.\238\ For instance, two commenters 
stated that the originally proposed 24X Market Session would bring the 
``current practice of trading 24/7 onto a lit exchange'' \239\ and that 
the market should be left to decide whether this is a valuable 
endeavor.\240\ One commenter stated that 24-hour trading already occurs 
and that ``it is better that it be on a national securities exchange 
with higher regulatory protections afforded by an exchange.'' \241\
---------------------------------------------------------------------------

    \238\ See, e.g., Polygon Letter; DriveWealth Letter; Angel 
Letter I; Angel Letter II; Montone Letter.
    \239\ See Polygon Letter at 5. See also DriveWealth Letter at 1.
    \240\ See Polygon Letter at 5. See also Angel Letter I.
    \241\ See Angel Letter I at 2.
---------------------------------------------------------------------------

    One commenter stated that its recent research ``implies that 23/7 
trading will likely improve the market's allocative efficiency relative 
to the traditional 6.5/5 trading schedule.'' \242\ This commenter 
stated that their research studied welfare, measured by the allocative 
efficiency of the market, in equilibria of two market designs: one with 
a daily closure, and another in which closure is eliminated. According 
to the commenter, the research showed that ``as long as there is a 
closure for some time, most of the benefits of a market closure are 
accrued.'' \243\ Thus, the commenter stated that it is likely that 
24X's proposed 23/7 exchange will maintain the welfare benefits of a 
market closure, reduce the costs of a prolonged closure, and enhance 
allocative efficiency.\244\
---------------------------------------------------------------------------

    \242\ See Blonien and Ober Letter at 1.
    \243\ According to the commenter, in the model, a market closure 
not only concentrates liquidity throughout the day but also helps 
coordinate liquidity, especially towards the end of the trading. 
Moreover, the commenters state that the cost of a closure, that a 
traders' positions may deviate far from their desired positions, is, 
according to the commenter, outweighed by its benefits. See Blonien 
and Ober Letter at 1.
    \244\ See Blonien and Ober Letter at 1. The commenter stated 
that these findings are based on a model of large and homogeneous 
traders, and that heterogeneous groups of traders, such as retail 
investors, market makers, and informed traders, may have asymmetric 
responses to market closures of differing lengths. See id.
---------------------------------------------------------------------------

    Several commenters raised concerns about the original proposed 
expansion of trading hours. For instance, two commenters stated that 
the proposal would harm retail investors due to low volumes and wide 
spreads during the extended trading hours and a lack of liquidity would 
result in a wealth transfer from investors to professionals.\245\ 
Another commenter stated that although 24X suggests that retail 
investors would welcome 24-hour exchange trading, the demand for 
investors for overnight and weekend trading seems speculative because 
no information has been provided about the number of such investors or 
the relevance of the potential benefit.\246\ Another commenter stated 
that investor demand should be considered to assess whether the 
expansion of trading hours would justify the market-wide costs.\247\
---------------------------------------------------------------------------

    \245\ See Better Markets Letter at 2; SIFMA Letter II at 2.
    \246\ See IEX Letter at 2.
    \247\ See SIFMA Letter II at 2. See infra notes 290-292 and 
accompanying text (discussing costs relating to the expansion of 
trading hours).
---------------------------------------------------------------------------

    One commenter suggested a ``cautious approach to expanding hours'' 
because its research indicated ``negative consequences for retail 
investment.'' \248\ Another commenter, however, stated that the 
research cited did not examine overnight trading or expansion of 
trading hours but instead examined time zone differences.\249\ This 
commenter stated 24-hour trading ``is already here on automated trading 
systems, so rejecting the 24X application would not restrict retail 
access to overnight trading at all.'' \250\
---------------------------------------------------------------------------

    \248\ See Glover and deHaan Letter at 1.
    \249\ See Angel Letter II at 3.
    \250\ See Angel Letter II at 2.
---------------------------------------------------------------------------

    With respect to the commenter's concern about retail investor 
participation in the 24X Market Session,\251\ 24X stated that, as 
discussed below, the Commission has historically allowed retail 
participation in expanded trading hours with appropriate 
disclosures.\252\ In Amendment No. 1, 24X amended its 24X Rule 3.21 to

[[Page 97105]]

provide additional disclosures designed to address the potential risks 
of the 24X Market Session.\253\ 24X stated, in response to commenters 
questioning whether additional trading hours would benefit investors, 
that ``there is substantial interest in expanded trading hours'' and 
that the markets should be able to determine whether the 24X proposal 
will be successful.\254\ 24X also stated that its amended rules for the 
24X Market Session are a more incremental approach that will address 
the cost concerns raised by some commenters because it eliminates the 
potential costs related to weekend and holiday trading.\255\ 24X 
further stated that it did not believe that ``costs related to 
innovation should be the basis for the Commission to determine that an 
exchange application does not comply with the Exchange Act.'' \256\ 24X 
also stated that the markets will determine whether ``its innovative 
proposal'' is successful.\257\
---------------------------------------------------------------------------

    \251\ See supra note 245 and accompanying text.
    \252\ See 24X Letter II at 11. See also infra section III.D.2.e. 
(discussing customer disclosures relating to risks of the 24X Market 
Session).
    \253\ As discussed above, in Amendment No. 2, 24X scaled back 
the hours of operation of the 24X Market Session to 8 p.m. to 4 a.m. 
Sunday, Monday, Tuesday, Wednesday, and Thursday nights, so long as 
the next trading day is a U.S. Business Day. See supra note 233 and 
accompanying text. As part of Amendment No. 2, 24X also revised the 
disclosures that must be provided by 24X Members to their customers 
to reflect the revised operating hours of the 24X Market Session. 
See infra section III.D.2.e.
    \254\ See 24X Letter III at 5. See also 24X Letter IV at 6 
(stating that ``the number of market participants interested in 
overnight trading continues to grow.'').
    \255\ See 24X Letter III at 2.
    \256\ See 24X Letter III at 2.
    \257\ See 24X Letter IV at 6.
---------------------------------------------------------------------------

    As discussed further below, the Commission finds that the 24X rules 
for the 24X Market Session, as amended, are consistent with the 
Exchange Act. Specifically, the 24X Market Session rules are modeled on 
the rules of national securities exchanges that currently operate 
trading sessions during extended hours and are designed to address the 
potential differences in trading compared to Regular Trading 
Hours.\258\ For example, during the 24X Market Session, the only order 
type that may be submitted is a Limit Order, which requires market 
participants to set the prices at which they are willing to trade. 
Accepting only Limit Orders during extended hours sessions can help to 
address the potential risks that there may be wider spreads,\259\ or 
that prices may be affected by new announcements made by issuers.\260\ 
Other exchanges allow the submission of only limit orders during 
extended hours sessions.\261\
---------------------------------------------------------------------------

    \258\ See supra notes 183-184 and accompanying text.
    \259\ See 24X Rule 3.21(f).
    \260\ See 24X Rule 3.21(e).
    \261\ See e.g., NYSEArca Rule 7.34-E(d) (stating that only limit 
orders are eligible to participate in the Early Trading Session and 
Late Trading Session).
---------------------------------------------------------------------------

    In addition, 24X Members are required to provide disclosures to 
customers that will provide information about potential risks of 
trading in extended hours, including the 24X Market Session. These 
disclosures are consistent with the rules of other SROs, which require 
customers to be provided with disclosures regarding the potential risks 
of extended hours trading.\262\ While two commenters stated that 
investors would be harmed by low liquidity, low volumes and wider 
spreads, these potential risks are included in the disclosures that 
must be provided to customers by 24X Members.\263\ Investors are 
provided information about these potential risks and are able to decide 
whether to participate in extended hours sessions, including the 24X 
Market Session.
---------------------------------------------------------------------------

    \262\ See e.g., NYSEArca Rule 7.34-E(d)(3); Nasdaq Rule Equity 
2, Section 20; MEMX Exchange Rule 3.21; FINRA Rule 2265.
    \263\ See 24X Rule 3.21(a) (describing the risk of lower 
liquidity); 24X Rule 3.21(f) (describing the risk of wider spreads).
---------------------------------------------------------------------------

    Further, the 24X Market Session will overlap with the extended 
hours trading that currently occurs in the over-the-counter (``OTC'') 
market.\264\ Accordingly, while the 24X Market Session represents a new 
trading session for exchange trading, market participants, including 
retail investors, are already able to trade during the times covered by 
the 24X Market Session. While commenters stated that investor demand 
should be considered to assess whether the expansion of trading hours 
would justify market-wide costs, the Commission is required to consider 
a Form 1 application for consistency with statutory standards.\265\ For 
the reasons discussed herein, the Commission has determined that the 
24X Form 1 is consistent with the Exchange Act and the rules 
thereunder.
---------------------------------------------------------------------------

    \264\ See e.g., Blue Ocean ATS, LLC (``BOATS''). The operating 
hours for BOATS occur from 8 p.m. to 4 a.m. on days with the NYSE 
Trade Reporting Facility is open for trade reporting. See Form ATS-
N, available at sec.gov/Archives/edgar/data/1795131/000153949723000091/xslATS-N_X01/primary_doc.xml.
    \265\ In a letter to the Commission, 24X stated that investor 
demand for overnight trading is growing and provided details of 
other market participants that have recently expressed interest in 
expanding the hours of trading on an exchange. See 24X Letter IV at 
6 (citing a proposal by NYSE Arca to expand its trading hours and a 
notice by Schwab announcing an expansion to 24-hour trading for 
certain stocks).
---------------------------------------------------------------------------

    Finally, pursuant to this Form 1, as amended, 24X will not commence 
operation of the 24X Market Session prior to filing a proposed rule 
change. Specifically, 24X Rule 1.5(c) requires 24X, prior to commencing 
operations during the 24X Market Session, to file a proposed rule 
change, pursuant to section 19(b) of the Exchange Act and the rules 
thereunder, to amend its rules confirming that 24X is able to comply 
with its obligations under the Exchange Act during the 24X Market 
Session and that the Equity Data Plans are prepared to collect, 
consolidate, process and disseminate quotation and transaction 
information at all times during the 24X Market Session (``24X Market 
Session Proposed Rule Change''). As discussed below, the 24X Market 
Session Proposed Rule Change must be filed with the Commission and 
approved, or otherwise become effective pursuant to Exchange Act 
section 19(b), before 24X can provide trading during the 24X Market 
Session.\266\ In the 24X Market Session Proposed Rule Change, 24X must 
confirm that it is able to comply with its obligations under the 
Exchange Act during the 24X Market Session and that the Equity Data 
Plans are prepared to collect, consolidate, process and disseminate 
quotation and transaction information at all times during the 24X 
Market Session that is equivalent to the mechanism established for 
Exchange Trading Hours other than the 24X Market Session.\267\ The 24X 
rule requiring the operation of the Equity Data Plans during the 24X 
Market Session is designed to ensure that consolidated quotation and 
transaction data are provided in a manner that is consistent with the 
existing extended hours sessions on exchanges.\268\ Accordingly, 24X 
rules are designed to prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to and 
facilitating transactions in NMS stocks, and perfect the mechanism of a 
free and open market and a national market system.\269\ 24X rules are 
also designed to protect

[[Page 97106]]

investors and the public interest.\270\ The 24X rules governing the 24X 
Market Session will expand the hours of trading available on a national 
securities exchange, and such trading will be transparent because 
trading will not occur unless the Equity Data Plans are able to 
collect, consolidate, process and disseminate consolidated quotation 
and transaction data during the 24X Market Session (i.e., between 8 
p.m. and 4 a.m. Sunday, Monday, Tuesday, Wednesday, and Thursday nights 
that precede a U.S. Business Day).\271\ The 24X rules for the 24X 
Market Session will foster competition by introducing another trading 
venue during these trading hours.\272\ Finally, the 24X rules for the 
24X Market Session are designed to provide additional investor 
protections.\273\
---------------------------------------------------------------------------

    \266\ See 24X Rule 1.5(c) and 24X Rule 11.16. 24X may begin 
operations of its other trading sessions once the conditions 
discussed below have been satisfied.
    \267\ See 24X Rule 1.5(c).
    \268\ As discussed above, the 24X will not start operating the 
24X Market Session unless the Equity Data Plans have established a 
mechanism to collect, consolidate, process and disseminate quotation 
and transaction information at all times during the 24X Market 
Session that is equivalent to the mechanism established for Exchange 
Trading Hours other than the 24X Market Session, among other things. 
See 24X Rule 1.5(c).
    \269\ 15 U.S.C 78f(b)(5).
    \270\ Id.
    \271\ See infra section III.D.2.a.i.
    \272\ See e.g., supra note 264.
    \273\ See e.g., supra section III.C; and infra section III.D.e; 
section III.E.2; section III.F.
---------------------------------------------------------------------------

a. Effect of 24X Market Session on Market Structure
    Several commenters raised questions about the potential impact of 
the 24X Market Session, as originally proposed, on current market 
structure because it would greatly expand exchange trading hours. 
Several commenters stated that the Commission should consider 
roundtable discussions about the market structure implications of 24-
hour trading.\274\ One commenter stated that the 24X proposal ``has 
serious implications for the regulatory, technological, and operational 
underpinnings of the equity securities markets and will result in 
significant costs for the industry.'' \275\ Another commenter stated 
that the 24X Market Session, as originally proposed, is 
``incompatible'' with current market structure and that a broader 
Commission engagement, outside of an exchange application, is needed to 
determine how U.S. equity market structure would be affected.\276\ This 
commenter further stated that the 24X Market Session as originally 
proposed ``could exacerbate a two-tiered system of regulation between 
core and extended trading hours'' because certain Exchange Act rules 
apply only during Regular Trading Hours \277\ and could make compliance 
with best execution obligations more challenging.\278\ Another 
commenter stated that the 24X Market Session, as originally proposed 
``[r]aises significant, insufficiently addressed market policy 
concerns,'' \279\ while another stated that the proposal represents the 
``first occurrence of a national securities exchange that utilizes 
unlisted trading privileges to operate outside the trading hours of the 
primary listing exchanges.'' \280\
---------------------------------------------------------------------------

    \274\ See DriveWealth Letter at 2, SIFMA Letter at 2, SIFMA 
Letter II at 3-4; FIA PTG Letter at 2; FIA PTG Letter II at 3.
    \275\ See FIA PTG Letter at 1, 2; FIA PTG Letter II at 1.
    \276\ See SIFMA Letter at 4-5 (stating that the Commission must 
consider a number of factors, including the public interests 
involved, the effect on exchange competition dynamics, interaction 
with existing and proposed regulations, and whether a fair and 
orderly market is possible where potentially different rules would 
apply to exchanges based on the hours they operate). This commenter 
also stated that the Commission must consider how the 24X Form 1 
would interact with ``outstanding equity market structure 
proposals.'' See SIFMA Letter at 6-7. The commenter asked 
interpretative questions about the proposal to amend Regulation NMS. 
See Securities Exchange Act Release No. 96494 (Dec. 14, 2022), 87 FR 
80266 (Dec. 29, 2022). After submission of the comment letter, the 
Commission adopted amendments to Regulation NMS on Sept. 18, 2024. 
See Securities Exchange Act Release No. 101070 (Sept. 18, 2024), 89 
FR 81620 (Oct. 8, 2024) (``2024 Regulation NMS Adopting Release''). 
The commenter also asked questions about proposed Regulation Best 
Execution, Securities Exchange Act Release No. 96496 (Dec. 14, 
2022), 88 FR 5540 (Jan. 27, 2023); and the proposed Order 
Competition Rule, Securities Exchange Act Release No. 96495 (Dec. 
14, 2022), 88 FR 128 (Jan. 3, 2023). 24X stated that ``addressing 
how such proposals may relate to 24X's exchange application are 
outside of the scope of consideration of whether 24X's exchange 
application complies with the requirements of the Exchange Act.'' 
See 24X Letter II at 19. Proposed Regulation Best Execution and the 
proposed Order Competition Rule remain proposals. The commenter 
submitted a second letter requesting confirmation about the 
application of aspects of the 2024 Regulation NMS Adopting Release 
during the 24X Market Session. See SIFMA Letter II at 13. The 
questions posed by the commenter are addressed within the 2024 
Regulation NMS Adopting Release and existing rules and regulations. 
The 2024 Regulation NMS Adopting Release, as well as the definitions 
included in Rule 600 of Regulation NMS and the specific rules under 
Regulation NMS, define the application of the rules during different 
trading sessions.
    \277\ For example, the commenter stated that certain aspects of 
Regulation NMS only apply during Regular Trading Hours, such as Rule 
611 of Regulation NMS, and that certain definitions in Rule 600 of 
Regulation NMS specify Regular Trading Hours, such as ``covered 
order.'' See SIFMA Letter I at 4.
    \278\ Id.
    \279\ See Healthy Markets Letter at 7.
    \280\ See Nasdaq Letter at 3.
---------------------------------------------------------------------------

    24X stated that ``in today's market, the regulatory requirements 
vary depending on the trading session'' with greater protections 
required during Regular Trading Hours.\281\ 24X stated that the 
Commission has allowed extended trading hours on other exchanges and 
the same rationale should be applied in this instance because the 24X 
rules for the 24X Market Session raise ``no new issues.'' \282\ In 
response to the comment about trading NMS stocks pursuant to UTP 
outside of the hours of the primary listing exchanges, 24X stated that 
it would ``coordinate with the primary listing markets with regard to 
their regulatory roles related to their listed companies (e.g., trading 
halts).'' \283\ Further, 24X stated that 24X Rule 11.15(c)(5) requires 
24X to halt trading if the primary listing exchange determines to halt 
trading.\284\ In response to comments about industry roundtables, 24X 
stated that ``its exchange application has been subject to public 
comment by the industry and others . . . in accordance with the 
requirements of the Exchange Act.'' \285\ 24X further stated that 
amending the rules governing the 24X Market Session to eliminate 
trading on weekends and holidays in response to comments is a 
``significant adaption.'' \286\
---------------------------------------------------------------------------

    \281\ See 24X Letter II at 14. 24X further states that it will 
comply with all required rules and regulations applicable to 
national securities exchanges during its Core Market Session. Id.
    \282\ See 24X Letter II at 14.
    \283\ Id. at 8.
    \284\ Id. at 4.
    \285\ See 24X Letter III at 5.
    \286\ Id.
---------------------------------------------------------------------------

    The 24X rules for the 24X Market Session have been amended to 
increase transparency and enhance customer risk disclosures such that 
it will operate in a manner that is consistent with the regulatory 
framework of the extended hours sessions of other national securities 
exchanges.\287\ As discussed throughout this order, the 24X Market 
Session, as amended, will operate with rules that are designed to 
protect investors consistent with the requirements of the federal 
securities laws and the rules and regulations thereunder.
---------------------------------------------------------------------------

    \287\ See also infra section III.D.2.b.i.
---------------------------------------------------------------------------

    Several commenters suggested that a broader study of expanded hours 
trading should be conducted prior to Commission action on the 24X 
exchange application.\288\ The continuing evolution of the equities 
market, including increasing investor interest in extended hours 
trading, may warrant consideration of the existing regulatory scheme 
that applies to expanded hours trading sessions. The Commission 
continually monitors the national market system and the operation of 
the Federal securities laws, and the Commission, consistent with its 
oversight of the national market system, will continue to monitor the 
developments of extended hours trading. However, the monitoring of new 
market developments does not foreclose Commission action on the 24X 
Form 1, which, for reasons discussed throughout, satisfies the 
requirements of the Exchange Act.
---------------------------------------------------------------------------

    \288\ See supra note 274 and accompanying text.

---------------------------------------------------------------------------

[[Page 97107]]

    Further, the 24X Form 1 has been subject to the relevant notice and 
comment requirements. Public comment on the application has been 
solicited four separate times--with the publication of the Notice, the 
OIP, Amendment No. 1, and Amendment No. 2. The public, including market 
participants, have been afforded adequate opportunity for comment, and 
interested persons have taken the opportunity to provide written data, 
views, and arguments concerning this application which has yielded a 
robust analysis of the relevant issues.\289\ 24X has responded, by 
amending its Form 1, in part, to address the various concerns raised by 
certain commenters. Notably, 24X has narrowed its hours of operation, 
added rules to increase operational transparency and relevant customer 
risk disclosures, and amended certain proposed rules to conform with 
the existing regulatory framework for extended hours trading of other 
national securities exchanges. In addition, as has been discussed 
throughout this order, the expansion of trading hours initially 
proposed by 24X is not entirely novel as off-exchange trading currently 
occurs during those hours. Accordingly, issues related to the 24X 
Market Session have been raised, analyzed, and addressed, and 
Commission action on the 24X Form 1 should not be delayed by, and is 
not dependent on, a broader study of equity market structure.
---------------------------------------------------------------------------

    \289\ 15 U.S.C 78s(a).
---------------------------------------------------------------------------

    While there will be costs to the industry related to implementing 
the expansion of exchange trading hours, the record does not support a 
denial of the 24X Form 1 application as inconsistent with the Exchange 
Act. The operation of the 24X Market Session will not commence until 
the conditions outlined in this order have been met.\290\
---------------------------------------------------------------------------

    \290\ See infra section V.
---------------------------------------------------------------------------

i. Equity Data Plans
    The Equity Data Plans do not operate during the time period that 
will cover the 24X Market Session, as amended. Several commenters 
raised concerns about the lack of consolidated data during the 24X 
Market Session, as originally proposed.\291\ One commenter stated that 
the 24X trading sessions should align with the operational hours of the 
Equity Data Plans.\292\ Another commenter stated that if 24X was 
approved without extending the exclusive SIP hours, quotes and trades 
would not be publicly disseminated in real time and that the delay 
would be inconsistent with the national market system and significantly 
reduce market transparency.\293\ One commenter stated, in response to 
the 24X Market Session as originally proposed, that moving to 24-hour 
on-exchange trading requires deliberate consideration of the market-
wide implications of such a move, including the cost and complexity of 
overhauling the market-wide infrastructure to allow for the publication 
of quote and trade data by the exclusive SIPs during the proposed 
overnight and weekend sessions, as measured against its potential 
benefits.\294\ The commenter stated that changing exclusive SIP 
operations to accommodate the original proposal would amount to a huge 
undertaking, and that the costs and timeline associated with these 
changes have not been determined.\295\ Moreover, the commenter stated 
that 24X has neither acknowledged responsibility for funding these 
changes, nor provided information on its ability to do so.\296\ The 
commenter further stated that the exclusive SIPs would likely incur 
substantial increased ongoing costs to maintain the originally proposed 
extended hours, and that neither these costs, which the commenter 
stated would likely be borne by all exclusive SIP subscribers 
regardless of whether they participate in overnight or weekend trading, 
nor their potential benefits, have been determined.\297\
---------------------------------------------------------------------------

    \291\ See Polygon Letter; Nasdaq Letter, Montone Letter, IEX 
Letter, SIFMA Letter. Several commenters also stated that there 
should be a consideration of off-exchange trade reporting to the 
Equity Data Plans. See Nasdaq Letter at 3, SIFMA Letter at 3, 
DriveWealth Letter at 2, FIA PTG Letter at 2. The Commission agrees 
and believes that the Equity Data Plans and FINRA should consider 
accommodating real-time OTC trade reporting.
    \292\ See Nasdaq Letter at 3. See also Montone Letter at 8.
    \293\ See SIFMA Letter at 3. See also FIA PTG Letter at 2.
    \294\ See IEX Letter at 1-2. See also DriveWealth Letter at 2.
    \295\ See IEX Letter at 2. See also FIA PTG Letter at 2; FIA PTG 
Letter II at 3.
    \296\ See IEX Letter at 2.
    \297\ See IEX Letter at 2; FIA PTG Letter II at 3.
---------------------------------------------------------------------------

    In Amendment No. 2, in response to commenters' concerns about the 
operation of the 24X Market Session during time periods when the Equity 
Data Plans are not in operation,\298\ 24X modified its Rule 1.5(c) and 
Rule 11.16 to require the concurrent operation of the Equity Data Plans 
before the operation of the 24X Market Session commences, and that 24X 
file the 24X Market Session Proposed Rule Change that would serve to 
provide notice to the Commission and the public of 24X's intention to 
commence operation of the 24X Market Session. Specifically, 24X Rule 
1.5(c) states that 24X will not start operating the 24X Market Session 
unless the Equity Data Plans ``(1) have established a mechanism to 
collect, consolidate, process and disseminate quotation and transaction 
information at all times during the 24X Market Session that is 
equivalent to the mechanism established for Exchange Trading Hours 
other than the 24X Market Session,'' and (2) the Equity Data Plans have 
notified 24X of their readiness.\299\
---------------------------------------------------------------------------

    \298\ See SIFMA Letter at 3; FIA PTG Letter at 2; Nasdaq Letter 
at 3; Healthy Markets Letter at 10-11; but see Polygon Letter at 2-5 
(stating that Commission should approve 24X and force the adoption 
of the competing consolidator model to allow for the dissemination 
of market data in real time). 24X stated that it has ``fully 
addressed'' commenter concerns about trading in the 24X Market 
Session occurring outside of the operating hours of the Equity Data 
Plans by the changes proposed in Amendment No. 2. See 24X Letter IV 
at 4-5.
    \299\ See 24X Rule 1.5(c).
---------------------------------------------------------------------------

    24X Rule 1.5(c) requires 24X, prior to commencing the 24X Market 
Session, to file the 24X Market Session Proposed Rule Change, pursuant 
to section 19(b) of the Exchange Act and the rules thereunder. The 24X 
Market Session Proposed Rule Change must be filed with the SEC within 
18 months of the SEC's approval of 24X's application for registration 
as a national securities exchange. If the 24X Market Session Proposed 
Rule Change is not filed within 18 months of the SEC's approval of 
24X's application for registration as a national securities exchange, 
the Exchange will promptly file a proposed rule change to remove the 
rules that apply to the 24X Market Session. In addition, 24X Rule 11.16 
states that, ``24X will not commence operations of the 24X Market 
Session until a proposed rule change as required under 24X Rule 1.5(c) 
has been approved, or has otherwise become effective, under section 
19(b) of the Exchange Act and the rules thereunder.'' \300\
---------------------------------------------------------------------------

    \300\ The approval of 24X's application to register as a 
national securities exchange is separate and distinct from 
Commission consideration of any future amendments to the Equity Data 
Plans or proposed rule changes filed by 24X. As a matter of course, 
the Commission will consider any future amendments to the Equity 
Data Plans and any proposed rule changes filed by 24X upon filing, 
pursuant to the applicable statutory provisions and rules.
---------------------------------------------------------------------------

    24X responded to commenters' concerns about costs by stating that 
it recognized that innovations, such as the introduction of the 24X 
Market Session, ``may involve additional costs'' but that increased 
costs should not ``be the basis for the Commission to determine that an 
exchange application does not comply with the Exchange Act.'' \301\ 24X 
stated that market participants ``are already trading overnight on ATSs 
or

[[Page 97108]]

otherwise'' and that new costs for exchange trading would be 
``incremental.'' \302\ 24X also stated that broker-dealers can decide 
whether to participate in the 24X Market Session.\303\ Finally, 24X 
stated with regard to the expansion of the exclusive SIPs' hours that 
the Equity Data Plans have a process for determining the cost for new 
participants and for changes.\304\
---------------------------------------------------------------------------

    \301\ See 24X Letter II at 16.
    \302\ Id.
    \303\ Id.
    \304\ See 24X Letter IV at 7. See supra notes 290-292 and 
accompanying text (discussing costs relating to the expansion of 
trading hours).
---------------------------------------------------------------------------

    The Commission agrees with commenters regarding consolidated 
quotation and transaction information during the 24X Market Session. 
Pursuant to its amended Form 1, 24X will not operate during the 24X 
Market Session until the Equity Data Plans are able to collect, 
consolidate, process and disseminate quotation and transaction 
information at all times during the session. The 24X rules for the 24X 
Market Session, as amended, are consistent with sections 6(b)(5) and 
11A of the Exchange Act.\305\
---------------------------------------------------------------------------

    \305\ 15 U.S.C. 78f(b)(5) and 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    24X Rules 1.5(c) and 11.16 provide that 24X will submit a proposed 
rule change within 18 months of the Commission's approval of 24X's 
application to operate as a national securities exchange with regard to 
the operation of the 24X Market Session. These provisions relating to 
the force and effect of the 24X Market Session rules set forth in 24X 
Rule 11.16 help to balance the interest in providing the time needed 
for 24X to be able to comply with 24X Rule 1.5(c) with the interest in 
ensuring that the rules of an Exchange are effective and can be 
enforced by the Exchange.
    The requirement contained in its rules that the 24X Market Session 
will not begin operation until the 24X Market Session Proposed Rule 
Change is approved or otherwise has become effective will enhance 
transparency during the 24X Market Session and promote the goals of the 
national market system. Specifically, the Commission finds that the 24X 
rules for the 24X Market Session, as amended, are consistent with 
section 11A(a)(1)(C) of the Exchange Act, in which Congress found that 
it is in the public interest and appropriate for the protection of 
investors and the maintenance of fair and orderly markets to assure the 
availability to brokers, dealers, and investors of information with 
respect to quotations for and transactions in securities, and to assure 
the practicability of brokers executing investors' orders in the best 
market.\306\ The requirement ensuring that 24X will not commence 
operation of its 24X Market Session until the availability of the 
concurrent operation of the Equity Data Plans accomplishes Exchange Act 
objectives by ensuring that there is transparency during these new, 
extended trading hours through the communication of quotations and 
transactions to market participants and investors.
---------------------------------------------------------------------------

    \306\ 15 U.S.C. 78k-1(a)(1)(C).
---------------------------------------------------------------------------

    Finally, one commenter stated that the Market Data Infrastructure 
(``MDI'') Rules \307\ should be implemented because competing 
consolidators would not be ``time-bound'' and would collect, 
consolidate and disseminate data ``in real-time 24/7.'' \308\ The MDI 
Rules continue to be implemented, however, the MDI Rules will not be 
implemented before action is required on the 24X Form 1.\309\
---------------------------------------------------------------------------

    \307\ Securities Exchange Act Release No. 90610 (Dec. 11, 2020), 
86 FR 18596 (Apr. 9, 2021) (``MDI Rules Adopting Release'').
    \308\ See Polygon Letter at 4.
    \309\ See 2024 Regulation NMS Adopting Release, supra note 276.
---------------------------------------------------------------------------

b. Volatility Moderators in the 24X Market Session
    24X initially proposed to implement unique ``24X Price Bands'' to 
moderate risk and volatility during the 24X Market Session.\310\ 
Several commenters questioned the use of the proposed volatility 
moderators.\311\ In particular, one commenter asked why the proposed 
24X Price Bands differed from the existing Limit up-Limit down bands 
and stated that the proposed 24X Price Bands were ``different from 
price bands used by ATSs that operate outside of core trading hours,'' 
\312\ while another commenter stated there was no basis to justify the 
24X Price Bands.\313\ Another commenter, however, stated that the 
proposed 24X Price Bands ``should be sufficient to prevent erroneous 
trades.'' \314\
---------------------------------------------------------------------------

    \310\ See, e.g., Proposed 24X Rule 11.15(a); Form 1, Exhibit E-
1. As initially proposed, a 24X Price Band would be calculated for 
each relevant security by multiplying the ``Reference Price,'' as 
specified in 24X Rule 11.15(a)(2), by the applicable ``Percentage 
Parameter,'' set out in 24X Rule 11.15(a)(1). Under Rule 11.15(a)(1) 
as initially proposed, this figure (rounded to the nearest $0.01) 
would then be added to the Reference Price to calculate the ``Upper 
24X Price Band'' and subtracted from the Reference Price to 
calculate the ``Lower 24X Price Band'' and no trades would be 
allowed outside the 24X Price Bands. Proposed 24X Rule 11.15(a)(1).
    \311\ See Healthy Markets Letter at 8; SIFMA Letter at 6; FIA 
PTG Letter at 2.
    \312\ See SIFMA Letter at 6.
    \313\ See Healthy Markets Letter at 8.
    \314\ See Angel Letter I at 3. See also Montone Letter at 7.
---------------------------------------------------------------------------

    24X proposed in Amendment No. 1 to remove proposed 24X Rule 
11.15(a) from its rules, which removed all references to the proposed 
24X Price Bands.\315\ In its letter responding to comments on the OIP, 
24X stated that it ``would rely upon its clearly erroneous rule, 
[p]roposed 24X Rule 11.14, to address volatility and risk during the 
24X Market Session.'' \316\ 24X stated that it would also ``provide 
other additional protections to investors to address potential 
volatility and risk during the 24X Market Session. For example, under 
Proposed 24X Rule 11.7(a)(4), 24X would not allow the use of market 
orders during the 24X Market Session.'' \317\ As a result, 24X stated 
that its rules designed ``to address potential volatility in both 
regular and extended hours trading'' are the same as those previously 
approved by the Commission for other exchanges.\318\
---------------------------------------------------------------------------

    \315\ See 24X Letter II at 5-6; Amendment No. 1; 24X Rule 
11.15(a) (now Reserved).
    \316\ See 24X Letter II at 6. In Amendment No. 1, 24X further 
proposed to make a conforming change to its clearly erroneous rule, 
24X Rule 11.14, by deleting subparagraph (d)(4) regarding 
calculation of the reference price when the 24X Price Bands would 
have been in effect during the 24X Market Session.
    \317\ See 24X Letter II at 6.
    \318\ See 24X Letter II at 6.
---------------------------------------------------------------------------

    One commenter stated that given the significance of displayed 
quotations and transaction prices to stock valuations, many trading 
firms and other participants will need to monitor the prices published 
during overnight and weekend hours, regardless of whether they trade 
during those hours and that ``SIP subscribers'' would experience 
``costs.'' \319\ This commenter also stated that ``[t]his is 
particularly the case'' because 24X does not include volatility limits 
other than those that exist under its clearly erroneous execution 
rule.\320\ Another commenter opposed 24X's plan to rely on its clearly 
erroneous execution rules instead of price bands, as initially 
proposed.\321\ This commenter stated that the Commission should 
consider ``whether the regulatory framework and market functionality 
are in place to support 24x7 trading (including, for example, whether 
extending the LULD plan to cover non-core hours is appropriate).'' 
\322\
---------------------------------------------------------------------------

    \319\ See IEX Letter at 2.
    \320\ See IEX Letter at 2.
    \321\ See FIA PTG Letter II at 3 (stating, ``[p]rice bands serve 
as an important investor protection, particularly during periods of 
extreme volatility, whereas busting trades under an Exchange's 
clearly erroneous rules can give rise to increased risks and 
uncertainty.'').
    \322\ Id. See also supra note 288 and accompanying text. The 
LULD Plan applies during Regular Trading Hours. See LULD Plan, 
available at https://www.luldplan.com/.

---------------------------------------------------------------------------

[[Page 97109]]

    24X's proposed use of its clearly erroneous execution rule during 
the 24X Market Session addresses commenters' concerns about its 
initially proposed 24X Price Bands. The use of clearly erroneous 
execution rules in the 24X Market Session, instead of the unique, 
market-specific 24X Price Bands, will help to ensure there is a 
consistent, market-wide regulatory approach across the extended hours 
trading sessions of all national securities exchanges.\323\ 
Accordingly, 24X Rule 11.14 is designed to facilitate transactions in 
securities and remove impediments to and perfect the mechanism of a 
free and open market and a national market system, consistent with 
section 6(b)(5) of the Exchange Act.
---------------------------------------------------------------------------

    \323\ See e.g., CboeBZX Rule 11.17; Nasdaq Equity 11, Rule 
11890; NYSE Arca Rule 7.10-E.
---------------------------------------------------------------------------

    While one commenter suggested that ``SIP subscribers'' may 
experience increased costs due to the need to monitor prices during the 
24X Market Session, the commenter did not provide information as to how 
this differs from other extended hour trading sessions and the 
commenter was commenting on the 24X Market Session as originally 
proposed. As amended by Amendment No. 2, the 24X Market Session would 
cover hours that are currently available for OTC trading and 24X may 
not begin operating its 24X Market Session at least until the Equity 
Data Plans are able to collect, process, consolidate and disseminate 
quotation and transaction data during the 24X Market Session,\324\ 
which will help to facilitate monitoring of price valuations. Further, 
as stated above, the use of clearly erroneous execution rules in 
extended hours sessions is consistent with the regulatory framework 
applied to other national securities exchanges.\325\
---------------------------------------------------------------------------

    \324\ See 24X Rule 1.5(c). Under the rule, 24X will not begin 
operation of the 24X Market Session until the 24X Market Session 
Proposed Rule Change has been approved or otherwise become 
effective. See also supra section III.D.b.i.
    \325\ See supra note 323.
---------------------------------------------------------------------------

c. Trading Halts and Pauses
    24X proposed rules governing trading halts and pauses for 
technology updates and regulatory purposes. As originally proposed, 24X 
Rules 11.15(c)(1), (c)(2), (c)(3), (c)(4) and (c)(5) would have paused 
trading for: (i) three hours each Saturday morning, from 8 a.m. until 
11 a.m.; (ii) an hour at 7 p.m. daily; (iii) industry-wide testing; 
(iv) technological or other purposes; and (v) material corporate 
actions with respect to a particular security during the 24X Market 
Session, respectively. In Amendment No. 2, 24X deleted 24X Rules 
11.15(c)(1) and 11.15(c)(3) and amended 24X Rule 11.15(c)(2), all to 
reflect the amended hours for the 24X Market Session. Pursuant to 24X 
Rule 11.15(c), 24X will pause trading on Monday, Tuesday, Wednesday and 
Thursday at 7 p.m.,\326\ during the 24X Market Session at such other 
times that the Exchange determines is necessary for technological or 
other purposes,\327\ and if the primary listing exchange determines to 
halt trading or delay the start of trading in one of its listed 
securities.\328\
---------------------------------------------------------------------------

    \326\ See 24X Rule 11.15(c)(2).
    \327\ See 24X Rule 11.15(c)(4).
    \328\ See 24X Rule 11.15(c)(5).
---------------------------------------------------------------------------

    With respect to regulatory halts, several commenters questioned how 
market surveillance and trading halts, including regulatory trading 
halts, would be handled in the 24X Market Session.\329\ Specifically, 
one commenter stated that 24X's proposal raised a series of 
surveillance questions, including (i) how 24X will manage real-time 
surveillance during the 24X Market Session, (ii) how the existing 
surveillance, trading halt, and trade review infrastructure--one in 
which primary listing markets perform real-time surveillance of 
securities listed on their markets and implement trading halts and 
pauses for those securities during their hours of operation--will 
intersect with the proposed 24X Market Session, including how 24X would 
coordinate with other exchanges, and (iii) the impact that such trading 
will have on investors, listed companies, and other market 
participants.\330\ Similarly, other commenters expressed concerns about 
regulatory halts, including possible unanticipated or unintended 
effects on primary listing markets and issuers.\331\ One of these 
commenters stated that the expanded trading hours would interfere with 
exclusive SIPs' ``periodic testing and maintenance, which currently 
occur at times when the exchanges are closed.'' \332\ Another commenter 
generally supported the proposed trading halts but recommended that 24X 
``revisit trading halts around key disclosures from companies'' if 
``they find they can adequately secure the markets around the key 
disclosure periods.'' \333\
---------------------------------------------------------------------------

    \329\ See Nasdaq Letter at 3, 4; Montone Letter at 6-7; SIFMA 
Letter at 8-9; Healthy Markets Letter at 7.
    \330\ See Nasdaq Letter at 3. This commenter further stated in 
response to the initial Form 1, ``pauses in the trading day allow 
for the SIPs to make certain technical changes with little to no 
disruption to the markets. We believe the Commission should consider 
whether 24X's proposed trading pauses are sufficient to address the 
technical implications of 23-hour trading sessions.'' Id. See also 
Healthy Markets Letter at 7.
    \331\ See SIFMA Letter at 8-9; Healthy Markets Letter at 7.
    \332\ See SIFMA Letter at 8.
    \333\ See Montone Letter at 6-7.
---------------------------------------------------------------------------

    In response to commenters' concerns about regulatory halts,\334\ 
24X stated that it intends to surveil all of its trading sessions, 
including the 24X Market Session, in the same manner.\335\ 24X stated 
that it will coordinate with the primary listing markets to halt 
trading in a security when the primary listing market halts trading in 
the security.\336\ In addition, in Amendment No. 1, 24X proposed to 
revise its trading halt rules related to the primary listing market to 
clarify that Rule 11.15(c)(5) will apply during all of its trading 
sessions.\337\ Specifically, 24X proposed to add language to 24X Rule 
11.15(c)(5) that if trading in a security is halted by the primary 
listing market before the 24X Market Session and continuing into the 
24X Market Session, or during the 24X Market Session, the Exchange will 
halt trading in the security until trading resumes on the primary 
listing market for the security.\338\
---------------------------------------------------------------------------

    \334\ See supra notes 329-330 and accompanying text.
    \335\ See 24X Letter II at 8.
    \336\ See 24X Letter II at 8.
    \337\ See 24X Rule 11.15(c)(5)
    \338\ See 24X Rule 11.15(c).
---------------------------------------------------------------------------

    24X's rules, as amended, governing trading halts related to 
corporate news and announcements will track the trading halts imposed 
by the primary listing markets. To the extent that material corporate 
news is released during the 24X Market Session and the primary listing 
market does not impose trading halts, the requirements of 24X Rule 
3.21(e) \339\ and 24X Rule 3.21(i) \340\ that disclosures be provided 
to investors relating to the risks associated with news announcements 
and the additional risks of trading in the 24X Market Session, 
respectively, will help to ensure that market participants, including 
investors, are informed about the potential risks associated with 
trading during that time period. 24X's rules governing trading pauses, 
coupled with its Rule 3.21,\341\ are consistent with the Exchange Act 
and, in particular, the section 6(b)(5) requirement that an exchange's 
rules be designed to promote

[[Page 97110]]

just and equitable principles of trade, remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system, and protect investors and the public interest.
---------------------------------------------------------------------------

    \339\ See 24X Rule 3.21(e) (stating, ``[n]ormally, issuers make 
news announcements that may affect the price of their securities 
after Regular Trading Hours. Similarly, important financial 
information is frequently announced outside of Regular Trading 
Hours. In Extended Hours Trading, these announcements may occur 
during trading, and if combined with lower liquidity and higher 
volatility, may cause an exaggerated and unsustainable effect on the 
price of a security.'').
    \340\ See 24X Rule 3.21(i)(1) through (6).
    \341\ See infra section III.D.2.e. (discussing customer 
disclosures relating to risks of the 24X Market Session).
---------------------------------------------------------------------------

    Regarding technology halts, one commenter on the 24X Market 
Session, as originally proposed, stated that testing for the exclusive 
SIP of the UTP Plan currently occurs at times which would overlap 
``with a portion of the 24X Market Session, and 24X has not explained 
how it will operate during the overlapping time.'' \342\ In Amendment 
No. 2, 24X has amended the 24X rules for the 24X Market Session to 
exclude trading on weekends. This amendment addresses concerns about 
conflicts with industry-wide testing, ``which currently occur[s] at 
times when the exchanges are closed.'' The trading pauses provided in 
24X Rule 11.15(c), as amended \343\ should be sufficient to permit 24X 
to address the technical implications of a 23-hour trading day and will 
facilitate industry-wide testing, and internal market testing and 
systems updates and improvements.
---------------------------------------------------------------------------

    \342\ See Nasdaq Letter at 4; see also SIFMA Letter at 8.
    \343\ As discussed above, 24X proposed in Amendment No. 2 to 
limit the hours of operation of the 24X Market Session and, because 
the 24X Market Session will not operate on Saturdays, 24X further 
proposed in Amendment No. 2 to remove 24X Rule 11.15(c)(1) to delete 
the proposed Saturday morning trading pauses.
---------------------------------------------------------------------------

d. Securities Eligible for Trading During the 24X Market Session
    In its initial Form 1, 24X proposed to limit the securities that 
would be available for trading during the 24X Market Session. 
Specifically, proposed 24X Rule 11.2 specified that any class of 
securities listed or admitted to unlisted trading privileges on the 
Exchange would be eligible to be traded during the Pre-Market Session, 
Core Market Session and Post-Market Session, while in the 24X Market 
Session, trading would be limited to any security in the Nasdaq-100 
Index, S&P 500 Index, Russell 2000 Index and the top 50 exchange-traded 
funds by average daily volume during a given month, as determined by 
the Exchange. Proposed 24X Rule 11.2 also included a notice provision 
for securities that might be added to, or removed from, being eligible 
to trade during the 24X Market Session. Finally, proposed 24X Rule 11.2 
initially would have allowed Exchange members to request that 
securities be made eligible for trading during the 24X Market 
Session.\344\
---------------------------------------------------------------------------

    \344\ One commenter stated that proposed 24X Rule 11.2 describes 
how exchange-traded funds will be ``addressed in terms of listing,'' 
but that ``24X should give a similar explanation of how mutual funds 
will be handled in terms of listing and pricing.'' Montone Letter at 
8. As discussed above, 24X will not be a listing market. See 24X 
Rule 14.1. The commenter also stated that mutual funds may need to 
be priced at a different time of day if trading evolved into a 23-
hour format. See Montone Letter at 8. In response, 24X stated, and 
the Commission agrees, that ``the determination of how and when 
pricing decisions for mutual funds would be made by the mutual funds 
in accordance with relevant legal requirements, not by 24X.'' 24X 
Letter II at 19. 24X further stated, and the Commission agrees, that 
the ``24X Market Session does not present new issues regarding the 
timing of the pricing of mutual funds'' because ``trading already 
takes place on exchange today during pre-market sessions and post-
market sessions (including overnight in the OTC market)'' and 
``mutual funds have already faced such timing decisions.'' Id.
---------------------------------------------------------------------------

    One commenter stated that the proposal was ``wise in limiting the 
trading to certain well-known NMS stocks.'' \345\ Another commenter 
stated that 24X did not adequately justify its proposal to limit the 
securities eligible for trading in the 24X Market Session.\346\ Another 
commenter stated that 24X should provide more transparency about the 
proposed notice of securities that would be available to trade because 
the commenter stated that a ``lack of timely information'' about the 
securities available to trade ``runs the risk of material trading 
risks, including higher volatility and lower liquidity.'' \347\
---------------------------------------------------------------------------

    \345\ See Montone Letter at 6.
    \346\ See SIFMA Letter at 8.
    \347\ See Nasdaq Letter at 3. See also SIFMA Letter at 8; 
Healthy Markets Letter at 10.
---------------------------------------------------------------------------

    In Amendment No. 1, 24X amended 24X Rule 11.2 to remove the limit 
on the securities eligible for trading during the 24X Market Session. 
As amended, 24X Rule 11.2 will allow any securities listed or admitted 
to trading pursuant to UTP to be eligible to trade on 24X. In other 
words, 24X Rule 11.2 was amended to make the eligibility requirements 
for the trading of securities during the 24X Market Session the same as 
the other three market sessions (i.e., Pre-Market Session, Core Market 
Session and Post-Market Session). According to 24X, expanding the 
securities eligible to trade during the 24X Market Session will allow 
24X Members and their customers to manage their security lists, and 
ensure continuity of eligible securities across trading sessions, which 
will reduce potential trading complexities and investor inquiries about 
eligible securities.\348\ 24X also stated that expanding the securities 
eligible to trade will allow it to compete with ATSs and other markets 
that operate in the overnight hours.\349\ Finally, 24X stated that the 
amended rule will prevent the exclusion of securities that may be 
appropriate for trading in the 24X Market Session, such as 
international ETFs.\350\
---------------------------------------------------------------------------

    \348\ See 24X Letter II at 11.
    \349\ See id.
    \350\ See id.
---------------------------------------------------------------------------

    24X Rule 11.2 as amended, is consistent with section 6(b)(5) of the 
Exchange Act in that it will promote just and equitable principles of 
trade, facilitate transactions in NMS stocks, remove impediments to, 
and facilitate transactions in NMS stocks and remove impediments to and 
prefect the mechanism of a free and open market and a national market 
system. While one commenter supported limiting the securities eligible 
for trading in the 24X Market Session,\351\ 24X's market structure 
choice not to limit the securities eligible for trading in the 24X 
Market Session will reduce the complexity of the 24X market structure, 
compared to the original proposal, by allowing securities to be 
eligible continuously throughout the four 24X trading sessions. In 
addition, 24X Members and their customers will have control over the 
trading strategies they may choose to implement. Finally, expanding the 
number of securities that are eligible to be traded during the 24X 
Market Session should help to promote competition between trading 
venues that may be operating during the times covered by the 24X Market 
Session, which will ultimately benefit investors.
---------------------------------------------------------------------------

    \351\ See supra note 345 and accompanying text.
---------------------------------------------------------------------------

e. Customer Disclosures Pertaining to Extended Hours Trading, Including 
the 24X Market Session
    24X proposed to require that 24X Members make certain disclosures 
to investors concerning risks associated with trading during Extended 
Hours Trading.\352\ In 24X Rule 3.21, 24X proposed to require the same 
disclosures as those required by other SROs relating to extended hours 
trading.\353\ Specifically, SRO rules require firms to provide 
disclosures to customers that extended hours trading ``involves 
material trading risks, including the possibility of lower liquidity, 
high volatility, changing prices, unlinked markets, an exaggerated 
effect from news announcements, wider spreads.'' \354\
---------------------------------------------------------------------------

    \352\ See 24X Rule 3.21.
    \353\ See, e.g., MEMX Exchange Rule 3.21; Cboe EDGX Rule 3.21; 
NYSE Arca Rule 7.34-E(d)(3); Nasdaq Section 20; FINRA Rule 2265.
    \354\ See 24X Rule 3.21. See also, e.g., MEMX Exchange Rule 
3.21, Cboe EDGX Rule 3.21, NYSE Arca Rule 7.34-E(d)(3), Nasdaq, 
Equity 2, Section 20; FINRA Rule 2265.
---------------------------------------------------------------------------

    While one commenter stated, in response to a question posed by the 
Commission in the OIP, that the proposed disclosures would be

[[Page 97111]]

sufficient to highlight the unique risks posed to investors during the 
24X Market Session, as originally proposed,\355\ others disagreed.\356\ 
One of these commenters stated that existing customer disclosures would 
not provide the necessary protection for investors given the heightened 
risks associated with the 24X Market Session.\357\ Similarly, another 
commenter stated that it cannot ``comprehend how any disclosure that 
would be sufficiently short and clear to be comprehensible would 
adequately capture the sheer volume of potential new risks or 
regulatory gaps in which such trading would occur.'' \358\
---------------------------------------------------------------------------

    \355\ See Montone Letter at 6 (further stating, ``[a]ny person 
looking to trade during the 24X Market Session will be aware of the 
numerous risks they face in trading during this period.'').
    \356\ See SIFMA Letter at 4; Healthy Markets Letter at 9.
    \357\ See SIFMA Letter at 4.
    \358\ See Healthy Markets Letter at 9.
---------------------------------------------------------------------------

    In response, 24X stated that it agreed with commenters that it is 
appropriate to require customer disclosures relating to the 
``heightened'' risks inherent in Extended Hours Trading.\359\ In 
Amendment No. 1, 24X proposed ``expanded'' investor disclosures 
relating to additional potential risks of its 24X Market Session.\360\ 
Specifically, the new paragraph (i) added to 24X Rule 3.21 will 
highlight the following additional potential risks related to trading 
during the 24X Market Session, including the risks that: (1) the 
primary listing markets may not be open; (2) consolidated market data 
may not be available; (3) there may be limited or different regulatory 
protections during the 24X Market Session; (4) there may be limited 
trading alternatives during the 24X Market Session; (5) with near 
continuous trading, there may be greater risk related to system 
maintenance, testing and pauses and resumption in trading; and (6) the 
24X Market Session is novel and may present additional unforeseen risks 
in addition to those discussed above.\361\ In Amendment No. 2, 24X 
amended 24X Rule 3.21 to remove the disclosure related to the risk that 
consolidated data may not be available because pursuant to amended 24X 
Rule 1.5(c), 24X will not begin operation of its 24X Market Session 
unless the exclusive SIPs are able to concurrently collect, 
consolidate, process and disseminate consolidated data.\362\ Thus, the 
proposed disclosure stating the risk that there might not be 
information disseminated by the exclusive SIPs during the 24X Market 
Session is no longer necessary.
---------------------------------------------------------------------------

    \359\ See 24X Letter II at 2.
    \360\ See 24X Rule 3.21(i).
    \361\ Id.
    \362\ See 24X Rule 1.5(c). Under the rule, 24X will not operate 
the 24X Market Session until the 24X Market Session Proposed Rule 
Change has been approved or has otherwise become effective.
---------------------------------------------------------------------------

    The expanded proposed customer disclosures set forth in 24X Rule 
3.21, as amended, should address commenters' concerns because these 
disclosures will provide investors with important information that 
should help to inform their decisions as to whether trading during 
extended hours, including the 24X Market Session, is suitable for them. 
In addition, the expanded customer disclosures set forth in 24X Rule 
3.21, as amended, are consistent with the Exchange Act and, in 
particular, the section 6(b)(5) requirement that an exchange's rules be 
designed to promote just and equitable principles of trade, remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system, and protect investors and the public 
interest. The disclosures will help provide notice to market 
participants, including investors, about the specific risks associated 
with Extended Hours Trading.
f. Other Comments
    24X proposed 24X Rule 11.12 related to the clearance and settlement 
of trades. Under this rule, 24X will require that all transactions 
through the facilities of the Exchange be automatically cleared and 
settled through a registered clearing agency using a continuous net 
settlement system when the continuous net settlement system is open. 
When the continuous net settlement system is closed, 24X will require 
trades to be processed for clearing and settlement as soon as the 
relevant clearing agency reopens the continuous net settlement system.
    One commenter questioned the settlement cycle of trades in the 
context of the 24X Market Session, as originally proposed.\363\ The 
commenter stated that a trade executed at 11:59 p.m. would settle the 
next day and a trade that executed just two minutes later, at 12:01 
a.m., would not settle until the following day (assuming consecutive 
settlement dates).\364\ The commenter also stated that the 24X Market 
Session, as originally proposed, raises additional operational and risk 
management questions related to the clearance and settlement processes 
for trades that occur overnight and on non-business days operated by 
registered clearing agencies, including the National Securities 
Clearing Corporation (``NSCC'').\365\ In its second letter, the 
commenter stated that all default risks and related clearance, 
settlement, payment and delivery risks would be borne by broker-dealers 
until trades were transferred to DTCC for novation, which would impose 
significant counterparty risk on broker-dealers.\366\ The commenter 
stated that retail investors ``would be unaware'' that trades executed 
during the 24X Market Session would be excluded from the NSCC and 
DTCC's real-time guarantee model.\367\ The commenter stated that delays 
in reporting overnight trades to NSCC also impact margin requirements, 
including margin calculations.\368\
---------------------------------------------------------------------------

    \363\ See SIFMA Letter at 8. Specifically, the commenter stated 
that for certain transactions on Fridays, Saturdays, Sundays, and 
holidays, the day after the trade might not be a business day and 
thus the settlement periods would be longer than T+1. As noted 
above, in Amendment No. 2, 24X amended the 24X rules for the 24X 
Market Session so that 24X will not offer trading on weekends and 
holidays. The commenter submitted a second comment that raised 
questions about clearance and settlement of trades in the amended 
24X Market Session, as well as the 24X Market Session as originally 
proposed. See SIFMA Letter II.
    \364\ See SIFMA Letter at 8.
    \365\ Id. The Depository Trust and Clearing Corporation 
(``DTCC'') is the holding company for the three registered clearing 
agencies, including NSCC and the Depository Trust Company (``DTC''), 
each of which provides clearance and settlement services for U.S. 
equities. The commenter further questioned whether the NSCC (1) 
would require an additional deposit to support overnight activity; 
(2) would process trades that occur on Saturday on the following 
Monday or Tuesday; (3) require Monday morning stock loan delivery or 
margin calls for weekend trades. The commenter also questioned 
whether clearing firms would be able to opt-out of clearing extended 
hours (pre-, post-, and overnight) activity. Id. These 
interpretative questions about NSCC rules should be directed to the 
NSCC, an SRO. As discussed throughout, trading of NMS stocks occurs 
overnight in the OTC market on ATSs. The commenter did not detail 
how the 24X proposal, as amended, raises new or novel concerns as 
compared to existing overnight trading sessions.
    \366\ See SIFMA Letter II at 5.
    \367\ See id.
    \368\ See SIFMA Letter II at 6.
---------------------------------------------------------------------------

    24X responded that the commenter's concerns related to the 
clearance and settlement of trades ``have long existed and are 
contemplated within existing NSCC/DTCC rules.'' \369\ 24X also stated 
that it understood, from the DTCC, that the operational and clearance 
and settlement risks related to its proposed overnight and weekend 
trading are manageable using existing risk management rules and 
protocols,\370\ and that ``DTCC plans to implement additional changes 
to its processes going forward to further narrow the risks presented by 
extended trading hours.'' \371\ Further, 24X stated that trades 
occurring within a matter of

[[Page 97112]]

minutes that could settle on different days is a ``natural outgrowth'' 
of the T+1 settlement process because there must be a time that 
delineates the end of a trading day.\372\ Finally, 24X stated that, 
``as with overnight trading on ATSs today, broker-dealers concerned 
about potential operational and clearance and settlement risks related 
to such trading are not required to trade in the 24X Market Session.'' 
\373\
---------------------------------------------------------------------------

    \369\ See 24X Letter II at 17.
    \370\ See 24X Letter II at 18.
    \371\ See 24X Letter IV at 5.
    \372\ See 24X Letter II at 18.
    \373\ See 24X Letter IV at 5.
---------------------------------------------------------------------------

    The 24X rules related to clearance and settlement of transactions 
on 24X are consistent with the requirements of section 6(b)(5) of the 
Exchange Act that provides, among other things, that the rules of an 
exchange must foster cooperation and coordination with persons engaged 
in regulating, clearing, settling, processing information with respect 
to, and facilitating transactions in securities.\374\ Further, the 
Commission concludes that while risk cannot be eliminated, it can be 
appropriately managed as it relates to: (1) the proposed operation of 
the 24X Market Session and (2) the ability of the relevant clearing 
agencies for equities, NSCC and the DTC, to address any potential 
credit, market, and liquidity risks associated with trades submitted by 
the Exchange. While one commenter submitted several interpretative 
questions related to how clearance and settlement of trades will occur 
during the 24X Market Session, the commenter did not explain how the 
clearance and settlement of 24X Market Session trades would be 
different from trades that occur in the overnight sessions in the OTC 
market.\375\ Further, the commenter stated that broker-dealers will 
carry all default risks and related clearance, settlement, payment and 
delivery risks until trades are reported. Broker-dealers may assess the 
risks and benefits of participating in the 24X Market Session. Although 
a commenter stated that investors would be unaware of the risks held by 
broker-dealers, 24X Rule 3.21(g) requires disclosure of the risk that 
certain financial market infrastructure, including ``the relevant 
clearing agency'' and ``certain other providers of settlement 
services,'' may be closed for business during the Extended Hours 
Trading sessions. Finally, the concerns of certain commenters about 
weekend trading are no longer relevant because 24X has amended its 
rules to eliminate weekend trading.
---------------------------------------------------------------------------

    \374\ 15 U.S.C. 78f(b)(5).
    \375\ As discussed above, the 24X Market Session will not 
operate until the 24X Market Session Proposed Rule Change has been 
approved or otherwise become effective. Market participants should 
direct their interpretative questions about the rules of other SROs, 
including NSCC or DTC, to those SROs.
---------------------------------------------------------------------------

    24X proposed several rules that are reasonably designed to ensure 
compliance with Regulation SHO. 24X Rule 11.9(a)(1) requires the 
execution price of an order with short sale instruction to be above the 
current national best bid if a short sale price test restriction under 
Rule 201 is in effect, unless the order is marked short exempt; and 24X 
Rule 11.9(a)(5) requires all orders to sell short to include a short 
sale instruction. 24X Rule 11.23 relates to Short Sale Circuit Breakers 
and sets forth that once a Short Sale Circuit Breaker pursuant to Rule 
201 of Regulation SHO has been triggered during Regular Trading Hours, 
the price test restriction of Rule 201 will be in place for the 
applicable covered security for the remainder of the trading day on 
which the Short Sale Circuit Breaker is triggered, through the next 
U.S. Business Day after the trading day on which the Short Sale Circuit 
Breaker is triggered, and until 4 a.m. on the U.S. Business Day after 
the next U.S. Business Day after the trading day on which the Short 
Sale Circuit Breaker is triggered, unless the listing market for the 
covered security provides a notification via the exclusive SIPs 
indicating that the price test restriction is no longer in effect at a 
time earlier than 4 a.m. on the U.S. Business Day after the next U.S. 
Business Day after the trading day on which the Short Sale Circuit 
Breaker is triggered. 24X Rule 13.2 requires borrowing and deliveries 
to be effected in accordance with Rule 203 of Regulation SHO and 
provides that the 24X incorporates by reference Rules 200 and 203 of 
Regulation SHO.
    One commenter questioned how would compliance with the circuit 
breaker requirements set forth in Rule 201(b)(1)(ii) of Regulation SHO 
be achieved if the exclusive SIPs were not in operation during the 24X 
Market Session.\376\ The commenter also stated that the close-out 
requirement for the failure to deliver, set forth in Rule 204 of 
Regulation SHO, could be delayed due to the extension of trading hours 
to non-business days.\377\ 24X responded that it would comply with Rule 
201 of Regulation SHO whenever it is deemed to apply.\378\
---------------------------------------------------------------------------

    \376\ See SIFMA Letter at 5.
    \377\ See id.
    \378\ See 24X Letter II at 14.
---------------------------------------------------------------------------

    The 24X rules are consistent with the Exchange Act as they 
incorporate Regulation SHO requirements. Accordingly, 24X rules are 
consistent with section 6(b)(5) of the Exchange Act because they are 
designed to prevent fraudulent and manipulative acts and practices and 
promote just and equitable principles of trade. Further, in response to 
commenter's concerns about potential delays in the close out 
requirement due to the initially proposed 24X Market Session operating 
during non-business days,\379\ the 24X Market Session, as amended, will 
not provide for trading on non-U.S. Business Days. In response to the 
question raised by the commenter about compliance with the circuit 
breaker requirements if the exclusive SIPs were not in operation, in 
Amendment No. 2, 24X amended the rules governing the 24X Market Session 
so that 24X will not commence operations of the 24X Market Session 
until the Equity Data Plans are able to collect, consolidate, process 
and disseminate consolidated data during the 24X Market Session 
designated hours.\380\
---------------------------------------------------------------------------

    \379\ See supra notes 376-377 and accompanying text.
    \380\ See 24X Rule 1.5(c), which requires 24X to file the 24X 
Market Session Proposed Rule Change.
---------------------------------------------------------------------------

    24X proposed 24X Rule 11.13 governing 24X's limitation of liability 
arising from use of Exchange systems or facilities.\381\ Two commenters 
commented on 24X's rule.\382\ One commenter stated that 24X failed to 
appropriately justify its proposed limitation of liability.\383\ This 
commenter stated that 24X's limitation of liability provision is 
modeled on a similar provision adopted in 2005 and that subsequent 
significant equity market structure changes have rendered the proposed 
provision inadequate, particularly given the 24X Market Session, as 
originally proposed.\384\ One of these commenters further stated that 
24X provides no support for the Commission to find the limitation of 
liability provisions consistent with the Exchange Act or the public 
interest, and that ``[a]n even greater level of scrutiny regarding the 
proposed 24X limitation of liability is warranted due to the additional 
operational risks associated with operating a near 24x7 market 
center.'' \385\ The other commenter stated that ``[n]otably, 24X 
intends to operate for significantly more trading hours and trading 
days than other national securities exchanges, and it has not explained 
why the liability caps

[[Page 97113]]

included in its proposed rule are reasonable or appropriately tailored 
to address the risk of system errors or malfunctions on its market 
across these longer periods.'' \386\
---------------------------------------------------------------------------

    \381\ See 24X Rule 11.13.
    \382\ See FIA PTG Letter II and SIFMA Letter II.
    \383\ See FIA PTG Letter II at 1-3.
    \384\ Id. at 2-3; see also SIFMA Letter II at 8-9.
    \385\ FIA PTG Letter II at 2 (stating, as an example, ``in the 
event of a technological error during the 24X Market Session, there 
may be limited staff available to quickly resolve a critical issue, 
increasing the likelihood a malfunction will cause harm and persist 
over an extended period of time.'').
    \386\ See SIFMA Letter II at 9.
---------------------------------------------------------------------------

    In response to the commenter's concerns, 24X stated that it 
believes that the 24X rule complies with the Exchange Act.\387\ 24X 
continued that other exchanges operate pursuant to the ``same rule'' 
and that ``there is no basis for reaching a different conclusion in the 
context of 24X's Form 1 application.'' \388\ 24X also stated that ``the 
liability caps were not established based on the number of trading 
hours on the exchange.'' \389\
---------------------------------------------------------------------------

    \387\ See 24X Letter III at 5.
    \388\ Id.
    \389\ See 24X Letter IV at 5.
---------------------------------------------------------------------------

    The limitation of liability provisions of 24X Rule 11.13 are 
consistent with the Exchange Act requirement that the rules of an 
exchange be designed to promote just and equitable principles of trade 
and not impose any burden on competition not necessary or appropriate 
in furtherance of the purposes of the Exchange Act.\390\ 24X Rule 11.13 
is substantively similar to other exchanges' limitation of liability 
provisions previously approved by the Commission and applicable to 
other exchanges that have extended hours trading sessions.\391\ In 
addition, with respect to the commenters' statements that greater 
exchange liability would be appropriate given the ``additional 
operational risks associated with operating a near 24x7 market 
center,'' 24X will be required to comply with its obligations under the 
Exchange Act during all hours that it is operating. While 24X has more 
hours of operations as compared to other exchanges, 24X will have SRO 
obligations during the 24X Market Session as it does during its other 
trading sessions. Further, as discussed below, 24X will be an SCI 
entity that must comply with Regulation SCI.\392\ While commenters 
submitted comments on the 24X Form 1, both commenters stated that the 
limitation of liability caps on all exchanges should be reevaluated. As 
stated above, the Commission, consistent with its oversight of the 
national market system, will continue to monitor the national market 
system. However, the monitoring of market developments does not 
foreclose Commission action on the 24X Form 1, which for reasons 
discussed throughout, satisfies the requirements of the Exchange Act.
---------------------------------------------------------------------------

    \390\ 15 U.S.C. 78f(b)(5) and (8).
    \391\ See e.g., MEMX Exchange Rule 11.14; LTSE Exchange Rule 
11.260.
    \392\ See section III.E.2.
---------------------------------------------------------------------------

    One commenter requested interpretative guidance on the application 
of Commission Rule 605 and Rule 610(d) and FINRA Rule 5320.08 to the 
proposed 24X trading sessions (i.e., Pre-Market Session, Post-Market 
Session, 24X Market Session and Core Market Session).\393\ These rules 
are clear as to their application during different sessions and the 
commenter did not state why the 24X Form 1 raised unique interpretative 
questions compared to the extended hours sessions on other national 
securities exchanges that have operated for several years.
---------------------------------------------------------------------------

    \393\ See SIFMA Letter II at 13. This commenter posed a number 
of questions that were interpretive in nature or technical and 
related to implementation of extended hours trading. As discussed 
throughout, there are existing extended hours trading sessions on 
other exchanges and the rules that are applicable during extended 
hours sessions are clear. The commenter stated that a broader 
consideration of extended hours trading in the national market 
system should be conducted. See supra section III.D.2.a (discussing 
comments requesting a roundtable or broader consideration of 
extended hours trading). As discussed above, the Commission 
continues to monitor the national market system, including the 
expansion of trading hours in the equity market.
---------------------------------------------------------------------------

E. Technology Agreement With MEMX Technology

1. Delivery, Licenses and Services Agreement (``DLSA'')
    The Exchange will utilize trading technology and systems 
(collectively, the ``Technology and System'') developed by MEMX 
Technologies, LLC (``MEMX Technologies''),\394\ a subsidiary of MEMX 
Holdings LLC, and provided to the Exchange pursuant to a DLSA between 
MEMX Technologies and the Exchange.\395\ Specifically, pursuant to the 
DLSA, MEMX Technologies will provide technology support services to 
24X, which will include ``(1) the development and testing of software 
and hardware necessary to operate the matching engine and connectivity 
to other exchanges via a third-party routing broker(s) and third party-
developed functions (including clearing, custody, and client 
connectivity), (2) the provision of technical support in order for the 
Exchange to operate and monitor the Exchange; and (3) the provision of 
ongoing system availability commitments, updates, fixes, and technology 
support.'' \396\ MEMX Technologies will support intra-day compliance 
monitoring by 24X and provide timely reporting to 24X of any potential 
Regulation SCI events or other operational issues with the System.\397\
---------------------------------------------------------------------------

    \394\ 24X does not own the Technology and System but states that 
it has obtained all necessary licenses and authorizations from MEMX 
Technologies in order for 24X and its Members and Users to fully 
utilize the Technology and System. See Form 1, Exhibit E.
    \395\ See Form 1, Exhibit E. Among other things, the DLSA sets 
forth a multi-year term with automatic renewal provisions that 
requires MEMX Technologies to deliver the Technology and System and 
run industry connectivity testing and other functional-based 
testing. See id. The DLSA also provides for transition services to 
the extent either party decides to terminate the arrangement. See 
id.
    \396\ See Form 1, Exhibit C.
    \397\ See id.
---------------------------------------------------------------------------

    All services provided to the Exchange by MEMX Technologies will be 
based upon requirements and instructions determined by the 
Exchange.\398\ Although MEMX Technologies would provide the technology 
support services, 24X will be responsible for operating and monitoring 
its Exchange-related Technology and System and administering the rules 
of the Exchange and other rules and regulations applicable to the 
Exchange.\399\ To ensure logical and physical separation from MEMX 
Technologies and its affiliates, the Technology and System will operate 
a separate instance of MEMX Technologies' core matching engine 
technology and software, utilizing separate servers from the MEMX 
Exchange system and separate connections for 24X Members to connect to 
24X.\400\ Under the terms of the DLSA, 24X may request MEMX 
Technologies to develop and implement (for a fee to be determined by 
the parties) technology changes that change the operation of the 24X 
Technology and System. 24X is not obligated to agree to, accept, or 
adopt changes to the Technology and System that are not essential to 
the operation of its instance of the Technology and System.\401\ 
Additionally, 24X stated that the ``trading platforms operated by MEMX 
Technologies (including 24X National Exchange, LLC, MEMX Exchange, and 
any other exchanges or trading platforms operated by MEMX Technologies) 
currently are and will be segregated to ensure that 24X is not deemed 
to be a facility of MEMX Exchange.'' \402\ MEMX Technologies will not 
use or disclose information or data (i) about or originating with 24X 
in its dealings with MEMX Exchange or any other platform or (ii) about 
or originating with MEMX Exchange or any other platform in its dealing 
with 24X.\403\
---------------------------------------------------------------------------

    \398\ See id.
    \399\ See id.
    \400\ See Form 1, Exhibit E.
    \401\ See id.
    \402\ See Form 1, Exhibit C.
    \403\ See id.

---------------------------------------------------------------------------

[[Page 97114]]

    One commenter stated that the proposal by 24X to outsource its 
technology needs, along with the maintenance and remediation of 
technology issues, to MEMX Technologies ``is distinct from the existing 
common practice of exchanges and other venues to outsource discrete 
technology elements to individual vendors based on the expertise 
provide by each vendor, subject to oversight of the vendors by the 
exchange as required by Regulation SCI.'' \404\ The commenter further 
stated that other ``existing examples do not involve exclusive reliance 
on a single technology provider (affiliated with one exchange) for 
multiple U.S. registered exchange[s].'' \405\
---------------------------------------------------------------------------

    \404\ See IEX Letter at 2.
    \405\ See IEX Letter at 3.
---------------------------------------------------------------------------

    This commenter's statements were disputed by another commenter, who 
stated that ``having a common technology platform underlying multiple 
registered exchanges is hardly a new phenomenon. Of the sixteen 
currently licensed U.S. equities exchanges, twelve are operated by just 
three exchange groups that each operate several independently-
registered exchanges using a common technology platform.'' \406\ The 
commenter further stated that use of vendors ``allows competitors of 
all sorts to focus on their core business, whether that's facilitating 
the move to a 24-hour trading model, . . . or in attracting listings 
from corporate issuers.'' \407\ 24X responded that ``the use of a 
common technology platform for multiple registered exchanges is a 
common practice. 24X understands that three existing exchange groups 
operate several independently-registered national securities exchanges 
using a common technology platform.'' \408\ The Commission agrees that 
the outsourcing of an exchange's technology platform to another entity 
is not novel.\409\
---------------------------------------------------------------------------

    \406\ See MEMX Letter at 2. The commenter further stated, that 
as an example, ``Nasdaq technology is also used to operate at least 
one ATS that is meets the volume threshold for compliance with 
Regulation SCI; the securities information processor (``SIP'') for 
Tape C stocks; and two of three trade reporting facilities 
(`TRFs').'' 24X agreed with this statement. See 24X Letter IV at 2-
3.
    \407\ See MEMX Letter at 4.
    \408\ See 24X Letter III at 4.
    \409\ See Securities Exchange Act Release No. 100783 (Aug. 20, 
2024), 89 FR 68481 (Aug. 26, 2024) (SR-LTSE-2024-03) (``LTSE--MEMX 
Technologies Approval Order'') (approval of proposed rule change by 
the Long-Term Stock Exchange to transition from its current trading 
platform to a new trading platform that uses technology provided by 
MEMX Technologies). One commenter had stated that arguments 
regarding the use of MEMX's technology have been substantively 
addressed by the Commission in the LTSE--MEMX Technologies Approval 
Order and that ``the Commission's order addresses the pertinent 
legal questions and concludes that this arrangement [between LTSE 
and MEMX Technologies] `is consistent with the Exchange Act.' '' See 
MEMX Letter at 5. 24X agreed with this commenter's statement. See 
24X Letter IV at 3.
---------------------------------------------------------------------------

    Two commenters stated that there should be greater clarification on 
the relationship between 24X and MEMX Technologies.\410\ A third 
commenter expressed concerns about the proposed agreement between 24X 
and MEMX Technologies.\411\ One of these commenters stated that the 
Exchange would be heavily dependent on MEMX Technologies, and asked 
whether MEMX Technologies would be more properly viewed as an owner or 
control person for its technology needs.\412\ As the Commission stated 
above, MEMX Technologies is a vendor that will provide technology 
support services to 24X, to meet requirements established by 24X; MEMX 
Technologies has no ownership interest in 24X.\413\ The ultimate 
responsibility for regulatory compliance with the Exchange Act and 
rules thereunder falls on 24X as the SRO. Nor will MEMX Technologies be 
able to assert control over 24X regarding operation of the Technology 
and System. Under the terms of the DLSA, as described in the Form 1, 
24X is not obligated to agree to, accept, or adopt changes to the 
Technology and System that are not essential to the operation of its 
instance of the Technology and System.\414\
---------------------------------------------------------------------------

    \410\ See Healthy Markets Letter at 9-10; Montone Letter at 5.
    \411\ See IEX Letter.
    \412\ See Healthy Markets Letter at 9. The commenter also stated 
that the arrangement between 24X and MEMX Technologies ``would need 
to be public, so that the Commission and public could assess the 
conflicts of interests and risks posed by it to the operations of 
24X.'' Healthy Markets Letter at 10. A description of the DLSA and 
its terms may be found in 24X's Form 1 at Exhibits C and E and have 
been subject to notice and public comment. Exhibits C and E to the 
Form 1 do not require these contracts to be filed. See Exhibit C 
(requiring, among other things, information relating to any entity 
with whom the applicant has a contractual or other arrangement 
relating to the operation of an electronic trading system to be used 
to effect transactions on the exchange) and Exhibit E (requiring a 
description of the operation of the exchange). These exhibits 
provide sufficient information to assess the proposed arrangement.
    \413\ See Form 1, Exhibit C.
    \414\ See Form 1, Exhibit E.
---------------------------------------------------------------------------

    Another commenter stated that the ``exclusive reliance on a single 
vendor raises questions about the availability of resources by [MEMX 
Technologies] to fill that role.'' \415\ Similarly, one commenter asked 
for clarification as to whether MEMX Technologies ``has the staff and 
infrastructure to facilitate 23-hour continuous trading'' \416\ and 
stated that there should be ``a detailed reassurance that the 
technology underlying the exchange will not breakdown due to a high 
user rate and further if the technology does fail, what the procedures 
will be to protect the exchange while also safeguarding investors 
information and portfolios.'' \417\ 24X in response stated that the 
technology it will utilize ``has a proven track record for resiliency, 
a track record that should give the SEC and market participants comfort 
regarding the reliability of 24X's market offering.'' \418\
---------------------------------------------------------------------------

    \415\ See IEX Letter at 2. Although MEMX Technologies will 
develop and maintain the Technology and System pursuant to the DLSA, 
it is 24X market operations staff that will be responsible for the 
daily operations of 24X's market. See Form 1, Exhibit E.
    \416\ Montone Letter at 5. One commenter asked whether in the 
event of a potentially serious cyber breach of its systems, 24X 
would ''be in a position to promptly identify such a breach if it is 
entirely reliant on a third party for security and other 
technology'' and, once aware, what assistance it would ``require 
from its supplier to be able to respond in a timely way that 
protects exchange systems and user information.'' See Heathy Markets 
Letter at 9. The Commission reiterates that the ultimate 
responsibility for regulatory compliance with the Exchange Act and 
rules thereunder falls on 24X and should 24X require, the DLSA 
provides that 24X may request technology changes from MEMX 
Technologies to change the operation of the System. See Form 1, 
Exhibit E.
    \417\ See Montone Letter at 5.
    \418\ 24X Letter III at 4. 24X also agreed with a commenter that 
stated that ``the strength of MEMX's technology platform is the 
primary reason that 24X, LTSE, and several other trading venues have 
contracted with MEMX Technologies to power their trading systems. 
MEMX has shown that its technology platform is robust and resilient 
day in and day out for the past four years.'' See 24X Letter IV at 
2-3 (quoting from MEMX Letter at 2).
---------------------------------------------------------------------------

    Another of the commenters stated that 24X's potential use of MEMX 
Technologies for operational support raises conflicts concerns and that 
the Form 1 ``contains little if any information about management of 
conflicts more generally.'' \419\ This commenter stated that there are 
no statements or information about the ``nature and extent'' of the 
segregation between 24X and MEMX Technologies or the ``financial terms 
of 24X's agreement with [MEMX Technologies] and about what type of 
separation may exist between [MEMX Technologies] and MEMX.'' \420\ The 
commenter further stated that its concerns ``may be magnified to the 
extent that other exchanges propose to make use of this same exclusive 
`white label' technology solution by the same vendor to meet their 
technology needs, as has been widely reported. Under that construction, 
[MEMX Technologies] would appear to be performing in effect a 
technology utility function for multiple regulated exchanges, but it

[[Page 97115]]

would not be a regulated entity itself, and the Commission would have 
limited ability to evaluate, and no ability to control, how it performs 
that critical function.'' \421\
---------------------------------------------------------------------------

    \419\ See IEX Letter at 2-3.
    \420\ See IEX Letter at 3.
    \421\ See id.
---------------------------------------------------------------------------

    24X, not MEMX Technologies, has regulatory responsibility over the 
24X System, and therefore 24X as a SRO is fully responsible for 
discharging its obligations as a registered national securities 
exchange. The Commission disagrees with the commenter that the Form 1 
contains little information about these matters.\422\ 24X has provided 
sufficient detail in the Form 1 regarding the relationship between 24X 
and MEMX Technologies.\423\ MEMX Technologies will not use or disclose 
information or data (i) about or originating with 24X in its dealings 
with MEMX Exchange or any other platform or (ii) about or originating 
with the MEMX Exchange or any other platform in its dealings with 
24X.\424\ Also, the DLSA, among other things, enforces logical and 
physical separation from MEMX Technologies and its affiliates in that 
the Technology and System will operate a separate instance of MEMX 
Technologies' core matching engine technology and software, utilizing 
separate servers from MEMX Exchange system and separate connections for 
Members to connect to 24X.\425\ Further, 24X will interact with the 
MEMX Exchange, including MEMX Exchange's routing broker-dealer, on the 
same arms-length commercial terms as 24X interacts with other 
registered national securities exchanges and their routing broker-
dealers.\426\ Membership in the MEMX Exchange will not confer any 
advantages when trading on 24X (or vice versa), such as faster 
connections, lower fees, or preferential treatment of orders on the 24X 
System.\427\ Membership in the MEMX Exchange will also not be a 
requirement for membership in or connection to 24X (or vice 
versa).\428\
---------------------------------------------------------------------------

    \422\ See supra note 412.
    \423\ See Form 1, Exhibit E. See also 24X Letter II at 15.
    \424\ See Form 1, Exhibit C.
    \425\ See Form 1, Exhibit E.
    \426\ See id.
    \427\ See id.
    \428\ See Form 1, Exhibit E.
---------------------------------------------------------------------------

    After consideration of the disclosures 24X made in its Form 1 
application and review of the comments, the Commission finds that 24X's 
proposal to utilize technology provided and maintained by MEMX 
Technologies is consistent with the Exchange Act, in particular with 
section 6(b)(1) of the Exchange Act,\429\ which requires an exchange to 
be so organized and have the capacity to carry out the purposes of the 
Exchange Act and to comply and enforce compliance by its members and 
persons associated with its members with the Exchange Act and the rules 
thereunder. The arrangement between 24X and MEMX Technologies, as 
described in the 24X Form 1, will enable the Exchange to utilize 
trading platform technology that is already in use with an experienced 
operator.\430\ However, the terms of the DLSA between 24X and MEMX 
Technologies, as described in the Form 1, are reasonably designed not 
to confer upon either MEMX Exchange or 24X Members any advantages when 
trading on 24X, or vice versa, such as faster connections, lower fees, 
or preferential treatment of orders on the 24X System.\431\ Further, as 
described in the Form 1, the DLSA will not include the technology or 
systems to route orders to the MEMX Exchange or any other 
exchange.\432\ 24X will retain responsibility for overseeing the daily 
market operations of its trading system; MEMX Technologies will be 
responsible for performing all necessary maintenance and remediation of 
problems relating to the logical and physical infrastructure, in 
accordance with the DLSA.\433\ Therefore, 24X will be capable of 
exercising sufficient control over the operation of its Technology and 
System, and will be sufficiently independent from MEMX Technologies, to 
enable 24X to comply with the requirements under the Exchange Act and 
the rules thereunder.
---------------------------------------------------------------------------

    \429\ 15 U.S.C. 78f(b)(1).
    \430\ See e.g., LTSE--MEMX Technologies Approval Order, supra 
note 409.
    \431\ See Form 1, Exhibit E.
    \432\ 24X may automatically route orders to other exchanges 
through the use of one or more routing brokers that are not 
affiliated with 24X. See Form 1, Exhibit E. See also 24X Rules 2.11 
and 11.10.
    \433\ See Form 1, Exhibit E.
---------------------------------------------------------------------------

    The provisions of the DLSA described above demonstrate that the 
support services provided by MEMX Technology are adequate to enable 24X 
to meet its self-regulatory obligations. In order for 24X to perform 
its regulatory obligations, the DLSA provides 24X with enumerated audit 
rights to review books and records of MEMX Technologies related to the 
provision of services under the DLSA, and the ability either to produce 
itself, or direct MEMX Technologies to produce, MEMX Technologies 
documents and information related to the operation of the Technology 
and System to the Commission or other regulators or parties upon 
request, subject to appropriate due process.\434\
---------------------------------------------------------------------------

    \434\ See id.
---------------------------------------------------------------------------

    Finally, 24X will have regulatory responsibility for its trading 
Technology and System and will be responsible to fully discharge its 
obligations as a national securities exchange. 24X will also be 
responsible for its market and cross-market surveillance through the 
RSA, described above,\435\ and maintain its independent regulatory 
function to oversee the RSA and will not rely on or utilize MEMX 
Exchange or its personnel to fulfill any aspect of those obligations on 
24X's behalf.
---------------------------------------------------------------------------

    \435\ See supra section III.C.2. (discussing 24X's RSA with 
FINRA).
---------------------------------------------------------------------------

2. Regulation SCI
    As a registered national securities exchange, 24X will be an ``SCI 
entity'' responsible for compliance with the requirements of Regulation 
Systems Compliance and Integrity (``Regulation SCI'').\436\ Regulation 
SCI requires SCI entities to establish written policies and procedures 
reasonably designed to ensure that their applicable systems have levels 
of capacity, integrity, resiliency, availability, and security adequate 
to maintain their operational capability and promote the maintenance of 
fair and orderly markets, and that they operate in a manner that 
complies with the Exchange Act.\437\ In addition, Regulation SCI 
requires SCI entities to take corrective action with respect to SCI 
events (defined to include systems disruptions, systems compliance 
issues, and systems intrusions), notify the Commission of such events, 
and disseminate information about certain SCI events to affected 
members or participants (and, for certain major SCI events, to all 
members or participants of the SCI entity).\438\ Moreover, Regulation 
SCI requires SCI entities to conduct a review of their systems by 
objective personnel at least annually, submit quarterly reports 
regarding completed, ongoing, and planned material changes to their SCI 
systems to the Commission,\439\ and maintain certain books and 
records.\440\ It also requires SCI entities to mandate participation by 
designated members or participants in scheduled testing of the 
operation of their business continuity and disaster recovery plans, 
including backup systems, and to coordinate such testing

[[Page 97116]]

on an industry- or sector-wide basis with other SCI entities.\441\
---------------------------------------------------------------------------

    \436\ See Securities Exchange Act Release No. 73639 (Nov. 19, 
2014), 79 FR 72252 (Dec. 5, 2014) (``Regulation SCI 2014 Adopting 
Release'').
    \437\ See 17 CFR 242.1001.
    \438\ See 17 CFR 242.1002. See also 17 CFR 242.1000 and 17 CFR 
242.1006.
    \439\ See 17 CFR 242.1003. See also 17 CFR 242.1000.
    \440\ See 17 CFR 242.1005. See also 17 CFR 242.1007.
    \441\ See 17 CFR 242.1004.
---------------------------------------------------------------------------

    Regulation SCI applies to an SCI entity's ``SCI systems,'' which 
are systems that directly support any one of six key securities market 
functions--trading, clearance and settlement, order routing, market 
data, market regulation, and market surveillance (``SCI systems''). 
Regulation SCI also applies to ``indirect SCI systems,'' which are any 
systems that, if breached, are likely to pose a security threat to SCI 
systems. Further, certain SCI systems that are ``critical SCI systems'' 
are held to certain heightened requirements under Regulation SCI.\442\
---------------------------------------------------------------------------

    \442\ See 17 CFR 242.1000 (definitions of ``SCI systems,'' 
``indirect SCI systems,'' and ``critical SCI systems'').
---------------------------------------------------------------------------

    The Exchange has obtained commitments from MEMX Technologies in 
connection with the Exchange's engagement of MEMX Technologies to 
develop, license, and operate the Technology and System on behalf of 
the Exchange to, among other things, address how this arrangement is 
consistent with the requirements of Regulation SCI.\443\ The Exchange 
acknowledges that as the SCI entity contracting with MEMX Technologies 
to provide software and hardware to operate both SCI systems and 
indirect SCI systems, 24X will have full responsibility for ensuring 
that it is in compliance with all aspects of Regulation SCI, including 
the requirements for its backup and recovery capabilities.\444\ In 
addition, the DLSA includes commitments from MEMX Technologies as 
developer, licensor, and operator of the Technology and System to 
cooperate with the Exchange and provide the Exchange with the 
information and access that the Exchange reasonably believes will allow 
the Exchange to satisfy its obligations under Regulation SCI.\445\
---------------------------------------------------------------------------

    \443\ See Form 1, Exhibit E.
    \444\ See id.
    \445\ See id.
---------------------------------------------------------------------------

    One commenter stated that it does ``not see how 24X would be able 
to comply with Regulation SCI when it would not be in control of its 
own systems. . . . The introduction of another essential business 
partner creates previously unprecedented conflicts of interest for a 
registered exchange and complications for ownership and governance.'' 
\446\ Contrary to the commenter's statements, Regulation SCI 
contemplates the possibility of an SCI entity's SCI systems and 
indirect SCI systems being operated on its behalf by another 
entity.\447\ In fact, because SCI entities engage in outsourcing to 
varying degrees, the Commission stated when it adopted Regulation SCI, 
``if an SCI entity determines to utilize a third party for an 
applicable system, it is responsible for having in place processes and 
requirements to ensure that it is able to satisfy the requirements of 
Regulation SCI for systems operated on behalf of the SCI entity by a 
third party.'' \448\
---------------------------------------------------------------------------

    \446\ See Healthy Markets Letter at 9.
    \447\ See, e.g., Rule 1000 (definitions of SCI systems, critical 
SCI systems and indirect SCI systems, each of which contains ``any. 
. .systems of, or operated by or on behalf of. . .''). See also 
Regulation SCI 2014 Adopting Release, supra note 436 at 72276 
(discussing the utilization of third parties by SCI entities for 
applicable systems).
    \448\ See id. (``The Commission agrees with the comment that an 
SCI entity should be responsible for managing its relationship with 
third parties operating systems on behalf of the SCI entity through 
due diligence, contract terms, and monitoring of third party 
performance. However, the Commission believes that these methods may 
not be sufficient in all cases to ensure that the requirements of 
Regulation SCI are met for SCI systems operated by third parties. . 
. . . Instead, if an SCI entity determines to utilize a third party 
for an applicable system, it is responsible for having in place 
processes and requirements to ensure that it is able to satisfy the 
requirements of Regulation SCI for systems operated on behalf of the 
SCI entity by a third party. The Commission believes that it would 
be appropriate for an SCI entity to evaluate the challenges 
associated with oversight of third-party vendors that provide or 
support its applicable systems subject to Regulation SCI. If an SCI 
entity is uncertain of its ability to manage a third-party 
relationship (whether through due diligence, contract terms, 
monitoring, or other methods) to satisfy the requirements of 
Regulation SCI, then it would need to reassess its decision to 
outsource the applicable system to such third party.'').
---------------------------------------------------------------------------

    Another commenter questioned how exchanges that are operating 
Regulation SCI systems ``in production mode at all hours'' would be 
able to comply with Regulation SCI, including requirements for systems 
testing.\449\ In its response, 24X set forth a description of how its 
policies and procedures comply with the requirements of Regulation 
SCI.\450\ The periodic capacity stress testing, testing of system 
changes and testing in conjunction with the annual SCI review will be 
coordinated by 24X technology operations with MEMX Technologies 
personnel, and that vulnerability and threat testing will be 
coordinated by 24X with an outside vendor who will perform the tests, 
and with MEMX Technologies personnel as necessary.\451\ Finally, as 
discussed above, in Amendment No. 2, 24X has modified the 24X Market 
System so that trading will not occur on weekends. Accordingly, the 
concerns raised about systems testing when Regulation SCI systems would 
be ``in production mode at all hours'' are no longer germane. Based on 
the statements 24X has made in the Form 1, as amended, and 24X's 
response to commenters with respect to its obligations under Regulation 
SCI, as well as the provisions in the DLSA as described by 24X in the 
Form 1, 24X's proposal regarding the engagement of a third party to 
develop, license, and operate the Technology and System is designed to 
support the Exchange's ability to comply with its regulatory 
obligations under Regulation SCI.
---------------------------------------------------------------------------

    \449\ See SIFMA Letter at 8.
    \450\ See 24X Letter II at 5.
    \451\ See id.
---------------------------------------------------------------------------

F. Discipline and Oversight of Members

    As stated above, one prerequisite for the Commission's grant of an 
exchange's application for registration is that a proposed exchange 
must be so organized and have the capacity to be able to carry out the 
purposes of the Exchange Act.\452\ Specifically, an exchange must be 
able to enforce compliance by its members and persons associated with 
its members with the federal securities laws and rules thereunder and 
the rules of the exchange.\453\ Pursuant to an RSA with FINRA, FINRA 
will perform many of the initial disciplinary processes on behalf of 
24X.\454\ For example, FINRA will investigate potential securities laws 
violations, issue complaints, and conduct hearings pursuant to 24X 
rules. Appeals from disciplinary decisions will be heard by the 24X 
Appeals Committee,\455\ and the 24X Appeals Committee's decision shall 
be final.\456\ In addition, the 24X Board on its own initiative may 
order review of a disciplinary decision.\457\
---------------------------------------------------------------------------

    \452\ See 15 U.S.C. 78f(b)(1).
    \453\ See id.
    \454\ See supra notes 119-120 and accompanying text. See also 
24X Rule 9.8 (stating that 24X and FINRA are parties to a regulatory 
services agreement, pursuant to which FINRA will perform certain 
functions described in Chapter 9 on behalf of 24X).
    \455\ See 24X Rule 8.10(b).
    \456\ See id.
    \457\ See 24X Rule 8.10(c).
---------------------------------------------------------------------------

    The 24X LLC Agreement and 24X rules provide that the Exchange has 
disciplinary jurisdiction over its Members \458\ so that it can enforce 
its Members' compliance with its rules and the federal securities laws 
and rules.\459\ The Exchange's rules also permit 24X to sanction 
Members for violations of its rules and violations of the federal 
securities laws and rules by, among other things, expelling or 
suspending Members, limiting Members' activities, functions, or 
operations, fining or censuring Members, or suspending or barring a 
person from being associated

[[Page 97117]]

with a Member, or any other fitting sanction.\460\ 24X's rules also 
provide for the imposition of fines for certain minor rule violations 
in lieu of commencing disciplinary proceedings.\461\ Accordingly, as a 
condition to the operation of 24X, a Minor Rule Violation Plan 
(``MRVP'') filed by 24X under Exchange Act Rule 19d-1(c)(2) must be 
declared effective by the Commission.\462\
---------------------------------------------------------------------------

    \458\ See supra note 48.
    \459\ See generally 24X LLC Agreement, Article XI and 24X Rules 
Chapters 7 and 8.
    \460\ See 24X Rule 8.1(a).
    \461\ See 24X Rule 8.15.
    \462\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

    The Commission finds that the 24X LLC Agreement and 24X rules 
concerning its disciplinary and oversight programs are consistent with 
the requirements of sections 6(b)(6) and 6(b)(7) of the Exchange Act 
\463\ in that they provide fair procedures for the disciplining of 
members and persons associated with members. The Commission further 
finds that the rules of 24X provide it with the ability to comply, and 
with the ability to enforce compliance by its Members and persons 
associated with its Members, with the provisions of the Exchange Act, 
the rules and regulations thereunder, and the rules of 24X.\464\
---------------------------------------------------------------------------

    \463\ 15 U.S.C. 78f(b)(6) and (b)(7).
    \464\ See 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

G. Trading on 24X Pursuant to Unlisted Trading Privileges

    24X does not intend to be a primary listing market for 
securities.\465\ Accordingly, 24X has not proposed rules that would 
allow it to primarily list any securities at this time. Instead, 24X 
has proposed to trade securities pursuant to UTP. 24X Rule 14.1 
establishes the Exchange's authority to trade securities on a UTP 
basis. 24X Rule 14.1(a) provides that 24X may extend UTP to any 
security that is an NMS stock that is listed on another national 
securities exchange or with respect to which UTP may otherwise be 
extended in accordance with section 12(f) of the Exchange Act.\466\ 24X 
Rule 14.1(a) further provides that any such security would be subject 
to all 24X rules applicable to trading on 24X, unless otherwise noted.
---------------------------------------------------------------------------

    \465\ See Form 1, Exhibit H.
    \466\ 15 U.S.C. 78l(f).
---------------------------------------------------------------------------

    24X Rule 14.1(b) establishes additional rules for trading of UTP 
Exchange Traded Products, which are defined in 24X Rule 1.5(nn).\467\ 
24X Rule 14.1(b) provides that 24X will distribute an information 
circular prior to the commencement of trading in a UTP Exchange Traded 
Product that generally would include the same information as the 
information circular provided by the listing exchange, including (a) 
the special risks of trading the Exchange Traded Product, (b) the 
Exchange's rules that would apply to the Exchange Traded Product, and 
(c) information about the dissemination of value of the underlying 
assets or indices. 24X Rule 14.1(b)(2) establishes certain requirements 
for Members that have customers that trade UTP Exchange Traded 
Products.\468\ 24X Rule 14.1(b)(4) also establishes certain 
requirements for any Member registered as a Market Maker in a UTP 
Exchange Traded Product that derives its value from one or more 
currencies, commodities, or derivatives based on one or more currencies 
or commodities, or is based on a basket or index composed of currencies 
or commodities. 24X Rule 14.1(b)(5) provides that the Exchange's 
surveillance procedures for Exchange Traded Products traded on the 
Exchange pursuant to UTP would be similar to the procedures used for 
equity securities traded on the Exchange and would incorporate and rely 
upon existing Exchange surveillance systems.
---------------------------------------------------------------------------

    \467\ Pursuant to 24X Rule 1.5(nn), the term ``UTP Exchange 
Traded Products'' means ``derivative securities products that are 
not listed on the Exchange but that trade on the Exchange pursuant 
to unlisted trading privileges, including the following: equity 
linked notes, investment company units, index-linked exchangeable 
notes, equity gold shares, equity index-linked securities, 
commodity-linked securities, currency-linked securities, fixed-
income index-linked securities, futures linked securities, 
multifactor-index-linked securities, trust certificates, currency 
and index warrants, portfolio depository receipts, trust issued 
receipts, commodity-based trust shares, currency trust shares, 
commodity index trust shares, commodity futures trust shares, 
partnership units, paired trust shares, trust units, managed fund 
shares, and managed trust securities.''
    \468\ 24X Rule 14.1(b)(2)(A) states that 24X Rule 14.1(b)(2) 
applies to UTP Exchange Traded Products that are the subject of an 
order by the Commission exempting the series from certain prospectus 
delivery requirements under Section 24(d) of the Investment Company 
Act of 1940 and are not otherwise subject to prospectus delivery 
requirements under the Securities Act of 1933. 24X Rule 
14.1(b)(2)(B) requires members to provide a written description of 
the terms and characteristics of UTP Exchange Traded Products to 
purchasers of such securities, not later than the time of 
confirmation of the first transaction, and with any sales materials 
relating to UTP Exchange Traded Products. 24X Rule 14.1(b)(2)(C) 
requires members to provide a prospectus to a customer requesting a 
prospectus.
---------------------------------------------------------------------------

    The Commission finds that the Exchange's proposed approach to the 
trading of securities on a UTP basis, as set forth in 24X Rule 14.1, is 
consistent with section 12(f) of the Exchange Act and Rule 12f-5 
thereunder.\469\ Rule 12f-5 under the Exchange Act requires an exchange 
that extends unlisted trading privileges to securities to have in 
effect a rule or rules providing for transactions in the class or type 
of security to which the exchange extends unlisted trading 
privileges.\470\ 24X Rule 14.1 includes a provision that any security 
traded UTP on the Exchange ``shall be subject to all Exchange rules 
applicable to trading on the Exchange, unless otherwise noted.'' \471\ 
The provisions in 24X Rule 14.1 are substantively the same as the 
existing rules of the MEMX Exchange.\472\ Accordingly, pursuant to 
section 12(f) of the Exchange Act and Rule 12f-5 thereunder, 24X will 
be permitted to extend unlisted trading privileges to securities of the 
same class, subject to the trading rules of the Exchange.
---------------------------------------------------------------------------

    \469\ 15 U.S.C. 78l(f); 17 CFR 240.12f-5.
    \470\ See 17 CFR 240.12f-5. See also Securities Exchange Act 
Release No. 35737 (Apr. 21, 1995), 60 FR 20891 (Apr. 28, 1995) (File 
No. S7-4-95) (adopting Rule 12f-5 under the Exchange Act).
    \471\ See 24X Rule 14.1(a).
    \472\ See MEMX Exchange Rule 14.1.
---------------------------------------------------------------------------

H. Section 11(a) of the Exchange Act

    Section 11(a)(1) of the Exchange Act \473\ prohibits a member of a 
national securities exchange from effecting transactions on that 
exchange for its own account, the account of an associated person, or 
an account over which it or its associated person exercises investment 
discretion (collectively, ``covered accounts'') unless an exception 
applies. Rule 11a2-2(T) under the Exchange Act,\474\ known as the 
``effect versus execute'' rule, provides exchange members with an 
exemption from the section 11(a)(1) prohibition. Rule 11a2-2(T) permits 
an exchange member, subject to certain conditions, to effect 
transactions for covered accounts by arranging for an unaffiliated 
member to execute transactions on the exchange. To comply with Rule 
11a2-2(T)'s conditions, a member: (i) must transmit the order from off 
the exchange floor; (ii) may not participate in the execution of the 
transaction once it has been transmitted to the member performing the 
execution; \475\ (iii) may not be affiliated with the executing member; 
and (iv) with respect to an account over which the member or an 
associated person has investment discretion, neither the member nor its 
associated person may retain any compensation in connection with 
effecting the transaction except as provided in the Rule.
---------------------------------------------------------------------------

    \473\ 15 U.S.C. 78k(a)(1).
    \474\ 17 CFR 240.11a2-2(T).
    \475\ This prohibition also applies to associated persons. Rule 
11a2-2(T)(a)(2)(iii), 17 CFR 240.11a2-2(T)(a)(2)(iii). The member 
may, however, participate in clearing and settling the transaction. 
Rule 11a2-2(T)(b)(3), 17 CFR 240.11a2-2(T)(b)(3).
---------------------------------------------------------------------------

    In a letter to the Commission, 24X requested that the Commission 
concur with 24X's conclusion that 24X

[[Page 97118]]

Members that enter orders into the 24X trading system satisfy the 
conditions of Rule 11a2-2(T).\476\ For the reasons set forth below, 24X 
Members entering orders into the 24X trading system could satisfy the 
requirements of Rule 11a2-2(T).
---------------------------------------------------------------------------

    \476\ See letter from David Sassoon, General Counsel, 24X, to 
Vanessa Countryman, Secretary, Commission, dated Feb. 6, 2024 (``24X 
11(a) Letter'').
---------------------------------------------------------------------------

    Rule 11a2-2(T)'s first condition is that orders for covered 
accounts be transmitted from off the exchange floor. In the context of 
automated trading systems, the Commission has found that the off-floor 
transmission condition is met if a covered account order is transmitted 
from a remote location directly to an exchange's floor by electronic 
means.\477\ 24X represents that 24X does not have a physical trading 
floor, and the 24X trading system will receive orders from members 
electronically through remote terminals or computer-to-computer 
interfaces.\478\ The 24X trading system satisfies this off-floor 
transmission condition.
---------------------------------------------------------------------------

    \477\ See, e.g., Nasdaq Order, supra note 57; Securities 
Exchange Act Release Nos. 61419 (Jan. 26, 2010), 75 FR 5157 (Feb. 1, 
2010) (SR-BATS-2009-031) (approving BATS options trading); 59154 
(Dec. 23, 2008), 73 FR 80468 (Dec. 31, 2008) (SR-BSE-2008-48) 
(approving equity securities listing and trading on BSE); 57478 
(Mar. 12, 2008), 73 FR 14521 (Mar. 18, 2008) (SR-NASDAQ-2007-004 and 
SR-NASDAQ-2007-080) (approving Nasdaq Options Market options 
trading); 29237 (May 24, 1991), 56 FR 24853 (May 31, 1991) (SR-NYSE-
90-52 and SR-NYSE-90-53) (approving NYSE's Off-Hours Trading 
Facility); and 15533 (Jan. 29, 1979), 44 FR 6084 (Jan. 31, 1979) 
(``1979 Release'').
    \478\ See 24X 11(a) Letter, supra note 476 at 2.
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    The second condition requires that the member and any associated 
person not participate in the execution of its order after the order 
has been transmitted. 24X represents that at no time following the 
submission of an order is a member or an associated person of the 
member able to acquire control or influence over the result or timing 
of the order's execution.\479\ According to 24X, the execution of a 
member's order is determined solely by what quotes and orders are 
present in the system at the time the member submits the order, and the 
order priority based on the 24X rules.\480\ Accordingly, a 24X member 
and its associated persons do not participate in the execution of an 
order submitted to the 24X trading system.\481\
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    \479\ See id. at 3. 24X states that a member may cancel or 
modify the order, or modify the instructions for executing the 
order, after the order has been transmitted, provided that such 
cancellations or modifications are transmitted from off an exchange 
floor. The Commission has stated that the non-participation 
condition is satisfied under such circumstances so long as such 
modifications or cancellations are also transmitted from off the 
floor. See Securities Exchange Act Release No. 14563 (Mar. 14, 
1978), 43 FR 11542 (Mar. 17, 1978) (``1978 Release'') (stating that 
the ``non-participation requirement does not prevent initiating 
members from canceling or modifying orders (or the instructions 
pursuant to which the initiating member wishes orders to be 
executed) after the orders have been transmitted to the executing 
member, provided that any such instructions are also transmitted 
from off the floor'').
    \480\ See 24X 11(a) Letter, supra note 476, at 3.
    \481\ See, e.g., BATS Order, supra note 57, at 49505; DirectEdge 
Exchanges Order, supra note 84, at 13164.
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    The third condition states that the order be executed by an 
exchange member who is unaffiliated with the member initiating the 
order. The Commission has stated that this condition is satisfied when 
automated exchange facilities, such as the 24X trading system, are 
used, as long as the design of these systems ensures that members do 
not possess any special or unique trading advantages in handling their 
orders after transmitting them to the exchange.\482\ 24X represents 
that the design of the 24X trading system ensures that no member has 
any special or unique trading advantage in the handling of its orders 
after transmitting its orders to 24X.\483\ Based on 24X's 
representation, the 24X trading system satisfies this condition.
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    \482\ See, e.g., BATS Order, supra note 57 at 49505; DirectEdge 
Exchanges Order, supra note 84, at 13164. In considering the 
operation of automated execution systems operated by an exchange, 
the Commission stated that, while there is not an independent 
executing exchange member, the execution of an order is automatic 
once it has been transmitted into the system. Because the design of 
these systems ensures that members do not possess any special or 
unique trading advantages in handling their orders after 
transmitting them to the exchange, the Commission has stated that 
executions obtained through these systems satisfy the independent 
execution condition of Rule 11a2-2(T). See 1979 Release, supra note 
477.
    \483\ See 24X 11(a) Letter, supra note 476, at 3.
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    Fourth, in the case of a transaction effected for an account with 
respect to which the initiating member or an associated person thereof 
exercises investment discretion, neither the initiating member nor any 
associated person thereof may retain any compensation in connection 
with effecting the transaction, unless the person authorized to 
transact business for the account has expressly provided otherwise by 
written contract that refers to section 11(a) of the Exchange Act and 
Rule 11a2-2(T) thereunder.\484\ 24X members trading for covered 
accounts over which they exercise investment discretion must comply 
with this condition in order to rely on the rule's exemption.\485\
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    \484\ See, e.g., BATS Order, supra note 57, at 49505; DirectEdge 
Exchanges Order, supra note 84, at 13164. In addition, Rule 11a2-
2(T)(d) requires a member or associated person authorized by written 
contract to retain compensation, in connection with effecting 
transactions for covered accounts over which such member or 
associated persons thereof exercises investment discretion, to 
furnish at least annually to the person authorized to transact 
business for the account a statement setting forth the total amount 
of compensation retained by the member or any associated person 
thereof in connection with effecting transactions for the account 
during the period covered by the statement. See 17 CFR 240.11a2-
2(T)(d). See also 1978 Release, supra note 479 (stating ``[t]he 
contractual and disclosure requirements are designed to assure that 
accounts electing to permit transaction-related compensation do so 
only after deciding that such arrangements are suitable to their 
interests'').
    \485\ 24X represents that it will advise its membership through 
the issuance of an Information Circular that those Members trading 
for covered accounts over which they exercise investment discretion 
must comply with this condition in order to rely on the rule's 
exemption. See 24X 11(a) Letter, supra note 476, at 4.
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IV. Exemption from Section 19(b) of the Exchange Act With Regard to 
FINRA Rules Incorporated by Reference

    24X proposes to incorporate by reference certain FINRA rules as 24X 
rules.\486\ Thus, for those 24X rules, Exchange Members will comply 
with the 24X rule by complying with the FINRA rule referenced therein. 
In connection with its proposal to incorporate FINRA rules by 
reference, 24X requests, pursuant to Rule 240.0-12,\487\ an exemption 
under Section 36 of the Exchange Act from the rule filing requirements 
of section 19(b) of the Exchange Act for changes to those 24X rules 
that are effected solely by virtue of a change to a cross-referenced 
FINRA rule.\488\ 24X represents in its letter that, as a condition to 
the exemption, it will provide written notice to its Members whenever a 
proposed rule change to a FINRA rule that is incorporated by reference 
is proposed and whenever any such proposed change is approved by the 
Commission or otherwise becomes effective.\489\
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    \486\ See letter from David Sassoon, General Counsel, 24X, to 
Vanessa Countryman, Secretary, Commission, dated Feb. 6, 2024 (``24X 
Exemption Request Letter''). 24X proposes to incorporate by 
reference the following FINRA rules: (1) FINRA Rule 2210 
(Communications with the Public), via 24X Rule 3.5 (Communications 
with the Public); (2) the definition of a research report in FINRA 
Rule 2241, via 24X Rule 3.13(b)(3); (3) the 12000 and 13000 Series 
of the FINRA Manual (Code of Arbitration Procedures for Customer 
Disputes and Code of Arbitration Procedures for Industry Disputes), 
via 24X Rules 9.1, 9.2, 9.4, 9.5 and 9.8; (4) FINRA Rule 2268 
(Requirements When Using Pre-dispute Arbitration Agreements for 
Customer Accounts), via 24X Rule 9.3 (Pre-dispute Arbitration 
Agreements); (5) the 14000 Series of the FINRA Manual (Code of 
Mediation Procedures), via 24X Rule 9.7 (Mediation); and (6) FINRA 
Rule 5270 (Frontrunning of Block Transactions), via 24X Rule 12.14 
(Frontrunning of Block Transactions).
    \487\ See 17 CFR 240.0-12.
    \488\ See 24X Exemption Request Letter, supra note 486.
    \489\ See 24X Exemption Request Letter, supra note 486. 24X will 
provide such notice through a posting on the same website location 
where 24X posts its own rule filings pursuant to Rule 19b-4 under 
the Exchange Act, within the required time frame. The website 
posting will include a link to the location on the FINRA website 
where FINRA's proposed rule change is posted. See id.

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[[Page 97119]]

    Using its authority under section 36 of the Exchange Act,\490\ the 
Commission is hereby granting 24X's request for an exemption, pursuant 
to section 36 of the Exchange Act, from the rule filing requirements of 
section 19(b) of the Exchange Act with respect to the rules that 24X 
proposes to incorporate by reference.\491\ This exemption is 
conditioned upon 24X providing written notice to its Members whenever 
FINRA proposes to change a rule that 24X has incorporated by reference. 
This exemption is appropriate, in the public interest and consistent 
with the protection of investors because it will promote more efficient 
use of Commission and SRO resources by avoiding duplicative rule 
filings based on simultaneous changes to identical rules of more than 
one SRO.
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    \490\ 15 U.S.C. 78mm.
    \491\ The Commission previously exempted other exchanges from 
the requirement to file proposed rule changes under Section 19(b) of 
the Exchange Act. See, e.g., IEX Order, supra note 65; ISE Mercury 
Order, supra note 75; Securities Exchange Act Release No. 68341 
(Dec. 3, 2012), 77 FR 73065, 73067 (Dec. 7, 2012) (File No. 10-207) 
(order granting the registration of Miami International Securities 
Exchange, LLC (``MIAX Exchange'')) (``MIAX Order''); Securities 
Exchange Act Release No. 79543 (Dec. 13, 2016), 81 FR 92901, 92903 
(Dec. 20, 2016) (File No. 10-227) (order granting registration of 
MIAX PEARL, LLC) (``MIAX PEARL Order''), BATS Order, supra note 57; 
DirectEdge Exchanges Order, supra note 84.
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V. Conclusion

    It is ordered that the application of 24X for registration as a 
national securities exchange be, and it hereby is, granted.
    It is furthered ordered that operation of 24X is conditioned on the 
satisfaction of the requirements below:
    A. Participation in National Market System Plans. 24X must join the 
Consolidated Tape Association Plan, the Consolidated Quotation Plan, 
and the Nasdaq UTP Plan (or any successors thereto); the National 
Market System Plan Establishing Procedures Under Rule 605 of Regulation 
NMS; the Regulation NMS Plan to Address Extraordinary Market 
Volatility; the Plan for the Selection and Reservation of Securities 
Symbols; and the National Market System Plan Governing the Consolidated 
Audit Trail.
    B. Intermarket Surveillance Group. 24X must join the Intermarket 
Surveillance Group.
    C. Minor Rule Violation Plan. A Minor Rule Violation Plan filed by 
24X under Rule 19d-1(c)(2) \492\ must be declared effective by the 
Commission.
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    \492\ 17 CFR 240.19d-1(c)(2).
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    D. Rule 17d-2 Agreement. An agreement pursuant to Rule 17d-2 \493\ 
that allocates regulatory responsibility for those matters specified 
above \494\ must be declared effective by the Commission, or 24X must 
demonstrate that it independently has the ability to fulfill all of its 
regulatory obligations.
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    \493\ 17 CFR 240.17d-2.
    \494\ See supra section III.C.3. (discussing Rule 17d-2 
agreements).
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    E. Participation in Multi-Party Rule 17d-2 Plans. 24X must become a 
party to the multi-party Rule 17d-2 agreement concerning the 
surveillance, investigation, and enforcement of common insider trading 
rules and the agreement concerning certain Regulation NMS and 
Consolidated Audit Trail rules.
    F. RSA. 24X must finalize the provisions of the RSA with its 
regulatory services provider, as described above,\495\ that will 
specify the 24X and Commission rules for which the regulatory services 
provider will provide certain regulatory functions, or 24X must 
demonstrate that it independently has the ability to fulfill all of its 
regulatory obligations.
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    \495\ See supra section III.C.2. (discussing 24X's RSA with 
FINRA).
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    It is further ordered, pursuant to section 36 of the Exchange 
Act,\496\ that 24X shall be exempted from the rule filing requirements 
of section 19(b) of the Exchange Act with respect to the FINRA rules 
that 24X proposes to incorporate by reference into its rules, subject 
to the conditions specified in this Order.
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    \496\ 15 U.S.C. 78mm.

    By the Commission.
Stephanie J. Fouse,
Assistant Secretary.
[FR Doc. 2024-28551 Filed 12-5-24; 8:45 am]
BILLING CODE 8011-01-P
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