Federal Register / Vol. 87, No. 92 / Thursday, May 12, 2022 / Notices 29193 

3See Securities Exchange Act Release No. 94487 

(Mar. 22, 2022), 87 FR 17349 (Mar. 28, 2022). 

4 15 U.S.C. 78s(b)(2). 

5 Id. 

6 17 CFR 200.30–3(a)(31). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 92844 

(September 1, 2021), 86 FR 50411 (September 8, 

2021). 

4See Securities Exchange Act Release No. 93383 

(October 19, 2021), 86 FR 58964 (October 25, 2021). 

5 15 U.S.C. 78s(b)(2)(B). 

6See Securities Exchange Act Release No. 93727 

(December 7, 2021), 86 FR 70874 (December 13, 

2021) (‘‘Order Instituting Proceedings’’). 

7See Securities Exchange Act Release No. 94189 

(February 8, 2022), 87 FR 8305 (February 14, 2022). 

8All comments received by the Commission on 

the proposed rule change are available on the 

Commission’s website at: https://www.sec.gov/ 

comments/sr-memx-2021-10/srmemx202110.htm. 

9See Letter from Adrian Griffiths, Head of Market 

Structure, MEMX, dated January 27, 2022 (‘‘MEMX 

Letter’’). 

10 15 U.S.C. 78f(b)(5). 

11 15 U.S.C. 78k–1(a)(1)(C). 

12See MEMX Rule 11.21(a)(1). 

13A Retail Midpoint Order would have a 

Midpoint Peg instruction (i.e., to re-price to the 

Midpoint Price in response to changes in the 

national best bid and offer). As proposed, a Retail 

Midpoint Order must have a time-in-force 

instruction of Immediate-or-Cancel. See MEMX 

Rule 11.6(o)(1) (defining Immediate-or-Cancel). See 

also MEMX Rules 11.6(h)(2) (defining Midpoint 

Peg) and 11.21(a) (defining Retail Order). 

14See proposed MEMX Rule 11.22(a)(2). 

15See infra note 24. 

16The Exchange proposes to revise MEMX Rule 

11.6(h)(2)’s definition of Midpoint Peg to provide 

that a Midpoint Peg order (other than a RML Order) 

would generally not be eligible to execute against 

a Retail Midpoint Order, provided, however, that a 

user submitting a Midpoint Peg order would be able 

to include an instruction that such order is eligible 

to execute against a Retail Midpoint Order through 

the execution process described in proposed MEMX 

Rule 11.22(c). 

17See MEMX Rule 13.8(a). 

18See MEMX Rule 13.8(b). 

19The Exchange explains that a RML Order could 

have a limit price that is less aggressive than the 

Midpoint Price, in which case it would not be 

eligible to trade with an incoming Retail Midpoint 

Order and therefore would not be included for 

Continued 

published for comment in the Federal 

Register on March 28, 2022.3

Section 19(b)(2) of the Act 4 provides 

that within 45 days of the publication of 

notice of the filing of a proposed rule 

change, or within such longer period up 

to 90 days as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding, or as to which the 

self-regulatory organization consents, 

the Commission shall either approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether the 

proposed rule change should be 

disapproved. The 45th day after 

publication of the notice for this 

proposed rule change is May 12, 2022. 

The Commission is extending the 45- 

day time period for Commission action 

on the proposed rule change. The 

Commission finds it appropriate to 

designate a longer period within which 

to take action on the proposed rule 

change so that it has sufficient time to 

consider the proposed rule change. 

Accordingly, pursuant to Section 

19(b)(2) of the Act,5 the Commission 

designates June 26, 2022, as the date by 

which the Commission shall either 

approve or disapprove, or institute 

proceedings to determine whether to 

disapprove, the proposed rule change 

(File No. SR–NYSEAMER–2022–15). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.6

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–10145 Filed 5–11–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94866; File No. SR–MEMX– 

2021–10] 

Self-Regulatory Organizations; MEMX 

LLC; Order Disapproving a Proposed 

Rule Change, as Modified by 

Amendment No. 1, To Establish a 

Retail Midpoint Liquidity Program 

May 6, 2022. 

I. Introduction 

On August 18, 2021, MEMX LLC 

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

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and 

Rule 19b–4 thereunder,2 a proposed rule 

change to establish a Retail Midpoint 

Liquidity Program (‘‘Program’’). The 

proposed rule change was published for 

comment in the Federal Register on 

September 8, 2021.3 On October 19, 

2021, the Commission designated a 

longer period within which to approve 

the proposed rule change, disapprove 

the proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change.4

On December 7, 2021, the Commission 

instituted proceedings under Section 

19(b)(2)(B) of the Act 5 to determine 

whether to approve or disapprove the 

proposed rule change.6 On January 27, 

2022, the Exchange filed Amendment 

No. 1 to the proposed rule change, 

which supersedes the original filing in 

its entirety, and on February 14, 2022, 

the Commission published for comment 

Amendment No. 1 and designated a 

longer period for Commission action on 

the proposed rule change.7 The 

Commission received comments on the 

proposed rule change,8 and the 

Exchange submitted a response to 

comments at the time it filed 

Amendment No. 1.9

This order disapproves the proposed 

rule change, as modified by Amendment 

No. 1, because, as discussed below, the 

Exchange has not met its burden under 

the Act and the Commission’s Rules of 

Practice to demonstrate that its proposal 

is consistent with the requirements of 

the Act, including, in particular, the 

requirements in Section 6(b)(5) of the 

Act that the rules of a national securities 

exchange be designed to promote just 

and equitable principles of trade and to 

protect investors and the public interest, 

and not be designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers 10 and the 

objectives in Section 11A of the 

Exchange Act, including the 

maintenance of fair and orderly 

markets.11

II. Description of the Proposal 

The Exchange proposes to establish a 

Retail Midpoint Liquidity Program to 

provide retail investors with price 

improvement opportunities at or better 

than the midpoint of the national best 

bid and offer (‘‘Midpoint Price’’). 

Specifically, the Exchange proposes to 

allow Retail Member Organizations 

(‘‘RMOs’’) 12 to submit a new type of 

order on behalf of retail investors that is 

designed to execute at the Midpoint 

Price or better (a ‘‘Retail Midpoint 

Order’’).13 Contra-side liquidity would 

be provided by (i) a new non-displayed 

Midpoint Peg order that would be 

restricted to interacting only with 

incoming Retail Midpoint Orders 

through the proposed Program (‘‘Retail 

Midpoint Liquidity Order’’ or ‘‘RML 

Order’’) 14 as well as (ii) resting liquidity 

on the Exchange’s order book that 

would offer greater price improvement 

than the Midpoint Price,15 and (iii) 

regular non-restricted Midpoint Peg 

orders that users designate as also 

eligible to interact with Retail Midpoint 

Orders (‘‘Eligible Midpoint Peg 

Orders’’).16

MEMX would disseminate a Retail 

Liquidity Identifier through its 

proprietary market data feeds, MEMOIR 

Depth 17 and MEMOIR Top,18 and the 

appropriate securities information 

processor (‘‘SIP’’) when RML Order 

interest aggregates to form at least one 

round lot for a particular security, 

provided that such interest is resting at 

the Midpoint Price 19 and is priced at 


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purposes of Retail Liquidity Identifier 

dissemination since it would not reflect interest 

available to trade with Retail Midpoint Orders. See 

Amendment No. 1, supra note 7, at 8308. 

20The Exchange explains that because RML 

Orders are proposed to be only Midpoint Peg 

orders, they would always represent at least $0.001 

price improvement over the NBB or NBO, with two 

exceptions: (1) In a locked or crossed market; and 

(2) a sub-dollar security when the security’s spread 

is less than $0.002. See id. The Exchange would 

only disseminate the Retail Liquidity Identifier for 

sub-dollar securities if the spread in the security is 

greater than or equal to $0.002, meaning the 

Midpoint Price represents at least $0.001 price 

improvement over the NBB or NBO. See id. 

21The Exchange would remove the Retail 

Liquidity Identifier when remaining RML Order 

interest no longer aggregates to form at least one 

round lot, or in situations where there is no 

actionable RML Order interest (such as when the 

market is locked or crossed). See id. at 8308–09. A 

limited exception for some exchange retail liquidity 

programs from the Quote Rule has been granted to 

allow those exchanges to disseminate identifiers 

including symbol and side, but not price or size, to 

attract retail interest and provide them with price 

improvement over displayed prices. See, e.g., 

Securities Exchange Act Release No. 93217 

(September 30, 2021) (Order Granting Application 

of Investors Exchange LLC for a Limited Exemption 

from Rule 602 of Regulation NMS for its Retail Price 

Improvement Program). 

22See MEMX Rule 11.8(b). 

23See MEMX Rule 11.6(q)(2). 

24The Exchange states that Displayed Odd Lot 

Orders and Non-Displayed Orders are the only 

types of orders that could rest on the MEMX Book 

at a price that is more aggressive than the Midpoint 

Price, as any displayed buy (sell) order that is at 

least one round lot in size would be eligible to form 

the NBB (NBO). See Amendment No. 1, supra note 

7, at 8309 n.41. 

25MEMX initially proposed that execution of a 

Retail Midpoint Order against such Displayed Odd 

Lot Orders and Non-Displayed Orders would have 

executed at the Midpoint Price irrespective of the 

prices at which such orders were ranked. Thus, any 

additional price improvement over the Midpoint 

Price would not have accrued to the retail investor’s 

Retail Midpoint Order, but rather would have 

accrued to the Displayed Odd Lot Order or NonDisplayed Order. The Exchange subsequently 

revised its proposal to accrue any price 

improvement to the incoming Retail Midpoint 

Order. See also MEMX Letter at 4. 

26MEMX initially proposed to execute Retail 

Midpoint Orders only against RML Orders, to the 

exclusion of any other available Midpoint Peg 

order. Two commenters objected to that treatment 

and were critical of those aspects of the proposal 

that would have limited the ability of retail orders 

to access all available midpoint interest and the 

extent to which that could have harmed retail 

investors. See Letter from Joseph Saluzzi and Sal 

Arnuk, Themis Trading LLC, dated December 20, 

2021, and Letter from Sean Paylor, Acadian Asset 

Management LLC, dated January 10, 2022. MEMX 

subsequently submitted Amendment No. 1 to its 

proposal to allow Eligible Midpoint Peg Orders to 

participate in the Program. Another commenter 

expressed concern about a lack of transparency in 

the rebate and fee tiering structure behind the 

proposed Program. See Letter from Reginald 

Neumann Maximillian Smythers, dated April 1, 

2022. The Exchange has not yet filed an 

accompanying filing to propose a fee schedule in 

connection with this proposal. 

27See 15 U.S.C. 78s(b)(2)(C). 

28See 15 U.S.C. 78s(b)(2)(C)(i). 

29See 15 U.S.C. 78s(b)(2)(C)(ii); see also 17 CFR 

201.700(b)(3). 

30See 17 CFR 201.700(b)(3). 

31See id. 

32See id. 

33Susquehanna Int’l Group, LLP v. Securities and 

Exchange Commission, 866 F.3d 442, 447 (D.C. Cir. 

2017). 

least $0.001 better than the national best 

bid (‘‘NBB’’) or national best offer 

(‘‘NBO’’).20 The Retail Liquidity 

Identifier would reflect the symbol and 

the side (buy and/or sell) of the RML 

Order interest but would not include the 

price or size of that interest.21

Priority and Order Execution 

Proposed MEMX Rule 11.22(c) sets 

forth the execution priority rules for the 

Program. First, an incoming Retail 

Midpoint Order would execute against 

resting liquidity priced more 

aggressively than the Midpoint Price. 

Specifically, proposed MEMX Rule 

11.22(c)(2) provides that if there is: (1) 

A Limit Order 22 of Odd Lot 23 size that 

is displayed by the MEMX system 

(‘‘Displayed Odd Lot Order’’) and that is 

priced more aggressively than the 

Midpoint Price and/or (2) an order that 

is not displayed by the MEMX system 

(‘‘Non-Displayed Order’’) and that is 

priced more aggressively than the 

Midpoint Price, resting on the MEMX 

Book,24 an incoming Retail Midpoint 

Order would first execute against any 

such orders pursuant to the Exchange’s 

standard price/time priority in 

accordance with MEMX Rules 11.9 and 

11.10 before executing against resting 

RML Orders.25

Second, after executing against resting 

liquidity priced more aggressively than 

the Midpoint Price, proposed MEMX 

Rule 11.22(c)(3) states that any unfilled 

portion of a Retail Midpoint Order 

would next execute against RML Orders 

at the Midpoint Price in time priority. 

Third, proposed MEMX Rule 

11.22(c)(4) states that after executing 

against all liquidity that is priced more 

aggressively than the Midpoint Price 

and all RML Orders, Retail Midpoint 

Orders would execute against Eligible 

Midpoint Peg Orders at the Midpoint 

Price in time priority.26

III. Discussion and Commission 

Findings 

Under Section 19(b)(2)(C) of the 

Act,27 the Commission shall approve a 

proposed rule change of a selfregulatory organization (‘‘SRO’’) if it 

finds that such proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder that are applicable to such 

organization.28 The Commission shall 

disapprove a proposed rule change if it 

does not make such a finding.29 The 

Commission’s Rules of Practice, under 

Rule 700(b)(3), state that the ‘‘burden to 

demonstrate that a proposed rule change 

is consistent with the [Exchange] Act 

and the rules and regulations issued 

thereunder . . . is on the self-regulatory 

organization that proposed the rule 

change’’ and that a ‘‘mere assertion that 

the proposed rule change is consistent 

with those requirements . . . is not 

sufficient.’’ 30

The description of a proposed rule 

change, its purpose and operation, its 

effect, and a legal analysis of its 

consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding,31 and 

any failure of an SRO to provide this 

information may result in the 

Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Act and the applicable rules 

and regulations.32 Moreover, 

‘‘unquestioning reliance’’ on an SRO’s 

representations in a proposed rule 

change is not sufficient to justify 

Commission approval of a proposed rule 

change.33

For the reasons discussed below, the 

Commission is disapproving the 

proposed rule change, as modified by 

Amendment No. 1, because the 

information before the Commission is 

insufficient to support a finding that the 

proposed rule change, as modified by 

Amendment No. 1, is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange. 

In summary, MEMX has an existing 

Midpoint Peg order type and is 

proposing a new Midpoint Peg order 

type (i.e., RML Orders) as part of the 

proposed Program. From the perspective 

of an incoming Retail Midpoint Order, 

the current and proposed Midpointpriced order types are indistinguishable 

because, under the proposed Program, 

both would result in a midpoint 

execution for the Retail Midpoint Order. 

From the perspective of market 

participants posting each order type, 

however, MEMX proposes to treat them 

differently by providing RML Orders 

with execution priority over Eligible 

Midpoint Peg Orders. This proposed 

disparate treatment raises concerns 

about whether the proposed Program is 

consistent with the Act. 

As part of its filing, MEMX bears the 

burden to provide a sufficient legal 

analysis to demonstrate how its 

proposed rules are consistent with the 

Act, which requires, among other 


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34 15 U.S.C. 78f(b)(5). 

35See MEMX Rule 11.9(a)(1). 

36See MEMX Rule 11.9(a)(2)(A) (‘‘Where orders 

to buy (sell) are entered into the System at the same 

price, the order clearly established as the first 

entered into the System at such particular price 

shall have precedence at that price, up to the 

number of shares of stock specified in the order.’’). 

37See, e.g., MEMX Rule 11.9(a)(2)(A)(i) and (ii). 

38See MEMX Rule 11.9(a)(2)(A)(iv). As proposed, 

if MEMX has a 90 share Eligible Midpoint Peg 

Order resting on its order book and later receives 

a 90 share RML Order, it would execute an 

incoming 20 share Retail Midpoint Order against 

the later-arriving RML Order even though the 

Eligible Midpoint Peg Order arrived first in time 

(and even though the 90 share RML Order was not 

of sufficient size to trigger the Retail Liquidity 

Identifier). 

39See Amendment No. 1, supra note 7, at 8309. 

40See id. at 8310. 

41See id. 

42See MEMX Rule 11.8(c)(3). Because they are 

pegged to a reference price (the Midpoint Price), 

RML Orders would be classified as Pegged Orders 

under MEMX rules and MEMX’s Pegged Order rule 

specifically provides that ‘‘Pegged Orders are not 

eligible to include a Displayed instruction.’’ Id. 

things, that MEMX’s rules be designed 

to promote just and equitable principles 

of trade and to protect investors and the 

public interest, and not permit unfair 

discrimination between customers, 

issuers, brokers, or dealers.34

To demonstrate how providing RML 

Orders with execution priority over 

Eligible Midpoint Peg Orders is 

consistent with the Act, MEMX asserts 

the following: (1) Because RML Orders 

will contribute to the Retail Liquidity 

Identifier, which is designed to attract 

retail orders to the Exchange, RML 

Orders deserve the same priority 

advantage that MEMX provides to 

displayed orders to reward displayed 

orders for contributing to price 

discovery; (2) because the Retail 

Liquidity Identifier would signal the 

presence of a buyer or seller at the 

Midpoint Price, awarding higher 

priority to RML Orders would balance 

the risks and incentives associated with 

entering RML Orders; and (3) market 

participants that post Midpoint Peg 

orders can avoid losing priority to RML 

Orders when trading with Retail 

Midpoint Orders by switching to RML 

Orders. 

The Commission is disapproving this 

proposed rule change, as modified by 

Amendment No. 1, because, as 

discussed in detail below, MEMX has 

not met its burden under the Act and 

the Commission’s Rules of Practice to 

demonstrate how its proposal to provide 

RML Orders with execution priority 

over Eligible Midpoint Peg Orders is 

consistent with the requirements of the 

Act, including, in particular, the 

requirements in Section 6(b)(5) of the 

Act that a national securities exchange’s 

rules be designed to promote just and 

equitable principles of trade and to 

protect investors and the public interest, 

and not be designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers, and the 

objectives in Section 11A of the 

Exchange Act, including the 

maintenance of fair and orderly markets. 

1. Price-Time Priority 

The rules of a national securities 

exchange specify the priority of orders 

for execution in its matching engine. 

When exchange rules award higher 

execution priority to one type of order 

over another, they must do so in a 

manner that is consistent with the Act. 

One reason to provide execution 

priority to one liquidity-providing order 

type over another may be that the 

favored order is more aggressive and 

takes more risk in a way that provides 

benefits to the market and liquidity 

seekers. An exchange may seek to attract 

those types of orders because they 

directly improve the exchange’s market 

quality and increase trading volume. 

Offering a priority advantage to the 

more aggressive order is an incentive to 

attract those types of orders to the 

exchange and may be justified as 

promoting just and equitable principles 

of trade, avoiding unfair discrimination 

between broker-dealers and between 

their customers, and contributing to the 

maintenance of fair and orderly markets 

to the extent the priority advantage 

rewards those liquidity providers for the 

risks they take and benefits they provide 

to the market when they are the first to 

provide the most aggressive widelyavailable best prices to the broadest 

population of liquidity seekers. 

MEMX Rule 11.9 establishes the 

priority of orders and describes how 

MEMX uses ‘‘price-time’’ priority to 

rank orders for execution priority. 

Under its price-time priority rule, 

MEMX affords priority to the highestpriced order to buy (or lowest-priced 

order to sell) over orders with less 

aggressive prices.35 For equally priced 

orders, MEMX’s rules specify that it will 

rank them in time priority (i.e., with the 

first order entered into the MEMX 

system having priority over laterarriving orders) 36 and it also generally 

awards priority to displayed orders over 

non-displayed orders.37

However, for its proposed Program, 

MEMX would deviate from its pricetime priority rule by always awarding 

priority to the RML Orders (i.e., 

Midpoint Peg orders that can only trade 

against Retail Midpoint Orders) over 

Eligible Midpoint Peg Orders (i.e., 

Midpoint Peg orders that will trade with 

any counterparty, including Retail 

Midpoint Orders), even though both 

orders are equally priced at the 

Midpoint Price and would otherwise 

execute in time priority outside the 

proposed Program.38 For the reasons 

further explained below, the 

Commission finds that MEMX has not 

met its burden to support a finding that 

providing RML Orders with execution 

priority over Eligible Midpoint Peg 

Orders under the circumstances MEMX 

proposes is consistent with the Act. 

a. Analogizing Non-Displayed Orders to 

Displayed Orders 

MEMX analogizes RML Orders to 

fully displayed orders (e.g., a limit order 

whose price and size is published by the 

Exchange) because they would 

contribute to the Retail Liquidity 

Identifier. Specifically, MEMX states 

that ‘‘it is appropriate to execute RML 

Orders, which contribute to the 

dissemination of the Retail Liquidity 

Identifier, ahead of Eligible Midpoint 

Peg Orders, which do not contribute to 

the dissemination of the Retail Liquidity 

Identifier and are not displayed on the 

MEMX Book.’’ 39 MEMX asserts that 

such treatment is ‘‘consistent with 

general principles of order priority on 

the Exchange . . . [where] orders that 

contribute to price discovery receive 

priority ahead of non-displayed orders 

that do not contribute to market 

transparency.’’ 40 ‘‘As such,’’ the 

Exchange continues, it ‘‘does not believe 

that the proposed order priority under 

the RML Program raises any novel 

issues for the Commission to 

consider.’’ 41

MEMX’s proposal does present a 

novel issue because MEMX seeks to 

award execution priority to a new type 

of Midpoint Peg order (i.e., RML Orders) 

over an existing type of Midpoint Peg 

order (i.e., Eligible Midpoint Peg 

Orders). First, both Eligible Midpoint 

Peg Orders and RML Orders would be 

classified as pegged orders under 

MEMX rules and MEMX’s rules 

specifically provide that pegged orders 

cannot be displayed.42 Second, RML 

Orders would not contribute to market 

transparency or price discovery in the 

same way that displayed orders do 

because RML Orders are pegged to the 

Midpoint Price that solely is derived 

from displayed quotes and does not 

impact or contribute to those displayed 

quotes. The information conveyed by 

the Retail Liquidity Identifier (i.e., the 

existence of one round lot of RML Order 

interest at the Midpoint Price) is 

different than the information on price 

and size that displayed orders provide 

to inform price discovery. Displayed 

orders help establish the best available 


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43See 17 CFR 242.612. 

44See 17 CFR 242.610(d). 

45See Amendment No. 1, supra note 7, at 8313. 

46See id. 

47See, e.g., Amendment No. 1, supra note 7, at 

8306 (‘‘[T]he Exchange believes that market makers 

and other sophisticated market participants 

generally value interacting with retail orders 

because they are smaller and not likely to be part 

of a larger parent order that can move a stock price, 

causing a loss to the market maker.’’). 48See Amendment No. 1, supra note 7, at 8313. 

prices in the market, which broadly 

benefits investors, serves the public 

interest, and facilitates fair and orderly 

markets by informing not only trading 

decisions but also security and portfolio 

valuation, prices of derivative securities 

like listed options, and the calculation 

of market indices. MEMX’s comparison 

of the broad benefits that displayed 

orders contribute to the market to the 

narrow benefit that the Retail Liquidity 

Identifier would provide to RMOs to 

justify endowing RML Orders with the 

same exception to its price-time 

execution priority rule that MEMX 

provides to displayed orders, without 

more, does not sufficiently address how 

the proposal would promote just and 

equitable principles of trade, be 

consistent with the maintenance of fair 

and orderly markets, and not permit 

unfair discrimination between 

customers, issuers, brokers, or dealers. 

Third, Midpoint Peg orders are not 

eligible to be displayed for a number of 

reasons, including, among others, 

prohibitions on the display of quotes in 

subpenny increments,43 requirements to 

avoid locking the market,44 and the 

impact that a displayed Midpoint Peg 

order would have on the Midpoint 

Price. Thus, MEMX proposes to reward 

RML Orders for doing something (i.e., 

contributing to the Retail Liquidity 

Identifier) that Eligible Midpoint Peg 

Orders simply are not permitted to do. 

Without more, MEMX has not 

sufficiently explained how providing a 

priority advantage to one type of 

Midpoint Peg order (RML Orders) over 

another (Eligible Midpoint Peg Orders), 

based on something that Eligible 

Midpoint Peg Orders are not permitted 

to do, promotes just and equitable 

principles of trade, is consistent with 

the maintenance of fair and orderly 

markets, and does not permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

b. Balancing the Risks and Incentives 

Associated With Entering RML Orders 

MEMX also states that ‘‘entering RML 

Orders involves some additional risk for 

those market participants as the Retail 

Liquidity Identifier will signal that there 

is a buyer or seller that is willing to 

trade with retail investors at the 

Midpoint Price.’’ 45 ‘‘Thus,’’ the 

Exchange states, ‘‘the RML Program 

seeks to balance the risks and incentives 

associated with entering RML 

Orders. . . .’’ 46 Consequently, MEMX 

proposes to reward RML Orders with 

execution priority over Eligible 

Midpoint Peg Orders to the same extent 

that it rewards displayed orders with 

priority over non-displayed orders. 

In general, some market participants 

may be hesitant to display regular limit 

orders on an exchange’s order book 

because of the potential for adverse 

selection when trading against 

counterparties more associated with 

price movements and the inability to 

avoid interacting with those 

counterparties. To encourage display of 

trading interest on its order book in light 

of those risks, an exchange might offer 

displayed orders enhanced execution 

priority over non-displayed orders. 

Rewarding displayed orders with 

priority over non-displayed orders 

compensates them for the risks they take 

in displaying prices that are available 

for any liquidity taker and for the 

chance of adverse selection when 

trading with certain counterparties. 

However, market participants posting 

RML Orders would face little risk (if 

any) from the Retail Liquidity Identifier 

because RML Orders are uniquely 

counterparty-restricted whereas 

displayed orders are not so restricted. In 

other words, RML Orders would 

experience significantly different risk 

compared to displayed orders on 

MEMX’s order book because MEMX 

would restrict the counterparties with 

which an RML Order could trade to 

only permit executions against retail 

orders to the exclusion of all other types 

of orders and counterparties. Market 

participants placing RML Orders would 

be specifically seeking to interact 

exclusively with retail customers 

because they likely regard retail 

customers to be attractive counterparties 

that submit smaller-sized orders that 

typically are less predictive of very 

short-term price movements.47

Despite this significant difference, 

MEMX proposes to confer the same 

execution priority benefit to restricted 

RML Orders that it grants to unrestricted 

displayed limit orders. However, 

MEMX’s proposal is designed to 

effectively eliminate the risk of adverse 

selection when trading with non-retail 

counterparties more associated with 

price movements and RML Orders 

would not be exposed to a level of 

execution risk in the Program that is 

comparable to what displayed orders 

face on MEMX’s order book. The Retail 

Liquidity Identifier and counter-party 

restriction would be a benefit to RMOs 

that permit an otherwise non-displayed 

order to advertise its presence to the 

very counterparty with which the poster 

seeks to trade (and is only permitted to 

trade with by the terms of the RML 

Order). Compounding advantages does 

not appear to balance the risks and 

incentives of entering RML Orders that 

MEMX said it seeks to balance. 

Accordingly, the Exchange’s assertion 

that the Program ‘‘seeks to balance the 

risks and incentives’’ is misplaced 

because the Retail Liquidity Identifier 

should not generate additional risks to 

RMOs commensurate with the risks 

experienced by market participants 

posting regular displayed orders on 

MEMX’s order book. Moreover, as stated 

above, market participants placing RML 

Orders would instead benefit from the 

Retail Liquidity Identifier because it is 

intended to attract the desirable retail 

counterparties with whom they 

specifically seek to trade and with 

whom, aside from the proposed 

Program, they may have fewer 

opportunities to interact. 

Consequently, MEMX is proposing to 

reward counterparty-restricted RML 

Orders for contributing to a Retail 

Liquidity Identifier that benefits them 

and MEMX has not sufficiently 

explained why those compounded 

benefits are consistent with the Act. 

Further, MEMX has not sufficiently 

explained why that different treatment 

proposed between brokers, dealers, or 

customers when such brokers, dealers, 

or customers post each different order 

type is not unfairly discriminatory. 

Without more, MEMX has not carried its 

burden to sufficiently analyze how its 

proposed disparate treatment in 

execution priority between two types of 

Midpoint Peg orders promotes just and 

equitable principles of trade, protects 

investors and the public interest, 

contributes to the maintenance of fair 

and orderly markets, and is not 

designed to permit unfair 

discrimination. 

2. Choosing Between Two Types of 

Midpoint Pegs 

MEMX states that its users are free to 

select which Midpoint Peg order type 

they wish to submit if they want to 

interact with Retail Midpoint Orders, 

and would do so knowing their 

advantages and disadvantages, thus 

making its proposal to award RML 

Orders with execution priority over 

Eligible Midpoint Peg Orders not 

unfairly discriminatory.48 As discussed 

above, MEMX is proposing disparate 

treatment between two Midpoint Peg 


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Federal Register / Vol. 87, No. 92 / Thursday, May 12, 2022 / Notices 29197 

49Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

50 In disapproving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

51 15 U.S.C. 78f(b)(5). 

52 15 U.S.C. 78s(b)(2). 

53 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Exchange Rule 1.5(p). 

4Market share percentage calculated as of April 

27, 2022. The Exchange receives and processes data 

made available through consolidated data feeds 

(i.e., CTS and UTDF). 

order types by proposing to reward RML 

Orders with execution priority over 

Eligible Midpoint Peg Orders when 

interacting with Retail Midpoint Orders. 

MEMX cannot resolve potential unfair 

discrimination in favor of RML Orders 

over Eligible Midpoint Peg Orders by 

relying on the fact that users can instead 

use RML Orders; doing so does not 

convert unfair discrimination into fair 

discrimination. When MEMX chooses to 

offer two Midpoint Peg order types but 

treats them differently, each order type 

must independently be consistent with 

the Act and any discriminatory 

treatment must also be consistent with 

the Act. The consistency of one order 

type with the requirements of the Act is 

independent of, and cannot be 

contingent on, the existence of a 

substitute. 

3. MEMX Has Failed To Meet Its Burden 

When assessing this proposed rule 

change, as modified by Amendment No. 

1, the Commission must consider its 

consistency with the Act and the 

applicable rules and regulations issued 

thereunder. As stated above, under the 

Commission’s Rules of Practice, the 

‘‘burden to demonstrate that a proposed 

rule change is consistent with the 

Exchange Act and the rules and 

regulations issued thereunder . . . is on 

the self-regulatory organization that 

proposed the rule change.’’ 49 For the 

foregoing reasons, the Exchange has not 

met its burden to demonstrate that it 

would be consistent with the Act for the 

Exchange to provide a priority 

advantage to one type of midpoint peg 

(RML Orders) over another type of 

midpoint peg (Eligible Midpoint Peg 

Orders). As a result, the Commission 

does not have sufficient information to 

find that the Exchange’s proposal would 

promote just and equitable principles of 

trade and protect investors and the 

public interest, not permit unfair 

discrimination between customers, 

issuers, brokers, or dealers, and promote 

the maintenance of fair and orderly 

markets. Accordingly, the Commission 

must disapprove the proposal because 

the Exchange has not met its burden to 

demonstrate that the proposal is 

consistent with the Act, including 

Section 6(b)(5) and Section 11A of the 

Act.50

IV. Conclusion 

For the reasons set forth above, the 

Commission does not find, pursuant to 

Section 19(b)(2) of the Act, that the 

proposed rule change, as modified by 

Amendment No. 1, is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange, and in particular, with 

Section 6(b)(5) of the Act.51

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,52 that the 

proposed rule change (SR–MEMX– 

2021–10), as modified by Amendment 

No. 1, is disapproved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.53

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–10152 Filed 5–11–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94863; File No. SR–MEMX– 

2022–11] 

Self-Regulatory Organizations; MEMX 

LLC; Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend the Exchange’s Fee 

Schedule 

May 6, 2022. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on April 29, 

2022, MEMX LLC (‘‘MEMX’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing with the 

Commission a proposed rule change to 

amend the Exchange’s fee schedule 

applicable to Members 3 (the ‘‘Fee 

Schedule’’) pursuant to Exchange Rules 

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

to implement the changes to the Fee 

Schedule pursuant to this proposal on 

May 2, 2022. The text of the proposed 

rule change is provided in Exhibit 5. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to amend the Fee Schedule to: 

(i) Adopt a new volume-based pricing 

incentive, referred to by the Exchange as 

the Step-Up Additive Rebate, in which 

a qualifying Member will receive an 

additive rebate for executions of certain 

orders in securities priced at or above 

$1.00 per share that add displayed 

liquidity to the Exchange; (ii) reduce the 

rebate provided under Liquidity 

Provision Tier 1 for executions of orders 

in securities priced at or above $1.00 per 

share that add displayed liquidity to the 

Exchange; and (iii) reduce the rebate 

provided under DLI Tier 2 for 

executions of orders in securities priced 

at or above $1.00 per share that add 

displayed liquidity to the Exchange. 

The Exchange first notes that it 

operates in a highly competitive market 

in which market participants can 

readily direct order flow to competing 

venues if they deem fee levels at a 

particular venue to be excessive or 

incentives to be insufficient. More 

specifically, the Exchange is only one of 

16 registered equities exchanges, as well 

as a number of alternative trading 

systems and other off-exchange venues, 

to which market participants may direct 

their order flow. Based on publicly 

available information, no single 

registered equities exchange currently 

has more than approximately 16% of 

the total market share of executed 

volume of equities trading.4 Thus, in 

such a low-concentrated and highly 

competitive market, no single equities 


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