Document ID: SEC-2022-1337-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MEMX, LLC
Posted Date: 2022-10-12T04:00Z

[Federal Register Volume 87, Number 196 (Wednesday, October 12, 2022)]
[Notices]
[Pages 61637-61640]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22082]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95986; File No. SR-MEMX-2022-29]

Self-Regulatory Organizations; MEMX LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend the 
Exchange's Fee Schedule

October 5, 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 September 30, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposed rule change 
to amend the Exchange's fee schedule applicable to Members \3\ (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 October 3, 2022. The text of the proposed rule 
change is provided in Exhibit 5.
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    \3\ See Exchange Rule 1.5(p).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
    The purpose of the proposed rule change is to amend the Fee 
Schedule to modify the required criteria under the Step-Up Additive 
Rebate.
    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 16.5% 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 exchange 
possesses significant pricing power in the execution of order flow, and 
the Exchange currently represents approximately 3% of the overall 
market share.\5\ The Exchange in particular operates a ``Maker-Taker'' 
model whereby it provides rebates to Members that add liquidity to the 
Exchange and charges fees to Members that remove liquidity from the 
Exchange. The Fee Schedule sets forth the standard rebates and fees 
applied per share for orders that add and remove liquidity, 
respectively. Additionally, in response to the competitive environment, 
the Exchange also offers tiered pricing, which provides Members with 
opportunities to qualify for higher rebates or lower fees where certain 
volume criteria and thresholds are met. Tiered pricing provides an 
incremental incentive for Members to strive for higher tier levels, 
which provides increasingly higher benefits or discounts for satisfying 
increasingly more stringent criteria.
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    \4\ Market share percentage calculated as of September 29, 2022. 
The Exchange receives and processes data made available through 
consolidated data feeds (i.e., CTS and UTDF).
    \5\ Id.
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    The Exchange currently offers the Step-Up Additive Rebate under 
which the Exchange provides an additive rebate of $0.0002 per share in 
addition to the otherwise applicable rebate for a qualifying Member's 
executions of certain orders in securities priced at or above $1.00 per 
share that add displayed liquidity to the Exchange (``Added Displayed 
Volume'').\6\ Currently, a Member qualifies for the Step-Up Additive 
Rebate by achieving one of the following two alternative criteria: (1) 
a Step-Up ADAV \7\ (excluding Retail Orders) from April 2022 that is 
equal to or greater than 0.07% of the TCV; \8\ or (2) a Step-Up ADAV 
from July 2022 that is equal to or greater than 0.05% of the TCV and an 
ADAV that is equal to or greater than 0.30% of the TCV. The Exchange 
notes that the Step-Up Additive Rebate is

[[Page 61638]]

designed to encourage Members that add liquidity on the Exchange to 
increase their liquidity-adding order flow, which benefits all Members 
by providing greater execution opportunities on the Exchange.
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    \6\ The Step-Up Additive Rebate applies to all executions of 
Added Displayed Volume other than: (i) orders that establish the 
national best bid or offer (``NBBO'') if such Member qualifies for 
the Exchange's NBBO Setter Tier; and (ii) Retail Orders. A ``Retail 
Order'' is an agency or riskless principal order that meets the 
criteria of FINRA Rule 5320.03 that originates from a natural person 
and is submitted to the Exchange by a Retail Member Organization, 
provided that no change is made to the terms of the order with 
respect to price or side of market and the order does not originate 
from a trading algorithm or any other computerized methodology. See 
Exchange Rule 11.21(a).
    \7\ As set forth on the Fee Schedule, ``ADAV'' means the average 
daily added volume calculated as the number of shares added per day, 
which is calculated on a monthly basis, and ``Step-Up ADAV'' means 
ADAV in the relevant baseline month subtracted from current ADAV.
    \8\ As set forth on the Fee Schedule, ``TCV'' means total 
consolidated volume calculated as the volume reported by all 
exchanges and trade reporting facilities to a consolidated 
transaction reporting plan for the month for which the fees apply.
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    Now, the Exchange proposes to modify the required criteria such 
that a Member would now qualify for the Step-Up Additive Rebate by 
achieving one of the following two alternative criteria: (1) an ADAV 
that is equal to or greater than 0.45% of the TCV; or (2) a Step-Up 
ADAV from August 2022 that is equal to or greater than 0.10% of the TCV 
and an ADAV that is equal to or greater than 0.30% of the TCV. Thus, 
the proposed change would: (i) replace the first of the two alternative 
criteria (i.e., the April 2022 Step-Up ADAV threshold) with an overall 
ADAV threshold, and (ii) modify the second of such alternative criteria 
(i.e., the July 2022 Step-Up ADAV and overall ADAV thresholds) to 
increase the Step-Up ADAV threshold, reference a more recent baseline 
month for such threshold, and keep the overall ADAV threshold intact. 
As the proposed new alternative criteria are based on Step-Up ADAV and/
or overall ADAV thresholds, such criteria are intended to encourage 
Members to maintain or increase their liquidity-adding order flow, 
thereby contributing to a deeper and more liquid market to the benefit 
of all Members. While the Exchange has no way of predicting with 
certainty how the proposed new criteria will impact Member activity, 
the Exchange expects that more Members will strive to qualify for such 
tier than currently qualify, resulting in the submission of additional 
order flow to the Exchange. The Exchange is not proposing to change the 
rebate provided under the Step-Up Additive Rebate.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\9\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\10\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among its Members and other persons using its facilities 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    As discussed above, the Exchange operates in a highly fragmented 
and competitive market in which market participants can readily direct 
order flow to competing venues if they deem fee levels at a particular 
venue to be excessive or incentives to be insufficient, and the 
Exchange represents only a small percentage of the overall market. The 
Commission and the courts have repeatedly expressed their preference 
for competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and also recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \11\
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    \11\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005).
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow or discontinue to reduce use of certain categories of 
products, in response to new or different pricing structures being 
introduced into the market. Accordingly, competitive forces constrain 
the Exchange's transaction fees and rebates, and market participants 
can readily trade on competing venues if they deem pricing levels at 
those other venues to be more favorable. The Exchange believes the 
proposal reflects a reasonable and competitive pricing structure 
designed to incentivize market participants to direct additional order 
flow, including liquidity-adding orders, to the Exchange, which the 
Exchange believes would enhance liquidity and market quality on the 
Exchange to the benefit of all Members.
    The Exchange notes that volume-based incentives and discounts have 
been widely adopted by exchanges, including the Exchange, and are 
reasonable, equitable and not unfairly discriminatory because they are 
open to all members on an equal basis and provide additional benefits 
or discounts that are reasonably related to the value to an exchange's 
market quality associated with higher levels of market activity, such 
as higher levels of liquidity provision and/or growth patterns, and the 
introduction of higher volumes of orders into the price and volume 
discovery process. The Exchange believes that the Step-Up Additive 
Rebate, as modified by the proposed changes to the required criteria 
under such tier, is reasonable, equitable and not unfairly 
discriminatory for these same reasons, as such tier would continue to 
provide Members with an incremental incentive to achieve certain volume 
thresholds on the Exchange, is available to all Members on an equal 
basis, and, as described above, is designed to encourage Members to 
maintain or increase their order flow, including liquidity-adding 
orders, to the Exchange in order to qualify for an additive rebate for 
certain executions of Added Displayed Volume, thereby contributing to a 
deeper and more liquid market to the benefit of all Members. The 
Exchange also believes that the proposed changes to the required 
criteria under the Step-Up Additive Rebate reflect a reasonable and 
equitable allocation of fees and rebates, as the Exchange believes that 
the additive rebate for qualifying executions of Added Displayed Volume 
under such tier remains commensurate with the corresponding required 
criteria under such tier and is reasonably related to the market 
quality benefits that such tier is designed to achieve, as described 
above. That is, such additive rebate reasonably reflects the difficulty 
in achieving the corresponding criteria, as modified.
    For the reasons discussed above, the Exchange submits that the 
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of 
the Act \12\ in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among its Members and other 
persons using its facilities and is not designed to unfairly 
discriminate between customers, issuers, brokers, or dealers. As 
described more fully below in the Exchange's statement regarding the 
burden on competition, the Exchange believes that its transaction 
pricing is subject to significant competitive forces, and that the 
proposed fees and rebates described herein are appropriate to address 
such forces.
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    \12\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposal will result in any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Instead, as discussed above, 
the proposal is intended to incentivize market participants to direct 
additional order flow, including liquidity-adding orders, to the 
Exchange, thereby enhancing liquidity and market quality on the 
Exchange to the benefit of all Members. As a result, the Exchange 
believes the proposal would enhance its competitiveness as a market 
that attracts

[[Page 61639]]

actionable orders, thereby making it a more desirable destination venue 
for its customers. For these reasons, the Exchange believes that the 
proposal furthers the Commission's goal in adopting Regulation NMS of 
fostering competition among orders, which promotes ``more efficient 
pricing of individual stocks for all types of orders, large and 
small.'' \13\
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    \13\ See supra note 11.
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Intramarket Competition
    As discussed above, the Exchange believes that the proposal would 
incentivize Members to submit additional order flow, including 
liquidity-adding orders, to the Exchange, thereby enhancing liquidity 
and market quality on the Exchange to the benefit of all Members, as 
well as enhancing the attractiveness of the Exchange as a trading 
venue, which the Exchange believes, in turn, would continue to 
encourage market participants to direct additional order flow to the 
Exchange. Greater liquidity benefits all Members by providing more 
trading opportunities and encourages Members to send additional orders 
to the Exchange, thereby contributing to robust levels of liquidity, 
which benefits all market participants. The opportunity to qualify for 
the proposed new alternative criteria under the Step-Up Additive 
Rebate, and thus receive the additive rebate for qualifying executions 
of Added Displayed Volume, would continue to be available to all 
Members that meet the associated volume requirements in any month. As 
described above, the Exchange believes that the proposed new required 
criteria under such tier remain commensurate with the additive rebate 
provided for qualifying executions of Added Displayed Volume under such 
tier and are reasonably related to the enhanced liquidity and market 
quality that such tier is designed to promote. For the foregoing 
reasons, the Exchange believes the proposed changes would not impose 
any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
Intermarket Competition
    As noted above, the Exchange operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. Members have numerous 
alternative venues that they may participate on and direct their order 
flow to, including 15 other equities exchanges and numerous alternative 
trading systems and other off-exchange venues. As noted above, no 
single registered equities exchange currently has more than 
approximately 16.5% of the total market share of executed volume of 
equities trading. Thus, in such a low-concentrated and highly 
competitive market, no single equities exchange possesses significant 
pricing power in the execution of order flow. Moreover, the Exchange 
believes that the ever-shifting market share among the exchanges from 
month to month demonstrates that market participants can shift order 
flow or discontinue to reduce use of certain categories of products, in 
response to new or different pricing structures being introduced into 
the market. Accordingly, competitive forces constrain the Exchange's 
transaction fees and rebates, including with respect to executions of 
Added Displayed Volume, and market participants can readily choose to 
send their orders to other exchange and off-exchange venues if they 
deem fee levels at those other venues to be more favorable. As 
described above, the proposed changes represent a competitive proposal 
through which the Exchange is seeking to encourage additional order 
flow, including liquidity-adding orders, to the Exchange through a 
volume-based tier, which have been widely adopted by exchanges, 
including the Exchange. Accordingly, the Exchange believes the proposal 
would not burden, but rather promote, intermarket competition by 
enabling it to better compete with other exchanges that offer similar 
pricing incentives to market participants.
    Additionally, the Commission has repeatedly expressed its 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. Specifically, 
in Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \14\ The fact 
that this market is competitive has also long been recognized by the 
courts. In NetCoalition v. SEC, the DC Circuit stated as follows: 
``[n]o one disputes that competition for order flow is `fierce.' . . . 
As the SEC explained, `[i]n the U.S. national market system, buyers and 
sellers of securities, and the broker-dealers that act as their order-
routing agents, have a wide range of choices of where to route orders 
for execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .''.\15\ Accordingly, the Exchange does not believe its 
proposed pricing changes impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \14\ See supra note 11.
    \15\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

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

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \16\ and Rule 19b-4(f)(2) \17\ thereunder.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments:

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MEMX-2022-29 on the subject line.

Paper Comments:

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 61640]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-MEMX-2022-29. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MEMX-2022-29 and should be submitted on 
or before November 2, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22082 Filed 10-11-22; 8:45 am]
BILLING CODE 8011-01-P