Document ID: SEC-2020-1519-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MEMX, LLC
Posted Date: 2020-09-22T04:00Z

[Federal Register Volume 85, Number 184 (Tuesday, September 22, 2020)]
[Notices]
[Pages 59580-59582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20841]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89899; File No. SR-MEMX-2020-07]

Self-Regulatory Organizations; MEMX LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend the Manner 
in Which the Exchange Will Designate Members To Participate in Its 
Mandatory Disaster Recovery Testing for Calendar Year 2020

September 16, 2020.
    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 4, 2020, MEMX LLC (``MEMX'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Exchange filed the 
proposal as a ``non-controversial'' proposed rule change pursuant to 
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 proposed rule change to amend the manner in which the Exchange will 
designate certain Members to participate in its mandatory disaster 
recovery testing, pursuant to Regulation SCI and MEMX Rule 2.4 for 
calendar year 2020. The text of the proposed rule change is provided in 
Exhibit 5.

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

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

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

1. Purpose
    The Exchange proposes to amend MEMX Rule 2.4, Mandatory 
Participation in Testing of Backup Systems, so as to revise how the 
Exchange will designate certain Members to participate in mandatory 
disaster recovery pursuant to Regulation SCI and MEMX Rule 2.4 for 
calendar year 2020. Regulation SCI requires MEMX, as an SCI entity, to 
maintain business continuity and disaster recovery plans that provide 
for resilient and geographically diverse backup and recovery 
capabilities that are reasonably designed to achieve two-hour 
resumption of critical SCI systems and next business day resumption of 
other SCI systems following a wide-scale disruption.\5\
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    \5\ Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014).
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    Regulation SCI and MEMX Rule 2.4 also require MEMX to designate 
certain Members \6\ to participate in business continuity and disaster 
recovery testing in a manner specified by MEMX and at a frequency of 
not less than once every 12 months.\7\ Such testing is part of an 
industry-wide test, which is next scheduled for October 24, 2020.
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    \6\ The term ``Member'' refers to any registered broker or 
dealer that has been admitted to membership in the Exchange. A 
Member will have the status of a member of the Exchange as that term 
is defined in Section 3(a)(3) of the Act. Membership may be granted 
to a sole proprietor, corporation, limited liability company or 
other organization which is a registered broker or dealer pursuant 
to Section 15 of the Act, and which has been approved by the 
Exchange. See MEMX Rule 1.5(p).
    \7\ MEMX Rule 2.4(a) and (b).
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    MEMX Rule 2.4 governs mandatory participation in testing of the 
Exchange's backup systems, and states that the Exchange will designate 
Members that account for a specified percentage of executed volume on 
MEMX as required to connect to the Exchange's backup systems and 
participate in functional and performance testing of such system.\8\ 
MEMX is not currently operational and is not expecting to have 
sufficient trading data on which to base its Member designation prior 
to the October 24, 2020 test. Thus, as currently written, Rule 2.4 
would not permit the Exchange to designate any Members to participate 
in the industry-wide test for 2020 because no Members will have

[[Page 59581]]

sufficient trading volume on MEMX upon which a designation can be 
based.
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    \8\ Id.
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    To address the unique circumstances for disaster recovery testing 
in 2020, the year in which MEMX will become operational, the Exchange 
proposes to add new paragraph (c). Proposed paragraph (c) would provide 
that for calendar year 2020, notwithstanding paragraph (b) which 
assigns the Exchange responsibility of ``identifying Members that 
account for a meaningful percentage of the Exchange's overall volume,'' 
the Exchange will instead designate at least three Members who have a 
meaningful percentage of trading volumes in NMS Stocks on other equity 
exchanges. This would allow the Exchange to identify Members for 
industry-wide disaster recovery testing in the absence of metrics that 
will be used in ordinary course to designate such firms.
    MEMX believes that designating at least three Members who are 
likely already to be participating in the industry-wide test by virtue 
of their trading activities on other exchanges is likely to reduce the 
burdens associated with being designated for disaster recovery testing 
by MEMX in absence of significant trading volumes on the Exchange. 
Moreover, to reduce the burdens on designated Members the Exchange 
proposes, where possible, to designate firms that have already 
established connections to its backup systems. This is intended to 
address the ``notice'' requirements in the existing Rule 2.4.\9\ The 
Exchange believes that designating three or more such firms is 
reasonably designed to provide the minimum necessary for the 
maintenance of fair and orderly markets in the event of the activation 
of such plans. The Exchange notes that the Long-Term Stock Exchange, 
Inc. (``LTSE'') has adopted a similar rule for 2020 given its recent 
launch and the same inability to follow its normal designation 
procedures.\10\
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    \9\ Pursuant to Rule 2.4(b), after 2020, the Exchange will 
provide at least six months prior notice to a Member that is 
designated for mandatory testing. See MEMX Rule 2.4(b).
    \10\ See LTSE Rule 2.250(d).
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    MEMX intends to notify Members of their designation for disaster 
recovery testing no later than September 10, 2020. With respect to 
industry-wide disaster recovery testing in 2021 and beyond, the 
Exchange will issue one or more regulatory circulars establishing the 
standards to be used for determining which Members contribute a 
meaningful percentage of the Exchange's overall volume and thus are 
required to participate in functional and performance testing. Such 
standards will be informed by the Exchange's actual market and trading 
data, in accordance with MEMX Rule 2.4(b).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\12\ in particular, in that it is designed to 
prevent fraudulent and manipulative practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general to 
protect investors and the public interest.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    MEMX believes that, in the absence of sufficient trading data on 
the Exchange, its proposed methodology of designating Members who have 
meaningful levels of trading activity on other exchanges and who have 
established connectivity to the Exchange's backup systems is consistent 
with the protection of investors and the public interest. The Exchange 
further believes that the proposed rule change will ensure that the 
Members necessary to ensure the maintenance of fair and orderly markets 
in the event of the activation of the Exchange's disaster recovery 
plans have been designated consistent with MEMX Rule 2.4 and Rule 1004 
of Regulation SCI. Specifically, the proposal will address the unique 
circumstances of industry-wide testing taking place within a short time 
of when the Exchange commences operations. The Exchange believes that 
the proposed rule change balances the objectives of having Members 
participate in industry-wide disaster recovery testing, including 
MEMX's backup systems, and the burdens on such Members who, at the time 
of designation, will not have traded on MEMX.
    As set forth in the SCI Adopting Release, ``SROs have the 
authority, and legal responsibility, under Section 6 of the Exchange 
Act, to adopt and enforce rules (including rules to comply with 
Regulation SCI's requirements relating to BC/DR testing) applicable to 
their members or participants that are designed to, among other things, 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public 
interest.'' \13\ The Exchange believes that this proposal is consistent 
with such authority and legal responsibility.
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    \13\ See supra note 5 at 72350.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes its proposed rule change would not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes that the proposed rule change promotes fair competition among 
brokers and dealers and exchanges by ensuring the Exchange can 
designate Members to participate in mandatory disaster recovery testing 
pursuant to Regulation SCI for calendar year 2020. The Exchange 
believes that designating three or more such firms is reasonably 
designed to provide the minimum necessary for the maintenance of fair 
and orderly markets in the event of the activation of such plans, 
thereby promoting intermarket competition between exchanges in 
furtherance of the principles of Section 11(a)(1) of the Act.\14\ The 
Exchange notes that the LTSE has adopted a similar rule for 2020.\15\
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    \14\ 15 U.S.C. 78k-1(a)(1).
    \15\ See supra note 10.
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    With respect to intramarket competition, the proposed rule change 
seeks to reduce the burdens on Members by only designating Members who 
are likely already participating in the industry-wide test by virtue of 
their trading activities on other exchanges. Under the proposed rule 
change, the Exchange will designate firms that have already established 
connections to the Exchange's backup systems. Consequently, MEMX does 
not believe that the proposed rule change would impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the Act.

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.

[[Page 59582]]

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\19\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay to permit the 
Exchange to notify Members of their designation earlier than would be 
possible without a waiver of the operative delay. The Commission 
believes that waiver of the operative delay is consistent with the 
protection of investors and the public interest because it would 
provide designated members additional time to receive notice of their 
designation, and thus prepare for disaster recovery testing with the 
Exchange's backup systems. Accordingly, the Commission waives the 30-
day operative delay and designates the proposal operative upon 
filing.\20\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 will 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 rule-comments@sec.gov. Please 
include File Number SR-MEMX-2020-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-MEMX-2020-07. 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-2020-07 and should be submitted on 
or before October 13, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20841 Filed 9-21-20; 8:45 am]
BILLING CODE 8011-01-P