Document ID: SEC-2023-1205-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MEMX, LLC
Posted Date: 2023-10-18T04:00Z

[Federal Register Volume 88, Number 200 (Wednesday, October 18, 2023)]
[Notices]
[Pages 71898-71903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22925]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98730; File No. SR-MEMX-2023-28]

Self-Regulatory Organizations; MEMX LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Adopt Risk 
Settings Rules Applicable to Options Trading

October 12, 2023.
    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 29, 2023, 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 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 to amend 
the Exchange's risk settings rules applicable to Options trading. The 
Exchange has designated this proposal as ``non-controversial'' pursuant 
to section 19(b)(3)(A)(iii) of the Act and provided the Commission with 
the notice required by Rule 19b-4(f)(6)(iii) thereunder. The Exchange 
has commenced operations of MEMX Options on September 27, 2023. As 
such, the Exchange proposes to implement the changes to its options 
risk controls immediately. 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 provide optional risk 
controls for Members \3\ who participate in the Exchange's options 
market (such market, ``MEMX Options'' and such Members, ``Options 
Members''), under proposed Interpretation and Policies .01 and .02 of 
Exchange Rule 21.17, and to provide clarifying language in proposed 
Interpretation and Policy .03 of Exchange Rule 21.17. In order to help 
Options Users \4\ to manage their risk, the Exchange proposes to add 
certain risk settings on MEMX Options which the Exchange already offers 
to Users in its market for equity securities (``MEMX Equities''). Under 
the proposed Interpretation and Policies .01 and .02 of Exchange Rule 
21.17, Users will have the same ability to manage their risk with 
respect to orders on the MEMX Options platform as Users currently have 
on the MEMX Equities platform (as set forth in Interpretation and 
Policies .01 and .02 of Exchange Rule 11.10). Lastly, the Exchange 
proposes to add Interpretation and Policy .03 of Exchange Rule 21.17 to 
clarify that the risk controls described in Exchange Rule 21.17 are 
meant to supplement, and not replace, a User's internal risk monitoring 
and management systems.
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    \3\ See Exchange Rule 1.5(p).
    \4\ See Exchange Rule 1.5(jj).
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    The Exchange proposes to add controls which will be exercisable and 
configurable by individual Users, and the thresholds of the controls 
may be adjusted within certain limits away from the assigned default 
values. The Exchange notes that other national securities exchanges 
have similar risk settings rules in their rulebooks.\5\ As previously 
noted, these risk settings will largely mirror the MEMX Equities 
settings rules in Interpretation and Policies .01 and .02 to Rule 
11.10. The Exchange additionally proposes to add clarifying language in 
proposed Interpretation and Policy .03 of Exchange Rule 21.17.
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    \5\ See, e.g., Interpretations and Policies .01 and .02(a) of 
Rule 11.13 of the BYX Exchange Rulebook, available at https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; 
Interpretations and Policies .01 and .02(a) of Rule 11.13 of the BZX 
Exchange Rulebook, available at https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and 
Policies .01 and .02(a) of Rule 11.10 the EDGA Exchange Rulebook, 
available at https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf; and Interpretations and Policies .01 and .02(a) 
of Rule 11.10 the EDGX Exchange Rulebook, available at https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf.
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    Specifically, in proposed Interpretation and Policy .01 of Exchange 
Rule 21.17, the Exchange proposes to offer risk settings that will 
result in orders being cancelled on entry, including: (i) controls 
related to the maximum dollar amount for a single order and the maximum 
number of contracts that may be included in a single order; (ii) 
controls related to order types or modifiers that can be utilized as 
well as when the market is crossed; (iii) controls to restrict the 
options classes for which a User may enter orders or to restrict 
activity to test symbols only; (iv) controls prohibiting the entry of 
duplicative orders; (v) controls restricting the overall rate of order 
entry; and (vi) credit controls measuring both gross and net exposure 
that warn when approached, and when breached, prevent submission of 
either all new orders or Market Orders \6\ only. The Exchange further 
proposes, in proposed Interpretation and Policy .02 of Exchange Rule 
21.17, to offer (vii) risk functionality that permits a User to

[[Page 71899]]

cancel all unexecuted orders and quotes in the MEMX Options Book, block 
the entry of any new orders or quotes, or both cancel all unexecuted 
orders and quotes and block the entry of any new orders and quotes; and 
(viii) batch cancel functionality. Each of these functionalities will 
be further described in the paragraphs below. Additionally, in proposed 
Interpretation and Policy .03 to Exchange Rule 21.17, the Exchange 
would provide clarifying language that the risk controls described in 
Exchange Rule 21.17 do not replace the User's own internal risk 
management systems, monitoring, and procedures and are not designed for 
compliance with Exchange Act Rule 15c3-5.\7\
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    \6\ See Exchange Rule 21.1(d)(2).
    \7\ 17 CFR 240.15c3-5.
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Publication of Established Numeric Values
    Current Rule 21.17 states that ``all numeric values established by 
the Exchange pursuant to this Rule will be maintained by the Exchange 
in publicly available specifications and/or published in a Regulatory 
Circular.'' As the proposed Interpretations and Policies described 
below would be contained in Rule 21.17, that language would also apply 
to such Interpretations and Policies. As a result, to the extent the 
Exchange establishes default values for certain risk settings, as 
described below, such default values would be readily ascertainable by 
Users and such Users will be able to determine whether they wish to 
maintain the default values established by the Exchange or to adopt 
different values in accordance with their overall risk mitigation 
strategy.
    The Exchange notes that other national securities exchanges 
establish numeric values pursuant to the risk settings for their 
options platforms in publicly available specifications and regulatory 
circulars.\8\
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    \8\ See, e.g., Rule 21.17 of the BZX Exchange Rulebook, 
available at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; and Rule 16.3 of the EDGX Exchange 
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf.
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Controls Related to Maximum Dollar Amount and Maximum Number of 
Contracts
    Proposed paragraph (a) of proposed Interpretation and Policy .01 of 
Exchange Rule 21.17 would provide for order entry controls related to 
(i) the maximum dollar amount for a single order, and (ii) the maximum 
number of contracts that may be included in a single order. These 
controls on maximum notional value per order and the maximum number of 
contracts per order would each be User-configurable up to a maximum 
allowable limit. The Exchange would set default values on the maximum 
notional value per order and maximum number of contracts per order.\9\ 
The System \10\ will reject or cancel an order that exceeds the User-
configured limits or which exceeds the default value if the User has 
not entered any configuration for these controls. This proposed 
paragraph (a) would provide Options Members with the same risk control 
functionality on maximum notional value per order and maximum number of 
contracts per order as is currently provided to Members of MEMX 
Equities under Interpretation and Policy .01(a) and .01(b) of Exchange 
Rule 11.10. The Exchange notes that at least one other options exchange 
provides similar functionality on its trading platform.\11\ The 
Exchange also notes that other national securities exchanges, including 
the Exchange, include this functionality on their equities 
platforms.\12\ The purpose of proposed paragraph (a) of Interpretation 
and Policy .01 of Exchange Rule 21.17 is to provide the same maximum 
notional value risk setting functionality and maximum share risk 
setting functionality for Users on MEMX Options, as is currently 
provided to Users on MEMX Equities.
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    \9\ See ``Publication of Established Numeric Values'' above for 
a description of how the Exchange will notify Members of default 
values applicable to risk settings.
    \10\ See Exchange Rule 1.5(gg).
    \11\ See, e.g., Rule 6.40P-O(a)(2)(A)(i) of the NYSE Arca 
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
    \12\ See Interpretations and Policies .01(a) and .01(b) of Rule 
11.13 of the BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; 
Interpretations and Policies .01a and .01(b) of Rule 11.13 of the 
BZX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and 
Policies .01(a) and .01(b) of Rule 11.10 of the EDGA Exchange 
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf; and Interpretations and Policies .01(a) 
and .01(b) of Rule 11.10 of the EDGX Exchange Rulebook, available 
at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policies 01(a) and 
.01(b) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
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Controls Related to Order Types or Modifiers and Specific Market 
Conditions
    Proposed paragraph (b) of Interpretation and Policy .01 of Exchange 
Rule 21.17 would provide controls designed to prevent the entry of 
specific order types and modifiers, as well as the entry of orders when 
specific market conditions occur. The Exchange would provide a User-
configurable on/off switch to allow or disallow the entry of specific 
types of orders or the entry of any orders upon the existence of 
certain market conditions. The default value would be to allow the 
entry of orders. Specifically, the Exchange at this time would provide 
an on/off switch for (i) orders marked as Intermarket Sweep Orders 
(``ISOs''), (ii) orders entered when the National Best Bid and Offer 
(``NBBO'') is crossed, and (iii) Market Orders. With respect to 
controls on ISOs, the proposal would provide MEMX Options Users with 
the same ability to allow or disallow ISOs as is currently available to 
Users of MEMX Equities under Interpretation and Policy .01(c) of 
Exchange Rule 11.10. With respect to controls to allow or cancel 
incoming orders when the market is crossed, the proposal would provide 
MEMX Options Users with the same ability to allow or disallow incoming 
orders during a crossed market as is currently available to Members of 
MEMX Equities under Exchange Rule 11.10(a)(2). To clarify, with respect 
to controls on ISO orders and orders during crossed markets, proposed 
paragraph (b) of Interpretation and Policy .01 of Exchange Rule 21.17 
would provide the same ISO and crossed market functionalities for Users 
on MEMX Options, as are currently provided to Users on MEMX Equities. 
The Exchange notes that at least one other options exchange provides 
similar functionality on its trading platform.\13\ The Exchange also 
notes that other national securities exchanges, including the Exchange, 
provide this functionality on their equities platforms.\14\
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    \13\ See, e.g., Rule 6.40P-O(a)(2)(A)(iii) of the NYSE Arca 
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
    \14\ See Interpretations and Policy .01(c) of Rule 11.13 of the 
BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; Interpretations and Policy 
.01(c) of Rule of Rule 11.13 of the BZX Exchange Rulebook, available 
at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and Policy .01(c) of Rule 
11.10 the EDGA Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf; 
Interpretations and Policy .01(c) of Rule 11.10 the EDGX Exchange 
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policy 
.01(c) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
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    With respect to controls on Market Orders, the Exchange does not 
presently provide this functionality for MEMX Equities. The Exchange 
notes that other national securities exchanges provide functionality 
for Users to apply a risk

[[Page 71900]]

setting that would reject market orders during continuous trading or 
auctions.\15\ The Exchange proposes to apply the same functionality to 
MEMX Options. Using this functionality, a User of MEMX Options would be 
allowed to reject Market Orders; the default setting would be to allow 
Market Orders. The Exchange proposes to make the risk setting User-
configurable and will not require Users to utilize the Market Order 
risk setting. The purpose of this proposed risk setting is designed to 
prevent the entry of orders that may cause undue market impact, and 
reduce the potential for disruptive, market-wide events.
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    \15\ See Exchange Act Release Nos. 97988 (July 25, 2023), 88 FR 
49513 (July 31, 2023)(SR-CboeEDGA-2023-012); 97986 (July 25, 2023), 
88 FR 49540 (July 31, 2023) (SR-CboeBYX-2023-011); 97987 (July 25, 
2023), 88 FR 49516 (July 31, 2023) (SR-CboeEDGX-2023-046); see also 
Nasdaq Rulebook Section 5(b), available at: https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-equity-6.
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Controls to Restrict Options Classes To Test Symbols
    Proposed paragraph (c) of Interpretation and Policy .01 of Exchange 
Rule 21.17 would provide controls to restrict the options classes for 
which a User may enter orders to test symbols only, which would apply 
upon order entry. The Exchange would provide a User-configurable on/off 
switch to restrict orders entered to test symbols only if configured by 
the User. The default value of such on/off switch will be to allow all 
options classes. The proposal would provide MEMX Options Users with the 
same ability to restrict options classes as is currently available to 
Users of MEMX Equities under Interpretation and Policy .01(d) of 
Exchange Rule 11.10.
    The Exchange notes that at least one other options exchange 
provides similar functionality on its trading platform.\16\ The 
Exchange also notes that other national securities exchanges, including 
the Exchange, already have controls to restrict the entry of orders in 
specifically identified securities on their equities platforms.\17\ The 
purpose of proposed paragraph (c) of Interpretation and Policy .01 of 
Exchange Rule 21.17 is to provide Users on MEMX Options the same 
functionality to restrict the types of options classes which can be 
traded, as is currently provided to Users on MEMX Equities to restrict 
the types of securities which can be traded to test symbols only.
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    \16\ See, e.g., Rule 6.40P-O(a)(2)(A)(iv) of the NYSE Arca 
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
    \17\ See Interpretations and Policy .01(d) of Rule 11.13 of the 
BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; Interpretations and Policy 
.01(d) of Rule of Rule 11.13 of the BZX Exchange Rulebook, available 
at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and Policy .01(d) of Rule 
11.10 the EDGA Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf; 
Interpretations and Policy .01(d) of Rule 11.10 the EDGX Exchange 
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policy 
.01(d) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
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Controls To Prohibit Duplicative Orders
    Proposed paragraph (d) of Interpretation and Policy .01 of Exchange 
Rule 21.17 would provide controls to prohibit duplicative orders, which 
would apply upon order entry.\18\ The Exchange would provide the User 
with the ability to set a duplicative order count and time window in 
seconds, subject to a maximum allowable limit of order count and time 
window. The Exchange would also provide default values for order count 
and time window in seconds, which would be the minimum values to be 
selected.\19\ The control would be triggered when the duplicative order 
count is exceeded within the time window specified. When such control 
is triggered, the System would reject incoming orders. Order 
cancellations would be processed normally during the time when the 
control is triggered.
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    \18\ A duplicative order is one with the same Executing Firm 
Identifier (``EFID''), side, price, size, and symbol.
    \19\ See ``Publication of Established Numeric Values'' above for 
a description of how the Exchange will notify Members of default 
values applicable to risk settings.
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    The Exchange notes that at least one other options exchange 
provides similar functionality to prevent duplicative orders on its 
trading platform.\20\ The Exchange notes that other national securities 
exchanges, including the Exchange, include controls on duplicative 
orders in their risk settings for their equities platforms.\21\ The 
proposal would provide Users of MEMX Options with the same ability to 
prohibit duplicative orders as is currently available to Users of MEMX 
Equities under Interpretation and Policy .01(e) of Exchange Rule 11.10. 
The purpose of proposed paragraph (d) of Interpretation and Policy .01 
of Exchange Rule 21.17 is to provide the same functionality to prohibit 
duplicative orders for Users on MEMX Options, as is currently provided 
to Users on MEMX Equities.
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    \20\ See, e.g., Rule 6.40P-O(a)(2)(A)(v) of the NYSE Arca 
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
    \21\ See Interpretations and Policy .01(e) of Rule 11.13 of the 
BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; Interpretations and Policy 
.01(e) of Rule of Rule 11.13 of the BZX Exchange Rulebook, available 
at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and Policy .01(f) of Rule 
11.10 the EDGA Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf; 
Interpretations and Policy .01(e) of Rule 11.10 the EDGX Exchange 
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policy 
.01(e) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
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Controls To Restrict the Overall Rate of Orders
    Proposed paragraph (e) of Interpretation and Policy .01 of Exchange 
Rule 21.17 would provide controls to restrict the overall rate of 
orders, which would apply upon order entry. The control would include a 
default value for the time increment and a default value for the number 
of orders entered during that time increment.\22\ The Exchange would 
provide the User with the ability to configure an order count and time 
window, subject to minimum and maximum values identified by the 
Exchange. The control would be triggered when the order count is 
exceeded within the time window specified. When such control is 
triggered, the System would reject incoming orders. Order cancellations 
would be processed normally during the time when the control is 
triggered. The proposal would provide Users of MEMX Options with the 
same ability to restrict the rate of orders as is currently available 
to Users of MEMX Equities under Interpretation and Policy .01(f) of 
Exchange Rule 11.10.
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    \22\ See ``Publication of Established Numeric Values'' above for 
a description of how the Exchange will notify Members of default 
values applicable to risk settings.
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    The Exchange also notes that other national securities exchanges, 
including the Exchange, already have risk settings for their Equities 
platform which allow Users to restrict the rate of orders.\23\ The

[[Page 71901]]

purpose of proposed paragraph (e) of Interpretation and Policy .01 of 
Exchange Rule 21.17 is to provide the same functionality to set the 
maximum overall rate of orders for Users on MEMX Options, as is 
currently provided to Users on MEMX Equities.
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    \23\ See, e.g., Interpretations and Policy .01(f) of Rule 11.13 
of the BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; Interpretations and 
Policy .01(f) of Rule of Rule 11.13 of the BZX Exchange Rulebook, 
available at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and Policy .01(f) of Rule 
11.10 the EDGA Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf; and 
Interpretations and Policy .01(f) of Rule 11.10 the EDGX Exchange 
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policy 
.01(f) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
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Credit Controls for Gross and Net Exposure
    Proposed paragraph (f) of Interpretation and Policy .01 of Exchange 
Rule 21.17 would provide for credit controls on gross and net exposure, 
which would apply upon order entry. The default value for each such 
controls would be set to a maximum dollar amount.\24\ Users would be 
able to configure the limit for each control, subject to a minimum 
limit amount. Users would be able to select configurable controls on 
daily gross notional exposure, either for (i) all orders or (ii) only 
Market Orders. For any bid or offer, the System will cancel or reject 
it if such bid or offer causes the User's daily gross notional exposure 
to exceed a User-configured limit. For any Market Order, the System 
will cancel or reject it if such Market Order causes the User's daily 
gross notional exposure to exceed a User-configured limit. Similarly, 
Users would be able to select configurable controls on daily net 
notional exposure, either for (i) all orders or (ii) only Market 
Orders. For any bid or offer, the System will cancel or reject it if 
such bid or offer causes the User's daily net notional exposure to 
exceed a User-configured limit. For any Market Order, the system will 
cancel or reject it if such Market Order causes the User's daily gross 
notional exposure to exceed a User-configured limit. In addition to 
blocking orders for each of the controls set forth above, the System 
will block either all new orders or Market Orders only once an 
applicable setting has been breached.
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    \24\ See ``Publication of Established Numeric Values'' above for 
a description of how the Exchange will notify Members of default 
values applicable to risk settings.
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    This proposal would provide Users of MEMX Options with the same 
ability to set configurable controls on daily net notional and daily 
gross notional exposure, for all orders or for Market Orders, as is 
currently available to Users of MEMX Equities under Interpretation and 
Policy .01(g) of Exchange Rule 11.10. The Exchange notes that other 
national securities exchanges, including the Exchange, already provide 
functionality to set configurable controls on daily net notional 
exposure and daily gross notional exposure that apply on order 
entry.\25\
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    \25\ See, e.g., Interpretations and Policy .01(h) of Rule 11.13 
of the BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; Interpretations and 
Policy .01(h) of Rule of Rule 11.13 of the BZX Exchange Rulebook, 
available at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and Policy .01(h) of Rule 
11.10 the EDGA Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf; and 
Interpretations and Policy .01(h) of Rule 11.10 the EDGX Exchange 
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policy 
.01(h) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
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    The Exchange believes that credit controls on daily net notional 
and daily gross notional exposure are of importance in the options 
markets. The purpose of proposed paragraph (f) of Interpretation and 
Policy .01 of Exchange Rule 21.17 is to provide the same functionality 
to set configurable controls on daily net notional exposure and daily 
gross notional exposure for Users on MEMX Options, as is currently 
provided to Users on MEMX Equities.
Controls for Block and Cancel Functionality
    Proposed paragraph (a) of Interpretation and Policy .02 of Exchange 
Rule 21.17 would provide functionality to (i) cancel all unexecuted 
orders and quotes in the MEMX Options Book, (ii) block the entry of any 
new orders and quotes, or (iii) both cancel all unexecuted orders and 
quotes in the MEMX Options Book and block the entry of any new orders 
and quotes. Additionally, in addition to functionality (i), (ii), and 
(iii) described in this paragraph, the Exchange will provide 
functionality to (iv) automatically cancel a User's orders to the 
extent the User loses its connection to the Exchange. This proposal 
would provide Users of MEMX Options with the same block and cancel 
functionality as is currently available to Users of MEMX Equities under 
Interpretation and Policy .02(a) of Exchange Rule 11.10. The Exchange 
notes that at least one other options exchange provides similar 
functionality on its trading platform.\26\ The purpose of proposed 
paragraph (a) of Interpretation and Policy .02 of Exchange Rule 21.17 
is to provide the same functionality to block new orders, cancel open 
orders, block new orders and cancel open orders, and cancel orders if a 
User loses connection to the Exchange for Users on MEMX Options, as is 
currently provided to Users on MEMX Equities.
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    \26\ See Rule 6.40P-O(e)(3) and 6.40P-O(e)(4) of the NYSE Arca 
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
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Controls for Mass Cancellation of Trading Interest Functionality
    Finally, the Exchange proposes paragraph (b) of Interpretation and 
Policy .02 of Exchange Rule 21.17, which would provide functionality to 
Users of MEMX Options for the mass cancellation of trading interest 
(i.e., ``batch cancel'' functionality). Users would be able to cancel 
any orders in any series of options by requesting the Exchange to 
affect such cancellation as per the instructions of the User. A User 
initiating such a request may also request that the Exchange block new 
inbound orders in any series of options. The block will remain in 
effect until the User requests the Exchange remove the block. Proposed 
paragraph (b) of Interpretation and Policy .02 of Exchange Rule 21.17 
would provide the same batch cancel functionality to Users of MEMX 
Options as is available to Users of MEMX Equities under Interpretation 
and Policy .02(b) of Exchange Rule 11.10. The Exchange notes that at 
least one other options exchange provides similar functionality on its 
trading platform.\27\ The purpose of this proposed paragraph (b) is to 
provide the same batch cancel functionality to Users of MEMX Options as 
is currently provided to Users of MEMX Equities.
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    \27\ See, e.g., Nasdaq Options Market Rulebook Chapter 3, 
Section 19, available at: https://listingcenter.nasdaq.com/RuleBook/Nasdaq/rules/Nasdaq%20Options%203.
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    The purpose of these risk settings is to provide MEMX Options Users 
with functionality to assist in risk management, which will protect 
both the User as well as the Exchange from entering potentially 
erroneous orders that could have potential market impact. The Exchange 
proposes to make these risk settings available to all Users and will 
not require Users to use any of the risk settings provided. The 
Exchange will not provide any preferential treatment to Users based 
upon their use of any, all, or none of the risk settings.
Clarifying Language On Risk Controls
    Pursuant to Rule 15c3-5 under the Act,\28\ a broker-dealer with 
market access must perform appropriate due diligence to assure that its 
controls are reasonably designed to be effective, and otherwise 
consistent with the rule.\29\

[[Page 71902]]

Use of the Exchange's proposed risk settings for MEMX Options will not 
automatically constitute compliance with Exchange or federal rules and 
responsibility for compliance with all Exchange and SEC rules remains 
with the User. In order to clarify that the risk controls proposed for 
MEMX Options are not a substitute for a User's 15c3-5 obligations, the 
Exchange proposes to provide clarifying language to this effect in 
proposed Interpretation and Policy .03 to Exchange Rule 21.17. The 
purpose of Interpretation and Policy .03 to Exchange Rule 21.17 is to 
make clear that the User, and not the Exchange, will have the full 
responsibility for ensuring that their orders comply with applicable 
securities rules, laws, and regulations, and may not rely on the risk 
settings for any such purpose. The Exchange notes that other exchanges 
have included similar clarifying language in their options rules.\30\ 
The Exchange wishes to make clear that the use of the proposed risk 
settings can replace User-managed risk management solutions, and use of 
the proposed risk settings does not automatically constitute compliance 
with Exchange rules. Rather, the Exchange intends these controls to act 
as a complement to its Members' overall suite of controls designed to 
comply with Rule 15c3-5 and other applicable securities rules, laws and 
regulations.
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    \28\ See supra note 7.
    \29\ See Division of Trading and Markets, Responses to 
Frequently Asked Questions Concerning Risk Management Controls for 
Brokers or Dealers with Market Access, available at https://www.sec.gov/divisions/marketreg/faq-15c-5-riskmanagement-controls-bd.htm.
    \30\ See, e.g., Commentary .01 to Rule 6.40P-O of the NYSE Arca 
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of section 6(b) of the Act,\31\ in general, and 
furthers the objectives of sections and 6(b)(5) of the Act,\32\ in 
particular, in that it is designed to promote just and equitable 
principles of trade, 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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    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed risk settings promote just and 
equitable principles of trade because the risk settings will be equally 
available to all Users who trade on MEMX Options and such Users can 
employ such risk settings as part of their overall risk management 
strategy. Three of the proposed risk settings will apply to orders from 
all Users and cannot be turned off, namely the duplicative order check, 
the order rate check and the maximum contracts and maximum notional 
check. However, the Exchange will establish default values for these 
risk settings that are made publicly available through a Regulatory 
Circular and/or publicly available specifications, as discussed above. 
Further, Users will be able to configure these settings to different 
levels that align with their overall risk mitigation strategy. The 
remaining risk settings are optional and Users will be able to select 
whether they would like to use any, all, or none of these risk 
settings. No preferential treatment will be provided to Users who have 
elected to use any, all, or none of the optional risk settings that are 
available. Use of the risk settings does not unfairly discriminate 
among the Users of MEMX Options because each risk setting is available 
to all Users.
    The Exchange believes the proposed risk settings will remove 
impediments to and perfect the mechanism of a free and open market and 
national market system because it provides additional functionality for 
Users to manage risk. The proposed risk settings would provide Users 
with the means to manage and control their risk profile, helping to 
ensure the proper functioning of the market. The Exchange believes that 
these controls are designed to protect investors and the public 
interest because the proposed risk mitigation functionality will aid 
Users in minimizing their financial exposure and reducing the potential 
for market-disrupting events. The risk management functionality of the 
risk settings could, in turn, enhance the integrity of trading on the 
securities markets and help to assure the stability of the financial 
system.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposal is consistent with section 
6(b)(8) of the Act \33\ in that it does not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act as explained below. The Exchange believes the 
proposal will not impose a burden on intermarket competition because 
Users of MEMX Options will be able to decide how they wish to utilize 
the risk settings offered in the context of their overall risk 
mitigation strategy. Users of MEMX Options are free to include the risk 
settings available as part of their determination of where to trade, or 
in many cases, not to use them at all. The Exchange does not believe 
that the proposed rule change imposes a burden on intramarket 
competition because the proposed risk settings will be available 
equally to all Users. As previously discussed, the proposed risk 
setting on MEMX Options which differs from the risk settings on MEMX 
Equities (namely, controls on Market Orders) has been implemented by 
other exchanges.\34\ Users would be able to choose the settings best 
suited to their risk profile, potentially enabling them to better 
manage their risk while trading on the Exchange. The Exchange believes 
that the proposed risk setting will enable Users to strengthen their 
risk management capabilities, which, in turn, may enhance the integrity 
of trading on the options markets and help to assure the stability of 
the financial system.
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    \33\ 15 U.S.C. 78f(b)(8).
    \34\ See supra note 15.
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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)(iii) of the Act \35\ and Rule 19b-4(f)(6) thereunder \36\ 
in that it effects a change that: (i) does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest.\37\
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    \35\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \36\ 17 CFR 240.19b-4(f)(6).
    \37\ In addition, Rule 19b-4(f)(6) 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) normally does 
not become operative prior to 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii), 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 so that the proposed 
rule change may become operative upon filing. In support of its

[[Page 71903]]

waiver request, the Exchange states that the proposal will further the 
interests of investors and the public by making available a risk 
functionality by which Members (and each Member's Users) can manage 
their risk on the Exchange's options platform, MEMX Options. These risk 
settings will allow each User to configure a risk profile applicable to 
their risk tolerance and as necessary in the context of their overall 
risk management program, which the Exchange believes will assist in 
maintaining the Exchange as a fair and orderly market that better 
serves the interest of investors. Additionally, as discussed above, the 
proposed changes will not impose any significant or undue burden on 
competition because Options Members can decide how they wish to utilize 
the risk settings offered in the context of their overall risk 
mitigation strategy.
    Further, the Exchange launched MEMX Options on September 27, 2023. 
Waiver of the 30-day operative delay would allow the Exchange to 
implement the proposed change to offer the proposed risk settings 
immediately, which would benefit Members and investors by enabling the 
Exchange to provide additional functionality for Options Members to 
manage their risk. The Exchange states that these controls are designed 
to protect investors and the public interest because the proposed risk 
mitigation functionality will aid Members in minimizing their financial 
exposure and reducing the potential for market-disrupting events. For 
these reasons, and because the proposal does not raise any new or novel 
issues that have not been previously considered by the Commission, the 
Commission believes that waiver of the operative delay is consistent 
with the protection of investors and the public interest. Accordingly, 
the Commission hereby waives the 30-day operative delay and designates 
the proposal operative upon filing.\38\
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    \38\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change'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: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-MEMX-2023-28 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-2023-28. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-MEMX-2023-28 and should be 
submitted on or before November 8, 2023.
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    \39\ 17 CFR 200.30-3(a)(12) and (a)(59).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22925 Filed 10-17-23; 8:45 am]
BILLING CODE 8011-01-P