Document ID: SEC-2023-0832-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MEMX, LLC
Posted Date: 2023-08-04T04:00Z

[Federal Register Volume 88, Number 149 (Friday, August 4, 2023)]
[Notices]
[Pages 51876-51879]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16622]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98028; File No. SR-MEMX-2023-14]

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 Certain Options Members To 
Participate in its Mandatory Disaster Recovery Testing for Calendar 
Year 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 July 25, 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, 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 manner in which the Exchange will designate certain 
Options Members to participate in mandatory

[[Page 51877]]

disaster recovery testing, pursuant to Regulation SCI and MEMX Rule 2.4 
for calendar year 2023. 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
    In preparation for the launch of the Exchange's options market 
(``MEMX Options''),\3\ the Exchange proposes to amend MEMX Rule 2.4, 
Mandatory Participation in Testing of Backup Systems, to specify how 
the Exchange will designate certain Options Members \4\ to participate 
in mandatory disaster recovery pursuant to Regulation SCI and MEMX Rule 
2.4 for calendar year 2023. 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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    \3\ On August 8, 2022, the Commission approved SR-MEMX-2022-10, 
which proposed rules for the trading of options on the Exchange. See 
Securities Exchange Act Release No. 95445 (August 9, 2022), 87 FR 
49884 (August 12, 2022) (SR-MEMX-2022-010). The Exchange plans to 
launch MEMX Options in September of 2023.
    \4\ As of July 18, 2023, 15 firms have filed paperwork with the 
Exchange making them eligible for MEMX Options membership.
    \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 14, 2023.
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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). The term ``Options Member'' means a 
firm, or organization that is registered with the Exchange pursuant 
to Chapter 17 of the Exchange's Rules for purposes of participating 
in options trading on MEMX Options as an ``Options Order Entry 
Firm'' or ``Options Market Maker''. See MEMX Rule 16.1.
    \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 Options, which is scheduled to launch in September 2023, is not 
expecting to have sufficient trading data on which to base its Options 
Member designation prior to the October 14, 2023 test. Thus, as 
currently written, Rule 2.4 would not permit the Exchange to designate 
any Options Members to participate in the industry-wide test for 2023 
because no Options Members will have sufficient trading volume on MEMX 
Options 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 2023, the year in which MEMX Options will become operational, the 
Exchange proposes to amend paragraph (c). Proposed paragraph (c) would 
provide that for calendar year 2023 with respect to MEMX Options, 
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 Options Members who have a meaningful percentage of trading 
volumes in options on other options exchanges. This would allow the 
Exchange to identify Options 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 Options Members who 
are likely already to be participating in the industry-wide test by 
virtue of their trading activities on MEMX and other exchanges is 
likely to reduce the burdens associated with being designated for 
disaster recovery testing by MEMX Options in absence of significant 
trading volumes on the Exchange. Moreover, to reduce the burdens on 
designated Options 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.
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    \9\ Pursuant to Rule 2.4(b), 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).
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    MEMX intends to notify Options Members of their designation for 
disaster recovery testing no later than October 1, 2023. With respect 
to industry-wide disaster recovery testing in 2024 and beyond, the 
Exchange will issue one or more regulatory circulars establishing the 
standards to be used for determining which Options 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,\10\ in general, and furthers the objectives of section 
6(b)(5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    MEMX believes that, in the absence of sufficient trading data on 
MEMX Options, its proposed methodology of designating Options 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

[[Page 51878]]

believes that the proposed rule change will ensure that the Options 
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 MEMX Options commencing operations. The Exchange believes that the 
proposed rule change balances the objectives of having Options Members 
participate in industry-wide disaster recovery testing, including MEMX 
Options' backup systems, and the burdens on such Options Members who, 
at the time of designation, will not have traded on MEMX Options.
    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.'' \12\ The Exchange believes that this proposal is consistent 
with such authority and legal responsibility.
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    \12\ See supra note 7 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 Options Members to participate in mandatory disaster recovery 
testing pursuant to Regulation SCI for calendar year 2023. 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.\13\ The 
Exchange notes that MEMX and the Long-Term Stock Exchange, Inc. 
(``LTSE'') adopted similar rules for 2020 in advance of launches that 
year.\14\
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    \13\ 15 U.S.C. 78k-1(a)(1).
    \14\ See Securities Exchange Act Release No. 89899 (September 
16, 2020), 85 FR 59580 (September 22, 2020) (SR-MEMX-2020-07), and 
Release No. 89216 (July 2, 2020), 85 FR 41259 (July 9, 2020) (SR-
LTSE-2020-10).
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    With respect to intramarket competition, the proposed rule change 
seeks to reduce the burdens on Members by only designating Options 
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.

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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6)(iii). 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 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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    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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-MEMX-2023-14 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-2023-14. 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-2023-14 and should be 
submitted on or before August 25, 2023.

[[Page 51879]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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    Dated: July 31, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16622 Filed 8-3-23; 8:45 am]
BILLING CODE 8011-01-P