Document ID: SEC-2022-0648-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MEMX, LLC
Posted Date: 2022-05-10T04:00Z

[Federal Register Volume 87, Number 90 (Tuesday, May 10, 2022)]
[Notices]
[Pages 28064-28077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-09958]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94847; File No. SR-MEMX-2022-10]

Self-Regulatory Organizations; MEMX LLC; Notice of Filing of a 
Proposed Rule Change To Adopt Rules To Govern the Trading of Options on 
the Exchange for a New Facility Called MEMX Options

May 4, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 21, 2022, MEMX LLC (``MEMX'' or the ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``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 change 
to adopt rules to govern the trading of options on the Exchange. 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

Purpose
    The Exchange is proposing to adopt a series of rules in connection 
with MEMX Options, which will be a facility of the Exchange. MEMX 
Options will operate an electronic trading system developed to trade 
options (the ``System'') leveraging the Exchange's existing robust and 
resilient technology platform that it uses to operate its cash equities 
market today. The fundamental premise of the proposal is that the 
Exchange will operate its options market much as it operates its cash 
equities market today and in a manner similar to that of other options 
exchanges, with a simplified suite of conventional order types and 
functionality that is designed to provide for an efficient, robust, and 
transparent order matching process. Much of the proposed functionality 
for MEMX Options is substantially similar to that offered by other 
options exchanges, primarily Cboe BZX Exchange, Inc. (``BZX''). Thus, 
the Exchange proposes to adopt rules applicable to MEMX Options that 
are substantively identical or substantially similar to the approved 
rules of BZX applicable to the BZX options market (``BZX Options''), 
with certain proposed changes or omissions that are described below.
    The System will provide for the electronic display and execution of 
orders in price/time priority without regard to the status of the 
entities that are entering orders. All Exchange Members will be 
eligible to participate in MEMX Options provided that the Exchange 
specifically authorizes them to trade in the System. The System will

[[Page 28065]]

provide a routing service for orders when trading interest is not 
present on MEMX Options and will comply with all applicable securities 
laws and regulations and the obligations of the Options Order 
Protection and Locked/Crossed Market Plan.
MEMX Options Members
    Pursuant to the proposed rules in Chapter 17 (Participation on MEMX 
Options), the Exchange will authorize any Exchange Member who meets 
certain enumerated qualification requirements (any such Member, an 
``Options Member'') and any Options Member's Sponsored Participants to 
obtain access to, and transact business on, MEMX Options.
    There will be two types of Options Members--Options Order Entry 
Firms (``OEFs'') and Options Market Makers. OEFs will be those Options 
Members representing Customer Orders as agent on MEMX Options or 
trading as principal on MEMX Options. Options Market Makers will be 
those Options Members registered with the Exchange as Options Market 
Makers pursuant to proposed Rule 22.2. To become an Options Market 
Maker, an Options Member will be required to register by filing a 
written application. The Exchange will not place any limit on the 
number of entities that may become Options Market Makers, the number of 
appointments an Options Market Maker may have, or the number of Options 
Market Makers that may have appointments in a class unless the Exchange 
determines to impose any such limit based on system constraints, 
capacity restrictions, or other factors relevant to protecting the 
integrity of the System. The Exchange will not impose any such 
limitations until it has submitted objective standards for imposing the 
limits to the Commission for its review and approval.
    Options Market Makers will be required to electronically engage in 
a course of dealing reasonably calculated to contribute to the 
maintenance of fair and orderly markets. Among other things, an Options 
Market Maker would generally have to satisfy the following 
responsibilities and duties during trading: (1) On a daily basis 
maintain a two-sided market on a continuous basis in at least 60% of 
the cumulative number of seconds, or such higher percentage as the 
Exchange may announce in advance, for which that Options Market Maker's 
appointed classes are open for trading, excluding any adjusted series, 
any intraday add-on series on the day during which such series are 
added for trading, any Quarterly Option Series, and any series with an 
expiration of greater than 270 days; \3\ (2) enter a size of at least 
one contract for its best bid and its best offer; and (3) maintain 
minimum net capital in accordance with Commission and Exchange rules. 
Substantial or continued failure by an Options Market Maker to meet any 
of its obligations and duties will subject the Options Market Maker to 
disciplinary action, suspension, or revocation of the Options Market 
Maker's registration as such or its appointment in one or more of its 
appointed options classes.
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    \3\ The Exchange notes that it also proposes to adopt provisions 
that exclude from the calculation of continuous quoting those times 
that an Options Market Maker is experiencing a technical failure or 
limitation, during a trading halt, suspension or pause in the 
underlying security, or when the underlying security is in a limit 
up-limit down state.
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    Options Market Makers receive certain benefits for carrying out 
their duties. For example, a lender may extend credit to a broker-
dealer without regard to the restrictions in Regulation T of the Board 
of Governors of the Federal Reserve System if the credit is to be used 
to finance the broker-dealer's activities as a specialist or market 
maker on a national securities exchange. Thus, an Options Market Maker 
has a corresponding obligation to hold itself out as willing to buy and 
sell options for its own account on a regular or continuous basis to 
justify this favorable treatment.
    Every Options Member shall at all times maintain membership in 
another registered options exchange that is not registered solely under 
Section 6(g) of the Exchange Act \4\ or in FINRA. OEF's that transact 
business with Public Customers must at all times be members of FINRA. 
Pursuant to proposed Rule 17.2(g), every Options Member will be 
required to have at least one registered Options Principal who 
satisfies the criteria of that rule, including the satisfaction of a 
proper qualification examination. An OEF may only transact business 
with Public Customers if such Options Member also is an Options Member 
of another registered national securities exchange or association with 
which the Exchange has entered into an agreement under Rule 17d-2 under 
the Exchange Act \5\ pursuant to which such other exchange or 
association shall be the designated options examining authority for the 
OEF.
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    \4\ 15 U.S.C. 78f(g).
    \5\ 17 CFR 240.17d-2.
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    The proposed rules relating to qualification and participation on 
MEMX Options as an Options Member (including as an OEF and an Options 
Market Maker) are substantively identical to the relevant rules of BZX 
Options.\6\
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    \6\ See BZX Rules, Chapters XVII and XXII.
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    As provided in proposed Rule 16.2, existing Exchange Rules 
applicable to the MEMX equities market contained in Chapters 1 through 
15 of the Exchange Rules will apply to Options Members unless a 
specific Exchange Rule applicable to the MEMX Options market (proposed 
Chapters 16 through 29 of the Exchange Rules) governs or unless the 
context otherwise requires. Options Members can therefore provide 
sponsored access to the MEMX Options Exchange to a non-Member (i.e., a 
Sponsored Participant) pursuant to Rule 11.3 of the Exchange Rules.
Definitions
    The Exchange proposes to define a series of terms under proposed 
Rule 16.1 (Definitions), which are to be used in proposed Chapters 16 
to 29 relating to the trading of options contracts on the Exchange. 
Each of the terms defined in proposed Rule 16.1 is either identical or 
substantially similar to definitions included in BZX Rule 16.1.
    The definitions under proposed Rule 16.1 are as follows:
     ABBO. The term ``ABBO'' means the best bid(s) or offer(s) 
disseminated by other Eligible Exchanges (as defined in proposed Rule 
27.1) and calculated by the Exchange based on market information the 
Exchange receives from OPRA.
     Aggregate Exercise Price. The term ``aggregate exercise 
price'' means the exercise price of an options contract multiplied by 
the number of units of the underlying security covered by the options 
contract.
     American-Style Option. The term ``American-style option'' 
means an options contract that, subject to the provisions of proposed 
Rule 23.1 (relating to the cutoff time for exercise instructions) and 
to the Rules of the Clearing Corporation, may be exercised at any time 
from its commencement time until its expiration.
     Associated Person and Person Associated with an Options 
Member. The terms ``associated person'' and ``person associated with an 
Options Member'' mean any partner, officer, director, or branch manager 
of an Options Member (or any person occupying a similar status or 
performing similar functions), any person directly or indirectly 
controlling, controlled by, or under common control with an Options 
Member or any employee of an Options Member.

[[Page 28066]]

     Bid. The term ``bid'' means a limit order to buy one or 
more options contracts.
     Board. The term ``Board'' means the Board of Directors of 
MEMX LLC.
     Call. The term ``call'' means an options contract under 
which the holder of the option has the right, in accordance with the 
terms of the option, to purchase from the Clearing Corporation the 
number of shares of the underlying security covered by the options 
contract.
     Capacity. The term ``Capacity'' means the capacity in 
which a User submits an order, which the User specifies by applying the 
corresponding code to the order according to the specifications for 
MEMX Options.
     Class of Options. The terms ``class'' or ``class of 
options'' mean all options contracts with the same unit of trading 
covering the same underlying security or index.
     Clearing Corporation and OCC. The terms ``Clearing 
Corporation'' and ``OCC'' mean The Options Clearing Corporation.
     Clearing Member. The term ``Clearing Member'' means an 
Options Member that is self-clearing or an Options Member that clears 
MEMX Options Transactions for other Members of MEMX Options.
     Closing Purchase Transaction. The term ``closing purchase 
transaction'' means a MEMX Options Transaction that reduces or 
eliminates a short position in an options contract.
     Closing Writing Transaction. The term ``closing writing 
transaction'' means a MEMX Options Transaction that reduces or 
eliminates a long position in an options contract.
     Covered Short Position. The term ``covered short 
position'' means (i) an options position where the obligation of the 
writer of a call option is secured by a ``specific deposit'' or an 
``escrow deposit'' meeting the conditions of Rules 610(f) or 610(g), 
respectively, of the Rules of the Clearing Corporation, or the writer 
holds in the same account as the short position, on a share-for-share 
basis, a long position either in the underlying security or in an 
options contract of the same class of options where the exercise price 
of the options contract in such long position is equal to or less than 
the exercise price of the options contract in such short position; and 
(ii) an options position where the writer of a put option holds in the 
same account as the short position, on a share-for-share basis, a long 
position in an options contract of the same class of options where the 
exercise price of the options contract in such long position is equal 
to or greater than the exercise price of the options contract in such 
short position.
     Customer. The term ``Customer'' means a Public Customer or 
a broker-dealer.
     Customer Order. The term ``Customer Order'' means an 
agency order for the account of a Customer.
     Discretion. The term ``discretion'' means the authority of 
a broker or dealer to determine for a Customer the type of option, the 
class or series of options, the number of contracts, or whether options 
are to be bought or sold.
     European-Style Option. The term ``European-style option'' 
means an options contract that, subject to the provisions of proposed 
Rule 23.1 (relating to the cutoff time for exercise instructions) and 
to the Rules of the Clearing Corporation, can be exercised only on its 
expiration date.
     Exchange Act. The term ``Exchange Act'' means the 
Securities Exchange Act of 1934, as amended, or Rules thereunder.
     Exercise Price. The term ``exercise price'' means the 
specified price per unit at which the underlying security may be 
purchased or sold upon the exercise of an options contract.
     He, Him, and His. The terms ``he,'' ``him'' and ``his'' 
are deemed to refer to persons of female as well as male gender, and to 
include organizations, as well as individuals, when the context so 
requires.
     Index Option. The term ``index option'' means an options 
contract that is an option on a broad-based, narrow-based or micro 
narrow-based index of equity securities prices.
     Individual Equity Option. The term ``individual equity 
option'' means an options contract which is an option on an equity 
security.
     Long Position. The term ``long position'' means a person's 
interest as the holder of one or more options contracts.
     MEMX Exchange and Exchange. The terms ``MEMX Exchange'' 
and ``Exchange'' mean MEMX LLC.
     MEMX Exchange Rules and Exchange Rules. The terms ``MEMX 
Exchange Rules'' and ``Exchange Rules'' mean the rules of the Exchange, 
including those for equities and options.
     MEMX Options. The term ``MEMX Options'' means the MEMX LLC 
Options Market, an options trading facility of the Exchange under 
Section 3(a)(2) of the Exchange Act.
     MEMX Options Book. The term ``MEMX Options Book'' means 
the electronic book of options orders maintained by the Trading System.
     MEMX Options Transaction. The term ``MEMX Options 
Transaction'' means a transaction involving an options contract that is 
effected on or through MEMX Options or its facilities or systems.
     NBB, NBO, and NBBO. The term ``NBB'' means the national 
best bid, the term ``NBO'' means the national best offer, and the term 
``NBBO'' means the national best bid or offer as calculated by MEMX 
Options based on market information received by MEMX Options from OPRA.
     Offer. The term ``offer'' means a limit order to sell one 
or more options contracts.
     OPRA. The term ``OPRA'' means the Options Price Reporting 
Authority.
     Opening Purchase Transaction. The term ``opening purchase 
transaction'' means a MEMX Options Transaction that creates or 
increases a long position in an options contract.
     Opening Writing Transaction. The term ``opening writing 
transaction'' means a MEMX Options Transaction that creates or 
increases a short position in an options contract.
     Options Contracts. The term ``options contract'' means a 
put or a call issued, or subject to issuance by the Clearing 
Corporation pursuant to the Rules of the Clearing Corporation.
     Options Market Close and Market Close. The terms ``options 
market close'' and ``market close'' mean the time the Exchange 
specifies for the end of a trading session on the Exchange on that 
trading day.
     Options Market-Maker and Market-Maker. The terms ``Options 
Market-Maker'' and ``Market-Maker'' mean an Options Member registered 
with the Exchange for the purpose of making markets in options 
contracts traded on the Exchange and that is vested with the rights and 
responsibilities specified in proposed Chapter 22.
     Options Market Open and Market Open. The terms ``options 
market open'' and ``market open'' mean the time the Exchange specifies 
for the beginning of a trading session on the Exchange on that trading 
day.
     Options Member. The term ``Options Member'' means a firm, 
or organization that is registered with the Exchange pursuant to 
proposed Chapter 17 for purposes of participating in options trading on 
MEMX Options as an ``Options Order Entry Firm'' or ``Options Market-
Maker.''
     Options Member Agreement. The term ``Options Member 
Agreement'' means the agreement to be executed by Options Members to 
qualify to participate on MEMX Options.
     Options Order Entry Firm, Order Entry Firm, and OEF. The 
terms ``Options Order Entry Firm'' and ``Order

[[Page 28067]]

Entry Firm'' or ``OEF'' mean those Options Members representing as 
agent Customer Orders on MEMX Options and those non-Market-Maker 
Members conducting proprietary trading.
     Options Principal. The term ``Options Principal'' means a 
person engaged in the management and supervision of the Options 
Member's business pertaining to options contracts that has 
responsibility for the overall oversight of the Options Member's 
options related activities on the Exchange.
     Order. The term ``order'' means a firm commitment to buy 
or sell options contracts as defined in proposed Rule 21.1(c).
     Outstanding. The term ``outstanding'' means an options 
contract which has been issued by the Clearing Corporation and has 
neither been the subject of a closing writing transaction nor has 
reached its expiration date.
     Primary Market. The term ``primary market'' means, in the 
case of securities listed on Nasdaq Stock Market, LLC (``Nasdaq''), the 
market that is identified as the listing market pursuant to Section 
X(d) of the approved national market system plan governing the trading 
of Nasdaq-listed securities, and, in the case of securities listed on 
another national securities exchange, the market that is identified as 
the listing market pursuant to Section XI of the Consolidated Tape 
Association Plan.
     Priority Customer and Priority Customer Order. The term 
``Priority Customer'' means any person or entity that is not: (A) A 
broker or dealer in securities; or (B) a Professional. The term 
``Priority Customer Order'' means an order for the account of a 
Priority Customer.
     Professional. The term ``Professional'' means any person 
or entity that (A) is not a broker or dealer in securities; and (B) 
places more than 390 orders in listed options per day on average during 
a calendar month for its own beneficial account(s). All Professional 
orders shall be appropriately marked by Options Members.
     Protected Quotation. The term ``Protected Quotation'' has 
the meaning provided in proposed Rule 27.1.\7\
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    \7\ As defined in proposed Rule 27.1, the term ``Protected 
Quotation'' refers to a Protected Bid or Protected Offer, and the 
terms ``Protected Bid'' and ``Protected Offer'' refer to a Bid or 
Offer in an options series, respectively, that: (A) Is disseminated 
pursuant to the OPRA Plan; and (B) is the highest priced Bid or 
lowest priced Offer, respectively, displayed by an Eligible 
Exchange.
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     Public Customer. The term ``Public Customer'' means a 
person that is not a broker or dealer in securities.
     Put. The term ``put'' means an options contract under 
which the holder of the option has the right, in accordance with the 
terms and provisions of the option and the Rules of the OCC, to sell to 
the Clearing Corporation the number of units of the underlying security 
covered by the options contract, at a price per unit equal to the 
exercise price, upon the timely exercise of such option.
     Quarterly Options Series. The term ``Quarterly Options 
Series'' means a series in an options class that is approved for 
listing and trading on the Exchange in which the series is opened for 
trading on any business day and expires at the close of business on the 
last business day of a calendar quarter.
     Quote and Quotation. The terms ``quote'' and ``quotation'' 
mean a bid or offer entered by a Market-Maker as a firm order that 
updates the Market-Maker's previous bid or offer, if any.
     Responsible Person. The term ``Responsible Person'' means 
a U.S.-based officer, director, or management-level employee of an 
Options Member, who is registered with the Exchange as an Options 
Principal, responsible for the direct supervision and control of 
associated persons of that Options Member.
     Rules of MEMX Options. The term ``Rules of MEMX Options'' 
mean the rules contained in proposed Chapters 16 to 29 of the MEMX LLC 
Exchange Rules governing the trading of options on the Exchange.
     Rules of the Clearing Corporation and Rules of the OCC. 
The terms ``Rules of the Clearing Corporation'' and ``Rules of the 
OCC'' mean the Certificate of Incorporation, the By-Laws and the Rules 
of the Clearing Corporation, and all written interpretations thereof, 
as may be in effect from time to time.
     SEC and Commission. The terms ``SEC'' and ``Commission'' 
mean the United States Securities and Exchange Commission.
     Series of Options. The terms ``series'' or ``series of 
options'' mean all options contracts of the same class that are the 
same type of options and have the same exercise price and expiration 
date.
     Short Position. The term ``short position'' means a 
person's interest as the writer of one or more options contracts.
     Short Term Option Series. The term ``Short Term Option 
Series'' means a series in an option class that is approved for listing 
and trading on the Exchange in which the series is opened for trading 
on any Monday, Tuesday, Wednesday, Thursday or Friday that is a 
business day and that expires on the Monday, Wednesday or Friday of the 
next business week, or, in the case of a series that is listed on a 
Friday and expires on a Monday, is listed one business week and one 
business day prior to that expiration. If a Tuesday, Wednesday, 
Thursday or Friday is not a business day, the series may be opened (or 
shall expire) on the first business day immediately prior to that 
Tuesday, Wednesday, Thursday or Friday, respectively. For a series 
listed pursuant to this section for Monday expiration, if a Monday is 
not a business day, the series shall expire on the first business day 
immediately following that Monday.
     SRO. The term ``SRO'' means a self-regulatory organization 
as defined in Section 3(a)(26) of the Exchange Act.
     Trading System and System. The terms ``Trading System'' 
and ``System'' mean the automated trading system used by MEMX Options 
for the trading of options contracts.
     Type of Option. The term ``type of option'' means the 
classification of an options contract as either a put or a call.
     Uncovered. The term ``uncovered'' means a short position 
in an options contract that is not covered.
     Underlying Security. The term ``underlying security'' 
means the security that the Clearing Corporation shall be obligated to 
sell (in the case of a call option) or purchase (in the case of a put 
option) upon the valid exercise of an options contract.
     User. The term ``User'' means any Options Member or 
Sponsored Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3 (Access).
Execution System
    The Exchange's options System will leverage the Exchange's current 
state-of-the-art technology, including its customer connectivity, 
messaging protocols, quotation and execution engine, order router, data 
feeds, and network infrastructure. This approach minimizes the 
technical effort required for existing Exchange Members to begin 
trading options on MEMX Options. As a result, MEMX Options will closely 
resemble the Exchange's equities market, as well as other options 
markets, such as BZX Options, that offer true price/time priority 
across all participants rather than differentiating between 
participant/trading interest.
    Like the Exchange's system for equities, as well as the BZX Options 
market, all trading interest entered into the System will be 
automatically executable. Orders entered into the System will be 
displayed anonymously. Thus, the System will offer anonymous

[[Page 28068]]

trading, however, options trades are not currently anonymous through 
settlement. Accordingly, as set forth in proposed Rule 21.10, 
aggregated and individual transaction reports produced by the System 
will indicate the details of a User's transactions, including the 
contra party's executing firm ID (``EFID''), capacity, and clearing 
firm account number.\8\ The Exchange will become an exchange member of 
the Options Clearing Corporation (``OCC''). The System will be linked 
to OCC for the Exchange to transmit locked-in trades for clearance and 
settlement.
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    \8\ The Exchange shall also reveal a User's identity: (i) When a 
registered clearing agency ceases to act for a participant, or the 
User's clearing firm, and the registered clearing agency determines 
not to guarantee the settlement of the User's trades; and (ii) for 
regulatory purposes or to comply with an order of an arbitrator or 
court. See proposed Rule 21.10. The Exchange notes that proposed 
Rule 21.10 is identical to BZX Rule 21.10.
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    Hours of Operation. As stated in proposed Rule 21.2, the MEMX 
Options System will begin accepting orders after 9:30 a.m. Eastern Time 
pursuant to the market opening procedures described in proposed Rule 
21.7. Orders and bids and offers shall be open and available until 4:00 
p.m. Eastern Time except for option contracts on Fund Shares, as 
defined in proposed Rule 19.3(i), option contracts on exchange-traded 
notes including Index-Linked Securities, as defined in proposed Rule 
19.3(l), and option contracts on broad-based indexes, as defined in 
proposed Rule 29.1(j), which may close as of 4:15 p.m. Eastern Time. 
The proposed hours of operation on MEMX Options are the same as on BZX 
Options, except that BZX Options begins accepting orders at 7:30 a.m. 
Eastern Time that are then processed in the BZX Options opening process 
beginning at 9:30 a.m. Eastern Time.
    Units of Trading. As stated in proposed Rule 21.3, the unit of 
trading in each series of options traded on MEMX Options will be the 
unit of trading established for that series by the OCC pursuant to the 
rules of the OCC and the agreements of the Exchange with the OCC. The 
proposed determination of the unit of trading for a series of options 
traded on MEMX Options is the same as on BZX Options pursuant to BZX 
Rule 21.3.
    Minimum Quotation and Trading Increments. As stated in proposed 
Rule 21.5(a), the Exchange is proposing to apply the following 
quotation increments: (1) If the options series is trading at less than 
$3.00, five (5) cents; (2) if the options series is trading at $3.00 or 
higher, ten (10) cents; and (3) if the options series is trading 
pursuant to the Penny Interval Program one (1) cent if the options 
series is trading at less than $3.00, five (5) cents if the options 
series is trading at $3.00 or higher, unless for QQQQ, SPY, or IWM 
where the minimum quoting increment will be one (1) cent for all 
series. In addition, as stated in proposed Rule 21.5(b), the Exchange 
is proposing that the minimum trading increment for options contracts 
traded on MEMX Options will be one (1) cent for all series. Such 
proposed minimum quotation and trading increments are the same as on 
BZX Options pursuant to BZX Rules 21.5(a) and (b).
    Penny Interval Program. As set forth in proposed Rule 21.5(d), the 
Exchange is proposing to adopt a Penny Interval Program that is 
substantially similar to the penny programs of other exchanges, 
including BZX Options pursuant to BZX Rule 21.5(d), which includes 
minimum quoting requirements for option classes listed under the Penny 
Interval Program. However, eligibility for inclusion in the Penny 
Interval Program will be limited to those classes already operating 
under penny programs of other options exchanges at the time MEMX 
Options is launched. The list of option classes included in the Penny 
Interval Program will be announced by the Exchange via circular 
distributed to Options Members and published by the Exchange on its 
website.
    Order Types and Handling Instructions. The System will make 
available to Users two Order Types (as defined in proposed Rule 
21.1(d))--Limit Orders and Market Orders--as well as various other 
instructions and modifiers that can be appended to such orders. The 
characteristics and functionality of each Order Type is substantially 
similar to what is currently approved for use in the Exchange's 
equities trading facility or on other options exchanges, including BZX 
Options, except where described below. MEMX Options will support bulk 
messages for Options Market Makers as specified in the description of 
each Order Type or other instruction. Proposed Rule 21.1(d) includes 
the following details with respect to Limit Orders and Market Orders:
     Limit Order. Limit Orders are orders (including bulk 
messages) to buy or sell an option at a specified price or better. A 
Limit Order is marketable when, for a Limit Order to buy, at the time 
it is entered into the System, the order is priced at the current 
inside offer or higher, or for a Limit Order to sell, at the time it is 
entered into the System, the order is priced at the current inside bid 
or lower.
     Market Order. Market Orders are orders to buy or sell at 
the best price available at the time of execution. Market Orders to buy 
or sell an option traded on MEMX Options will be rejected if they are 
received when the underlying security is subject to a ``Limit State'' 
or ``Straddle State'' as defined in the Plan to Address Extraordinary 
Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act 
(the ``Limit Up-Limit Down Plan''). Bulk messages may not be Market 
Orders.
    The System will also make available to Users several additional 
instructions that can be designated on an order (``Handling 
Instructions''). A Handling Instruction applied to a bulk message 
applies to each bid and offer within that bulk message. The Handling 
Instructions available on MEMX Options are described in proposed Rule 
21.1(e) and will include the following:
     Book Only. Book Only is an instruction that an order is to 
be ranked and executed on the Exchange pursuant to proposed Rule 21.8 
(Order Display and Book Processing) or cancelled, as appropriate, 
without routing away to another options exchange. Users may designate 
bulk messages as Book Only as set forth in proposed Rule 21.1(l).
     Post Only. Post Only is an instruction that an order is to 
be ranked and executed on the Exchange pursuant to proposed Rule 21.8 
(Order Display and Book Processing) or cancelled, as appropriate, 
without routing away to another options exchange except that the order 
will not remove liquidity from the MEMX Options Book. The Exchange 
notes that, unlike a Post Only Order on BZX Options, an order with a 
Post Only instruction on MEMX Options will not remove liquidity even if 
the value of price improvement associated with such execution equals or 
exceeds the sum of fees charged for such execution and the value of any 
rebate that would be provided if the order posted to the MEMX Options 
Book and subsequently provided liquidity.\9\ A Market Order cannot be 
designated as Post Only.\10\ Users may designate bulk messages as

[[Page 28069]]

Post Only as set forth in proposed Rule 21.1(l).
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    \9\ The Exchange notes that other options exchanges offer 
functionality equivalent to the Post Only instruction that does not 
remove liquidity based on potential price improvement. See, e.g., 
NYSE Arca Rule 6.62-O.(t) and NYSE Arca Rule 6.62P-O(e)(2), each of 
which defines an ALO Order, which is an order that does not remove 
liquidity from the NYSE Arca order book without any exception for 
removing liquidity when price improvement could be obtained.
    \10\ The Exchange notes that the comparable description of Post 
Only Orders on BZX Options in BZX Rule 21.1(d)(8) does not specify 
that Market Orders cannot be designated as Post Only, however, the 
Exchange believes the proposed functionality is the same.
---------------------------------------------------------------------------

     Intermarket Sweep Order (``ISO''). ISOs are orders that 
shall have the meaning provided in proposed Rule 27.1, which relates to 
intermarket trading. Such orders may be executed at one or multiple 
price levels in the System without regard to Protected Quotations at 
other options exchanges (i.e., may trade through such quotations). The 
Exchange relies on the marking of an order as an ISO order when 
handling such order, and thus, it is the entering Options Member's 
responsibility, not the Exchange's responsibility, to comply with the 
requirements relating to ISOs. ISOs are not eligible for routing 
pursuant to proposed Rule 21.9. A Market Order cannot be designated as 
an Intermarket Sweep Order.\11\ Users may not designate bulk messages 
as ISOs.
---------------------------------------------------------------------------

    \11\ The Exchange notes that the comparable description of ISOs 
on BZX Options in BZX Rule 21.1(d)(9) does not specify that Market 
Orders cannot be designated as ISOs, however, the Exchange believes 
the proposed functionality is the same.
---------------------------------------------------------------------------

    The Exchange notes that, in contrast to BZX Options, it has 
proposed characterizing Book Only, Post Only, and ISO as Handling 
Instructions rather than Order Types, as each of these instructions 
represents an additional modifier that can be appended to a Market 
Order or Limit Order rather than a unique Order Type. The Exchange does 
not believe that this characterization changes anything with respect to 
the proposed operation of the Exchange but rather is a more accurate 
characterization of the proposed functionality. The Exchange notes that 
each of the proposed Order Types and Handling Instructions available on 
MEMX Options is substantially similar to the same order type available 
on BZX Options, except where described above or as relates to the 
display-price sliding process offered by BZX Options, which the 
Exchange is not proposing to adopt. The Exchange also notes that BZX 
Options offers additional order types, such as reserve orders, minimum 
quantity orders, price-improving orders, stop orders, and stop limit 
orders, none of which the Exchange proposes to adopt.
    Time-in-Force Designations. Users entering orders into the System 
may designate such orders to remain in force and available for display 
and/or potential execution for varying periods of time. Unless 
cancelled earlier, once these time periods expire, the order (or the 
unexecuted portion thereof) is returned to the entering party. A Time-
in-Force applied to a bulk message applies to each bid and offer within 
that bulk message. Unless otherwise specified in the Exchange Rules or 
the context indicates otherwise, the Exchange determines which of the 
following Times-in-Force are available on a class or system basis. The 
Time-in-Force designations available on MEMX Options are described in 
proposed Rule 21.1(f) and will include the following:
     Immediate Or Cancel (``IOC''). IOC means, for an order so 
designated, an order that is to be executed in whole or in part as soon 
as such order is received. The portion not so executed immediately on 
the Exchange or another options exchange is cancelled and is not posted 
to the MEMX Options Book. IOC orders that are not designated as Book 
Only and that cannot be executed in accordance with proposed Rule 21.8 
on the System when reaching the Exchange will be eligible for routing 
away pursuant to proposed Rule 21.9. Users may designate bulk messages 
as IOC.
     Day. Day means, for an order so designated, an order to 
buy or sell which, if not executed expires at market close. Users may 
designate bulk messages as Day.
    The Exchange notes that each of the proposed Time-in-Force 
designations available on MEMX Options is identical to the same Time-
in-Force designation available on BZX Options, except that BZX Options 
rules describe Time-in-Force designations as applicable only to limit 
orders on BZX Options, whereas the Exchange has proposed allowing such 
designations to be placed on both Limit Orders and Market Orders. The 
Exchange also notes that BZX Options offers additional Times-in-Force, 
such as good til cancelled, fill-or-kill, at the open, limit-on-close, 
and market-on-close, none of which the Exchange proposes to adopt.
    Member Match Trade Prevention Modifiers. As with its equities 
market, the Exchange will allow Users to use certain Match Trade 
Prevention (``MTP'') modifiers, which are described in proposed Rule 
21.1(g). Any incoming order designated with an MTP modifier will be 
prevented from executing against a resting opposite side order also 
designated with an MTP modifier and originating from the same EFID, 
Exchange Member identifier, trading group identifier, or Exchange 
Sponsored Participant identifier. The Exchange will offer the following 
MTP modifiers: MTP Cancel Newest, described in proposed Rule 
21.1(g)(1); MTP Cancel Oldest, described in proposed Rule 21.1(g)(2); 
and MTP Cancel Both, described in proposed Rule 21.1(g)(3). The 
Exchange notes that each of the proposed MTP modifiers available on 
MEMX Options is identical to the same MTP modifier available on BZX 
Options. The Exchange also notes that BZX Options offers additional MTP 
modifiers, such as MTP Decrement and Cancel and MTP Cancel Smallest, 
neither of which the Exchange proposes to adopt.
    Re-Pricing Mechanism. Like other options exchanges, the Exchange 
proposes to offer a re-pricing mechanism to Users to comply with the 
order protection and trade through restrictions of the Options Order 
Protection and Locked/Crossed Market Plan. This re-pricing mechanism, 
described in proposed Rule 21.1(i), is referred to by the Exchange as 
Price Adjust and is identical to the Price Adjust mechanism offered by 
BZX Options pursuant to BZX Rule 21.1(i), with the exception of the 
handling of an order with a Post Only instruction subject to the Price 
Adjust process. Whereas BZX Options applies the Price Adjust process 
when a Post Only Order locks or crosses a Protected Quotation displayed 
on BZX Options and re-prices such Post Only Order pursuant to BZX Rule 
21.1(i)(4), the Exchange is not proposing to adopt this clause and 
instead would cancel a Post Only Order that locks or crosses a 
Protected Quotation displayed on MEMX Options. As noted above, the 
Exchange is not proposing to offer a re-pricing mechanism equivalent to 
the display-price sliding process offered by BZX Options.
    EFIDs. As proposed in Rule 21.1(j), the term ``EFIDs'' means 
Executing Firm IDs and shall refer to what the System uses to identify 
the User and the clearing number for the execution of orders and quotes 
submitted to the System with that EFID. A User may obtain one or more 
EFIDs from the Exchange (in a form and manner determined by the 
Exchange). The Exchange assigns an EFID to its Users. Each EFID 
corresponds to a single User and a single clearing number of a Clearing 
Member with the Clearing Corporation. A User may obtain multiple EFIDs, 
which may be for the same or different clearing numbers. A User is able 
(in a form and manner determined by the Exchange) to designate which of 
its EFIDs may be used for each of its ports. If a User submits an order 
or quote through a port with an EFID not enabled for that port, the 
System cancels or rejects the order or quote. The Exchange notes that 
its proposed Rule 21.1(j) is identical to BZX Rule 21.1(k) other than 
the use of the term ``User'' instead of ``Member.''
    Ports and Bulk Messages. Proposed Rule 21.1(k) defines two types of 
ports:

[[Page 28070]]

(1) A``physical port,'' which provides a physical connection to the 
System and may provide access to multiple logical ports; and (2) a 
``logical port'' or ``application session,'' which provides Users with 
the ability within the System to accomplish a specific function through 
a connection, such as order entry, data receipt, or access to 
information. The Exchange notes that each of the proposed types of 
ports available on MEMX Options is identical to the same types of ports 
on BZX Options, though instead of application session BZX Options also 
refers to logical ports as logical sessions. The Exchange also notes 
that BZX Options offers specific ports used for bulk messages whereas 
the Exchange proposes to offer bulk message functionality through the 
same logical ports as Users submit other messages to the Exchange. 
Other than this distinction, the Exchange proposes to adopt the same 
bulk message functionality as is offered by BZX Options. The term 
``bulk message'' is proposed to mean a bid or offer included in a 
single electronic message a User submits with a Market Maker Capacity 
to the Exchange in which the User may enter, modify, or cancel up to an 
Exchange-specified number of bids and offers (which number the Exchange 
will announce via Exchange notice or publicly available technical 
specifications). The System handles a bulk message in the same manner 
as it handles an order or quote, unless the Exchange Rules specify 
otherwise.\12\ Users may submit bulk messages through a logical port, 
subject to the following: bulk messages must contain a Time-in-Force of 
Day or IOC; a Market Maker with an appointment in a class must 
designate a bulk message for that class as Post Only or Book Only, and 
a non-appointed Market Maker must designate a bulk message for that 
class as Post Only; the System cancels or rejects a Post Only bulk 
message bid (offer) with a price that locks or crosses the Exchange 
best offer (bid) or ABO (ABB); the System executes a Book Only bulk 
message bid (offer) that locks or crosses the ABO (ABB) against offers 
(bids) resting in the Book at prices the same as or better than the ABO 
(ABB) and then cancels the unexecuted portion of that bid (offer).
---------------------------------------------------------------------------

    \12\ The Exchange notes that BZX Options maintains the 
definition of bulk message in BZX Rule 16.1 whereas MEMX Options has 
proposed to include this language in proposed Rule 21.1(l), where 
bulk messages are further described. Despite this distinction, as 
noted above, the functionality is the same other than the fact the 
Exchange does not propose to require a separate bulk port to submit 
bulk messages.
---------------------------------------------------------------------------

    Cancel Back. The term ``Cancel Back'' is proposed to mean an 
instruction a User designates on an order (including bulk messages) to 
not be subject to the Price Adjust process pursuant to proposed Rule 
21.1(i). The System cancels or rejects an order with a Cancel Back 
instruction (immediately at the time the System receives the order or 
upon return to the System after being routed away) if displaying the 
order on the Book would create a violation of proposed Rule 27.3, or if 
the order cannot otherwise be executed or displayed in the Book at its 
limit price. The System executes a Book Only--Cancel Back order against 
resting orders. The proposed definition of Cancel Back in proposed Rule 
21.1(m) is substantively identical to a Cancel Back Order defined in 
BZX Rule 21.1(m), except as relates to the display-price sliding 
process offered by BZX Options, which the Exchange is not proposing to 
adopt, and the fact that the Exchange has not proposed to execute an 
order with a Post Only instruction to the extent there is price 
improvement associated with such execution (including if such order 
also has a Cancel Back instruction).\13\
---------------------------------------------------------------------------

    \13\ See supra note 9 and accompanying text.
---------------------------------------------------------------------------

    Market Opening Procedures. As stated in proposed Rule 21.7, the 
System shall open options, other than index options, for trading based 
on the first transaction after 9:30 a.m. Eastern Time in the securities 
underlying the options as reported on the first print disseminated 
pursuant to an effective national market system plan. With respect to 
index options, the System shall open for trading after a time period 
(which the Exchange determines for all classes) following the System's 
observation after 9:30 a.m. Eastern Time of the first disseminated 
index value for the index underlying an index option. Because the 
Exchange does not propose to adopt an opening cross or similar opening 
process, the opening trade that occurs on the Exchange will be a trade 
in the ordinary course of dealings on the Exchange. Accordingly, the 
System will ensure that the opening trade in an options series will not 
trade through a Protected Quotation at another options exchange, 
consistent with the general standard regarding trade throughs 
articulated in proposed Rule 21.6(e). The proposed market opening 
procedures for options other than index options are identical to the 
market opening procedures for such options that were initially adopted 
by BZX Options.\14\ The proposed market opening procedures for index 
options are substantially similar to the market opening procedures for 
index options on BZX Options under current BZX Rule 21.7(d)(2) with 
respect to when the System opens. However, once the BZX Options system 
observes that an index value has been disseminated for the applicable 
index BZX Options then commences an opening rotation (i.e., an opening 
process to match liquidity at a price determined by the BZX Options 
system) while the Exchange does not currently propose to adopt an 
opening process. Additionally, the Exchange proposes that it may delay 
the commencement of trading in any class of options in the interests of 
a fair and orderly market. As stated in proposed Rule 21.6(c), orders 
received prior to the opening of the System will be cancelled. The 
Exchange believes that it is appropriate to commence operations on MEMX 
Options with simplified procedures for when the System is open for 
trading because for a successful opening process to function, an 
exchange needs a critical mass of liquidity from market participants in 
order to price and execute opening transactions. In turn, as a new 
options exchange, MEMX Options does not know the amount of pre-opening 
interest it will have, and it will have to gain market share in order 
to accumulate such interest. MEMX Options will re-evaluate its opening 
procedures over time and may propose to add an opening process through 
a rule filing submitted to the Commission in the future.
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 61419 (January 26, 
2010), 75 FR 5157 (February 1, 2010) (SR-BATS-2009-031) (Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of 
a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To 
Establish Rules Governing the Trading of Options on the BATS Options 
Exchange).
---------------------------------------------------------------------------

    Order Display/Matching System. The System will be based upon 
functionality currently approved for use in the Exchange's equities 
trading system. Specifically, the System will allow Users to enter 
Market Orders and priced Limit Orders to buy and sell MEMX Options-
listed options. All orders (including bulk messages) will be designated 
for display (price and size) on an anonymous basis by the Exchange.
    Routing. The MEMX Options Exchange will support orders that are 
designated to be routed to the National Best Bid and Offer (``NBBO'') 
as well as orders that will execute only within MEMX Options. Orders 
that are designated to execute at the NBBO will

[[Page 28071]]

be routed to other options markets to be executed when the Exchange is 
not at the NBBO consistent with the Options Order Protection and 
Locked/Crossed Market Plan. Subject to the exceptions contained in 
proposed Rule 27.2(b), the System will ensure that an order will not be 
executed at a price that trades through another options exchange. An 
order that is designated by an Options Member as routable will be 
routed in compliance with applicable trade-through restrictions. Any 
order entered with a price that would lock or cross a Protected 
Quotation that is not eligible for either routing or the price adjust 
process as defined in proposed Rule 21.1(i) will be cancelled. Bulk 
messages are not eligible for routing.
    The proposed routing functionality for MEMX Options is designed to 
operate much like the routing functionality for the Exchange's equities 
market, in that the Exchange offers a simple routing service to 
facilitate compliance with applicable regulations and does not 
currently offer other complex routing strategies. The Exchange notes 
that the proposed rules relating to the routing of orders on MEMX 
Options to away options markets are similar to the approved rules of 
BZX Options, except that the Exchange proposes to cancel any unexecuted 
portion of a Market Order after the System has routed to and received 
response from an away options market, whereas BZX Options offers 
additional handling instructions that may be chosen with respect to the 
unexecuted portion of an order after the System has routed to and 
received response from an away options market, and BZX Options offers 
various additional routing options, such as routing to a specific 
destination or at specified price levels.\15\
---------------------------------------------------------------------------

    \15\ See BZX Rule 21.9.
---------------------------------------------------------------------------

    MEMX Options shall route orders in options via MEMX Execution 
Services LLC (``MEMX Execution Services''), which serves as the 
Outbound Router of the Exchange, as defined in Rule 2.11. The function 
of the Outbound Router will be to route orders in options listed and 
open for trading on MEMX Options to other options exchanges pursuant to 
the proposed rules of MEMX Options solely on behalf of MEMX Options. 
The Outbound Router is subject to regulation as a facility of the 
Exchange, including the requirement to file proposed rule changes under 
Section 19 of the Act. Use of MEMX Execution Services or Routing 
Services (as defined below) to route orders to other market centers is 
optional. In the event the Exchange is not able to provide order 
routing services through its affiliated broker-dealer, the Exchange 
will route orders to other options exchanges in conjunction with one or 
more routing brokers that are not affiliated with the Exchange 
(``Routing Services''). Parties that do not desire to use MEMX 
Execution Services or other Routing Services provided by the Exchange 
must designate orders as not available for routing.
    In connection with the proposed rules regarding routing to away 
options exchanges, proposed Rule 21.9(f) provides that MEMX Execution 
Services has, pursuant to Rule 15c3-5 under the Act,\16\ implemented 
certain tests designed to mitigate the financial and regulatory risks 
associated with providing the Exchange's Users with access to such away 
options exchanges. Pursuant to the policies and procedures developed by 
MEMX Execution Services to comply with Rule 15c3-5, if an order or 
series of orders are deemed to be erroneous or duplicative, would cause 
the entering User's credit exposure to exceed a preset credit 
threshold, or are non-compliant with applicable pre-trade regulatory 
requirements (as defined in Rule 15c3-5), MEMX Execution Services will 
reject such orders prior to routing and/or seek to cancel any orders 
that have been routed. This is consistent with the routing 
implementation of other options exchanges, and the Exchange notes that 
proposed Rule 21.9(f) is substantively identical to BZX Rule 21.9(f).
---------------------------------------------------------------------------

    \16\ 17 CFR 240.15c3-5.
---------------------------------------------------------------------------

    Order Priority. The System, like the Exchange's equities facility, 
shall execute trading interest within the System in price/time 
priority, meaning it will execute all trading interest at the best 
price level within the System before executing trading interest at the 
next best price. Trading interest will be executed with the order 
clearly established as the first entered into the System at each price 
level having priority up to the number of contracts specified in the 
order. Any order entered with a price that would lock or cross a 
Protected Quotation that is not eligible for either routing or the 
price adjust process as defined in proposed Rule 21.1(i) will be 
cancelled. The Exchange notes that the proposed price/time order 
priority and book processing is substantially similar to that on BZX 
Options.
    Data Feed. The System will include a proprietary data feed which 
will display without attribution to Users' orders on both the bid and 
offer side of the market for price levels then within MEMX Options 
using the minimum price variation applicable to that security.
    Risk Controls. The Exchange also proposes to offer to all Users of 
MEMX Options the ability to establish certain risk control parameters 
and limits that are intended to assist Users in managing their market 
risk. The proposed risk controls are set forth in proposed Rules 21.16 
and 21.17 and are based, in part, on those of BZX Options, with certain 
additions and differences described below. The proposed risk controls 
are designed to offer Users protection from entering orders outside of 
certain size and price parameters, as well as certain standard or 
Exchange-established parameters based on order type and market 
conditions.
    The Exchange proposes to offer a Risk Monitor Mechanism described 
in proposed Rule 21.16 that features passive risk counter 
functionality, which is similar to the risk monitor mechanism 
functionality offered by other options exchanges, including BZX 
Options, as well as active risk counter functionality. Under the 
proposed Risk Monitor Mechanism, Users may configure risk limits for 
various parameters, including number of contracts executed 
(``volume''), notional value of executions (``notional''), number of 
executions (``count''), number of contracts executed as a percentage of 
number of contracts outstanding within an Exchange-designated time 
period or during the trading day (``percentage''), and the number of 
times the limits on any of the foregoing parameters are reached (``risk 
trips''). The System will track each of the parameters within an 
underlying for an EFID (``underlying limit''), across all underlyings 
for an EFID (``EFID limit''), across all underlyings for a group of 
EFIDs (``EFID Group'') (``EFID Group limit''), and/or across a 
customized group of orders designated by the User (``Custom Group 
Limit''), over a User-established time period (``interval'') and on an 
absolute basis for a trading day (``absolute limits'').
    When the System determines that a specified parameter has reached 
the User-defined risk limit, depending on the User's instructions and 
the applicable limit that has been reached, the Risk Monitor Mechanism 
either: (1) Cancels or rejects such User's orders or quotes in all 
series of the applicable underlying(s) and cancels or rejects any 
additional orders or quotes from the User in the applicable 
underlying(s) until the counting program resets; or (2) suspends all of 
a User's resting orders or quotes in all series of the applicable 
underlying(s) and cancels or rejects any additional orders or quotes 
from the User in the applicable underlying(s) until the Exchange is 
instructed to

[[Page 28072]]

reinstate such bids and offers. A User may also engage the Risk Monitor 
Mechanism to cancel resting bids and offers, as well as subsequent 
orders as set forth in proposed Rule 22.10 (``mass cancellation'') or 
to suspend all resting bids and offers until the Exchange is instructed 
to reinstate such bids and offers (``mass suspension'').
    The proposed Risk Monitor Mechanism functionality described above 
is substantially similar to the risk monitor mechanism offered on BZX 
Options, except that BZX Options does not permit Users to designate a 
Custom Group Limit to track risk parameters across a customized group 
of orders, nor does BZX Options permit Users to choose to suspend, 
rather than cancel or reject, resting orders when a risk limit has been 
reached or to engage the Risk Monitor Mechanism for mass suspension as 
an alternative to mass cancellation. The Exchange believes that these 
proposed additions to the Risk Monitor Mechanism functionality that is 
currently available on BZX Options would provide Users with greater 
optionality when managing their risk on MEMX Options.
    The proposed Risk Monitor Mechanism functionality described above 
is similar to the Risk Monitor Mechanism functionality offered by other 
options exchanges, including BZX Options, in that it provides for the 
System to track specified risk parameters across designated underlyings 
and/or order groups until the counting program is reset by the User 
(such functionality, the ``passive risk counter''). In addition to the 
Risk Monitor Mechanism's passive risk counter functionality, which is 
similar to the Risk Monitor Mechanism functionality offered by BZX 
Options in BZX Rule 21.16, the Exchange also proposes to enable a User 
to optionally manage their risk limits actively using the Exchange's 
proposed active risk counter functionality within the Risk Monitor 
Mechanism. As proposed, for a User using the active risk counter, the 
System will increment the active risk counter associated with a defined 
parameter when such parameter increments, and the System will decrement 
the active risk counter upon positive confirmation from the User via an 
electronic instruction that the User has acknowledged a change in the 
active risk counter. A User would also be able to specify the value by 
which each parameter increments and decrements in the active risk 
counter. The proposed active risk counter therefore enables a User to 
interact with the Risk Monitor Mechanism dynamically such that the User 
may actively acknowledge executions and decrement the counting program 
by a specified amount as such executions occur (or at any time), rather 
than waiting until a risk limit is reached or the User otherwise sends 
a specific instruction to the Exchange to completely reset the counting 
program.
    The following examples illustrate the proposed behavior of the 
passive risk counter and the active risk counter within the Risk 
Monitor Mechanism. In each case, assume a User configures a risk limit 
of 10,000 contracts executed with respect to options contracts on 
underlying security ABC for a single EFID.
    Passive Risk Counter:
     The System executes User's order to purchase 5,000 call 
options on ABC (``Transaction 1''). The System's counting program would 
increment to a total of 5,000 executed options contracts on ABC for the 
User.
     The System then executes User's order to purchase 3,000 
call options on ABC (``Transaction 2''). The System's counting program 
would increment an additional 3,000 executed options contracts for 
Transaction 2 to a total of 8,000 executed options contracts on ABC for 
the User.
     The System then executes User's order to purchase 3,000 
call options on ABC (``Transaction 3''). The System's counting program 
would increment an additional 3,000 executed options contracts for 
Transaction 3 to a total of 11,000 executed options contracts on ABC 
for the User. As Transaction 3 results in executions in excess of the 
User's risk limit with respect to the number of options contracts 
executed, the Risk Monitor Mechanism is triggered, and the System will 
cancel, reject or suspend, as applicable in accordance with the User's 
instructions, the User's orders and quotes in all series of options 
contracts on ABC for the User.
     The User then submits an electronic instruction to the 
System to reset the counting program, and the counting program is 
decremented to zero. The System will now accept new orders or quotes 
from the User in a series of options contracts on ABC.
    Active Risk Counter:
     The System executes a transaction to purchase 5,000 call 
options on ABC (``Transaction 1''). The System's counting program would 
increment to a total of 5,000 executed options contracts on ABC for the 
User.
     The User then submits an electronic instruction to the 
System acknowledging a change in the active risk counter due to 
Transaction 1. Upon the System's receipt of such instruction, the 
counting program decrements the active risk counter by 5,000 options 
contracts for Transaction 1 to a total of zero with respect to the 
number of executed options contracts on ABC for the User.
     The System then executes two separate transactions to 
purchase 3,000 call options on ABC per transaction (``Transaction 2'' 
and ``Transaction 3'' respectively), and the User does not acknowledge 
a change in the active risk counter due to either of these executions. 
The System's counting program would increment 3,000 executed options 
contracts at the time of execution for each of Transaction 2 and 
Transaction 3, for a total of 6,000 executed options contracts on ABC 
for the User.
     The User then submits an electronic instruction to the 
System acknowledging a change in the active risk counter due 
Transaction 3, but not Transaction 2. Upon the System's receipt of such 
instruction, the counting program would decrement the active risk 
counter by the 3,000 executed options contracts for Transaction 3 to a 
total of 3,000 executed options contracts on ABC for the User.
     The User then executes a transaction to purchase 10,000 
call options on ABC (``Transaction 4''). The System's counting program 
would increment an additional 10,000 executed options contracts for 
Transaction 4 to a total of 13,000 options contracts on ABC for the 
User. As Transaction 4 results in executions in excess of the User's 
risk limit with respect to the number of options contracts executed, 
the Risk Monitor Mechanism is triggered, and the System will cancel, 
reject or suspend, as applicable in accordance with the User's 
instructions, the User's orders and quotes in all series of options 
contracts on ABC for the User.
     The User then submits an electronic instruction to the 
System acknowledging a change in the active risk counter due to 
Transaction 4. Upon the System's receipt of such instruction, the 
counting program would decrement the active risk counter by the 10,000 
executed options contracts for Transaction 4 to a total of 3,000 
executed options contracts on ABC for the User. The System will now 
accept new orders or quotes from the User in a series of options 
contracts on ABC.
    In addition to the Risk Monitor Mechanism functionality described 
above, the Exchange also proposes to offer additional price protection 
mechanisms and risk controls that relate to certain standard or 
Exchange-established parameters based on order type and market 
conditions, which are

[[Page 28073]]

described in proposed Rule 21.17. These additional price protection 
mechanisms and risk controls are substantially similar to those offered 
on BZX Options pursuant to BZX Rule 21.17, with slight modifications to 
align with the Exchange's proposed market opening procedures and 
available order types and instructions on MEMX Options, except that the 
Exchange is proposing a simplified version of the drill-through price 
protection mechanism described in proposed Rule 21.17(d). Whereas the 
drill-through price protection mechanism offered on BZX Options 
pursuant to BZX Rule 21.17(d) executes an incoming order to a 
determined ``Drill-Through Price'' and then displays the remainder of 
the order on BZX Options at that price for a brief period of time, the 
Exchange has proposed to simply cancel the remainder of an incoming 
order after executing the order to the Drill-Through Price.
    One Second Exposure Period. Proposed Rule 22.11 would require 
Options Members to expose their customers' orders on the Exchange for 
at least one second under certain circumstances. During this one second 
exposure period, other Options Members will be able to enter orders to 
trade against the exposed order. In adopting a one second order 
exposure period, the Exchange is proposing a requirement that is 
consistent with the rules of other options exchanges.\17\ Thus, the 
exposure period will allow Options Members that are members of other 
options exchanges to comply with proposed Rule 22.11 without 
programming separate time parameters into their systems for order entry 
or compliance purposes. The Exchange believes that market participants 
are sufficiently automated that a one second exposure period allows an 
adequate time for market participants to electronically respond to an 
order. Also, it is possible that market participants might wait until 
the end of the exposure period, no matter how long, before responding. 
Thus, the Exchange believes that any longer than one second would not 
further the protection of investors or market participants, but rather, 
would potentially increase market risk to investors and other market 
participants by creating a longer period of time for the exposed order 
to be subject to market risk.
---------------------------------------------------------------------------

    \17\ See, e.g., BZX Rule 22.12; CBOE Rule 5.9; MIAX Options Rule 
520(b); BOX Rule IM-7140-3.
---------------------------------------------------------------------------

Options Order Protection and Locked/Crossed Market Plan Rules
    The Exchange will participate in the Options Order Protection and 
Locked/Crossed Market Plan (the ``Plan''), and therefore will be 
required to comply with the obligations of Participants under the Plan. 
The Exchange proposes to adopt rules relating to the Plan that are 
substantially similar to the rules in place on all of the options 
exchanges that are Participants to the Plan. The Plan essentially 
applies the Regulation NMS price-protection provisions to the options 
markets. Similar to Regulation NMS, the Plan requires the Plan 
Participants to adopt rules ``reasonably designed to prevent Trade-
Throughs'', while exempting ISOs from that prohibition. The Plan's 
definition of an ISO is essentially the same as under Regulation NMS. 
The remaining exceptions to the trade-through prohibition, discussed 
more specifically below, either track those under Regulation NMS or 
correspond to unique aspects of the options market, or both.
    The proposed rules in Chapter 27 (Options Order Protection and 
Locked and Crossed Markets Rules) conform to the requirements of the 
Plan. Proposed Rule 27.1 sets forth the defined terms for use under the 
Plan. Proposed Rule 27.2 prohibits trade-throughs and exempts ISOs from 
that prohibition. Proposed Rule 27.2 also contains additional 
exceptions to the trade-through prohibition that track the exceptions 
under Regulation NMS or correspond to unique aspects of the options 
market, or both.
    Proposed Rule 27.3 sets forth the general prohibition against 
locking/crossing other eligible exchanges as well as certain enumerated 
exceptions that permit locked markets in limited circumstances; such 
exceptions have been approved by the Commission for inclusion in the 
rules of other options exchanges. Specifically, the exceptions to the 
general prohibition on locking and crossing occur when: (1) The locking 
or crossing quotation was displayed at a time when the Exchange was 
experiencing a failure, material delay, or malfunction of its systems 
or equipment; (2) the locking or crossing quotation was displayed at a 
time when there is a Crossed Market; or (3) the Options Member 
simultaneously routed an ISO to execute against the full displayed size 
of any locked or crossed Protected Bid or Protected Offer.
    The Exchange notes that the proposed rules in Chapter 27 (Options 
Order Protection and Locked and Crossed Markets Rules) are 
substantively identical to the rules of BZX Options.\18\
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    \18\ See BZX Rules, Chapter XXVII.
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Securities Traded on MEMX Options
    General Listing Standards. The Exchange proposes to adopt listing 
standards for options traded on MEMX Options as described in Chapter 19 
(Securities Traded on MEMX Options), as well as for index options as 
described in Chapter 29 (Index Rules), which are substantively 
identical to the approved rules of BZX Options.\19\ The Exchange will 
join the Options Listings Procedures Plan and will list and trade 
options already listed on other options exchanges. The Exchange will 
gradually phase-in its trading of options, beginning with a selection 
of actively traded options. At least initially, the Exchange does not 
plan to develop new options products or listing standards.
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    \19\ See BZX Rules, Chapters XIX and XXIX. The Exchange notes 
that it is initially proposing to adopt rules applicable to listing 
and trading of index options but has not proposed inclusion of 
references to any specific index options products or indices at this 
time and therefore has included a placeholder with the rule text 
``(Reserved.)'' where such references would otherwise be. To the 
extent the Exchange does propose to list and trade certain index 
products in the future, the Exchange will file a proposed rule 
change with the Commission with respect to such products.
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Conduct and Operational Rules for Options Members
    The Exchange proposes to adopt rules for MEMX Options that are 
substantively identical to the rules of BZX Options regarding: 
Exercises and deliveries as described in Chapter 23 (Exercises and 
Deliveries); records, reports and audits as described in Chapter 24 
(Records, Reports and Audits); minor rule violations as described in 
Chapter 25 (Discipline and Summary Suspensions); doing business with 
the public as described in Chapter 26 (Doing Business With the Public); 
and margin as described in Chapter 28 (Margin Requirements).\20\
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    \20\ See BZX Rules, Chapters XXIII, XXIV, XXV, XXVI and XXVIII.
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National Market System
    MEMX Options will operate as a full and equal participant in the 
national market system for options trading established under Section 
11A of the Exchange Act,\21\ just as its equities market participates 
today. MEMX Options will become a member of the Options Price Reporting 
Authority (``OPRA''), the Options Linkage Authority (``OLA''), the 
Options Regulatory Surveillance Authority (``ORSA''), and the Options 
Listing Procedures Plan (``OLPP''). The Exchange expects to participate 
in those plans on the same terms currently applicable to current 
members of those

[[Page 28074]]

plans. The Exchange has contacted the leadership of each options-
related national market system plan to begin the membership process.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78k-1.
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Regulation
    The Exchange will leverage many of the structures it established to 
operate a national securities exchange in compliance with Section 6 of 
the Exchange Act.\22\ As described in more detail below, there will be 
three elements of that regulation: (1) The Exchange will join the 
existing options industry agreements pursuant to Section 17(d) of the 
Exchange Act,\23\ as it did with respect to equities; (2) the 
Exchange's Regulatory Services Agreement with FINRA will govern many 
aspects of the regulation and discipline of Members that participate in 
options trading, just as it does for equities regulation; and (3) the 
Exchange will perform options listing regulation, as well as authorize 
Options Members to trade on MEMX Options, and conduct surveillance of 
options trading as it does today for equities. Section 17(d) of the 
Exchange Act and the related Exchange Act rules permit SROs to allocate 
certain regulatory responsibilities to avoid duplicative oversight and 
regulation. Under Exchange Act Rule 17d-1,\24\ the SEC designates one 
SRO to be the Designated Examining Authority, or DEA, for each broker-
dealer that is a member of more than one SRO. The DEA is responsible 
for the financial aspects of that broker-dealer's regulatory oversight. 
Because MEMX Options Members also must be members of at least one other 
SRO, the Exchange would generally not be designated as the DEA for any 
of its members.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78f.
    \23\ 15 U.S.C. 78q(d).
    \24\ 17 CFR 240.17d-1.
---------------------------------------------------------------------------

    Exchange Act Rule 17d-2 \25\ permits SROs to file with the 
Commission plans under which the SROs allocate among each other the 
responsibility to receive regulatory reports from, and examine and 
enforce compliance with specified provisions of the Exchange Act and 
rules thereunder and SRO rules by, firms that are members of more than 
one SRO (``common members''). If such a plan is declared effective by 
the Commission, an SRO that is a party to the plan is relieved of 
regulatory responsibility as to any common member for whom 
responsibility is allocated under the plan to another SRO.
---------------------------------------------------------------------------

    \25\ 17 CFR 240.17d-2.
---------------------------------------------------------------------------

    All of the options exchanges, FINRA, and NYSE have entered into the 
Options Sales Practices Agreement, a Rule 17d-2 agreement. Under this 
Agreement, the examining SROs will examine firms that are common 
members of the Exchange and the particular examining SRO for compliance 
with certain provisions of the Exchange Act, certain of the rules and 
regulations adopted thereunder, certain examining SRO rules, and 
certain proposed MEMX Options rules. In addition, the proposed MEMX 
Options rules contemplate participation in this Agreement by requiring 
that any Options Member also be a member of at least one of the 
examining SROs.
    For those regulatory responsibilities that fall outside the scope 
of any Rule 17d-2 agreements, the Exchange will retain full regulatory 
responsibility under the Exchange Act. However, the Exchange has 
entered into a Regulatory Services Agreement with FINRA, pursuant to 
which FINRA personnel operate as agents for the Exchange in performing 
certain of these functions. As is the case with the Exchange's equities 
market, the Exchange will supervise FINRA and continue to bear ultimate 
regulatory responsibility for the MEMX Options Exchange.
    Consistent with the Exchange's existing regulatory structure, the 
Exchange's Chief Regulatory Officer shall have general supervision of 
the regulatory operations of MEMX Options, including responsibility for 
overseeing the surveillance, examination, and enforcement functions and 
for administering all regulatory services agreements applicable to MEMX 
Options. Similarly, the Exchange's existing Regulatory Oversight 
Committee will be responsible for overseeing the adequacy and 
effectiveness of Exchange's regulatory and self-regulatory organization 
responsibilities, including those applicable to MEMX Options.
    Finally, as it does with equities, the Exchange will perform 
automated surveillance of trading on MEMX Options for the purpose of 
maintaining a fair and orderly market at all times. As it does with its 
equities trading, the Exchange will monitor MEMX Options to identify 
unusual trading patterns and determine whether particular trading 
activity requires further regulatory investigation by FINRA.
    In addition, the Exchange will oversee the process for determining 
and implementing trade halts, identifying and responding to unusual 
market conditions, and administering the Exchange's process for 
identifying and remediating ``obvious errors'' by and among its Options 
Members. The proposed rules in Chapter 20 (Regulation of Trading on 
MEMX Options) regarding halts, unusual market conditions, extraordinary 
market volatility, obvious errors, and audit trail are substantively 
identical to the approved rules of BZX Options, with the exception that 
Exchange does not propose to include rules permitting certain off-floor 
transfers of options traded on MEMX Options.\26\
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    \26\ See BZX Rules, Chapter XX.
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Minor Rule Violation Plan
    The Exchange's disciplinary rules, including Exchange Rules 
applicable to ``minor rule violations,'' are set forth in Chapter 8 of 
the Exchange's current Rules. Such disciplinary rules will apply to 
Options Members and their associated persons.
    The Commission approved the Exchange's Minor Rule Violation Plan 
(``MRVP'') in 2020.\27\ The Exchange's MRVP specifies those uncontested 
minor rule violations with sanctions not exceeding $2,500 that would 
not be subject to the provisions of Rule 19d-1(c)(1) under the Act \28\ 
requiring that an SRO promptly file notice with the Commission of any 
final disciplinary action taken with respect to any person or 
organization.\29\ The Exchange's MRVP includes the policies and 
procedures included in Exchange Rule 8.15 (Imposition of Fines for 
Minor Violation(s) of Rules) and in Exchange Rule 8.15, Interpretations 
and Policy .01.
---------------------------------------------------------------------------

    \27\ See Release No. 34-89836 (September 11, 2020), 85 FR 58081 
(September 17, 2020) (Order Declaring Effective a Minor Rule 
Violation Plan) (``MRVP Order'').
    \28\ 17 CFR 240.19d-1(c)(1).
    \29\ The Commission adopted amendments to paragraph (c) of Rule 
19d-1 to allow SROs to submit for Commission approval plans for the 
abbreviated reporting of minor disciplinary infractions. See Release 
No. 34-21013 (June 1, 1984), 49 FR 23828 (June 8, 1984). Any 
disciplinary action taken by an SRO against any person for violation 
of a rule of the SRO which has been designated as a minor rule 
violation pursuant to such a plan filed with and declared effective 
by the Commission will not be considered ``final'' for purposes of 
Section 19(d)(1) of the Act if the sanction imposed consists of a 
fine not exceeding $2,500 and the sanctioned person has not sought 
an adjudication, including a hearing, or otherwise exhausted his 
administrative remedies.
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    The Exchange proposes to amend its MRVP and Exchange Rule 8.15, 
Interpretation and Policy .01 to include proposed Rule 25.3 (Penalty 
for Minor Rule Violations).\30\ The rules included in proposed Rule 
25.3 as appropriate for disposition under the Exchange's MRVP are: (a) 
Position limit and exercise limit violations; (b) violations regarding 
the

[[Page 28075]]

failure to accurately report position and account information; (c) 
Market Maker quoting obligations; (d) violations regarding expiring 
exercise declarations; (e) violations relating to the failure to 
respond to the Exchange's requests for the submission of trade data; 
and (f) violations relating to noncompliance with the Consolidated 
Audit Trail Compliance Rule requirements. The rules included in 
proposed Rule 25.3 are the same as the rules included in the MRVPs of 
other options exchanges.\31\
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    \30\ In its proposal to adopt the MRVP, the Exchange requested 
that, going forward, to the extent that there are any changes to the 
rules applicable to the Exchange's MRVP, the Exchange requests that 
the Commission deem such changes to be modifications to the 
Exchange's MRVP.
    \31\ See, e.g., BZX Rules, Chapter XXV.
---------------------------------------------------------------------------

    Upon implementation of this proposal, the Exchange will include the 
enumerated options trading rule violations in the Exchange's standard 
quarterly report of actions taken on minor rule violations under the 
MRVP. The quarterly report includes: The Exchange's internal file 
number for the case, the name of the individual and/or organization, 
the nature of the violation, the specific rule provision violated, the 
fine imposed, the number of times the rule violation has occurred, and 
the date of disposition. The Exchange's MRVP, as proposed to be 
amended, is consistent with Sections 6(b)(1), 6(b)(5) and 6(b)(6) of 
the Act, which require, in part, that an exchange have the capacity to 
enforce compliance with, and provide appropriate discipline for, 
violations of the rules of the Commission and of the exchange.\32\ In 
addition, because amended Rule 8.15 will offer procedural rights to a 
person sanctioned for a violation listed in proposed Rule 25.3, the 
Exchange will provide a fair procedure for the disciplining of members 
and associated persons, consistent with Section 6(b)(7) of the Act.\33\
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78f(b)(1), 78f(b)(5) and 78f(b)(6).
    \33\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    This proposal to include the rules listed in proposed Rule 25.3 in 
the Exchange's MRVP is consistent with the public interest, the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act, as required by Rule 19d-1(c)(2) under the Act,\34\ because it 
should strengthen the Exchange's ability to carry out its oversight and 
enforcement responsibilities as an SRO in cases where full disciplinary 
proceedings are unsuitable in view of the minor nature of the 
particular violation. In requesting the proposed change to the MRVP, 
the Exchange in no way minimizes the importance of compliance with 
Exchange Rules and all other rules subject to the imposition of fines 
under the MRVP. However, the MRVP provides a reasonable means of 
addressing rule violations that do not rise to the level of requiring 
formal disciplinary proceedings, while providing greater flexibility in 
handling certain violations. The Exchange will continue to conduct 
surveillance with due diligence and make a determination based on its 
findings, on a case-by-case basis, whether a fine of more or less than 
the recommended amount is appropriate for a violation under the MRVP or 
whether a violation requires a formal disciplinary action.
---------------------------------------------------------------------------

    \34\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

Amendments to Existing Exchange Rules
    In addition to the rules of MEMX Options proposed above, the 
Exchange proposes to amend certain of its existing Exchange Rules that 
currently apply to the Exchange's equities market in order to reflect 
the Exchange's proposed operation of MEMX Options.
    First, the Exchange proposes to amend paragraph (d) of 
Interpretations and Policies .01 to Rule 2.5 (Restrictions), which 
generally requires each Member to register at least two Principals with 
the Exchange subject to certain exceptions described therein, to 
provide that such paragraph (d) shall not apply to a Member that solely 
conducts business on the Exchange as an Options Member, however, 
Options Members must comply with the registration requirements set 
forth in proposed Rule 17.2(g). The Exchange notes that proposed Rule 
17.2(g), which provides that every Options Member shall have at least 
one Options Principal and sets forth the Exchange's Options Principal 
registration requirements, is identical to BZX Rule 17.2(g). In 
connection with this proposed change, the Exchange also proposes to 
amend paragraph (i) of Interpretations and Policies .01 to Rule 2.5 to 
include Options Principal as a registration category and to set forth 
the Exchange's qualification requirements for an Options Principal, 
which are the same as those for an Options Principal on BZX Options.
    The Exchange also proposes to delete the word ``equities'' in the 
first sentence of Rule 2.7 (Revocation of Membership or Association 
with a Member), which currently provides that Members or associated 
persons of Members may effect approved equities securities transactions 
on the Exchange's trading facilities only so long as they possess all 
the qualifications set forth in the Exchange Rules. Thus, such proposed 
change is intended to make this statement no longer limited to equities 
securities transactions, as options transactions may also be effected 
on the Exchange pursuant to this proposal.
    Lastly, the Exchange proposes to amend Interpretations and Policies 
.01 Rule 8.15 (Imposition of Fines for Minor Violation(s) of Rules), 
which contains the list of Exchange Rule violations and recommended 
fine schedule pursuant to Rule 8.15, to include a new paragraph (i) 
referencing proposed Rule 25.3 for the recommended fines for minor rule 
violations of the Exchange Rules appliable [sic] to MEMX Options, which 
the Exchange notes are the same as those of BZX Options.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \35\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \36\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and 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; 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As described above, the fundamental premise of the proposal is that 
the Exchange will operate its options market much as it operates its 
cash equities market today and in a manner similar to that of other 
options exchanges, with a simplified suite of order types and 
deterministic functionality leveraging the Exchange's existing robust 
and resilient technology platform. The Exchange believes MEMX Options 
will benefit individual investors, options trading firms, and the 
options market generally by providing an additional competitive dynamic 
to the options landscape, thereby promoting further initiative and 
innovation among market centers and market participants. The entry of 
an innovative, cost competitive market such as MEMX Options will 
promote competition, spurring existing exchanges to improve their own 
executions systems and reduce trading costs.
    The Exchange proposes to offer a simplified suite of conventional 
order types and order type modifiers and other instructions that are 
designed to provide for an efficient, robust, and transparent order 
matching process. The

[[Page 28076]]

basis for a majority of the proposed rules of MEMX Options are the 
approved rules of other options exchanges, primarily BZX Options, which 
have already been found consistent with the Exchange Act. Therefore, 
the Exchange does not believe that any of the proposed order types and 
order type functionality raise any new or novel issues that have not 
been previously considered by the Commission.
    In few instances where the Exchange proposes functionality that 
differs from that of other options exchanges, it has done so to 
simplify and/or to improve upon an existing process. For instance, the 
Exchange believes the proposed operation of the Exchange's Risk Monitor 
Mechanism described in Rule 21.16, including the proposed functionality 
in addition to that provided under BZX Rule 21.16, removes impediments 
to and perfects the mechanism of a free and open market and a national 
market system by offering Users additional ways to establish and 
monitor risk parameters consistent with their overall approach to risk 
management. Specifically, the following additional proposed features 
with respect to its Risk Monitor Mechanism would provide Users with 
greater optionality when managing their risk on MEMX Options: (i) The 
ability to designate a Custom Group Limit to track risk parameters 
across a customized group of orders, (ii) the ability to suspend, 
rather than cancel or reject, resting orders when a risk limit has been 
reached, (iii) the ability to engage the Risk Monitor Mechanism for 
mass suspension as an alternative to mass cancellation, and (iv) the 
ability to utilize the proposed active risk counter to actively 
acknowledge executions, rather than waiting until a risk limit is 
reached or the counting program is completely reset. Additionally, the 
Exchange believes proposed Rule 21.17, which contains standard and 
Exchange-determined risk controls based on order type and market 
conditions that are the same as other options exchanges, as well as a 
simplified version of the drill-through price protection mechanism, 
removes impediments to and perfects the mechanism of a free and open 
market and a national market system by imposing risk controls that are 
designed to prevent orders from executing at prices inconsistent with 
the current market.
    The Exchange further believes that the functionality that it 
proposes to offer is consistent with Section 6(b)(5) of the Act because 
the System is designed to be efficient and its operation transparent, 
thereby facilitating transactions in securities, removing impediments 
to and perfecting the mechanisms of a free and open national market 
system. As described above, the Exchange's proposed rules, including 
the proposed Order Types and Handling Instructions, opening procedures, 
routing services, and order matching process are designed to provide a 
simplified suite of conventional features and to comply with all 
applicable regulatory requirements, including the obligations of the 
Options Order Protection and Locked/Crossed Market Plan.
    The Exchange believes that the proposed rules of MEMX Options, as 
well as the proposed method of monitoring for compliance with and 
enforcing such rules is also consistent with the Exchange Act, 
particularly Sections 6(b)(1), 6(b)(5) and 6(b)(6) of the Exchange Act, 
which require, in part, that an exchange have the capacity to enforce 
compliance with, and provide appropriate discipline for, violations of 
the rules of the Commission and of the exchange. The Exchange has 
proposed to adopt rules necessary to regulate Options Members that are 
nearly identical to the approved rules of other options exchanges, as 
described above. The Exchange proposes to regulate activity on MEMX 
Options in the same way it regulates activity on its equities market, 
specifically through various Exchange specific functions, an RSA with 
FINRA, as well as participation in industry plans, including plans 
pursuant to Rule 17d-2 under the Exchange Act.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
operates in an intensely competitive global marketplace for transaction 
services. Relying on its array of services and benefits, the Exchange 
competes for the privilege of providing market services to broker-
dealers. The Exchange's ability to compete in this environment is based 
in large part on the quality of its trading systems, the overall 
quality of its market and its attractiveness to the largest number of 
investors, as measured by speed, likelihood and cost of executions, as 
well as spreads, fairness, and transparency.
    Consolidation amongst U.S. options exchanges has led to 
concentration of ownership by certain exchange groups, thereby 
diminishing the competitive landscape among options exchanges. This 
proposal will enhance competition by allowing the Exchange to leverage 
its existing robust technology platform to provide a resilient, 
deterministic, and transparent execution platform for options. The 
proposed rule change will insert an additional competitive dynamic to 
the options landscape by allowing the Exchange to compete with existing 
options exchanges and will promote further initiative and innovation 
among market centers and market participants.

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

    Within 90 days of the date of publication of this notice in the 
Federal Register, the Commission shall: (a) By order approve or 
disapprove such proposed rule change, or (b) institute proceedings to 
determine whether the proposed rule change should be disapproved.\37\
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    \37\ In its filing, MEMX consented to an extension of time for 
Commission action to ninety (90) days after the date of publication 
of the proposal.
---------------------------------------------------------------------------

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-2022-10 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-2022-10. 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/

[[Page 28077]]

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 offices 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-2022-10, and should be 
submitted on or before May 31, 2022.
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    \38\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-09958 Filed 5-9-22; 8:45 am]
BILLING CODE 8011-01-P