Notice2021-12593
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 16, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 114 (Wednesday, June 16, 2021)</title>
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[Federal Register Volume 86, Number 114 (Wednesday, June 16, 2021)]
[Notices]
[Pages 32090-32099]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-12593]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92150; File No. SR-MEMX-2021-07]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
June 10, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 1, 2021, MEMX LLC (``MEMX'' or the ``Exchange'') filed
with the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the Exchange's fee schedule applicable to Members \3\ (the
``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and (c). The
Exchange proposes to implement the changes to the Fee Schedule pursuant
to this proposal on June 1, 2021. The text of the proposed rule change
is provided in Exhibit 5.
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\3\ See Exchange Rule 1.5(p).
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Fee
Schedule to (i) adopt a new pricing incentive (the ``Displayed
Liquidity Incentive'' or ``DLI'') designed to improve market quality on
the Exchange in certain specific securities and more generally in the
form of an enhanced rebate for executions of displayed orders in
securities priced at or above $1.00 per share that add liquidity to the
Exchange (such orders, ``Added Displayed Volume'') for Members that
meet certain minimum quoting requirements across a specified number of
securities, as further described below; (ii) introduce a tiered pricing
structure applicable to the rebates provided for executions of Added
Displayed Volume; (iii) adopt an enhanced rebate for executions of
Pegged Orders \4\ with a Midpoint Peg \5\ instruction in securities
priced at or above $1.00 per share (such orders, ``Midpoint Peg
Orders'') that add liquidity to the Exchange; (iv) increase the
standard fee for executions of orders in securities priced at or above
$1.00 per share that remove liquidity from the Exchange (such orders,
``Removed Volume''); and (v) reduce the standard rebate for executions
of Added Displayed Volume.
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\4\ Pegged Orders are described in Exchange Rules 11.6(h) and
11.8(c) and generally defined as an order that is pegged to a
reference price and automatically re-prices in response to changes
in the national best bid and/or offer (``NBBO'').
\5\ A Midpoint Peg instruction is an instruction that may be
placed on a Pegged Order that instructs the Exchange to peg the
order to midpoint of the NBBO. See Exchange Rule 11.6(h)(2).
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The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues, to
which market participants may direct their order flow. Based on
publicly available information, no single
[[Page 32091]]
registered equities exchange currently has more than approximately 16%
of the total market share of executed volume of equities trading.\6\
Thus, in such a low-concentrated and highly competitive market, no
single equities exchange possesses significant pricing power in the
execution of order flow, and the Exchange currently represents
approximately 2.4% of the overall market share.\7\
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\6\ Market share percentage calculated as of May 27, 2021. The
Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\7\ Id.
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Adoption of Displayed Liquidity Incentive
The Exchange proposes to adopt a new pricing incentive, referred to
by the Exchange as the ``Displayed Liquidity Incentive'' or ``DLI'', in
the form of an enhanced rebate for executions of Added Displayed Volume
for Members that qualify for the DLI by meeting certain minimum quoting
requirements across a specified number of securities, as further
described below. The proposed DLI is designed to encourage Members to
improve market quality on the Exchange in certain specific securities
and more generally. As proposed, a Member will qualify for the DLI, and
thus receive the proposed enhanced rebate for executions of Added
Displayed Volume described below, if the Member's NBBO Time \8\ is at
least 25% in an average of at least 250 securities, at least 75 of
which must be DLI Target Securities,\9\ per trading day during the
month. Under this proposal, the Exchange will determine on a daily
basis the number of securities in which each of a Member's MPIDs meets
the 25% NBBO Time requirement (the ``quoting requirement'') for that
day. The Exchange will then aggregate the number of securities in which
each of a Member's MPIDs meets the quoting requirement to determine the
total number of securities in which such Member meets the quoting
requirement for that day.\10\ However, a single security in which more
than one of such Member's MPIDs meets the quoting requirement for that
day will only be counted once for this purpose.\11\ Additionally, as
proposed, the quoting requirement with respect to a security must be
met by a single MPID achieving the requisite NBBO Time for that day,
and the NBBO Time of multiple MPIDs will not be aggregated to determine
if the Member has met the quoting requirement in that security.\12\
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\8\ As proposed, the term ``NBBO Time'' means the aggregate of
the percentage of time during regular trading hours during which one
of a Member's market participant identifiers (``MPIDs'') has a
displayed order of at least one round lot at the national best bid
(``NBB'') or the national best offer (``NBO''). If an MPID has a
displayed order of at least one round lot at both the NBB and the
NBO, the quoting activity on each side will be aggregated and
counted toward the NBBO Time. As an example, where a Member's MPID
has a displayed order of at least one round lot at the NBB for 20%
of the time during regular trading hours and a displayed order of at
least one round lot at the NBO for 10% of the time during regular
trading hours for a security, the Member's NBBO Time with respect to
that MPID for that security would be 30%. Thus, it is possible for a
single MPID to have an NBBO Time for a security of up to 200% for a
particular day under this proposal. As proposed, the term ``regular
trading hours'' refers to the time between 9:30 a.m. and 4:00 p.m.
Eastern Time, or such shorter period as may be designated by the
Exchange on a day when the securities markets close early.
\9\ As proposed, the term ``DLI Target Securities'' means a list
of securities designated as such, the universe of which will be
determined by the Exchange and published on the Exchange's website.
The Exchange anticipates that the initial DLI Target Securities list
will include between 275 and 300 securities. The DLI Target
Securities list will always include at least 75 securities and may
be periodically updated by the Exchange, provided that the Exchange
will not remove a security from the DLI Target Securities list
without at least 30 days' prior notice to Members as published on
the Exchange's website (unless the security is no longer eligible
for trading on the Exchange).
\10\ For example, if a Member has four MPIDs and each MPID has
an NBBO Time of 30% in a different security, this will count as four
securities in which such Member has met the quoting requirement for
that day.
\11\ Thus, if a Member has two MPIDs that meet the quoting
requirement in the same security for a particular day, this will
only count as one security for purposes of determining the total
number of securities in which such Member has met the quoting
requirement for that day.
\12\ As an example, assume that a Member has two MPIDs, and that
MPID 1 has an NBBO Time of 15% and MPID 2 has an NBBO Time of 20% in
the same security for a particular day. In this event, such Member
would not meet the quoting requirement in that security for that day
as it does not have an MPID with an NBBO Time of at least 25% in
that security for that day. The Exchange notes that The Nasdaq Stock
Market LLC (``Nasdaq'') uses this same methodology when calculating
the time that a member quotes at the NBBO under its Qualified Market
Maker program. See infra note 17; see also Securities Exchange Act
Release No. 77662 (April 20, 2016), 81 FR 24681, 24682 (April 26,
2016) (SR-NASDAQ-2016-051).
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As noted above, to qualify for the DLI, a Member must meet the
quoting requirement in an average of at least 250 securities traded on
the Exchange (the ``250 securities requirement''), at least 75 of which
must be DLI Target Securities (the ``75 DLI Target Securities
requirement''), per trading day during the month. Each of the 250
securities requirement and the 75 DLI Target Securities requirement is
referred to under this proposal as a ``securities requirement.'' The
proposed DLI is designed to enhance market quality both in a broad
manner with respect to all securities traded on the Exchange, through
the 250 securities requirement, and in a targeted manner with respect
to certain designated securities in which the Exchange specifically
seeks to inject additional quoting competition (i.e., the DLI Target
Securities), through the 75 DLI Target Securities requirement. The
number of DLI Target Securities in which a Member meets the quoting
requirement will be counted toward both the 75 DLI Target Securities
requirement and the 250 securities requirement. In order to determine
whether a Member meets the applicable securities requirements during a
month, the average number of securities in which such Member meets the
quoting requirement per trading day during the month will be calculated
by summing the number of securities in which each of such Member's
MPIDs met the quoting requirement for each trading day during the month
then dividing the resulting sum by the total number of trading days in
the month.\13\ The Exchange proposes to add notes to the Fee Schedule
describing the criteria for determining whether a Member qualifies for
the DLI and the related calculation methodologies described above.
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\13\ As an example, in a month with 20 trading days, if a
Member's MPIDs collectively satisfied the quoting requirement in 125
securities (of which 25 were DLI Target Securities) for ten of the
trading days in the month, and collectively satisfied the quoting
requirement in 375 securities (of which 125 were DLI Target
Securities) for the other ten trading days in the month, such Member
would meet the quoting requirement in an average of 250 securities
(i.e., ((125 x 10) + (375 x 10))/20), inclusive of an average of 75
DLI Target Securities (i.e., ((25 x 10) + (125 x 10))/20), per
trading day during the month. Therefore, such Member would meet both
of the applicable securities requirements during the month and would
qualify for the DLI for that month under this proposal.
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In addition, the Exchange will exclude for purposes of determining
qualification for the Displayed Liquidity Incentive: (1) Any trading
day that the Exchange's system experiences a disruption that lasts for
more than 60 minutes during regular trading hours (``Exchange System
Disruption Days''); and (2) the day that Russell Investments
reconstitutes its family of indexes (the ``Russell Reconstitution
Day''), which occurs annually on the last Friday in June. The Exchange
will exclude Exchange System Disruption Days and the Russell
Reconstitution Day when determining both the numerator (i.e., the
number of securities in which a Member's MPIDs met the quoting
requirement for each trading day during the month) and the denominator
(i.e., the total number of trading days in the month) for purposes of
calculating the average number of securities in which such Member meets
the quoting
[[Page 32092]]
requirement per trading day during the month.
As further detail regarding such proposed exclusions, an Exchange
system disruption may occur, for example, where a certain group of
securities traded on the Exchange is unavailable for trading due to an
Exchange system issue. Similarly, the Exchange may be able to perform
certain functions with respect to accepting and processing orders, but
may have a failure to another significant process, such as routing to
other market centers, that would lead Members that rely on such process
to avoid utilizing the Exchange until the Exchange's entire system was
operational. The Exchange believes that these types of Exchange system
disruptions could preclude Members from participating on the Exchange
to the extent that they might have otherwise participated on such days,
and thus, the Exchange believes it is appropriate to exclude such days
when determining whether a Member meets the applicable securities
requirements during a month to avoid penalizing Members that might
otherwise have met such requirements. For similar reasons, the Exchange
believes it is appropriate to exclude the Russell Reconstitution Day in
the same manner, as the Exchange believes that the Russell
Reconstitution Day typically has extraordinarily high and abnormally
distributed trading volumes, and the Exchange believes this change to
normal activity may affect a Member's ability to meet the quoting
requirement across various securities on that day. The Exchange notes
that the exclusion of Exchange System Disruption Days and the Russell
Reconstitution Day is consistent with the methodologies used by other
exchanges when calculating certain member trading and other volume
metrics for purposes of determining whether members qualify for certain
pricing incentives, and the Exchange believes application of this
methodology is similarly appropriate for the proposed DLI pricing
incentive.\14\
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\14\ See, e.g., the Cboe BZX Exchange, Inc. (``Cboe BZX'')
equities trading fee schedule on its public website (available at
<a href="https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/">https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/</a>);
the Cboe EDGX Exchange, Inc. equities trading fee schedule on its
public website (available at <a href="https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/">https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/</a>).
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A Member that qualifies for the DLI by meeting the requirements
described above during a particular month will receive an enhanced
rebate of $0.0036 per share for all executions of Added Displayed
Volume (unless a higher rebate applies \15\) during that month.\16\
This proposed enhanced rebate is $0.0005 higher than the standard
rebate that would otherwise be applicable to such executions, which the
Exchange is proposing to reduce from $0.0034 to $0.0031, as further
described below. The proposed enhanced rebate will apply to all
executions of Added Displayed Volume (other than orders receiving a
higher rebate, such as Retail Orders) entered by each MPID of a
qualifying Member; thus, if a Member qualifies for the DLI as a result
of its quoting activity from one of its MPIDs during a month, the
qualifying Member will receive the proposed enhanced rebate of $0.0036
per share for all executions of Added Displayed Volume (unless a higher
rebate applies) entered by that MPID as well as those entered by each
of its other MPIDs during that month. The Exchange notes that the
proposed enhanced rebate will only apply to executions in securities
priced at or above $1.00 per share; executions of a qualifying Member's
displayed orders that add liquidity to the Exchange in securities
priced below $1.00 per share will continue to receive the standard
rebate applicable to executions of such orders on the Exchange (i.e.,
0.05% of the total dollar value of the transaction).
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\15\ As described further below, the Exchange is also proposing
to specify on the Fee Schedule that the lowest fee/highest rebate
will apply if a Member qualifies for multiple fees/rebates with
respect to a particular transaction. Retail Orders in securities
priced at or above $1.00 per share that are displayed and add
liquidity to the Exchange receive a rebate that is higher than the
proposed enhanced rebate for Members that qualify for the DLI. Thus,
under the Exchange's proposed pricing structure, a Member that
qualifies for the DLI would not receive the proposed DLI enhanced
rebate for executions of displayed Retail Orders that add liquidity
to the Exchange but instead would receive the rebate applicable to
executions of liquidity-adding displayed Retail Orders.
\16\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the new description ``Added displayed volume,
DLI'' with a Fee Code of ``Bq'', ``Dq'' or ``Jq'', as applicable, to
be provided by the Exchange on the monthly invoices provided to
Members. The Exchange notes that because the determination of
whether a Member qualifies for the DLI for a particular month will
not be made until after the month-end, the Exchange will provide the
Fee Codes otherwise applicable to such transactions (i.e., ``B'',
``D'' or ``J'') on the execution reports provided to Members during
the month and will only designate the Fee Codes of ``Bq'', ``Dq'' or
``Jq'' on the monthly invoices, which are provided after such
determination has been made.
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The Exchange is proposing to provide the enhanced rebate for
executions of Added Displayed Volume for qualifying Members as a means
of recognizing the value of market participants that consistently quote
at the NBBO in a large number of securities, generally, and in the DLI
Target Securities, in particular. Even when such market participants
are not formally registered as market makers, they risk capital by
offering immediately executable liquidity at the price most favorable
to market participants on the opposite side of the market. Such
activity promotes price discovery and dampens volatility and enhances
the attractiveness of the Exchange as a trading venue. Given the
proposed requirements to qualify for the DLI, a Member must make a
significant contribution to market quality by providing liquidity at
the NBBO in a large number of securities, including certain designated
securities in which the Exchange specifically seeks to inject
additional quoting competition (i.e., the DLI Target Securities), for a
significant portion of the day.
A Member that qualifies for the DLI may be, but is not required to
be, a registered market maker in any security; thus, qualifying for the
DLI does not by itself impose a two-sided or any other quotation
obligation or convey any of the benefits associated with being a
registered market maker. Qualification for the DLI will, however,
reflect the Member's commitment to provide meaningful and consistent
support to market quality and price discovery by extensive quoting at
the NBBO in a large number of securities, including the DLI Target
Securities. Thus, this proposal is designed to attract liquidity both
from traditional market makers and from other firms that are willing to
commit capital to support liquidity at the NBBO. Through the proposed
enhanced rebate for qualifying Members, the Exchange hopes to provide
improved trading conditions for all market participants through
narrower bid-ask spreads and increased depth of liquidity available at
the NBBO for a large number of securities, generally, including the DLI
Target Securities, in particular. In addition, the proposal reflects an
effort to use a financial incentive to encourage a wider variety of
Members, including Members that may be characterized as high-frequency
trading firms, to make positive commitments to promote market quality.
The Exchange notes that the proposed DLI is similar in structure
and purpose to pricing programs in place at other exchanges that are
designed to enhance market quality by incentivizing members to achieve
minimum quoting standards, including minimum quoting at the NBBO in a
large number of securities, generally, or certain designated
securities, in particular.\17\
[[Page 32093]]
The Exchange further notes that, like the proposed DLI, these programs
include as an incentive the provision of an enhanced rebate for
executions of liquidity-adding displayed orders for members that meet
the quoting and other requirements of those programs.\18\
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\17\ See, e.g., the Nasdaq equities trading fee schedule on its
public website, available at <a href="http://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2">http://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2</a>) and Nasdaq Rule Equity 7, Section
114(d) describing Nasdaq's Qualified Market Maker Program, which
provides for an additional rebate (ranging from $0.0001 to $0.0002
per share) for executions of liquidity-providing displayed orders
(other than designated retail orders) in securities across all tapes
priced at or above $1.00 per share for members that, in addition to
executing transactions that represent a specified percentage of
consolidated volume and avoiding inefficient order entry practices
that place excessive burdens on Nasdaq's systems, quote at the NBBO
at least 25% of the time during regular market hours in an average
of at least 1,000 securities per day during the month; see also the
Cboe BZX equities trading fee schedule on its public website
(available at <a href="https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/">https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/</a>), which provides for an additional rebate (ranging
from $0.0001 to $0.0002 per share) under Cboe BZX's Liquidity
Management Program for executions of liquidity-providing displayed
orders in Tape B securities priced at or above $1.00 per share for
members that, in addition to adding a specified percentage of total
consolidated volume in Tape B securities and meeting certain other
quoting requirements with respect to a specified number of
securities designated as ``LMP Securities'' on a list determined by
Cboe BZX, quote at the NBBO at least 15% of the time during regular
trading hours in a specified number of such designated LMP
Securities (or achieve an alternative NBBO quoting standard
involving a size-setting element with respect to such designated LMP
Securities).
\18\ Id.
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In addition to the foregoing changes, the Exchange proposes to add
to the Fee Schedule definitions of the terms ``MPID'', ``DLI Target
Securities'', ``quoting requirement'', ``regular trading hours'' and
``securities requirement'' that are consistent with the descriptions of
those terms set forth above, as such terms are used in the notes
describing the calculation methodologies and criteria for determining
whether a Member qualifies for the DLI that the Exchange is proposing
to add to the Fee Schedule, as described above.
Adoption of Liquidity Provision Tier
The Exchange is also proposing to introduce a tiered pricing
structure applicable to the rebates provided for executions of Added
Displayed Volume. Specifically, the Exchange proposes to adopt a new
volume-based tier, referred to by the Exchange as the ``Liquidity
Provision Tier'', in which the Exchange will provide an enhanced rebate
for executions of Added Displayed Volume for Members that meet a
certain specified volume threshold on the Exchange. Currently, the
Exchange provides a standard rebate of $0.0034 per share for executions
of Added Displayed Volume, which the Exchange is proposing to reduce to
$0.0031, as further described below. The Exchange now proposes to
introduce a tiered pricing structure in which it will provide an
enhanced rebate of $0.00335 per share for executions of Added Displayed
Volume for Members that qualify for the Liquidity Provision Tier by
achieving an ADAV \19\ of 15,000,000 shares or more.\20\ As proposed,
ADAV will be calculated on a monthly basis, and Members that qualify
for the Liquidity Provision Tier by achieving the specified ADAV
threshold in a particular month will receive the proposed enhanced
rebate of $0.00335 per share for all executions of Added Displayed
Volume in that month (unless a higher rebate applies).
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\19\ As proposed, the term ``ADAV'' means the average daily
added volume calculated as the number of shares added per day.
\20\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the new description ``Added displayed volume,
Liquidity Provision Tier'' with a Fee Code of ``B1'', ``D1'' or
``J1'', as applicable, to be provided by the Exchange on the monthly
invoices provided to Members. The Exchange notes that because the
determination of whether a Member qualifies for the Liquidity
Provision Tier for a particular month will not be made until after
the month-end, the Exchange will provide the Fee Codes otherwise
applicable to such transactions (i.e., ``B'', ``D'' or ``J'') on the
execution reports provided to Members during the month and will only
designate the Fee Codes of ``B1'', ``D1'' or ``J1'' on the monthly
invoices, which are provided after such determination has been made.
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Similar to the exclusion for purposes of determining qualification
for the Displayed Liquidity Incentive, the Exchange proposes to exclude
from the calculation of ADAV: (1) Any Exchange System Disruption Days;
and (2) the Russell Reconstitution Day, which occurs annually on the
last Friday in June.\21\ As is true with respect to the Displayed
Liquidity Incentive, the Exchange believes that Exchange system
disruptions could preclude Members from participating on the Exchange
to the extent that they might have otherwise participated on such days,
and thus, the Exchange believes it is appropriate to exclude such days
when determining whether a Member qualifies for the Liquidity Provision
Tier to avoid penalizing Members that might otherwise have met the
applicable volume threshold. For similar reasons, the Exchange believes
it is appropriate to exclude the Russell Reconstitution Day in the same
manner, as the Exchange believes the change to normal activity may
affect a Member's ability to add liquidity to the Exchange on that day.
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\21\ See supra note 14 and accompanying text.
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The Exchange believes that the proposed tiered pricing structure
provides an incremental incentive for Members to strive for higher ADAV
on the Exchange to receive the proposed enhanced rebate for executions
of Added Displayed Volume. As such, the proposed Liquidity Provision
Tier is designed to encourage Members that provide liquidity on the
Exchange to maintain or increase their order flow, thereby contributing
to a deeper and more liquid market to the benefit of all market
participants and enhancing the attractiveness of the Exchange as a
trading venue.
Adoption of Enhanced Rebate for Added Midpoint Volume
The Exchange is also proposing to adopt an enhanced rebate for
executions of Midpoint Peg Orders that add liquidity to the Exchange
(such orders, ``Added Midpoint Volume''). Currently, the Exchange
provides a standard rebate of $0.0020 per share for all executions of
non-displayed orders in securities priced at or above $1.00 per share
that add liquidity to the Exchange, including executions of Added
Midpoint Volume. The Exchange now proposes to adopt an enhanced rebate
for executions of Added Midpoint Volume of $0.0025 per share,\22\ while
all other executions of non-displayed orders in securities priced at or
above $1.00 per share that add liquidity to the Exchange will continue
to receive the standard rebate for such transactions (i.e., $0.0020 per
share). The Exchange notes that executions of orders with a Midpoint
Peg instruction that add liquidity to the Exchange in securities priced
below $1.00 per share will continue to receive the standard rebate
applicable to executions of such orders on the Exchange (i.e., 0.05% of
the total dollar value of the transaction).
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\22\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the new description ``Added non-displayed volume,
Midpoint Peg'' and such orders will continue to receive a Fee Code
of ``M'' assigned by the Exchange.
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The purpose of the proposed enhanced rebate for executions of Added
Midpoint Volume is to encourage Members that provide liquidity through
non-displayed orders to do so, to a greater extent, through orders that
offer price improvement to the benefit of other market participants.
While the Exchange's pricing structure is generally designed to
encourage the provision of liquidity through displayed orders, as the
rebates provided with respect to such orders are consistently higher
than those for non-displayed orders, the proposed enhanced rebate for
executions of Added Midpoint Volume reflects a concomitant goal of
encouraging Members that use non-displayed orders to offer price
[[Page 32094]]
improvement through the use of orders that are designed to execute at
the midpoint of the NBBO. The Exchange believes that providing an
enhanced rebate for executions of Added Midpoint Volume is a reasonable
means by which to incentivize Members to provide additional liquidity
at the midpoint of the NBBO, which in turn would increase the
attractiveness of the Exchange as a destination venue, as Members
seeking price improvement would be more motivated to direct their
orders to the Exchange because they would have a heightened expectation
of the availability of liquidity at the midpoint of the NBBO. The
Exchange notes that the proposed enhanced rebate is comparable to, and
competitive with, the rebate provided by at least one other exchange
for executions of non-displayed orders in securities priced at or above
$1.00 per share that are pegged to the midpoint of the NBBO.\23\
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\23\ See the Nasdaq PHLX LLC equities trading fee schedule on
its public website (available at <a href="https://www.nasdaqtrader.com/Trader.aspx?id=PSX_Pricing">https://www.nasdaqtrader.com/Trader.aspx?id=PSX_Pricing</a>), which reflects a standard rebate of
$0.0023 per share for adding non-displayed liquidity via an order
that is pegged to the midpoint of the NBBO in a security priced at
or above $1.00 per share.
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Increased Standard Fee for Removed Volume
The Exchange also proposes to increase the standard fee for
executions of orders in securities priced at or above $1.00 per share
that remove liquidity from the Exchange (i.e., Removed Volume).
Currently, the Exchange charges a standard fee of $0.0026 per share for
executions of Removed Volume. The Exchange now proposes to increase the
standard fee charged for executions of Removed Volume to $0.00265 per
share.\24\ The purpose of increasing the standard fee for executions of
Removed Volume is for business and competitive reasons, as the Exchange
believes that increasing such fee as proposed would generate additional
revenue to offset some of the costs associated with the proposed
enhanced rebates for executions of Added Displayed Volume for Members
that qualify for the DLI or the Liquidity Provision Tier and executions
of Added Midpoint Volume, and the Exchange's operations generally, in a
manner that is still consistent with the Exchange's overall pricing
philosophy of encouraging added displayed liquidity. The Exchange notes
that despite the modest increase to the standard fee, the Exchange's
fee for executions of Removed Volume remains lower than the fee to
remove liquidity in securities priced at or above $1.00 charged by
several other exchanges.\25\
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\24\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the existing description ``Removed volume from
MEMX Book'' and such orders will continue to receive a Fee Code of
``R'' assigned by the Exchange.
\25\ See, e.g., the Cboe BZX equities trading fee schedule on
its public website (available at <a href="https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/">https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/</a>); the Cboe EDGX Exchange, Inc.
(``Cboe EDGX'') equities trading fee schedule on its public website
(available at <a href="https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/">https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/</a>); Nasdaq Rule Equity 7, Section 118(a).
---------------------------------------------------------------------------
Reduced Standard Rebate for Added Displayed Volume
The Exchange also proposes to reduce the standard rebate for
executions of Added Displayed Volume. Currently, the Exchange provides
a standard rebate of $0.0034 per share for executions of Added
Displayed Volume. The Exchange now proposes to reduce the standard
rebate for executions of Added Displayed Volume to $0.0031 per
share.\26\ The Exchange notes that executions of displayed orders that
add liquidity to the Exchange in securities priced below $1.00 per
share will continue to receive the standard rebate applicable to
executions of such orders on the Exchange (i.e., 0.05% of the total
dollar value of the transaction).
---------------------------------------------------------------------------
\26\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the existing description ``Added displayed
volume'' and such orders will continue to receive a Fee Code of
``B'', ``D'' or ``J'', as applicable, assigned by the Exchange.
---------------------------------------------------------------------------
The purpose of reducing the standard rebate for executions of Added
Displayed Volume is also for business and competitive reasons, as the
Exchange believes the reduction of such rebate would decrease the
Exchange's expenditures with respect to transaction pricing and would
also offset some of the costs associated with the proposed enhanced
rebates for executions of Added Displayed Volume for Members that
qualify for the DLI or the Liquidity Provision Tier and executions of
Added Midpoint Volume, and the Exchange's operations generally, in a
manner that is still consistent with the Exchange's overall pricing
philosophy of encouraging added displayed liquidity. The Exchange notes
that the proposed standard rebate is comparable to, and competitive
with, the standard rebates provided by at least one other exchange for
executions of orders in securities priced at or above $1.00 per share
that add displayed liquidity.\27\
---------------------------------------------------------------------------
\27\ See the MIAX PEARL, LLC equities trading fee schedule on
its public website (available at <a href="https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_PEARL_Equities_Fee_Schedule_01012021.pdf">https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_PEARL_Equities_Fee_Schedule_01012021.pdf</a>), which reflects a
standard rebate of $0.0032 per share to add displayed liquidity in
Tape A and Tape C securities priced at or above $1.00 per share and
a standard rebate of $0.0035 per share to add displayed liquidity in
Tape B securities priced at or above $1.00 per share.
---------------------------------------------------------------------------
Lastly, the Exchange proposes to add a note to the Fee Schedule
specifying that to the extent a Member qualifies for multiple fees/
rebates with respect to a particular transaction, the lowest fee/
highest rebate shall apply. The Exchange notes that charging the fee or
providing the rebate that is most favorable with respect to a
particular transaction is consistent with the pricing practices of
other exchanges.\28\
---------------------------------------------------------------------------
\28\ See, e.g., the Cboe BZX equities trading fee schedule on
its public website (available at <a href="https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/">https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/</a>), which provides ``To the
extent a Member qualifies for higher rebates and/or lower fees than
those provided by a tier for which such Member qualifies, the higher
rebates and/or lower fees shall apply.''
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\29\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\30\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among its Members and other persons using its facilities
and is not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f.
\30\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
As discussed above, the Exchange operates in a highly fragmented
and competitive market in which market participants can readily direct
order flow to competing venues if they deem fee levels at a particular
venue to be excessive or incentives to be insufficient, and the
Exchange represents only a small percentage of the overall market. The
Commission and the courts have repeatedly expressed their preference
for competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \31\
---------------------------------------------------------------------------
\31\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------
The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to new or
[[Page 32095]]
different pricing structures being introduced into the market.
Accordingly, competitive forces constrain the Exchange's transaction
fees and rebates, and market participants can readily trade on
competing venues if they deem pricing levels at those other venues to
be more favorable. The Exchange believes that the proposal reflects a
reasonable and competitive pricing structure designed to incentivize
market participants to direct their order flow to the Exchange, to
enhance market quality in both a broad manner and in a targeted manner
with respect to the DLI Target Securities, and to provide price
improvement through the use of orders that are designed to execute at
the midpoint of the NBBO through the provision of enhanced rebates for
executions of Added Displayed Volume for Members that qualify for the
DLI or the Liquidity Provision Tier and for executions of Added
Midpoint Volume. While the Exchange has proposed increasing its
standard fee for executions of Removed Volume and reducing its standard
rebate for executions of Added Displayed Volume, as further discussed
below, each of such changes represents a modest increase (decrease)
from the current fee (rebate) applicable to such executions.
As noted above, the proposed DLI is intended to encourage Members
to promote price discovery and market quality by quoting at the NBBO
for a significant portion of each day in a large number of securities,
generally, and in the DLI Target Securities, in particular, thereby
benefitting the Exchange and other investors by providing improved
trading conditions for all market participants through narrower bid-ask
spreads and increased depth of liquidity available at the NBBO in a
broad base of securities, including the DLI Target Securities, and
committing capital to support the execution of orders. Additionally,
the Exchange believes the proposed enhanced rebate for all executions
of a qualifying Member's Added Displayed Volume will simultaneously
incentivize such Member to direct additional displayed liquidity-
providing orders to the Exchange in a more general manner to receive
such enhanced rebate. Thus, the Exchange believes that the proposed DLI
will promote price discovery and market quality in the DLI Target
Securities and more generally on the Exchange, and, further, that the
resulting tightened spreads and increased displayed liquidity will
benefit all investors by deepening the Exchange's liquidity pool,
offering additional flexibility for all investors to enjoy cost
savings, supporting the quality of price discovery, enhancing quoting
competition across exchanges, and promoting market transparency.
The Exchange believes the proposed enhanced rebate of $0.0036 per
share provided to Members that qualify for the DLI for executions of
Added Displayed Volume is reasonable, in that it does not reflect a
disproportionate increase above the proposed standard rebate of $0.0031
per share provided to all Members with respect to the provision of
displayed liquidity. The Exchange notes that the $0.0005 additional
rebate for such executions for qualifying Members is a competitive
proposal given that it is higher than the additional rebates provided
by other exchanges for executions of displayed liquidity-providing
orders for market participants that meet minimum quoting standards
under similar programs designed to enhance market quality.\32\ In
addition, the Exchange believes that it is reasonable and consistent
with an equitable allocation of fees to pay a higher rebate for
executions of Added Displayed Volume to Members that qualify for the
DLI because of the additional commitment to market quality reflected in
the associated quoting requirements. Such Members benefit all investors
by promoting price discovery and increasing the depth of liquidity
available at the NBBO and also benefit the Exchange itself by enhancing
its competitiveness as a market that attracts actionable orders.
Further, the Exchange notes that the proposed DLI would apply uniformly
to all Members, and any Member may choose to qualify for the DLI by
meeting the associated requirements in any month, regardless of the
volume of transactions that it executes on the Exchange. The Exchange
acknowledges that firms that do not post displayed liquidity on the
Exchange or do so on a smaller scale may not have the level of capital
necessary to support meeting the proposed DLI's requirements, however,
the Exchange believes that the requirements are attainable for many
market participants who do actively quote on exchanges and are
reasonably related to the enhanced market quality that the DLI is
designed to promote. Additionally, the Exchange notes that Members that
do not meet the proposed DLI's requirements may still qualify for a
rebate that is higher than the standard rebate for executions of Added
Displayed Volume through the proposed Liquidity Provision Tier, which
does not require a Member to consistently quote at the NBBO across a
broad range of securities. Accordingly, the Exchange believes that it
is consistent with an equitable allocation of fees and is not unfairly
discriminatory to pay a higher rebate in comparison with the rebate
paid to other Members for executions of displayed liquidity-providing
orders in recognition of these benefits to the Exchange and market
participants, particularly as the magnitude of the additional rebate is
not unreasonably high and is, instead, reasonably related to such
enhanced market quality.
---------------------------------------------------------------------------
\32\ See supra note 17.
---------------------------------------------------------------------------
The Exchange also believes that including in the proposed DLI
qualification criteria a quoting requirement for certain specified
securities (i.e., the DLI Target Securities), in addition to the more
general 250 securities requirement, is equitable and not unfairly
discriminatory because the Exchange has identified the DLI Target
Securities as securities in which it would like to inject additional
quoting competition, which the Exchange believes will generally act to
narrow spreads, increase size at the NBBO, and increase liquidity depth
in such securities, thereby increasing the attractiveness of the
Exchange as a destination venue with respect to such securities.
Accordingly, the Exchange believes that this aspect of the proposal is
reasonable, equitably allocated, and not unfairly discriminatory
because it is consistent with the overall goals of enhancing market
quality.
Furthermore, as noted above, the proposed DLI is similar in
structure and purpose to pricing programs in place at other exchanges
that are designed to enhance market quality.\33\ Specifically, these
programs, like the proposed DLI, provide a higher rebate for executions
of liquidity-adding displayed orders for members that achieve minimum
quoting standards, including minimum quoting at the NBBO in a large
number of securities, generally, or certain designated securities, in
particular.\34\ The Exchange also notes that the proposed DLI is not
dissimilar from volume-based rebates and fees (``Volume Tiers''), like
the Liquidity Provision Tier proposed in this filing, which have been
widely adopted by exchanges \35\ and are equitable and not
[[Page 32096]]
unfairly discriminatory because they are generally open to all members
on an equal basis and provide higher rebates and/or lower fees that are
reasonably related to the value to an exchange's market quality. Much
like Volume Tiers are generally designed to incentivize higher levels
of liquidity provision, the proposed DLI is designed to incentivize
enhanced market quality on the Exchange through tighter spreads,
greater size at the NBBO, and greater quoting depth in a large number
of securities, generally, and in the DLI Target Securities, in
particular, through the provision of an enhanced rebate for all
executions of a qualifying Member's Added Displayed Volume, where such
rebate will in turn incentivize higher levels of displayed liquidity
provision in a general manner. Accordingly, the Exchange believes that
the proposed DLI would act to enhance liquidity and competition across
exchanges in the DLI Target Securities and enhance liquidity provision
in all securities on the Exchange more generally by providing a rebate
reasonably related to such enhanced market quality to the benefit of
all investors, thereby promoting the principles discussed in Sections
6(b)(4) and 6(b)(5) of the Act.\36\
---------------------------------------------------------------------------
\33\ Id.
\34\ Id.
\35\ See, e.g., the Cboe BZX equities trading fee schedule on
its public website (available at <a href="https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/">https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/</a>); the Cboe EDGX equities
trading fee schedule on its public website (available at <a href="https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/">https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/</a>).
\36\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange also believes that adding to the Fee Schedule the
notes describing the calculation methodologies and criteria for
determining whether a Member satisfies the requirements to qualify for
the DLI, as well as the definitions of terms that are used in these
notes, is reasonable, equitable, and non-discriminatory because these
notes and definitions are designed to ensure that the Fee Schedule is
as clear and easily understandable as possible with respect to the
requirements of the proposed DLI. Additionally, the Exchange believes
that excluding Exchange System Disruption Days and the Russell
Reconstitution Day when determining whether a Member qualifies for the
proposed DLI during a month is reasonable, equitable, and non-
discriminatory because, as explained above, the Exchange believes doing
so would help to avoid penalizing Members that might otherwise have met
the requirements to qualify for the proposed DLI due to Exchange system
disruptions and/or abnormal market conditions. The Exchange notes that
the exclusion of Exchange System Disruption Days and the Russell
Reconstitution Day is consistent with the methodologies used by other
exchanges when calculating certain member trading and other volume
metrics for purposes of determining whether members qualify for certain
pricing incentives.\37\
---------------------------------------------------------------------------
\37\ See supra note 14.
---------------------------------------------------------------------------
As noted above, Volume Tiers, like the Liquidity Provision Tier
proposed in this filing, have been widely adopted by exchanges \38\ and
are equitable and not unfairly discriminatory because they are open to
all members on an equal basis and provide rebates that are reasonably
related to the value to an exchange's market quality associated with
higher levels of market activity, such as higher levels of liquidity
provision and introduction of higher volumes of orders into the price
and volume discovery process. The Exchange believes the proposed
Liquidity Provision Tier is equitable and not unfairly discriminatory
for these same reasons, as it is open to all Members and is designed to
encourage Members that provide liquidity on the Exchange to maintain or
increase their order flow in this regard, thereby contributing to a
deeper and more liquid market to the benefit of all market participants
and enhancing the attractiveness of the Exchange as a trading venue.
Additionally, the Exchange believes the proposed enhanced rebate for
executions of Added Displayed Volume for qualifying Members (i.e.,
$0.00335 per share) is reasonable, in that it represents only a modest
increase above the proposed standard rebate for such executions (i.e.,
$0.0031 per share) as well as a modest decrease from the current
standard rebate for such executions (i.e., $0.0034 per share). Thus,
the Exchange believes that it is reasonable, consistent with an
equitable allocation of fees, and not unfairly discriminatory to pay
such higher rebate for executions of Added Displayed Volume to Members
that qualify for the Liquidity Provision Tier in comparison with the
standard rebate in recognition of benefits to the Exchange and market
participants described above, particularly as the magnitude of the
additional rebate is not unreasonably high and is, instead, reasonably
related to the enhanced market quality it is designed to achieve. The
Exchange further believes that such rebate is reasonable as it offers
an alternative way for Members that do not meet the proposed DLI's
requirements to qualify for a rebate that is higher than the proposed
standard rebate for executions of Added Displayed Volume that does not
require such Members to consistently quote at the NBBO across a broad
range of securities.
---------------------------------------------------------------------------
\38\ See supra note 35.
---------------------------------------------------------------------------
Additionally, the Exchange believes that excluding Exchange System
Disruption Days and the Russell Reconstitution Day when determining
whether a Member qualifies for the proposed Liquidity Provision Tier
during a month is reasonable, equitable, and non-discriminatory
because, as explained above, the Exchange believes doing so would help
to avoid penalizing Members that might otherwise have met the
requirements to qualify for the proposed Liquidity Provision Tier due
to Exchange system disruptions and/or abnormal market conditions. The
Exchange notes that the exclusion of Exchange System Disruption Days
and the Russell Reconstitution Day is consistent with the methodologies
used by other exchanges when calculating certain member trading and
other volume metrics for purposes of determining whether members
qualify for certain pricing incentives, including calculations of ADAV
for Volume Tiers specifically.\39\
---------------------------------------------------------------------------
\39\ See supra note 14.
---------------------------------------------------------------------------
With respect to the proposed enhanced rebate for executions of
Added Midpoint Volume, the Exchange believes that providing a rebate
for such executions that is higher than the standard rebate for
executions of other non-displayed orders in securities priced at or
above $1.00 per share that add liquidity to the Exchange is reasonable
as the Exchange believes this would encourage Members that provide
liquidity through non-displayed orders to do so, to a greater extent,
through orders designed to execute at the midpoint of the NBBO. Because
such orders provide price improvement to the benefit of other market
participants, the Exchange believes it is reasonable and consistent
with an equitable allocation of fees to provide an enhanced rebate to
encourage their use, while still maintaining an overall pricing
structure that places even greater emphasis on the value of displayed
liquidity in advancing transparency and price discovery. The Exchange
further believes the proposed enhanced rebate is reasonable because, as
noted above, it is comparable to, and competitive with, the rebate
provided by at least one other exchange for executions of non-displayed
orders in securities priced at or above $1.00 per share that are pegged
to the midpoint of the NBBO.\40\ The Exchange also believes this
proposed enhanced rebate is not unfairly discriminatory as it would
apply equally to all Members and the elements of differentiation
between displayed and non-displayed liquidity and orders designed to
execute at the midpoint of the NBBO and other non-displayed
[[Page 32097]]
orders promote the goals of price discovery and encouraging market
participants to provide price improvement.
---------------------------------------------------------------------------
\40\ See supra note 23.
---------------------------------------------------------------------------
The Exchange believes that the proposed changes to increase the
standard fee for executions of Removed Volume and reduce the standard
rebate for executions of Added Displayed Volume are reasonable,
equitable, and consistent with the Act because such changes are
designed to generate additional revenue and decrease the Exchange's
expenditures with respect to transaction pricing to offset some of the
costs associated with the proposed enhanced rebates for executions of
Added Displayed Volume for Members that qualify for the DLI or the
Liquidity Provision Tier and executions of Added Midpoint Volume, and
the Exchange's operations generally, in a manner that is still
consistent with the Exchange's overall pricing philosophy of
encouraging added displayed liquidity. The Exchange also believes the
proposed increased standard fee for executions of Removed Volume is
reasonable and appropriate because it represents a modest increase from
the current standard fee and, as noted above, remains lower than the
fee to remove liquidity in securities priced at or above $1.00 charged
by several other exchanges.\41\ Similarly, the Exchange believes the
proposed reduced standard rebate for executions of Added Displayed
Volume is reasonable and appropriate because it represents a modest
decrease from the current standard rebate and, as noted above, remains
comparable to, and competitive with, the standard rebates provided by
at least one other exchange for executions of orders in securities
priced at or above $1.00 per share that add displayed liquidity.\42\
The Exchange further believes that the proposed increased standard fee
for executions of Removed Volume and the proposed reduced standard
rebate for executions of Added Displayed Volume are equitably allocated
and not unfairly discriminatory because they both will apply equally to
all Members.
---------------------------------------------------------------------------
\41\ See supra note 25.
\42\ See supra note 27.
---------------------------------------------------------------------------
For the reasons discussed above, the Exchange submits that the
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act in that it provides for the equitable allocation of reasonable
dues, fees and other charges among its Members and other persons using
its facilities and is not designed to unfairly discriminate between
customers, issuers, brokers, or dealers. As described more fully below
in the Exchange's statement regarding the burden on competition, the
Exchange believes that its transaction pricing is subject to
significant competitive forces, and that the proposed fees and rebates
described herein are appropriate to address such forces.
Finally, the Exchange believes that the proposed change to add a
note on the Fee Schedule specifying that to the extent a Member
qualifies for multiple fees/rebates with respect to a particular
transaction, the lowest fee/highest rebate shall apply is reasonable,
equitable, and non-discriminatory because it applies uniformly to all
Members and is designed to clarify for Members which fee or rebate is
applicable to their transactions. Thus, Exchange believes that this
proposed change will make the Fee Schedule clearer and eliminate
potential confusion in this regard, thereby removing impediments to and
perfecting the mechanism of a free and open market and a national
market system, and, in general, protecting investors and the public
interest. Further, as noted above, this practice is consistent with the
pricing practices of other exchanges.\43\
---------------------------------------------------------------------------
\43\ See supra note 28.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposal will result in any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Instead, as discussed above,
the proposal is designed to enhance market quality on the Exchange in a
large number of securities, generally, and in the DLI Target
Securities, in particular, to encourage Members to maintain or increase
their order flow, thereby contributing to a deeper and more liquid
market to the benefit of all market participants and enhancing the
attractiveness of the Exchange as a trading venue, and to encourage
Members to provide price improvement through the use of orders that are
designed to execute at the midpoint of the NBBO. In turn, the Exchange
believes the proposed enhanced rebates for executions of Added
Displayed Volume for Members that qualify for the DLI or the Liquidity
Provision Tier and for executions of Added Midpoint Volume would
encourage the submission of additional order flow to the Exchange,
particularly in the form of Added Displayed Volume and Added Midpoint
Volume, thereby promoting market depth, enhanced execution
opportunities, price improvement, and price discovery to the benefit of
all Members and market participants. As a result, the Exchange believes
the proposal would enhance its competitiveness as a market that
attracts actionable orders, thereby making it a more desirable
destination venue for its customers. For these reasons, the Exchange
believes that the proposal furthers the Commission's goal in adopting
Regulation NMS of fostering competition among orders, which promotes
``more efficient pricing of individual stocks for all types of orders,
large and small.'' \44\
---------------------------------------------------------------------------
\44\ See supra note 31.
---------------------------------------------------------------------------
Intramarket Competition
The Exchange believes that the proposal would incentivize Members
to promote price discovery and market quality by quoting at the NBBO
for a significant portion of each day in a large number of securities,
including the DLI Target Securities, to maintain or increase their
order flow, thereby contributing to a deeper and more liquid market to
the benefit of all market participants and enhancing the attractiveness
of the Exchange as a trading venue, and to provide price improvement
through the use of orders that are designed to execute at the midpoint
of the NBBO, which the Exchange believes, in turn, would continue to
encourage participants to direct order flow to the Exchange. Greater
liquidity benefits all Members by providing more trading opportunities
and encourages Members to send orders to the Exchange, thereby
contributing to robust levels of liquidity, which benefits all market
participants. The opportunity to qualify for the DLI, and thus receive
the proposed enhanced rebate for executions of Added Displayed Volume,
would be available to all Members that meet the associated requirements
in any month, regardless of the volume of transactions that it executes
on the Exchange, and as noted above, the Exchange believes that the
DLI's requirements are attainable for many market participants who
actively quote on exchanges and are reasonably related to the enhanced
market quality that the DLI is designed to promote. Similarly, the
opportunity to qualify for the Liquidity Provision Tier, and thus also
receive an enhanced rebate for executions of Added Displayed Volume
(albeit a rebate lower than that provided for Members who qualify for
the DLI), would be available to all Members that meet the associated
volume requirement in any month. The Exchange believes the volume
requirement of the Liquidity Provision Tier is attainable for several
[[Page 32098]]
market participants who add displayed liquidity executed on the
Exchange and is reasonably related to the enhanced market quality that
the Liquidity Provision Tier is designed to promote. Similarly, the
proposed enhanced rebate for executions of Added Midpoint Volume, the
proposed increased standard fee for executions of Removed Volume, and
the proposed reduced standard rebate for executions of Added Displayed
Volume would apply equally to all Members. As such, the Exchange
believes the proposed changes would not impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Intermarket Competition
The Exchange operates in a highly competitive market. Members have
numerous alternative venues that they may participate on and direct
their order flow to, including 15 other equities exchanges and numerous
alternative trading systems and other off-exchange venues. As noted
above, no single registered equities exchange currently has more than
approximately 16% of the total market share of executed volume of
equities trading. Thus, in such a low-concentrated and highly
competitive market, no single equities exchange possesses significant
pricing power in the execution of order flow. Moreover, the Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow or discontinue to reduce use of certain categories of products, in
response to new or different pricing structures being introduced into
the market. Accordingly, competitive forces constrain the Exchange's
transaction fees and rebates, including with respect to executions of
Added Displayed Volume, Added Midpoint Volume, and Removed Volume, and
market participants can readily choose to send their orders to other
exchange and off-exchange venues if they deem fee levels at those other
venues to be more favorable. As described above, the proposed changes
are competitive proposals through which the Exchange is seeking to
encourage certain order flow to be sent to the Exchange and to promote
market quality through pricing incentives that are similar in structure
and purpose to pricing programs in place at other exchanges.\45\
Accordingly, the Exchange believes the proposal would not burden, but
rather promote, intermarket competition by enabling it to better
compete with other exchanges that offer similar incentives to market
participants that enhance market quality.
---------------------------------------------------------------------------
\45\ See supra notes 17, 23, and 35.
---------------------------------------------------------------------------
Additionally, the Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \46\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. SEC, the D.C. Circuit stated as follows:
``[N]o one disputes that competition for order flow is 'fierce.' . . .
As the SEC explained, '[i]n the U.S. national market system, buyers and
sellers of securities, and the broker-dealers that act as their order-
routing agents, have a wide range of choices of where to route orders
for execution'; [and] 'no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .''.\47\ Accordingly, the Exchange does not believe its
proposed pricing changes impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\46\ See supra note 31.
\47\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \48\ and Rule 19b-4(f)(2) \49\ thereunder.
---------------------------------------------------------------------------
\48\ 15 U.S.C. 78s(b)(3)(A)(ii).
\49\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a7d5d2cbc28ac4c8cacac2c9d3d4e7d4c2c489c0c8d1"><span class="__cf_email__" data-cfemail="4634332a236b25292b2b232832350635232568212930">[email protected]</span></a>. Please include
File Number SR-MEMX-2021-07 on the subject line.
Paper Comments
<bullet> 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-2021-07. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All
[[Page 32099]]
submissions should refer to File Number SR-MEMX-2021-07 and should be
submitted on or before July 7, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12593 Filed 6-15-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on June 16, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.