Notice2021-17085
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule
Primary source
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Published
August 11, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 152 (Wednesday, August 11, 2021)</title>
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[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Notices]
[Pages 44110-44116]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-17085]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92579; File No. SR-MEMX-2021-09]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee
Schedule
August 5, 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 August 2, 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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[[Page 44111]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the 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 August 2, 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 Liquidity Removal Tier applicable to the
fees charged for executions of orders in securities priced at or above
$1.00 per share that remove liquidity from the Exchange (such orders,
``Removed Volume''); (ii) increase the standard fee for executions of
Removed Volume; and (iii) allow affiliated Members to aggregate their
volume for purposes of the Exchange's pricing tiers with prior notice
to the Exchange.\4\
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\4\ The Exchange initially filed the proposed Fee Schedule
changes on July 30, 2021 (SR-MEMX-2021-08). On August 2, 2021, the
Exchange withdrew that filing and submitted this proposal.
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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 registered equities exchange
currently has more than approximately 16% of the total market share of
executed volume of equities trading.\5\ 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 3% of the overall
market share.\6\
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\5\ Market share percentage calculated as of July 30, 2021. The
Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\6\ Id.
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Adoption of Liquidity Removal Tier
The Exchange is proposing to introduce a tiered pricing structure
applicable to the fees charged for executions of Removed Volume, which
is similar to the Exchange's existing tiered pricing structure
applicable to the rebates provided for executions of displayed orders
in securities priced at or above $1.00 per share that add liquidity to
the Exchange (``Added Displayed Volume'').\7\ Specifically, the
Exchange proposes to adopt a new volume-based tier, referred to by the
Exchange as the Liquidity Removal Tier, in which the Exchange will
charge a fee that is lower than the standard fee for executions of
Removed Volume for Members that meet at least one of two specified
volume thresholds on the Exchange, as described below.
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\7\ The Exchange currently provides an enhanced rebate for
executions of Added Displayed Volume to Members that meet a
specified volume threshold under the Exchange's Liquidity Provision
Tier. See Securities Exchange Act Release No. 92150 (June 10, 2021),
86 FR 32090 (June 16, 2021) (SR-MEMX-2021-07).
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Currently, the Exchange charges a standard fee of $0.00265 per
share for all executions of Removed Volume, which the Exchange is
proposing to increase to $0.0028, as further described below. The
Exchange now proposes to adopt the Liquidity Removal Tier in which it
will charge a lower fee of $0.00265 per share for executions of Removed
Volume for Members that qualify for the Liquidity Removal Tier by
achieving: (1) A Step-Up ADAV \8\ from July 2021 that is equal to or
greater than 0.05% of the TCV; \9\ or (2) an ADV \10\ that is equal to
or greater than 0.30% of the TCV.\11\ As proposed, ADV and Step-Up ADAV
will be calculated on a monthly basis, and Members that qualify for the
Liquidity Removal Tier by achieving at least one of the Step-Up ADAV or
ADV thresholds specified above in a particular month will be charged
the proposed lower fee of $0.00265 per share, instead of the proposed
standard fee of $0.0028 per share, for all executions of Removed Volume
in that month.
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\8\ As proposed, the term ``Step-Up ADAV'' means ADAV in the
relevant baseline month subtracted from current ADAV. As set forth
on the Fee Schedule, ``ADAV'' means the average daily added volume
calculated as the number of shares added per day, which is
calculated on a monthly basis.
\9\ As proposed, the term ``TCV'' means total consolidated
volume calculated as the volume reported by all exchanges and trade
reporting facilities to a consolidated transaction reporting plan
for the month for which the fees apply.
\10\ As proposed, the term ``ADV'' means average daily volume
calculated as the number of shares added or removed, combined, per
day.
\11\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the new description ``Removed volume, Liquidity
Removal Tier'' with a Fee Code of ``R1'' 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 Removal Tier for a particular month will not be
made until after the month-end, the Exchange will provide the Fee
Code otherwise applicable to such transactions (i.e., ``R'') on the
execution reports provided to Members during the month and will only
designate the Fee Code of ``R1'' on the monthly invoices, which are
provided after such determination has been made.
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The Exchange proposes to charge Members that qualify for the
Liquidity Removal Tier a fee of 0.05% of the total dollar value of the
transaction for executions of orders that remove liquidity from the
Exchange in securities priced below $1.00 per share, which is the same
fee that would be applicable to such executions for Members that do not
qualify for the Liquidity Removal Tier. Thus, as under the Exchange's
current pricing, the same fee would be charged to all Members for
executions of orders that remove liquidity from the Exchange in
securities priced below $1.00 per share.
The Exchange proposes to add definitions of the terms ADV, Step-Up
ADAV, and TCV, which are consistent with the definitions of those terms
above, under a new ``Definitions'' section of the Fee Schedule in
connection with the proposed Liquidity Removal Tier.\12\ The Exchange
notes that the proposed definitions of ADV, Step-Up ADAV, and TCV are
substantially similar to the definitions of those terms used by other
exchanges on their fee schedules in connection with similar volume-
based pricing tiers.\13\ Additionally, like the Exchange
[[Page 44112]]
currently does with respect to its calculation of ADAV and for purposes
of determining qualification for the Exchange's Displayed Liquidity
Incentive, the Exchange proposes to exclude from its calculations of
ADV and TCV: (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'').\14\ The Exchange also proposes to specify on the
Fee Schedule that routed shares are not included in the calculation of
ADAV or ADV.\15\
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\12\ The Exchange also proposes to relocate the definition of
``ADAV'' from the ``Notes'' section to the proposed new
``Definitions'' section of the Fee Schedule for organization
purposes.
\13\ See, e.g., the Cboe EDGX Exchange, Inc. (``Cboe EDGX'')
equities trading fee schedule on its public website (available at
<a href="https://www.cboe.com/us/equities/membership/fee_schedule/edgx/">https://www.cboe.com/us/equities/membership/fee_schedule/edgx/</a>); 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>).
\14\ The Exchange notes that excluding such days from the
calculations of ADV and TCV is also consistent with the practice of
other exchanges when calculating ADV and TCV. See id.
\15\ The Exchange currently excludes routed shares in the
calculation of ADAV so this proposed change is clarifying this
practice and also adopting it for the calculation of ADV. The
Exchange notes that excluding routed shares from the calculations of
ADAV and ADV is also consistent with the practice of other exchanges
when calculating ADAV and ADV. 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>).
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The Exchange believes that the proposed Liquidity Removal Tier
provides an incremental incentive for Members to strive for higher ADAV
on the Exchange and/or maintain or strive for higher ADV on the
Exchange in order to qualify for the proposed lower fee for executions
of Removed Volume. As such, the proposed Liquidity Removal Tier is
designed to encourage Members to maintain or increase their order flow
directed to the Exchange, 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. The Exchange
notes that the proposed lower fee for executions of Removed Volume
applicable to Members that qualify for the Liquidity Removal Tier
(i.e., $0.00265 per share) is comparable to, and competitive with, the
fees charged for executions of liquidity-removing orders charged by at
least one other exchange under similar volume-based tiers.\16\
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\16\ See the Cboe EDGX equities trading fee schedule on its
public website (available at <a href="https://www.cboe.com/us/equities/membership/feeschedule/edgx/">https://www.cboe.com/us/equities/membership/feeschedule/edgx/</a>), which reflects fees charged under
``Remove Volume Tiers''--tiers based on a member achieving certain
step-up ADAV and ADV volume thresholds--ranging from $0.0027 to
$0.00275 per share for removing volume from the Cboe EDGX exchange.
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Increased Standard Fee for Removed Volume
In connection with the proposed adoption of the Liquidity Removal
Tier, the Exchange also proposes to increase the standard fee charged
for executions Removed Volume. Currently, the Exchange charges a
standard fee of $0.00265 per share for executions of Removed Volume.
The Exchange now proposes to increase the standard fee charged for
executions of Removed Volume to $0.0028 per share.\17\ The Exchange
notes that Members would still be able to pay a fee of $0.00265 per
share for executions of Removed Volume by qualifying for the proposed
Liquidity Removal Tier, as described above.
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\17\ 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.
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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 Exchange's
current pricing structure, which provides various rebates for
liquidity-adding orders, and the Exchange's operations generally, in a
manner that is consistent with the Exchange's overall pricing
philosophy of encouraging added liquidity. The Exchange notes that
despite the modest increase proposed herein, the Exchange's standard
fee for executions of Removed Volume remains lower than, and
competitive with, the standard fee to remove liquidity in securities
priced at or above $1.00 per share charged by several other
exchanges.\18\
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\18\ 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 reflects a standard
fee of $0.0030 per share to remove liquidity in securities priced at
or above $1.00 per share; 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>), which
reflects a standard fee of $0.00285 per share to remove liquidity in
securities priced at or above $1.00 per share; the Nasdaq Price
List--Trading Connectivity (available at <a href="http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2">http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2</a>), which reflects a standard fee of
$0.0030 per share to remove liquidity in securities priced at or
above $1.00 per share.
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Allow Members To Aggregate Volume for Pricing Tiers
Lastly, the Exchange proposes to add a note to the Fee Schedule to
allow affiliated Members to aggregate their volume for purposes of the
Exchange's determination of ADAV and ADV with respect to pricing tiers
if such Members provide prior notice to the Exchange. Specifically, to
the extent that two or more affiliated companies maintain separate
memberships with the Exchange and can demonstrate their affiliation by
showing they control, are controlled by, or are under common control
with each other, the Exchange would permit such Members to count
aggregate volume of such affiliates in calculating ADAV and ADV. As
proposed, the Exchange will verify such affiliation using a Member's
Form BD, which lists control affiliates. The purpose of this proposed
change is to avoid disparate treatment of firms that have divided their
various business activities between separate corporate entities as
compared to firms that operate those business activities within a
single corporate entity, as allowing affiliated Member firms to count
their aggregate volume in calculating ADAV and ADV would produce the
same result for purposes of the Exchange's volume-based tier pricing as
if such affiliated Member firms were instead organized as a single
corporate entity. The Exchange notes that this proposed change is
consistent with the practice of other exchanges with respect to the
aggregation of affiliated member firms' volume for purposes of ADAV and
ADV calculations with respect to pricing tiers.\19\
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\19\ See supra note 13.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\20\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\21\ 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.
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\20\ 15 U.S.C. 78f.
\21\ 15 U.S.C. 78f(b)(4) and (5).
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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,
[[Page 44113]]
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.'' \22\
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\22\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
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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, 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 the
proposal reflects a reasonable and competitive pricing structure
designed to incentivize market participants to direct their order flow
to the Exchange, which the Exchange believes would enhance liquidity
and market quality to the benefit of all Members and market
participants.
Adoption of Liquidity Removal Tier
The Exchange believes that the proposed Liquidity Removal Tier is
reasonable because it would provide Members with an additional
incentive to achieve certain volume thresholds on the Exchange. Volume-
based incentives and discounts have been widely adopted by exchanges,
including the Exchange,\23\ and are equitable and not unfairly
discriminatory because they are open to all Members on an equal basis
and provide additional benefits or discounts 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/or growth patterns and the introduction of higher volumes
of orders into the price and volume discovery processes. The Exchange
believes the proposed Liquidity Removal Tier is equitable and not
unfairly discriminatory for these same reasons, as it is open to all
Members and is designed to encourage Members to maintain or increase
their order flow directed to the Exchange, 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.
Moreover, the Exchange believes the proposed Liquidity Removal Tier is
a reasonable means to incentivize such increased activity, as it
provides two different types of volume thresholds that Members may
choose to achieve in order to receive the proposed lower fee for
executions of Removed Volume--a Step-Up ADAV threshold, which can be
met by a Member increasing their liquidity-adding volume on the
Exchange (i.e., ADAV) by at least the specified threshold above their
July 2021 ADAV, and an ADV threshold, which can be met by a Member
maintaining or increasing their overall (i.e., liquidity-adding and
liquidity-removing) volume executed on the Exchange to an amount equal
to or greater than the specified TCV threshold. Thus, Members that do
not increase their ADAV above their July 2021 ADAV by at least 0.05% of
the TCV could still qualify for the Liquidity Removal Tier by
maintaining or increasing their ADV at or above 0.30% of the TCV, and
vice versa.
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\23\ See supra note 7.
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Additionally, the Exchange believes the proposed lower fee for
executions of Removed Volume for qualifying Members (i.e., $0.00265 per
share) is reasonable, in that it represents only a modest decrease from
the proposed standard fee for such executions (i.e., $0.0028 per share)
and is the same as the current standard fee for such executions. The
Exchange believes that it is reasonable, consistent with an equitable
allocation of fees, and not unfairly discriminatory to charge such
lower fee for executions of Removed Volume to Members that qualify for
the Liquidity Removal Tier in comparison with the standard fee in
recognition of the benefits that such Members provide to the Exchange
and market participants, as described above, particularly as the
magnitude of the lower fee is not unreasonably high and is, instead,
reasonably related to the enhanced market quality it is designed to
achieve. Further, as noted above, competing exchanges offer tiered
pricing structures similar to the proposed Liquidity Removal Tier,
including schedules of rebates and fees that apply based upon Members
achieving certain volume and/or growth thresholds, and the Exchange
believes the proposed Liquidity Removal Tier's criteria are reasonable
when compared to such tiers provided for by other exchanges. For
example, Cboe EDGX charges lower fees for removing volume from the Cboe
EDGX exchange under its ``Remove Volume Tiers'' ranging from $0.0027 to
$0.00275 per share, as compared to its standard fee of $0.00285 per
share, but requires different, but similar, criteria than the
Exchange's proposed Liquidity Removal Tier, which are also based upon a
member's volume and/or growth patterns.\24\
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\24\ See the Cboe EDGX equities trading fee schedule on its
public website (available at <a href="https://www.cboe.com/us/equities/membership/fee_schedule/edgx/">https://www.cboe.com/us/equities/membership/fee_schedule/edgx/</a>).
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The Exchange further believes that it is reasonable, consistent
with an equitable allocation of fees, and not unfairly discriminatory
to charge Members that qualify for the Liquidity Removal Tier a fee of
0.05% of the total dollar value of the transaction for executions of
orders that remove liquidity from the Exchange in securities priced
below $1.00 per share, as this is the same fee that would be applicable
to such executions for all Members (i.e., including those that do not
qualify for the Liquidity Removal Tier), which is also the case under
the Exchange's current pricing.
The Exchange also believes the proposed Liquidity Removal Tier is
fair, equitable, and not unfairly discriminatory because it is
available to all Members. Further, the proposed Liquidity Removal Tier
would provide a way for Members to continue to pay the same fee they
currently do for executions of Removed Volume (i.e., $0.00265 per
share) even though the Exchange is proposing to increase the standard
fee to $0.0028 per share. Additionally, as noted above, such fee is
comparable to the fees charged for executions of liquidity-removing
orders charged by Cboe EDGX under similar volume-based tiers.\25\
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\25\ Id.
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The Exchange believes that adding the proposed definitions for the
terms ADV, Step-Up ADAV, and TCV, as well as relocating the definition
of ADAV, under a new ``Definitions'' section of the Fee Schedule is
reasonable, equitable, and non-discriminatory because such definitions
are substantially similar to the definitions of such terms used by
other exchanges in connection with similar volume-based pricing tiers,
as described above,\26\ and their placement on the Fee Schedule is
designed to ensure that the Fee Schedule is as clear and understandable
as possible with respect to applicable pricing. Similarly, the Exchange
believes that adding notes on the Fee Schedule specifying that routed
shares are not included in the calculation of ADAV or ADV and that
Exchange System Disruption Days and the Russell Reconstitution Day are
excluded from the calculations of ADV and TCV is reasonable, equitable,
and
[[Page 44114]]
non-discriminatory as such notes are intended to clarify the Exchange's
calculation practices with respect to its volume-based pricing tiers,
and such practices are consistent with the practices of other exchanges
in this regard.\27\
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\26\ See supra note 13.
\27\ See supra notes 14-15.
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Increased Standard Fee for Removed Volume
The Exchange believes that the proposed change to increase the
standard fee for executions of Removed Volume is reasonable, equitable,
and consistent with the Act because such change is designed to generate
additional revenue and decrease the Exchange's expenditures with
respect to transaction pricing in order to offset some of the costs
associated with the various rebates provided by the Exchange for
liquidity-adding orders and the Exchange's operations generally, in a
manner that is consistent with the Exchange's overall pricing
philosophy of encouraging added liquidity, as described above. 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, and competitive with, the standard fee
charged by several other exchanges to remove liquidity in securities
priced at or above $1.00 per share.\28\ The Exchange further believes
that the proposed increased standard fee for executions of Removed
Volume is equitably allocated and not unfairly discriminatory because
it will apply equally to all Members.
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\28\ See supra note 18.
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Allow Members To Aggregate Volume for Pricing Tiers
As noted above, the proposed language permitting aggregation of
volume amongst affiliated Members for purposes of the ADAV and ADV
calculations is intended to avoid disparate treatment of firms that
have divided their various business activities between separate
corporate entities as compared to firms that operate those business
activities within a single corporate entity, as allowing affiliated
Member firms to count their aggregate volume in calculating ADAV and
ADV would produce the same result for purposes of the Exchange's
volume-based tier pricing as if such affiliated Member firms were
instead organized as a single corporate entity. By way of example,
subject to appropriate information barriers, many firms that are
Members of the Exchange operate both a market making desk and a public
customer business within the same corporate entity. In contrast, other
firms may be part of a corporate structure that separates those
business lines into different corporate affiliates, either for
business, compliance or historical reasons. Those corporate affiliates,
in turn, are required to maintain separate memberships with the
Exchange. Absent the proposed policy, such corporate affiliates would
not receive the same treatment as firms operating similar business
lines within a single entity that is a Member of the Exchange.
Accordingly, the Exchange believes that its proposed policy is fair and
equitable, and not unreasonably discriminatory. In addition to ensuring
fair and equal treatment of its Members, the Exchange does not want to
create incentives for its Members to restructure their business
operations or compliance functions simply due to the Exchange's pricing
structure. Moreover, as noted above, this proposed policy is consistent
with the practice of other exchanges with respect to the aggregation of
affiliated Members' volume for purposes of determining ADAV and ADV
with respect to pricing tiers.\29\
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\29\ See supra note 13.
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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.
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 intended to encourage Members to maintain or increase
their order flow on the Exchange, 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. 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.'' \30\
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\30\ See supra note 22.
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Intramarket Competition
The Exchange believes that the proposal would incentivize Members
to maintain or increase their order flow on the Exchange, 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, which the Exchange believes, in turn, would continue
to encourage market participants to direct additional order flow to the
Exchange. Greater liquidity benefits all Members by providing more
trading opportunities and encourages Members to send additional orders
to the Exchange, thereby contributing to robust levels of liquidity,
which benefits all market participants. The opportunity to qualify for
the Liquidity Removal Tier, and thus receive the proposed lower fee for
executions of Removed Volume, would be available to all Members that
meet the associated volume requirement in any month. The Exchange
believes that meeting the volume requirement of the Liquidity Removal
Tier is attainable for several market participants, as Members must
meet only one of two different types of volume thresholds, as described
above, and the Exchange believes such thresholds are relatively low and
reasonably related to the enhanced liquidity and market quality that
the Liquidity Removal Tier is designed to promote. Similarly, the
proposed increased standard fee for executions of Removed Volume and
the ability for Members to aggregate volume amongst affiliated Member
firms for purposes of the Exchange's determination of ADAV and ADV with
respect to pricing tiers 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
As noted above, the Exchange operates in a highly competitive
market in which market participants can
[[Page 44115]]
readily direct order flow to competing venues if they deem fee levels
at a particular venue to be excessive or incentives to be insufficient.
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
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 Liquidity Removal Tier and the
proposed increased standard fee for executions of Removed Volume are
competitive proposals through which the Exchange is seeking to
encourage additional order flow to be sent to the Exchange and generate
additional revenue to offset some of the costs associated with the
Exchange's current pricing structure and its operations generally, and
such proposed rates applicable to executions of Removed Volume are
comparable to, and competitive with, rates charged by other
exchanges.\31\ As noted above, the proposed rate applicable to
executions of orders in securities priced at or above $1.00 per share
for Members that qualify for the Liquidity Removal Tier would be the
same rate applicable to such executions for all Members, as is the case
under the Exchange's current pricing. Additionally, the proposed change
to allow affiliated Members to aggregate their volume for purposes of
the Exchange's determination of ADAV and ADV with respect to pricing
tiers is designed to avoid disparate treatment of firms that have
divided their various business activities between separate corporate
entities as compared to firms that operate those business activities
within a single corporate entity, which is consistent with the practice
of other exchanges, as discussed above.\32\ 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 volume-based incentives and pricing with respect to
executions of Removed Volume and volume aggregation amongst affiliates
with respect to pricing tiers.
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\31\ See supra notes 18 and 24.
\32\ See supra note 13.
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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.'' \33\ 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' . . . .''.\34\ 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.
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\33\ See supra note 22.
\34\ 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)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \35\ and Rule 19b-4(f)(2) \36\ thereunder.
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\35\ 15 U.S.C. 78s(b)(3)(A)(ii).
\36\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<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#b2c0c7ded79fd1dddfdfd7dcc6c1f2c1d7d19cd5ddc4"><span class="__cf_email__" data-cfemail="0c7e796069216f6361616962787f4c7f696f226b637a">[email protected]</span></a>. Please include
File Number SR-MEMX-2021-09 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-2021-09. 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
[[Page 44116]]
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-MEMX-2021-09 and should be
submitted on or before September 1, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-17085 Filed 8-10-21; 8:45 am]
BILLING CODE 8011-01-P
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