Notice2021-19728
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
September 14, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 175 (Tuesday, September 14, 2021)</title>
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[Federal Register Volume 86, Number 175 (Tuesday, September 14, 2021)]
[Notices]
[Pages 51210-51216]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-19728]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92896; File No. SR-MEMX-2021-11]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
September 8, 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 31, 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 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 September 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) Include an additional Liquidity Provision Tier
applicable to the rebates for executions of orders in securities priced
at or above $1.00 per share that add displayed liquidity to the
Exchange (such orders, ``Added Displayed Volume'') and modify the
required criteria under the existing Liquidity Provision Tier; (ii)
introduce a tiered pricing structure for the Displayed Liquidity
Incentive (``DLI'') by including an additional DLI Tier and reducing
the rebate provided under the existing DLI; (iii) increase the fee
under the Liquidity Removal Tier 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 (iv) reduce the
standard rebate for executions of Added Displayed Volume.
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.\4\ 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.\5\ The Exchange in particular operates a ``Maker-Taker''
model whereby it provides rebates to Members that add liquidity to the
Exchange and charges fees to Members that remove liquidity from the
Exchange. The Fee Schedule sets forth the standard rebates and fees
applied per share for orders that add and remove liquidity,
respectively. Additionally, in response to the competitive environment,
the Exchange also offers tiered pricing, which provides Members with
opportunities to qualify for higher rebates or lower fees where certain
volume criteria and thresholds are met. Tiered pricing provides an
incremental incentive for Members to strive for higher tier levels,
which provides increasingly higher benefits or discounts for satisfying
increasingly more stringent criteria.
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\4\ Market share percentage calculated as of August 30, 2021.
The Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\5\ Id.
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Liquidity Provision Tiers
Currently, the Exchange provides a standard rebate of $0.0031 per
share for executions of Added Displayed Volume, which the Exchange is
proposing to reduce to $0.0028 per share, as further described below.
The Exchange also currently offers, in addition to other incentives, a
Liquidity Provision Tier in which a Member may receive an enhanced
rebate of $0.00335 per share for executions of Added Displayed Volume
by achieving an ADAV \6\ of at least 15,000,000 shares. Now, the
Exchange proposes to rename the existing Liquidity Provision Tier to
Liquidity Provision Tier 1, modify the required criteria under
Liquidity Provision Tier 1, and add a new Liquidity Provision Tier 2.
Specifically, the Exchange proposes to modify the required criteria
under Liquidity Provision Tier 1 such that a Member would now qualify
for Liquidity Provision Tier 1 by achieving an ADAV of at least 0.20%
of the TCV.\7\ Members that qualify for Liquidity Provision Tier 1
would continue to receive an enhanced rebate of $0.00335 per share
[[Page 51211]]
for executions of Added Displayed Volume and a rebate of 0.05% of the
total dollar value of the transaction for executions of orders in
securities priced below $1.00 per share that add displayed liquidity to
the Exchange.\8\ The Exchange believes that basing qualification for
Liquidity Provision Tier 1 (and proposed new Liquidity Provision Tier
2, as described below) on an ADAV threshold that is a percentage of the
TCV, rather than an ADAV threshold that is a specified number of
shares, as it is today, is appropriate so that the threshold is
variable based on overall volumes in the equities industry, which
fluctuate from month to month. The Exchange further believes that
several Members that currently qualify for Liquidity Provision Tier 1
would continue to qualify under the proposed new criteria, which the
Exchange believes does not represent a significant departure from the
criteria currently required under such tier based on overall equities
volumes in recent months and that others may still qualify for an
enhanced--albeit slightly lower--rebate under the proposed new
Liquidity Provision Tier 2, as described below.
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\6\ 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.
\7\ As set forth on the Fee Schedule, ``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.
\8\ The pricing for Liquidity Provision Tier 1 is referred to by
the Exchange on the Fee Schedule under the new description ``Added
displayed volume, Liquidity Provision Tier 1'' 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 a certain pricing 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 on the execution reports
provided to Members during the month and will only designate the Fee
Codes applicable to the achieved pricing tier on the monthly
invoices, which are provided after such determination has been made,
as the Exchange does for its tier-based pricing today.
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The Exchange is also proposing to add a new Liquidity Provision
Tier 2 in which it will provide an enhanced rebate of $0.0031 per share
for executions of Added Displayed Volume for Members that qualify for
Liquidity Provision Tier 2 by achieving an ADAV of at least 0.10% of
the TCV.\9\ The Exchange proposes to provide Members that qualify for
Liquidity Provision Tier 2 a rebate of 0.05% of the total dollar volume
of the transaction for executions of orders in securities priced below
$1.00 per share that add displayed liquidity to the Exchange, which is
the same rebate that is applicable to such executions for all Members
(i.e., including those that do not qualify for any Liquidity Provision
Tier). The proposed Liquidity Provision Tier 2 is designed to encourage
Members to maintain or increase their orders that add liquidity on the
Exchange in order to qualify for an enhanced rebate for executions of
Added Displayed Volume, 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. Further, the
proposed new Liquidity Provision Tier 2 would provide Members that
would not qualify for Liquidity Provision Tier 1 with an opportunity to
still qualify for an enhanced--albeit slightly lower--rebate for
executions of Added Displayed Volume in a manner that, coupled with the
higher enhanced rebate provided under Liquidity Provision Tier 1,
provides increasingly higher benefits for satisfying increasingly more
stringent criteria.
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\9\ The pricing for Liquidity Provision Tier 2 is referred to by
the Exchange on the Fee Schedule under the new description ``Added
displayed volume, Liquidity Provision Tier 2'' with a Fee Code of
``B2'', ``D2'' or ``J2'', as applicable, to be provided by the
Exchange on the monthly invoices provided to Members.
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The Exchange notes that the rebates provided for executions of
Added Displayed Volume under the Liquidity Provision Tiers, including
the current rebate under Liquidity Provision Tier 1 (i.e., $0.00335 per
share) and the proposed rebate under Liquidity Provision Tier 2 (i.e.,
$0.0031 per share), are comparable to, and competitive with, the
rebates for executions of liquidity-adding displayed orders provided by
at least one other exchange under similar volume-based tiers.\10\
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\10\ See the Cboe BZX Exchange, Inc. (``Cboe BZX'') equities
trading fee schedule on its public website (available at <a href="https://www.cboe.com/us/equities/membership/fee_schedule/bzx/">https://www.cboe.com/us/equities/membership/fee_schedule/bzx/</a>), which
reflects rebates provided under ``Add Volume Tiers''--tiers based on
a member achieving certain ADAV thresholds--ranging from $0.0025 to
$0.0031 per share for adding displayed liquidity to the Cboe BZX
exchange.
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The Exchange also proposes to amend the Fee Schedule to rename the
``Liquidity Provision Tier'' heading to ``Liquidity Provision Tiers''
to reflect the addition of a second tier and to reorganize the
information related to such tiers, including the applicable rebates and
required criteria, into a table format. The Exchange believes that
utilizing a table format for its tiered pricing will make the Fee
Schedule easier for Members to navigate and understand.
DLI Tiers
The Exchange is also proposing to introduce a tiered pricing
structure for the DLI by including an additional DLI Tier and reducing
the rebate provided under the existing DLI. As noted in the Exchange's
proposal to adopt the DLI, the 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 (i.e., through the applicable quoting
requirement \11\) in a large number of securities, generally, and in
the DLI Target Securities,\12\ in particular (i.e., through the
applicable securities requirements \13\), thereby benefitting the
Exchange and 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.\14\
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\11\ As set forth on the Fee Schedule, ``quoting requirement''
means the requirement that a Member's NBBO Time be at least 25%. As
set forth on the Fee Schedule, ``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
or the national best offer.
\12\ As set forth on the Fee Schedule, ``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.
\13\ As set forth on the Fee Schedule, ``securities
requirement'' means the requirement that a Member meets the quoting
requirement in the applicable number of securities per trading day.
\14\ 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 provides an enhanced rebate of $0.0036 per
share for executions of Added Displayed Volume for Members that qualify
for the DLI by achieving an NBBO Time of at least 25% in an average of
at least 250 securities, at least 75 of which must be DLI Target
Securities, per trading day during the month.\15\ Now, the Exchange
proposes to rename the existing DLI to DLI Tier 2, reduce the rebate
provided under DLI Tier 2, and add a new DLI Tier 1. Specifically, the
Exchange proposes to reduce the rebate provided under DLI Tier 2 for
executions of Added Displayed Volume from $0.0036 per share to $0.0035
per share.\16\ The Exchange does not propose to change the required
criteria for a Member to qualify for DLI Tier 2 or the rebate provided
under DLI Tier 2 for executions of orders in securities priced
[[Page 51212]]
below $1.00 per share that add displayed liquidity to the Exchange
(i.e., 0.05% of the total dollar value of the transaction).
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\15\ Under the existing DLI (which the Exchange is proposing to
rename to DLI Tier 2), each of the 250 securities requirement and
the 75 DLI Target Securities requirement is a ``securities
requirement'' as that term is used on the Fee Schedule for purposes
of determining a Member's qualification.
\16\ The pricing for DLI Tier 2 is referred to by the Exchange
on the Fee Schedule under the new description ``Added displayed
volume, DLI Tier 2'' with a Fee Code of ``Bq2'', ``Dq2'' or ``Jq2'',
as applicable, to be provided by the Exchange on the monthly
invoices provided to Members.
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Additionally, the Exchange is proposing to add a new DLI Tier 1 in
which it will provide an enhanced rebate of $0.0036 per share for
executions of Added Displayed Volume for Members that qualify for DLI
Tier 1 by achieving an NBBO Time of at least 25% in an average of at
least 1,000 securities, at least 125 of which must be DLI Target
Securities, per trading day during the month.\17\ The Exchange proposes
to provide Members that qualify for DLI Tier 1 a rebate of 0.05% of the
total dollar volume of the transaction for executions of orders in
securities priced below $1.00 per share that add displayed liquidity to
the Exchange, which is the same rebate that is applicable to such
executions for all Members (i.e., including those that do not qualify
for any DLI Tier). The Exchange notes that the same definitions and
notes currently set forth under the ``Displayed Liquidity Incentive''
heading on the Fee Schedule and the calculation methodologies that are
applicable to the existing DLI (proposed to be renamed to DLI Tier 2)
would similarly apply to the proposed new DLI Tier 1.\18\
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\17\ Under the proposed new DLI Tier 1, each of the 1,000
securities requirement and the 125 DLI Target Securities requirement
is a ``securities requirement'' as that term is used on the Fee
Schedule for purposes of determining a Member's qualification. The
pricing for DLI Tier 1 is referred to by the Exchange on the Fee
Schedule under the new description ``Added displayed volume, DLI
Tier 1'' with a Fee Code of ``Bq1'', ``Bq1'' or ``Jq1'', as
applicable, to be provided by the Exchange on the monthly invoices
provided to Members.
\18\ See supra note 14.
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As is the case through the applicable quoting requirement and
securities requirements under the existing DLI Tier 2, the proposed new
DLI Tier 1 is designed to enhance market quality both in a broad manner
with respect to all securities traded on the Exchange, through the
1,000 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 125 DLI Target Securities requirement. The
purpose of reducing the rebate provided under the existing DLI Tier 2
(i.e., from $0.0036 per share to $0.0035 per share) and providing a
higher rebate under the proposed new DLI Tier 1--which is the same as
the current rebate provided under the existing DLI Tier 2 (i.e.,
$0.0036 per share)--is to incentivize Members that consistently quote
on the Exchange to strive to do so in a larger number of securities,
generally, and in a larger number of DLI Target Securities, in
particular, in a manner that provides increasingly higher benefits for
satisfying increasingly more stringent criteria. Thus, the DLI Tiers
are not dissimilar from volume-based incentives that have been widely
adopted by exchanges, including the Exchange, in that the DLI Tiers are
designed to encourage Members that quote on the Exchange to maintain or
increase their quoting activity on the Exchange by providing an
incremental incentive for Members to strive for higher tier levels,
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. Through the enhanced rebates provided to
Members that qualify for the DLI Tiers, 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.
The Exchange also proposes to amend the Fee Schedule to rename the
``Displayed Liquidity Incentive'' heading to ``Displayed Liquidity
Incentive Tiers'' to reflect the introduction of a tiered pricing
structure for the DLI and the addition of a second tier and to
reorganize the information related to such tiers, including the
applicable rebates and required criteria, into a table format. As noted
above, the Exchange believes that utilizing a table format for its
tiered pricing will make the Fee Schedule easier for Members to
navigate and understand.
Increased Fee Under Liquidity Removal Tier
Currently, the Exchange charges a standard fee of $0.0028 per share
for executions of Removed Volume. The Exchange also currently offers a
Liquidity Removal Tier in which qualifying Members are charged a lower
fee of $0.00265 per share for executions of Removed Volume. Now, the
Exchange proposes to rename the existing Liquidity Removal Tier to
Liquidity Removal Tier 1 and to increase the fee charged under
Liquidity Removal Tier 1 for executions of Removed Volume to $0.0027
per share.\19\ The Exchange does not propose to change the required
criteria for a Member to qualify for Liquidity Removal Tier 1 or the
fee charged under Liquidity Removal Tier 1 for executions of orders in
securities priced below $1.00 per share that remove liquidity from the
Exchange (i.e., 0.05% of the total dollar value of the transaction).
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\19\ The pricing for Liquidity Removal Tier 1 is referred to by
the Exchange on the Fee Schedule under the new description ``Removed
volume from MEMX Book, Liquidity Removal Tier 1'' with a Fee Code of
``R1'' to be provided by the Exchange on the monthly invoices
provided to Members.
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The purpose of increasing the fee charged for executions of Removed
Volume under Liquidity Removal Tier 1 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 proposed fee charged under Liquidity Removal Tier 1 for
executions of Removed Volume (i.e., $0.0027 per share) remains lower
than, and competitive with, the fee charged for executions of
liquidity-removing orders charged by at least one other exchange under
similar volume-based tiers.\20\
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\20\ See 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>), which
reflects a fee charged under ``Remove Volume Tiers''--tiers based on
a member achieving certain step-up ADAV and ADV volume thresholds--
of $0.00275 per share for removing volume from the Cboe EDGX
exchange.
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The Exchange also proposes to amend the Fee Schedule to reorganize
the information related to Liquidity Removal Tier 1, including the
applicable rebate and required criteria, into a table format. As noted
above, the Exchange believes that utilizing a table format for its
tiered pricing will make the Fee Schedule easier for Members to
navigate and understand.
Reduced Standard Rebate for Added Displayed Volume
Lastly, the Exchange proposes to reduce the standard rebate for
executions of Added Displayed Volume. Currently, the Exchange provides
a standard rebate of $0.0031 per share for executions of Added
Displayed Volume. The Exchange now proposes to reduce the standard
rebate for executions of Added Displayed Volume to $0.0028 per
share.\21\ The Exchange notes that
[[Page 51213]]
executions of orders in securities priced below $1.00 per share that
add displayed liquidity to the Exchange will continue to receive the
standard rebate applicable to such executions (i.e., 0.05% of the total
dollar value of the transaction).
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\21\ The standard pricing for executions of Added Displayed
Volume is referred to by the Exchange on the Fee Schedule under the
existing description ``Added displayed volume'' with a Fee Code of
``B'', ``D'' or ``J'', as applicable, on the execution reports
provided to Members.
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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 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 reduction proposed herein, the proposed standard
rebate for executions of Added Displayed Volume (i.e., $0.0028 per
share) remains higher than, and competitive with, the standard rebates
provided by other exchanges for executions of orders in securities
priced at or above $1.00 per share that add displayed liquidity.\22\
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\22\ See, e.g., the Nasdaq PSX equities trading fee schedule on
its public website (available at <a href="http://www.nasdaqtrader.com/Trader.aspx?id=PSX_Pricing">http://www.nasdaqtrader.com/Trader.aspx?id=PSX_Pricing</a>), which reflects a standard rebate of
$0.0020 per share to add displayed liquidity in securities priced at
or above $1.00 per share; the NYSE Arca equities trading fee
schedule on its public website (available at <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf</a>)),
which reflects a standard rebate of $0.0020 per share to add
displayed liquidity in securities priced at or above $1.00 per
share.
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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,\23\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\24\ 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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\23\ 15 U.S.C. 78f.
\24\ 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,
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.'' \25\
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\25\ 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 and to enhance market quality to the benefit of all
Members and market participants.
The Exchange believes the proposed Liquidity Provision Tier 2 is
reasonable because it would provide Members with an additional
incentive to achieve a certain volume threshold on the Exchange. The
Exchange notes that volume-based incentives and discounts have been
widely adopted by exchanges, including the Exchange, and are
reasonable, equitable, and non-discriminatory because they are open to
all members on an equal basis and provide additional benefits or
discounts that are reasonably related to: (i) The value to an
exchange's market quality; (ii) associated higher levels of market
activity, such as high levels of liquidity provision and/or growth
patterns; and (iii) the introduction of higher volumes of orders into
the price and volume discovery processes. The Exchange believes the
proposed Liquidity Provision Tier 2 is equitable and not unfairly
discriminatory for these same reasons, as it is available to all
Members and is designed to encourage Members to maintain or increase
their orders that add liquidity 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. Moreover, the Exchange believes the proposed Liquidity
Provision Tier 2 is a reasonable means to incentivize such increased
activity, as it provides Members with an additional opportunity to
qualify for an enhanced rebate for executions of Added Displayed Volume
with less stringent criteria than Liquidity Provision Tier 1.
Additionally, the Exchange believes the proposed enhanced rebate
for executions of Added Displayed Volume under Liquidity Provision Tier
2 (i.e., $0.0031 per share) is reasonable, in that it represents only a
modest increase from the proposed standard rebate for such executions
(i.e., $0.0028 per share) and is the same as the current standard
rebate for such executions. Thus, the Exchange believes that it is
reasonable, consistent with an equitable allocation of fees, and not
unfairly discriminatory to provide an enhanced rebate for executions of
Added Displayed Volume to Members that qualify for the Liquidity
Provision Tier 2 in comparison with the standard rebate for such
executions in recognition of the benefits that such Members provide to
the Exchange and market participants, as described above, particularly
as the magnitude of the enhanced rebate is not unreasonably high and
is, instead, reasonably related to the enhanced market quality it is
designed to achieve.
The Exchange believes the proposed change to modify the required
criteria for Liquidity Provision Tier 1 from an ADAV of at least
15,000,000 shares to an ADAV of at least 0.20% of the TCV is reasonable
because, as noted above, the Exchange believes that basing
qualification for the Liquidity Provision Tiers on an ADAV threshold
that is a percentage of the TCV, rather than an ADAV threshold that is
a specified number of shares, is appropriate so that the threshold is
variable based on overall volumes in the equities industry, which
fluctuate from month to month. The Exchange further believes the
proposed new criteria is equitable and non-discriminatory because all
Members will continue to be eligible to qualify for Liquidity Provision
Tier 1 and have the opportunity to receive the corresponding enhanced
rebate if such criteria is achieved. Additionally, as noted above, the
Exchange believes that several Members that currently qualify for
Liquidity Provision Tier 1 would continue to qualify under the proposed
new criteria, which the Exchange believes does not represent a
significant departure from the criteria currently required under such
tier based on overall equities volumes in recent months. The Exchange
notes that should
[[Page 51214]]
a Member not meet the proposed new criteria for Liquidity Provision
Tier 1, such Member would merely not receive that corresponding
enhanced rebate, and such Member would still have an opportunity to
qualify for an enhanced--albeit slightly lower--rebate for executions
of Added Displayed Volume under the proposed Liquidity Provision Tier
2, which has less stringent criteria, as described above.
The Exchange further believes that the proposed new criteria for
Liquidity Provision Tier 1 and the proposed criteria and rebate for
Liquidity Provision Tier 2 are reasonable, in that the proposed new
criteria for Liquidity Provision Tier 1 is incrementally more difficult
to achieve than that for Liquidity Provision Tier 2, and thus,
Liquidity Provision Tier 1 appropriately offers a higher rebate
commensurate with the corresponding higher volume threshold. Therefore,
the Exchange believes the Liquidity Provision Tiers, as proposed, are
consistent with an equitable allocation of fees and rebates, as the
more stringent criteria correlates with the corresponding tier's higher
rebate. The Exchange further believes that the rebates provided under
the Liquidity Provision Tiers, as proposed, including the current
rebate for Liquidity Provision Tier 1 (i.e., $0.00335 per share) and
the proposed rebate for Liquidity Provision Tier 2 (i.e., $0.0031 per
share), are reasonable because, as noted above, such rebates are
comparable to, and competitive with, the rebates for executions of
liquidity-adding displayed orders provided by at least one other
exchange under similar volume-based tiers.\26\
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\26\ See supra note 10.
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The Exchange also believes that it is reasonable, consistent with
an equitable allocation of fees and rebates, and not unfairly
discriminatory to provide Members that qualify for the proposed
Liquidity Provision Tier 2 a rebate of 0.05% of the total dollar value
of the transaction for executions of orders in securities priced below
$1.00 per share that add liquidity to the Exchange, as this is the same
rebate that would be applicable to such executions for all Members
(i.e., including those that do not qualify for any Liquidity Provision
Tier), which is also the case under the Exchange's current pricing.
As noted above, the DLI Tiers are not dissimilar from volume-based
incentives that have been widely adopted by exchanges, including the
Exchange's Liquidity Provision Tiers described above, in that the DLI
Tiers are designed to encourage Members that quote on the Exchange to
maintain or increase their quoting activity on the Exchange by
providing an incremental incentive for Members to strive for higher
tier levels by achieving the applicable quoting requirement in a larger
number of securities, generally, and in a larger number of DLI Target
Securities, in particular, in a manner that provides increasingly
higher benefits for satisfying increasingly more stringent criteria.
Thus, the Exchange believes the proposed new DLI Tier 1 is equitable
and not unfairly discriminatory for the same reasons described above
with respect to the Liquidity Provision Tiers, as it is available to
all Members and is designed to encourage Members to promote price
discovery and market quality both in a broad manner with respect to all
securities traded on the Exchange, through the 1,000 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 125 DLI Target Securities requirement, thereby
benefitting the Exchange and 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. Moreover, the Exchange
believes the addition of proposed DLI Tier 1 is a reasonable means to
incentivize such increased activity, as it provides Members with an
additional opportunity to qualify for an enhanced rebate for executions
of Added Displayed Volume.
The Exchange further believes that the proposed reduced rebate for
DLI Tier 2 and the proposed criteria and rebate for DLI Tier 1 are
reasonable, in that the proposed criteria for DLI Tier 1 is
incrementally more difficult than that for DLI Tier 2, and thus,
appropriately offers a higher rebate commensurate with the more
stringent securities requirements. Therefore, the Exchange believes the
DLI Tiers, as proposed, are consistent with an equitable allocation of
fees and rebates, as the more stringent criteria correlates with the
corresponding tier's higher rebate.
Additionally, the Exchange believes that it is reasonable,
consistent with an equitable allocation of fees, and not unfairly
discriminatory to provide an enhanced rebate for executions of Added
Displayed Volume to Members that qualify for the DLI Tier 1 in
comparison with the standard rebate for such executions in recognition
of the benefits that such Members provide to the Exchange and market
participants, as described above, particularly as the magnitude of the
enhanced rebate is not unreasonably high and is, instead, reasonably
related to the enhanced market quality it is designed to achieve. The
Exchange notes that the proposed enhanced rebate provided under the DLI
Tier 1 is the same as the current rebate provided under the existing
DLI Tier 2 (i.e., $0.0036 per share), and thus, is reasonable. The
Exchange further notes that Members that do not meet the proposed DLI
Tier 1's requirements may still qualify for an enhanced rebate that is
higher than the standard rebate for executions of Added Displayed
Volume through the existing DLI Tier 2, which has less stringent
securities requirements, or the Liquidity Provision Tiers, which do not
require a Member to consistently quote at the NBBO across a broad range
of securities.
The Exchange believes that it is reasonable, consistent with an
equitable allocation of fees and rebates, and not unfairly
discriminatory to provide Members that qualify for the proposed new DLI
Tier 1 a rebate of 0.05% of the total dollar value of the transaction
for executions of orders in securities priced below $1.00 per share
that add liquidity to the Exchange, as this is the same rebate that
would be applicable to such executions for all Members (i.e., including
those that do not qualify for any DLI Tier), which is also the case
under the Exchange's current pricing.
The Exchange believes that the proposed changes to increase the fee
charged under Liquidity Removal Tier 1 for executions of Removed Volume
and to 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 in
order 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, as described above.
The Exchange further believes that the proposed increased fee
charged under Liquidity Removal Tier 1 for executions of Removed Volume
(i.e., $0.0027 per share) is reasonable and appropriate because it
continues to provide an opportunity for Members to qualify for a fee
that is lower than the standard fee for executions of Removed Volume,
it represents only a modest increase from
[[Page 51215]]
the current fee charged under Liquidity Removal Tier 1 for executions
of Removed Volume (i.e., $0.00265 per share) and, as noted above,
remains lower than, and competitive with, the fee charged for
executions of liquidity-removing orders charged by at least one other
exchange under similar volume-based tiers.\27\ Additionally, the
Exchange believes that such proposed fee is equitably allocated and not
unfairly discriminatory because it will continue to apply equally to
all Members, in that all Members will continue to have the opportunity
to achieve the tier's required criteria, which the Exchange is not
proposing to modify with this proposal, and in turn, qualify for a
lower fee for executions of Removed Volume.
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\27\ See supra note 20.
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Similarly, the Exchange believes that the proposed reduced standard
rebate for executions of Added Displayed Volume (i.e., $0.0028 per
share) is reasonable and appropriate because it represents only a
modest decrease from the current standard rebate for executions of
Added Displayed Volume (i.e., $0.0031 per share) and, as noted above,
remains higher than, and competitive with, the standard rebates
provided by other exchanges for executions of orders in securities
priced at or above $1.00 per share that add displayed liquidity.\28\
The Exchange further believes that the proposed increased fee charged
under Liquidity Removal Tier 1 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.
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\28\ See supra note 22.
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Lastly, the Exchange believes that the proposed changes to rename
the Exchange's pricing tiers and section headings on the Fee Schedule
to reflect tier numbering and the addition of new tiers, and to
reorganize the information related to the Exchange's tiered pricing,
including the applicable rebates and required criteria, into a table
format are reasonable, equitable, and non-discriminatory because such
changes are designed to ensure the Fee Schedule clearly reflects the
Exchange's pricing structure and to make the Fee Schedule easier for
Members to navigate and understand.
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 \29\ 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.
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\29\ 15 U.S.C. 78f(b)(4) and (5).
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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 enhance market quality on the Exchange in a
large number of securities, generally, and in the DLI Target
Securities, in particular, and to encourage Members to maintain or
increase their order flow on the Exchange, thereby promoting price
discovery and contributing to a deeper and more liquid market to the
benefit of all 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.'' \30\
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\30\ See supra note 25.
---------------------------------------------------------------------------
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 and 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
Provision Tiers and the DLI Tiers, and thus receive the corresponding
enhanced rebate for executions of Added Displayed Volume, would be
available to all Members that meet the associated requirements in any
month. Further, as noted above, the Exchange believes that the proposed
new criteria for Liquidity Provision Tier 1, as well as the proposed
new Liquidity Provision Tier 2 which has less stringent criteria, are
attainable for several Members and that the respective enhanced rebates
provided under such tiers are reasonably related to the enhanced market
quality that such tiers are designed to promote. Similarly, the
Exchange believes that the proposed DLI Tier 1's requirements, as well
as the existing DLI Tier 2's requirements, are attainable for several
Members that actively quote on exchanges and that the respective
enhanced rebates provided under such tiers are reasonably related to
the enhanced market quality that such tiers are designed to promote.
Additionally, the proposed increased fee charged under Liquidity
Removal Tier 1 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
As noted above, the Exchange 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. 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
[[Page 51216]]
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 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 additional
order flow and quoting activity on the Exchange and to promote market
quality through pricing incentives that are comparable to, and
competitive with, pricing programs in place at other exchanges with
respect to executions of Added Displayed Volume and Removed Volume,\31\
as well as to generate additional revenue to offset some of the costs
associated with the Exchange's current pricing structure and its
operations generally. 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 and/or
achieve certain volume criteria and thresholds.
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\31\ See supra notes 10, 20 and 22.
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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.'' \32\ 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' . . . .''.\33\ 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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\32\ See supra note 25.
\33\ 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 \34\ and Rule 19b-4(f)(2) \35\ thereunder.
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\34\ 15 U.S.C. 78s(b)(3)(A)(ii).
\35\ 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#6b191e070e46080406060e051f182b180e08450c041d"><span class="__cf_email__" data-cfemail="bfcdcad3da92dcd0d2d2dad1cbccffccdadc91d8d0c9">[email protected]</span></a>. Please include
File Number SR-MEMX-2021-11 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-2021-11. 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 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-2021-11
and should be submitted on or before October 5, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19728 Filed 9-13-21; 8:45 am]
BILLING CODE 8011-01-P
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