Notice2021-25018
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
November 17, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 219 (Wednesday, November 17, 2021)</title>
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[Federal Register Volume 86, Number 219 (Wednesday, November 17, 2021)]
[Notices]
[Pages 64248-64254]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25018]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93554; File No. SR-MEMX-2021-16]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
November 10, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 29, 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 November 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
[[Page 64249]]
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 Targeted Step-Up Tier to provide an
additive rebate applicable to executions of orders (other than
displayed Retail Orders \4\) in securities priced at or above $1.00 per
share that add liquidity to the Exchange (such orders, ``Added
Volume''); (ii) modify the required criteria under Liquidity Removal
Tier 1; (iii) reduce the rebates provided under DLI Tier 1 and DLI Tier
2 for executions of displayed orders in securities priced at or above
$1.00 per share that add liquidity to the Exchange (such orders,
``Added Displayed Volume''); and (iv) increase the standard fee for
executions of orders in securities priced at or above $1.00 per share
that remove liquidity from the Exchange (such orders, ``Removed
Volume'').
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\4\ A ``Retail Order'' means an agency or riskless principal
order that meets the criteria of FINRA Rule 5320.03 that originates
from a natural person and is submitted to the Exchange by a Retail
Member Organization, provided that no change is made to the terms of
the order with respect to price or side of market and the order does
not originate from a trading algorithm or any other computerized
methodology. See Exchange Rule 11.21(a).
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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 15% 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 4% of the overall
market share.\6\ 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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\5\ Market share percentage calculated as of October 28, 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 Targeted Step-Up Tier 1
The Exchange proposes to adopt a new volume-based tier, referred to
by the Exchange as Targeted Step-Up Tier 1, in which the Exchange will
provide an additive rebate applicable to executions of orders (other
than displayed Retail Orders) in securities priced at or above $1.00
per share that add liquidity to the Exchange (i.e., Added Volume) for
Members that meet at least one of two specified volume thresholds
across a specified list of securities, referred to by the Exchange as
the Targeted Step-Up Securities,\7\ as further described below.
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\7\ As proposed, the term ``Targeted Step-Up Securities'' means
a list of securities designated as such, the universe of which will
be determined by the Exchange and published on the Exchange's
website. The Exchange anticipates that the initial Targeted Step-Up
Securities list will include between 30 and 50 securities. The
Exchange will not remove a security from the Targeted Step-Up
Securities list without at least 30 days' prior notice to Members as
published on the Exchange's website (unless the security is no
longer eligible for trading on the Exchange).
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Currently, the Exchange provides various rebates to Members for
executions of Added Volume ranging from $0.0020 per share to $0.0036
per share based on the type of order (e.g., displayed, non-displayed,
midpoint peg) and whether a Member qualifies for one of the Exchange's
existing pricing tiers.\8\ The Exchange now proposes to adopt Targeted
Step-Up Tier 1 in which it will provide an additive rebate of $0.0002
per share for all executions of Added Volume in a particular month for
a Member that qualifies for such tier in that month by achieving: (1) A
Step-Up ADAV \9\ from October 2021 that is equal to or greater than
0.05% of the TCV \10\ in the Targeted Step-Up Securities; or (2) an
ADAV that is equal to or greater than 0.08% of the TCV in the Targeted
Step-Up Securities.\11\ To determine if a Member meets either of these
volume thresholds, the Exchange will aggregate a Member's ADAV across
all Targeted Step-Up Securities for a given month.\12\ The $0.0002 per
share additive rebate will be provided in addition to the rebate that
is otherwise applicable to each of a qualifying Member's orders that
constitutes Added Volume (including a rebate provided under another
pricing tier).\13\
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\8\ The Exchange notes that it is proposing herein to reduce the
rebate of $0.0036 per share provided under DLI Tier 1 to $0.0035 per
share, as further described below, so after giving effect to the
changes proposed herein the range of rebates provided for executions
of Added Volume would be from $0.0020 per share to $0.0035 per
share.
\9\ 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, and ``Step-Up ADAV'' means
ADAV in the relevant baseline month subtracted from current ADAV.
\10\ 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.
\11\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the new description ``Targeted Step-Up Tier 1''
with a Fee Code of ``X'' to be appended to the otherwise applicable
Fee Code for qualifying executions (which include Fee Codes ``B'',
``D'', ``J'', ``B1'', ``D1'', ``J1'', ``B2'', ``D2'', ``J2'',
``Bq1'', ``Dq1'', ``Jq1'', ``Bq2'', ``Dq2'', ``Jq2'', ``H'' and
``M''). The Exchange notes that because the determination of whether
a Member qualifies for a certain pricing tier (including the
Targeted Step-Up Tier 1) 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.
\12\ For example, if a Member achieved an ADAV of 0.01% of the
TCV in each of eight different Targeted Step-Up Securities in a
particular month, such Member would qualify for the Targeted Step-Up
Tier in that month because it would have achieved an ADAV that is
equal to 0.08% of the TCV in the Targeted Step-Up Securities.
\13\ As defined above, Added Volume does not include executions
of displayed Retail Orders in securities priced at or above $1.00
per share that add liquidity to the Exchange (such orders, ``Added
Displayed Retail Volume''). The Exchange notes that the highest
rebate that it currently provides with respect to any transaction
effected on the Exchange is $0.0037 per share, which is for
executions of Added Displayed Retail Volume. The Exchange is not
seeking with this proposal to provide a rebate that is higher than
such current maximum rebate, and thus, as proposed, the additive
rebate provided under the Targeted Step-Up Tier would not apply to
executions of Added Displayed Retail Volume as such transactions
already receive a rebate of $0.0037 per share.
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The purpose of the proposed Targeted Step-Up Tier 1 is to encourage
Members to increase their volume on the Exchange in certain specified
securities for which the Exchange seeks to become a more competitive
trading venue (i.e., the Targeted Step-Up Securities). As a
[[Page 64250]]
general matter, the Targeted Step-Up Securities are higher-priced and
actively-traded names, many of which are actively-traded ETPs or
components thereof, and the Exchange believes that increased
participation in the trading of these securities would increase the
diversity of securities actively traded on the Exchange as well as the
notional market share traded on the Exchange, which would accrue
benefits to all Members through deeper and more diversified liquidity
on the Exchange. As such, the Exchange is seeking to improve its market
quality, and thus increase its attractiveness as a trading venue, with
respect to the Targeted Step-Up Securities by providing an incentive to
Members to increase their order flow in such securities to the
Exchange. Through the proposed additive rebate for executions of Added
Volume for Members that qualify for the Targeted Step-Up Tier 1, the
Exchange hopes to provide improved trading conditions on the Exchange
with respect to the Targeted Step-Up Securities through increased
execution opportunities and deeper liquidity in such securities
resulting from such increased order flow, thereby contributing to a
more robust and well-balanced market ecosystem on the Exchange to the
benefit of all Members.
The Exchange notes that the Targeted Step-Up Tier 1 is similar to
other volume-based incentives and discounts, which have been widely
adopted by exchanges, including the Exchange. More specifically, the
Exchange believes the Targeted Step-Up Tier 1 is comparable to the
Exchange's Displayed Liquidity Incentive (``DLI'') Tiers \14\ as well
as other pricing tiers adopted by other exchanges that provide an
enhanced rebate or supplemental incentive for firms that achieve a
specified volume threshold in a specified group of securities.\15\
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\14\ The Exchange's DLI Tiers provide an enhanced rebate for
executions of Added Displayed Volume for Members that promote price
discovery and market quality by quoting at the NBBO for a
significant portion of each day in a broad base of securities,
generally, and in a targeted group of securities (the ``DLI Target
Securities''), in particular. See the Exchange's Fee Schedule
(available at <a href="https://info.memxtrading.com/fee-schedule/">https://info.memxtrading.com/fee-schedule/</a>) for
additional details regarding the Exchange's DLI Tiers. See also
Securities Exchange Act Release No. 92150 (June 10, 2021), 86 FR
32090 (June 16, 2021) (SR-MEMX-2021-07) (notice of filing and
immediate effectiveness of fee changes adopted by the Exchange,
including the adoption of DLI).
\15\ Cboe BZX Exchange, Inc. (``Cboe BZX'') currently provides
an additive rebate of $0.0001 or $0.0002 per share for executions of
Tape B securities for market participants that meet certain quoting
and trading requirements in a specified number of securities
included on a list of securities determined by Cboe BZX, including
both Cboe BZX listed securities and non-Cboe BZX listed securities
for which Cboe BZX wants to incentivize additional participation.
See the 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>); see also Securities Exchange Act Release No.
93405 (October 22, 2021), 86 FR 59763 (October 28, 2021) (SR-BX-
2021-047) (notice of filing and immediate effectiveness of fee
changes adopted by Nasdaq BX, Inc., including the adoption of an
enhanced market quality program focused on specified Tape A and Tape
B securities).
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Modified Criteria Under Liquidity Removal Tier 1
The Exchange is also proposing to modify the required criteria
under Liquidity Removal Tier 1. Currently, the Exchange charges a
standard fee of $0.0028 per share for executions of orders in
securities priced at or above $1.00 per share that remove liquidity
from the Exchange (i.e., Removed Volume), which the Exchange is
proposing to increase to $0.0029 per share, as further described below.
The Exchange also currently offers a Liquidity Removal Tier 1 in which
qualifying Members are charged a lower fee of $0.0027 per share for
executions of Removed Volume by achieving: (1) A Step-Up ADAV from July
2021 that is equal to or greater than 0.05% of the TCV; or (2) an ADV
\16\ that is equal to or greater than 0.30% of the TCV. Thus, Liquidity
Removal Tier 1 provides an opportunity for a Member to qualify for a
lower fee for executions of Removed Volume where such Member either
increases its ADAV on the Exchange by a specified amount over a
baseline month or achieves a specified ADV on the Exchange. The
Exchange notes that Liquidity Removal Tier 1 is designed to encourage
Members that add liquidity on the Exchange to increase their order
flow, which benefits all Members by providing greater execution
opportunities on the Exchange.
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\16\ As set forth on the Fee Schedule, ``ADV'' means average
daily volume calculated as the number of shares added or removed,
combined, per day, which is calculated on a monthly basis.
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Now, the Exchange proposes to modify the required criteria under
Liquidity Removal Tier 1 such that a Member would now qualify by
achieving: (1) A Step-Up ADAV from October 2021 that is equal to or
greater than 0.05% of the TCV; or (2) an ADV that is equal to or
greater than 0.55% of the TCV. Thus, such proposed changes would update
the Step-Up ADAV threshold to reference a more recent baseline month
(but keep the volume threshold the same) and modestly increase the ADV
threshold, each of which is designed to encourage additional order flow
to the Exchange. The Exchange is not proposing to modify the fees
associated with Liquidity Removal Tier 1. The Exchange believes that
the tier, as proposed, would further incentivize increased order flow
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 Liquidity Removal Tier 1, as modified, would continue to be
available to all Members and provide Members an opportunity to pay a
lower fee for executions of Removed Volume. Additionally, the Exchange
believes that several Members that currently qualify for Liquidity
Removal 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.
Reduced Rebates Under DLI Tiers
The Exchange is also proposing to reduce the rebates provided under
DLI Tier 1 and DLI Tier 2. The DLI Tiers are designed to encourage
Members to promote price discovery and market quality by quoting at the
NBBO for a significant portion of each day in a large number of
securities, generally, and in the DLI Target Securities,\17\ in
particular, 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 specifically, and committing capital to support the
execution of orders.
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\17\ 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.
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Currently, the Exchange provides enhanced rebates of $0.0036 per
share under DLI Tier 1 and $0.0035 per share under DLI Tier 2 for
executions of Added Displayed Volume for Members that qualify for such
tiers.\18\ Now, the Exchange proposes to reduce the rebate provided
under DLI Tier 1 to $0.0035 per share and the rebate provided under DLI
Tier 2 to $0.0034 per share. The Exchange is not proposing to modify
the
[[Page 64251]]
required criteria for a Member to qualify for DLI Tier 1 or DLI Tier 2,
nor is the Exchange proposing to change the rebates provided under such
tiers for executions of orders in securities priced below $1.00 per
share that add displayed liquidity to the Exchange. The purpose of
reducing the enhanced rebates provided under DLI Tier 1 and DLI Tier 2
for executions of Added Displayed Volume is for business and
competitive reasons, as the Exchange believes the reduction of such
rebates would decrease the Exchange's expenditures with respect to the
Exchange's transaction pricing in a manner that is still consistent
with the Exchange's overall pricing philosophy of encouraging added
liquidity and promoting the price discovery and market quality
objectives of the DLI Tiers described above.
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\18\ The pricing for DLI Tier 1 is referred to by the Exchange
on the Fee Schedule under the 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. The pricing for DLI Tier 2 is referred to by
the Exchange on the Fee Schedule under the 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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Increased Standard Fee for Removed Volume
Lastly, the Exchange proposes to increase the standard fee charged
for executions of Removed Volume. Currently, the Exchange charges a
standard fee of $0.0028 per share for executions of Removed Volume.\19\
The Exchange now proposes to increase the standard fee charged for
executions of Removed Volume to $0.0029 per share. The purpose of
increasing the standard fee for executions of Removed Volume is also
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 transaction
pricing, which provides various rebates for liquidity-adding orders
(including the additive rebate for executions of Added Volume under the
Targeted Step-Up Tier 1 proposed herein), and the Exchange's operations
generally, in a manner that is still 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.\20\
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\19\ The standard fee for Removed Volume is referred to by the
Exchange on the Fee Schedule under the description ``Removed volume
from MEMX Book'' with a Fee Code of ``R'' assigned by the Exchange.
\20\ See, e.g., the 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 a standard fee of
$0.0030 per share to remove liquidity in securities priced at or
above $1.00 per share; the Cboe EDGX Exchange, Inc. 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 standard fee of $0.0030 per share to remove liquidity in
securities priced at or above $1.00 per share; The Nasdaq Stock
Market LLC price list on its public website (available at <a href="http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2">http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2</a>), 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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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\21\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\22\ 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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\21\ 15 U.S.C. 78f.
\22\ 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.'' \23\
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\23\ 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 additional order
flow to the Exchange in the Targeted Step-Up Securities and more
generally, which the Exchange believes would enhance liquidity and
market quality on the Exchange to the benefit of all Members.
The Exchange believes that the proposed Targeted Step-Up Tier 1 is
reasonable because it would provide Members with an additional
incentive to achieve certain volume thresholds on the Exchange. As
noted above, volume-based incentives and discounts have been widely
adopted by exchanges, including the Exchange, 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 process.
The Exchange believes the proposed Targeted Step-Up Tier 1 is equitable
and not unfairly discriminatory for these same reasons, as it is
available to all Members and is designed to encourage Members to
increase their order flow in the Targeted Step-Up Securities to the
Exchange, thereby contributing to a deeper and more liquid market in
such securities and a more robust and well-balanced market ecosystem on
the Exchange to the benefit of all Members, as well as enhancing the
attractiveness of the Exchange as a trading venue, as described above.
The Exchange also believes that including qualification criteria
for Targeted Step-Up Tier 1 that is based on achieving a volume
threshold in certain specified securities (i.e., the Targeted Step-Up
Securities) is reasonable, equitable, and non-discriminatory because,
as noted above, the Exchange is seeking to improve its market quality,
and thus increase its attractiveness as a trading venue, with respect
to such securities by incentivizing Members to increase their order
flow in such securities to the Exchange. In turn, the Exchange believes
such increased order flow would provide increased execution
opportunities and deeper liquidity in such securities and that the
resulting increased participation in the trading of these securities
would increase the diversity of securities actively traded on the
Exchange as well as the notional market share traded on the Exchange,
thereby contributing to a more robust
[[Page 64252]]
and well-balanced market ecosystem on the Exchange to the benefit of
all Members and market participants. Additionally, the Exchange notes
that the Targeted Step-Up Tier 1 is comparable to the Exchange's DLI
Tiers, as well as other pricing tiers adopted by other exchanges that
provide an enhanced rebate or supplemental incentive for firms that
achieve a specified volume threshold in a specified group of
securities.\24\
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\24\ See supra notes 14-15.
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The Exchange believes the required criteria for the Targeted Step-
Up Tier 1 are reasonable, as they provide two different types of volume
thresholds that a Member may choose from in order to receive the
corresponding additive rebate (i.e., a Step-Up ADAV threshold and an
ADAV threshold), and the Exchange believes such criteria are attainable
for many market participants and are reasonably related to the enhanced
market quality that the Targeted Step-Up Tier 1 is designed to promote,
as described above. The Exchange also notes that the proposed tier/
rebate would not adversely impact any Member's ability to qualify for
other reduced fee or enhanced rebate tiers. Should a Member not meet
the proposed criteria under the proposed tier, the Member would merely
not receive the corresponding proposed additive rebate.
The Exchange also believes the proposed additive rebate for
executions of Added Volume under Targeted Step-Up Tier 1 (i.e., $0.0002
per share) is reasonable, in that it represents only a modest addition
to the rebates otherwise applicable to executions of Added Volume and,
in conjunction with the other changes proposed herein, would not
provide for a rebate that is higher than the current maximum rebate
provided by the Exchange. Thus, the Exchange believes that it is
reasonable, consistent with an equitable allocation of fees, and not
unfairly discriminatory to provide such additive rebate for executions
of Added Volume to Members that qualify for the Targeted Step-Up Tier 1
in recognition of the benefits that such Members provide to the market
quality in the Targeted Step-Up Securities and more generally on the
Exchange, as described above, particularly as the magnitude of the
additive rebate is not unreasonably high and is, instead, reasonably
related to the enhanced market quality it is designed to achieve.
Additionally, the Exchange believes it is reasonable, equitable, and
non-discriminatory to provide the additive rebate for executions of all
Added Volume but not for executions of Added Displayed Retail Volume
because, as noted above, the Exchange currently provides its maximum
enhanced rebate of $0.0037 per share for executions of Added Displayed
Retail Volume, and the Exchange does not seek to provide for a rebate
that is higher than such current maximum with this proposal.\25\
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\25\ See supra note 13.
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The Exchange believes the proposed changes to modify the required
criteria under Liquidity Removal Tier 1 are reasonable because, as
noted above, such changes are intended to update the Step-Up ADAV
threshold to reference a more recent baseline month and to modestly
increase the ADV threshold, each of which is designed to encourage the
submission of additional order flow 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 also believes the proposed new criteria
are equitable and non-discriminatory because all Members will continue
to be eligible to meet such criteria and qualify for Liquidity Removal
Tier 1, and therefore, have the opportunity to pay a lower fee for
executions of Removed Volume. Additionally, as noted above, the
Exchange believes that several Members that currently qualify for
Liquidity Removal 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. The Exchange also believes that the lower fee charged under
Liquidity Removal Tier 1, which the Exchange is not proposing to
change, continues to be commensurate with the proposed new criteria.
That is, such discounted fee reasonably reflects the difficulty in
achieving the corresponding criteria as modified.
The Exchange believes that the proposed changes to reduce the
enhanced rebates provided for executions of Added Displayed Volume
under DLI Tier 1 and DLI Tier 2 and to increase the standard fee
charged for executions of Removed 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 its 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 believes that the proposed reduced rebates for
executions of Added Displayed Volume provided under DLI Tier 1 and DLI
Tier 2 (i.e., $0.0035 per share and $0.0034 per share, respectively)
are reasonable and appropriate because such rebates represent only a
modest reduction (i.e., $0.0001 per share) from the current enhanced
rebates provided under such tiers (i.e., $0.0036 per share and $0.0035
per share, respectively). Additionally, the Exchange believes that such
rebates are equitably allocated and not unfairly discriminatory because
they will continue to apply equally to all Members, in that all Members
will continue to have the opportunity to achieve the required criteria
under the DLI Tiers, which the Exchange is not proposing to modify with
this proposal, and in turn, qualify for an enhanced rebate for
executions of Added Displayed Volume. The Exchange further believes
that such rebates are reasonable and equitably allocated, in that the
rebate provided under DLI Tier 1 will remain higher than the rebate
provided under DLI Tier 2 commensurate with the more stringent criteria
of DLI Tier 1 than of DLI Tier 2.
Similarly, the Exchange believes that the proposed increased
standard fee charged for executions of Removed Volume (i.e., $0.0029
per share) is reasonable and appropriate because it represents only a
modest increase (i.e., $0.0001 per share) from the current standard fee
charged for executions of Removed Volume (i.e., $0.0028 per share) and,
as noted above, 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.\26\ The Exchange further
believes that the proposed increased standard fee charged for
executions of Removed Volume is equitably allocated and not unfairly
discriminatory because it will apply equally to all Members.
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\26\ See supra note 20.
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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 \27\ 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
[[Page 64253]]
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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\27\ 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
the Targeted Step-Up Securities, 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 in the Targeted Step-Up Securities and more
generally, 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.'' \28\
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\28\ See supra note 23.
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Intramarket Competition
The Exchange believes that the proposal would incentivize Members
to promote price discovery and market quality by increasing their
participation in the Targeted Step-Up Securities on the Exchange, and
to and maintain or increase their order flow on the Exchange generally,
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 Targeted Step-Up Tier 1, and thus
receive the corresponding additive rebate for executions of Added
Volume, or to qualify for the Liquidity Removal Tier, and thus receive
the corresponding reduced fee for executions of Removed Volume, would
be available to all Members that meet the associated requirements in
any month. As noted above, the Exchange believes the criteria under
Targeted Step-Up Tier 1 are attainable for many market participants and
are reasonably related to the enhanced market quality that such tier is
designed to promote. Further, as noted above, the Exchange also
believes that the proposed new criteria for Liquidity Removal Tier 1
are attainable for several Members and that the respective current
reduced fee charged under such tier is reasonably related to the
enhanced market quality that such tier is designed to promote. 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 15% of the total market share of executed volume of
equities trading. Thus, in such a low-concentrated and highly
competitive market, no single equities exchange possesses significant
pricing power in the execution of order flow. Moreover, the Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow or discontinue to reduce use of certain categories of products, in
response to new or different pricing structures being introduced into
the market. Accordingly, competitive forces constrain the Exchange's
transaction fees and rebates, including with respect to executions of
Added Volume, 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 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,\29\ 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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\29\ See supra notes 15 and 20.
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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.'' \30\ 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'. . . .''.\31\ 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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\30\ See supra note 23.
\31\ 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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[[Page 64254]]
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 \32\ and Rule 19b-4(f)(2) \33\ thereunder.
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\32\ 15 U.S.C. 78s(b)(3)(A)(ii).
\33\ 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#e391968f86ce808c8e8e868d9790a3908680cd848c95"><span class="__cf_email__" data-cfemail="5d2f283138703e3230303833292e1d2e383e733a322b">[email protected]</span></a>. Please include
File Number SR-MEMX-2021-16 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-2021-16. 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-2021-16 and should be submitted on
or before December 8, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25018 Filed 11-16-21; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.