Notice2021-27422
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
December 20, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 241 (Monday, December 20, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 241 (Monday, December 20, 2021)]
[Notices]
[Pages 71980-71983]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-27422]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93773; File No. SR-MEMX-2021-18]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
December 14, 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 December 1, 2021, MEMX LLC (``MEMX'' or the ``Exchange'') filed
with the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 December 1, 2021. The text of the proposed rule
change is provided in Exhibit 5.
---------------------------------------------------------------------------
\3\ See Exchange Rule 1.5(p).
---------------------------------------------------------------------------
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 provide free executions for Retail Orders \4\ with a time-
in-force (``TIF'') instruction of Day,\5\ GTT \6\ or RHO \7\ that
remove liquidity from the Exchange upon entry into the System.
---------------------------------------------------------------------------
\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 (``RMO''), 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).
\5\ ``Day'' is an instruction the User may attach to an order
stating that an order to buy or sell is designated for execution
starting with the Pre-Market Session and, if not executed, expires
at the end of Regular Trading Hours. Any Day Order entered into the
System before the opening for business on the Exchange as determined
pursuant to Exchange Rule 11.1, or after the closing of Regular
Trading Hours, will be rejected. See Exchange Rule 11.6(o)(2). The
term ``System'' refers to the electronic communications and trading
facility designated by the Board through which securities orders of
Users are consolidated for ranking, execution and, when applicable,
routing. See Exchange Rule 1.5(gg).
\6\ ``GTT'' or ``Good-'til-Time'' is an instruction the User may
attach to an order specifying the time of day at which the order
expires, which is designated for execution starting with the Pre-
Market Session. Any unexecuted portion of an order with a TIF
instruction of GTT will be cancelled at the expiration of the User's
specified time, which can be no later than the close of the Post-
Market Session. See Exchange Rule 11.6(o)(4).
\7\ ``RHO'' or ``Regular Hours Only'' is instruction a User may
attach to an order stating that an order to buy or sell is
designated for execution only during Regular Trading Hours and, if
not executed, expires at the end of Regular Trading Hours. Any order
with a TIF instruction of RHO entered into the System before the
opening or after the closing of Regular Trading Hours will be
rejected. See Exchange Rule 11.6(o)(5).
---------------------------------------------------------------------------
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.\8\ 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.\9\ 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.
---------------------------------------------------------------------------
\8\ Market share percentage calculated as of November 30, 2021.
The Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\9\ Id.
---------------------------------------------------------------------------
As noted above, the Exchange is proposing to provide free
executions (i.e., the Exchange would charge no fee and provide no
rebate) for Retail Orders with a TIF instruction of Day, GTT or RHO
that remove liquidity from the Exchange upon entry into the System
(such orders, ``Removing Retail Orders''). As proposed, the free
executions would apply to Removing Retail Orders in securities priced
at,
[[Page 71981]]
above or below $1.00 per share.\10\ Currently, executions of Removing
Retail Orders in securities priced at or above $1.00 per share are
assessed the standard fee of $0.0029 per share to remove liquidity from
the Exchange (or a lower fee of $0.0027 per share if the entering User
qualifies for the Liquidity Removal Tier 1), and executions of Removing
Retail Orders in securities priced below $1.00 per share are assessed
the standard fee of 0.05% of the total dollar value of the transaction
to remove liquidity from the Exchange.
---------------------------------------------------------------------------
\10\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the new description ``Removed volume from MEMX
Book upon entry, Retail Order (Day/GTT/RHO)'' and such orders will
receive a Fee Code of ``Rr0'' assigned by the Exchange.
---------------------------------------------------------------------------
The Exchange notes that multiple other equities exchanges currently
provide free executions for retail orders that remove liquidity upon
entry in securities priced at, above or below $1.00 per share.\11\
---------------------------------------------------------------------------
\11\ See, e.g., the Cboe EDGX Exchange, Inc. equities trading
fee schedule (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 provides for free executions
for retail orders with a TIF instruction of Day or RHO that remove
liquidity on arrival in securities priced at, above or below $1.00
per share; the Investors Exchange LLC equities trading fee schedule
(available at <a href="https://exchange.iex.io/resources/trading/fee-schedule/">https://exchange.iex.io/resources/trading/fee-schedule/</a>), which provides for free executions of retail orders that
remove liquidity.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\12\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
As discussed above, the Exchange operates in a highly fragmented
and competitive market in which market participants can readily direct
order flow to competing venues if they deem fee levels at a particular
venue to be excessive or incentives to be insufficient, and the
Exchange represents only a small percentage of the overall market. The
Commission and the courts have repeatedly expressed their preference
for competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \14\
---------------------------------------------------------------------------
\14\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------
The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to new or different pricing structures being
introduced into the market. The Exchange also notes that the
competition for Retail Order flow is particularly intense, especially
as it relates to exchange versus off-exchange venues.\15\ Accordingly,
competitive forces constrain the Exchange's transaction fees and
rebates, particularly as they relate to competing for Retail Order
flow, 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, which the
Exchange believes would enhance liquidity and market quality on the
Exchange to the benefit of all Members.
---------------------------------------------------------------------------
\15\ Securities Exchange Release No. 86375 (July 15, 2019), 84
FR 34960 (SR-CboeEDGX-2019-045).
---------------------------------------------------------------------------
The Exchange believes that the proposal to provide free executions
for Removing Retail Orders is reasonable, equitable and not unfairly
discriminatory. Specifically, the Exchange believes such proposal is
reasonable as it is reasonably designed to incentivize RMOs to submit
additional Removing Retail Orders to the Exchange, and such market
participants would not be subject to a fee for the execution of such
orders. This is consistent with, and competitive with, fees and rebates
assessed for retail order flow on other equities exchanges, which
provide pricing incentives to retail orders in the form of lower fees
(including free executions) and/or higher rebates.\16\ In addition, the
Exchange notes that it also currently offers a separate pricing
incentive for Retail Order flow in the form of a higher rebate of
$0.0037 per share for Retail Orders that add displayed liquidity to the
Exchange in securities priced at or above $1.00 per share as compared
to the standard rebate of $0.0028 for non-retail orders that add
displayed liquidity to the Exchange in securities priced at or above
$1.00 per share, which is similarly designed to attract Retail Order
flow to the Exchange.
---------------------------------------------------------------------------
\16\ See supra note 11; see also the NYSE Arca, Inc. equities
trading fee schedule on its public website (available at [sic]),
which provides for enhanced rebates ranging from $0.0032 to $0.0038
per share, depending on the applicable tier, for retail orders in
securities priced at or above $1.00 per share that add liquidity as
compared to the standard rebate of $0.0020 per share for non-retail
orders in securities priced at or above $1.00 per share that add
liquidity.
---------------------------------------------------------------------------
As noted above, the Exchange believes that providing free
executions for Removing Retail Orders is reasonably designed to
incentivize an increase in Removing Retail Order flow. Retail Orders
are generally submitted in smaller sizes and tend to attract liquidity-
providing market makers, as smaller size orders are easier to hedge,
and Retail Order flow that removes liquidity additionally signals to
liquidity providers to increase their overall provision of liquidity in
the markets. Increased market maker activity facilitates tighter
spreads and an increase in overall liquidity provider activity provides
for deeper, more robust levels of liquidity, both of which signal
additional corresponding increase in order flow from other market
participants, contributing towards a robust, well-balanced market
ecosystem. Indeed, increased overall order flow benefits all investors
by continuing to deepen the Exchange's liquidity pool, potentially
providing even greater execution incentives and opportunities, offering
additional flexibility for all investors to enjoy cost savings,
supporting the quality of price discovery, promoting market
transparency and improving investor protection.
The Exchange notes that the proposed free executions for Removing
Retail Orders will be automatically and uniformly applied to all RMOs'
qualifying orders. The Exchange additionally notes that while the
proposed free executions are applicable only to qualifying Retail
Orders, which may only be submitted by RMOs, the Exchange believes this
application is equitable and not unfairly discriminatory as the
Exchange offers other pricing incentives in the form of enhanced
rebates and reduced fees to qualifying non-Retail Order flow that may
be submitted by all Members.\17\ The Exchange understands that Section
6(b)(5) of the Act \18\ prohibits an
[[Page 71982]]
exchange from establishing rules that are designed to permit unfair
discrimination between market participants. However, Section 6(b)(5) of
the Act \19\ does not prohibit exchange members or other broker-dealers
from discriminating, so long as their activities are otherwise
consistent with the federal securities laws. While the Exchange
believes that markets and price discovery optimally function through
the interactions of diverse flow types, it also believes that growth in
internalization has required differentiation of Retail Order flow from
other order flow types. The differentiation proposed herein by the
Exchange is not designed to permit unfair discrimination, but instead
to promote a competitive process around Retail Order executions such
that retail investors would receive free executions for Removing Retail
Orders on the Exchange rather than paying a fee, as they do currently,
in order to encourage entry of Removing Retail Orders to the Exchange.
Accordingly, the Exchange believes the proposed free executions for
Removing Retail Orders is not unfairly discriminatory.
---------------------------------------------------------------------------
\17\ See generally, the Exchange's Fee Schedule (available at
<a href="https://info.memxtrading.com/fee-schedule/">https://info.memxtrading.com/fee-schedule/</a>), which provides for
various enhanced rebates and reduced fees for non-Retail Order flow.
\18\ 15 U.S.C. 78f(b)(5).
\19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 \20\ 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.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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. Rather, as discussed above, the
Exchange believes that the proposed change would encourage the
submission of additional order flow to a public exchange, thereby
promoting market depth, execution incentives and enhanced execution
opportunities, as well as price discovery and transparency for all
Members. As a result, the Exchange believes the proposal would enhance
its competitiveness as a market that attracts Retail Orders (including
Removing Retail Orders) and other orders seeking to interact with such
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.'' \21\
---------------------------------------------------------------------------
\21\ See supra note 14.
---------------------------------------------------------------------------
Intramarket Competition
The Exchange believes that the proposal would incentivize market
participants to direct more 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. As noted above, the proposed free executions for
Removing Retail Orders will be automatically and uniformly applied to
all RMOs' qualifying orders and, while such proposed free executions
are applicable only to qualifying Retail Orders, which may only be
submitted by RMOs, the Exchange believes this application is equitable
and not unfairly discriminatory as the Exchange offers other pricing
incentives in the form of enhanced rebates and reduced fees to
qualifying non-Retail Order flow that may be submitted by all
Members.\22\ Further, the differentiation proposed herein by the
Exchange is not designed to permit unfair discrimination, but instead
to promote a competitive process around Retail Order executions such
that retail investors would receive free executions for Removing Retail
Orders on the Exchange rather than paying a fee, as they do currently,
in order to encourage entry of Removing Retail Orders to the Exchange.
As such, the Exchange believes the proposal would not impose any burden
on intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\22\ See supra note 17.
---------------------------------------------------------------------------
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 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, particularly as they relate to competing
for Retail Order flow, as described above, 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 change is a competitive
proposal through which the Exchange is seeking to encourage additional
order flow to the Exchange through a pricing incentive that is
comparable to, and competitive with, pricing programs in place at other
exchanges.\23\ 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 to encourage the submission of Retail Order flow.
---------------------------------------------------------------------------
\23\ See supra note 11.
---------------------------------------------------------------------------
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.'' \24\ 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
[[Page 71983]]
`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'. . . .''.\25\ 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.
---------------------------------------------------------------------------
\24\ See supra note 14.
\25\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \26\ and Rule 19b-4(f)(2) \27\ thereunder.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78s(b)(3)(A)(ii).
\27\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5022253c357d333f3d3d353e2423102335337e373f26"><span class="__cf_email__" data-cfemail="5321263f367e303c3e3e363d2720132036307d343c25">[email protected]</span></a>. Please include
File Number SR-MEMX-2021-18 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-2021-18. 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-2021-18 and should be submitted on
or before January 10, 2022.
---------------------------------------------------------------------------
\28\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27422 Filed 12-17-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on December 20, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.