Notice2022-07627
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule To Adopt Market Data Fees
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
April 11, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 69 (Monday, April 11, 2022)</title>
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[Federal Register Volume 87, Number 69 (Monday, April 11, 2022)]
[Notices]
[Pages 21232-21246]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-07627]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94614; File No. SR-MEMX-2022-03]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule To Adopt Market Data Fees
April 5, 2022.
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 March 24, 2022, 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\ and non-
Members (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 April 1, 2022. 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 21233]]
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
Background
The purpose of the proposed rule change is to amend the Fee
Schedule to adopt fees the Exchange will charge to Members and non-
Members for each of its three proprietary market data feeds, namely
MEMOIR Depth, MEMOIR Top, and MEMOIR Last Sale (collectively, the
``Exchange Data Feeds''). As set forth below, the Exchange believes
that the proposed fees are fair and reasonable and has based its
proposal on the fact that competitive forces exist with respect to the
Exchange Data Feeds, a comparison to competitor pricing, as well as a
cost analysis intended to provide transparency to the Commission and to
the industry at large. The Exchange is proposing to implement the
proposed fees on April 1, 2022.
Before setting forth the additional details regarding the existence
of competitive forces, the comparison to competitor pricing and the
Exchange's cost analysis for transparency purposes, immediately below
is a description of the proposed fees.
Proposed Market Data Pricing
The Exchange offers three separate data feeds to subscribers--
MEMOIR Depth, MEMOIR Top and MEMOIR Last Sale. The proposed pricing for
each of these products is set forth below.
MEMOIR Depth
The MEMOIR Depth feed is a MEMX-only market data feed that contains
all displayed orders for securities trading on the Exchange (i.e., top
and depth-of-book order data), order executions (i.e., last sale data),
order cancellations, order modifications, order identification numbers,
and administrative messages.\4\ The Exchange proposes to charge each of
the fees set forth below for MEMOIR Depth.
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\4\ See MEMX Rule 13.8(a).
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1. Internal Distribution Fee. For the receipt of access to the
MEMOIR Depth feed, the Exchange proposes to charge $1,500 per month.
This proposed access fee would be charged to any data recipient that
receives a data feed of the MEMOIR Depth feed for purposes of internal
distribution (i.e., an ``Internal Distributor''). The Exchange proposes
to define an Internal Distributor as ``a Distributor that receives an
Exchange Data product and then distributes that data to one or more
data recipients within the Distributor's own organization.'' \5\ The
proposed access fee for internal distribution will be charged only once
per month per subscribing entity (``Firm''). The Exchange notes that it
has proposed to use the phrase ``own organization'' in the definition
of Internal Distributor and External Distributor because a Firm will be
permitted to share data received from an Exchange Data product to other
legal entities affiliated with the Firm that have been disclosed to the
Exchange without such distribution being considered external to a third
party. For instance, if a company has multiple affiliated broker-
dealers under the same holding company, that company could have one of
the broker-dealers or a non-broker-dealer affiliate subscribe to an
Exchange Data product and then share the data with other affiliates
that have a need for the data. This sharing with affiliates would not
be considered external distribution to a third party but instead would
be considered internal distribution to data recipients within the
Distributor's own organization.
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\5\ See Market Data Definitions under the proposed MEMX Fee
Schedule. The Exchange also proposes to adopt a definition for
``Distributor'', which would mean any entity that receives an
Exchange Data product directly from the Exchange or indirectly
through another entity and then distributes internally or externally
to a third party.
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2. External Distribution Fee. For redistribution of the MEMOIR
Depth feed, the Exchange proposes to establish an access fee of $2,500
per month. The proposed redistribution fee would be charged to any
External Distributor of the MEMOIR Depth feed, which would be defined
to mean ``a Distributor that receives an Exchange Data product and then
distributes that data to a third party or one or more data recipients
outside the Distributor's own organization.'' \6\ The proposed access
fee for external distribution will be charged only once per month per
Firm. As noted above, while a Firm will be permitted to share data
received from an Exchange Data product to other legal entities
affiliated with the Firm that have been disclosed to the Exchange
without such distribution being considered external to a third party,
if a Firm distributes data received from an Exchange Data product to an
unaffiliated third party that would be considered distribution to data
recipients outside the Distributor's own organization and the access
fee for external distribution would apply.
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\6\ See Market Data Definitions under the proposed MEMX Fee
Schedule.
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3. Non-Display Use Fees. The Exchange proposes to establish
separate non-display fees for usage by Trading Platforms and other
Users (i.e., not by Trading Platforms).\7\ Non-Display Usage would be
defined to mean ``any method of accessing an Exchange Data product that
involves access or use by a machine or automated device without access
or use of a display by a natural person or persons.'' \8\ For Non-
Display Usage of the MEMOIR Depth feed not by Trading Platforms, the
Exchange proposes to establish a fee of $1,500 per month.\9\ For Non-
Display Usage of the MEMOIR Depth feed by Trading Platforms, the
Exchange proposes to establish a fee of $4,000 per month. The proposed
fees for Non-Display Usage will be charged only once per category per
Firm.\10\ In other words, with respect to Non-Display Usage Fees, a
Firm that uses MEMOIR Depth for non-display purposes but does not
operate a Trading Platform would pay $1,500 per month, a Firm that uses
MEMOIR Depth in connection with the operation of one or more Trading
Platforms (but not for other purposes) would pay $4,000 per month, and
a Firm that uses MEMOIR Depth for non-display purposes other than
operating a Trading Platform and for the operation of one or more
Trading Platforms would pay $5,500 per month.
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\7\ The Exchange proposes to define a Trading Platform as ``any
execution platform operated as or by a registered National
Securities Exchange (as defined in Section 3(a)(1) of the Exchange
Act), an Alternative Trading System (as defined in Rule 300(a) of
Regulation ATS), or an Electronic Communications Network (as defined
in Rule 600(b)(23) of Regulation NMS).'' See Market Data Definitions
under the proposed MEMX Fee Schedule.
\8\ See Market Data Definitions under the proposed MEMX Fee
Schedule.
\9\ Non-Display Usage not by Trading Platforms would include
trading uses such as high frequency or algorithmic trading as well
as any trading in any asset class, automated order or quote
generation and/or order pegging, price referencing for smart order
routing, operations control programs, investment analysis, order
verification, surveillance programs, risk management, compliance,
and portfolio management.
\10\ The Exchange proposes to adopt note 1 to the proposed
Market Data fees table, which would make clear to subscribers that
use of the data for multiple non-display purposes or operate more
than one Trading Platform would only be charged once per category
per month. Thus, the footnote makes clear that each fee applicable
to Non-Display Usage is charged per subscriber (e.g., a Firm) and
that each of the fees represents the maximum charge per month per
subscriber regardless of the number of non-display uses and/or
Trading Platforms operated by the subscriber, as applicable.
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4. User Fees. The Exchange proposes to charge a Professional User
Fee (per User) of $30 per month and a Non-Professional User Fee (per
User) of $3 per month. The proposed User fees would apply to each
person that has access to the MEMOIR Depth feed for
[[Page 21234]]
displayed usage. Thus, each Distributor's count will include every
individual that accesses the data regardless of the purpose for which
the individual uses the data. Internal Distributors and External
Distributors of the MEMX Depth feed must report all Professional and
Non-Professional Users in accordance with the following:
<bullet> In connection with a Distributor's distribution of the
MEMOIR Depth feed, the Distributor must count as one User each unique
User that the Distributor has entitled to have access to the MEMOIR
Depth feed.
<bullet> Distributors must report each unique individual person who
receives access through multiple devices or multiple methods (e.g., a
single User has multiple passwords and user identifications) as one
User.
<bullet> If a Distributor entitles one or more individuals to use
the same device, the Distributor must include only the individuals, and
not the device, in the count. Thus, Distributors would not be required
to report User device counts associated with a User's display use of
the data feed.
5. Enterprise Fee. Other than the Digital Media Enterprise Fee
described below, the Exchange is not proposing to adopt an Enterprise
Fee for the MEMOIR Depth feed at this time.
6. Digital Media Enterprise Fee. As an alternative to User fees, a
recipient Firm may purchase a monthly Digital Media Enterprise license
to receive MEMOIR Depth for distribution to an unlimited number of
Users for viewing via television, websites, and mobile devices for
informational and non-trading purposes only. The Exchange proposes to
establish a fee of $5,000 per month for a Digital Media Enterprise
license to the MEMOIR Depth feed.
MEMOIR Top
The MEMOIR Top feed is a MEMX-only market data feed that contains
top of book quotations based on equity orders entered into the
System.\11\ The Exchange proposes to charge each of the fees set forth
below for MEMOIR Top.
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\11\ See MEMX Rule 13.8(b). The Exchange notes that it will file
a separate rule proposal to modify paragraph (b) of Rule 13.8 to
remove reference to execution information as included in the MEMOIR
Top feed, as execution information is not presently included in such
feed.
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1. Internal Distribution Fee. For the receipt of access to the
MEMOIR Top feed, the Exchange proposes to charge $750 per month. This
proposed access fee would be charged to any data recipient that
receives a data feed of the MEMOIR Top feed for purposes of internal
distribution (i.e., an Internal Distributor). The proposed access fee
for internal distribution will be charged only once per month per Firm.
2. External Distribution Fee. For redistribution of the MEMOIR Top
feed, the Exchange proposes to establish an access fee of $2,000 per
month. The proposed redistribution fee would be charged to any External
Distributor of the MEMOIR Top feed. The proposed access fee for
external distribution will be charged only once per month per Firm.
3. Non-Display Use Fees. The Exchange does not propose to establish
non-display fees for usage by Trading Platforms or other Users with
respect to MEMOIR Top.
4. User Fees. The Exchange proposes to charge a Professional User
Fee (per User) of $0.01 per month and a Non-Professional User Fee (per
User) of $0.01 per month. The proposed User fees would apply to each
person that has access to the MEMOIR Top feed that is provided by an
External Distributor for displayed usage. The Exchange does not propose
any per User fees for internal distribution of the MEMOIR Top feed.
Each External Distributor's count will include every individual that
accesses the data regardless of the purpose for which the individual
uses the data. External Distributors of the MEMOIR Top feed must report
all Professional and Non-Professional Users \12\ in accordance with the
following:
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\12\ The Exchange notes that while it is not differentiating
Professional and Non-Professional Users based on fees (in that it is
proposing the same fee for such Users) for this data feed, and thus
will not audit Firms based on this distinction, it will request
reporting of each distinct category for informational purposes.
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<bullet> In connection with an External Distributor's distribution
of the MEMOIR Top feed, the Distributor must count as one User each
unique User that the Distributor has entitled to have access to the
MEMOIR Top feed.
<bullet> External Distributors must report each unique individual
person who receives access through multiple devices or multiple methods
(e.g., a single User has multiple passwords and user identifications)
as one User.
<bullet> If an External Distributor entitles one or more
individuals to use the same device, the Distributor must include only
the individuals, and not the device, in the count. Thus, Distributors
would not be required to report User device counts associated with a
User's display use of the data feed.
5. Enterprise Fee. As an alternative to User fees, a recipient Firm
may purchase a monthly Enterprise license to receive MEMOIR Top for
distribution to an unlimited number of Professional and Non-
Professional Users. The Exchange proposes to establish a fee of $10,000
per month for an Enterprise license to the MEMOIR Top feed.
6. Digital Media Enterprise Fee. As an alternative to User fees, a
recipient Firm may purchase a monthly Digital Media Enterprise license
to receive MEMOIR Top for distribution to an unlimited number of Users
for viewing via television, websites, and mobile devices for
informational and non-trading purposes only. The Exchange proposes to
establish a fee of $2,000 per month for a Digital Media Enterprise
license to the MEMOIR Top feed.
MEMOIR Last Sale
The MEMOIR Last Sale feed is a MEMX-only market data feed that
contains only execution information based on equity orders entered into
the System.\13\ The Exchange proposes to charge each of the fees set
forth below for MEMOIR Last Sale.
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\13\ See MEMX Rule 13.8(c).
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1. Internal Distribution Fee. For the receipt of access to the
MEMOIR Last Sale feed, the Exchange proposes to charge $500 per month.
This proposed access fee would be charged to any data recipient that
receives a data feed of the MEMOIR Last Sale feed for purposes of
internal distribution (i.e., an Internal Distributor). The proposed
access fee for internal distribution will be charged only once per
month per Firm.
2. External Distribution Fee. For redistribution of the MEMOIR Last
Sale feed, the Exchange proposes to establish an access fee of $2,000
per month. The proposed redistribution fee would be charged to any
External Distributor of the MEMOIR Last Sale feed. The proposed access
fee for external distribution will be charged only once per month per
Firm.
3. Non-Display Use Fees. The Exchange does not propose to establish
separate non-display fees for usage by Trading Platforms or other Users
with respect to MEMOIR Last Sale.
4. User Fees. The Exchange proposes to charge a Professional User
Fee (per User) of $0.01 per month and a Non-Professional User Fee (per
User) of $0.01 per month. The proposed User fees would apply to each
person that has access to the MEMOIR Last Sale feed that is provided by
an External Distributor for displayed usage. The Exchange does not
propose any per User fees for internal distribution of the MEMOIR Last
Sale feed. Each External Distributor's count will include every
individual that accesses the data regardless of the purpose for which
the individual uses the data. External Distributors of the MEMOIR Last
Sale
[[Page 21235]]
feed must report all Professional and Non-Professional Users \14\ in
accordance with the following:
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\14\ See supra note 12.
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<bullet> In connection with an External Distributor's distribution
of the MEMOIR Last Sale feed, the Distributor must count as one User
each unique User that the Distributor has entitled to have access to
the MEMOIR Last Sale feed.
<bullet> External Distributors must report each unique individual
person who receives access through multiple devices or multiple methods
(e.g., a single User has multiple passwords and user identifications)
as one User.
<bullet> If an External Distributor entitles one or more
individuals to use the same device, the Distributor must include only
the individuals, and not the device, in the count. Thus, Distributors
would not be required to report User device counts associated with a
User's display use of the data feed.
5. Enterprise Fee. As an alternative to User fees, a recipient Firm
may purchase a monthly Enterprise license to receive MEMOIR Last Sale
for distribution to an unlimited number of Professional and Non-
Professional Users. The Exchange proposes to establish a fee of $10,000
per month per Firm for an Enterprise license to the MEMOIR Last Sale
feed.
6. Digital Media Enterprise Fee. As an alternative to User fees, a
recipient Firm may purchase a monthly Digital Media Enterprise license
to receive MEMOIR Last Sale for distribution to an unlimited number of
Users for viewing via television, websites, and mobile devices for
informational and non-trading purposes only. The Exchange proposes to
establish a fee of $2,000 per month per Firm for a Digital Media
Enterprise license to the MEMOIR Last Sale feed.
Additional Discussion--Competitive Forces
The Commission has repeatedly expressed its 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.'' \15\ As the Commission
itself recognized, the market for trading services in NMS stocks has
become ``more fragmented and competitive.'' \16\ Indeed, equity trading
is currently dispersed across 16 exchanges,\17\ 31 alternative trading
systems,\18\ and numerous broker-dealer internalizers and wholesalers,
all competing for order flow.
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\15\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS Adopting Release'').
\16\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
\17\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at: <a href="http://markets.cboe.com/us/equities/market_share/">http://markets.cboe.com/us/equities/market_share/</a>. See generally <a href="https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html">https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html</a>.
\18\ See FINRA ATS Transparency Data, available at <a href="https://otctransparency.finra.org/otctransparency/AtsData">https://otctransparency.finra.org/otctransparency/AtsData</a>. A list of
alternative trading systems registered with the Commission is
available at: <a href="https://www.sec.gov/foia/docs/atslist.htm">https://www.sec.gov/foia/docs/atslist.htm</a>.
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The recent growth of MEMX's market share demonstrates the
competitive marketplace in which the Exchange operates. The Exchange
launched in September 2020 and slowly grew over the next several months
as it completed its staged rollout intended to ensure market stability.
In January 2021, the Exchange averaged approximately 0.6% of
consolidated trading volume.\19\ The Exchange experienced significant
growth every month from February 2021 to December 2021 and ended 2021
with market share of approximately 4.2% of consolidated volume; MEMX
maintained a similar market share percentage in January of 2022, ending
the month with 4.2% market share.\20\
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\19\ Market share percentage calculated as of February 1, 2022.
The Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\20\ See id.
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As the Exchange's transaction market share has increased, so has
the value of its market data. In addition to achieving over 4% of
consolidated volume, the Exchange's NBBO Quote Market Share (i.e., the
notional value displayed at the inside national best bid or offer, or
``NBBO'', as a percentage of overall notional value at the NBBO) is
comparable to that of Cboe BZX Exchange, Inc. (``BZX'') and the New
York Stock Exchange (``NYSE''), and higher than that of Cboe EDGX
Exchange. Inc.\21\ The Exchange determined the level of the fees to
charge for the Exchange Data Feeds based on the value of the Exchange's
market data as well as the cost analysis described later in this
filing. As noted above, over a 16-month period, MEMX has grown from 0%
to over 4% market share of consolidated trading volume. During that
same period, the Exchange has had a steady increase in the number of
subscribers to Exchange Data Feeds.
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\21\ See Cboe Global Markets NBBO Quote Market Share Statistics,
available at: <a href="https://www.cboe.com/us/equities/market_statistics/">https://www.cboe.com/us/equities/market_statistics/</a>.
In February 2022, NBBO Quote Market Share of the largest six
equities exchanges was as follows: NYSE Arca 18.5%, Nasdaq 17.32%,
NYSE 12.6%, BZX 11.02%, MEMX 10.14%, EDGX 8.71%. The remaining ten
equities exchanges have NBBO Quote Market Share below 5%.
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As a new entrant into the exchange industry, the Exchange is
particularly subject to competitive forces. While the Exchange has been
able to rapidly grow its market share since its launch in September
2020, MEMX operates only a single U.S. equities exchange with market
share that remains significantly lower than the market share of the
largest exchange groups. As noted above, MEMX currently does not charge
fees for market data provided by the Exchange. The objective of this
approach was to eliminate any fee-based barriers for Members when MEMX
launched as a national securities exchange in 2020, which the Exchange
believes has been helpful in its ability to attract order flow as a new
exchange. The Exchange also has not charged for market data because
MEMX believes that any exchange should first deliver meaningful value
to Members and other market participants before charging fees for its
products and services. The Exchange believes that its proposed approach
to market data fees is reasonable based on the existence of
competition, a comparison to competitors and the cost analysis
presented below.
The Exchange is not required to make the Exchange Data Feeds
available or to offer any specific pricing alternatives to any
customers, nor is any firm required to purchase the Exchange Data
Feeds. Firms that choose to subscribe to the Exchange Data Feeds do so
for the primary goals of using it to increase their revenues, reduce
their expenses, and in some instances to compete directly with the
Exchange (including for order flow). Those firms are able to determine
for themselves whether or not the Exchange Data Feeds or any other
similar products are attractively priced.
Because the Exchange Data Feeds have not been previously subject to
fees, the Exchange does not know the full impact of the proposed fees
on current data recipients because subscribers may choose to reduce or
eliminate their use of MEMX data. The Exchange anticipates that there
might be data recipients of the Exchange Data Feeds that subscribe only
because they are free and might choose to discontinue using the
products once fees are implemented. A data recipient that chooses to
discontinue subscribing to the Exchange's Data Feeds may also choose
[[Page 21236]]
to shift order flow away from the Exchange, and, given the current
competitive environment, if data recipients were to both discontinue
the product and shift order flow away from the Exchange, the Exchange
would reevaluate the fees and potentially file a separate proposed rule
change to amend its fees. In advance of implementing the proposed fees,
however, the Exchange cannot estimate with precision the impact of the
proposed fees on the Exchange's business or the number of subscribers
to the Exchange Data Feeds.
Additional Discussion--Comparison With Other Exchanges
The proposed fee structure is not novel but is instead comparable
to the fee structure currently in place for the equities exchanges
operated by Cboe Global Markets, Inc., in particular BZX.\22\ As noted
above, in January 2022, MEMX had 4.2% market share; for that same
month, BZX had 5.5% market share.\23\ The Exchange is proposing fees
for its Exchange Data Feeds that are similar in structure to BZX and
rates that are lower in most cases than the rates data recipients pay
for comparable data feeds from BZX. The Exchange notes that other
competitors maintain fees applicable to market data that are
considerably higher than those proposed by the Exchange, including NYSE
Arca \24\ and Nasdaq.\25\ However, the Exchange has focused its
comparison on BZX because it is the closest market in terms of market
share and offers market data at prices lower than several other
incumbent exchanges.\26\
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\22\ See BZX Fee Schedule, 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>.
\23\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at <a href="http://markets.cboe.com/us/equities/market_share/">http://markets.cboe.com/us/equities/market_share/</a>.
\24\ Fees for the NYSE Arca Integrated Feed, which is the
comparable product to MEMOIR Depth, are $3,000 for access (internal
use) and $3,750 for redistribution (external distribution), compared
to the Exchange's proposed fees of $1,500 and $2,500, respectively.
In addition, for its Integrated Feed, NYSE Arca charges for three
different categories of non-display usage, each of which is $10,500
and each of which can be charged to the same firm more than one time
(e.g., a customer operating a Trading Platform would pay $10,500
compared to the Exchange's proposed fee of $4,000 but would also pay
for each Trading Platform, up to three, if they operate more than
one, instead of the single fee proposed by the Exchange; if that
customer also uses the data for the other categories of non-display
usage they would also pay $10,500 for each other category of usage,
whereas the Exchange would only charge $1,500 for any non-display
usage other than operating a Trading Platform). Finally, the NYSE
Arca Integrated Feed user fee for pro devices is $60 compared to the
proposed Professional User fee of $30 for MEMOIR Depth and the NYSE
Arca Integrated user fee for non-pro devices is $20 compared to the
proposed Non-Professional User fee of $3 for MEMOIR Depth. See NYSE
Proprietary Market Data Pricing list, available at: <a href="https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf">https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf</a>.
\25\ Fees for the Nasdaq TotalView data feed, which is the
comparable product to MEMOIR Depth, are $1,500 for access (internal
use) and $3,750 for redistribution (external distribution), compared
to the Exchange's proposed fees of $1,500 and $2,500, respectively.
In addition, for TotalView, Nasdaq charges Trading Platforms $5,000
compared to the Exchange's proposal of $4,000, and, like NYSE Arca,
charges customers per Trading Platform, up to three, if they operate
more than one, instead of the single fee proposed by the Exchange.
Nasdaq also requires users to report and pay usage fees for non-
display access at levels of from $375 per subscriber for smaller
firms with 39 or fewer subscribers to $75,000 per firm for a larger
firm with over 250 subscribers. The Exchange does not require
counting of devices or users for non-display purposes and instead
has proposed flat fee of $1,500 for non-display usage not by Trading
Platforms. Finally, the Nasdaq TotalView user fee for professional
subscribers is $76 compared to the proposed Professional User fee of
$30 for MEMOIR Depth and the Nasdaq TotalView user fee for non-
professional subscribers is $15 compared to the proposed Non-
Professional User fee of $3 for MEMOIR Depth. See Nasdaq Global Data
Products pricing list, available at: <a href="http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN">http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN</a>.
\26\ See supra notes 24 and 25.
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The fees for the BZX Depth feed--which like the MEMOIR Depth feed,
includes top of book, depth of book, trades, and security status
messages--consist of an internal distributor access fee of $1,500 per
month (the same as the Exchange's proposed rate), an external
distributor access fee of $5,000 per month (two times the Exchange's
proposed rate), a non-display usage fee for non-Trading Platforms of
$2,000 per month ($500 more than the Exchange's proposed rate), a non-
display usage fee for Trading Platforms of $5,000 per month ($1,000
more than the Exchange's proposed rate), a Professional User fee (per
User) of $40 per month ($10 more than the Exchange's proposed rate),
and a Non-Professional User fee (per User) of $5 per month ($2 more
than the Exchange's proposed rate).\27\
---------------------------------------------------------------------------
\27\ See BZX Fee Schedule, Market Data Fees, BZX Depth,
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>. The Exchange notes that there are differences
between the structure of BZX Depth fees and the proposed fees for
MEMOIR Depth, including that the Exchange has proposed a Digital
Media Enterprise License for MEMOIR Depth but a comparable license
is not available from BZX. Additionally, BZX maintains a general
enterprise license for User fees, similar to that proposed by the
Exchange for MEMOIR Top and MEMOIR Last Sale, but the Exchange has
not proposed adding a general Enterprise license at this time.
---------------------------------------------------------------------------
The comparisons of the MEMOIR Last Sale feed and MEMOIR Top feed to
the BZX Last Sale feed and BZX Top feed, respectively, are similar in
that BZX generally maintains the same fee structure proposed by the
Exchange and BZX charges fees that are comparable to, but in most cases
higher than, the Exchange's proposed fees. Notably, the User fees
proposed by the Exchange for External Distributors of MEMOIR Last Sale
and MEMOIR Top ($0.01 for both Professional Users and Non-Professional
Users) are considerably lower than those charged by BZX for BZX Top and
BZX Last Sale ($4 for Professional Users and $0.10 for Non-Professional
Users).
By charging the same low rate for all Users of MEMOIR Top and
MEMOIR Last Sale the Exchange believes it is proposing a structure that
is not only lower cost but that will also simplify reporting for
subscribers who externally distribute these data feeds to Users, as the
Exchange believes that categorization of Users as Professional and Non-
Professional is not meaningful for these products and requiring such
categorization would expose Firms to unnecessary audit risk of paying
more for mis-categorization. However, the Exchange does not believe
this is equally true for MEMOIR Depth, as most individual Users of
MEMOIR Depth are likely to be Professional Users. The Exchange believes
that Professional Users are more likely to benefit economically from
the use of MEMOIR Depth data than Non-Professional Users, and the
Exchange believes that the higher fee charged to Professional Users is
reasonable and appropriate given this difference in value.
Additional Discussion--Cost Analysis
In general, the Exchange believes that exchanges, in setting fees
of all types, should meet very high standards of transparency to
demonstrate why each new fee or fee increase meets the Exchange Act
requirements that fees be reasonable, equitably allocated, not unfairly
discriminatory, and not create an undue burden on competition among
members and markets. In particular, the Exchange believes that each
exchange should take extra care to be able to demonstrate that these
fees are based on its costs and reasonable business needs. Accordingly,
in proposing to charge fees for market data, the Exchange has sought to
be especially diligent in assessing those fees in a transparent way
against its own aggregate costs of providing the related service, and
also carefully and transparently assessing the impact on Members--both
generally and in relation to other Members, i.e., to assure the fee
will not create a financial burden on any participant and will not have
an undue impact in particular on smaller Members and competition among
Members in general. The Exchange believes that this level of diligence
and transparency is called for by the requirements of Section 19(b)(1)
[[Page 21237]]
under the Act,\28\ and Rule 19b-4 thereunder,\29\ with respect to the
types of information self-regulatory organizations (``SROs'') should
provide when filing fee changes, and Section 6(b) of the Act,\30\ which
requires, among other things, that exchange fees be reasonable and
equitably allocated,\31\ not designed to permit unfair
discrimination,\32\ and that they not impose a burden on competition
not necessary or appropriate in furtherance of the purposes of the
Act.\33\ This rule change proposal addresses those requirements, and
the analysis and data in this section are designed to clearly and
comprehensively show how they are met.\34\
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78s(b)(1).
\29\ 17 CFR 240.19b-4.
\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(4).
\32\ 15 U.S.C. 78f(b)(5).
\33\ 15 U.S.C. 78f(b)(8).
\34\ In 2019, Commission staff published guidance suggesting the
types of information that SROs may use to demonstrate that their fee
filings comply with the standards of the Exchange Act (``Fee
Guidance''). While MEMX understands that the Fee Guidance does not
create new legal obligations on SROs, the Fee Guidance is consistent
with MEMX's view about the type and level of transparency that
exchanges should meet to demonstrate compliance with their existing
obligations when they seek to charge new fees. See Staff Guidance on
SRO Rule Filings Relating to Fees (May 21, 2019) available at
<a href="https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees">https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees</a>.
---------------------------------------------------------------------------
In October 2021, MEMX completed a study of its aggregate costs to
produce market data and connectivity (the ``Cost Analysis''). The Cost
Analysis required a detailed analysis of MEMX's aggregate baseline
costs, including a determination and allocation of costs for core
services provided by the Exchange--transactions, market data,
membership services, physical connectivity, and application sessions
(which provide order entry, cancellation and modification
functionality, risk functionality, ability to receive drop copies, and
other functionality). MEMX separately divided its costs between those
costs necessary to deliver each of these core services, including
infrastructure, software, human resources (i.e., personnel), and
selling, general and administrative expenses (``cost drivers''). Next,
MEMX applied an estimated allocation of each cost driver to each core
service. By allocating segmented costs to each core service, MEMX was
able to estimate by core service the potential margin it might earn
based on different fee models. The Exchange notes that as a non-listing
venue it has four primary sources of revenue that it can potentially
use to fund its operations: Transaction fees, fees for connectivity
services, membership and regulatory fees, and market data fees.
Accordingly, the Exchange must cover its expenses from these four
primary sources of revenue.
The Exchange recently filed to adopt fees for connectivity
services, to which the Exchange allocated a monthly aggregate monthly
cost of $1,143,715.\35\ Based on the pricing adopted by the Exchange,
the Exchange estimated it would generate monthly revenue of $1,233,750
from connectivity services (i.e., physical connections and application
sessions), providing cost recovery to the Exchange for the aggregate
costs of offering connectivity services plus approximately 8% margin.
Thus far, fees for connectivity services have generated revenues
consistent with the Exchange's estimates.
---------------------------------------------------------------------------
\35\ See Securities Exchange Act Release No. 93937 (January 10,
2022), 87 FR 2466 (January 14, 2022) (SR-MEMX-2021-22) (the
``Connectivity Filing'').
---------------------------------------------------------------------------
The Exchange notes that it is difficult, if not impossible, to
purely split the costs of generating and producing market data and the
costs associated with operation of the system that processes (and
displays through market data) orders, cancellations, and transactions
and performs related functions (collectively, together with market
data, ``Transaction Services''). Instead, because the Exchange believes
its costs for providing Transaction Services, including market data,
are inextricably linked, the cost analysis below and corollary margin
discussion includes all Transaction Services. Through the Cost
Analysis, MEMX calculated its aggregate monthly costs for providing
Transaction Services, at $2,797,265. The Exchange expects to recoup the
majority of this cost from transaction fees and revenues from the
public data feeds in which the Exchange participates and receives
revenues (i.e., the SIPs). In order to cover operating costs and earn a
reasonable profit on its market data, the Exchange is proposing to
modify its Fee Schedule, pursuant to MEMX Rules 15.1(a) and (c), as set
forth above.
The following chart details the individual line-item (monthly)
costs considered by MEMX to be related to offering Transaction Services
(transactions and market data) to its Members and other customers.
------------------------------------------------------------------------
Costs drivers Costs
------------------------------------------------------------------------
Human Resources......................................... $1,480,822
Infrastructure and Connectivity Technology (servers, 48,480
switches, etc.)........................................
Exchange Software and Technology Consulting............. 305,244
External Market Data Costs.............................. 133,266
Data Center Costs....................................... 65,538
Hardware and Software Licenses.......................... 26,478
Regulatory Costs........................................ 155,815
Monthly Depreciation.................................... 393,380
Allocated Shared Expenses............................... 187,792
---------------
Total............................................... 2,797,265
------------------------------------------------------------------------
For personnel costs (Human Resources), MEMX calculated an
allocation of employee time for employees whose functions include
directly providing services necessary to offer Transaction Services,
including performance thereof, as well as personnel with ancillary
functions related to establishing and providing such services (such as
information security and finance personnel). The Human Resources cost
was calculated using a blended rate of compensation reflecting salary,
equity and bonus compensation, benefits, payroll taxes, and 401(k)
matching contributions. The Infrastructure and Connectivity Technology
cost includes servers, switches and related hardware required to
provide physical access to the Exchange, some of which is owned by the
Exchange and some of which is leased by the Exchange in order to allow
efficient periodic technology refreshes. Exchange Software and
Technology Consulting includes all costs for third party software
necessary to offer
[[Page 21238]]
Transaction Services as well as third party consultants used to help
test and review systems necessary to offering Transaction Services.
External Market Data Costs includes fees paid to other exchanges and
the SIPs under the consolidated plans to obtain data necessary to
provide Transaction Services. Data Center costs includes an allocation
of the costs the Exchange incurs to provide Transaction Services in the
third-party data centers where the Exchange maintains its equipment as
well as related costs (the Exchange does not own the Primary Data
Center or the Secondary Data Center, but instead, leases space in data
centers operated by third parties). Hardware and Software Licenses
includes hardware and software licenses used to operate and monitor
physical assets necessary to offer Transaction Services. All physical
assets and software, which also includes assets used for testing and
monitoring of Exchange infrastructure, were valued at cost, depreciated
or leased over periods ranging from three to five years. Finally, a
limited portion of general shared expenses was allocated to overall
Transaction Services costs as without these general shared costs the
Exchange would not be able to operate in the manner that it does and
provide Transaction Services. The costs included in general shared
expenses include general expenses of the Exchange, including office
space and office expenses, utilities, recruiting and training,
marketing and advertising costs, professional fees for legal, tax and
accounting services, and telecommunications costs.
In conducting its Cost Analysis, the Exchange did not allocate any
of its expenses in full to any core service and did not double-count
any expenses. Instead, as described above, the Exchange allocated
applicable cost drivers across its core services and used the same Cost
Analysis to form the basis of the Connectivity Filing and this filing,
proposing fees for Exchange Data Feeds. For instance, as described in
the Connectivity Filing, in calculating the Human Resources expenses to
be allocated to physical connections, the Exchange allocated network
infrastructure personnel with a high percentage of the cost of such
personnel (75%) given their focus on functions necessary to provide
physical connections. The salaries of those same personnel were
allocated only 2.5% to application sessions and the remaining 22.5% was
allocated to transactions and market data.
In total, again as explained in the Connectivity Filing, the
Exchange allocated 13.8% of its personnel costs to providing physical
connections and 7.7% of its personnel costs to providing application
sessions, for a total allocation of 21.5% Human Resources expense to
provide connectivity services. In turn, the Exchange allocated the
remaining 78.5% of its Human Resources expense to Membership (less than
1%) and Transaction Services (77.5%). Thus, again, the Exchange's
allocations of cost across core services were based on real costs of
operating the Exchange and were not double-counted across the core
services or their associated revenue streams.
As another example, the Exchange allocated depreciation expense to
all core services, including Transaction Services, but in different
amounts. The Exchange believes it is reasonable to allocate the
identified portion of such expense because such expense includes the
actual cost of the computer equipment, such as dedicated servers,
computers, laptops, monitors, information security appliances and
storage, and network switching infrastructure equipment, including
switches and taps that were purchased to operate and support the
Exchange. Without this equipment, the Exchange would not be able to
operate the Exchange and provide Transaction Services to its Members
and non-Members and their customers. The Exchange did not allocate all
of the depreciation and amortization expense toward the cost of
providing Transaction Services, but instead allocated approximately 73%
of the Exchange's overall depreciation and amortization expense to
Transaction Services.
The Exchange notes that the Cost Analysis was based on the
Exchange's first year of operations and projections for the next year.
As such, the Exchange believes that its costs will remain relatively
similar in future years. It is possible however that such costs will
either decrease or increase. To the extent the Exchange sees growth in
use of market data or any other core service it will receive additional
revenue to offset future cost increases. However, if use of core
services, including market data subscriptions is static or decreases,
the Exchange might not realize the revenue that it anticipates or needs
in order to cover applicable costs. Accordingly, the Exchange commits
to periodically review the costs applicable to providing Transaction
Services, including the Exchange Data Feeds, and to propose changes to
its fees as appropriate.
The proposed fees for Exchange Data Feeds are designed to permit
the Exchange to cover the costs allocated to providing Transaction
Services with a markup that the Exchange believes is modest
(approximately 17%), which would also account for costs related to
Transaction Services that the Exchange has previously borne completely
on its own and help fund future expenditures (increased costs,
improvements, etc.). The Exchange also reiterates that the Exchange has
not previously charged any fees for Exchange Data Feeds and its
allocation of costs to Exchange Data Feeds was part of a holistic
allocation that also allocated costs to other core services without
double-counting any expenses.
Looking at the Exchange's operations holistically, the total
monthly costs to the Exchange for offering core services is $3,954,537.
The Exchange anticipates that the proposed fees for Exchange Data Feeds
will generate between $250,000 and $500,000, depending on how many
current subscribers stop subscribing to the Exchange Data Feeds once
the Exchange commences billing. Incorporating this range into the
Exchange's overall projected revenue, the Exchange anticipates monthly
revenue ranging from $4,296,950 to $4,546,950 from all sources (i.e.,
connectivity fees and membership fees that were introduced in January
2022, transaction fees, and revenue from market data, both through the
fees proposed herein and through the revenue received from the SIPs).
As such, applying the Exchange's holistic Cost Analysis to a holistic
view of anticipated revenues, the Exchange would earn approximately
8.5% to 15% margin on its operations as a whole. The Exchange believes
that this amount is reasonable.
The Exchange notes that its revenue estimates are based on
projections across all potential revenue streams and will only be
realized to the extent such revenue streams actually produce the
revenue estimated. As a new entrant to the hyper-competitive exchange
environment, and an exchange focused on driving competition, the
Exchange does not yet know whether such expectations will be realized.
For instance, in order to generate the revenue expected from the
Exchange Data Feeds, the Exchange will have to be successful in
retaining existing subscribers and obtaining new subscribers to the
Exchange Data Feeds. Similarly, the Exchange will have to be successful
in retaining a positive net capture on transaction fees in order to
realize the anticipated revenue from transaction pricing.
To the extent the Exchange is successful in gaining market share,
improving its net capture on transaction
[[Page 21239]]
fees, encouraging new subscribers to subscribe to the Exchange Data
Feeds, and other developments that would help to increase Exchange
revenues, the Exchange does not believe it should be penalized for such
success. The Exchange like other exchanges is, after all, a for-profit
business. Accordingly, while the Exchange believes in transparency
around costs and potential margins, the Exchange does not believe that
these estimates should form the sole basis of whether or not a proposed
fee is reasonable or can be adopted. Instead, the Exchange believes
that the information should be used solely to confirm that an Exchange
is not earning supra-competitive profits, and the Exchange believes its
Cost Analysis and related projections demonstrate this fact.
As described above, there is no requirement that any Firm subscribe
to a particular Exchange Data Feed or any Exchange Data Feed
whatsoever, but instead, a Firm may choose to maintain subscriptions to
those Exchange Data Feeds they deem appropriate based on their business
model. The proposed fee will not apply differently based upon the size
or type of Firm, but rather based upon the subscriptions a Firm has to
Exchange Data Feeds and their use thereof, which are in turn based upon
factors deemed relevant by each Firm.
As discussed above, the proposed fees for connectivity services do
not by design apply differently to different types or sizes of Members.
As discussed in more detail in the Statutory Basis section, the
Exchange believes that the likelihood of higher fees for certain Firms
subscribing to Exchange Data Feeds than others is not unfairly
discriminatory because it is based on objective differences in usage of
Exchange Data Feeds among different Firms, which are still ultimately
in the control of any particular Firm.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) \36\ of the Act in general, and
furthers the objectives of Section 6(b)(4) \37\ of the Act, in
particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees and other charges among its Members
and other persons using its facilities. Additionally, the Exchange
believes that the proposed fees are consistent with the objectives of
Section 6(b)(5) \38\ of the Act in that they are designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to a free and open market and
national market system, and, in general, to protect investors and the
public interest, and, particularly, are not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78f.
\37\ 15 U.S.C. 78f(b)(4).
\38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Proposed Rule Change Is Reasonable
In adopting Regulation NMS, the Commission granted SROs and broker-
dealers increased authority and flexibility to offer new and unique
market data to the public. 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.'' \39\
---------------------------------------------------------------------------
\39\ See Regulation NMS Adopting Release, 70 FR 37495, at 37499.
---------------------------------------------------------------------------
With respect to market data, the decision of the United States
Court of Appeals for the District of Columbia Circuit in NetCoalition
v. SEC upheld the Commission's reliance on the existence of competitive
market mechanisms to evaluate the reasonableness and fairness of fees
for proprietary market data:
In fact, the legislative history indicates that the Congress
intended that the market system ``evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed'' and that the SEC wield its regulatory power ``in those
situations where competition may not be sufficient,'' such as in the
creation of a ``consolidated transactional reporting system.'' \40\
---------------------------------------------------------------------------
\40\ NetCoalition v. SEC, 615 F.3d 525, 535 (D.C. Cir. 2010)
(``NetCoalition I'') (quoting H.R. Rep. No. 94-229 at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 323).
The court agreed with the Commission's conclusion that ``Congress
intended that `competitive forces should dictate the services and
practices that constitute the U.S. national market system for trading
equity securities.' '' \41\
---------------------------------------------------------------------------
\41\ Id. at 535.
---------------------------------------------------------------------------
In this competitive marketplace, the Exchange's executed trading
volume has grown from 0% market share to over 4% market share in less
than one and a half years and the Exchange believes that it is
reasonable to begin charging fees for the Exchange Data Feeds. One of
the primary objectives of MEMX is to provide competition and to reduce
fixed costs imposed upon the industry. Consistent with this objective,
the Exchange believes that this proposal reflects a simple,
competitive, reasonable, and equitable pricing structure designed to
permit the Exchange to cover certain fixed costs that it incurs for
providing market data, with fees that are discounted when compared to
products and services offered by competitors.\42\
---------------------------------------------------------------------------
\42\ See supra notes 24-25; see supra note 27 and accompanying
text.
---------------------------------------------------------------------------
The Exchange is not aware of any evidence that a market share of
approximately 4% provides the Exchange with supra-competitive pricing
power because, as shown elsewhere, market participants are not required
to subscribe to the Exchange Data Feeds, and if they do so, have a
choice with respect to the Exchange Data Feed(s) to which they will
subscribe. Separately, the Exchange is not aware of any reason why
market participants could not simply unsubscribe or choose not to
subscribe to Exchange Data Feeds if the Exchange were to establish
unreasonable and uncompetitive prices for its Exchange Data Feeds.
With regard to reasonableness, the Exchange understands that the
Commission has traditionally taken a market-based approach to examine
whether the SRO making the proposal was subject to significant
competitive forces in setting the terms of the proposal. In looking at
this question, the Commission considers whether the SRO has
demonstrated in its filing that: (i) There are reasonable substitutes
for the product or service; (ii) ``platform'' competition constrains
the ability to set the fee; and/or (iii) revenue and cost analysis
shows the fee would not result in the SRO taking supra-competitive
profits. If the SRO demonstrates that the fee is subject to significant
competitive forces, the Commission will next consider whether there is
any substantial countervailing basis to suggest the fee's terms fail to
meet one or more standards under the Exchange Act. If the filing fails
to demonstrate that the fee is constrained by competitive forces, the
SRO must provide a substantial basis, other than competition, to show
that it is consistent with the Exchange Act, which may include
production of relevant revenue and cost data pertaining to the product
or service.
[[Page 21240]]
The Exchange has not previously charged fees for market data, so it
does not have MEMX-specific data to support whether or not competitive
forces would constrain its ability to set fees for the Exchange Data
Feeds. However, the Exchange believes that competitive forces are in
effect and that if the proposed fees for the Exchange Data Feeds were
unreasonable that the Exchange would lose current or prospective
Members and market share. The Exchange does not yet have comprehensive
data of the impact of the proposed fees and will not have such data
until the fees are imposed. Further, the Exchange has conducted a
comprehensive Cost Analysis to determine the reasonability of its
proposed fees, including that the Exchange will not take supra-
competitive profits.
1. The Proposed Fees Are Constrained by Significant Competitive Forces
a. Exchange Market Data Is Sold in a Competitive Market
In 2018, Charles M. Jones, the Robert W. Lear Professor of Finance
and Economics at the Columbia University School of Business, conducted
an analysis of the market for equity market data in the United States.
He canvassed the demand for both consolidated and exchange proprietary
market data products and the uses to which those products were put by
market participants, and reported his conclusions in a paper annexed
hereto.\43\ Among other things, Professor Jones concluded that:
---------------------------------------------------------------------------
\43\ See Exhibit 3A, Charles M. Jones, Understanding the Market
for U.S. Equity Market Data, August 31, 2018 (hereinafter ``Jones
Paper'').
---------------------------------------------------------------------------
<bullet> ``The market [for exchange market data] is characterized
by robust competition: exchanges compete with each other in selling
proprietary market data products. They also compete with consolidated
data feeds and with data provided by alternative trading systems
(`ATSs'). Barriers to entry are very low, so existing exchanges must
also take into account competition from new entrants, who generally try
to build market share by offering their proprietary market data
products for free for some period of time [as MEMX has done with its
Exchange Data Feeds].'' \44\
---------------------------------------------------------------------------
\44\ Id. at 2.
---------------------------------------------------------------------------
<bullet> ``Although there are regulatory requirements for some
market participants to use consolidated data products, there is no
requirement for market participants to purchase any proprietary market
data product for regulatory purposes.'' \45\
---------------------------------------------------------------------------
\45\ Id.
---------------------------------------------------------------------------
<bullet> ``There are a variety of data products, and consumers of
equity market data choose among them based on their needs. Like most
producers, exchanges offer a variety of market data products at
different price levels. Advanced proprietary market data products
provide greater value to those who subscribe. As in any other market,
each potential subscriber takes the features and prices of available
products into account in choosing what market data products to buy
based on its business model.'' \46\
---------------------------------------------------------------------------
\46\ Id.
---------------------------------------------------------------------------
<bullet> ``For proprietary exchange data feeds, the main question
is whether there is a competitive market for proprietary market data.
More than 40 active exchanges and alternative trading systems compete
vigorously in both the market for order flow and in the market for
market data. The two are closely linked: an exchange needs to consider
the negative impact on its order flow if it raises the price of its
market data. Furthermore, new entrants have been frequent over the past
10 years or so, and these venues often give market data away for free,
[again, as MEMX has done with its Exchange Data Feeds] serving as a
check on pricing by more established exchanges. These are all the
standard hallmarks of a competitive market.'' \47\
---------------------------------------------------------------------------
\47\ Id. at 39-40.
---------------------------------------------------------------------------
Professor Jones' conclusions are consistent with the Exchange's
view of, and experience in, the competitive marketplace for exchanges,
including with respect to proprietary data feeds, as a recent entrant
to the market.
b. Exchange Market Data Fees Are Constrained by Competition
As the D.C. Circuit recognized in NetCoalition I, ``[n]o one
disputes that competition for order flow is fierce.'' \48\ The court
further noted that ``no exchange possesses a monopoly, regulatory or
otherwise, in the execution of order flow from broker dealers,'' and
that an exchange ``must compete vigorously for order flow to maintain
its share of trading volume.'' \49\
---------------------------------------------------------------------------
\48\ NetCoalition I, 615 F.3d at 544 (internal quotation
omitted).
\49\ Id.
---------------------------------------------------------------------------
Similarly, the Commission itself has recognized that the market for
trading services in NMS stocks has become ``more fragmented and
competitive.'' \50\ The Commission's Division of Trading and Markets
has also recognized that with so many ``operating equities exchanges
and dozens of ATSs, there is vigorous price competition among the U.S.
equity markets and, as a result, [transaction] fees are tailored and
frequently modified to attract particular types of order flow, some of
which is highly fluid and price sensitive.'' \51\ Indeed, as noted
above, equity trading is currently dispersed across 16 exchanges, 31
alternative trading systems, and numerous broker-dealer internalizers
and wholesalers, all competing for order flow.
---------------------------------------------------------------------------
\50\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18).
\51\ Commission Division of Trading and Markets, Memorandum to
EMSAC, dated October 20, 2015, available here: <a href="https://www.sec.gov/spotlight/emsac/memo-maker-taker-feeson-equities-exchanges.pdf">https://www.sec.gov/spotlight/emsac/memo-maker-taker-feeson-equities-exchanges.pdf</a>.
---------------------------------------------------------------------------
Further, low barriers to entry mean that new exchanges like the
Exchange may rapidly enter the market and offer competition with the
Exchange. Due to the ready availability of substitutes and the low cost
to move order flow to those substitute trading venues, an exchange
setting market data fees that are not at competitive levels would
expect to quickly lose business to competitors with more attractive
pricing.\52\ Although the various exchanges may differ in their
strategies for pricing their market data products and their transaction
fees for trades--with some offering market data for free along with
higher trading costs, and others charging more for market data and
comparatively less for trading--all exchanges compete for the same pool
of customers and must work to demonstrate to such customers that
pricing is reasonable. The Exchange believes that the best way to do
this is to provide transparency into the costs of producing and
maintaining its services.
---------------------------------------------------------------------------
\52\ See Jones Paper at 11.
---------------------------------------------------------------------------
Commission staff noted in its Fee Guidance that, as an initial step
in assessing the reasonableness of a fee, staff considers whether the
fee is constrained by significant competitive forces. To determine
whether a proposed fee is constrained by significant competitive
forces, staff has said that it considers whether the evidence
demonstrates that there are reasonable substitutes for the product or
service that is the subject of a proposed fee. As noted elsewhere in
this proposal, there is no regulatory requirement that any market
participant subscribe to any Exchange Data Feeds or a particular
Exchange Data Feed.
The Exchange believes the proposed fees are reasonable because in
setting them, the Exchange is constrained by the availability of
numerous competitors offering market data products and trading
services. Such substitutes need not be identical, but only
substantially
[[Page 21241]]
similar to the product at hand. More specifically, in setting fees for
the Exchange Data Feeds, the Exchange is constrained by the fact that,
if its pricing is unattractive to customers, customers have their pick
of a large number of alternative execution venues to use instead of the
Exchange. The Exchange believes that it has considered all relevant
factors and has not considered irrelevant factors in order to establish
reasonable fees. The existence of competition ensures that the Exchange
cannot set unreasonable market data fees without suffering the negative
effects of that decision in the fiercely competitive market in which it
operates.
c. Exchange Data Feeds Are Optional Market Data Products
Subscribing to the Exchange Data Feeds is entirely optional. The
Exchange is not required to make the Exchange Data Feeds available to
any customers, nor is any customer required to purchase any Exchange
Data Feed. Unlike some other data products (e.g., the consolidated
quotation and last-sale information feeds) that firms are required to
purchase in order to fulfill regulatory obligations,\53\ a customer's
decision whether to purchase any Exchange Data Feed is entirely
discretionary. Most Firms that choose to subscribe to an Exchange Data
Feed do so for the primary goals of using it to increase their
revenues, reduce their expenses, and in some instances to compete
directly with the Exchange for order flow. Such firms are able to
determine for themselves whether a particular Exchange Data Feed is
necessary for their business needs, and if so, whether or not it is
attractively priced. If an Exchange Data Feed does not provide
sufficient value to a Firm based on the uses such Firm may have for it,
such Firm may simply choose to conduct their business operations in
ways that do not use the applicable Exchange Data Feed.\54\ If they do
not choose to use one or more Exchange Data Feeds, they could also
choose not to direct order flow to the Exchange.
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\53\ The Exchange notes that broker-dealers are not required to
purchase proprietary market data to comply with their best execution
obligations. See In the Matter of the Application of Securities
Industry and Financial Markets Association for Review of Actions
Taken by Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-
15350; AP-3-15351 (May 16, 2014). Similarly, there is no requirement
in Regulation NMS or any other rule that proprietary data be
utilized for order routing decisions, and some competing exchanges,
broker-dealers and ATSs have chosen not to do so.
\54\ See generally Jones Paper at 8, 10-11.
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Specifically related to the Exchange Data Feed with the highest
rates, the MEMOIR Depth Feed, even if a Firm determines that the fees
for such feed are too high, customers can access much of the same data
at lower rates by subscribing to the MEMOIR Top feed (which includes
best-bid-and-offer information for the Exchange on a real-time basis)
and MEMOIR Last Sale (which includes last-sale information for the
Exchange on a real-time basis). MEMX top-of-book quotation information
and last-sale information is also available on the consolidated SIP
feeds. In this way, MEMOIR Top, MEMOIR Last Sale, and SIP data products
are all substitutes for a significant portion of the data available on
the MEMOIR Depth Feed, and SIP data products are also a substitute for
a significant portion of data available on the MEMOIR Top and MEMOIR
Last Sale feeds. Indeed, several exchange competitors of the Exchange
have not subscribed to any Exchange Data Feeds for purposes of
executing orders on their exchanges, order routing, and regulatory
purposes,\55\ even though the Exchange subscribes to and pays for their
comparable market data products.\56\
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\55\ See, e.g., NYSE Arca Rule 7.37-E.(d), Order Execution and
Routing, and BZX Rule 11.21, each of which discloses the data feeds
used by each respective exchange and state that SIP products are
used with respect to MEMX.
\56\ See MEMX Rule 13.4, Usage of Data Feeds, which discloses
that the Exchange uses proprietary data feeds for all exchanges that
offer them.
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The only content available on the MEMOIR Depth Feed that is not
available on these other products is the order-by-order look at the
MEMX order book, which provides information about depth-of-book on the
Exchange. The Exchange has been a vocal advocate in support of the
Commission's Market Data Infrastructure Rule, which mandates the
creation of a ``SIP Premium'' product that would include depth-of-book
information on the consolidated market data feeds.\57\ The Exchange has
also been a vocal advocate in support of pricing new content for the
consolidated market data feeds in a reasonable and competitive manner
that would encourage the use of a SIP Premium product and other content
to be provided via the SIPs.\58\ Future products such as SIP Premium
would include not only integrated depth-of-book information from MEMX,
but all other exchanges as well, and would further constrain the
Exchange's ability to price any Exchange Data Feed, including MEMOIR
Depth, at a supra-competitive price. However, even in the absence of
such products, the Exchange believes that use of the Exchange Data
Feeds is entirely optional, as described above.
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\57\ See, e.g., Letter from Anders Franzon, General Counsel,
MEMX LLC, dated May 26, 2020, regarding proposed Market Data
Infrastructure rule, available at: <a href="https://www.sec.gov/comments/s7-03-20/s70320-7235183-217090.pdf">https://www.sec.gov/comments/s7-03-20/s70320-7235183-217090.pdf</a>.
\58\ See, e.g., Letter from Adrian Griffiths, Head of Market
Structure, MEMX LLC, dated November 8, 2021, regarding proposed fees
for consolidated data provided pursuant to CTA/CQ/UTP Plans,
available at: <a href="https://www.sec.gov/comments/sr-ctacq-2021-03/srctacq202103-9403088-262830.pdf">https://www.sec.gov/comments/sr-ctacq-2021-03/srctacq202103-9403088-262830.pdf</a>.
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Further, in the case of products that are also redistributed
through market data vendors such as Bloomberg and Refinitiv, the
vendors themselves provide additional price discipline for proprietary
data products because they control the primary means of access to
certain end users. These vendors impose price discipline based upon
their business models. For example, vendors that assess a surcharge on
data they sell are able to refuse to offer proprietary products that
their end users do not or will not purchase in sufficient numbers. Even
in the absence of fees for the Exchange Data Feeds, many major market
data vendors have not elected to make available the Exchange Data Feeds
and likely will not unless their customers request it, and customers
will not elect to pay the proposed fees unless the applicable Exchange
Data Feed can provide value by sufficiently increasing revenues or
reducing costs to the customer's business in a manner that will offset
the fees. All of these factors operate as constraints on pricing
proprietary data products.
In setting the proposed fees for the Exchange Data Feeds, the
Exchange considered the competitiveness of the market for proprietary
data and all of the implications of that competition. As described
elsewhere in this proposal, the Exchange also considered the Cost
Analysis conducted by the Exchange and believes it has demonstrated
that the fees will not result in any supra-competitive profit. The
Exchange believes that it has considered all relevant factors and has
not considered irrelevant factors in order to establish reasonable
fees. The existence of alternatives to the Exchange and the continued
availability of choice between different Exchange Data Feeds, other
exchanges' proprietary data products, and the SIPs ensure that the
Exchange cannot set unreasonable fees when vendors and subscribers can
elect these alternatives or choose not to purchase a specific
proprietary data product if the attendant fees are not justified by the
returns that any particular vendor or data recipient would achieve
through the purchase.
[[Page 21242]]
d. The Proposed Fees for Exchange Data Feeds Will Not Result in Supra-
Competitive Profits
Commission staff previously noted that the generation of supra-
competitive profits is one of several potential factors in considering
whether an exchange's proposed fees are consistent with the Act.\59\ As
described in the Fee Guidance, the term ``supra-competitive profits''
refers to profits that exceed the profits that can be obtained in a
competitive market. The proposed fee structure would not result in
excessive pricing or supra-competitive profits for the Exchange. The
proposed fee structure is merely designed to permit the Exchange to
cover the costs allocated to providing Transaction Services with a
modest markup (approximately 9%-18%), which would also account for
costs related to Transaction Services that the Exchange has previously
borne completely on its own and help fund future expenditures
(increased costs, improvements, etc.). The Exchange believes that this
is fair, reasonable, and equitable. Accordingly, the Exchange believes
that its proposal is consistent with Section 6(b)(4) \60\ of the Act
because the proposed fees will permit recovery of the Exchange's costs
and will not result in excessive pricing or supra-competitive profit.
---------------------------------------------------------------------------
\59\ See Fee Guidance, supra note 33.
\60\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The proposed fees for Exchange Data Feeds will allow the Exchange
to cover certain costs incurred by the Exchange associated with
providing and maintaining necessary hardware and other network
infrastructure as well as network monitoring and support services;
without such hardware, infrastructure, monitoring and support the
Exchange would be unable to provide Transaction Services, including
market data. The Exchange routinely works to improve the performance of
the network's hardware and software. The costs associated with
maintaining and enhancing a state-of-the-art exchange network is a
significant expense for the Exchange, and thus the Exchange believes
that it is reasonable and appropriate to help offset those costs by
adopting fees for the Exchange Data Feeds. As detailed above, the
Exchange has four primary sources of revenue that it can potentially
use to fund its operations: Transaction fees, fees for connectivity
services, membership and regulatory fees, and market data fees.
Accordingly, the Exchange must cover its expenses from these four
primary sources of revenue.
The Exchange expects to recoup the majority of its estimated
aggregate monthly costs for providing Transaction Services from
transaction fees and revenues from the public data feeds in which the
Exchange participates and receives revenues (i.e., the SIPs). In order
to cover operating costs and earn a reasonable profit on its market
data, the Exchange is proposing to charge the fees described herein for
the Exchange Data Feeds. In addition, this revenue will allow the
Exchange to continue to offer, to enhance, and to continually refresh
its infrastructure as necessary to offer a state-of-the-art trading
platform. The Exchange believes that, consistent with the Act, it is
appropriate to charge fees that represent a reasonable markup over cost
given the other factors discussed above, including the lack of other
costs to participate on the Exchange and the need for the Exchange to
maintain a highly performant and stable platform to allow Members to
transact with determinism.
The Exchange's Cost Analysis estimates the costs to provide
Transaction Services at $2,797,265. Based on current subscriptions to
Exchange Data Feeds (but without definitive data regarding User counts)
and projections related to transaction activity and volumes, the
Exchange estimates it will generate monthly revenues of approximately
$250,000 to $500,000 from the Exchange Data Feeds and between
$3,050,000 and $3,300,000 from providing Transaction Services overall.
This represents a modest profit when compared to the cost of providing
Transaction Services (approximately 9% to 18%). Further, as noted
above, applying the Exchange's holistic Cost Analysis to a holistic
view of anticipated revenues from all sources, the Exchange would earn
approximately 8.5% to 15% margin on its operations as a whole. The
Exchange believes that this amount is reasonable.
2. The Proposed Fees Are Reasonable
The specific fees that the Exchange proposes for the Exchange Data
Feeds are reasonable for the following additional reasons.
Overall. The Exchange believes the proposed fees for the Exchange
Data Feeds are reasonable when compared to fees for comparable
products, such as the BZX Depth feed, BZX Top feed, and BZX Last Sale
feed, compared to which the Exchange's proposed fees are generally
lower, as well as other comparable data feeds priced significantly
higher than the Exchange's proposed fees for the Exchange Data
Feeds.\61\ Specifically with respect to the MEMOIR Depth feed, the
Exchange believes that the proposed fees for such feed are reasonable
because they represent not only the value of the data available from
the MEMOIR Top and MEMOIR Last Sale data feeds, which have lower
proposed fees, but also the value of receiving the depth-of-book data
on an order-by-order basis. Finally, the Exchange believes that its
Cost Analysis and holistic approach thereto demonstrates that the
proposed fees for the Exchange Data Feeds would not result in supra-
competitive profits.
---------------------------------------------------------------------------
\61\ See supra notes 24-25; see supra note 27 and accompanying
text.
---------------------------------------------------------------------------
Internal Distribution Fees. The Exchange believes that it is
reasonable to charge Fees to access the Exchange Data Feeds for
Internal Distribution because of the value of such data to subscribers
in their profit-generating activities. The Exchange also believes that
the proposed monthly Internal Distribution fees for MEMOIR Depth,
MEMOIR Top, and MEMOIR Last Sale are reasonable as they are the same
amounts charged by at least one other exchange of comparable size for
comparable data products,\62\ and are lower than the fees charged by
several other exchanges for comparable data products.\63\
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\62\ See BZX Fee Schedule 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>.
\63\ See NYSE Proprietary Market Data Pricing list, available
at: <a href="https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf">https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf</a>; Nasdaq Global Data Products pricing
list, available at: <a href="http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN">http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN</a>.
---------------------------------------------------------------------------
External Distribution Fees. The Exchange believes that it is
reasonable to charge External Distribution fees for the Exchange Data
Feeds because vendors receive value from redistributing the data in
their business products provided to their customers. The Exchange
believes that charging External Distribution fees is reasonable because
the vendors that would be charged such fees profit by re-transmitting
the Exchange's market data to their customers. These fee would be
charged only once per month to each vendor account that redistributes
any Exchange Data Feed, regardless of the number of customers to which
that vendor redistributes the data. The Exchange also believes the
proposed monthly External Distribution fee for the MEMOIR Depth Feed is
reasonable because it is half the amount of the fee charged by at least
one other exchange of comparable size for a comparable
[[Page 21243]]
data product,\64\ and significantly less than the amount charged by
several other exchanges for comparable data products.\65\ Similarly,
the Exchange believes the proposed monthly External Distribution fees
for the MEMOIR TOP and MEMOIR Last Sale feeds are reasonable because
they are discounted compared to same amounts charged by at least one
other exchange of comparable size for comparable data products, and
significantly less than the amount charged by several other exchanges
for comparable data products.\66\
---------------------------------------------------------------------------
\64\ See BZX Fee Schedule 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>.
\65\ See id.
\66\ See NYSE Proprietary Market Data Pricing list, available
at: <a href="https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf">https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf</a>; Nasdaq Global Data Products pricing
list, available at: <a href="http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN">http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN</a>.
---------------------------------------------------------------------------
User Fees. The Exchange believes that having separate Professional
and Non-Professional User fees for the MEMOIR Depth feed is reasonable
because it will make the product more affordable and result in greater
availability to Professional and Non-Professional Users. Setting a
modest Non-Professional User fee is reasonable because it provides an
additional method for Non-Professional Users to access the Exchange
Data Feeds by providing the same data that is available to Professional
Users. The proposed monthly Professional User fee and monthly Non-
Professional User fee are reasonable because they are lower than the
fees charged by at least one other exchange of comparable size for
comparable data products,\67\ and significantly less than the amounts
charged by several other exchanges for comparable data products.\68\
The Exchange also believes it is reasonable to charge the same low per
User fee of $0.01 for both Professional Users and Non-Professional
Users receiving the MEMOIR Top and MEMOIR Last Sale feeds, as this is
not only pricing such data at a much lower cost than other exchanges
charge for comparable data feeds \69\ but doing so will also simplify
reporting for subscribers who externally distribute these data feeds to
Users, as the Exchange believes that categorization of Users as
Professional and Non-Professional is not meaningful for these products
and that requiring such categorization would expose Firms to
unnecessary audit risk of paying more for mis-categorization. The
Exchange also believes that the proposal to require reporting of
individual Users, but not devices, is reasonable as this too will
eliminate unnecessary audit risk that can arise when recipients are
required to apply complex counting rules such as whether or not to
count devices or whether an individual accessing the same data through
multiple devices should be counted once or multiple times.
---------------------------------------------------------------------------
\67\ See BZX Fee Schedule, 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>.
\68\ See NYSE Proprietary Market Data Pricing list, available
at: <a href="https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf">https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf</a>; Nasdaq Global Data Products pricing
list, available at: <a href="http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN">http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN</a>.
\69\ See id.
---------------------------------------------------------------------------
Non-Display Use Fees. The Exchange believes the proposed Non-
Display Usage fees for the MEMOIR Depth feed are reasonable, because
they reflect the value of the data to the data recipients in their
profit-generating activities and do not impose the burden of counting
non-display devices.
The Exchange believes that the proposed Non-Display Usage fees
reflect the significant value of the non-display data use to data
recipients, which purchase such data on an entirely voluntary basis.
Non-display data can be used by data recipients for a wide variety of
profit-generating purposes, including proprietary and agency trading
and smart order routing, as well as by data recipients that operate
Trading Platforms that compete directly with the Exchange for order
flow. The data also can be used for a variety of non-trading purposes
that indirectly support trading, such as risk management and
compliance. Although some of these non-trading uses do not directly
generate revenues, they can nonetheless substantially reduce a
recipient's costs by automating such functions so that they can be
carried out in a more efficient and accurate manner and reduce errors
and labor costs, thereby benefiting recipients. The Exchange believes
that charging for non-trading uses is reasonable because data
recipients can derive substantial value from such uses, for example, by
automating tasks so that can be performed more quickly and accurately
and less expensively than if they were performed manually.
Previously, the non-display use data pricing policies of many
exchanges required customers to count, and the exchanges to audit the
count of, the number of non-display devices used by a customer. As non-
display use grew more prevalent and varied, however, exchanges received
an increasing number of complaints about the impracticality and
administrative burden associated with that approach. In response,
several exchanges developed a non-display use pricing structure that
does not require non-display devices to be counted or those counts to
be audited, and instead categorizes different types of use. The
Exchange proposes to distinguish between non-display use for the
operation of a Trading Platform and other non-display use, which is
similar to exchanges such as BZX and EDGX,\70\ while other exchanges
maintain additional categories and in many cases charge multiple times
for different types of non-display use or the operation of multiple
Trading Platforms.\71\
---------------------------------------------------------------------------
\70\ See BZX Fee Schedule, 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>; EDGX 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>.
\71\ See supra notes 24-25.
---------------------------------------------------------------------------
The Exchange believes that it is reasonable to segment the fee for
non-display use into these two categories. As noted above, the uses to
which customers can put the MEMOIR Depth feed are numerous and varied,
and the Exchange believes that charging separate fees for these
separate categories of use is reasonable because it reflects the actual
value the customer derives from the data, based upon how the customer
makes use of the data.
The Exchange believes that the proposed fees for non-display use
other than operation of a Trading Platform is reasonable. These fees
are comparable to, and lower than, the fees charged by at least one
other exchange of comparable size for a comparable data product,\72\
and significantly less than the amounts charged by several other
exchanges for comparable data products.\73\ The Exchange believes that
the proposed fees directly and appropriately reflect the significant
value of using data on a non-display basis in a wide range of computer-
automated functions relating to both trading and non-trading activities
and that the number and range of these functions continue to grow
through innovation and technology developments.
---------------------------------------------------------------------------
\72\ See BZX Fee Schedule, 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>.
\73\ See NYSE Proprietary Market Data Pricing list, available
at: <a href="https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf">https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf</a>; Nasdaq Global Data Products pricing
list, available at: <a href="http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN">http://www.nasdaqtrader.com/TraderB.aspx?id=MDDPricingALLN</a>.
---------------------------------------------------------------------------
The Exchange also believes, regarding non-display use for operation
of a Trading Platform, it is reasonable to charge a higher monthly fee
than for other non-display use because such use of the Exchange's data
is directly in competition with the Exchange and the
[[Page 21244]]
Exchange should be permitted to recoup some of its lost trading revenue
by charging for the data that makes such competition possible. The
Exchange also believes that it is reasonable to charge the proposed
fees for non-display use for operation of a Trading Platform because
the proposed fees are comparable to, and lower than, the fees charged
at least one other exchange of comparable size for a comparable data
product,\74\ and significantly less than the amounts charged by several
other exchanges for comparable data products, which also charge per
Trading Platform operated by a data subscriber subject to a cap in most
cases, rather than charging per Firm, as proposed by the Exchange.\75\
---------------------------------------------------------------------------
\74\ See BZX Fee Schedule, 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>.
\75\ See supra notes 24-25.
---------------------------------------------------------------------------
The proposed Non-Display Usage fees for the Exchange Data Feeds are
also reasonable because they take into account the extra value of
receiving the data for Non-Display Usage that includes a rich set of
information including top of book quotations, depth-of-book quotations,
executions and other information. The Exchange believes that the
proposed fees directly and appropriately reflect the significant value
of using the MEMOIR Depth feed on a non-display basis in a wide range
of computer-automated functions relating to both trading and non-
trading activities and that the number and range of these functions
continue to grow through innovation and technology developments.\76\
---------------------------------------------------------------------------
\76\ See also Exchange Act Release No. 69157, March 18, 2013, 78
FR 17946, 17949 (March 25, 2013) (SR-CTA/CQ-2013-01) (``[D]ata feeds
have become more valuable, as recipients now use them to perform a
far larger array of non-display functions. Some firms even base
their business models on the incorporation of data feeds into black
boxes and application programming interfaces that apply trading
algorithms to the data, but that do not require widespread data
access by the firm's employees. As a result, these firms pay little
for data usage beyond access fees, yet their data access and usage
is critical to their businesses.''
---------------------------------------------------------------------------
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the Exchange Data Feeds are reasonable.
The Proposed Fees Are Equitably Allocated
The Exchange believes the proposed fees for the Exchange Data Feeds
are allocated fairly and equitably among the various categories of
users of the feeds, and any differences among categories of users are
justified and appropriate.
Overall. The Exchange believes that the proposed fees are equitably
allocated because they will apply uniformly to all data recipients that
choose to subscribe to the Exchange Data Feeds. Any subscriber or
vendor that chooses to subscribe to one or more Exchange Data Feeds is
subject to the same Fee Schedule, regardless of what type of business
they operate, and the decision to subscribe to one or more Exchange
Data Feeds is based on objective differences in usage of Exchange Data
Feeds among different Firms, which are still ultimately in the control
of any particular Firm.
Internal Distribution Fee. The Exchange believes the proposed
monthly fees for Internal Distribution of the Exchange Data Feeds are
equitably allocated because they would be charged on an equal basis to
all data recipients that receive the Exchange Data Feeds for internal
distribution, regardless of what type of business they operate.
External Distribution Fees. The Exchange believes the proposed
monthly fees for External Distribution of the Exchange Data Feeds are
equitably allocated because they would be charged on an equal basis to
all data recipients that receive the Exchange Data Feeds that choose to
redistribute the feeds externally.
User Fees. The Exchange believes that the fee structure
differentiating Professional User fees from Non-Professional User fees
for display use of the MEMOIR Depth feed is equitable. This structure
has long been used by other exchanges and the SIPs to reduce the price
of data to Non-Professional Users and make it more broadly
available.\77\ Offering the MEMOIR Depth feed to Non-Professional Users
at a lower cost than Professional Users results in greater equity among
data recipients. These User fees would be charged uniformly to all
individuals that have access to the MEMOIR Depth feed based on the
category of User. The Exchange also believes the proposed User fees for
MEMOIR Top and MEMOIR Last Sale are equitable because the Exchange has
proposed to charge Professional Users and Non-Professional Users the
same low rate of $0.01 per month.
---------------------------------------------------------------------------
\77\ See, e.g., Securities Exchange Act Release No. 59544 (March
9, 2009), 74 FR 11162 (March 16, 2009) (SR-NYSE-2008-131)
(establishing the $15 Non-Professional User Fee (Per User) for NYSE
OpenBook); Securities Exchange Act Release No. 20002, File No. S7-
433 (July 22, 1983), 48 FR 34552 (July 29, 1983) (establishing Non-
Professional fees for CTA data); NASDAQ BX Equity 7 Pricing
Schedule, Section 123.
---------------------------------------------------------------------------
Non-Display Use Fees. The Exchange believes the proposed Non-
Display Usage fees are equitably allocated because they would require
subscribers to pay fees only for the uses they actually make of the
data. As noted above, non-display data can be used by data recipients
for a wide variety of profit-generating purposes (including trading and
order routing) as well as purposes that do not directly generate
revenues (such as risk management and compliance) but nonetheless
substantially reduce the recipient's costs by automating certain
functions. The Exchange believes that it is equitable to charge non-
display data subscribers that use data for purposes other than
operation of a Trading Platform as proposed because all such
subscribers would have the ability to use such data for as many non-
display uses as they wish for one low fee. As noted above, this
structure is comparable to that in place for the BZX Depth feed but
several other exchanges charge multiple non-display fees to the same
client to the extent they use a data feed in several different trading
platforms or for several types of non-display use.\78\
---------------------------------------------------------------------------
\78\ See supra, notes 24-25.
---------------------------------------------------------------------------
The Exchange also believes, regarding non-display use for operation
of a Trading Platform, it is equitable to charge a higher rate for each
Firm operating a Trading Platform (as compared to other Non-Display
Usage not by Trading Platforms) because such use of the data is
directly in competition with the Exchange and the Exchange should be
permitted to recoup some of its lost trading revenue by charging for
the data that makes such competition possible. The Exchange believes
that it is equitable to charge a single fee per Firm rather than
multiple fees for a Firm that operates more than one Trading Platform
because operators of Trading Platforms are many times viewed as a
single competing venue or group, even if there a multiple liquidity
pools operated by the same competitor.
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the Exchange Data Feeds are equitably allocated.
The Proposed Fees Are Not Unfairly Discriminatory
The Exchange believes the proposed fees for the Exchange Data Feeds
are not unfairly discriminatory because any differences in the
application of the fees are based on meaningful distinctions between
customers, and those meaningful distinctions are not unfairly
discriminatory between customers.
Overall. The Exchange believes that the proposed fees are not
unfairly discriminatory because they would apply to all data recipients
that choose to subscribe to the same Exchange Data
[[Page 21245]]
Feed(s). Any vendor or subscriber that chooses to subscribe to the
Exchange Data Feeds is subject to the same Fee Schedule, regardless of
what type of business they operate. Because the proposed fees for
MEMOIR Depth are higher, vendors and subscribers seeking lower cost
options may instead choose to receive data from the SIPs or through the
MEMOIR Top and/or MEMOIR Last Sale feed for a lower cost.
Alternatively, vendors and subscribers can choose to pay for the MEMOIR
Depth feed in order to receive data in a single feed with depth-of-book
information or they can choose to subscribe to a combination of data
feeds for redundancy purposes or to use such feeds for different
purposes, thereby allowing each vendor or subscriber to choose the best
business solution for itself.
Internal Distribution Fees. The Exchange believes the proposed
monthly fees for Internal Distribution of the Exchange Data Feeds are
not unfairly discriminatory because they would be charged on an equal
basis to all data recipients that receive the same Exchange Data
Feed(s) for internal distribution, regardless of what type of business
they operate.
External Distribution Fees. The Exchange believes the proposed
monthly fees for redistributing the Exchange Data Feeds are not
unfairly discriminatory because they would be charged on an equal basis
to all data recipients that receive the same Exchange Data Feed(s) that
choose to redistribute the feed(s) externally.
User Fees. The Exchange believes that the fee structure
differentiating Professional User fees from Non-Professional User fees
for display use of the MEMOIR Depth feed is not unfairly
discriminatory. This structure has long been used by other exchanges
and the SIPs to reduce the price of data to Non-Professional Users and
make it more broadly available.\79\ Offering the Exchange Data Feeds to
Non-Professional Users with the same data as is available to
Professional Users results in greater equity among data recipients.
These User fees would be charged uniformly to all individuals that have
access to the Exchange Data Feeds based on the category of User. The
Exchange also believes the proposed User fees for MEMOIR Top and MEMOIR
Last Sale are not unfairly discriminatory because the Exchange has
proposed to charge Professional Users and Non-Professional Users the
same low rate of $0.01 per month.
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\79\ See supra note 77.
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Non-Display Use Fees. The Exchange believes the proposed Non-
Display Usage fees for the MEMOIR Depth feed are not unfairly
discriminatory because they would require subscribers for non-display
use to pay fees depending on their use of the data, either for
operation of a Trading Platform or not, but would not impose multiple
fees to the extent a Firm operates multiple Trading Platforms or has
multiple different types of non-display use. As noted above, non-
display data can be used by data recipients for a wide variety of
profit-generating purposes as well as purposes that do not directly
generate revenues but nonetheless substantially reduce the recipient's
costs by automating certain functions. This segmented fee structure is
not unfairly discriminatory because no subscriber of non-display data
would be charged a fee for a category of use in which it did not
actually engage.
The Exchange also believes that, regarding non-display use for
operation of a Trading Platform, it is not unreasonably discriminatory
to charge a higher fee for each Firm operating a Trading Platform (as
compared to other Non-Display Usage not by Trading Platforms) because
such use of the data is directly in competition with the Exchange and
the Exchange should be permitted to recoup some of its lost trading
revenue by charging for the data that makes such competition possible.
The Exchange believes that it is not unreasonably discriminatory to
charge a single fee for an operator of Trading Platforms that operates
more than one Trading Platform because operators of Trading Platforms
are many times viewed as a single competing venue or group, even if
there a multiple liquidity pools operated by the same competitor.
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the Exchange Data Feeds are not unfairly
discriminatory.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\80\ the Exchange
does not believe that the proposed rule change would impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act.
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\80\ 15 U.S.C. 78f(b)(8).
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Intra-Market Competition
The Exchange does not believe that the proposed rule change would
place certain market participants at the Exchange at a relative
disadvantage compared to other market participants or affect the
ability of such market participants to compete. In particular, while
the Exchange has not officially proposed fees for Exchange Data Feeds
until now, Exchange personnel have been informally discussing potential
fees for Exchange Data Feeds with a diverse group of market
participants that receive data from the Exchange (including large and
small firms, trading firms and market data only firms, etc.). The
Exchange has received no official complaints from Members, non-Members,
or third-parties that redistribute the Exchange Data Feeds, that the
Exchange's fees or the proposed fees for Exchange Data Feeds would
negatively impact their abilities to compete with other market
participants or that they are placed at a disadvantage relative to
others. The Exchange does not believe that the proposed fees for
Exchange Data Feeds place certain market participants at a relative
disadvantage to other market participants because, as noted above, the
proposed fees are associated with usage of Exchange Data Feeds by each
market participant based on the type of business they operate, and the
decision to subscribe to one or more Exchange Data Feeds is based on
objective differences in usage of Exchange Data Feeds among different
Firms, which are still ultimately in the control of any particular
Firm, and such fees do not impose a barrier to entry to smaller
participants. Accordingly, the proposed fees for Exchange Data Feeds do
not favor certain categories of market participants in a manner that
would impose a burden on competition; rather, the allocation of the
proposed fees reflects the types of Exchange Data Feeds consumed by
various market participants and their usage thereof.
Inter-Market Competition
The Exchange does not believe the proposed fees place an undue
burden on competition on other SROs that is not necessary or
appropriate. In particular, market participants are not forced to
subscribe to any of the Exchange Data Feeds, as described above.
Additionally, other exchanges have similar market data fees in place
for their participants, but with higher rates to connect.\81\ The
Exchange is also unaware of any assertion that the proposed fees for
Exchange Data Feeds would somehow unduly impair its competition with
other exchanges.
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\81\ See supra notes 24-25; see also, supra note 27 and
accompanying text.
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[[Page 21246]]
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 \82\ and Rule 19b-4(f)(2) \83\ thereunder.
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\82\ 15 U.S.C. 78s(b)(3)(A)(ii).
\83\ 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#196b6c757c347a7674747c776d6a596a7c7a377e766f"><span class="__cf_email__" data-cfemail="0d7f786168206e6260606863797e4d7e686e236a627b">[email protected]</span></a>. Please include
File Number SR-MEMX-2022-03 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-2022-03. 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-2022-03 and should be submitted on
or before May 2, 2022.
April 11, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\84\
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\84\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-07627 Filed 4-8-22; 8:45 am]
BILLING CODE 8011-01-P
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