Notice2022-14877
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 13, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 133 (Wednesday, July 13, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 133 (Wednesday, July 13, 2022)]
[Notices]
[Pages 41839-41846]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-14877]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95211; File No. SR-MEMX-2022-16]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
July 7, 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 June 30, 2022, MEMX LLC (``MEMX'' or the ``Exchange'') filed
with the Securities
[[Page 41840]]
and Exchange Commission (the ``Commission'') the proposed rule change
as described in Items I, II, and III below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the Exchange's fee schedule applicable to Members \3\ (the
``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and (c). The
Exchange proposes to implement the changes to the Fee Schedule pursuant
to this proposal on July 1, 2022. The text of the proposed rule change
is provided in Exhibit 5.
---------------------------------------------------------------------------
\3\ See Exchange Rule 1.5(p).
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Fee
Schedule to: (i) reduce certain rebates and modify certain required
criteria under the Liquidity Provision Tiers; (ii) modify the required
criteria under the Step-Up Additive Rebate; (iii) increase the fee and
modify the required criteria under Liquidity Removal Tier 1; (iv)
reduce the rebates and modify the required criteria under the Displayed
Liquidity Incentive (``DLI'') Tiers; and (v) eliminate the DLI Additive
Rebate, each as further described below.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues, to
which market participants may direct their order flow. Based on
publicly available information, no single registered equities exchange
currently has more than approximately 17% of the total market share of
executed volume of equities trading.\4\ Thus, in such a low-
concentrated and highly competitive market, no single equities exchange
possesses significant pricing power in the execution of order flow, and
the Exchange currently represents approximately 3.5% of the overall
market share.\5\ The Exchange in particular operates a ``Maker-Taker''
model whereby it provides rebates to Members that add liquidity to the
Exchange and charges fees to Members that remove liquidity from the
Exchange. The Fee Schedule sets forth the standard rebates and fees
applied per share for orders that add and remove liquidity,
respectively. Additionally, in response to the competitive environment,
the Exchange also offers tiered pricing, which provides Members with
opportunities to qualify for higher rebates or lower fees where certain
volume criteria and thresholds are met. Tiered pricing provides an
incremental incentive for Members to strive for higher tier levels,
which provides increasingly higher benefits or discounts for satisfying
increasingly more stringent criteria.
---------------------------------------------------------------------------
\4\ Market share percentage calculated as of June 30, 2022. The
Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\5\ Id.
---------------------------------------------------------------------------
Liquidity Provision Tiers
The Exchange currently provides a standard rebate of $0.0020 per
share for executions of orders in securities priced at or above $1.00
per share that add displayed liquidity to the Exchange (such orders,
``Added Displayed Volume''). The Exchange also currently offers
Liquidity Provision Tiers 1, 2, 3 and 4, under which a Member may
receive an enhanced rebate for executions of Added Displayed Volume by
achieving the corresponding required volume criteria for each tier. The
Exchange now proposes to reduce certain of the rebates for executions
of Added Displayed Volume and modify certain required criteria under
the Liquidity Provision Tiers, as further described below.
First, with respect to Liquidity Provision Tier 1, the Exchange
currently provides an enhanced rebate of $0.00335 per share for
executions of Added Displayed Volume for Members that qualify for such
tier by achieving a Displayed ADAV \6\ that is equal to or greater than
0.40% of the TCV.\7\ The Exchange now proposes to reduce the rebate for
executions of Added Displayed Volume under Liquidity Provision Tier 1
to $0.0033 per share,\8\ and to modify the required criteria such that
a Member would now qualify for such tier by achieving: (1) a Displayed
ADAV that is equal to or greater than 0.40% of the TCV; or (2) a Remove
ADV \9\ that is equal to or greater than 0.25% of the TCV and a Step-Up
ADAV \10\ from June 2022 that is equal to or greater than 0.05% of the
TCV. Thus, such proposed change would keep the existing criteria intact
and add an alternative criteria that includes a Remove ADV threshold
and a Step-Up ADAV threshold, which are designed to encourage the
submission of additional order flow to the Exchange in the forms of
both liquidity-removing volume and liquidity-adding volume. While the
Exchange's overall pricing philosophy generally encourages adding
liquidity over removing liquidity, the Exchange believes that providing
alternative criteria that are based on different types of volume that
Members may choose to achieve, such as the proposed new criteria which
includes a Remove ADV threshold, contributes to a more robust
[[Page 41841]]
and well-balanced market ecosystem on the Exchange to the benefit of
all Members. The Exchange notes that, as the proposed change to the
required criteria under Liquidity Provision Tier 1 merely provides an
alternative criteria and does not change the existing criteria, the
Exchange believes that such change would make the tier easier for
Members to achieve, and, in turn, while the Exchange has no way of
predicting with certainty how the proposed new criteria will impact
Member activity, the Exchange expects that more Members will strive to
qualify for such tier than currently do, resulting in the submission of
additional order flow to the Exchange. The purpose of reducing the
rebate for executions of Added Displayed Volume under such tier as
proposed (i.e., by $0.00005 per share), which the Exchange believes is
a modest reduction and remains commensurate with the required criteria,
is for business and competitive reasons, as the Exchange believes that
such reduction would decrease the Exchange's expenditures with respect
to its transaction pricing in a manner that is still consistent with
the Exchange's overall pricing philosophy of encouraging added
liquidity. The Exchange is not proposing to change the rebate for
executions of orders in securities priced below $1.00 per share under
such tier.
---------------------------------------------------------------------------
\6\ As set forth on the Fee Schedule, ``ADAV'' means the average
daily added volume calculated as the number of shares added per day,
which is calculated on a monthly basis, and ``Displayed ADAV'' means
ADAV with respect to displayed orders.
\7\ As set forth on the Fee Schedule, ``TCV'' means total
consolidated volume calculated as the volume reported by all
exchanges and trade reporting facilities to a consolidated
transaction reporting plan for the month for which the fees apply.
\8\ The proposed pricing for Liquidity Provision Tier 1 is
referred to by the Exchange on the Fee Schedule under the existing
description ``Added displayed volume, Liquidity Provision Tier 1''
with a Fee Code of ``B1'', ``D1'' or ``J1'', as applicable, to be
provided by the Exchange on the monthly invoices provided to
Members. The Exchange notes that because the determination of
whether a Member qualifies for a certain pricing tier for a
particular month will not be made until after the month-end, the
Exchange will provide the Fee Codes otherwise applicable to such
transactions on the execution reports provided to Members during the
month and will only designate the Fee Codes applicable to the
achieved pricing tier on the monthly invoices, which are provided
after such determination has been made, as the Exchange does for its
tier-based pricing today.
\9\ As proposed, the term ``Remove ADV'' means ADV with respect
to orders that remove liquidity. As set forth on the Fee Schedule,
``ADV'' means average daily volume calculated as the number of
shares added or removed, combined, per day, which is calculated on a
monthly basis. The Exchange proposes to add the definition of Remove
ADV under the ``Definitions'' section of the Fee Schedule.
\10\ As set forth on the Fee Schedule, ``Step-Up ADAV'' means
ADAV in the relevant baseline month subtracted from current ADAV.
---------------------------------------------------------------------------
Second, with respect to Liquidity Provision Tier 2, the Exchange
currently provides an enhanced rebate of $0.0032 per share for
executions of Added Displayed Volume for Members that qualify for such
tier by achieving: (1) an ADAV that is equal to or greater than 0.25%
of the TCV; or (2) an ADAV that is equal to or greater than 0.15% of
the TCV and a Step-Up ADAV from May 2022 that is equal to or greater
than 0.05% of the TCV. The Exchange now proposes to modify the required
criteria under Liquidity Provision Tier 2 such that a Member would
qualify for such tier only by achieving an ADAV that is equal to or
greater than 0.25% of the TCV. Thus, such proposed change would keep
the first of such two alternative criteria intact and eliminate the
second of such criteria. The Exchange notes that no Members are
presently achieving the second of such criteria, and as such, the
Exchange does not believe that the proposed elimination of such
criteria will have a significant impact on any Member's trading
behavior on the Exchange. The Exchange therefore no longer wishes to,
nor is it required to, maintain such criteria. The Exchange is not
proposing to change the rebates provided under such tier.
Third, with respect to Liquidity Provision Tier 3, the Exchange
currently provides an enhanced rebate of $0.0031 per share for
executions of Added Displayed Volume for Members that qualify for such
tier by achieving: (1) an ADAV that is equal to or greater than 0.20%
of the TCV; or (2) a Step-Up ADAV from December 2021 that is equal to
or greater than 0.05% of the TCV. The Exchange now proposes to reduce
the rebate for executions of Added Displayed Volume under Liquidity
Provision Tier 3 to $0.0029 per share,\11\ and to modify the required
criteria such that a Member would now qualify for such tier by
achieving: (1) an ADAV that is equal to or greater than 0.12% of the
TCV; or (2) a Step-Up ADAV from April 2022 that is equal to or greater
than 0.04% of the TCV; or (3) a Step-Up Non-Displayed ADAV \12\ from
April 2022 that is equal to or greater than 2,000,000 shares. Thus,
such proposed change would lower the ADAV threshold in the first of
such alternative criteria, slightly lower the Step-Up ADAV threshold
but reference a more recent baseline month in the second of such
alternative criteria, and add a third alternative criteria that is
based on a Step-Up Non-Displayed ADAV. Such changes are designed to
encourage the submission of additional order flow to the Exchange,
including in the form of non-displayed liquidity-adding volume. While
the Exchange's overall pricing philosophy generally encourages
displayed liquidity over non-displayed liquidity, the Exchange believes
that providing alternative criteria that are based on different types
of volume that Members may choose to achieve, such as the proposed new
criteria based on a Step-Up Non-Displayed ADAV threshold, contributes
to a more robust and well-balanced market ecosystem on the Exchange to
the benefit of all Members. The purpose of reducing the rebate for
executions of Added Displayed Volume under such tier as proposed (i.e.,
by $0.0002 per share), which the Exchange believes remains commensurate
with the proposed new required criteria, is for business and
competitive reasons, as the Exchange believes that such reduction would
decrease the Exchange's expenditures with respect to its transaction
pricing in a manner that is still consistent with the Exchange's
overall pricing philosophy of encouraging added liquidity. The Exchange
is not proposing to change the rebate for executions of orders in
securities priced below $1.00 per share under such tier.
---------------------------------------------------------------------------
\11\ The proposed pricing for Liquidity Provision Tier 3 is
referred to by the Exchange on the Fee Schedule under the existing
description ``Added displayed volume, Liquidity Provision Tier 3''
with a Fee Code of ``B3'', ``D3'' or ``J3'', as applicable, to be
provided by the Exchange on the monthly invoices provided to
Members.
\12\ As proposed, the term ``Step-Up Non-Displayed ADAV'' means
Non-Displayed ADAV in the relevant baseline month subtracted from
current Non-Displayed ADAV. As set forth on the Fee Schedule, ``Non-
Displayed ADAV'' means ADAV with respect to non-displayed orders
(including Midpoint Peg orders). The Exchange proposes to add the
definition of Step-Up Non-Displayed ADAV under the ``Definitions''
section of the Fee Schedule.
---------------------------------------------------------------------------
Fourth, with respect to Liquidity Provision Tier 4, the Exchange
currently provides an enhanced rebate of $0.0027 per share for
executions of Added Displayed Volume for Members that qualify for such
tier by achieving: (1) an ADAV that is equal to or greater than 0.05%
of the TCV; or (2) a Step-Up Displayed ADAV from February 2022 that is
equal to or greater than 0.02% of the TCV; or (3) a Midpoint ADAV that
is equal to or greater than 1,000,000 shares. The Exchange now proposes
to reduce the rebate for executions of Added Displayed Volume under
Liquidity Provision Tier 4 to $0.0026 per share,\13\ and to modify the
required criteria such that a Member would now qualify for such tier by
achieving: (1) an ADAV that is equal to or greater than 0.075% of the
TCV; or (2) a Step-Up Displayed ADAV from April 2022 that is equal to
or greater than 0.02% of the TCV; or (3) a Midpoint ADAV that is equal
to or greater than 1,000,000 shares. Thus, such proposed change would
slightly increase the ADAV threshold in the first of such alternative
criteria, keep the same Step-Up Displayed ADAV threshold but reference
a more recent baseline month in the second of such alternative
criteria, and keep the third of such alternative criteria intact. Such
changes are designed to encourage the submission of additional
liquidity-adding order flow to the Exchange. The purpose of reducing
the rebate for executions of Added Displayed Volume under such tier as
proposed (i.e., by $0.0001 per share), which the Exchange believes is a
modest reduction and remains commensurate with the required criteria,
is for business and competitive reasons, as the Exchange believes that
such reduction would decrease the Exchange's expenditures with respect
to its transaction pricing in
[[Page 41842]]
a manner that is still consistent with the Exchange's overall pricing
philosophy of encouraging added liquidity. The Exchange is not
proposing to change the rebate for executions of orders in securities
priced below $1.00 per share under such tier.
---------------------------------------------------------------------------
\13\ The proposed pricing for Liquidity Provision Tier 4 is
referred to by the Exchange on the Fee Schedule under the existing
description ``Added displayed volume, Liquidity Provision Tier 4''
with a Fee Code of ``B4'', ``D4'' or ``J4'', as applicable, to be
provided by the Exchange on the monthly invoices provided to
Members.
---------------------------------------------------------------------------
Step-Up Additive Rebate
The Exchange currently offers the Step-Up Additive Rebate under
which the Exchange provides an additive rebate of $0.0002 per share
that is in addition to the otherwise applicable rebate for a qualifying
Member's executions of orders that constitute Added Displayed Volume,
except: (i) orders that establish the national best bid or offer
(``NBBO'') if such Member qualifies for the Exchange's NBBO Setter
Tier; and (ii) Retail Orders.\14\ Currently, a Member qualifies for the
Step-Up Additive Rebate by achieving a Step-Up ADAV (excluding Retail
Orders) from April 2022 that is equal to or greater than 0.07% of the
TCV. Now, the Exchange proposes to modify the required criteria under
the Step-Up Additive Rebate such that a Member would now qualify for
such tier by achieving: (1) a Step-Up ADAV (excluding Retail Orders)
from April 2022 that is equal to or greater than 0.07% of the TCV; or
(2) an ADAV>=0.70% of the TCV. Thus, such proposed change would keep
the existing criteria intact and add an alternative criteria that is
based on an ADAV threshold that is higher than the ADAV threshold under
any other of the Exchange's pricing tiers and that no Member is
currently achieving on the Exchange. The Exchange believes that this
proposed alternative criteria provides an incremental incentive for
Members to strive for higher ADAV on the Exchange to receive the
additive rebate for qualifying executions of Added Displayed Volume
under such tier, and thus, it is designed to encourage Members that do
not currently qualify for such tier to increase their overall orders
that add liquidity to the Exchange. The Exchange believes that the
tier, as proposed, would further incentivize increased order flow to
the Exchange, thereby contributing to a deeper and more liquid market
to the benefit of all Members. The Exchange notes that, as the proposed
change to the required criteria under the Step-Up Additive Rebate
merely provides an alternative criteria and does not change the
existing criteria, the Exchange believes that such change would make
the tier easier for Members to achieve, and, in turn, while the
Exchange has no way of predicting with certainty how the proposed new
criteria will impact Member activity, the Exchange expects that more
Members will strive to qualify for such tier than currently do,
resulting in the submission of additional order flow to the Exchange.
The Exchange is not proposing to change the amount of the additive
rebate provided under such tier.
---------------------------------------------------------------------------
\14\ As set forth in Exchange Rule 11.21(a), a ``Retail Order''
means an agency or riskless principal order that meets the criteria
of FINRA Rule 5320.03 that originates from a natural person and is
submitted to the Exchange by a Retail Member Organization, provided
that no change is made to the terms of the order with respect to
price or side of market and the order does not originate from a
trading algorithm or any other computerized methodology.
---------------------------------------------------------------------------
Liquidity Removal Tier 1
The Exchange currently charges a standard fee of $0.0030 per share
for executions of orders in securities priced at or above $1.00 per
share that remove liquidity from the Exchange (such orders, ``Removed
Volume''). The Exchange also currently offers Liquidity Removal Tier 1
under which qualifying Members are charged a discounted fee of $0.00285
per share for executions of Removed Volume by achieving: (1) an ADAV
that is equal to or greater than 0.30% of the TCV; or (2) an ADV that
is equal to or greater than 0.60% of the TCV. Now, the Exchange
proposes to increase the fee charged for executions of Removed Volume
under Liquidity Removal Tier 1 to $0.0029 per share,\15\ and to modify
the required criteria such that a Member would now qualify for such
tier by achieving: (1) a Remove ADV that is equal to or greater than
0.30% of the TCV and a Step-Up ADAV from April 2022 that is equal to or
greater than 0.10% of the TCV; or (2) an ADV that is equal to or
greater than 1.00% of the TCV. Thus, such proposed changes to the
required criteria would replace the ADAV threshold with a Remove ADV
threshold and a Step-Up ADAV threshold in the first of such alternative
criteria and increase the ADV threshold in the second of such
alternative criteria. Such changes are designed to encourage the
submission of additional order flow to the Exchange, including in the
forms of both liquidity-removing volume and liquidity-adding volume.
While the Exchange's overall pricing philosophy generally encourages
adding liquidity over removing liquidity, the Exchange believes that
providing alternative criteria that are based on different types of
volume that Members may choose to achieve, such as the proposed new
criteria which includes a Remove ADV threshold, contributes to a more
robust and well-balanced market ecosystem on the Exchange to the
benefit of all Members. The purpose of increasing the fee charged for
executions of Removed Volume under such tier as proposed (i.e., by
$0.00005 per share), which the Exchange believes is a modest increase
and remains commensurate with the proposed new required criteria, is
for business and competitive reasons, as the Exchange believes that
increasing such fee would generate additional revenue to offset some of
the costs associated with the Exchange's current transaction pricing
structure, which provides various rebates for liquidity-adding orders,
and the Exchange's operations generally, in a manner that is still
consistent with the Exchange's overall pricing philosophy of
encouraging added liquidity. The Exchange is not proposing to change
the fee charged under such tier for executions of orders in securities
priced below $1.00 per share.
---------------------------------------------------------------------------
\15\ The proposed pricing for Liquidity Removal Tier 1 is
referred to by the Exchange on the Fee Schedule under the existing
description ``Removed volume from MEMX Book, Liquidity Removal Tier
1'' with a Fee Code of ``R1'' to be provided by the Exchange on the
monthly invoices provided to Members.
---------------------------------------------------------------------------
DLI Tiers
The Exchange currently offers DLI Tiers 1 and 2 under which
qualifying Members are provided an enhanced rebate for executions of
Added Displayed Volume. The DLI Tiers are designed to encourage
Members, through the provision of such enhanced rebates for executions
of Added Displayed Volume, to promote price discovery and market
quality by quoting at the NBBO for a significant portion of each day
(i.e., through the applicable quoting requirement \16\) in a large
number of securities, generally, and in the DLI Target Securities,\17\
in particular (i.e., through the applicable securities requirements
\18\), thereby benefitting the
[[Page 41843]]
Exchange and investors by providing improved trading conditions for all
market participants through narrower bid-ask spreads and increased
depth of liquidity available at the NBBO in a broad base of securities,
including the DLI Target Securities specifically, and committing
capital to support the execution of orders.\19\ Now, the Exchange
proposes to modify DLI Tiers 1 and 2 by modifying the required criteria
and reducing the rebates for executions of Added Displayed Volume under
such tiers.
---------------------------------------------------------------------------
\16\ As set forth on the Fee Schedule, the term ``quoting
requirement'' means the requirement that a Member's NBBO Time be at
least 25%, and the term ``NBBO Time'' means the aggregate of the
percentage of time during regular trading hours during which one of
a Member's market participant identifiers (``MPIDs'') has a
displayed order of at least one round lot at the national best bid
or the national best offer.
\17\ As set forth on the Fee Schedule, the term ``DLI Target
Securities'' refers to a list of securities designated as such, the
universe of which will be determined by the Exchange and published
on the Exchange's website.
\18\ As set forth on the Fee Schedule, the term ``securities
requirement'' means the requirement that a Member meets the quoting
requirement in the applicable number of securities per day.
Currently, each of DLI Tiers 1 and 2 has a securities requirement
that may be achieved by a Member meeting the quoting requirement in
a specified number of any securities traded on the Exchange (the
``general securities requirement'') as well as a securities
requirement that must be achieved by a Member meeting the quoting
requirement in a specified number of DLI Target Securities (the
``DLI Target Securities requirement'').
\19\ See the Exchange's Fee Schedule (available at <a href="https://info.memxtrading.com/fee-schedule/">https://info.memxtrading.com/fee-schedule/</a>) for additional details regarding
the Exchange's DLI Tiers and the DLI Target Securities. See also
Securities Exchange Act Release No. 92150 (June 10, 2021), 86 FR
32090 (June 16, 2021) (SR-MEMX-2021-07) (notice of filing and
immediate effectiveness of fee changes adopted by the Exchange,
including the adoption of DLI).
---------------------------------------------------------------------------
Currently, a Member qualifies for DLI Tier 1 by achieving an NBBO
Time of at least 25% in an average of at least 1,000 securities, at
least 125 of which must be DLI Target Securities, per trading day
during the month; and a Member qualifies for DLI Tier 2 by achieving an
NBBO Time of at least 25% in an average of 250 securities, at least 75
of which must be DLI Target Securities, per trading day during the
month. First, the Exchange proposes to modify the required criteria
under DLI Tiers 1 and 2 by deleting the requirement for a Member to
meet the quoting requirement in a specified number of DLI Target
Securities (i.e., the DLI Target Securities requirement) in each of
such tiers. Thus, the Exchange is proposing to delete the DLI Target
Securities requirements and the concept of DLI Target Securities
altogether, and the required criteria under each of DLI Tiers 1 and 2
would now only be based on a Member meeting the quoting requirement in
the applicable number of securities, which may be comprised of any
securities traded on the Exchange (i.e., the general securities
requirement).\20\ The existing DLI Target Securities requirements under
DLI Tiers 1 and 2 were initially designed to incentivize additional
quoting competition with respect to a designated list of securities
(i.e., the DLI Target Securities) in which the Exchange specifically
sought to enhance market quality. Since the initial adoption of the DLI
program, each of the DLI Tiers have included a DLI Target Securities
requirement, and the Exchange has seen significant improvement in
market quality with respect to the DLI Target Securities. The Exchange
now believes the DLI Target Securities requirements are no longer
needed to maintain the desired level of market quality with respect to
the DLI Target Securities, and the Exchange therefore no longer wishes
to, nor is it required to, maintain such requirements.
---------------------------------------------------------------------------
\20\ In connection with this proposed change, the Exchange is
proposing to delete the definition of ``DLI Target Securities'' from
the Fee Schedule as it will no longer be used.
---------------------------------------------------------------------------
In addition to the proposed deletion of the DLI Target Securities
requirements under DLI Tiers 1 and 2, the Exchange also proposes to
increase the general securities requirement under DLI Tier 2 such that
a Member would now qualify for DLI Tier 2 by achieving an NBBO Time of
at least 25% in an average of 400 (i.e., increased from 250) securities
per trading day during the month. While the Exchange is proposing to
delete the DLI Target Securities requirement, this proposed increase in
the general securities requirement under DLI Tier 2 is designed to
achieve the DLI's market quality benefits described above in a broader
base of securities under such tier.
In addition to the proposed changes to the required criteria under
DLI Tiers 1 and 2 described above, the Exchange is also proposing to
reduce the rebates for executions of Added Displayed Volume under such
tiers. Currently, the Exchange provides enhanced rebates of $0.0033 per
share under DLI Tier 1 and $0.0030 per share under DLI Tier 2 for
executions of Added Displayed Volume for Members that qualify for such
tiers. Now, the Exchange proposes to reduce the rebate provided under
DLI Tier 1 to $0.0032 per share and the rebate provided under DLI Tier
2 to $0.0029 per share.\21\ The purpose of reducing the enhanced
rebates for executions of Added Displayed Volume provided under DLI
Tiers 1 and 2 as proposed (i.e., by $0.0001 per share in each case),
which the Exchange believes is a modest decrease and remains
commensurate with the proposed new required criteria in each case, is
for business and competitive reasons, as the Exchange believes the
reduction of such rebates would decrease the Exchange's expenditures
with respect to the Exchange's transaction pricing in a manner that is
still consistent with the Exchange's overall pricing philosophy of
encouraging added liquidity and promoting the price discovery and
market quality objectives of the DLI Tiers described above. The
Exchange is not proposing to change the rebates provided under such
tiers for executions of orders in securities priced below $1.00 per
share.
---------------------------------------------------------------------------
\21\ The proposed pricing for DLI Tier 1 is referred to by the
Exchange on the Fee Schedule under the existing description ``Added
displayed volume, DLI Tier 1'' with a Fee Code of ``Bq1'', ``Bq1''
or ``Jq1'', as applicable, and the proposed pricing for DLI Tier 2
is referred to by the Exchange on the Fee Schedule under the
existing description ``Added displayed volume, DLI Tier 2'' with a
Fee Code of ``Bq2'', ``Dq2'' or ``Jq2'', as applicable.
---------------------------------------------------------------------------
DLI Additive Rebate
Lastly, the Exchange proposes to eliminate the DLI Additive Rebate.
Currently, the Exchange offers a DLI Additive Rebate incentive that is
applicable to DLI Tier 1, which provides an additive rebate of $0.0001
per share for executions of Added Displayed Volume where, for a Member
that qualifies for DLI Tier 1, such Member has an ADAV that is equal to
or greater than 0.30% of the TCV. The Exchange now proposes to
eliminate such DLI Additive Rebate. The purpose of eliminating the DLI
Additive Rebate is for business and competitive reasons, as the
Exchange believes the elimination of such additive rebate would
decrease the Exchange's expenditures with respect to the Exchange's
transaction pricing, which would enable the Exchange to redirect future
resources and funding into other incentives and tiers intended to
incentivize increased order flow. For these reasons, the Exchange no
longer wishes to, nor is it required to, maintain such tier.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\22\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\23\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among its Members and other persons using its facilities
and is not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78f.
\23\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
As discussed above, the Exchange operates in a highly fragmented
and competitive market in which market participants can readily direct
order flow to competing venues if they deem fee levels at a particular
venue to be excessive or incentives to be insufficient, and the
Exchange represents only a small percentage of the overall market. The
Commission and the courts have repeatedly expressed their preference
for competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
[[Page 41844]]
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \24\
---------------------------------------------------------------------------
\24\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------
The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to new or different pricing structures being
introduced into the market. Accordingly, competitive forces constrain
the Exchange's transaction fees and rebates, and market participants
can readily trade on competing venues if they deem pricing levels at
those other venues to be more favorable. The Exchange believes the
proposal reflects a reasonable and competitive pricing structure
designed to incentivize market participants to direct additional order
flow, including through more diverse types of orders, to the Exchange,
which the Exchange believes would enhance liquidity and market quality
on the Exchange to the benefit of all Members, as well as to decrease
the Exchange's expenditures and generate additional revenue with
respect to its transaction pricing, through the proposed reduced
rebates and increased fees under certain pricing tiers, in a manner
that is still consistent with the Exchange's overall pricing philosophy
of encouraging added displayed liquidity.
The Exchange notes that volume-based incentives and discounts have
been widely adopted by exchanges, including the Exchange, and are
reasonable, equitable and not unfairly discriminatory because they are
open to all members on an equal basis and provide additional benefits
or discounts that are reasonably related to the value to an exchange's
market quality associated with higher levels of market activity, such
as higher levels of liquidity provision and/or growth patterns, and the
introduction of higher volumes of orders into the price and volume
discovery process. The Exchange believes that the Liquidity Provision
Tiers, the Step-Up Additive Rebate, Liquidity Removal Tier 1 and the
DLI Tiers, as modified by the proposed changes to the rebates and fees,
as well as the required criteria, as applicable, are reasonable,
equitable and not unfairly discriminatory for these same reasons, as
such tiers would continue to provide Members with incremental
incentives to achieve certain volume thresholds on the Exchange, are
available to all Members on an equal basis, and, as described above,
are designed to encourage Members to maintain or increase their order
flow, including through various forms of diverse order types, to the
Exchange in order to qualify for an enhanced rebate for executions of
Added Displayed Volume or a discounted fee for executions of Removed
Volume, thereby deepening liquidity, promoting price discovery and
contributing to a more robust and well-balanced market ecosystem to the
benefit of all Members. The Exchange also believes that the proposed
changes to such tiers reflect a reasonable and equitable allocation of
fees and rebates because, as noted above, the Exchange believes in each
case that the proposed new fee or rebate represents a modest increase
or reduction, as applicable, and/or remains commensurate with the
corresponding required criteria under such tier, and in each case is
reasonably related to the market quality benefits that the applicable
tier is designed to achieve while decreasing expenditures or generating
additional revenue with respect to the Exchange's transaction pricing.
The Exchange believes that the proposed change to the delete the
DLI Target Securities requirements from the required criteria under DLI
Tiers 1 and 2 is reasonable because, as noted above, the Exchange
believes the DLI Target Securities requirements are no longer needed to
maintain the desired level of market quality with respect to the DLI
Target Securities on the Exchange, and the Exchange therefore no longer
wishes to, nor is it required to, maintain such requirements. The
Exchange also believes that such change is equitable and not unfairly
discriminatory because it will apply to all Members equally and make
the required criteria under such tiers less restrictive, in that
Members seeking to qualify for such tiers will no longer be required to
meet the quoting requirement in a certain designated list of
securities, but rather, would have the flexibility to choose which
securities to quote in to meet the applicable general securities
requirement under such tiers.
The Exchange also believes the proposed change to increase the
general securities requirement under DLI Tier 2 from 250 securities to
400 securities is reasonable, equitable and not unfairly discriminatory
because it will apply to all Members equally, in that all Members will
continue to have the opportunity to achieve the required criteria under
such tier, and this proposed increase is intended to enhance market
quality in a broader range of securities on the Exchange to the benefit
of all Members.
The Exchange believes the proposed change to eliminate the DLI
Additive Rebate is reasonable because, as noted above, it would enable
the Exchange to redirect the associated resources and funding into
other incentives and tiers, and the Exchange is not required to
maintain such incentive or provide Members any opportunities to receive
additive rebates. The Exchange believes the proposal to eliminate such
incentive is also equitable and not unfairly discriminatory because it
applies equally to all Members, in that the incentive would no longer
be available for any Member.
For the reasons discussed above, the Exchange submits that the
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act \25\ in that it provides for the equitable allocation of
reasonable dues, fees and other charges among its Members and other
persons using its facilities and is not designed to unfairly
discriminate between customers, issuers, brokers, or dealers. As
described more fully below in the Exchange's statement regarding the
burden on competition, the Exchange believes that its transaction
pricing is subject to significant competitive forces, and that the
proposed fees and rebates described herein are appropriate to address
such forces.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposal will result in any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Instead, as discussed above,
the proposal is intended to incentivize market participants to direct
additional order flow, including through more diverse types of orders,
to the Exchange, thereby enhancing liquidity and market quality on the
Exchange to the benefit of all Members, as well as to decrease the
Exchange's expenditures and generate additional revenue with respect to
its transaction pricing in a manner that is still consistent with the
Exchange's overall pricing philosophy of encouraging added displayed
liquidity. As a result, the Exchange believes the proposal would
enhance its competitiveness as a market that attracts actionable
orders, thereby making it a
[[Page 41845]]
more desirable destination venue for its customers. For these reasons,
the Exchange believes that the proposal furthers the Commission's goal
in adopting Regulation NMS of fostering competition among orders, which
promotes ``more efficient pricing of individual stocks for all types of
orders, large and small.'' \26\
---------------------------------------------------------------------------
\26\ See supra note 24.
---------------------------------------------------------------------------
Intramarket Competition
As discussed above, the Exchange believes that the proposal would
incentivize Members to submit additional order flow, including through
more diverse types of orders, to the Exchange, thereby contributing to
a more robust and well-balanced market ecosystem on the Exchange to the
benefit of all Members as well as enhancing the attractiveness of the
Exchange as a trading venue, which the Exchange believes, in turn,
would continue to encourage market participants to direct additional
order flow to the Exchange. Greater liquidity benefits all Members by
providing more trading opportunities and encourages Members to send
additional orders to the Exchange, thereby contributing to robust
levels of liquidity, which benefits all market participants. The
opportunity to qualify for the modified Liquidity Provision Tiers,
Step-Up Additive Rebate, Liquidity Removal Tier 1 and DLI Tiers, and
thus receive the corresponding enhanced rebate for executions of Added
Displayed Volume or pay the discounted fee for Removed Volume, as
applicable, would be available to all Members that meet the associated
volume requirements in any month. As described above, the Exchange
believes that the proposed new required criteria under each such tier
are commensurate with the corresponding fee or rebate under such tier
and are reasonably related to the enhanced liquidity and market quality
that such tier is designed to promote. Additionally, as noted above,
the elimination of the DLI Additive Rebate and the DLI Target
Securities requirements under the DLI Tiers will apply to all Members
equally, in that the DLI Additive Rebate will no longer be available
for any Member, and no Member will be required to meet a DLI Target
Securities requirement to qualify for either of the DLI Tiers. For the
foregoing reasons, the Exchange believes the proposed changes would not
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
Intermarket Competition
As noted above, the Exchange operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. Members have numerous
alternative venues that they may participate on and direct their order
flow to, including 15 other equities exchanges and numerous alternative
trading systems and other off-exchange venues. As noted above, no
single registered equities exchange currently has more than
approximately 17% of the total market share of executed volume of
equities trading. Thus, in such a low-concentrated and highly
competitive market, no single equities exchange possesses significant
pricing power in the execution of order flow. Moreover, the Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow or discontinue to reduce use of certain categories of products, in
response to new or different pricing structures being introduced into
the market. Accordingly, competitive forces constrain the Exchange's
transaction fees and rebates, including with respect to executions of
Added Displayed Volume and Removed Volume, and market participants can
readily choose to send their orders to other exchange and off-exchange
venues if they deem fee levels at those other venues to be more
favorable. As described above, the proposed changes represent a
competitive proposal through which the Exchange is seeking to decrease
the Exchange's expenditures and generate additional revenue with
respect to its transaction pricing and to encourage additional order
flow to the Exchange through volume-based tiers, which have been widely
adopted by exchanges, including the Exchange. Accordingly, the Exchange
believes the proposal would not burden, but rather promote, intermarket
competition by enabling it to better compete with other exchanges that
offer similar pricing incentives to market participants that achieve
certain volume criteria and thresholds.
Additionally, the Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \27\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. SEC, the D.C. Circuit stated as follows:
``[n]o one disputes that competition for order flow is `fierce.' . . .
As the SEC explained, `[i]n the U.S. national market system, buyers and
sellers of securities, and the broker-dealers that act as their order-
routing agents, have a wide range of choices of where to route orders
for execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .''.\28\ Accordingly, the Exchange does not believe its
proposed pricing changes impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\27\ See supra note 24.
\28\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \29\ and Rule 19b-4(f)(2) \30\ thereunder.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78s(b)(3)(A)(ii).
\30\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing,
[[Page 41846]]
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#483a3d242d652b2725252d263c3b083b2d2b662f273e"><span class="__cf_email__" data-cfemail="5624233a337b35393b3b333822251625333578313920">[email protected]</span></a>. Please include
File Number SR-MEMX-2022-16 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MEMX-2022-16. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MEMX-2022-16 and should be submitted on
or before August 3, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
---------------------------------------------------------------------------
\31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-14877 Filed 7-12-22; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on July 13, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.