Notice2022-25087
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 18, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 87, Number 222 (Friday, November 18, 2022)]
[Notices]
[Pages 69363-69368]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-25087]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96306; File No. SR-MEMX-2022-30]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
November 14, 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 October 31, 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 Excchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the Exchange's fee schedule applicable to Members \3\ (the
``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and (c). The
Exchange proposes to implement the changes to the Fee Schedule pursuant
to this proposal on November 1, 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 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) modify the Liquidity Provision Tiers by adopting a new
Liquidity Provision Tier 4 and modifying the required criteria under
Liquidity Provision Tier 2; (ii) increase the fee and modify the
required criteria under Liquidity Removal Tier 1; (iii) increase the
fee for certain executions of Pegged Orders \4\ with a Midpoint Peg \5\
instruction (such orders, ``Midpoint Peg Orders'') and a time-in-force
(``TIF'') instruction of IOC \6\ or FOK \7\ that execute at the
midpoint of the national best bid and offer (``NBBO''); and (iv) modify
the pricing for certain executions of orders in securities priced below
$1.00 per share (such orders, ``Sub-Dollar Volume''), each as further
described below.
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\4\ See Exchange Rule 11.6(h).
\5\ See Exchange Rule 11.6(h)(2).
\6\ See Exchange Rule 11.6(o)(1).
\7\ See Exchange Rule 11.6(o)(3).
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The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues, to
which market participants may direct their order flow. Based on
publicly available information, no single registered equities exchange
currently has more than approximately 16% of the total market share of
executed volume of equities trading.\8\ Thus, in such a low-
concentrated and highly competitive market, no single equities exchange
possesses significant pricing power in the execution of order flow, and
the Exchange currently represents approximately 3.5% of the overall
market share.\9\ The Exchange in particular operates a ``Maker-Taker''
model whereby it provides rebates to Members that add liquidity to the
Exchange and charges fees to Members that remove liquidity from the
Exchange. The Fee Schedule sets forth the standard rebates and fees
applied per share for orders that add and remove liquidity,
respectively. Additionally, in response to the competitive environment,
the Exchange also offers tiered pricing, which provides Members with
opportunities to qualify for higher rebates or lower fees where certain
volume criteria and thresholds are met. Tiered pricing provides an
incremental incentive for Members to strive for higher tier levels,
which provides increasingly higher benefits or discounts for satisfying
increasingly more stringent criteria.
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\8\ Market share percentage calculated as of October 31, 2022.
The Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\9\ Id.
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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 1-4 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 adopt a new tier under the Liquidity Provision Tiers,
which, as proposed, would be the new Liquidity Provision Tier 4, and
the current Liquidity Provision Tier 4 would be renumbered as Liquidity
Provision Tier 5 (hereinafter referred to as such). The rebate for
executions of Added Displayed Volume and the required criteria under
Liquidity Provision Tier 5 would remain unchanged.
Under the proposed new Liquidity Provision Tier 4, the Exchange
would provide an enhanced rebate of $0.0028 per share for executions of
Added Displayed Volume for Members that qualify for such tier by
achieving one of the following two alternative criteria: (1)
[[Page 69364]]
an ADAV \10\ that is equal to or greater than 0.10% of the TCV; \11\ or
(2) a Displayed ADAV \12\ (excluding Retail Orders) that is equal to or
greater than 750,000 shares and a Step-Up Displayed ADAV \13\
(excluding Retail Orders) from October 2022 that is equal to or greater
than 30% of the Member's October 2022 Displayed ADAV (excluding Retail
Orders).\14\ The Exchange proposes to provide Members that qualify for
the proposed new Liquidity Provision Tier 4 a rebate of 0.075% of the
total dollar volume of the transaction for executions of orders in
securities priced below $1.00 per share that add displayed liquidity to
the Exchange, which is the same rebate that will be applicable to such
executions for all Members after giving effect to the Sub-Dollar Volume
pricing changes proposed below. The proposed new Liquidity Provision
Tier 4 is designed to encourage Members to maintain or increase their
order flow that adds liquidity, including in the form of displayed
orders, to the Exchange in order to qualify for the proposed enhanced
rebate for executions of Added Displayed Volume, thereby promoting
price discovery and contributing to a deeper and more liquid market to
the benefit of all market participants.
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\10\ 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.
\11\ 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.
\12\ As set forth on the Fee Schedule, ``Displayed ADAV'' means
ADAV with respect to displayed orders.
\13\ As set forth on the Fee Schedule, ``Step-Up Displayed
ADAV'' means Displayed ADAV in the relevant baseline month
subtracted from current Displayed ADAV.
\14\ The pricing for Liquidity Provision Tier 4 is referred to
by the Exchange on the Fee Schedule under the 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. 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. The Exchange
also notes that the pricing for Liquidity Provision Tier 5 is
referred to by the Exchange on the Fee Schedule under the
description ``Added displayed volume, Liquidity Provision Tier 5''
with a Fee Code of ``B5'', ``D5'' or ``J5'', as applicable, to be
provided by the Exchange on the monthly invoices provided to
Members.
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Currently, under Liquidity Provision Tier 2, the Exchange provides
an enhanced rebate of $0.0032 per share for executions of Added
Displayed Volume for Members that qualify for such tier by achieving an
ADAV that is that is equal to or greater than 0.20% of the TCV. Now,
the Exchange proposes to modify the required criteria such that a
Member would now qualify for such tier by achieving one of the
following two alternative criteria: (1) an ADAV that is equal to or
greater than 0.20% of the TCV; or (2) an ADAV that is equal to or
greater than 15,000,000 shares and a Step-Up ADAV from October 2022
that is equal to or greater than 0.10% of the Member's October 2022
ADAV. Thus, such proposed change would keep the existing criteria
intact and add an alternative criteria that includes an overall ADAV
threshold and a Step-Up ADAV threshold, which are designed to encourage
the submission of additional order flow that adds liquidity to the
Exchange. The Exchange notes that, as the proposed change to the
required criteria under Liquidity Provision Tier 2 simply 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 rebate provided for executions of Added Displayed Volume
under Liquidity Provision Tier 2.
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 $0.0029
per share for executions of Removed Volume by achieving one of the
following two alternative criteria: (1) an ADV \15\ that is equal to or
greater than 0.45% of the TCV and an ADAV that is equal to or greater
than 0.20% of the TCV; or (2) an ADV that is equal to or greater than
1.00% of the TCV.
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\15\ As set forth on the Fee Schedule, ``ADV'' means average
daily volume calculated as the number of shares added or removed,
combined, per day, which is calculated on a monthly basis.
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Now, the Exchange proposes to increase the fee charged for
executions of Removed Volume under Liquidity Removal Tier 1 to $0.00295
per share, and to modify the required criteria such that a Member would
now qualify for such tier by achieving one of the following two
alternative criteria: (1) an ADV that is equal to or greater than 0.50%
of the TCV and a Remove ADAV \16\ that is equal to or greater than
0.25% of the TCV; or (2) an ADV that is equal to or greater than 1.00%
of the TCV.\17\ Thus, the proposed change to the required criteria
would increase the ADV threshold by 0.05% (i.e., from 0.45% to 0.50%)
of the TCV and replace the ADAV threshold with a Remove ADV threshold
in the first of such alternative criteria, and it would keep the second
of such alternative criteria intact without any change. The proposed
changes to increase the ADV threshold and include a Remove ADV
threshold in the first of such alternative criteria are designed to
encourage Members to maintain or increase their order flow, including
in the form of orders that remove liquidity, to the Exchange in order
to qualify for the proposed discounted fee for executions of Removed
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.
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\16\ As set forth on the Fee Schedule, ``Remove ADV'' means ADV
with respect to orders that remove liquidity.
\17\ The 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. The Exchange notes that because the
determination of whether a Member qualifies for a certain pricing
tier for a particular month will not be made until after the month-
end, the Exchange will provide the Fee Codes otherwise applicable to
such transactions on the execution reports provided to Members
during the month and will only designate the Fee Codes applicable to
the achieved pricing tier on the monthly invoices, which are
provided after such determination has been made, as the Exchange
does for its tier-based pricing today.
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The 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
[[Page 69365]]
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.
The Exchange notes that it is also proposing to change the fee
charged under Liquidity Removal Tier 1 for executions of Removed Sub-
Dollar Volume (as defined below), as further described below.
Midpoint Peg IOC/FOK Orders
As noted above, the Exchange currently charges a standard fee of
$0.0030 per share for executions of Removed Volume. The Exchange also
currently charges a discounted fee of $0.0026 per share for executions
of Midpoint Peg Orders in securities priced at or above $1.00 per share
with a TIF instruction of IOC or FOK that execute at the midpoint of
the NBBO and remove liquidity from the Exchange upon entry (such
orders, ``Midpoint Peg IOC/FOK Orders''). Charging a discounted fee for
executions of Midpoint Peg IOC/FOK Orders is intended to incentivize
the submission of such orders and, in turn, attract additional contra-
side orders designed to execute at the midpoint to be posted on the
Exchange, and is therefore designed to deepen liquidity and increase
execution opportunities at the midpoint on the Exchange, thereby
improving the Exchange's market quality to the benefit of all Members
and enhancing its attractiveness as a trading venue.
Now, the Exchange proposes to increase the fee charged for
executions of Midpoint Peg IOC/FOK Orders to $0.0027 per share.\18\ The
purpose of increasing the fee for executions of Midpoint Peg IOC/FOK
Orders as proposed (i.e., by $0.0001 per share), which the Exchange
believes is a modest increase and remains commensurate with the market
quality benefits that such discounted fee is intended to achieve, 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.
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\18\ The pricing for executions of Midpoint Peg IOC/FOK Orders
is referred to by the Exchange on the Fee Schedule under the
description ``Removed volume from MEMX Book, Midpoint Peg (IOC/
FOK)'' with a Fee Code of ``Rm'' assigned by the Exchange.
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Pricing for Certain Sub-Dollar Volume
Currently, the Exchange charges a fee of 0.25% of the total dollar
value of the transaction for executions of Sub-Dollar Volume that
remove liquidity from the Exchange (such orders, ``Removed Sub-Dollar
Volume''). This fee is applicable to all executions of Removed Sub-
Dollar Volume (except Retail Orders with a TIF of Day, GTT or RHO that
remove liquidity from the Exchange upon entry \19\) and is applicable
to all Members (including those that qualify for any of the Exchange's
volume tiers). Now, the Exchange proposes to increase the fee charged
to all Members (including those that qualify for any of the Exchange's
volume tiers) for all executions of Removed Sub-Dollar Volume (except
Retail Orders with a TIF of Day, GTT or RHO that remove liquidity from
the Exchange upon entry) to 0.28% of the total dollar value of the
transaction. The purpose of increasing the fee for such executions of
Removed Sub-Dollar Volume 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. The Exchange notes that despite the increase
proposed herein, which the Exchange believes is modest, the proposed
fee for such executions of Removed Sub-Dollar Volume (i.e., 0.28% of
the total dollar value of the transaction) remains lower than, and
competitive with, the standard fee charged by other equity exchanges
for executions of orders in securities priced below $1.00 per share
that remove liquidity.\20\
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\19\ Such orders have different pricing that is referred to by
the Exchange on the Fee Schedule under the description ``Removed
volume from MEMX Book upon entry, Retail Order (Day/GTT/RHO)'' with
a Fee Code of ``Rr0'' assigned by the Exchange.
\20\ See, e.g., the Cboe BZX Exchange, Inc. (``Cboe BZX'')
equities trading fee schedule on its public website (available at
<a href="https://www.cboe.com/us/equities/membership/fee_schedule/bzx/">https://www.cboe.com/us/equities/membership/fee_schedule/bzx/</a>),
which reflects a standard fee of 0.30% of the total dollar value of
the transaction for executions of orders in securities priced below
$1.00 per share that remove liquidity from Cboe BZX; the Cboe EDGX
Exchange, Inc. (``Cboe EDGX'') equities trading fee schedule on its
public website (available at <a href="https://www.cboe.com/us/equities/membership/fee_schedule/edgx/">https://www.cboe.com/us/equities/membership/fee_schedule/edgx/</a>), which reflects a standard fee of
0.30% of the total dollar value of the transaction for executions of
orders in securities priced below $1.00 per share that remove
liquidity from Cboe EDGX.
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Currently, the Exchange provides a rebate of 0.10% of the total
dollar value of the transaction for executions of Sub-Dollar Volume
that add displayed liquidity to the Exchange (such orders, ``Added
Displayed Sub-Dollar Volume''). This fee is applicable to all
executions of Added Displayed Sub-Dollar Volume and is applicable to
all Members (including those that qualify for any of the Exchange's
volume tiers). Now, the Exchange proposes to reduce the rebate provided
to all Members (including those that qualify for any of the Exchange's
volume tiers) for all executions of Added Displayed Sub-Dollar Volume
to 0.075% of the total dollar value of the transaction. The purpose of
reducing the rebate for executions of Added Displayed Sub-Dollar Volume
is for business and competitive reasons, as the Exchange believes that
reducing such rebate 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
displayed liquidity. The Exchange notes that despite the reduction
proposed herein, which the Exchange believes is modest, the proposed
rebate for executions of Added Displayed Sub-Dollar Volume (i.e.,
0.075% of the total dollar value of the transaction) remains higher
than, and competitive with, the rebates offered by other equity
exchanges for executions of orders in securities priced below $1.00 per
share that add displayed liquidity.\21\
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\21\ See, e.g., the Cboe BZX equities trading fee schedule on
its public website (available at <a href="https://www.cboe.com/us/equities/membership/fee_schedule/bzx/">https://www.cboe.com/us/equities/membership/fee_schedule/bzx/</a>), which reflects that no rebate is
provided (i.e., a free execution) for executions of orders in
securities priced below $1.00 per share that add displayed liquidity
to Cboe BZX.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\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.
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\22\ 15 U.S.C. 78f.
\23\ 15 U.S.C. 78f(b)(4) and (5).
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As discussed above, the Exchange operates in a highly fragmented
and competitive market in which market participants can readily direct
order flow to competing venues if they deem fee levels at a particular
venue to be excessive or incentives to be insufficient, and the
Exchange represents only a small percentage of
[[Page 69366]]
the overall market. The Commission and the courts have repeatedly
expressed their preference for competition over regulatory intervention
in determining prices, products, and services in the securities
markets. In Regulation NMS, the Commission highlighted the importance
of market forces in determining prices and SRO revenues and also
recognized that current regulation of the market system ``has been
remarkably successful in promoting market competition in its broader
forms that are most important to investors and listed companies.'' \24\
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\24\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to new or different pricing structures being
introduced into the market. Accordingly, competitive forces constrain
the Exchange's transaction fees and rebates, including with respect to
Added Displayed Volume, Removed Volume and Sub-Dollar Volume, 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 displayed, liquidity-adding and/or
liquidity-removing orders, to the Exchange, which the Exchange believes
would promote price discovery and enhance liquidity and market quality
on the Exchange to the benefit of all Members and market participants.
While the Exchange has proposed increasing its fees for certain
executions of Removed Volume and Removed Sub-Dollar Volume, and
reducing its rebate for executions of Added Displayed Sub-Dollar
Volume, as further discussed below, the Exchange believes that each of
such changes represents a modest increase (decrease) from the current
fee (rebate) applicable to such executions.
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 proposed new
Liquidity Provision Tier 4, the Liquidity Provision Tier 2 as modified
by the proposed change to the required criteria under such tier, and
the Liquidity Removal Tier 1 as modified by the proposed changes to the
fee for executions of Removed Volume and the required criteria under
such tier, are reasonable, equitable and not unfairly discriminatory
for these same reasons, as such tiers would provide Members with an
incremental incentive 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 in the form of displayed,
liquidity-adding and/or liquidity removing orders, 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,
as applicable, thereby contributing to a deeper, more liquid and well
balanced market ecosystem on the Exchange to the benefit of all Members
and market participants. The Exchange also believes that such tiers
reflect a reasonable and equitable allocation of fees and rebates, as
the Exchange believes that the enhanced rebate for executions of Added
Displayed Volume under the proposed new Liquidity Provision Tier 4 and
the modified Liquidity Provision Tier 2, as well as the discounted fee
for executions of Removed Volume under the modified Liquidity Removal
Tier 1, each remains commensurate with the corresponding required
criteria under each such tier and is reasonably related to the market
quality benefits that each such tier is designed to achieve, as
described above.
The Exchange also believes the proposed increased fee for
executions of Midpoint Peg IOC/FOK Orders is reasonable, equitable and
not unfairly discriminatory because the Exchange believes that the
increase (i.e., $0.0001 per share) is modest and that the fee remains
commensurate with the market quality benefits that such discounted fee
is intended to achieve, as described above, and such fee would continue
to be charged uniformly to all executions of such orders for all
Members.
Regarding the proposed changes to Sub-Dollar Volume pricing, the
Exchange believes the proposed changes to increase the fee for
executions of Removed Sub-Dollar Volume (except Retail Orders with a
TIF of Day, GTT or RHO that remove liquidity from the Exchange upon
entry) and reduce the rebate for executions of Added Displayed Sub-
Dollar Volume are reasonable because, as described above, the Exchange
believes that each of such changes represents a modest increase
(decrease) from the current fee (rebate) applicable to such executions
and that such changes would decrease the Exchange's expenditures and
generate additional revenue, as applicable, 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. The Exchange also believes such proposed changes are
reasonable, as the proposed fee for executions of Removed Sub-Dollar
Volume (except Retail Orders with a TIF of Day, GTT or RHO that remove
liquidity from the Exchange upon entry) and the proposed rebate for
executions of Added Displayed Sub-Dollar Volume are competitive with
the standard fees and rebates, as applicable, assessed for such
executions on other equity exchanges.\25\ Additionally, the Exchange
believes that the proposed changes to these rates represent an
equitable allocation of fees and are not unfairly discriminatory
because such rates will continue to apply equally to all Members
(including those that qualify for any of the Exchange's volume tiers)
for all such executions.
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\25\ See supra notes 20-21.
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For the reasons discussed above, the Exchange submits that the
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act \26\ in that it provides for the equitable allocation of
reasonable dues, fees and other charges among its Members and other
persons using its facilities and is not designed to unfairly
discriminate between customers, issuers, brokers, or dealers. As
described more fully below in the Exchange's statement regarding the
burden on competition, the Exchange believes that its transaction
pricing is subject to significant competitive forces, and that the
proposed fees and rebates described herein are appropriate to address
such forces.
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\26\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposal will result in any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Instead, as discussed above,
the proposal is
[[Page 69367]]
intended to incentivize market participants to direct additional order
flow, including displayed, liquidity-adding and liquidity-removing
orders, to the Exchange, thereby enhancing liquidity and market quality
on the Exchange to the benefit of all Members and market participants,
as well as to generate additional revenue and 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 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 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.'' \27\
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\27\ See supra note 24.
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Intramarket Competition
As discussed above, the Exchange believes that the proposal would
incentivize Members to submit additional order flow, including
displayed, liquidity-adding and liquidity-removing orders, to the
Exchange, thereby enhancing liquidity and market quality 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 proposed new Liquidity
Provision Tier 4, and thus receive the proposed enhanced rebate for
executions of Added Displayed Volume under such tier, would be
available to all Members that meet the associated volume requirements
in any month. Similarly, the opportunity to qualify for the proposed
new alternative criteria under Liquidity Provision Tier 2 and the
proposed modified criteria under Liquidity Removal Tier 1, and thus
receive the enhanced rebate for executions of Added Displayed Volume or
be charged the discounted fee for executions of Removed Volume,
respectively, would continue to be available to all Members that meet
the associated volume requirements in any month. Additionally, as
described above, the Exchange believes that the proposed changes to the
fee for executions of Midpoint Peg IOC/FOK Orders, the fee for
executions of Removed Sub-Dollar Volume (except Retail Orders with a
TIF of Day, GTT or RHO that remove liquidity from the Exchange upon
entry) and the rebate for executions of Added Displayed Sub-Dollar
Volume are modest, and such fees and rebate will continue to apply to
all such executions for all Members as they do today. 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 16% of the total market share of executed volume of
equities trading. Thus, in such a low-concentrated and highly
competitive market, no single equities exchange possesses significant
pricing power in the execution of order flow. Moreover, the Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow or discontinue to reduce use of certain categories of products, in
response to new or different pricing structures being introduced into
the market. Accordingly, competitive forces constrain the Exchange's
transaction fees and rebates, including with respect to Added Displayed
Volume, Removed Volume and Sub-Dollar 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 the submission of
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.
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.'' \28\ 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'. . . .''.\29\ Accordingly, the Exchange does not believe its
proposed pricing changes impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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\28\ See supra note 24.
\29\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
[[Page 69368]]
19(b)(3)(A)(ii) of the Act \30\ and Rule 19b-4(f)(2) \31\ thereunder.
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\30\ 15 U.S.C. 78s(b)(3)(A)(ii).
\31\ 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#2e5c5b424b034d4143434b405a5d6e5d4b4d00494158"><span class="__cf_email__" data-cfemail="fc8e899099d19f9391919992888fbc8f999fd29b938a">[email protected]</span></a>. Please include
File Number SR-MEMX-2022-30 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-2022-30. 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-2022-30 and should be submitted on
or before December 9, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25087 Filed 11-17-22; 8:45 am]
BILLING CODE 8011-01-P
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