Notice2023-00117
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule
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Published
January 9, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 5 (Monday, January 9, 2023)</title>
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[Federal Register Volume 88, Number 5 (Monday, January 9, 2023)]
[Notices]
[Pages 1303-1306]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-00117]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96597; File No. SR-MEMX-2022-34]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
January 3, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 21, 2022, MEMX LLC (``MEMX'' or the ``Exchange'')
filed with the Securities and Exchange Commission (the ``Commission'')
the proposed rule change as described in Items I, II, and III below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the Exchange's fee schedule applicable to Members \3\ (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 January 2, 2023. 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 modify the required criteria under Liquidity Provision Tier
2.
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.\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% 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.
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\4\ Market share percentage calculated as of December 21, 2022.
The Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\5\ Id.
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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 1-5, among other volume-based tiers, under
which a Member may receive an enhanced rebate for executions of Added
Displayed Volume by achieving the corresponding required volume
criteria for each such tier. The Exchange now proposes to modify the
required criteria under Liquidity Provision Tier 2, as further
described below.
Currently, the Exchange provides an enhanced rebate of $0.0032 per
share for executions of Added Displayed Volume for Members that qualify
for Liquidity Provision Tier 2 by achieving: (1) an ADAV \6\ that is
equal to or greater than 0.20% of the TCV; \7\ or (2) an ADAV that is
equal to or greater than 15,000,000 shares and a Step-Up ADAV \8\ from
October 2022 that is equal to or greater than 0.10% of the Member's
October 2022 ADAV. Now, the Exchange proposes to modify the required
criteria under Liquidity Provision Tier 2 such that Members would now
qualify for such tier by achieving: (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
[[Page 1304]]
Step-Up ADAV \9\ from October 2022 that is equal to or greater than
0.10% of the TCV. Thus, such proposed change would modify the Step-Up
ADAV threshold in the second of the two existing alternative criteria
to be based on a Member's Step-Up ADAV from October 2022 as a
percentage of the TCV rather than as a percentage of the Member's
October 2022 ADAV. The Exchange believes that basing the Step-Up ADAV
threshold in this criteria on a Member's Step-Up ADAV from October 2022
as a percentage of the TCV (rather than as a percentage of the Member's
October 2022 ADAV, as it is today) is reasonable and appropriate for
this tier, as the TCV is another volume metric that is widely used by
exchanges (including the Exchange) in criteria for volume-based tiers.
As the proposed modified criteria is still based on a Step-Up ADAV
threshold, it is intended to encourage Members to increase their order
flow that adds liquidity to the Exchange, thereby contributing to a
deeper and more liquid market to the benefit of all Members and market
participants. The Exchange is not proposing to change the rebate for
any executions under the Liquidity Provision Tier 2.
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\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.
\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\ As set forth on the Fee Schedule, ``Step-Up ADAV'' means
ADAV in the relevant baseline month subtracted from current ADAV.
\9\ As set forth on the Fee Schedule, ``Step-Up ADAV'' means
ADAV in the relevant baseline month subtracted from current ADAV.
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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,\10\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(4) and (5).
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As discussed above, the Exchange operates in a highly fragmented
and competitive market in which market participants can readily direct
order flow to competing venues if they deem fee levels at a particular
venue to be excessive or incentives to be insufficient, and the
Exchange represents only a small percentage of the overall market. The
Commission and the courts have repeatedly expressed their preference
for competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \12\
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\12\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to new or different pricing structures being
introduced into the market. Accordingly, competitive forces constrain
the Exchange's transaction fees and rebates, and market participants
can readily trade on competing venues if they deem pricing levels at
those other venues to be more favorable. The Exchange believes the
proposal reflects a reasonable and competitive pricing structure
designed to incentivize market participants to direct additional order
flow to the Exchange, which the Exchange believes would enhance
liquidity and market quality on the Exchange to the benefit of all
Members and market participants.
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 Liquidity Provision Tier
2, as modified by the changes proposed herein, is reasonable, equitable
and not unfairly discriminatory for these same reasons, as such tier
would provide Members with an incremental incentive to achieve certain
volume thresholds on the Exchange, is available to all Members on an
equal basis, and is reasonably designed to encourage Members to
increase their liquidity-adding order flow to the Exchange, which the
Exchange believes would enhance liquidity and market quality on the
Exchange to the benefit of all Members and market participants.
The Exchange also believes that such tier reflects a reasonable and
equitable allocation of fees and rebates, as the Exchange believes
that, after giving effect to the changes proposed herein, the enhanced
rebate for executions of Added Displayed Volume under such tier remains
commensurate with the new required criteria under such tier and is
reasonably related to the market quality benefits that such tier is
designed to achieve. As noted above, the Exchange believes that basing
the Step-Up ADAV threshold in the relevant criteria on a Member's Step-
Up ADAV from October 2022 as a percentage of the TCV (rather than as a
percentage of the Member's October 2022 ADAV, as it is today) is
reasonable and appropriate, as the TCV is another volume metric that is
widely used by exchanges (including the Exchange) in criteria for
volume-based tiers.
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 \13\ 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.
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\13\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposal will result in any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Instead, as discussed above,
the proposal is intended to incentivize market participants to direct
additional order flow that adds liquidity to the Exchange, thereby
contributing to a deeper and more liquid market to the benefit of all
Members and market participants. 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.'' \14\
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\14\ See supra note 12.
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Intramarket Competition
As discussed above, the Exchange believes that the proposal would
incentivize Members to submit additional order flow, including
[[Page 1305]]
liquidity-adding orders, to the Exchange, thereby contributing to a
deeper and more liquid market 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 required criteria under Liquidity Provision Tier 2, and
thus receive the corresponding enhanced rebate for executions of Added
Displayed Volume, would continue to 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 such tier remains commensurate with the corresponding rebate
under such tier and is reasonably related to the enhanced liquidity and
market quality that such tier is designed to promote. 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 executions of
Added Displayed 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 change represents a competitive proposal
through which the Exchange is seeking 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.'' \15\ 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'. . ..''.\16\ 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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\15\ See supra note 12.
\16\ 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
19(b)(3)(A)(ii) of the Act \17\ and Rule 19b-4(f)(2) \18\ thereunder.
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\17\ 15 U.S.C. 78s(b)(3)(A)(ii).
\18\ 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#1e6c6b727b337d7173737b706a6d5e6d7b7d30797168"><span class="__cf_email__" data-cfemail="5725223b327a34383a3a323923241724323479303821">[email protected]</span></a>. Please include
File Number SR-MEMX-2022-34 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-2022-34. 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
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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 such 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-2022-34 and should be submitted on
or before January 30, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00117 Filed 1-6-23; 8:45 am]
BILLING CODE 8011-01-P
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