Notice2023-02712
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
February 9, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 88, Number 27 (Thursday, February 9, 2023)]
[Notices]
[Pages 8482-8487]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-02712]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96802; File No. SR-MEMX-2023-03]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
February 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 January 31, 2023, 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 February 1, 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: (i) adopt new pricing for executions of orders subject to
the Exchange's Display-Price Sliding \4\ that add liquidity to the
Exchange and receive price improvement over the order's ranked price
when executed; (ii) adopt a new tier under the Liquidity Provision
Tiers; and (iii) modify the required criteria under the Sub-Dollar
Rebate Tier.
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\4\ See Exchange Rule 11.6(j)(1)(A).
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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 15% of the total market share of
executed volume of equities trading.\5\ 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.\6\ 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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\5\ Market share percentage calculated as of January 30, 2023.
The Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\6\ Id.
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Orders Subject to Display-Price Sliding
The Exchange currently provides a base 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 provides a
base rebate of 0.075% of the total dollar value of the transaction for
executions of orders in securities priced below $1.00 per share that
add displayed liquidity to the Exchange (such orders, ``Added Displayed
Sub-Dollar Volume'').
The Exchange is now proposing to adopt new pricing for executions
of orders subject to Display-Price Sliding that add liquidity to the
Exchange and receive price improvement over the order's ranked price
when executed (such orders ``Added Price-Improved Volume'').
Specifically, the Exchange proposes to provide a base rebate of $0.0015
per share for executions of Added Price-Improved Volume in securities
priced at or above $1.00 per share, and the Exchange proposes to
provide free executions of Added Price-Improved Volume in securities
priced below $1.00 per share.\7\ Thus, the
[[Page 8483]]
proposed changes would reduce the base rebates provided for executions
of Added Price-Improved Volume. Additionally, as proposed, such orders
would be subject to the Exchange's Non-Display Add Tiers such that a
Member that qualifies for a Non-Display Add Tier would receive the
rebates provided under such tier that are applicable to executions of
orders that add non-displayed liquidity to the Exchange with respect to
its executions of Added Price-Improved Volume.\8\
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\7\ The proposed pricing for executions of Added Price-Improved
Volume is referred to by the Exchange on the Fee Schedule under the
new description ``Added volume, order subject to Display-Price
Sliding that receives price improvement when executed'' and such
orders will receive a Fee Code of ``P'' assigned by the Exchange.
The Exchange notes that it will append a second character, either
``A'' or ``B'' to indicate whether the execution occurred in a
security priced at or above $1.00 per share or below $1.00 per
share, which is consistent with the Fee Code format used by the
Exchange today.
\8\ Executions of Added Price-Improved Volume for Members that
qualify for the Non-Display Add Tiers will receive a Fee Code of
``P1'', ``P2'' or ``P3'', as applicable, for such executions on the
monthly invoices provided to Members.
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Pursuant to the Exchange's Display-Price Sliding functionality, an
order that would lock or cross a protected quotation is ranked on the
Exchange's order book at the locking price and displayed at one minimum
price variation less aggressive than the locking price.\9\ For bids,
this means that a price slid order is displayed at one minimum price
variation less than the current national best offer, and for offers,
this means that a price slid order is displayed at one minimum price
variation more than the current national best bid. Additionally,
Exchange Rule 11.10(a)(4)(D) allows an order subject to the Display-
Price Sliding process that is not executable at its most aggressive
price to be executed at one-half minimum price variation less
aggressive than the price at which it is ranked. Specifically, in the
event an order submitted to the Exchange on the side opposite such a
price slid order is a market order or a limit order priced more
aggressively than an order displayed on the Exchange's order book
(i.e., the incoming order is priced more aggressive than the locking
price), the Exchange will execute the incoming order at, in the case of
an incoming sell order, one-half minimum price variation less than the
price of the displayed order, and, in the case of an incoming buy
order, at one-half minimum price variation more than the price of the
displayed order.
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\9\ See Exchange Rule 11.6(j)(1)(A).
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Based on this functionality, orders executed as described above
will receive price improvement over the price at which such orders are
ranked. Because price slid orders subject to the order handling process
described above will receive price improvement, the Exchange is
proposing to provide a lower rebate than the current applicable base
rebate for such executions (i.e., $0.0015 per share for executions of
Added Price-Improved Volume in securities priced at or above $1.00 per
share rather than the base rebate of $0.0020 per share that such
executions receive today, and free executions of Added Price-Improved
Volume in securities priced below $1.00 per share rather than the base
rebate of 0.075% of the total dollar value of the transaction that such
executions receive today). The proposed changes are for business and
competitive reasons, as the Exchange believes that such reductions in
rebates 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,
and Exchange believes that the proposed lower base rebates for such
executions are appropriate because such executions also receive price
improvement, which offsets (at least in part) the reduction in the
applicable rebate, as described above. Further, the Exchange notes that
other maker-taker equity exchanges also provide lower rebates (such as
free executions) for executions of orders subject to similar price
sliding functionality that add liquidity and receive price improvement
when executed than for executions of other orders that add liquidity
due to the fact that the price slid orders receive price
improvement.\10\
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\10\ See 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 provides for free executions of
any displayed order subject to price sliding that receives price
improvement; the 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 provides for free executions
of any displayed order subject to price sliding that receives price
improvement. See also Securities Exchange Act Release No. 65407
(September 27, 2011), 76 FR 61127 (October 3, 2011) (SR-BATS-2011-
037) (notice of filing and immediate effectiveness of fee changes
adopted by BATS, including the discontinuation of a liquidity rebate
for any order subject to price sliding that adds liquidity and
receives price improvement over its ranked price when executed).
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The Exchange is also proposing to amend the definitions of
Displayed ADAV \11\ and Non-Displayed ADAV \12\ on the Fee Schedule to
state that orders subject to Display-Price Sliding that receive price
improvement when executed (i.e., Added Price-Improved Volume) are
included in both calculations, which are used by the Exchange for
volume tier purposes.
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\11\ As set forth on the Fee Schedule, ``Displayed ADAV''
currently means ADAV with respect to displayed orders, and ``ADAV''
means the average daily added volume calculated as the number of
shares added per day, which is calculated on a monthly basis. As
proposed, ``Displayed ADAV'' would mean ADAV with respect to
displayed orders (including orders subject to Display-Price Sliding
that receive price improvement when executed).
\12\ As set forth on the Fee Schedule, ``Non-Displayed ADAV''
currently means ADAV with respect to non-displayed orders (including
Midpoint Peg orders). As proposed, ``Non-Displayed ADAV'' would mean
ADAV with respect to non-displayed orders (including orders subject
to Display-Price Sliding that receive price improvement when
executed and Midpoint Peg orders).
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New Liquidity Provision Tier
As noted above, the Exchange currently provides a base 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
(i.e., Added Displayed Volume). The Exchange also currently offers
Liquidity Provision Tiers 1-5 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 adopt a new tier under the Liquidity Provision
Tiers, which, as proposed, would be the new Liquidity Provision Tier 2,
and the existing Liquidity Provision Tiers 2-5 would be renumbered as
Liquidity Provision Tiers 3-6 (hereinafter referred to as such). The
rebates and required criteria under Liquidity Provision Tiers 1, 3, 4,
5 and 6 would remain unchanged.
Under the proposed new Liquidity Provision Tier 2, the Exchange
would provide an enhanced rebate of $0.0033 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; \13\ and (2) a Non-Displayed ADAV that is equal to or greater than
5,000,000 shares.\14\ The
[[Page 8484]]
Exchange proposes to provide Members that qualify for the proposed new
Liquidity Provision Tier 2 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 is applicable to such executions under
each of the existing Liquidity Provision Tiers. The proposed new
Liquidity Provision Tier 2 is designed to encourage Members to maintain
or increase their order flow that adds liquidity, including in the form
of non-displayed orders, to the Exchange in order to qualify for the
proposed enhanced rebate for executions of Added Displayed Volume,
which, in turn, would encourage the submission of additional displayed
orders, thereby promoting price discovery and contributing to a deeper
and more robust and well-balanced market ecosystem on the Exchange to
the benefit of all Members and market participants.
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\13\ 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.
\14\ The proposed pricing for new Liquidity Provision Tier 2 is
referred to by the Exchange on the Fee Schedule under the
description ``Added displayed volume, Liquidity Provision Tier 2''
with a Fee Code of ``B2'', ``D2'' or ``J2'', 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.
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Sub-Dollar Rebate Tier
As noted above, the Exchange currently provides a base rebate of
0.075% of the total dollar value of the transaction for executions of
orders in securities priced below $1.00 per share that add displayed
liquidity to the Exchange (i.e., Added Displayed Sub-Dollar Volume).
The Exchange also currently offers the Sub-Dollar Rebate Tier under
which the Exchange provides an enhanced rebate of 0.15% of the total
dollar value of the transaction for executions of Added Displayed Sub-
Dollar Volume for Members that qualify for such tier by achieving an
ADAV that is equal to or greater than 0.15% of the TCV. Now, the
Exchange proposes to modify the required criteria under the Sub-Dollar
Rebate Tier 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 0.15% of the TCV; or (2) a Sub-Dollar
ADAV \15\ that is equal to or greater than 5,000,000 shares. Thus, such
proposed change would keep the existing ADAV threshold intact and also
provide an alternative volume threshold that a Member may choose to
achieve in order to qualify for the Sub-Dollar Rebate Tier that is
based on the Member's Sub-Dollar ADAV, which is designed to encourage
Members to maintain or increase their orders in securities priced below
$1.00 per share that add liquidity to the Exchange. The Exchange is not
proposing to modify the pricing associated with the Sub-Dollar Rebate
Tier.
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\15\ As proposed, the term ``Sub-Dollar ADAV'' means ADAV with
respect to orders in securities priced below $1.00 per share. The
Exchange proposes to add the definition of Sub-Dollar ADAV under the
``Definitions'' section of the Fee Schedule.
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The Exchange believes that the Sub-Dollar Rebate Tier, as modified,
would encourage the submission of orders in securities priced below
$1.00 per share that add liquidity to the Exchange, as it provides an
alternative threshold based on Sub-Dollar ADAV that Members may choose
to achieve, thereby contributing to a more robust and well-balanced
market ecosystem on the Exchange to the benefit of all Members and
market participants. The Exchange notes that the Sub-Dollar Rebate
Tier, as modified, would continue to be available to all Members and,
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 qualify, or strive to qualify, for such tier
than currently do under the proposed new criteria, as it is more
expansive and provides an alternative threshold that Members may choose
to achieve.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\16\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\17\ 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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\16\ 15 U.S.C. 78f.
\17\ 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.'' \18\
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\18\ 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.
With respect to the proposed pricing changes related to Added
Price-Improved Volume, the Exchange believes that providing a lower
base rebate for executions of such orders in securities priced at or
above $1.00 per share and free executions for such orders in securities
priced below $1.00 per share is reasonable, equitable, and not unfairly
discriminatory because, as described above, the reduction in rebates
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 price improvement received by such executions offsets (at least in
part) the change in the rebate structure for such orders, and the
pricing structure will apply uniformly to all Members. Additionally, as
noted above, the proposed pricing structure for executions of Added
Price-Improved Volume is comparable to the pricing structures of other
maker-taker equity exchanges, which also provide lower
[[Page 8485]]
rebates (such as free executions) for executions of Added Price-
Improved Volume than for executions of other orders that add liquidity
due to the fact that the price slid orders receive price
improvement.\19\ Therefore, this aspect of the proposal does not raise
any new or novel issues that have not previously been considered by the
Commission. Additionally, the Exchange believes that including
executions of Added Price-Improved Volume in the executions that
receive enhanced rebates for Members that qualify for a Non-Display Add
Tier is reasonable, equitable, and not unfairly discriminatory because
such orders are executed at a price that is not displayed (i.e., one-
half minimum price variation less aggressive than the locking price),
and therefore such orders are comparable to other non-displayed orders
that receive enhanced rebates under such tiers, this pricing structure
would apply uniformly to all Members, and the opportunity to qualify
for the Non-Display Add Tiers is available to all Members.
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\19\ See supra note 10.
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The Exchange also believes the proposal to amend the definitions of
Displayed ADAV and Non-Displayed ADAV on the Fee Schedule to state that
orders subject to Display-Price Sliding that receive price improvement
when executed (i.e., Added Price-Improved Volume) are included in both
calculations, which are used for volume tier purposes, is reasonable,
equitable, and not unfairly discriminatory in that such calculations
will be made accordingly and in a uniform manner by the Exchange with
respect to all Members. In addition, the Exchange believes that the
proposed approach is reasonable and equitable because orders subject to
Display-Price Sliding are, in fact, displayed on the Exchange and thus
contribute to price discovery and other benefits to the Exchange and
the market generally, but also can be executed at prices not displayed
on the Exchange, as described above.
With respect to the proposed new Liquidity Provision Tier 2, the
Exchange notes that volume-based incentives and discounts (such as
tiers) 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 2 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, as described above, is designed to encourage Members to
maintain or increase their order flow, including in the form of non-
displayed orders, to the Exchange in order to qualify for the
corresponding enhanced rebate for executions of Added Displayed Volume,
thereby promoting price discovery and contributing to a deeper and more
robust and well-balanced market ecosystem on the Exchange to the
benefit of all Members and market participants.
The Exchange believes that the Sub-Dollar Rebate Tier, as modified
by the proposed change to the required criteria under such tier, is
reasonable, equitable and not unfairly discriminatory for the reasons
described above with respect to volume-based tiers, particularly as the
Exchange believes the enhanced rebate for executions of Added Displayed
Sub-Dollar Volume under such tier remains commensurate with the
corresponding required criteria under the applicable tier and
reasonably related to the market quality benefits that such tier is
designed to achieve. Additionally, the Exchange believes the proposed
change to the required criteria under the Sub-Dollar Rebate Tier is
reasonable because, as noted above, such change would keep the existing
ADAV threshold intact and also provide an alternative criteria that a
Member may choose to achieve that is based on a Sub-Dollar ADAV
threshold, which would incentivize the submission of additional orders
in securities priced below $1.00 per share to the Exchange, thereby
contributing to a more robust and well-balanced market ecosystem on the
Exchange to the benefit of all Members and market participants. The
Exchange also believes the proposed new criteria is equitable and not
unfairly discriminatory because all Members will continue to be
eligible to meet such criteria, including the Members that currently
meet the existing ADAV threshold that is not changing. Further, as
noted above, 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 qualify, or strive to qualify, for such
tier under the proposed new criteria, which is more expansive.
For the reasons discussed above, the Exchange submits that the
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act \20\ in that it provides for the equitable allocation of
reasonable dues, fees and other charges among its Members and other
persons using its facilities and is not designed to unfairly
discriminate between customers, issuers, brokers, or dealers. As
described more fully below in the Exchange's statement regarding the
burden on competition, the Exchange believes that its transaction
pricing is subject to significant competitive forces, and that the
proposed fees and rebates described herein are appropriate to address
such forces.
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\20\ 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, including in the form of non-displayed orders
and orders in securities priced below $1.00 per share, to the Exchange,
thereby enhancing liquidity and market quality on the Exchange to the
benefit of all Members. 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.'' \21\
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\21\ See supra note 18.
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Intramarket Competition
As discussed above, the Exchange believes that the proposal would
incentivize Members to submit additional order flow, including in the
form of non-displayed orders and orders in securities priced below
$1.00 per share, 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
[[Page 8486]]
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 Exchange does not believe that the proposed changes to the
pricing for executions of Added Price-Improved Volume would impose any
burden on intramarket competition because such changes will apply to
all Members uniformly, in that the proposed based rebates for such
executions would be the base rebates applicable to all Members, and the
opportunity to qualify for the Non-Display Add Tiers, and thus receive
an enhanced rebate for executions of Added Price-Improved Volume along
with other non-displayed orders in securities priced at or above $1.00
per share that add liquidity to the Exchange, is available to all
Members. The Exchange does not believe its proposal to amend the
definitions of Displayed ADAV and Non-Displayed ADAV on the Fee
Schedule to state that orders subject to Display-Price Sliding that
receive price improvement when executed (i.e., Added Price-Improved
Volume) are included in both calculations, which are used for volume
tier purposes, would impose any burden intramarket competition, as such
calculations will be made in a uniform manner by the Exchange with
respect to all Members. The opportunity to qualify for the proposed new
Liquidity Provision Tier 2 and the proposed new criteria under the Sub-
Dollar Rebate, and thus receive the corresponding enhanced rebates for
executions of Added Displayed Volume and Added Displayed Sub-Dollar
Volume, respectively, would be available to all Members that meet the
associated volume requirements in any month. As described above, the
Exchange believes that the required criteria under each such tier are
commensurate with the corresponding rebate under such tier and are
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 15% 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, Added Displayed Sub-Dollar Volume and Added
Price-Improved 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 with respect to its transaction pricing through lower base
rebates for executions of Added Price-Improved Volume and encourage
additional, diverse types of order flow to the Exchange through volume-
based tiers, which have been widely adopted by exchanges, including the
Exchange. Additionally, as discussed above, the proposed pricing
structure for executions of Added Price-Improved Volume is comparable
to that of other maker-taker equity exchanges, which also provide lower
rebates (such as free executions) for such executions than for
executions of other orders that add liquidity due to the fact that the
price slid orders receive price improvement.\22\ 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 structures and incentives to
market participants.
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\22\ See supra note 10.
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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.'' \23\ 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'. . . .''.\24\ 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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\23\ See supra note 18.
\24\ 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 \25\ and Rule 19b-4(f)(2) \26\ thereunder.
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\25\ 15 U.S.C. 78s(b)(3)(A)(ii).
\26\ 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
[[Page 8487]]
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#81f3f4ede4ace2eeecece4eff5f2c1f2e4e2afe6eef7"><span class="__cf_email__" data-cfemail="b7c5c2dbd29ad4d8dadad2d9c3c4f7c4d2d499d0d8c1">[email protected]</span></a>. Please include
File Number SR-MEMX-2023-03 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MEMX-2023-03. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MEMX-2023-03 and should be submitted on
or before March 2, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-02712 Filed 2-8-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on February 9, 2023.
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