Notice2024-06453
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule To Adopt a New Cross Asset Tier Rebate
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Published
March 27, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 60 (Wednesday, March 27, 2024)</title>
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[Federal Register Volume 89, Number 60 (Wednesday, March 27, 2024)]
[Notices]
[Pages 21290-21294]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-06453]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99826; File No. SR-MEMX-2024-10]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule To Adopt a New Cross Asset Tier Rebate
March 21, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 14, 2024, 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 March 1, 2024. 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 adopt a new Cross Asset Tier, in which a qualifying Member
will receive an enhanced rebate 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''), by achieving the
corresponding required volume criteria for such tier on the Exchange's
equity options platform, MEMX Options, as further described below.\4\
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\4\ The Exchange initially filed the proposed Fee Schedule
changes on February 29, 2024 (SR-MEMX-2024-07). On March 14, 2024,
the Exchange withdrew that filing and submitted this proposal.
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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
[[Page 21291]]
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 March 14, 2024. The
Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\6\ Id.
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The Exchange proposes to adopt a new Cross Asset Tier which is
designed to incentivize Members to increase their participation on both
the Exchange's equities and options platforms. Currently, with respect
to the Exchange's equities trading platform, the Exchange provides a
base rebate of $0.0015 per share for executions of Added Displayed
Volume. Under the proposed Cross Asset Tier 1, the Exchange will
provide an enhanced rebate of $0.0026 for executions of Added Displayed
Volume for Members that qualify by such tier by achieving an Options
ADAV \7\ in the Customer \8\/Professional \9\ capacity on MEMX Options
(i.e., both categories combined) that is equal to or greater than
20,000 contracts. The Exchange proposes to provide Members that qualify
for Cross Asset Tier 1 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 the majority of executions on the
Exchange for all Members (i.e., including those that do not qualify for
any tier). In connection with the adoption of Cross Asset Tier 1, the
Exchange proposes to incorporate a definition of ``Options ADAV'' in
the definitions section of the Fee Schedule, where Options ADAV will be
defined as, for purposes of equities pricing, average daily added
volume calculated as a number of contracts added on MEMX Options per
day, calculated on a monthly basis. The Exchange will also indicate in
a note under the Cross Asset Tier table on the Fee Schedule that the
definitions of ``Customer'' and ``Professional'' capacity are those
that are defined in the MEMX Options Fee Schedule.
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\7\ As further described below, a Member's ``Options ADAV'' for
purposes of equities pricing means the average daily added volume
calculated as a number of contracts added on MEMX Options per day by
the Member, which is calculated on a monthly basis.
\8\ As set forth on the MEMX Options Fee Schedule, ``Customer''
applies to any order for the account of a Priority Customer.
Priority Customer shall have the meaning set forth in Rule 16.1 of
the MEMX Rulebook.
\9\ As set forth on the MEMX Options Fee Schedule,
``Professional'' applies to any order for the account of a
Professional.
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The Exchange also proposes to specify in a note under the Cross
Asset Tier table on the Fee Schedule that Members that qualify for
Cross Asset Tier 1 based on activity in a given month will also receive
that associated Cross Asset Tier 1 rebate during the following month.
Effectively, this means that if a Member executes 20,000 or more
contracts in the combined Customer/Professional categories on MEMX
Options during a given month, that Member will receive that rebate for
the total amount of Added Displayed Volume executed on the Exchange
during that month and in the following month, even if such Member does
not execute 20,000 or more combined contracts in the combined Customer/
Professional categories on MEMX Options during that following month.
This is different from the Exchange's current practice with respect to
the remaining of its pricing tiers, whereby the Exchange calculates
Members' applicable criteria such as ADAV on a monthly basis, and
Members that qualify for enhanced rebates by achieving certain criteria
receive the enhanced rebate per share for all applicable executions in
that previous month. Accordingly, Members do not know whether they will
receive the enhanced rebate at the time of execution, but rather,
receive it at the end of the month based on their activity during that
month.
To illustrate, the Exchange offers the following example: As
proposed, at the end of March 2024, the Exchange will calculate a
Member's Options ADAV for March 2024 and if that Member executed over
20,000 contracts in the Customer and/or Professional capacity, the
Member would receive the enhanced rebate of $0.0026 per share for the
Added Displayed Volume it executed in securities above $1.00 on the
Exchange in March 2024, and it would also receive the enhanced rebate
of $0.0026 per share for the Added Displayed Volume it executes on the
Exchange in April 2024 (regardless of the Member's Options activity in
April 2024). Accordingly, in this example, the Member will be aware of
the rebate it will receive under Cross Asset Tier 1 during the month of
April 2024, regardless of what their April 2024 Options ADAV is,
because it is awarded based on its March 2024 Options ADAV. The
Exchange notes that although the enhanced rebate of $0.0026 per share
would be provided to the Member in April 2024, if the Member in the
example above did not qualify for Cross Asset Tier 1 based on their
April 2024 Options ADAV, the Member would no longer qualify for the
enhanced rebate of $0.0026 per share for the Added Displayed Volume the
Member executes in May 2024.
The tiered pricing structure for executions of Added Displayed
Volume under the proposed Cross Asset Tier provides an incremental
incentive for Members to strive for higher volume thresholds to receive
higher enhanced rebates for such executions and, as such, is intended
to encourage Members to maintain or increase their order flow,
primarily in the form of liquidity-adding volume, to the Exchange,
thereby contributing to a deeper and more liquid market to the benefit
of all Members and market participants. The Exchange believes that the
proposed Cross Asset Tier reflects a reasonable and competitive pricing
structure that is right-sized and consistent with the Exchange's
overall pricing philosophy of encouraging added and/or displayed
liquidity. Additionally, the proposed process by which the enhanced
rebate will be paid under the Cross Asset Tier allows Members to
anticipate whether such rebate will apply at the time of execution
based on whether the criteria was achieved in the prior month. The
Exchange believes this method will provide Members with additional
certainty when trading on the Exchange, which in turn, will incentivize
Members to increase their participation on both the Exchange and MEMX
Options on an ongoing basis.
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
[[Page 21292]]
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, including with respect to
Added Displayed 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 to MEMX Options,
which the Exchange believes would promote price discovery and enhance
liquidity and market quality to the benefit of all Members and market
participants.
The Exchange notes that volume-based incentives 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 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 Cross Asset Tier 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 MEMX Options, 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 on the
Exchange, including in the form of displayed, liquidity-adding orders,
in part due to the enhanced rebate received for executions of Added
Displayed Volume on the Exchange, 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 it is reasonable, equitable and not unfairly
discriminatory to provide Members that qualify for the proposed Cross
Asset Tier with same rebate for executions of orders in securities
priced below $1.00 per share that add displayed liquidity to the
Exchange as is applicable to the majority of executions on the Exchange
for all Members (i.e., including those that do not qualify for any
tier).
To the extent a Member participates on the Exchange but not on MEMX
Options, the Exchange believes that the proposal is still reasonable,
equitably allocated and non-discriminatory with respect to such Member
based on the overall benefit to the Exchange resulting from the success
of MEMX Options. Particularly, the Exchange believes such success
allows the Exchange to continue to provide and potentially expand its
existing incentive programs to the benefit of all participants on the
Exchange, whether they participate on MEMX Options or not. The proposed
pricing program is also fair and equitable in that membership on MEMX
Options is available to all market participants which would provide
them with access to the benefits on MEMX Options provided by the
proposal, even where a member of MEMX Options is not necessarily
eligible for the proposed enhanced rebate on the Exchange. Further, the
proposed change will result in Members receiving either the same or an
increased rebate than they would currently receive. The Exchange also
notes that another Exchange has similar cross asset volume tiers.\13\
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\13\ See the Cboe EDGX Options fee schedule available at:
<a href="https://www.cboe.com/us/equities/membership/fee_schedule/edgx/">https://www.cboe.com/us/equities/membership/fee_schedule/edgx/</a>.
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As it relates to the method by which the Exchange proposes to award
the rebate under Cross Asset Tier 1, the Exchange believes it is
reasonable, equitable and not unfairly discriminatory, as the tier will
provide Members with incremental incentives to achieve certain volume
thresholds on MEMX Options, is available to all Members on an equal
basis, and, as described above, is reasonably designed to encourage
Members to maintain or increase their order flow to the Exchange with
an added layer of certainty in the rebate they will receive in the
upcoming month, if applicable.
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 \14\ 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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\14\ 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 to MEMX Options, thereby enhancing liquidity and
market quality to the benefit of all Members and market participants,
as well as to generate additional revenue 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.'' \15\
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\15\ See supra note 12.
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[[Page 21293]]
Intramarket Competition
As discussed above, the Exchange believes that the proposal would
incentivize Members to submit additional order flow to MEMX Options,
thereby enhancing liquidity and market quality 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 Exchange does not believe that the proposed change would impose
any burden on intramarket competition because such change will apply to
all Members uniformly, in that the proposed rebate for such executions
would be the rebate applicable to all Members.
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 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 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.'' \16\ 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'. . . .''.\17\ 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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\16\ See supra note 12.
\17\ 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 \18\ and Rule 19b-4(f)(2) \19\ thereunder.
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\18\ 15 U.S.C. 78s(b)(3)(A)(ii).
\19\ 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#453730292068262a2828202b3136053620266b222a33"><span class="__cf_email__" data-cfemail="83f1f6efe6aee0eceeeee6edf7f0c3f0e6e0ade4ecf5">[email protected]</span></a>. Please include
file number SR-MEMX-2024-10 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-2024-10. 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="https://www.sec.gov/rules/sro.shtml">https://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
[[Page 21294]]
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-MEMX-2024-10 and should be
submitted on or before April 17, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06453 Filed 3-26-24; 8:45 am]
BILLING CODE 8011-01-P
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