Notice2024-07965
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
April 16, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 74 (Tuesday, April 16, 2024)</title>
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[Federal Register Volume 89, Number 74 (Tuesday, April 16, 2024)]
[Notices]
[Pages 26969-26976]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-07965]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99934; File No. SR-MEMX-2024-12]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
April 10, 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 28, 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 and II 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 April 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: (i) modify the Liquidity Provision Tiers by modifying the
required criteria under Liquidity Provision Tier 1 and modifying the
required criteria under Liquidity Provision Tier 2; (ii) modify NBBO
Setter Tier 1 by modifying the required criteria under such tier; (iii)
modify the Tape B Volume Tier 1 by increasing the rebate provided and
modifying the required criteria under such tier; (iv) modify the Cross
Asset Tiers by adopting new Cross Asset Tiers 1 and 2 and re-numbering
the existing Cross Asset Tier 1 to Cross Asset Tier 3; (v) modify the
Displayed Liquidity Incentive (``DLI'') Additive Rebate Tier 1 by
reducing the rebate provided and modifying the required criteria under
such tier; and (vi) adopt a new Display Price-Sliding Tier, each as
further described below.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues, to
which market participants may direct their order flow. Based on
publicly available information, no single registered equities exchange
currently has more than approximately 16% of the total market share of
executed
[[Page 26970]]
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 2.5% of the overall market
share.\5\ The Exchange in particular operates a ``Maker-Taker'' model
whereby it provides rebates to Members that add liquidity to the
Exchange and charges fees to Members that remove liquidity from the
Exchange. The Fee Schedule sets forth the standard rebates and fees
applied per share for orders that add and remove liquidity,
respectively. Additionally, in response to the competitive environment,
the Exchange also offers tiered pricing, which provides Members with
opportunities to qualify for higher rebates or lower fees where certain
volume criteria and thresholds are met. Tiered pricing provides an
incremental incentive for Members to strive for higher tier levels,
which provides increasingly higher benefits or discounts for satisfying
increasingly more stringent criteria.
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\4\ Market share percentage calculated as of March 28, 2024. The
Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\5\ Id.
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Liquidity Provision Tiers
The Exchange currently provides a base rebate of $0.0015 per share
for executions of Added Displayed Volume.\6\ 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 modify the Liquidity Provision Tiers
by modifying the required criteria under Liquidity Provision Tier 1 and
modifying the required criteria under Liquidity Provision Tier 2, as
further described below.
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\6\ The base rebate for executions of Added Displayed Volume is
referred to by the Exchange on the Fee Schedule under the existing
description ``Added displayed volume'' with a Fee Code of ``B'',
``D'' or ``J'', as applicable, on execution reports.
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First, with respect to Liquidity Provision Tier 1, the Exchange
currently provides 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 \7\ (excluding Retail Orders) that is
equal to or greater than 0.45% of the TCV; or (2) a Step-Up ADAV \8\
(excluding Retail Orders) of the TCV from September 2023 that is equal
to or greater than 0.05%, an ADV \9\ that is equal to or greater than
0.50% of the TCV, and a Non-Displayed ADAV \10\ that is equal to or
greater than 5,000,000 shares; or (3) an ADAV that is equal to or
greater than 0.30% of the TCV and a Non-Displayed ADAV that is equal to
or greater than 7,000,000 shares.\11\ The Fee Schedule indicates that
criteria (2) of Liquidity Provision Tier 1 will expire no later than
March 31, 2024. Now, given the expiration of criteria (2) of Liquidity
Provision Tier 1, it is necessary to modify the Fee Schedule to delete
this criteria (2) as well as the footnote under the Liquidity Provision
Tiers pricing table that indicates its expiration, as both are no
longer applicable and otherwise obsolete. As such, the Exchange now
proposes to modify the required criteria under Liquidity Provision Tier
1 such that a Member would qualify for such tier by achieving: (1) an
ADAV (excluding Retail Orders) that is equal to or greater than 0.45%
of the TCV; or (2) an ADAV that is equal to or greater than 0.30% of
the TCV and a Non-Displayed ADAV that is equal to or greater than
7,000,000 shares. Thus, such proposed change would keep criteria (1)
intact, delete existing criteria (2) (based on a Step-Up ADAV from
September 2023 threshold) and the corresponding footnote, and re-number
existing criteria (3) as the new criteria (2). The Exchange is not
proposing to change the rebate provided under such tier.
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\7\ As set forth on the Fee Schedule, ``ADAV'' means the average
daily added volume calculated as the number of shares added per day,
which is calculated on a monthly basis, and ``Displayed ADAV'' means
ADAV with respect to displayed orders.
\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, ``ADV'' means average
daily volume calculated as the number of shares added or removed,
combined, per day. ADV is calculated on a monthly basis.
\10\ As set forth on the Fee Schedule, ``Non-Displayed ADAV''
means ADAV with respect to non-displayed orders (including orders
subject to Display-Price Sliding that receive price improvement when
executed and Midpoint Peg orders).
\11\ The pricing for Liquidity Provision Tier 1 is referred to
by the Exchange on the Fee Schedule under the existing description
``Added displayed volume, Liquidity Provision Tier 1'' with a Fee
Code of ``B1'', ``D1'' or ``J1'', as applicable, to be provided by
the Exchange on the monthly invoices provided to Members.
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With respect to Liquidity Provision Tier 2, the Exchange currently
provides an enhanced rebate of $0.0032 per share for executions of
Added Displayed Volume for members that qualify for such tier by
achieving: (1) an ADAV that is equal to or greater than 0.25% of the
TCV and a Non-Displayed ADAV that is equal to or greater than 4,000,000
shares; or (2) a Step-Up Displayed ADAV of the TCV from September 2023
that is equal to or greater than 0.10% and a Displayed ADAV (excluding
Retail Orders) that is equal to or greater than 0.20% of the TCV.\12\
The Fee Schedule indicates that criteria (2) of Liquidity Provision
Tier 2 will expire no later than March 31, 2024. Now, given the
expiration of criteria (2) of Liquidity Provision Tier 2, it is
necessary to modify the Fee Schedule to delete this criteria (2) as
well as the footnote under the Liquidity Provision Tiers pricing table
that indicates its expiration, as both are no longer applicable and
otherwise obsolete. As such, the Exchange now proposes to modify the
required criteria under Liquidity Provision Tier 2 such that a Member
would qualify for such tier by achieving: (1) an ADAV that is equal to
or greater than 0.25% of the TCV and a Non-Displayed ADAV that is equal
to or greater than 4,000,000 shares; or (2) an ADAV that is equal to or
greater than 0.35% of the TCV. Thus, such proposed change would keep
the existing criteria (1) intact with no changes, delete existing
criteria (2) (based on a Step-Up Displayed ADAV from September 2023
threshold) and the corresponding footnote, and replace it with a new
criteria (2) that consists of an ADAV threshold. The Exchange is not
proposing to change the rebate provided under such tier.
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\12\ The proposed pricing for Liquidity Provision Tier 2 is
referred to by the Exchange on the Fee Schedule under the existing
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.
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The Exchange believes that the tiered pricing structure for
executions of Added Displayed Volume under the Liquidity Provision
Tiers 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 Liquidity Provision Tiers, as modified
by the proposed changes described above, reflect 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. Specifically, the Exchange believes that, after
giving effect to the proposed
[[Page 26971]]
changes described above, the rebate for executions of Added Displayed
Volume provided under each of the Liquidity Provision Tiers remains
commensurate with the corresponding required criteria under each such
tier and is reasonably related to the market quality benefits that each
such tier is designed to achieve.
NBBO Setter Tier
The Exchange currently offers NBBO Setter Tier 1 under which a
Member may receive an additive rebate of $0.0002 per share for a
qualifying Member's executions of Added Displayed Volume (other than
Retail Orders) that establish the NBBO and have a Fee Code B \13\ (such
orders, ``Setter Volume''), and an additive rebate of $0.0001 per share
for executions of Added Displayed Volume (other than Retail Orders)
that do not establish the NBBO (i.e., Fee Codes D and J) \14\ by
achieving: (1) an ADAV with respect to orders with Fee Code B that is
equal to or greater than 0.10% of the TCV; or (2) an ADAV with respect
to orders with Fee Code B that is equal to or greater than 0.05% of the
TCV and a Step-Up ADAV with respect to orders with a Fee Code B that is
equal to or greater than 75% of the Member's December 2023 ADAV with
respect to orders with a Fee Code B. Now, the Exchange proposes to
modify the required criteria under NBBO Setter Tier 1 such that a
Member would now qualify for such tier by achieving: (1) an ADAV with
respect to orders with Fee Code B that is equal to or greater than
0.10% of the TCV; or (2) an ADAV with respect to orders with Fee Code B
that is equal to or greater than 0.05% of the TCV or 5,000,000 shares
and a Step-Up ADAV with respect to orders with a Fee Code B that is
equal to or greater than 75% of the Member's March 2024 ADAV with
respect to orders with a Fee Code B. Thus, such proposed change keeps
the first alternative criteria intact with no changes but modifies the
second alternative criteria by adding an alternative 5,000,000 share
ADAV threshold and referencing a more recent baseline month in the
Step-Up portion of the criteria. Given the more recent baseline month,
the Exchange also proposes that criteria (2) of NBBO Setter Tier 1 will
expire no later than September 30, 2024. As such, the Exchange proposes
to indicate this in the existing note under the NBBO Setter Tier
pricing table on the Fee Schedule, by deleting the existing expiration
of July 31, 2024, and replacing it with the new expiration date of
September 30, 2024.
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\13\ The Exchange notes that orders with Fee Code B include
orders, other than Retail Orders, that establish the NBBO.
\14\ The Exchange notes that orders with Fee Code J include
orders, other than Retail Orders, that establish a new BBO on the
Exchange that matches the NBBO first established on an away market.
Orders with Fee Code D include orders that add displayed liquidity
to the Exchange but that are not Fee Code B or J, and thus, orders
with Fee Code B, D or J include all orders, other than Retail
Orders, that add displayed liquidity to the Exchange.
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The Exchange believes that the proposed modified alternative
criteria provides an incremental incentive for Members to strive for
higher ADAV on the Exchange to receive the additive rebate for
qualifying executions of Added Displayed Volume under such tier, and
thus, it is designed to encourage Members that do not currently qualify
for such tier to increase their overall orders that add liquidity to
the Exchange. The Exchange believes that the tier, as proposed, would
further incentivize increased order flow to the Exchange, thereby
contributing to a deeper and more liquid market to the benefit of all
Members. The Exchange is not proposing to change the amount of the
additive rebates provided under such tier.
Tape B Volume Tier
The Exchange currently offers Tape B Volume Tier 1 under which
qualifying Members may receive an additive rebate of $0.0001 per share
for executions of Added Displayed Volume (excluding Retail Orders) in
Tape B Securities (such orders, ``Tape B Volume'') by achieving: (1) a
Step-Up Tape B ADAV \15\ of the Tape B TCV from October 2023 that is
equal to or greater than 0.10% (excluding Retail Orders); and (2) a
Tape B ADAV that is equal to or greater than 0.25% of the Tape B TCV
(excluding Retail Orders). The $0.0001 per share additive rebate is
provided in addition to the rebate that is otherwise applicable to each
of a qualifying Members' orders that constitutes Tape B Volume
(including a rebate provided under another pricing tier/incentive).\16\
Now, the Exchange proposes to increase the additive rebate provided for
executions of Tape B Volume to $0.0002 per share, and to modify the
required criteria such that a Member would now qualify for such tier by
achieving a Tape B ADAV that is equal to or greater than 0.30% of the
Tape B TCV (excluding Retail Orders). Accordingly, the new criteria
eliminates the Step-Up Tape B ADAV requirement and increases the Tape B
ADAV of the Tape B TCV requirement from 0.25% to 0.30%. In light of the
removal of the Step-Up Tape B ADAV requirement, the Exchange also
proposes to delete the language under the Tape B Volume Tier pricing
table on the Fee Schedule that indicates Tape B Volume Tier 1 will
expire no later than April 30, 2024.
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\15\ As set forth in the Fee Schedule, ``Step-Up Tape B ADAV''
means the ADAV in Tape B securities as a percentage of the TCV in
the relevant baseline month subtracted from the current ADAV in Tape
B securities as a percentage of the TCV.
\16\ The pricing for the Tape B Volume Tier is referred to by
the Exchange on the Fee Schedule under the description ``Tape B
Volume Tier'' with a Fee Code of ``b'' to be appended to the
otherwise applicable Fee Code assigned by the Exchange on the
monthly invoices for qualifying executions.
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The purpose of modifying the required criteria and increasing the
additive rebate provided for executions of Tape B Volume is for
business and competitive reasons, as the Exchange believes that such
changes would incentivize Members to submit additional order flow in
Tape B Securities, thereby promoting price discovery and market quality
on the Exchange.
Cross Asset Tiers
The Exchange currently offers Cross Asset Tier 1 under which a
Member may receive an enhanced rebate for executions of Added Displayed
Volume in securities priced at or above $1.00 per share by achieving
the corresponding required volume criteria for such tier on the
Exchange's equity options platform, MEMX Options. The Exchange now
proposes to renumber the existing Cross Asset Tier 1 as Cross Asset
Tier 3, and adopt new Cross Asset Tiers 1 and 2, each as described
below.
First, the Exchange proposes to adopt Cross Asset Tier 1 under
which 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 an Options ADAV \17\ in the Market Maker
\18\ capacity that is equal to or greater than 250,000 contracts on
MEMX Options and an ADAV on MEMX Equities that is equal to or greater
than 0.30% of the TCV. 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
[[Page 26972]]
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).
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\17\ As set forth on the Fee Schedule, 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.
\18\ As set forth on the MEMX Options Fee Schedule, ``Market
Maker'' applies to any order for the account of a registered Market
Maker. ``Market Maker'' shall have the meaning set forth in Rule
16.1 of the MEMX Rulebook.
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The Exchange further proposes to adopt Cross Asset Tier 2 under
which the Exchange would provide an enhanced rebate of $0.0027 per
share for executions of Added Displayed Volume for Members that qualify
for such tier by achieving an Options ADAV in the Market Maker capacity
that is equal to or greater than 150,000 contracts on MEMX Options. The
Exchange proposes to provide Members that qualify for Cross Asset 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 the majority of executions on the Exchange for all
Members (i.e., including those that do not qualify for any tier).
Lastly, given the adoption of the aforementioned tiers, the
Exchange proposes to renumber the current Cross Asset Tier 1 as Cross
Asset Tier 3. The Exchange is not proposing to modify the rebate
provided nor the criteria required under this re-numbered tier,
however, the adoption of the new Cross Asset Tiers 1 and 2 as well as
the re-numbering requires certain modifications to the notes below the
Cross Asset Tier pricing table on the Fee Schedule. Specifically, the
Exchange is proposing to add a note stating that the definition of
Market Maker is set forth in the MEMX Options Fee Schedule, to renumber
the existing notes, and to replace prior references in the notes to
Cross Asset Tier 1 with Cross Asset Tier 3.
The proposed new Cross Asset Tier 1 and Cross Asset Tier 2 are
designed to encourage Members to maintain or increase their order flow
to the MEMX Options Exchange in the Market Maker capacity in order to
qualify for the proposed enhanced rebate for executions of Added
Displayed Volume. The Exchange believes that the addition of the new
Cross Asset Tier 1 and Cross Asset Tier 2 would encourage the
submission of additional order flow in the Market Maker capacity on
MEMX Options, thereby contributing to a deeper and more robust and
well-balanced market ecosystem on the Exchange to the benefit of all
Members and market participants. As a result of achieving a higher
rebate for activity on MEMX Options, and given the equities component
of Cross Asset Tier 1, the Exchange further believes that the proposed
tiers will encourage greater participation on MEMX Equities by
qualifying participants, thereby contributing to a deeper and more
robust and well-balanced market ecosystem on the Exchange to the
benefit of all Members and market participants.
DLI Additive Rebate
The Exchange currently offers the DLI Additive Rebate Tier 1 under
which a Member may receive an additive rebate for a qualifying Member's
executions of Added Displayed Volume (other than Retail Orders) that
otherwise qualify for the applicable rebate under Liquidity Provision
Tier 1 or Liquidity Provision Tier 2 as well as the applicable criteria
under DLI Tier 1.\19\ The Exchange now proposes to modify the DLI
Additive Rebate Tier 1 by decreasing the additive rebate provided and
updating the required applicable criteria under Liquidity Provision
Tiers 1 and 2 in accordance with this proposal, as further described
below.
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\19\ This pricing is referred to by the Exchange on the Fee
Schedule under the existing description ``DLI Additive Rebate'' with
a Fee Code of ``q'' to be appended to the otherwise applicable Fee
Code for qualifying executions.
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As noted above, under DLI Additive Rebate Tier 1, the Exchange
currently provides an additive rebate of $0.0001 per share for
executions of Added Displayed Volume that first meet the criteria under
DLI Tier 1, which include achieving: (1) an NBBO time of at least 25%
in an average of at least 1,000 securities per trading day during the
month; and (2) an ADAV that is equal to or greater than 0.10% of the
TCV,\20\ as well as the applicable criteria under Liquidity Provision
Tier 1 or Liquidity Provision Tier 2. Under Liquidity Provision Tier 1,
the Exchange is now proposing (as described above) Members will
received the enhanced rebate by achieving: (1) an ADAV (excluding
Retail Orders) that is equal to or greater than 0.45% of the TCV; or
(2) an ADAV that is equal to or greater than 0.30% of the TCV and a
Non-Displayed ADAV that is equal to or greater than 7,000,000 shares.
Thus, the Exchange proposes to modify the criteria for the DLI Additive
Rebate to correspond to the modifications to Liquidity Provision Tier 1
criteria described above. Under Liquidity Provision Tier 2, the
Exchange is now proposing (as described above) that Members will
receive the enhanced rebate by achieving: (1) an ADAV that is greater
than or equal to 0.25% of the TCV and a Non-Displayed ADAV that is
equal to or greater than 4,000,000 shares; or (2) an ADAV that is
greater than or equal to 0.35% of the TCV. Thus, the Exchange proposes
to modify the criteria for the DLI Additive Rebate to correspond to the
modifications to Liquidity Provision Tier 2 criteria described above.
Again, the Exchange notes that Members qualify for the DLI Additive
rebate by achieving both the criteria under DLI Tier 1 and either
Liquidity Provision Tier 1 or Liquidity Provision Tier 2.
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\20\ The enhanced rebate provided under DLI Tier 1 is $0.0031
per share for executions of Added Displayed Volume.
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Additionally, the Exchange proposes to reduce the additive rebate
under the DLI Additive Rebate Tier 1 to $0.00005 per share. Other than
the criteria changes noted above associated with the Exchange's
proposed changes to the required criteria under Liquidity Provision
Tiers 1 and 2, the Exchange does not propose to make any additional
changes to the criteria required under the DLI Additive Rebate Tier 1.
The purpose of reducing the additive rebate under the DLI Additive
Rebate Tier 1, which the Exchange believes represents a modest
reduction, is for business and competitive reasons, as the Exchange
believes that such reduction would decrease the Exchange's expenditures
with respect to its transaction pricing in a manner that is still
consistent with the Exchange's philosophy of encouraging added
displayed liquidity as well as consistently quoting at the NBBO on the
Exchange.\21\
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\21\ In light of the newly proposed Display-Price Sliding Tier
set forth below, the Exchange also proposes to include Fee Code
``I'' as a possible fee code to which the DLI additive rebate may
apply in the note under the DLI Additive Rebate pricing table in the
Fee Schedule.
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Display-Price Sliding Tier
Currently, the Exchange provides a base rebate of $0.0008 per share
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'') in securities priced at or above $1.00 per share.\22\
Further, such orders are 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
[[Page 26973]]
executions of Added Price-Improved Volume.\23\
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\22\ The pricing for executions of Added Price-Improved Volume
is referred to by the Exchange on the Fee Schedule under the
existing description ``Added volume, order subject to Display-Price
Sliding that receives price improvement when executed'' with a Fee
Code of ``P'' to be provided by the Exchange on the monthly invoices
provided to Members.
\23\ Executions of Added Price-Improved Volume for Members that
qualify for the Non-Display Add Tiers receive a Fee Code of ``P1'',
``P2'', ``P3'', or ``P4'', as applicable, for such executions on the
monthly invoices provided to Members.
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As background regarding the mechanics of Added Price-Improved
Volume, the Exchange notes that 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. 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.
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 provides
the base rebate noted above of $0.0008 per share.
Now, the Exchange proposes to adopt a volume-based tier, referred
to by the Exchange as the Display-Price Sliding Tier, under which the
Exchange will provide an enhanced rebate for executions of Added Price-
Improved Volume for qualifying Members who meet a certain specified
Added Price-Improved Volume threshold on the Exchange, as further
described below.
Specifically, under Display-Price Sliding Tier 1, the Exchange is
proposing that if a Member achieves an ADAV with respect to orders
subject to Display-Price Sliding that receive price improvement when
executed (i.e. Added Price-Improved Volume) (excluding Retail Orders)
that is equal to or greater than 5,000,000 shares, the Exchange will
provide a rebate for those Added Price-Improved Volume executions
equaling the highest possible rebate otherwise achieved for that Member
for its Added Displayed Volume during that month. In order to ascertain
the applicable rebate, at the end of each month, if a Member's Added
Price-Improved Volume ADAV equals or exceeds 5,000,000 shares, the
applicable executions (which are currently assigned a Fee Code of
``P'') will be assigned the Fee Code ``I'', and the Exchange will
provide that Member's highest Added Displayed Volume \24\ rebate for
all of its transactions marked ``I'' during that month, plus any
otherwise achieved additive rebates under the Tape B Volume Tier and
DLI Additive Rebate Tier.\25\ As an example, if Member A meets the
criteria under the Display-Price Sliding Tier 1 for its Added Price-
Improved Volume, and that Member also met the required criteria during
that month under Liquidity Provision Tier 1, as well as the required
criteria under the Tape B Volume Tier, the Exchange would provide a
total enhanced rebate of $0.0035 per share (i.e. the $0.0033 rebate
under Liquidity Provision Tier 1 plus the proposed $0.0002 additive
rebate under the Tape B Volume Tier) for its total Added Price-Improved
Volume executed during that month. In this same example, if Member A
also achieved the required criteria under Cross Asset Tier 1 (which
provides an enhanced rebate of $0.00026 per share), it would still
receive $0.0035 per share for its Added-Price Improved Volume given
that the under the proposed Display-Price Sliding Tier, the highest
possible rebate otherwise achieved for the Member's Added Displayed
Volume is awarded.
---------------------------------------------------------------------------
\24\ Specifically, the possible rebates are those that the
Exchange is proposing to identify in the Transaction Fees table on
the Fee Schedule with the Fee Code ``I'' and include the base rebate
for Added Displayed Volume, as well as the enhanced rebates under
the Liquidity Provision Tiers, DLI Tiers, and Cross Asset Tiers.
\25\ Given that the additive rebate under the NBBO Setter Tier
is only applied towards executions of Added Displayed Volume with
the Fee Codes B, D or J, the Exchange is not proposing that any
Added Price-Improved Volume be awarded the NBBO Setter Tier Additive
Rebate.
---------------------------------------------------------------------------
Along those same lines, as noted on the Fee Schedule, to the extent
a Member qualifies or multiple fees/rebates with respect to a
particular transaction, the lowest fee/highest rebate shall apply.
Accordingly, in the event that the rebate a Member would be awarded for
its Added-Price Improved Volume by meeting the criteria under the Non-
Display Add Tiers exceeds the rebate it would be awarded by also
meeting the criteria under the Display-Price Sliding Tier, the Exchange
proposes that it will continue to mark those executions ``P'' and award
the rebate earned under the Non-Display Add Tiers, if applicable.
The Exchange proposes to provide Members that qualify for Display-
Price Sliding 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).
The Exchange believes that the proposed Display-Price Sliding Tier
provides an incremental incentive for Members to maintain or strive for
higher ADAV on the Exchange in Added Price-Improved Volume in order to
receive the enhanced rebate provided under the tier. The Exchange
believes that this resulting additional displayed, liquidity-adding
volume, would contribute to a more robust and well-balanced market
ecosystem on the Exchange to the benefit of all Members and market
participants and, in turn, enhance the attractiveness of the Exchange
as a trading venue.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\26\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\27\ 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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\26\ 15 U.S.C. 78f.
\27\ 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
[[Page 26974]]
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.'' \28\
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\28\ 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, including displayed, liquidity-adding, aggressively priced orders
to the Exchange, as well as to the Exchange's equity options platform,
MEMX Options, which the Exchange believes would promote price discovery
and enhance liquidity and market quality on the Exchange and on MEMX
Options 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 the Liquidity Provision
Tiers 1 and 2 and NBBO Setter Tier 1, each as modified by the proposed
changes to the required criteria under such tier, the Tape B Volume
Tier as modified by the proposed changes to the additive rebate and
required criteria under such tier, the proposed new Cross Asset Tiers 1
and 2, the DLI Additive Rebate as modified by the proposed changes to
the additive rebate and required criteria under such tier, and the new
proposed Display-Price Sliding Tier are reasonable, equitable and not
unfairly discriminatory for these same reasons, as such tiers would
provide Members with an incremental incentive to achieve certain volume
thresholds on the Exchange (and in the case of the Cross Asset Tiers,
MEMX Options), are available to all Members on an equal basis, and, as
described above, are designed to encourage Members to maintain or
increase their order flow, including in the form of displayed,
liquidity-adding, and/or NBBO-setting orders to the Exchange in order
to qualify for an enhanced rebate for executions of Added Displayed
Volume or Added Price-Improved Volume, as applicable, thereby
contributing to a deeper, more liquid and well balanced market
ecosystem on the Exchange to the benefit of all Members and market
participants. The Exchange also believes that such tiers reflect a
reasonable and equitable allocation of fees and rebates, as the
Exchange believes that the enhanced rebate for executions of Added
Displayed Volume under the proposed modified Liquidity Provision Tiers
1 and 2 and the proposed new Cross Asset Tiers 1 and 2, the additive
rebates for executions of Added Displayed Volume under the proposed
modified NBBO Setter Tier 1, Tape B Volume Tier 1, and DLI Additive
Rebate Tier 1, as well as the enhanced rebate for executions of Added
Price-Improved Volume under the new proposed Display-Price Sliding
Tier, each remains commensurate with the corresponding required
criteria under each such tier and is reasonably related to the market
quality benefits that each such tier is designed to achieve, as
described above. In addition, the Exchange believes that the proposed
Display-Price Sliding Tier, which will award the highest Added
Displayed Volume rebate possible to qualifying Members, 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. The Exchange also believes it is reasonable, equitable and not
unfairly discriminatory to provide Members that qualify for the newly
proposed Cross Asset Tiers 1 and 2 and Display-Price Sliding Tier with
the 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).
As it relates to the proposed Cross Asset Tiers 1 and 2, 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 rebates on the Exchange. Lastly, the Exchange
believes that the proposal is still reasonable, equitably allocated and
non-discriminatory because as a result of achieving a higher rebate for
activity on MEMX Options, and given the equities component of Cross
Asset Tier 1, the Exchange further believes that the newly proposed
Cross Asset Tiers 1 and 2 will encourage greater participation on MEMX
Equities by qualifying participants, thereby contributing to a deeper
and more robust and well-balanced market ecosystem on the Exchange to
the benefit of all Members and market participants.
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 \29\ 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.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(b)(4) and (5).
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[[Page 26975]]
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 displayed, liquidity-adding, and/or
aggressively priced orders to the Exchange, and MEMX Options, thereby
enhancing liquidity and market quality on the Exchange to the benefit
of all Members and market participants, as well as to generate
additional revenue and decrease the Exchange's expenditures with
respect to its transaction pricing in a manner that is still consistent
with the Exchange's overall pricing philosophy of encouraging added
displayed liquidity. As a result, the Exchange believes the proposal
would enhance its competitiveness as a market that attracts actionable
orders, thereby making it a more desirable destination venue for its
customers. For these reasons, the Exchange believes that the proposal
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.'' \30\
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\30\ See supra note 28.
---------------------------------------------------------------------------
Intramarket Competition
As discussed above, the Exchange believes that the proposal would
incentivize Members to submit additional order flow, including
displayed, liquidity-adding and/or NBBO setting orders to both the
Exchange and MEMX Options, thereby enhancing liquidity and market
quality on the Exchange to the benefit of all Members, as well as
enhancing the attractiveness of the Exchange as a trading venue, which
the Exchange believes, in turn, would continue to encourage market
participants to direct additional order flow to the Exchange. Greater
liquidity benefits all Members by providing more trading opportunities
and encourages Members to send additional orders to the Exchange,
thereby contributing to robust levels of liquidity, which benefits all
market participants. The opportunity to qualify for the proposed
modified Liquidity Provision Tiers 1 and 2, the newly proposed Cross
Asset Tiers 1 and 2, and newly proposed Display-Price Sliding Tier, and
thus receive the proposed enhanced rebate for executions of Added
Displayed Volume and/or Added Price-Improved Volume under such tiers,
would be available to all Members that meet the associated volume
requirements in any month. Similarly, the opportunity to qualify for
the proposed modified criteria under the NBBO Setter Tier, the proposed
modified rebate and criteria under the Tape B Volume Tier, and the
proposed modified rebate and criteria under the DLI Additive Rebate
Tier 1, and thus receive the additive rebate for executions of Added
Displayed Volume, would continue to be available to all Members that
meet the associated volume requirements in any month. For the foregoing
reasons, the Exchange believes the proposed changes would not impose
any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
Intermarket Competition
As noted above, the Exchange operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. Members have numerous
alternative venues that they may participate on and direct their order
flow to, including 15 other equities exchanges and numerous alternative
trading systems and other off-exchange venues. As noted above, no
single registered equities exchange currently has more than
approximately 16% of the total market share of executed volume of
equities trading. Thus, in such a low-concentrated and highly
competitive market, no single equities exchange possesses significant
pricing power in the execution of order flow. Moreover, the Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow or discontinue to reduce use of certain categories of products, in
response to new or different pricing structures being introduced into
the market. Accordingly, competitive forces constrain the Exchange's
transaction fees and rebates, including with respect to Added Displayed
Volume 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 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.'' \31\ 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'. . .''.\32\ 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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\31\ Id.
\32\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section
[[Page 26976]]
19(b)(3)(A) \33\ of the Act and subparagraph (f)(2) of Rule 19b-4 \34\
thereunder, because it establishes a due, fee, or other charge imposed
by the Exchange.
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\33\ 15 U.S.C. 78s(b)(3)(A).
\34\ 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 under
Section 19(b)(2)(B) \35\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\35\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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#d7a5a2bbb2fab4b8babab2b9a3a497a4b2b4f9b0b8a1"><span class="__cf_email__" data-cfemail="d8aaadb4bdf5bbb7b5b5bdb6acab98abbdbbf6bfb7ae">[email protected]</span></a>. Please include
file number SR-MEMX-2024-12 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-2024-12. 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
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-2024-12 and should be
submitted on or before May 7, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
---------------------------------------------------------------------------
\36\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-07965 Filed 4-15-24; 8:45 am]
BILLING CODE 8011-01-P
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