Notice2024-18473
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule Concerning Transaction Pricing
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
August 19, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 160 (Monday, August 19, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 160 (Monday, August 19, 2024)]
[Notices]
[Pages 67124-67127]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-18473]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100719; File No. SR-MEMX-2024-30]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule Concerning Transaction Pricing
August 13, 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 July 31, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 August 1, 2024. The text of the proposed rule
change is provided in Exhibit 5.
---------------------------------------------------------------------------
\3\ See Exchange Rule 1.5(p).
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Fee
Schedule to modify the Non-Display Add Tiers by: (1) decreasing the
rebate and modifying the required criteria under Non-Display Add Tier
2; and (2) eliminating Non-Display Add Tiers 3 and 4, 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 15.5% of the total market share
of executed volume of equities trading.\4\ Thus, in such a low-
concentrated and highly competitive market, no single equities exchange
possesses significant pricing power in the execution of order flow, and
the Exchange currently represents approximately 2.3% of the overall
market share.\5\ The Exchange in particular operates a ``Maker-Taker''
model whereby it provides rebates to Members that add liquidity to the
Exchange and charges fees to Members that remove liquidity from the
Exchange. The Fee Schedule sets forth the standard rebates and fees
applied per share for orders that add and remove
[[Page 67125]]
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.
---------------------------------------------------------------------------
\4\ Market share percentage calculated as of July 25, 2024. The
Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\5\ Id.
---------------------------------------------------------------------------
Non-Display Add Tiers
The Exchange currently provides a standard rebate $0.0008 per share
for executions of orders in securities priced at or above $1.00 per
share that add non-displayed liquidity to the Exchange (such orders,
``Added Non-Displayed Volume''). The Exchange also currently offers
Non-Display Add Tiers 1-4 under which a Member may receive an enhanced
rebate for executions of Added Non-Displayed Volume by achieving the
corresponding required volume criteria for each such tier. The Exchange
now proposes to modify the Non-Display Add Tiers by decreasing the
rebate and changing the required criteria under Non-Display Add Tier 2,
and eliminating Non-Display Add Tiers 3 and 4.
First, with respect to Non-Display Add Tier 2, the Exchange
currently provides an enhanced rebate of $0.0027 per share for
executions of Added Non-Displayed Volume for Members that qualify for
such tier by achieving a Non-Displayed ADAV \6\ that is equal to or
greater than 5,000,000 shares.\7\ Now, the Exchange proposes to modify
Non-Display Add Tier 2 such that the Exchange would provide an enhanced
rebate of $0.0025 per share for executions of Added Non-Displayed
Volume for Members that qualify for such tier by achieving a Non-
Displayed ADAV that is equal to or greater than 1,000,000 shares. Thus,
such proposed changes would decrease the rebate for executions of Added
Non-Displayed Volume by $0.0002 per share and decrease the Non-
Displayed ADAV requirement from 5,000,000 to 1,000,000 shares. The
Exchange also proposes to specify in a note under the Non-Display Add
Tiers table on the Fee Schedule that Members that qualify for Non-
Display Add Tier 2 based on activity in a given month will also receive
that associated Non-Display Add Tier 2 rebate during the following
month.\8\
---------------------------------------------------------------------------
\6\ 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).
\7\ The pricing for Non-Display Add Tier 2 is referred to by the
Exchange on the Fee Schedule under the existing description ``Added
non-displayed volume, Non-Display Add Tier 2'' with a Fee Code of
``H2'', ``M2'' or ``P2'', as applicable, to be provided by the
Exchange on the monthly invoices provided to Members.
\8\ The Exchange notes that this methodology of awarding a
rebate under the Exchange's tiered pricing structure is currently in
place with respect to Cross Asset Tier 3.
---------------------------------------------------------------------------
With respect to Non-Display Add Tiers 3 and 4, under Non-Display
Add Tier 3, the Exchange currently provides an enhanced rebate of
$0.0024 per share for executions of Added Non-Displayed Volume for
Members that qualify for such tier by achieving a Non-Displayed ADAV
that is equal or greater than 2,000,000 shares, and under Non-Display
Add Tier 4, the Exchange currently provides an enhanced rebate of
$0.0018 per share for executions of Added Non-Displayed Volume for
Members that qualify for such tier by achieving a Non-Displayed ADAV
that is equal to or greater than 1,000,000 shares. The Exchange now
proposes to eliminate Non-Display Add Tiers 3 and 4, as the Exchange no
longer wishes to, nor is it required to, maintain such tiers.
The purpose of decreasing the Non-Displayed ADAV requirement to
achieve Non-Display Add Tier 2 is to facilitate Members' ability to
qualify for the rebate for executions of Added Non-Displayed Volume.
The Exchange believes that more Members will be able to qualify for the
rebate at the lower Non-Displayed ADAV share requirement, which the
Exchange believes may encourage Members to maintain or increase their
order flow. The purpose of reducing the rebate for executions of Added
Non-Displayed Volume under Non-Display Add Tier 2 as proposed is for
business and competitive reasons, as the Exchange believes that such
rebate reduction would decrease the Exchange's expenditures with
respect to its transaction pricing in a manner that is still consistent
with the Exchange's overall philosophy of encouraging an overall
increase in liquidity on the Exchange. Additionally, the proposed
process by which the enhanced rebate will be paid under Non-Display Add
Tier 2 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 tiered pricing structure for executions of Added Non-Displayed
Volume under the Non-Display Add 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,
particularly in the form of liquidity-adding non-displayed volume, to
the Exchange, thereby contributing to a deeper and more robust and
well-balanced market ecosystem to the benefit of all Members and market
participants. The Exchange believes that the Non-Display Add 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
liquidity. Specifically, the Exchange believes that, after giving
effect to the proposed changes described above, the rebate for
executions of Added Non-Displayed Volume provided under each of the
Non-Display Add Tiers is 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.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\9\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\10\ 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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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
[[Page 67126]]
broader forms that are most important to investors and listed
companies.'' \11\
---------------------------------------------------------------------------
\11\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------
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 promote price
discovery and enhance liquidity and market quality on the Exchange to
the benefit of all Members and market participants.
The Exchange notes that volume-based incentives and discounts have
been widely adopted by exchanges, including the Exchange, and are
reasonable, equitable and not unfairly discriminatory because they are
open to all members on an equal basis and provide additional benefits
or discounts that are reasonably related to the value to an exchange's
market quality associated with higher levels of market activity, such
as higher levels of liquidity provision and/or growth patterns, and the
introduction of higher volumes of orders into the price and volume
discovery process. The Exchange believes that the proposed changes to
the rebate and criteria under Non-Display Add Tier 2 are reasonable,
equitable and not unfairly discriminatory, because, as described above,
such changes are available to all Members on an equal basis, and, are
designed to encourage Members to maintain or increase their order flow,
including in the form of non-displayed, liquidity-adding, orders to the
Exchange in order to qualify for an enhanced rebate, 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.
As it relates to the method by which the Exchange proposes to award
the rebate under Non-Display Add Tier 2, as modified herein, the
Exchange believes it is reasonable, equitable and not unfairly
discriminatory, as the tier 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 \12\ 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.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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 the Exchange, thereby enhancing liquidity and
market quality on the Exchange to the benefit of all Members and market
participants. As a result, the Exchange believes the proposal would
enhance its competitiveness as a market that attracts actionable
orders, thereby making it a more desirable destination venue for its
customers. For these reasons, the Exchange believes that the proposal
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.'' \13\
---------------------------------------------------------------------------
\13\ See supra note 11.
---------------------------------------------------------------------------
Intramarket Competition
As discussed above, the Exchange believes that the proposal would
incentivize Members to submit additional order flow in the form of
liquidity adding, non-displayed orders to the Exchange, thereby
enhancing liquidity and market quality on the Exchange to the benefit
of all Members, as well as enhancing the attractiveness of the Exchange
as a trading venue, which the Exchange believes, in turn, would
continue to encourage market participants to direct additional order
flow to the Exchange. Greater liquidity benefits all Members by
providing more trading opportunities and encourages Members to send
additional orders to the Exchange, thereby contributing to robust
levels of liquidity, which benefits all market participants. The
opportunity to qualify for the proposed modified Non-Display Add Tier 2
would 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 15.5% 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 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
[[Page 67127]]
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.'' \14\ 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' . . . .''.\15\ 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.
---------------------------------------------------------------------------
\14\ Id.
\15\ 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 has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \16\ and Rule 19b-4(f)(2) \17\ thereunder.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
\17\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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#3d4f485158105e5250505853494e7d4e585e135a524b"><span class="__cf_email__" data-cfemail="295b5c454c044a4644444c475d5a695a4c4a074e465f">[email protected]</span></a>. Please include
file number SR-MEMX-2024-30 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-MEMX-2024-30. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="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-2024-30 and should be
submitted on or before September 9, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-18473 Filed 8-16-24; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on August 19, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.