Notice2024-19013
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; Order Approving a Proposed Rule Change To Transition to a New Trading Platform and Amend Its Trading Rules
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 26, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 165 (Monday, August 26, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 165 (Monday, August 26, 2024)]
[Notices]
[Pages 68481-68484]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-19013]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100783; File No. SR-LTSE-2024-03]
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.;
Order Approving a Proposed Rule Change To Transition to a New Trading
Platform and Amend Its Trading Rules
August 20, 2024.
I. Introduction
On May 9, 2024, the Long-Term Stock Exchange, Inc. (``LTSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to transition to a new trading
platform and amend its trading rules in connection thereto. The
proposed rule change was published for comment in the Federal Register
on May 28, 2024.\3\ On July 11, 2024, pursuant to Section 19(b)(2) of
the Exchange Act,\4\ the Commission designated a longer period within
which to approve the proposal, disapprove the proposal, or institute
proceedings to determine whether to disapprove the proposal.\5\ The
Commission has received no comment letters on the proposal. This order
approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 100205 (May 21,
2024), 89 FR 46225 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 100499, 89 FR 58224
(July 17, 2024).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
As described in detail in the Notice,\6\ the Exchange proposes to:
(i) transition the technology supporting the Exchange's trading system
(``System'') from its current trading platform to a new trading
platform that uses technology provided by MEMX Technologies LLC (``MEMX
Technologies''),\7\ an affiliate of MEMX LLC (``MEMX Exchange''), and
(ii) modify its trading rules in connection with this transition.
Specifically, the Exchange proposes to replace its current trading
platform with a trading platform licensed from MEMX Technologies, on an
outsourced basis, that is substantially similar to the trading platform
used by the MEMX Exchange but with certain differences in functionality
to address LTSE's unique market model.\8\
---------------------------------------------------------------------------
\6\ See Notice, supra note 3.
\7\ MEMX Technologies is in the business of developing
technology systems for use in the financial industry. See id. at
46226.
\8\ See id. For example, the Exchange will not offer routing
functionality and is not proposing to adopt certain MEMX Exchange
order types. See id. at 46226.
---------------------------------------------------------------------------
LTSE's Operation of Its New Trading Platform as a Registered National
Securities Exchange
The Exchange proposes that MEMX Technologies will provide LTSE with
MEMX Technologies' market-as-a-service trading system to operate LTSE's
trading platform.\9\ While LTSE and MEMX Exchange will share a
technology provider, LTSE will continue to operate as it does now, as a
standalone national securities exchange within the national market
system, and the fact that it is licensing a technology platform from
MEMX Technologies will not provide any special treatment or advantage
to MEMX Exchange.\10\ LTSE will operate on its own servers, separate
and apart from the MEMX Exchange, with no joint or shared connections
to participants.\11\ LTSE members will be required to utilize LTSE-
specific member gateways to connect to the System, and these will be
distinct from those of the MEMX Exchange.\12\ Neither LTSE nor MEMX
Exchange will gain any advantage over other market participants in
terms of access, speed or otherwise.\13\ LTSE believes that the use of
a common, but not functionally identical, trading platform by LTSE and
MEMX Exchange will not in any way alter the competitive position of the
two exchanges or establish any type of connection or opportunity for
interaction that would be different than LTSE currently has with every
other exchange participant in the national market system.\14\
---------------------------------------------------------------------------
\9\ The Exchange states that the Exchange and MEMX Technologies
executed a Development, License and Services Agreement on January
23, 2024, with accompanying schedules (collectively, the ``DLSA'').
Among other things, the DLSA sets forth a multi-year arrangement
that requires MEMX Technologies to provide the system and services
to allow the Exchange to operate fair and orderly markets and
provides for transition services to the extent either party decides
to terminate the arrangement. See id. at 46226-46228, for additional
background and information regarding the DLSA.
\10\ See id. at 46226.
\11\ See id.
\12\ See id.
\13\ See id. at 46228.
\14\ See id.
---------------------------------------------------------------------------
Furthermore, LTSE will retain responsibility for overseeing the
daily market operations of its trading system and will maintain
operational control over the features of such system and any changes
thereto.\15\ If MEMX Exchange
[[Page 68482]]
proposes a rule for its own market, it does not mean that LTSE will
automatically adopt the same rule.\16\ LTSE will continue to
independently evaluate other exchange rule filings, including MEMX
Exchange's, to determine whether such changes should be proposed by
LTSE. LTSE will not be obligated to accept any change to LTSE's
technology platform that may be proposed by MEMX Exchange for its own
market, but is not desired by LTSE; there is no incentive, monetary or
otherwise, for LTSE to accept any changes proposed by the MEMX
Exchange. Moreover, if LTSE seeks to implement an enhancement to its
trading platform that is not applicable to the MEMX Exchange, MEMX
Technologies will be obligated to develop and implement that
enhancement (at a cost to be borne by LTSE).\17\ MEMX Technologies has
no authority to make any changes to the System without LTSE's direct
instruction to do so.\18\
---------------------------------------------------------------------------
\15\ See id. at 46225.
\16\ See id. at 46228.
\17\ See id.
\18\ See id.
---------------------------------------------------------------------------
Finally, LTSE will continue to have regulatory responsibility for
its trading system and will continue to fully discharge its obligations
as a national securities exchange.\19\ LTSE will also continue to
provide for its market and cross-market surveillance through its
Regulatory Services Agreement (``RSA'') with the Financial Industry
Regulatory Authority, Inc. (``FINRA'') and maintain its independent
regulatory function to oversee the RSA and will not rely on or utilize
MEMX Exchange or its personnel to fulfill any aspect of those
obligations on LTSE's behalf.\20\
---------------------------------------------------------------------------
\19\ See id. at 46225.
\20\ See id. at 46228.
---------------------------------------------------------------------------
Regulation SCI
As a registered national securities exchange, LTSE is an ``SCI
entity'' responsible for compliance with the requirements of Regulation
Systems Compliance and Integrity (``Regulation SCI'').\21\ Regulation
SCI requires SCI entities to establish written policies and procedures
reasonably designed to ensure that their applicable systems have levels
of capacity, integrity, resiliency, availability, and security adequate
to maintain their operational capability and promote the maintenance of
fair and orderly markets, and that they operate in a manner that
complies with the Exchange Act.\22\ In addition, Regulation SCI
requires SCI entities to take corrective action with respect to SCI
events (defined to include systems disruptions, systems compliance
issues, and systems intrusions), notify the Commission of such events,
and disseminate information about certain SCI events to affected
members or participants (and, for certain major SCI events, to all
members or participants of the SCI entity).\23\ Moreover, Regulation
SCI requires SCI entities to conduct a review of their systems by
objective, qualified personnel at least annually, submit quarterly
reports regarding completed, ongoing, and planned material changes to
their SCI systems to the Commission,\24\ and maintain certain books and
records.\25\ It also requires SCI entities to mandate participation by
designated members or participants in scheduled testing of the
operation of their business continuity and disaster recovery plans,
including backup systems, and to coordinate such testing on an
industry- or sector-wide basis with other SCI entities.\26\
---------------------------------------------------------------------------
\21\ See Securities Exchange Act Release No. 73639 (November 19,
2014), 79 FR 72252 (December 5, 2014).
\22\ See 17 CFR 242.1001.
\23\ See 17 CFR 242.1002. See also 17 CFR 242.1000 and 17 CFR
242.1006.
\24\ See 17 CFR 242.1003.
\25\ See 17 CFR 242.1005. See also 17 CFR 242.1007.
\26\ See 17 CFR 242.1004.
---------------------------------------------------------------------------
Regulation SCI applies to an SCI entity's ``SCI systems,'' which
are systems that directly support any one of six key securities market
functions--trading, clearance and settlement, order routing, market
data, market regulation, and market surveillance (``SCI systems'').
Regulation SCI also applies to ``indirect SCI systems,'' which are any
systems that, if breached, are likely to pose a security threat to SCI
systems. Further, certain SCI systems that are ``critical SCI systems''
are held to certain heightened requirements under Regulation SCI.\27\
The Exchange classifies several of its systems, including the System,
as ``SCI systems'' based on the definitions under Regulation SCI. The
Exchange has obtained commitments from MEMX Technologies in connection
with its engagement of MEMX Technologies to develop, license, and
operate the System on behalf of the Exchange \28\ to, among other
things, address how this arrangement is consistent with the
requirements of Regulation SCI.\29\ The Exchange acknowledges that the
System is the responsibility of the Exchange, and that the contractual
arrangements, including the DLSA, between the Exchange and MEMX
Technologies do not relieve the Exchange of any responsibilities it may
have for its SCI systems and, as applicable, indirect SCI systems under
Regulation SCI.\30\ In addition, and as more fully summarized in the
Notice, the DLSA includes commitments from MEMX Technologies as
developer, licensor, and operator of the System to cooperate with the
Exchange and provide the Exchange with the information and access that
will allow the Exchange to satisfy its obligations under Regulation
SCI.\31\
---------------------------------------------------------------------------
\27\ See 17 CFR 242.1000 (definitions of ``SCI systems,''
``indirect SCI systems,'' and ``critical SCI systems'').
\28\ The System has been developed and licensed to meet the
Exchange's requirements and operate in accordance with the rules of
the Exchange, including those approved herein. See Notice, supra
note 3, at 46226-46228.
\29\ See section entitled ``Compliance with Regulation SCI'' in
the Notice, supra note 3, at 46228-46229.
\30\ See Notice, supra note 3, at 46225 and 46228.
\31\ See id. at 46228-46229.
---------------------------------------------------------------------------
The Proposed Rule Changes To Effect the Transition to the New Trading
Platform
The proposed rule changes to the LTSE trading rules to effect the
transition to the new trading platform are based on rules already
approved by or filed for immediate effectiveness with the Commission
for use by MEMX Exchange.\32\ In particular, the Exchange is proposing
to delete the following LTSE Rules and replace them with an identical
or substantially similar version of the corresponding MEMX Exchange
rule, as summarized below and discussed fully in the Notice:\33\
---------------------------------------------------------------------------
\32\ See id. at 46226.
\33\ See id. at 46230-46241.
---------------------------------------------------------------------------
<bullet> LTSE Rule 11.151 (Market Maker Obligations) is being
amended to delete the definitions of ``Crossing Quotation'' and
``Locking Quotation'' and relocate them to newly proposed Rule 11.180
(Definitions), where those terms will conform to MEMX's definitions of
the same terms.
<bullet> LTSE Rule 11.180 (Units of Trading) is being renamed to
(Definitions), deleted in its entirety and replaced with MEMX Exchange
Rule 11.6 (Definitions).
<bullet> LTSE Rule 11.190 (Orders and Modifiers) is being amended
to conform with MEMX Exchange Rule 11.8 (Order Types and Modifiers).
<bullet> LTSE Rule 11.210 (Minimum Price Variant) is being deleted
and the definition is being relocated to newly proposed LTSE Rule
11.180 (Definitions) and is identical to MEMX Exchange Rule 11.6(g)
(Minimum Price Variation).
<bullet> LTSE Rule 11.220 (Priority of Orders) is being deleted in
its entirety and replaced with MEMX Exchange Rule 11.9 (Priority of
Orders).
[[Page 68483]]
<bullet> LTSE Rule 11.230 (Order Execution) is being amended to
conform with MEMX Exchange Rule 11.10 (Order Execution).\34\
---------------------------------------------------------------------------
\34\ MEMX Exchange rules related to the routing of orders are
not being adopted, as the Exchange is not offering that
functionality.
---------------------------------------------------------------------------
<bullet> LTSE Rule 11.271 (Trading Halts) is being deleted in its
entirety because the substance of the rule will be adopted in newly
proposed LTSE Rule 11.281 (Limit Up-Limit Down Plan and Trading Halts
on the Exchange).
<bullet> LTSE Rules 11.281 (Limit Up-Limit Down Mechanism) and
11.282 (Regulatory Trading Halts) are being amended to conform with
MEMX Exchange Rule 11.22 (Limit Up-Limit Down Plan and Trading Halts)
and the Nasdaq UTP Plan, as amended.\35\
---------------------------------------------------------------------------
\35\ See Securities Exchange Act Release No. 92071 (May 28,
2021), 86 FR 29846 (June 3, 2021) (Order Approving the Fiftieth
Amendment to the Joint Self-Regulatory Organization Plan Governing
the Collection, Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privileges Basis, as Modified by
Amendments Nos. 1 and 2).
---------------------------------------------------------------------------
<bullet> LTSE Rule 11.310 (Locking or Crossing Quotations in NMS
Stocks) is being amended to conform with MEMX Exchange Rule 11.10(f)
(Locking Quotation or Crossing Quotation in NMS Stocks).
<bullet> LTSE Rule 11.320 (Input of Accurate Information) is being
amended to conform with MEMX Exchange Rule 11.5 (Input of Accurate
Information).
<bullet> LTSE Rule 11.330 (Data Products) is being amended to
conform with MEMX Exchange Rule 13.8 (Data Products).
<bullet> LTSE Rule 11.380 (Risk Management) is being deleted in its
entirety and replaced with Interpretation and Policies .01 and .02 of
MEMX Exchange Rule 11.10 (Order Execution).
<bullet> LTSE Rule 11.410 (Use of Market Data Feeds and
Calculations of Necessary Price Reference Points) is being amended to
conform with MEMX Exchange Rule 13.4 (Usage of Data Feeds).\36\
---------------------------------------------------------------------------
\36\ LTSE is not adopting the language in MEMX Exchange Rule
13.4 (Usage of Data Feeds) related to the routing of orders.
---------------------------------------------------------------------------
In addition to the above rule changes, the Exchange is also
deleting certain rules that relate to functionality not provided by the
new System and relocating certain rules to other places in the
rulebook.\37\
---------------------------------------------------------------------------
\37\ LTSE Rule 11.231 (Regular Market Session Opening Process
for Non-LTSE Primary Listed Securities) is being deleted in its
entirety as this functionality is not supported in the new System.
LTSE Rule 11.240(c) (Trade Execution, Reporting, and Dissemination
of Quotations) is being deleted because it appears in newly proposed
LTSE Rule 11.230. See Notice, supra note 3, at 46226.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Exchange Act and the
rules and regulations thereunder applicable to a national securities
exchange.\38\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Exchange Act,\39\
which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to and perfect the mechanism of a free and open
market and a national market system and, in general, to protect
investors and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers. The
Commission also finds that the proposed rule change is consistent with
Section 6(b)(1) of the Exchange Act,\40\ which requires an exchange to
be so organized and have the capacity to carry out the purposes of the
Exchange Act and to comply and enforce compliance by its members and
persons associated with its members with the Exchange Act and the rules
thereunder.
---------------------------------------------------------------------------
\38\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\39\ 15 U.S.C. 78f(b)(5).
\40\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
With respect to the transition of LTSE's System to the new trading
platform licensed by MEMX Technologies, the arrangements between LTSE
and MEMX Technologies are reasonably designed not to confer upon either
LTSE or MEMX Exchange any advantage over other market participants in
terms of access, speed or otherwise to the other market, and LTSE has
represented the same.\41\ While LTSE will use the same technology
provider as MEMX Exchange, LTSE will operate its System on separate
servers, under its control, and there will be no joint or shared
connections between LTSE and MEMX Exchange; participants will have to
access each market separately.\42\ LTSE will retain responsibility for
overseeing the daily market operations of its trading system and will
maintain operational control over the features of such system and any
changes thereto; MEMX Technologies will not be allowed to change LTSE's
System without LTSE's direct instruction and will also be obligated to
modify the platform in response to changes LTSE wishes to make.
---------------------------------------------------------------------------
\41\ See supra note 9.
\42\ Furthermore, MEMX Technologies will be required, as part of
the DLSA, to keep confidential all Confidential Information (as
defined in the DLSA) of LTSE and, except as expressly authorized,
not use such Confidential Information or make any such Confidential
Information available to any third party, including MEMX Exchange.
In other words, the conditions are reasonably designed to not allow
either LTSE or MEMX Exchange to gain any special advantage, insight,
or connection as a result of the technology services being provided
by MEMX Technologies, as a third-party service provider. See Notice,
supra note 3, at 46227.
---------------------------------------------------------------------------
LTSE will retain regulatory responsibility for its System and it
will maintain its independent function to oversee its RSA with FINRA.
LTSE also acknowledges that it will remain fully responsible for
discharging its obligations as a registered national securities
exchange. Thus, the Commission believes that LTSE will not be altering
any of its self-regulatory responsibilities as a result of the
provision of technology services by MEMX Technologies and will continue
to be so organized and have the capacity to carry out the purposes of
the Exchange Act and to comply and enforce compliance by its members
and persons associated with its members with the Exchange Act and the
rules thereunder.
Based on the acknowledgements LTSE has made with respect to its
obligations under Regulation SCI, as well as the legal agreements and
contractual arrangements underlying the relationship between LTSE and
MEMX Technologies as described above, the Commission believes that
LTSE's proposal regarding the engagement of a third party to develop,
license, and operate the System is designed to support the Exchange's
ability to comply with its regulatory obligations under Regulation SCI.
For the reasons discussed above, the Commission believes that the
aspect of LTSE's proposal to move to a new trading platform with
technology provided by MEMX Technologies is designed to prevent
fraudulent and manipulative acts and practices, promote just and
equitable principles of trade, remove impediments to and perfect the
mechanism of a free and open market and a national market system,
protect investors and the public interest, and thus, is consistent with
the Exchange Act. In addition, for the reasons discussed above, the
Commission finds that LTSE will be capable of exercising sufficient
control over the operation of its System, and will be sufficiently
independent from MEMX Technologies, to enable LTSE to
[[Page 68484]]
comply with the requirements under the Exchange Act and applicable
rules.
Finally, LTSE proposes numerous changes to conform, as applicable,
its trading rules to the trading rules on MEMX Exchange to effect the
transition to the new trading platform. The Commission notes that the
proposed changes to LTSE's rules to effect the transition of LTSE's
trading platform are based on rules already approved by, or filed for
immediate effectiveness with, the Commission by MEMX Exchange.
Therefore, since this aspect of the proposal raises no new or novel
legal or regulatory issues, the Commission believes it is reasonably
designed to protect investors and the public interest and is consistent
with the Exchange Act.
Accordingly, for the foregoing reasons, the Commission finds that
this proposed rule change is consistent with the Exchange Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\43\ that the proposed rule change (SR-LTSE-2024-03) be,
and hereby is, approved.
---------------------------------------------------------------------------
\43\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
---------------------------------------------------------------------------
\44\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19013 Filed 8-23-24; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on August 26, 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.