Notice2024-23799
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule Concerning Equities 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
October 16, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 200 (Wednesday, October 16, 2024)</title>
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[Federal Register Volume 89, Number 200 (Wednesday, October 16, 2024)]
[Notices]
[Pages 83535-83541]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-23799]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101294; File No. SR-MEMX-2024-39]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule Concerning Equities Transaction Pricing
October 9, 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 October 2, 2024, MEMX LLC (``MEMX'' or the ``Exchange'') filed
with the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the Exchange's fee schedule applicable to Members \3\ (the
``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and (c). The
Exchange proposes to implement the changes to the Fee Schedule pursuant
to this proposal immediately. 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.
[[Page 83536]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Fee
Schedule to: (i) adopt a reduced fee for executions of Retail Orders
\4\ in securities priced at or above $1.00 per share that remove
liquidity from the Exchange; (ii) modify the Liquidity Provision Tiers
by eliminating the current Liquidity Provision Tier 1 and increasing
the rebate for the current Liquidity Provision Tier 2, which will be
renamed Liquidity Provision Tier 1; (iii) modify NBBO Setter Tier 1 by
increasing the additive rebate that would apply to a qualifying
Member's executions of certain transactions, eliminating the additive
rebate that would apply to a qualifying Member's executions of other
transactions, and modifying the required criteria under such tier; (iv)
modify the Tape B Volume Tier 1 by modifying the criteria under such
tier; and (v) modify the Displayed Liquidity Incentive (DLI) Tiers by
increasing the rebate and modifying the criteria under Displayed
Liquidity Incentive Tier 1.\5\
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\4\ A ``Retail Order'' means an agency or riskless principal
order that meets the criteria of FINRA Rule 5320.03 that originates
from a natural person and is submitted to the Exchange by a Retail
Member Organization, provided that no change is made to the terms of
the order with respect to price or side of market and the order does
not originate from a trading algorithm or any other computerized
methodology. See Exchange Rule 11.21(a).
\5\ The Exchange initially filed the proposed Fee Schedule
changes on September 30, 2024 (SR-MEMX-2024-37). On October 2, 2024,
the Exchange withdrew that filing and submitted this proposal.
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The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues, to
which market participants may direct their order flow. Based on
publicly available information, no single registered equities exchange
currently has more than approximately 15.6% of the total market share
of executed volume of equities trading.\6\ 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% of the overall
market share.\7\ 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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\6\ Market share percentage calculated as of September 30, 2024.
The Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\7\ Id.
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Removed Retail Volume Fee
The Exchange currently charges a standard fee of $0.0030 per share
for executions of orders in securities that remove liquidity from the
Exchange (such orders, ``Removed Volume''). The Exchange now proposes
to adopt a reduced fee of $0.0028 per share for executions of Retail
Orders in securities priced at or above $1.00 per share that remove
liquidity from the Exchange (such orders, ``Removed Retail
Volume'').\8\ As proposed, executions of Removed Retail Volume in
securities priced below $1.00 per share will be charged a fee of 0.28%
of the total dollar value of the transaction, which is the same fee
that is currently charged for all such executions.
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\8\ The Exchange notes that it currently provides free
executions (i.e., the Exchange charges no fee and provides no
rebate) for executions of Retail Orders with a time-in-force
(``TIF'') instruction of Day, Good-`til-Time (``GTT''), or Regular
Hours Only (``RHO'') that remove liquidity from the Exchange upon
entry into the System. It is not proposing to change that pricing as
a part of this proposal and as such, this proposal shall only apply
to Retail Orders with a TIF of Immediate-or-Cancel (``IOC'') or
Fill-or-Kill (``FOK'').
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The purpose of reducing the fee for executions of Removed Retail
Volume is to incentivize Members to submit additional liquidity-
removing Retail Orders to the Exchange, thereby contributing to a
deeper and more liquidity market to the benefit of all market
participants and enhancing the attractiveness of the Exchange as a
trading venue. The Exchange notes that the proposed lower fee for
executions of Removed Retail Volume (i.e. $0.0028) is competitive with
the fees charged for executions of liquidity-removing retail orders
charged by other exchanges.\9\
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\9\ See, e.g., the Cboe EDGX Exchange, Inc. equities trading fee
schedule (available at <a href="https://www.cboe.com/us/equities/membership/fee_schedule/edgx/">https://www.cboe.com/us/equities/membership/fee_schedule/edgx/</a>), indicating a fee of $0.0030 per share for
executions of retail orders that remove liquidity, and the MIAX
Pearl Equities fee schedule (available at <a href="https://www.miaxglobal.com/markets/us-equities/pearl-equities/fees">https://www.miaxglobal.com/markets/us-equities/pearl-equities/fees</a>),
indicating a fee of $0.00285 per share for executions of retail
orders that remove liquidity.
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Liquidity Provision Tiers
The Exchange currently provides a base rebate of $0.0015 per share
for executions of orders in securities priced at or above $1.00 per
share that add displayed liquidity to the Exchange (such orders,
``Added Displayed Volume''). The Exchange also currently offers
Liquidity Provision Tiers 1-6 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
eliminating the current Liquidity Provision Tier 1, deleting a footnote
associated with the current Liquidity Provision Tier 1 in the
Exchange's Fee Schedule, and re-numbering the existing Liquidity
Provision Tiers 2-6 as Liquidity Provision Tiers 1-5 (hereinafter
referred to as such). The applicable rebates and required criteria
under Liquidity Provision Tiers 1-5 would remain unchanged, except for
the rebate provided under the renamed Liquidity Provision Tier 1, which
the Exchange is proposing to increase, as further described below.
First, with respect to the existing Liquidity Provision Tier 1, the
Exchange currently provides an enhanced rebate of $0.0034 per share for
executions of Added Displayed Volume in securities priced at or above
$1.00 for Members that either: (1) have an ADAV \10\ (excluding Retail
Orders) that is equal to or greater than 0.50% of the TCV,\11\ or (2) a
Step-Up ADAV \12\ from June 2024 (excluding Retail Orders) that is
equal to or greater than 0.07% of the TCV in securities priced at or
above $1.00 per share and an ADAV that is equal to or
[[Page 83537]]
greater than 0.20% of the TCV in securities priced at or above $1.00
per share and a Remove ADV \13\ that is equal to or greater than 0.45%
of the TCV. The Exchange now proposes to eliminate Liquidity Provision
Tier 1, as the Exchange no longer wishes to, nor is it required to,
maintain such tier.
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\10\ 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.
\11\ As set forth on the Fee Schedule, ``TCV'' means total
consolidated volume calculated as the volume reported by all
exchanges and trade reporting facilities to a consolidated
transaction reporting plan for the month for which the fees apply.
\12\ As set forth on the Fee Schedule, ``Step-Up ADAV'' means
ADAV in the relevant baseline month subtracted from current ADAV.
\13\ As set forth on the Fee Schedule, ``Remove ADV'' means ADV
with respect to orders that remove liquidity.
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With respect to the newly re-numbered Liquidity Provision Tier
1,\14\ the Exchange currently provides an enhanced rebate of $0.0033
per share for executions of Added Displayed Volume in securities priced
at or above $1.00 per share for Members that qualify for such tier by
achieving either: (1) an ADAV (excluding Retail Orders) that is equal
to or greater than 0.40% of the TCV, or (2) an ADAV that is equal to or
greater than 0.30% of the TCV in securities priced at or above $1.00
per share and a Non-Displayed ADAV \15\ that is equal to or greater
than 6,000,000 shares. The Exchange now proposes to increase the rebate
for executions of Added Displayed Volume under Liquidity Provision Tier
1 to $0.0034 per share. The Exchange is not proposing to change the
criteria required to qualify for renamed Liquidity Provision Tier 1.
The Exchange is also not proposing to change the rebate for executions
of orders in securities priced below $1.00 per share under such tier.
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\14\ 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.
\15\ 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).
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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 changes described above, the rebate for executions of Added
Displayed Volume provided under each of the Liquidity Provision Tiers
1-5 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 1
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) in securities priced at or above $1.00 per share that
establish the NBBO and have a Fee Code B \16\ (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) \17\ by achieving: (1) an
ADAV with respect to orders with Fee Code B that is equal to or greater
than 5,000,000 shares; or (2) an ADAV with respect to orders with Fee
Code B that is equal to or greater than 2,000,000 shares and an ADAV in
securities priced at or above $1.00 per share (excluding Retail Orders)
that is equal to or greater than 0.30% of the TCV in securities priced
at or above over $1.00 per share. The Exchange now proposes to modify
NBBO Setter Tier 1 by increasing the additive rebate that would apply
to a qualifying Member's executions of Setter Volume (i.e. Fee Code B),
eliminating the additive rebate that would apply to a qualifying
Member's executions of Added Displayed Volume (other than Retail
Orders) that have a Fee Code of D or J, and modifying the required
criteria under such tier.
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\16\ The Exchange notes that orders with Fee Code B include
orders, other than Retail Orders, that establish the NBBO.
\17\ 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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First, the Exchange proposes to increase the additive rebate under
NBBO Setter Tier 1 to $0.0003 per share for a qualifying Member's
executions of Added Displayed Volume with a Fee Code of B.
Additionally, the Exchange proposes to eliminate the additive rebate of
$0.0001 per share for a qualifying Member's executions with a Fee Code
of D or J, and as such, the additive rebate under NBBO Setter Tier 1 as
proposed will only apply to a qualifying Member's executions of Added
Displayed Volume with a Fee Code of B. The Exchange notes that when the
NBBO Setter Tier was originally implemented by the Exchange, the
additive rebate similarly only applied to executions with a Fee Code
B,\18\ and as such, the purpose of eliminating the additive rebate is
to revert back to the former application, as well as for business and
competitive reasons, as the Exchange believes the elimination of such
additive rebate would allow the Exchange to focus on incentivizing
Setter Volume with a higher rebate while also decreasing the Exchange's
expenditures with respect to the Exchange's transaction pricing, which
would enable the Exchange to redirect future resources and funding into
other incentives and tiers intended to incentive increased order flow.
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\18\ See Securities Exchange Act Release No. 94394 (March 10,
2022), 87 FR 14923 (March 16, 2022) (SR-MEMX-2022-01).
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Second, the Exchange is proposing to modify the required criteria
under NBBO Setter Tier 1. As noted above, currently, a Member qualifies
for such tier by achieving (1) an ADAV with respect to orders with Fee
Code B that is equal to or greater than 5,000,000 shares; or (2) an
ADAV with respect to orders with Fee Code B that is equal to or greater
than 2,000,000 shares and an ADAV in securities priced at or above
$1.00 per share (excluding Retail Orders) that is equal to or greater
than 0.30% of the TCV in securities priced at or above over $1.00 per
share. 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 an ADAV with respect to orders with a Fee Code B that is
equal to or greater than 0.05% of the TCV. Thus, such proposed change
modifies the Fee Code B ADAV criteria in the first alternative from a
share-based ADAV to a percentage of the TCV ADAV, and eliminates the
second alternative criteria altogether.
The Exchange believes that the proposed modified criteria provides
an incremental incentive for Members to strive for higher ADAV in NBBO
setting orders (i.e. Fee Code B) 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
[[Page 83538]]
orders that add liquidity to the Exchange. The Exchange also believes
that the criteria change reflects a reasonable and competitive pricing
structure that is right-sized and consistent with the Exchange's
overall pricing philosophy of encouraging added and/or displayed
liquidity. The Exchange believes that the proposed modified criteria
would further incentivize increased order flow to the Exchange, thereby
contributing to a deeper and more liquid market to the benefit of all
Members.
Tape B Volume Tier
The Exchange currently offers Tape B Volume Tier 1 under which a
Member may receive an additive rebate of $0.0002 per share for
executions of Added Displayed Volume (excluding Retail Orders) in Tape
B Securities (such orders, ``Tape B Volume'') by achieving a Tape B
ADAV that is equal to or greater than 0.30% of the Tape B TCV
(excluding Retail Orders).\19\ Now, the Exchange proposes to modify the
required criteria under such tier such that a Member would qualify for
such tier by achieving a Tape B ADAV that is equal to or greater than
0.25% of the Tape B TCV (excluding Retail Orders).
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\19\ 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 is for business and
competitive reasons, as the Exchange believes that such changes would
facilitate Members to meet such tier by lowering the Tape B TCV
requirement. The Exchange believes that the proposed changes would
incentivize Members to submit additional order flow in Tape B
Securities, thereby promoting price discovery and market quality on the
Exchange.
Displayed Liquidity Incentive (``DLI'') Tiers
The Exchange currently offers DLI Tiers 1 and 2 under which a
Member may receive an enhanced rebate for executions of Added Displayed
Volume by achieving the corresponding required criteria for each such
tier. The DLI Tiers are designed to encourage Members, through the
provision of an enhanced rebate for executions of Added Displayed
Volume, to promote price discovery and market quality by quoting at the
NBBO for a significant portion of each day (i.e., through the
applicable quoting requirement \20\) in a broad base of securities
(i.e., through the applicable securities requirement \21\), thereby
benefitting the Exchange and investors by providing improved trading
conditions for all market participants through narrower bid-ask spreads
and increased depth of liquidity available at the NBBO in a broad base
of securities and committing capital to support the execution of
orders.\22\ Now, the Exchange proposes to modify DLI Tier 1 by
modifying the required criteria and increasing the rebate for
executions of Added Displayed Volume under such tier.
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\20\ As set forth on the Fee Schedule, the term ``quoting
requirement'' means the requirement that a Member's NBBO Time be at
least 25%, and the term ``NBBO Time'' means the aggregate of the
percentage of time during regular trading hours during which one of
a Member's market participant identifiers (``MPIDs'') has a
displayed order of at least one round lot at the national best bid
or the national best offer.
\21\ As set forth on the Fee Schedule, the term ``securities
requirement'' means the requirement that a Member meets the quoting
requirement in the applicable number of securities per trading day.
Currently, each of DLI Tiers 1 and 2 has a securities requirement
that may be achieved by a Member meeting the quoting requirement in
the specified number of securities traded on the Exchange.
\22\ See the Exchange's Fee Schedule (available at <a href="https://info.memxtrading.com/fee-schedule/">https://info.memxtrading.com/fee-schedule/</a>) for additional details regarding
the Exchange's DLI Tiers. See also Securities Exchange Act Release
No. 92150 (June 10, 2021), 86 FR 32090 (June 16, 2021) (SR-MEMX-
2021-07) (notice of filing and immediate effectiveness of fee
changes adopted by the Exchange, including the adoption of DLI).
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Currently, under DLI Tier 1, the Exchange provides a rebate of
$0.0031 per share for executions of Added Displayed Volume for Members
that qualify for such tier by 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 equal to or greater than 0.10% of the TCV.
Now, the Exchange proposes to modify the required criteria under DLI
Tier 1 such that a Member would qualify for such tier by achieving: an
NBBO time of at least 50% in an average of at least 1,000 securities
per trading day during the month.\23\ The Exchange also proposes to
increase the rebate for a qualifying Members' executions of Added
Displayed Volume under DLI Tier 1 from $0.0031 per share to $0.0034 per
share. \24\
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\23\ The Exchange is also proposing to amend the definition of
``quoting requirement'' under the Definitions and Notes section
under the DLI Tiers pricing table on the fee schedule in light of
this proposed increase in the NBBO time required to achieve DLI Tier
1. Specifically, the Exchange is proposing that the term quoting
requirement shall now mean the percentage of NBBO Time required
under the relevant DLI Tier criteria (i.e., rather than including
the numeric value of the required NBBO Time in the definition).
\24\ The pricing for DLI Tier 1 is referred to by the Exchange
on the Fee Schedule under the existing description ``Added displayed
volume, DLI Tier 1'' with a Fee Code of Bq1, Bq1 or Jq1, as
applicable.
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The purpose of increasing the quoting requirement under DLI Tier 1
is intended to encourage Members to promote price discovery and market
quality by quoting at the NBBO for a significant portion of each day
(i.e., through the applicable quoting requirement) in a large number of
securities, thereby benefitting the Exchange and investors by providing
improved trading conditions for all market participants through
narrower bid-ask spreads and increased depth of liquidity available at
the NBBO. The purpose of removing the former criteria (2) under DLI
Tier 1 is intended to make it easier for Members to meet such tier and
incentivize increased order flow to the Exchange in the form of orders
at the NBBO. The purpose of increasing the rebate is similarly to
incentivize increased order flow to the Exchange, including in the form
of orders at the NBBO, thereby contributing to a deeper and more liquid
market to the benefit of all market participants. The Exchange is not
proposing to change the rebates provided under such tiers for
executions of orders in securities priced below $1.00 per share.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\25\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\26\ 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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\25\ 15 U.S.C. 78f.
\26\ 15 U.S.C. 78f(b)(4) and (5).
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As discussed above, the Exchange operates in a highly fragmented
and competitive market in which market participants can readily direct
order flow to competing venues if they deem fee levels at a particular
venue to be excessive or incentives to be insufficient, and the
Exchange represents only a small percentage of the overall market. The
Commission and the courts have repeatedly expressed their preference
for competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its
[[Page 83539]]
broader forms that are most important to investors and listed
companies.'' \27\
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\27\ 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 encourage market participants to strive for higher volume
on 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 believes that its proposal to charge a reduced fee for
executions of Removed Retail Volume is reasonable, equitable, and not
unfairly discriminatory. Specifically, the Exchange believes such
proposal is reasonable, as it is reasonably designed to incentivize
Members to submit additional Retail Orders to the Exchange, thereby
contributing to a deeper and more liquidity market to the benefit of
all market participants and enhancing the attractiveness of the
Exchange as a trading venue. Thus, the Exchange believes the proposal
reflects a reasonable attempt to deepen liquidity on the Exchange,
particularly as the Exchange believes the proposed reduction in the fee
for executions of Removed Retail Volume (i.e., $0.0002 per share lower
than the standard fee for Removed Volume) is not excessive and is
instead reasonably related to the market quality benefits it is
intended to achieve. The Exchange also believes that the proposed fee
for executions of Removed Retail Volume is equitable and not unfairly
discriminatory, as such fee would be charged uniformly to all
executions of such orders for all Members.
The Exchange notes that volume-based incentives (such as Liquidity
Provision Tiers, NBBO Setter Tiers, the Tape B Volume Tier, and DLI
Tiers) have been widely adopted by exchanges (including the Exchange),
and are reasonable, equitable, and not unfairly discriminatory because
they are open to all members on an equal basis and provide additional
benefits or discount 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
Liquidity Provision 1, as modified by the proposed change to the rebate
under such tier, NBBO Setter Tier 1, as modified by the proposed
removal of the additive rebate as it applies towards executions with
Fee Codes D and J and the proposed changes to the required criteria
under such tier, Tape B Volume Tier 1, as modified by the proposed
changes to the required criteria under such tier, and DLI Tier 1, as
modified by the proposed change to the rebate and required criteria
under such 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, 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 Setter 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 Tier 1, Tape B Volume Tier 1 and
DLI Tier 1, and the additive rebate for executions of Setter Volume
under the proposed modified NBBO Setter Tier 1, each remain
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.
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 \28\ in that it provides for the equitable allocation of
reasonable dues, fees and other charges among its Members and other
persons using its facilities and is not designed to unfairly
discriminate between customers, issuers, brokers, or dealers. As
described more fully below in the Exchange's statement regarding the
burden on competition, the Exchange believes that its transaction
pricing is subject to significant competitive forces, and that the
proposed fees and rebates described herein are appropriate to address
such forces.
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\28\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposal will result in any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Instead, as discussed above,
the proposal is intended to incentivize market participants to direct
additional order flow to 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.
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.'' \29\
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\29\ See supra note 26.
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Intramarket Competition
As discussed above, the Exchange believes that the proposal would
maintain a tiered pricing structure that is still consistent with the
Exchange's overall pricing philosophy of encouraging added and/or
displayed liquidity and would incentivize market participants to direct
additional order flow to the Exchange through volume-based tiers,
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
[[Page 83540]]
robust levels of liquidity, which benefits all market participants.
The Exchange does not believe that the proposed changes would
impose any burden on intramarket competition because such changes will
incentivize members to submit additional order flow, thereby
contributing to a more robust and well-balanced market ecosystem 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 modified Liquidity
Provision Tiers, NBBO Setter Tiers, Tape B Volume Tier, and DLI Tiers,
and thus receive the corresponding enhanced rebates or discounted fees,
as applicable, would be available to all Members that meet the
associated volume requirements in any month. As described above, the
Exchange believes that the required criteria under each such tier are
commensurate with the corresponding rebate under such tier and are
reasonably related to the enhanced liquidity and market quality that
such tier is designed to promote. The Exchange does not believe that
the proposed change to adopt a reduced fee for executions of Removed
Retail Volume would impose any burden on intramarket competition
because such changes will apply to all Members uniformly, in that the
opportunity to qualify for the discounted fees is available to all
Members that submit Retail Orders to the Exchange. 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 15.6% 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 incentivize market
participants to direct 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 structures and 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.'' \30\ 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' . . . . ''.\31\ 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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\30\ See supra note 26.
\31\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \32\ and Rule 19b-4(f)(2) \33\ thereunder.
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\32\ 15 U.S.C. 78s(b)(3)(A)(ii).
\33\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#e99b9c858cc48a8684848c879d9aa99a8c8ac78e869f"><span class="__cf_email__" data-cfemail="a9dbdcc5cc84cac6c4c4ccc7dddae9daccca87cec6df">[email protected]</span></a>. Please include
file number SR-MEMX-2024-39 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-2024-39. This file
[[Page 83541]]
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-2024-39 and should be
submitted on or before November 6, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-23799 Filed 10-15-24; 8:45 am]
BILLING CODE 8011-01-P
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