Notice2024-24204
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule Concerning Options Transaction Fees
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Published
October 21, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 203 (Monday, October 21, 2024)</title>
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[Federal Register Volume 89, Number 203 (Monday, October 21, 2024)]
[Notices]
[Pages 84218-84220]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-24204]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101338; File No. SR-MEMX-2024-38]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the Fee
Schedule Concerning Options Transaction Fees
October 15, 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 September 30, 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\ pursuant
to Exchange Rules 15.1(a) and (c). The Exchange proposes to implement
the changes to the MEMX Options Fee Schedule (the ``Options 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.
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 Options Fee
Schedule to increase the transaction rebate for executions of contracts
where the underlying security of the applicable option is not in the
Penny Interval program (``Non-Penny options'') \4\ which add liquidity
to the MEMX Options Book \5\ and which are made in the Customer
capacity (``Customer''),\6\ as further described below.
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\4\ MEMX Options provides Fee Code ``N'' for transactions in
Non-Penny options. Fee Codes are provided by the Exchange on the
monthly invoices provided to Options Members.
\5\ MEMX Options provides Fee Code ``D'' for transactions which
add liquidity to the MEMX Options Book.
\6\ Customer capacity applies to any order for the account of a
Priority Customer. ``Priority Customer'' means any person or entity
that is neither a broker or dealer in securities nor a Professional.
See Rule 16.1 of the MEMX Rulebook. MEMX Options provides fee
qualifier ``c'' for Customer transactions.
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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. The Exchange is one of only
17 options venues to which market participants may direct their order
flow. Based on publicly available information, no single options
exchange has more than approximately 17% of the market share and
currently the Exchange represents only approximately 3% of the market
share.\7\ In such a low-concentrated and highly competitive market, no
single options exchange, including the Exchange, possesses significant
pricing power in the execution of option order flow. The Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow, discontinue, or reduce use of certain categories of products in
response to fee changes. Accordingly competitive forces constrain the
Exchange's transaction fees, and market participants can readily trade
on competing venues if they deem pricing levels at those other venues
to be more favorable. The Exchange's Fee Schedule sets forth standard
rebates and rates applied per contract.
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\7\ Market share percentage calculated as of September 30, 2024.
The Exchange receives and processes data made available through the
consolidated data feeds (i.e., OPRA).
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Increased Transaction Rebate for Executions of Non-Penny Options in the
Customer Capacity Which Add Liquidity to the MEMX Options Book
Currently, the Exchange provides a standard transaction rebate of
$1.15 per contract on Non-Penny options (as defined above) in the
Customer capacity which add liquidity to the MEMX Options Book. Now,
the Exchange proposes to amend the standard transaction rebate on such
contracts from $1.15 per contract to $1.19 per contract. The purpose of
increasing the rebate is to incentivize Members to execute additional
contracts in Non-Penny names in the Customer capacity which add
liquidity. The Exchange's proposal is designed to encourage the
execution of additional contracts on the Exchange in order to enhance
volume, deepen liquidity and promote price discovery on the MEMX
Options platform. The Exchange believes that the increased rebate is in
line with or exceeds the rebates provided by other national securities
exchanges and will incentivize Members to route additional order flow
to the Exchange.\8\
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\8\ See, e.g., note 10 of the of the Nasdaq Options Market
trading fee schedule on its public website (available at: <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-options-7">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-options-7</a>)
which reflects a $1.15 per contract Rebate to Add Liquidity in Non-
Penny Symbols as Customer for Nasdaq Options Market participants who
meet certain volume requirements on the Nasdaq Options Market. As
MEMX Options is a comparatively new market, the Exchange believes
that providing a higher rebate ($1.19) for Customer executions which
add liquidity in Non-Penny options without requiring Members to
achieve specific volume requirements will incentivize additional
order flow to the Exchange.
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[[Page 84219]]
2. Statutory Basis
The Exchange believes that its proposal to amend its Options Fee
Schedule 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 Options Members and other
persons using its facilities. The Exchange also believes the proposal
furthers the objectives of Section 6(b)(5) of the Act in that it is
designed 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 is not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(4) and (5).
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MEMX Options operates in a highly fragmented and competitive market
in which market participants can readily direct order flow to competing
venues if they deem fee levels at a particular venue to be excessive or
incentives to be insufficient, and the Exchange represents only a small
percentage of the overall market. The Commission and the courts have
repeatedly expressed their preference for competition over regulatory
intervention in determining prices, products, and services in the
securities markets. In Regulation NMS, the Commission highlighted the
importance of market forces in determining prices and SRO revenues and
also recognized that current regulation of the market system ``has been
remarkably successful in promoting market competition in its broader
forms that are most important to investors and listed companies.'' \11\
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\11\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
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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 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 the proposed change to increase the
rebate for executions on Non-Penny options in the Customer capacity
that add liquidity to the Exchange to $1.19 per contract is reasonable
and equitable because it is designed to incentivize Members to submit
additional liquidity-adding orders in Non-Penny options to the Exchange
in the Customer capacity, which would enhance liquidity on the Exchange
and promote price discovery and price formation, and would be
applicable to all Members. The Exchange further believes the proposed
increased rebate is appropriate because it exceeds or is comparable to,
and competitive with, the rebates provided by other exchanges for
executions in the Customer capacity in Non-Penny options which add
liquidity.\12\
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\12\ See supra note 8.
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Further, the Exchange believes it is reasonable, equitable, and not
unfairly discriminatory for Members to receive a higher rebate for
executions of contracts in Non-Penny options in the Customer capacity
which add liquidity to the Exchange, as compared to the rebate provided
for executions of contracts in Non-Penny options in non-Customer
capacities (i.e., Market Maker, Professional, Firm, Away Market Maker,
or Broker-Dealer capacities) which add liquidity to the Exchange. The
securities markets generally, and the Exchange in particular, have
historically aimed to improve markets for investors and develop various
features within the market structure for the benefit of public
customers (i.e., the Customer capacity on the Exchange) who are not
professionals.\13\ The Exchange believes it promotes the best interests
of investors to charge lower transaction costs and provide higher
rebates for Customers, who are not Professionals, and that the
Exchange's proposed fee structure provides right-sized incentives which
will continue to attract Customer order flow to the Exchange.
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\13\ The Exchange notes that, since the inception of MEMX
Options, it has historically imposed different, and higher,
transaction fees for executions in the non-Customer capacity than
for executions in the Customer capacity. Similarly, since the
inception of MEMX Options, the Exchange has historically provided
different, and lower, rebates for executions in the non-Customer
capacity than in the Customer capacity. See Securities Exchange Act
Release No. 34-98533 (September 26, 2023), 88 FR 67846 (October 2,
2023) (adopting a $1.10 per contract fee for non-Customers (Market
Makers, Professionals, Firms, Away Market Makers, and Broker-
Dealers) to remove liquidity in Non-Penny options as compared to a
$0.85 per contract fee for Customers to remove liquidity in Non-
Penny options, and a $0.80 per contract rebate for non-Customers to
add liquidity in Non-Penny options as compared to a $1.04 per
contract rebate for Customers to add liquidity in Non-Penny options.
The Exchange notes that similar fee structures are common at other
options exchanges. See, e.g., the Cboe BZX Options fee schedule on
its public website (available at: <a href="https://www.cboe.com/us/options/membership/fee_schedule/bzx/">https://www.cboe.com/us/options/membership/fee_schedule/bzx/</a>), which reflects a higher $1.15 fee for
Professional, Firm, Broker-Dealer, JBO, Market Maker, and Away
Market Maker executions which remove liquidity in Non-Penny options
and a lower $0.85 fee for Customer executions which remove liquidity
in Non-Penny options. The Cboe BZX Options fee schedule also
reflects lower rebates ranging from $0.30 to $0.88 for non-Customer
executions which add liquidity in non-Penny options and a higher
$1.05 rebate for Customer executions which add liquidity in Non-
Penny options.
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For the reasons discussed above, the Exchange submits that its
proposed change to the Options Transaction Fee Schedule satisfies the
requirements of Sections 6(b)(4) and 6(b)(5) of the Act \14\ in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among its Members and other persons using its facilities
and are not designed to unfairly discriminate between customers,
issuers, brokers, or dealers. As described more fully below in the
Exchange's statement regarding burden on competition, the Exchange
believes that its transaction pricing is subject to significant
competitive forces, and that the proposed rebate described herein is
appropriate to address such forces.
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\14\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposal will result in any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. As a relatively new entrant in
the already highly competitive environment for options trading, the
Exchange believes that the proposed change would encourage the
submission of additional order flow to the Exchange, thereby promoting
market depth, execution incentives and enhanced execution
opportunities, as well as price discovery and transparency for all
Members. Further, MEMX Options' proposed modified transaction rebate
exceeds or is comparable to the transaction rebates assessed by other
options exchanges.\15\ As a result, 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.'' \16\
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\15\ See supra note 8.
\16\ See supra note 11.
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[[Page 84220]]
Intramarket Competition
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed rebate applies equally to all Options Members. The proposed
pricing structure is intended to encourage participants to trade on
MEMX Options by providing rebates that are comparable to those offered
by other exchanges as well as providing competitive fees. The Exchange
believes that the proposed rebate will help to encourage Options
Members to send orders to the Exchange to the benefit of all Exchange
participants. As the proposed rebate is equally applicable to all
market participants, the Exchange does not believe there is any burden
on intramarket competition.
Intermarket Competition
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. To the contrary,
the Exchange believes that the proposed pricing structure will increase
competition and is intended to encourage market participants to trade
on the exchange by providing rebates that are comparable to those
offered by other exchanges, which the Exchange believes will help to
encourage Members to send orders to the Exchange to the benefit of all
Exchange participants. As the proposed rebate is equally applicable to
all market participants, the Exchange does not believe there is any
burden on intramarket competition.
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.'' \17\ 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'. . . .''.\18\ 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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\17\ See supra note 11.
\18\ 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 \19\ and Rule 19b-4(f)(2) \20\ thereunder.
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\19\ 15 U.S.C. 78s(b)(3)(A)(ii).
\20\ 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#a8daddc4cd85cbc7c5c5cdc6dcdbe8dbcdcb86cfc7de"><span class="__cf_email__" data-cfemail="c6b4b3aaa3eba5a9ababa3a8b2b586b5a3a5e8a1a9b0">[email protected]</span></a>. Please include
file number SR-MEMX-2024-38 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-2024-38. 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-2024-38 and should be
submitted on or before November 12, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-24204 Filed 10-18-24; 8:45 am]
BILLING CODE 8011-01-P
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