Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Enable Members To Designate Certain Orders To Be Identified as Retail Orders to the Exchange, 69671-69675 [2020-24269]
Download as PDF
<![CDATA[
Federal Register / Vol. 85, No. 213 / Tuesday, November 3, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–24270 Filed 11–2–20; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
Notice is hereby given,
pursuant to the provisions of the
Government in the Sunshine Act, Public
Law 94–409, that the Securities and
Exchange Commission Small Business
Capital Formation Advisory Committee
will hold a public meeting on Monday,
November 9, 2020, via videoconference.
TIME AND DATE:
The meeting will begin at 10:00
a.m. (ET) and will be open to the public.
The meeting will be conducted by
remote means (videoconference) and/or
at the Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
Members of the public may watch the
webcast of the meeting on the
Commission’s website at www.sec.gov.
PLACE:
On October 23, 2020, the
Commission published notice of the
Committee meeting (Release No. 33–
10877), indicating that the meeting is
open to the public and inviting the
public to submit written comments to
the Committee. This Sunshine Act
notice is being issued because a majority
of the Commission may attend the
meeting.
STATUS:
The agenda
for the meeting includes matters relating
to rules and regulations affecting small
and emerging businesses and their
investors.
MATTER TO BE CONSIDERED:
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed; please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
khammond on DSKJM1Z7X2PROD with NOTICES
Dated: October 30, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020–24490 Filed 10–30–20; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
the most significant aspects of such
statements.
[Release No. 34–90278; File No. SR–MEMX–
2020–13]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Enable Members To
Designate Certain Orders To Be
Identified as Retail Orders to the
Exchange
BILLING CODE 8011–01–P
October 28, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on October
26, 2020, 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
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 4 and Rule 19b–4(f)(6)
thereunder.5 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
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
adopt new Rule 11.21 to enable
members of the Exchange (‘‘Members’’)
to designate certain orders they submit
to the Exchange on behalf of retail
customers to be identified as retail
orders to the Exchange. The text of the
proposed rule change is provided in
Exhibit 5.
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
1 15
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 15 U.S.C. 78s(b)(3)(A)(iii).
5 17 CFR 240.19b–4(f)(6).
VerDate Sep<11>2014
16:55 Nov 02, 2020
Jkt 253001
69671
PO 00000
Frm 00108
Fmt 4703
Sfmt 4703
1. Purpose
The Exchange proposes to adopt new
Rule 11.21 to enable Members to
designate certain orders they submit to
the Exchange on behalf of retail
customers to be identified as retail
orders to the Exchange. Under the
proposed rule change, the Exchange
would create a new class of market
participant for any Member that satisfies
the requirements under proposed Rule
11.21 called a Retail Member
Organization (‘‘RMO’’), which would be
eligible to submit certain retail order
flow (‘‘Retail Orders’’) to the Exchange.
Specifically, proposed Rule 11.21
would: (i) Define a Retail Order and
RMO; (ii) set forth an RMO’s
qualification and application
requirements and the Exchange’s
approval process; (iii) outline
procedures for when an RMO fails to
abide by the Retail Order requirements;
and (iv) outline the procedures under
which a Member may appeal the
Exchange’s decision to disapprove it or
disqualify it as an RMO. The Exchange
notes that proposed Rule 11.21 is
substantially similar to and based on
paragraphs (a)–(d) of Cboe BZX
Exchange, Inc. (‘‘Cboe BZX’’) Rule
11.25.6
Definitions
The Exchange proposes to adopt the
following definitions under proposed
Rule 11.21(a). First, the term ‘‘Retail
Member Organization’’ or ‘‘RMO’’
would be defined as a Member (or a
division thereof) that has been approved
by the Exchange to submit Retail
Orders. Second, the term ‘‘Retail Order’’
would be defined as 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 an RMO,
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.
6 See Cboe BZX Rule 11.25; see also Securities
Exchange Act Release Nos. 73237 (September 26,
2014), 79 FR 59537 (October 2, 2014) (SR–BATS–
2014–043); 73677 (November 24, 2014), 79 FR
71150 (December 1, 2014) (SR–BATS–2014–058);
76205 (October 21, 2015), 80 FR 65828 (October 27,
2015) (SR–BATS–2015–90).
E:\FR\FM\03NON1.SGM
03NON1
69672
Federal Register / Vol. 85, No. 213 / Tuesday, November 3, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
RMO Qualifications and Approval
Process
Under proposed Rule 11.21(b), any
Member could qualify as an RMO if it
conducts a retail business or routes
retail orders on behalf of another brokerdealer. Proposed Rule 11.21(b)(1) makes
clear that an RMO that carries retail
customer accounts on a fully disclosed
basis would be considered to conduct a
retail business for purposes of the rule.
The qualification standards and
approval process under proposed Rule
11.21(b) are designed to ensure that
Members are properly qualified as an
RMO and only designate as Retail
Orders those orders that meet the
definition of Retail Orders under
proposed Rule 11.21(a)(2) described
above. Any Member that wishes to
obtain RMO status would be required to
submit: (i) an application form; (ii)
supporting documentation sufficient to
demonstrate the retail nature and
characteristics of the applicant’s order
flow; 7 and (iii) an attestation, in a form
prescribed by the Exchange, that
substantially all orders submitted by the
Member as a Retail Order will qualify as
such under proposed Rule 11.21(b).
An RMO would be required to have
written policies and procedures
reasonably designed to assure that it
will only designate orders as Retail
Orders if all requirements of a Retail
Order are met. Such written policies
and procedures must require the
Member to (i) exercise due diligence
before entering a Retail Order to assure
that entry as a Retail Order is in
compliance with the requirements of
proposed Rule 11.21, and (ii) monitor
whether orders entered as Retail Orders
meet the applicable requirements. If the
RMO does not itself conduct a retail
business but routes Retail Orders on
behalf another broker-dealer, the RMO’s
supervisory procedures must be
reasonably designed to assure that the
orders it receives from such other
broker-dealer that it designates as Retail
Orders meet the definition of a Retail
Order. Such an RMO must (i) obtain an
annual written representation, in a form
acceptable to the Exchange, from each
other broker-dealer that sends it orders
to be designated as Retail Orders that
entry of such orders as Retail Orders
will be in compliance with the
requirements of proposed Rule 11.21,
7 For example, a prospective RMO could be
required to provide sample marketing literature,
website screenshots, other publicly disclosed
materials describing the retail nature of their order
flow, and such other documentation and
information as the Exchange may require to obtain
reasonable assurance that the applicant’s order flow
would meet the requirements of the Retail Order
definition.
VerDate Sep<11>2014
18:44 Nov 02, 2020
Jkt 253001
and (ii) monitor whether Retail Order
flow routed on behalf of such other
broker-dealers continues to meet the
applicable requirements.8
If the Exchange disapproves a
Member’s application to be an RMO, the
Exchange would provide a written
notice to the Member. The disapproved
applicant could appeal the disapproval
by the Exchange as provided in
proposed Rule 11.21(d) and/or reapply
for RMO status 90 days after the
disapproval notice is issued by the
Exchange. An RMO also could
voluntarily withdraw from such status
at any time by giving written notice to
the Exchange.
As described above, under proposed
Rule 11.21(b), any Member could
qualify as an RMO if it conducts a retail
business or routes retail orders on behalf
of another broker-dealer, and Proposed
Rule 11.21(b)(1) makes clear that an
RMO that carries retail customer
accounts on a fully disclosed basis
would be considered to conduct a retail
business for purposes of the rule. The
Exchange proposes to distinguish an
RMO’s routing services on behalf of
another broker-dealer from services
provided by an RMO that carries retail
customer accounts on a fully disclosed
basis, as described below. As
background with respect to this aspect
of the proposed change, the Exchange
first would like to describe the terms
‘‘introducing broker’’, ‘‘carrying firm’’ or
‘‘carrying broker-dealer’’, and ‘‘fully
disclosed,’’ as such terms are commonly
used in the securities industry. An
‘‘introducing’’ broker-dealer is ‘‘one that
has a contractual arrangement with
another firm, known as the carrying or
clearing firm, under which the carrying
firm agrees to perform certain services
for the introducing firm. Usually, the
introducing firm submits its customer
accounts and customer orders to the
carrying firm, which executes the orders
and carries the account. The carrying
firm’s duties include the proper
disposition of the customer funds and
securities after the trade date, the
custody of customer securities and
funds, and the recordkeeping associated
with carrying customer accounts.’’ 9
Further, a ‘‘fully disclosed’’ introducing
arrangement is ‘‘distinguished from an
omnibus clearing arrangement where
the clearing firm maintains one account
for all the customer transactions of the
introducing firm. In an omnibus
8 The Exchange or another self-regulatory
organization on behalf of the Exchange will review
an RMO’s compliance with these requirements
through an exam-based review of the RMO’s
internal controls.
9 See Securities Exchange Act Release No. 31511
(Nov. 24, 1992), 57 FR 56973 (December 2, 1992).
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
relationship, the clearing firm does not
know the identity of the customers of
the introducing firm. In a fully disclosed
clearing arrangement, the clearing firm
knows the names, addresses, securities
positions and other relevant data as to
each customer.’’ 10
With respect to a broker-dealer that is
routing on behalf of another brokerdealer, the Exchange does not believe
that the routing broker-dealer has
sufficient information to assess whether
orders are truly retail in nature, and
thus, requires an RMO routing on behalf
of other broker-dealers to maintain
additional supervisory procedures and
obtain annual attestations, as described
above, in order to submit Retail Orders
to the Exchange. In contrast, however, if
a broker-dealer is carrying a customer
account on a fully disclosed basis, then
such carrying broker-dealer is required
to perform certain diligence regarding
such account that the Exchange believes
is sufficient to assess whether a
customer is a retail customer in order to
submit orders on behalf of such a
customer to the Exchange as a Retail
Order. The carrying broker of an
account typically handles orders from
its retail customers that are
‘‘introduced’’ by an introducing broker.
However, as noted above, in contrast to
a typical routing relationship on behalf
of another broker-dealer, a carrying
broker does obtain a significant level of
information regarding each customer
introduced by the introducing broker.
Accordingly, the Exchange proposes to
state in Rule 11.21(b)(1) that for
purposes of Rule 11.21, ‘‘conducting a
retail business shall include carrying
retail customer accounts on a fully
disclosed basis.’’
Failure of RMO To Abide by Retail
Order Requirements
Proposed Rule 11.21(c) addresses an
RMO’s failure to abide by Retail Order
requirements. If an RMO designates
orders submitted to the Exchange as
Retail Orders and the Exchange
determines, in its sole discretion, that
those orders fail to meet any of the
requirements of Retail Orders, the
Exchange may disqualify a Member
from its status as an RMO. When
disqualification determinations are
made, the Exchange would provide a
written disqualification notice to the
Member. A disqualified RMO could
appeal the disqualification provided in
proposed Rule 11.21(d) and/or reapply
for RMO status 90 days after the
disqualification notice issued by the
Exchange.
10 Id.
E:\FR\FM\03NON1.SGM
03NON1
Federal Register / Vol. 85, No. 213 / Tuesday, November 3, 2020 / Notices
Appeal of Disapproval or
Disqualification
Proposed Rule 11.21(d) provides
appeal rights to Members. If a Member
disputes the Exchange’s decision to
disapprove it as an RMO under
proposed Rule 11.21(b) or disqualify it
under proposed Rule 11.21(c), such
Member may request, within five
business days after notice of the
decision is issued by the Exchange, that
the Retail Member Organization Panel
(the ‘‘RMO Panel’’) review the decision
to determine if it was correct. The RMO
Panel would consist of the Exchange’s
Chief Regulatory Officer (‘‘CRO’’), or a
designee of the CRO, and two officers of
the Exchange designated by the
Exchange’s Chief Executive Officer. The
RMO Panel would review the facts and
render a decision within the time frame
prescribed by the Exchange. The RMO
Panel could overturn or modify an
action taken by the Exchange and all
determinations by the RMO Panel
would constitute final action by the
Exchange on the matter at issue.
khammond on DSKJM1Z7X2PROD with NOTICES
Implementation
The Exchange notes that, under the
proposed rule change, an order
involving any Regulation NMS security
traded on the Exchange that meets the
definition of Retail Order would be
eligible to be designated as such by an
RMO. The Exchange also notes that
orders designated as Retail Orders
would only be designated as such to the
Exchange and would not be designated
as such on the Exchange’s market data
feeds or otherwise identifiable as Retail
Orders by any market participants or the
public. Further, the Exchange notes that
orders designated as Retail Orders
would be handled in the exact same
way under the Exchange’s rules as if
such orders were not designated as
Retail Orders. In other words, the
designation of an order as a Retail Order
would not in any way affect the priority
or other handling procedures applicable
to such order under the Exchange’s
rules.
The purpose of enabling RMOs to
designate orders as Retail Orders to the
Exchange under the proposed rule
change is so the Exchange may identify
and track orders designated as such,
which the Exchange believes will be
useful for it in considering potential
pricing modifications to such orders as
it continues to evaluate its pricing
structure following the recent
commencement of its operations as a
national securities exchange. The
Exchange further believes that the
proposed rule change would enable the
Exchange to have the appropriate
VerDate Sep<11>2014
16:55 Nov 02, 2020
Jkt 253001
mechanisms and processes in place to
implement any differentiated pricing for
Retail Orders if and when the Exchange
proposes to do so in the future. The
Exchange notes that, at some point
following the adoption and
implementation of proposed Rule 11.21
as described in this proposed rule
change, the Exchange may separately
propose to amend its fee schedule to
adopt a specific fee code for Retail
Orders to be provided on an RMO’s
execution reports and/or to provide
differentiated pricing for Retail Orders,
which the Exchange believes would
attract additional retail order flow to the
Exchange, thereby providing the
benefits of exchange transparency,
regulation, and oversight to more retail
orders. The Exchange believes that the
proposed rule change would allow it to
be organized with the appropriate
infrastructure (i.e., mechanisms and
processes) in advance of any such
proposal, and as such, would allow the
Exchange to more quickly implement
any such differentiated pricing.
Comparison To Existing Rules of Other
Equity Exchanges
As noted above, proposed Rule 11.21
is substantially similar to and based on
Cboe BZX Rule 11.25.11 Specifically,
proposed Rule 11.21 is nearly identical
to paragraphs (a)–(d) of Cboe BZX Rule
11.25, with the only differences being to
the name of the RMO Panel, the deletion
of a defined term not otherwise used in
the rule, and that the Exchange’s Chief
Executive Officer, rather than Chief
Information Officer, designates two
officers to serve on the RMO Panel, and
otherwise differs from Cboe BZX Rule
11.25 only in that such rule contains a
separate paragraph (e) that allows an
RMO to designate a Retail Order to be
identified as such on Cboe BZX’s
proprietary data feeds.12 As noted
above, proposed Rule 11.21 would not
allow an RMO to designate a Retail
Order to be identified as such on the
Exchange’s market data feeds.
The Exchange further notes that
proposed Rule 11.21 is also
substantially similar to the existing
rules of several other equity
exchanges.13 Certain of these exchanges
include these rules as part of a retail
attribution program,14 retail liquidity
program 15 or retail price improvement
11 See
program.16 However, unlike those
programs, the Exchange does not
propose to attribute retail orders in its
market data feeds, to adopt any special
order handling for Retail Orders or
orders intended to provide liquidity to
Retail Orders, or to adopt any
mechanics for price improvement for
Retail Orders. Instead, as described
above, the proposed rule change would
only enable an RMO to designate that
their Retail Orders be identified as such
to the Exchange.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act, in general, and
furthers the objectives of Section 6(b)(5)
of the Act, in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, and to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system. The Exchange believes that the
proposed rule change is consistent with
these principles because it would
increase competition among execution
venues and enable the Exchange to
implement future pricing changes to
encourage the submission of additional
Retail Orders to the Exchange. The
Exchange notes that a significant
percentage of the orders of retail
investors are executed over-thecounter.17 The Exchange believes that it
is appropriate to put in place the
mechanisms and processes to enable the
Exchange to subsequently offer any
differentiated pricing for Retail Orders
as the Exchange believes that such
pricing could incentivize market
participants to bring more retail order
flow to the Exchange, thereby providing
the benefits of exchange transparency,
regulation, and oversight to more retail
orders.
The Exchange notes that the proposed
rule change is substantially similar to
paragraphs (a)–(d) of Cboe BXZ Rule
11.25 and the existing rules of several
other equity exchanges, as described in
more detail above.18 Specifically,
proposed Rule 11.21 contains nearly
identical definitions, standards and
qualification procedures as Cboe BZX
Rule 11.25 and the comparable retail
order rules of Cboe EDGX, Cboe BYX,
supra note 5 [sic].
12 Id.
16 See,
13 See,
e.g., Cboe EDGX Exchange, Inc. (‘‘Cboe
EDGX’’) Rule 11.21; Cboe BYX Exchange, Inc.
(‘‘Cboe BYX’’) Rule 11.24; Nasdaq BX, Inc.
(‘‘Nasdaq BX’’) Rule 4780; NYSE Arca, Inc. (‘‘NYSE
Arca’’) Rule 7.44–E.
14 See, e.g., Cboe EDGX Rule 11.21.
15 See, e.g., NYSE Arca Rule 7.44–E.
PO 00000
69673
Frm 00110
Fmt 4703
Sfmt 4703
e.g., Nasdaq BX Rule 4780.
on data made available through
consolidated data feeds (i.e., CTS and UTDF) and
OTC data made available by FINRA, during the
week of August 31, 2020, the volume reported by
retail wholesalers reporting to the FINRA TRF
exceeded 25% of overall market volume.
18 See supra notes 5 and 12 [sic].
17 Based
E:\FR\FM\03NON1.SGM
03NON1
khammond on DSKJM1Z7X2PROD with NOTICES
69674
Federal Register / Vol. 85, No. 213 / Tuesday, November 3, 2020 / Notices
Nasdaq BX, and NYSE Arca.19 However,
unlike certain of these exchanges’ rules,
the proposed rule change does not
propose to attribute retail orders in the
Exchange’s market data feeds, to adopt
any special order handling for Retail
Orders or orders intended to provide
liquidity to Retail Orders, or to adopt
any mechanics for price improvement
for Retail Orders, as described above.
The Exchange also believes its
proposed qualification standards and
review process under proposed Rule
11.21 promote just and equitable
principles and are not unfairly
discriminatory because they are
designed to ensure that Members are
properly qualified as RMOs and only
designate as Retail Orders those orders
that meet the definition of Retail Orders
under proposed Rule 11.21(a)(1)
described above. The qualification
process proposed herein by the
Exchange is not designed to permit
unfair discrimination, but rather ensure
that orders that are designated as Retail
Orders are, in fact, orders submitted by
a retail customer that satisfy the
proposed definition of Retail Order.
Lastly, the Exchange notes that these
qualification and review provisions are
nearly identical to those included in the
rules of the Cboe BZX, Cboe EDGX,
Cboe BYX, Nasdaq BX, and NYSE
Arca.20
The Exchange further believes that
distinguishing an RMO’s routing
services on behalf of another brokerdealer from services provided by an
RMO that carries retail customer
accounts on a fully disclosed basis in
proposed Rule 11.21(b)(1) is designed to
prevent fraudulent and manipulative
acts and practices because it highlights
the parties for whom additional
procedures are required because they do
not maintain relationships with the end
customer (i.e., routing brokers) and still
requires the RMO to follow such
procedures to ensure that such orders
qualify as Retail Orders. As proposed,
however, an RMO would not be
required to follow such procedures,
including obtaining annual attestations,
to the extent such RMO actually knows
the end customer and carries the
account of such customer and thus can
itself confirm that the orders qualify as
Retail Orders. The Exchange believes
that this aspect of the proposed rule
change will remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because it will allow RMOs that
carry retail customer accounts to
designate Retail Orders as such without
imposing additional attestation
requirements that the Exchange believes
are not necessary for such RMOs, as
described above.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes its proposed
rule change would not impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
amendment would not burden
intramarket competition because the
ability to designate Retail Orders to be
identified as such to the Exchange
would be open to all Members that wish
to send Retail Orders to the Exchange.
The Exchange believes the proposed
rule change would not burden, but
rather increase, intermarket competition
by permitting RMOs to identify orders
as Retail Orders when submitted to the
Exchange, which would ultimately
enable the Exchange to better compete
with other exchanges that offer retail
order programs.21 As noted above, at
this time the Exchange is not proposing
to attribute retail orders in the
Exchange’s market data feeds, to adopt
any special order handling for Retail
Orders or orders intended to provide
liquidity to Retail Orders, or to adopt
any mechanics for price improvement
for Retail Orders. Rather, adoption of
the proposed rule will enable the
Exchange to have the appropriate
mechanisms and processes in place to
implement differentiated pricing for
Retail Orders if and when the Exchange
proposes to do so in the future.
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 22 and Rule 19b–
4(f)(6) 23 thereunder.
21 See
supra notes 5 and 12 [sic].
U.S.C. 78s(b)(3)(A).
23 17 CFR 240.19b–4.
19 Id.
22 15
20 Id.
VerDate Sep<11>2014
16:55 Nov 02, 2020
Jkt 253001
PO 00000
Frm 00111
Fmt 4703
Sfmt 4703
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
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
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MEMX–2020–13 on the subject line.
Paper Comments
• Send paper comments in triplicate
to the Secretary, Securities and
Exchange Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–MEMX–2020–13. 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 (https://www.sec.gov/
rules/sro.shtml). 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
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
E:\FR\FM\03NON1.SGM
03NON1
Federal Register / Vol. 85, No. 213 / Tuesday, November 3, 2020 / Notices
personal information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–MEMX–
2020–13 and should be submitted on or
before November 24, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–24269 Filed 11–2–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90277; File No. SR–
CboeBZX–2020–036]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of
Designation of a Longer Period for
Commission Action on Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change
To Amend Rule 14.11, Other Securities
October 28, 2020.
On April 29, 2020, Cboe BZX
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend one of the continued
listing requirements relating to certain
exchange-traded products (‘‘ETPs’’)
under BZX Rule 14.11. The proposed
rule change was published for comment
in the Federal Register on May 7, 2020.3
On June 16, 2020, pursuant to Section
19(b)(2) of the Act,4 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
rule change.5 On August 4, 2020, the
Commission instituted proceedings
under Section 19(b)(2)(B) of the Act 6 to
determine whether to approve or
disapprove the proposed rule change.7
The Commission has received one
khammond on DSKJM1Z7X2PROD with NOTICES
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 88795
(May 1, 2020), 85 FR 27254.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 89076,
85 FR 37488 (June 22, 2020).
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 89472,
85 FR 48318 (August 10, 2020).
1 15
VerDate Sep<11>2014
16:55 Nov 02, 2020
Jkt 253001
comment letter on the proposed rule
change.8
Section 19(b)(2) of the Act 9 provides
that, after initiating disapproval
proceedings, the Commission shall issue
an order approving or disapproving the
proposed rule change not later than 180
days after the date of publication of
notice of filing of the proposed rule
change. The Commission may extend
the period for issuing an order
approving or disapproving the proposed
rule change by not more than 60 days
if the Commission determines that a
longer period is appropriate and
publishes reasons for such
determination. The proposed rule
change was published for notice and
comment in the Federal Register on
May 7, 2020. November 3, 2020 is 180
days from that date, and January 2, 2021
is 240 days from that date.
The Commission finds it appropriate
to designate a longer period within
which to issue an order approving or
disapproving the proposed rule change
so that it has sufficient time to consider
the proposed rule change. Accordingly,
the Commission, pursuant to Section
19(b)(2) of the Act,10 designates January
2, 2021 as the date by which the
Commission shall either approve or
disapprove the proposed rule change
(File No. SR–CboeBZX–2020–036).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–24268 Filed 11–2–20; 8:45 am]
69675
Issued on 08/28/2020.
Physical Loan Application Deadline
Date: 11/27/2020.
Economic Injury (EIDL) Loan
Application Deadline Date: 05/28/2021.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW, Suite 6050,
Washington, DC 20416, (202) 205–6734.
SUPPLEMENTARY INFORMATION: The notice
of the President’s major disaster
declaration for the State of Louisiana,
dated 08/28/2020, is hereby amended to
extend the deadline for filing
applications for physical damages as a
result of this disaster to 11/27/2020. All
other information in the original
declaration remains unchanged.
DATES:
(Catalog of Federal Domestic Assistance
Number 59008)
Cynthia Pitts,
Acting Associate Administrator for Disaster
Assistance.
[FR Doc. 2020–24316 Filed 11–2–20; 8:45 am]
BILLING CODE 8026–03–P
SURFACE TRANSPORTATION BOARD
30-Day Notice of Intent To Seek
Extension of Approval for Information
Collection: Rail Service Data
Surface Transportation Board.
Notice and request for
comments.
AGENCY:
BILLING CODE 8011–01–P
ACTION:
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #16633 and #16634;
Louisiana Disaster Number LA–00103]
Presidential Declaration Amendment of
a Major Disaster for the State of
Louisiana
U.S. Small Business
Administration.
ACTION: Amendment 6.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for the State of Louisiana
(FEMA–4559–DR), dated 08/28/2020.
Incident: Hurricane Laura.
Incident Period: 08/22/2020 through
08/27/2020.
SUMMARY:
8 Comments on the proposed rule change can be
found on the Commission’s website at: https://
www.sec.gov/comments/sr-cboebzx-2020-036/
srcboebzx2020036.htm.
9 15 U.S.C. 78s(b)(2).
10 Id.
11 17 CFR 200.30–3(a)(31).
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
As required by the Paperwork
Reduction Act of 1995 (PRA), the
Surface Transportation Board (STB or
Board) gives notice of its intent to seek
approval from the Office of Management
and Budget (OMB) for an extension of
the information collection of Rail
Service Data, as described below. The
Board previously published a notice
about this collection in the Federal
Register. That notice allowed for a 60day public review and comment period.
No comments were received.
DATES: The comment period for the
notice published September 2, 2020, at
85 FR 54614, is extended. Comments on
this information collection should be
submitted by December 3, 2020.
ADDRESSES: Written comments should
be identified as ‘‘Paperwork Reduction
Act Comments, Rail Service Data.’’
These comments should be directed to
the Office of Management and Budget,
Office of Information and Regulatory
SUMMARY:
E:\FR\FM\03NON1.SGM
03NON1
]]>Agencies
[Federal Register Volume 85, Number 213 (Tuesday, November 3, 2020)]
[Notices]
[Pages 69671-69675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24269]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90278; File No. SR-MEMX-2020-13]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Enable Members To
Designate Certain Orders To Be Identified as Retail Orders to the
Exchange
October 28, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on October 26, 2020, 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 Exchange filed the
proposal as a ``non-controversial'' proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act \4\ and Rule 19b-4(f)(6)
thereunder.\5\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ 15 U.S.C. 78s(b)(3)(A)(iii).
\5\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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 adopt new Rule 11.21 to enable members of the Exchange (``Members'')
to designate certain orders they submit to the Exchange on behalf of
retail customers to be identified as retail orders to the Exchange. The
text of the proposed rule change is provided in Exhibit 5.
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 Exchange proposes to adopt new Rule 11.21 to enable Members to
designate certain orders they submit to the Exchange on behalf of
retail customers to be identified as retail orders to the Exchange.
Under the proposed rule change, the Exchange would create a new class
of market participant for any Member that satisfies the requirements
under proposed Rule 11.21 called a Retail Member Organization
(``RMO''), which would be eligible to submit certain retail order flow
(``Retail Orders'') to the Exchange. Specifically, proposed Rule 11.21
would: (i) Define a Retail Order and RMO; (ii) set forth an RMO's
qualification and application requirements and the Exchange's approval
process; (iii) outline procedures for when an RMO fails to abide by the
Retail Order requirements; and (iv) outline the procedures under which
a Member may appeal the Exchange's decision to disapprove it or
disqualify it as an RMO. The Exchange notes that proposed Rule 11.21 is
substantially similar to and based on paragraphs (a)-(d) of Cboe BZX
Exchange, Inc. (``Cboe BZX'') Rule 11.25.\6\
---------------------------------------------------------------------------
\6\ See Cboe BZX Rule 11.25; see also Securities Exchange Act
Release Nos. 73237 (September 26, 2014), 79 FR 59537 (October 2,
2014) (SR-BATS-2014-043); 73677 (November 24, 2014), 79 FR 71150
(December 1, 2014) (SR-BATS-2014-058); 76205 (October 21, 2015), 80
FR 65828 (October 27, 2015) (SR-BATS-2015-90).
---------------------------------------------------------------------------
Definitions
The Exchange proposes to adopt the following definitions under
proposed Rule 11.21(a). First, the term ``Retail Member Organization''
or ``RMO'' would be defined as a Member (or a division thereof) that
has been approved by the Exchange to submit Retail Orders. Second, the
term ``Retail Order'' would be defined as 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 an
RMO, 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.
[[Page 69672]]
RMO Qualifications and Approval Process
Under proposed Rule 11.21(b), any Member could qualify as an RMO if
it conducts a retail business or routes retail orders on behalf of
another broker-dealer. Proposed Rule 11.21(b)(1) makes clear that an
RMO that carries retail customer accounts on a fully disclosed basis
would be considered to conduct a retail business for purposes of the
rule. The qualification standards and approval process under proposed
Rule 11.21(b) are designed to ensure that Members are properly
qualified as an RMO and only designate as Retail Orders those orders
that meet the definition of Retail Orders under proposed Rule
11.21(a)(2) described above. Any Member that wishes to obtain RMO
status would be required to submit: (i) an application form; (ii)
supporting documentation sufficient to demonstrate the retail nature
and characteristics of the applicant's order flow; \7\ and (iii) an
attestation, in a form prescribed by the Exchange, that substantially
all orders submitted by the Member as a Retail Order will qualify as
such under proposed Rule 11.21(b).
---------------------------------------------------------------------------
\7\ For example, a prospective RMO could be required to provide
sample marketing literature, website screenshots, other publicly
disclosed materials describing the retail nature of their order
flow, and such other documentation and information as the Exchange
may require to obtain reasonable assurance that the applicant's
order flow would meet the requirements of the Retail Order
definition.
---------------------------------------------------------------------------
An RMO would be required to have written policies and procedures
reasonably designed to assure that it will only designate orders as
Retail Orders if all requirements of a Retail Order are met. Such
written policies and procedures must require the Member to (i) exercise
due diligence before entering a Retail Order to assure that entry as a
Retail Order is in compliance with the requirements of proposed Rule
11.21, and (ii) monitor whether orders entered as Retail Orders meet
the applicable requirements. If the RMO does not itself conduct a
retail business but routes Retail Orders on behalf another broker-
dealer, the RMO's supervisory procedures must be reasonably designed to
assure that the orders it receives from such other broker-dealer that
it designates as Retail Orders meet the definition of a Retail Order.
Such an RMO must (i) obtain an annual written representation, in a form
acceptable to the Exchange, from each other broker-dealer that sends it
orders to be designated as Retail Orders that entry of such orders as
Retail Orders will be in compliance with the requirements of proposed
Rule 11.21, and (ii) monitor whether Retail Order flow routed on behalf
of such other broker-dealers continues to meet the applicable
requirements.\8\
---------------------------------------------------------------------------
\8\ The Exchange or another self-regulatory organization on
behalf of the Exchange will review an RMO's compliance with these
requirements through an exam-based review of the RMO's internal
controls.
---------------------------------------------------------------------------
If the Exchange disapproves a Member's application to be an RMO,
the Exchange would provide a written notice to the Member. The
disapproved applicant could appeal the disapproval by the Exchange as
provided in proposed Rule 11.21(d) and/or reapply for RMO status 90
days after the disapproval notice is issued by the Exchange. An RMO
also could voluntarily withdraw from such status at any time by giving
written notice to the Exchange.
As described above, under proposed Rule 11.21(b), any Member could
qualify as an RMO if it conducts a retail business or routes retail
orders on behalf of another broker-dealer, and Proposed Rule
11.21(b)(1) makes clear that an RMO that carries retail customer
accounts on a fully disclosed basis would be considered to conduct a
retail business for purposes of the rule. The Exchange proposes to
distinguish an RMO's routing services on behalf of another broker-
dealer from services provided by an RMO that carries retail customer
accounts on a fully disclosed basis, as described below. As background
with respect to this aspect of the proposed change, the Exchange first
would like to describe the terms ``introducing broker'', ``carrying
firm'' or ``carrying broker-dealer'', and ``fully disclosed,'' as such
terms are commonly used in the securities industry. An ``introducing''
broker-dealer is ``one that has a contractual arrangement with another
firm, known as the carrying or clearing firm, under which the carrying
firm agrees to perform certain services for the introducing firm.
Usually, the introducing firm submits its customer accounts and
customer orders to the carrying firm, which executes the orders and
carries the account. The carrying firm's duties include the proper
disposition of the customer funds and securities after the trade date,
the custody of customer securities and funds, and the recordkeeping
associated with carrying customer accounts.'' \9\ Further, a ``fully
disclosed'' introducing arrangement is ``distinguished from an omnibus
clearing arrangement where the clearing firm maintains one account for
all the customer transactions of the introducing firm. In an omnibus
relationship, the clearing firm does not know the identity of the
customers of the introducing firm. In a fully disclosed clearing
arrangement, the clearing firm knows the names, addresses, securities
positions and other relevant data as to each customer.'' \10\
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 31511 (Nov. 24,
1992), 57 FR 56973 (December 2, 1992).
\10\ Id.
---------------------------------------------------------------------------
With respect to a broker-dealer that is routing on behalf of
another broker-dealer, the Exchange does not believe that the routing
broker-dealer has sufficient information to assess whether orders are
truly retail in nature, and thus, requires an RMO routing on behalf of
other broker-dealers to maintain additional supervisory procedures and
obtain annual attestations, as described above, in order to submit
Retail Orders to the Exchange. In contrast, however, if a broker-dealer
is carrying a customer account on a fully disclosed basis, then such
carrying broker-dealer is required to perform certain diligence
regarding such account that the Exchange believes is sufficient to
assess whether a customer is a retail customer in order to submit
orders on behalf of such a customer to the Exchange as a Retail Order.
The carrying broker of an account typically handles orders from its
retail customers that are ``introduced'' by an introducing broker.
However, as noted above, in contrast to a typical routing relationship
on behalf of another broker-dealer, a carrying broker does obtain a
significant level of information regarding each customer introduced by
the introducing broker. Accordingly, the Exchange proposes to state in
Rule 11.21(b)(1) that for purposes of Rule 11.21, ``conducting a retail
business shall include carrying retail customer accounts on a fully
disclosed basis.''
Failure of RMO To Abide by Retail Order Requirements
Proposed Rule 11.21(c) addresses an RMO's failure to abide by
Retail Order requirements. If an RMO designates orders submitted to the
Exchange as Retail Orders and the Exchange determines, in its sole
discretion, that those orders fail to meet any of the requirements of
Retail Orders, the Exchange may disqualify a Member from its status as
an RMO. When disqualification determinations are made, the Exchange
would provide a written disqualification notice to the Member. A
disqualified RMO could appeal the disqualification provided in proposed
Rule 11.21(d) and/or reapply for RMO status 90 days after the
disqualification notice issued by the Exchange.
[[Page 69673]]
Appeal of Disapproval or Disqualification
Proposed Rule 11.21(d) provides appeal rights to Members. If a
Member disputes the Exchange's decision to disapprove it as an RMO
under proposed Rule 11.21(b) or disqualify it under proposed Rule
11.21(c), such Member may request, within five business days after
notice of the decision is issued by the Exchange, that the Retail
Member Organization Panel (the ``RMO Panel'') review the decision to
determine if it was correct. The RMO Panel would consist of the
Exchange's Chief Regulatory Officer (``CRO''), or a designee of the
CRO, and two officers of the Exchange designated by the Exchange's
Chief Executive Officer. The RMO Panel would review the facts and
render a decision within the time frame prescribed by the Exchange. The
RMO Panel could overturn or modify an action taken by the Exchange and
all determinations by the RMO Panel would constitute final action by
the Exchange on the matter at issue.
Implementation
The Exchange notes that, under the proposed rule change, an order
involving any Regulation NMS security traded on the Exchange that meets
the definition of Retail Order would be eligible to be designated as
such by an RMO. The Exchange also notes that orders designated as
Retail Orders would only be designated as such to the Exchange and
would not be designated as such on the Exchange's market data feeds or
otherwise identifiable as Retail Orders by any market participants or
the public. Further, the Exchange notes that orders designated as
Retail Orders would be handled in the exact same way under the
Exchange's rules as if such orders were not designated as Retail
Orders. In other words, the designation of an order as a Retail Order
would not in any way affect the priority or other handling procedures
applicable to such order under the Exchange's rules.
The purpose of enabling RMOs to designate orders as Retail Orders
to the Exchange under the proposed rule change is so the Exchange may
identify and track orders designated as such, which the Exchange
believes will be useful for it in considering potential pricing
modifications to such orders as it continues to evaluate its pricing
structure following the recent commencement of its operations as a
national securities exchange. The Exchange further believes that the
proposed rule change would enable the Exchange to have the appropriate
mechanisms and processes in place to implement any differentiated
pricing for Retail Orders if and when the Exchange proposes to do so in
the future. The Exchange notes that, at some point following the
adoption and implementation of proposed Rule 11.21 as described in this
proposed rule change, the Exchange may separately propose to amend its
fee schedule to adopt a specific fee code for Retail Orders to be
provided on an RMO's execution reports and/or to provide differentiated
pricing for Retail Orders, which the Exchange believes would attract
additional retail order flow to the Exchange, thereby providing the
benefits of exchange transparency, regulation, and oversight to more
retail orders. The Exchange believes that the proposed rule change
would allow it to be organized with the appropriate infrastructure
(i.e., mechanisms and processes) in advance of any such proposal, and
as such, would allow the Exchange to more quickly implement any such
differentiated pricing.
Comparison To Existing Rules of Other Equity Exchanges
As noted above, proposed Rule 11.21 is substantially similar to and
based on Cboe BZX Rule 11.25.\11\ Specifically, proposed Rule 11.21 is
nearly identical to paragraphs (a)-(d) of Cboe BZX Rule 11.25, with the
only differences being to the name of the RMO Panel, the deletion of a
defined term not otherwise used in the rule, and that the Exchange's
Chief Executive Officer, rather than Chief Information Officer,
designates two officers to serve on the RMO Panel, and otherwise
differs from Cboe BZX Rule 11.25 only in that such rule contains a
separate paragraph (e) that allows an RMO to designate a Retail Order
to be identified as such on Cboe BZX's proprietary data feeds.\12\ As
noted above, proposed Rule 11.21 would not allow an RMO to designate a
Retail Order to be identified as such on the Exchange's market data
feeds.
---------------------------------------------------------------------------
\11\ See supra note 5 [sic].
\12\ Id.
---------------------------------------------------------------------------
The Exchange further notes that proposed Rule 11.21 is also
substantially similar to the existing rules of several other equity
exchanges.\13\ Certain of these exchanges include these rules as part
of a retail attribution program,\14\ retail liquidity program \15\ or
retail price improvement program.\16\ However, unlike those programs,
the Exchange does not propose to attribute retail orders in its market
data feeds, to adopt any special order handling for Retail Orders or
orders intended to provide liquidity to Retail Orders, or to adopt any
mechanics for price improvement for Retail Orders. Instead, as
described above, the proposed rule change would only enable an RMO to
designate that their Retail Orders be identified as such to the
Exchange.
---------------------------------------------------------------------------
\13\ See, e.g., Cboe EDGX Exchange, Inc. (``Cboe EDGX'') Rule
11.21; Cboe BYX Exchange, Inc. (``Cboe BYX'') Rule 11.24; Nasdaq BX,
Inc. (``Nasdaq BX'') Rule 4780; NYSE Arca, Inc. (``NYSE Arca'') Rule
7.44-E.
\14\ See, e.g., Cboe EDGX Rule 11.21.
\15\ See, e.g., NYSE Arca Rule 7.44-E.
\16\ See, e.g., Nasdaq BX Rule 4780.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act, in general, and furthers the objectives
of Section 6(b)(5) of the Act, in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, and to remove impediments to and
perfect the mechanism of a free and open market and a national market
system. The Exchange believes that the proposed rule change is
consistent with these principles because it would increase competition
among execution venues and enable the Exchange to implement future
pricing changes to encourage the submission of additional Retail Orders
to the Exchange. The Exchange notes that a significant percentage of
the orders of retail investors are executed over-the-counter.\17\ The
Exchange believes that it is appropriate to put in place the mechanisms
and processes to enable the Exchange to subsequently offer any
differentiated pricing for Retail Orders as the Exchange believes that
such pricing could incentivize market participants to bring more retail
order flow to the Exchange, thereby providing the benefits of exchange
transparency, regulation, and oversight to more retail orders.
---------------------------------------------------------------------------
\17\ Based on data made available through consolidated data
feeds (i.e., CTS and UTDF) and OTC data made available by FINRA,
during the week of August 31, 2020, the volume reported by retail
wholesalers reporting to the FINRA TRF exceeded 25% of overall
market volume.
---------------------------------------------------------------------------
The Exchange notes that the proposed rule change is substantially
similar to paragraphs (a)-(d) of Cboe BXZ Rule 11.25 and the existing
rules of several other equity exchanges, as described in more detail
above.\18\ Specifically, proposed Rule 11.21 contains nearly identical
definitions, standards and qualification procedures as Cboe BZX Rule
11.25 and the comparable retail order rules of Cboe EDGX, Cboe BYX,
[[Page 69674]]
Nasdaq BX, and NYSE Arca.\19\ However, unlike certain of these
exchanges' rules, the proposed rule change does not propose to
attribute retail orders in the Exchange's market data feeds, to adopt
any special order handling for Retail Orders or orders intended to
provide liquidity to Retail Orders, or to adopt any mechanics for price
improvement for Retail Orders, as described above.
---------------------------------------------------------------------------
\18\ See supra notes 5 and 12 [sic].
\19\ Id.
---------------------------------------------------------------------------
The Exchange also believes its proposed qualification standards and
review process under proposed Rule 11.21 promote just and equitable
principles and are not unfairly discriminatory because they are
designed to ensure that Members are properly qualified as RMOs and only
designate as Retail Orders those orders that meet the definition of
Retail Orders under proposed Rule 11.21(a)(1) described above. The
qualification process proposed herein by the Exchange is not designed
to permit unfair discrimination, but rather ensure that orders that are
designated as Retail Orders are, in fact, orders submitted by a retail
customer that satisfy the proposed definition of Retail Order. Lastly,
the Exchange notes that these qualification and review provisions are
nearly identical to those included in the rules of the Cboe BZX, Cboe
EDGX, Cboe BYX, Nasdaq BX, and NYSE Arca.\20\
---------------------------------------------------------------------------
\20\ Id.
---------------------------------------------------------------------------
The Exchange further believes that distinguishing an RMO's routing
services on behalf of another broker-dealer from services provided by
an RMO that carries retail customer accounts on a fully disclosed basis
in proposed Rule 11.21(b)(1) is designed to prevent fraudulent and
manipulative acts and practices because it highlights the parties for
whom additional procedures are required because they do not maintain
relationships with the end customer (i.e., routing brokers) and still
requires the RMO to follow such procedures to ensure that such orders
qualify as Retail Orders. As proposed, however, an RMO would not be
required to follow such procedures, including obtaining annual
attestations, to the extent such RMO actually knows the end customer
and carries the account of such customer and thus can itself confirm
that the orders qualify as Retail Orders. The Exchange believes that
this aspect of the proposed rule change will remove impediments to and
perfect the mechanism of a free and open market and a national market
system because it will allow RMOs that carry retail customer accounts
to designate Retail Orders as such without imposing additional
attestation requirements that the Exchange believes are not necessary
for such RMOs, as described above.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes its proposed rule change would not impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes that the
proposed amendment would not burden intramarket competition because the
ability to designate Retail Orders to be identified as such to the
Exchange would be open to all Members that wish to send Retail Orders
to the Exchange. The Exchange believes the proposed rule change would
not burden, but rather increase, intermarket competition by permitting
RMOs to identify orders as Retail Orders when submitted to the
Exchange, which would ultimately enable the Exchange to better compete
with other exchanges that offer retail order programs.\21\ As noted
above, at this time the Exchange is not proposing to attribute retail
orders in the Exchange's market data feeds, to adopt any special order
handling for Retail Orders or orders intended to provide liquidity to
Retail Orders, or to adopt any mechanics for price improvement for
Retail Orders. Rather, adoption of the proposed rule will enable the
Exchange to have the appropriate mechanisms and processes in place to
implement differentiated pricing for Retail Orders if and when the
Exchange proposes to do so in the future.
---------------------------------------------------------------------------
\21\ See supra notes 5 and 12 [sic].
---------------------------------------------------------------------------
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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) \23\ thereunder.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 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
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MEMX-2020-13 on the subject line.
Paper Comments
Send paper comments in triplicate to the Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number SR-MEMX-2020-13. 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 (https://www.sec.gov/rules/sro.shtml).
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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit
[[Page 69675]]
personal information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MEMX-2020-13 and should be submitted on
or before November 24, 2020.
---------------------------------------------------------------------------
\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-24269 Filed 11-2-20; 8:45 am]
BILLING CODE 8011-01-P
