Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule, 79244-79248 [2020-26989]
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Federal Register / Vol. 85, No. 237 / Wednesday, December 9, 2020 / Notices
amendments would not otherwise affect
the terms of the contracts. ICE Clear
Europe does not believe the
amendments would adversely affect
competition among Clearing Members,
materially affect the cost of clearing,
adversely affect access to clearing in the
new contracts for Clearing Members or
their customers, or otherwise adversely
affect competition in clearing services.
Accordingly, ICE Clear Europe does not
believe that the amendments would
impose any impact or burden on
competition that is not appropriate in
furtherance of the purpose of the Act.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments relating to the
proposed amendments have not been
solicited or received by ICE Clear
Europe. ICE Clear Europe will notify the
Commission of any comments received
with respect to 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)
of the Act 11 and paragraph (f) of Rule
19b–4 12 thereunder. 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.
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–
ICEEU–2020–015 on the subject line.
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Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
11 15
12 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
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16:16 Dec 08, 2020
All submissions should refer to File
Number SR–ICEEU–2020–015. 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 such
filings will also be available for
inspection and copying at the principal
office of ICE Clear Europe and on ICE
Clear Europe’s website at https://
www.theice.com/notices/
Notices.shtml?regulatoryFilings.
All comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from comment submissions.
You should submit only information
that you wish to make available
publicly. All submissions should refer
to File Number SR–ICEEU–2020–015
and should be submitted on or before
December 30, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–26988 Filed 12–8–20; 8:45 am]
BILLING CODE 8011–01–P
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 fee schedule applicable to
Members 3 pursuant to Exchange Rules
15.1(a) and (c) in order to (i) provide
pricing for Retail Orders 4 that add
displayed liquidity and are executed on
the Exchange; and (ii) provide pricing
for transactions in securities priced
below $1.00 per share that are executed
on 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
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90555; File No. SR–MEMX–
2020–14]
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend the Exchange’s Fee
Schedule
December 3, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
13 17
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‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
30, 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
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
PO 00000
CFR 200.30–3(a)(12).
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The Exchange proposes to modify its
fee schedule to adopt the fees and
rebates described herein applicable to
Retail Orders that add displayed
liquidity to the Exchange (‘‘Added
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Exchange Rule 1.5(p).
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).
2 17
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Federal Register / Vol. 85, No. 237 / Wednesday, December 9, 2020 / Notices
Displayed Retail Volume’’) and
transactions in securities priced below
$1.00 per share (‘‘Sub-Dollar
Securities’’) that are executed on the
Exchange, effective as of December 1,
2020.
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 16% of
the total market share of executed
volume of equities trading.5 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
less than 1% of the overall market
share.6
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Rebate for Added Displayed Retail
Volume
The Exchange recently adopted rules
enabling Members to apply for status as
Retail Member Organizations,7 and once
approved as such by the Exchange, to
designate qualifying orders as Retail
Orders to the Exchange.8 Currently,
there are no pricing incentives for Retail
Orders, and Retail Orders are subject to
the same standard fees and rebates
applicable as if such orders were not
designated as Retail Orders.
The Exchange proposes to modify its
fee schedule to adopt pricing for
executions of Added Displayed Retail
Volume and to adopt a fee code
applicable to executions of all Retail
Orders. Specifically, the Exchange
proposes to adopt a rebate of $0.0034
per share for executions of Added
Displayed Retail Volume transactions in
5 Market share percentage calculated as of
November 24, 2020. The Exchange receives and
processes data made available through consolidated
data feeds (i.e., CTS and UTDF).
6 Id.
7 A ‘‘Retail Member Organization’’ or ‘‘RMO’’ is
a Member (or a division thereof) that has been
approved by the Exchange under Exchange Rule
11.21 to submit Retail Orders. See Exchange Rule
11.21(a).
8 See Securities Exchange Act Release No. 90278
(October 28, 2020), 85 FR 69667 (November 3, 2020)
(SR–MEMX–2020–13). Retail Orders are only
designated as such to the Exchange and are not
identified as such on the Exchange’s market data
feeds or otherwise identifiable as such to other
market participants. See id.
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securities traded on the Exchange priced
at or above $1.00 per share (the ‘‘ADRV
Rebate’’).9 The Exchange notes that the
proposed ADRV Rebate would not
apply, and that the proposed standard
pricing with respect to transactions in
Sub-Dollar Securities, as further
described below, would apply, to
executions of Added Displayed Retail
Volume transactions in Sub-Dollar
Securities. The Exchange also notes that
the proposed ADVR Rebate would not
apply to executions of Retail Orders in
securities priced at or above $1.00 per
share that add non-displayed liquidity
to the Exchange or remove liquidity
from the Exchange, and instead, the fees
and rebates otherwise applicable to such
transactions under the current fee
schedule would continue to apply.
Thus, under the proposal, an execution
of a Retail Order in a security priced at
or above $1.00 per share that adds nondisplayed liquidity to the Exchange
would receive a rebate of $0.0020 per
share, which is the standard rebate for
adding non-displayed liquidity to the
Exchange, and an execution of a Retail
Order in a security priced at or above
$1.00 per share that removes liquidity
from the Exchange would be charged a
fee of $0.0025 per share, which is the
standard fee for removing liquidity from
the Exchange.
Pricing for Transactions in Sub-Dollar
Securities
The Exchange currently does not
charge any fees or provide any rebates
for transactions in Sub-Dollar Securities
that are executed on the Exchange. The
Exchange now proposes to charge a
standard fee of 0.30% of the total dollar
value of any transaction (including a
Retail Order) in Sub-Dollar Securities
that removes liquidity from the
Exchange (‘‘Removed Sub-Dollar
Volume’’).10 The Exchange also
9 This proposed pricing is referred to by the
Exchange as ‘‘Added displayed volume, Retail
Order’’ on the fee schedule. The Exchange is also
proposing to adopt new fee code ‘‘r’’ to be
appended as the second character after the
applicable first fee code character for executions of
all Retail Orders. The Exchange notes that, as
indicated on the current fee schedule, the Exchange
also appends as an additional character at the end
of its fee codes either ‘‘A’’ or ‘‘B’’ to indicate
whether an execution occurred: (A) In a security
priced at or above $1.00 per share or (B) in a SubDollar Security. Accordingly, under the proposal,
an execution of an Added Displayed Retail Volume
transaction in a security priced at or above $1.00
per share would be assigned a fee code of ‘‘BrA’’,
‘‘DrA’’ or ‘‘JrA’’, as applicable, by the Exchange.
Similarly, under the proposal, an execution of an
Added Displayed Retail Volume transaction in a
Sub-Dollar Security would be assigned a fee code
of ‘‘BrB’’, ‘‘DrB’’ or ‘‘JrB’’, as applicable, by the
Exchange.
10 This pricing is referred to by the Exchange on
the fee schedule under the existing description
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79245
proposes to provide a standard rebate of
0.30% of the total dollar value of any
transaction (including a Retail Order) in
Sub-Dollar Securities that adds
liquidity, displayed or non-displayed, to
the Exchange (‘‘Added Sub-Dollar
Volume’’).11 The proposed pricing for
Removed Sub-Dollar Volume and
Added Sub-Dollar Volume would only
apply to transactions that are executed
on the Exchange, and as such there
would continue to be no fee charged or
rebate provided for transactions in SubDollar Securities that are routed to and
executed at another market center.
The proposed rebate for executions of
Added Sub-Dollar Volume is intended
to increase order flow in Sub-Dollar
Securities to the Exchange by
incentivizing Members to increase the
liquidity-providing orders in Sub-Dollar
Securities they submit to the Exchange,
which would support price discovery
on the Exchange and provide additional
liquidity for incoming orders. The
proposed fee for executions of Removed
Sub-Dollar Volume is intended to be a
direct offset of the rebate provided for
Added Sub-Dollar Volume so that the
Exchange may remain revenue neutral
with respect to such transactions while
attempting to compete with other
venues to attract this order flow.
The proposed rule change does not
include different fees or rebates for
Retail Orders or transactions in SubDollar Securities that depend on the
amount of orders submitted to, and/or
transactions executed on or through, the
Exchange. Accordingly, all fees and
rebates described above are applicable
to all Members, regardless of the overall
volume of a Member’s trading activities
on the Exchange.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6(b) of the
Act,12 in general, and furthers the
objectives of Sections 6(b)(4) and (5) of
the Act,13 in particular, in that it is
designed to provide for the equitable
allocation of reasonable dues, fees and
other charges among its Members and
other persons using its facilities and is
‘‘Removed volume from MEMX Book’’ with a fee
code of ‘‘RB’’ or ‘‘RrB’’, as applicable, assigned by
the Exchange.
11 This pricing is referred to by the Exchange on
the fee schedule under the existing description
‘‘Added displayed volume’’, the existing
description ‘‘Added non-displayed volume’’ or the
proposed new description ‘‘Added displayed
volume, Retail Order’’, as applicable, with a fee
code of ‘‘BB’’, ‘‘BrB’’, ‘‘DB’’, ‘‘DrB’’, ‘‘JB’’, ‘‘JrB’’,
‘‘HB’’, ‘‘HrB’’, ‘‘MB’’ or ‘‘MrB’’, as applicable,
assigned by the Exchange.
12 15 U.S.C. 78f.
13 15 U.S.C. 78f(b)(4) and (5).
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not designed to unfairly discriminate
between customers, issuers, brokers, or
dealers.
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
broader forms that are most important to
investors and listed companies.’’ 14
The Exchange believes that the evershifting 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, including with respect
to Added Displayed Retail Volume and
transactions in Sub-Dollar Securities,
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 proposed rule change
reflects a reasonable and competitive
pricing structure designed to incentivize
market participants to direct order flow
to the Exchange, which the Exchange
believes would enhance market quality
to the benefit of all Members and
investors. The Exchange notes that the
proposal does not include different fees
or rebates for Retail Orders or
transactions in Sub-Dollar Securities
depending on the amount of orders
submitted to, and/or transactions
executed on or through, the Exchange.
Accordingly, the proposed pricing
structure is applicable to all Members,
regardless of the overall volume of a
Member’s trading activities on the
Exchange.
14 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
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Rebate for Added Displayed Retail
Volume
The Exchange believes that the
proposed ADRV Rebate is reasonable,
equitable, and consistent with the Act
because it would incentivize Members
to submit additional displayed Retail
Orders to the Exchange, which would
enhance liquidity in Retail Orders on
the Exchange and promote price
discovery. The Exchange believes that
this increased displayed liquidity would
potentially stimulate further price
competition for Retail Orders, thereby
deepening the Exchange’s liquidity
pool, enhancing market quality to the
benefit of all Members and investors by
providing more trading opportunities,
supporting price discovery, and
subjecting such transactions to the
Exchange’s transparency, regulation,
and oversight as a registered national
securities exchange.
The Exchange notes that a significant
percentage of the orders of individual
(i.e., retail) investors are executed overthe-counter.15 In addition, other
exchanges maintain special pricing to
encourage entry of retail orders to their
markets, in part, to compete against the
over-the-counter market.16 Without
such pricing, the Exchange is not
currently competitive with such other
exchanges. The Exchange believes that
it is thus appropriate to create a
financial incentive to bring more Retail
Order flow to the Exchange. The
Exchange believes that investor
protection and transparency is
promoted by rewarding displayed
liquidity on exchanges, including the
Exchange. By offering a proposed ADRV
Rebate of $0.0034, which is higher than
the Exchange’s standard rebate of
$0.0029 for executions of added
displayed volume, the Exchange
believes it will encourage use of Retail
Orders, while maintaining consistency
with the Exchange’s overall pricing
philosophy of encouraging displayed
liquidity. The Exchange places a higher
value on displayed liquidity because the
Exchange believes that displayed
liquidity is a public good that benefits
investors generally by providing greater
price transparency and enhancing
public price discovery, which
ultimately lead to substantial reductions
in transaction costs.
Furthermore, the Exchange believes
that the proposed ADRV Rebate of
$0.0034 per share is reasonable and
equitable because it is comparable to,
15 See, e.g., SEC Staff Report on Algorithmic
Trading in U.S. Capital Markets (August 5, 2020),
available at https://www.sec.gov/files/Algo_
Trading_Report_2020.pdf.
16 See infra note 17.
PO 00000
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and competitive with, the rebates
provided by other exchanges for added
displayed retail liquidity in securities
priced at or above $1.00 per share.17 The
Exchange also believes that providing a
rebate to the liquidity adder, and
charging a fee to the liquidity remover,
with respect to the execution of a
displayed Retail Order is reasonable,
equitable and not unfairly
discriminatory because it is designed,
and the Exchange believes it is an
appropriate effort, to incentivize
displayable liquidity provision on the
Exchange, thereby contributing to price
discovery and price formation,
consistent with the overall goal of
enhancing market quality. Moreover, the
Exchange notes that several other
exchanges provide rebates to the
liquidity adder, and charge fees to the
liquidity remover, with respect to
executions of retail orders, and that this
aspect of the proposed ADRV Rebate
does not raise any new or novel issues
that have not previously been
considered by the Commission in
connection with the fees and rebates of
other exchanges.18
The Exchange understands that
Section 6(b)(5) of the Act 19 prohibits an
exchange from establishing rules that
are designed to permit unfair
discrimination between market
participants. However, Section 6(b)(5) of
the Act does not prohibit exchange
members or other broker-dealers from
discriminating, so long as their activities
are otherwise consistent with the federal
securities laws. While the Exchange
believes that markets and price
discovery optimally function through
the interactions of diverse flow types, it
also believes that growth in
internalization has required
differentiation of Retail Order flow from
17 See, e.g., The Nasdaq Stock Market LLC
equities trading fee schedule on its public website
(available at https://www.nasdaqtrader.com/
trader.aspx?id=pricelisttrading2), which reflects
rebates to add displayed designated retail liquidity
ranging from $0.00325–$0.0033 per share
depending on the percentage add to total volume
ratio, and a standard fee that generally applies to
retail orders that remove liquidity of $0.0030 per
share; the NYSE Arca, Inc. (‘‘NYSE Arca’’) equities
trading fee schedule on its public website (available
at https://www.nyse.com/publicdocs/nyse/markets/
nyse-arca/NYSE_Arca_Marketplace_Fees.pdf),
which reflects rebates for retail orders that provide
displayed liquidity ranging from $0.0033–$0.0038
per share depending on the applicable tier; the Cboe
EDGX Exchange, Inc. (‘‘Cboe EDGX’’) equities
trading fee schedule on its public website (available
at https://markets.cboe.com/us/equities/
membership/fee_schedule/edgx/), which reflects
rebates for retail orders that add liquidity ranging
from $0.0032–$0.0037 per share depending on the
applicable tier, and a standard fee that generally
applies to retail orders that remove liquidity of
$0.0027 per share.
18 Id.
19 15 U.S.C. 78f(b)(5).
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other order flow types. The
differentiation proposed herein by the
Exchange is not designed to permit
unfair discrimination, but instead to
promote a competitive process around
Retail Order executions such that retail
investors would receive better rebates
on the Exchange than they do currently
in order to encourage entry of retail
orders to the Exchange. Accordingly, the
Exchange believes the proposed ADRV
Rebate is not unfairly discriminatory.
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Pricing for Transactions in Sub-Dollar
Securities
The Exchange believes that the
proposed changes with respect to
pricing for executions of transactions in
Sub-Dollar Securities would incentivize
submission of additional liquidity in
Sub-Dollar Securities to the Exchange
through the proposed rebate of 0.30% of
the total dollar value of any Added SubDollar Volume transactions, thereby
promoting price discovery and
transparency, and enhancing order
execution opportunities for all
Members. The Exchange believes that
the proposed rebate for Added SubDollar Volume is reasonable because it
would incentivize Members to direct
more order flow in Sub-Dollar Securities
to the Exchange. The Exchange notes
that other exchanges provide rebates for
liquidity-adding transactions in SubDollar Securities, but that these are
denominated in dollar amounts per
share rather than a percentage of the
total dollar amount of the transaction.20
The Exchange expects that the proposed
rebate for Added Sub-Dollar Volume
transactions would typically result in a
higher overall credit for a given
transaction than the rebates offered by
other exchanges, although the Exchange
notes that it may also result in a lower
overall credit for such transaction
depending on the number of shares
traded and the total dollar value of the
transaction.
The Exchange also believes that the
proposed fee for Removed Sub-Dollar
Volume is reasonable because it is in
line with the fees charged by other
exchanges for liquidity-removing
transactions in Sub-Dollar Securities.21
20 See, e.g., the Cboe EDGX equities trading fee
schedule on its public website (available at https://
markets.cboe.com/us/equities/membership/fee_
schedule/edgx/), which reflects a rebate of $0.00009
per share for liquidity-adding transactions in
securities priced below $1.00 per share; the NYSE
Arca equities trading fee schedule on its public
website (available at https://www.nyse.com/
publicdocs/nyse/markets/nyse-arca/NYSE_Arca_
Marketplace_Fees.pdf), which reflects a rebate of
$0.00004 per share for liquidity-adding transactions
in securities priced below $1.00 per share.
21 See, e.g., the Cboe EDGX equities trading fee
schedule on its public website (available at https://
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The Exchange believes that, given the
competitive environment in which the
Exchange currently operates, the
proposed pricing structure, with an
offsetting fee and rebate, with respect to
executions of transactions in Sub-Dollar
Securities, is a reasonable attempt to
increase liquidity in Sub-Dollar
Securities on the Exchange and improve
the Exchange’s market share relative to
its competitors while remaining revenue
neutral with respect to such
transactions.
The Exchange also believes that the
proposed fee and rebate structure
applicable to executions of transactions
in Sub-Dollar Securities is equitably
allocated and not unfairly
discriminatory because it applies
equally to all Members and is
reasonably related to the value of the
Exchange’s market quality associated
with higher volume. A number of
Members currently transact in SubDollar Securities and they, along with
additional Members that choose to
direct order flow in Sub-Dollar
Securities to the Exchange, would all
qualify for the proposed fee and rebate.
The Exchange believes that maintaining
or increasing the proportion of
transactions in Sub-Dollar Securities
that are executed on the Exchange
would benefit all investors by
deepening the Exchange’s liquidity
pool, which would support price
discovery, promote market transparency
and improve investor protection, further
rendering the proposed changes
reasonable and equitable.
In conclusion, the Exchange also
submits that its proposed fee structure
satisfies the requirements of Sections
6(b)(4) and 6(b)(5) of the Act for the
reasons discussed above 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
markets.cboe.com/us/equities/membership/fee_
schedule/edgx/), which reflects a fee of 0.30% of
the total dollar value of the transaction for liquidityremoving transactions in securities priced below
$1.00 per share; the Cboe BZX Exchange, Inc.
equities trading fee schedule on its public website
(available at https://markets.cboe.com/us/equities/
membership/fee_schedule/bzx/), which reflects a
fee of 0.30% of the total dollar value of the
transaction for liquidity-removing transactions in
securities priced below $1.00 per share; the NYSE
Arca equities trading fee schedule on its public
website (available at https://www.nyse.com/
publicdocs/nyse/markets/nyse-arca/NYSE_Arca_
Marketplace_Fees.pdf), which reflects a fee of
0.295% of the total dollar value for liquidity-taking
transactions in securities priced below $1.00 per
share.
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79247
burden on competition, the Exchange
believes that its transaction pricing,
including with respect to Retail Orders
and transactions in Sub-Dollar
Securities, is subject to significant
competitive forces, and that the
proposed fees and rebates described
herein are appropriate to address such
forces.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change 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 Exchange believes
that the proposed change would
encourage the submission of additional
order flow, including Retail Orders and
orders in Sub-Dollar Securities, to the
Exchange, thereby promoting market
depth, enhanced execution
opportunities, as well as price discovery
and transparency for all Members.
Furthermore, the Exchange believes that
the proposed changes would allow the
Exchange to compete more ably with
other execution venues by providing
more competitive pricing for Added
Displayed Retail Volume and
transactions in Sub-Dollar Securities,
thereby making it a more desirable
destination venue for its customers. As
a result, the Exchange believes that the
proposed change 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.’’ 22
Intramarket Competition
The Exchange believes that the
proposed changes would incentivize
market participants to direct more order
flow to the Exchange. Greater liquidity
benefits all Members by providing more
trading opportunities and encourages
Members to send orders to the
Exchange, thereby contributing to robust
levels of liquidity, which benefits all
Members. The proposed fees and rebates
for Added Displayed Retail Volume and
transactions in Sub-Dollar Securities
would be available to all similarlysituated market participants, and, as
such, the proposed change would not
impose a disparate burden on
competition among market participants
on the Exchange. As such, the Exchange
believes the proposed changes would
not impose any burden on intramarket
competition that is not necessary or
22 See
E:\FR\FM\09DEN1.SGM
supra note 14.
09DEN1
79248
Federal Register / Vol. 85, No. 237 / Wednesday, December 9, 2020 / Notices
jbell on DSKJLSW7X2PROD with NOTICES
appropriate in furtherance of the
purposes of the Act.
Intermarket Competition
The Exchange operates in a highly
competitive market. 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
16% of the total market share of
executed volume of equities trading,
and the Exchange currently represents
less than 1% of the overall market share.
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, including with respect
to Added Displayed Retail Volume and
transactions in Sub-Dollar Securities,
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
are competitive proposals through
which the Exchange is seeking to
encourage certain order flow to be sent
to the Exchange.
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.’’ 23 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
23 See
supra note 14.
VerDate Sep<11>2014
16:16 Dec 08, 2020
Jkt 253001
the U.S. national market system, buyers
and sellers of securities, and the brokerdealers 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’. . . .’’.24 Accordingly, the
Exchange does not believe its proposed
fee change imposes any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
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 25 and Rule
19b–4(f)(2) 26 thereunder.
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:
Paper Comments
• 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–2020–14. 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
personal identifying 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–2020–14, and
should be submitted on or before
December 30, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–26989 Filed 12–8–20; 8:45 am]
BILLING CODE 8011–01–P
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–2020–14 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
24 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)).
25 15 U.S.C. 78s(b)(3)(A)(ii).
26 17 CFR 240.19b–4(f)(2).
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
[SEC File No. 270–317, OMB Control No.
3235–0360]
Submission for OMB Review;
Comment Request
27 17
E:\FR\FM\09DEN1.SGM
CFR 200.30–3(a)(12).
09DEN1
]]>Agencies
[Federal Register Volume 85, Number 237 (Wednesday, December 9, 2020)]
[Notices]
[Pages 79244-79248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26989]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90555; File No. SR-MEMX-2020-14]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
December 3, 2020.
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 November 30, 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 Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the fee schedule applicable to Members \3\ pursuant to
Exchange Rules 15.1(a) and (c) in order to (i) provide pricing for
Retail Orders \4\ that add displayed liquidity and are executed on the
Exchange; and (ii) provide pricing for transactions in securities
priced below $1.00 per share that are executed on the Exchange. The
text of the proposed rule change is provided in Exhibit 5.
---------------------------------------------------------------------------
\3\ See Exchange Rule 1.5(p).
\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).
---------------------------------------------------------------------------
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 modify its fee schedule to adopt the fees
and rebates described herein applicable to Retail Orders that add
displayed liquidity to the Exchange (``Added
[[Page 79245]]
Displayed Retail Volume'') and transactions in securities priced below
$1.00 per share (``Sub-Dollar Securities'') that are executed on the
Exchange, effective as of December 1, 2020.
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 16% of the total market share of
executed volume of equities trading.\5\ 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 less than 1% of the overall market
share.\6\
---------------------------------------------------------------------------
\5\ Market share percentage calculated as of November 24, 2020.
The Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\6\ Id.
---------------------------------------------------------------------------
Rebate for Added Displayed Retail Volume
The Exchange recently adopted rules enabling Members to apply for
status as Retail Member Organizations,\7\ and once approved as such by
the Exchange, to designate qualifying orders as Retail Orders to the
Exchange.\8\ Currently, there are no pricing incentives for Retail
Orders, and Retail Orders are subject to the same standard fees and
rebates applicable as if such orders were not designated as Retail
Orders.
---------------------------------------------------------------------------
\7\ A ``Retail Member Organization'' or ``RMO'' is a Member (or
a division thereof) that has been approved by the Exchange under
Exchange Rule 11.21 to submit Retail Orders. See Exchange Rule
11.21(a).
\8\ See Securities Exchange Act Release No. 90278 (October 28,
2020), 85 FR 69667 (November 3, 2020) (SR-MEMX-2020-13). Retail
Orders are only designated as such to the Exchange and are not
identified as such on the Exchange's market data feeds or otherwise
identifiable as such to other market participants. See id.
---------------------------------------------------------------------------
The Exchange proposes to modify its fee schedule to adopt pricing
for executions of Added Displayed Retail Volume and to adopt a fee code
applicable to executions of all Retail Orders. Specifically, the
Exchange proposes to adopt a rebate of $0.0034 per share for executions
of Added Displayed Retail Volume transactions in securities traded on
the Exchange priced at or above $1.00 per share (the ``ADRV
Rebate'').\9\ The Exchange notes that the proposed ADRV Rebate would
not apply, and that the proposed standard pricing with respect to
transactions in Sub-Dollar Securities, as further described below,
would apply, to executions of Added Displayed Retail Volume
transactions in Sub-Dollar Securities. The Exchange also notes that the
proposed ADVR Rebate would not apply to executions of Retail Orders in
securities priced at or above $1.00 per share that add non-displayed
liquidity to the Exchange or remove liquidity from the Exchange, and
instead, the fees and rebates otherwise applicable to such transactions
under the current fee schedule would continue to apply. Thus, under the
proposal, an execution of a Retail Order in a security priced at or
above $1.00 per share that adds non-displayed liquidity to the Exchange
would receive a rebate of $0.0020 per share, which is the standard
rebate for adding non-displayed liquidity to the Exchange, and an
execution of a Retail Order in a security priced at or above $1.00 per
share that removes liquidity from the Exchange would be charged a fee
of $0.0025 per share, which is the standard fee for removing liquidity
from the Exchange.
---------------------------------------------------------------------------
\9\ This proposed pricing is referred to by the Exchange as
``Added displayed volume, Retail Order'' on the fee schedule. The
Exchange is also proposing to adopt new fee code ``r'' to be
appended as the second character after the applicable first fee code
character for executions of all Retail Orders. The Exchange notes
that, as indicated on the current fee schedule, the Exchange also
appends as an additional character at the end of its fee codes
either ``A'' or ``B'' to indicate whether an execution occurred: (A)
In a security priced at or above $1.00 per share or (B) in a Sub-
Dollar Security. Accordingly, under the proposal, an execution of an
Added Displayed Retail Volume transaction in a security priced at or
above $1.00 per share would be assigned a fee code of ``BrA'',
``DrA'' or ``JrA'', as applicable, by the Exchange. Similarly, under
the proposal, an execution of an Added Displayed Retail Volume
transaction in a Sub-Dollar Security would be assigned a fee code of
``BrB'', ``DrB'' or ``JrB'', as applicable, by the Exchange.
---------------------------------------------------------------------------
Pricing for Transactions in Sub-Dollar Securities
The Exchange currently does not charge any fees or provide any
rebates for transactions in Sub-Dollar Securities that are executed on
the Exchange. The Exchange now proposes to charge a standard fee of
0.30% of the total dollar value of any transaction (including a Retail
Order) in Sub-Dollar Securities that removes liquidity from the
Exchange (``Removed Sub-Dollar Volume'').\10\ The Exchange also
proposes to provide a standard rebate of 0.30% of the total dollar
value of any transaction (including a Retail Order) in Sub-Dollar
Securities that adds liquidity, displayed or non-displayed, to the
Exchange (``Added Sub-Dollar Volume'').\11\ The proposed pricing for
Removed Sub-Dollar Volume and Added Sub-Dollar Volume would only apply
to transactions that are executed on the Exchange, and as such there
would continue to be no fee charged or rebate provided for transactions
in Sub-Dollar Securities that are routed to and executed at another
market center.
---------------------------------------------------------------------------
\10\ This pricing is referred to by the Exchange on the fee
schedule under the existing description ``Removed volume from MEMX
Book'' with a fee code of ``RB'' or ``RrB'', as applicable, assigned
by the Exchange.
\11\ This pricing is referred to by the Exchange on the fee
schedule under the existing description ``Added displayed volume'',
the existing description ``Added non-displayed volume'' or the
proposed new description ``Added displayed volume, Retail Order'',
as applicable, with a fee code of ``BB'', ``BrB'', ``DB'', ``DrB'',
``JB'', ``JrB'', ``HB'', ``HrB'', ``MB'' or ``MrB'', as applicable,
assigned by the Exchange.
---------------------------------------------------------------------------
The proposed rebate for executions of Added Sub-Dollar Volume is
intended to increase order flow in Sub-Dollar Securities to the
Exchange by incentivizing Members to increase the liquidity-providing
orders in Sub-Dollar Securities they submit to the Exchange, which
would support price discovery on the Exchange and provide additional
liquidity for incoming orders. The proposed fee for executions of
Removed Sub-Dollar Volume is intended to be a direct offset of the
rebate provided for Added Sub-Dollar Volume so that the Exchange may
remain revenue neutral with respect to such transactions while
attempting to compete with other venues to attract this order flow.
The proposed rule change does not include different fees or rebates
for Retail Orders or transactions in Sub-Dollar Securities that depend
on the amount of orders submitted to, and/or transactions executed on
or through, the Exchange. Accordingly, all fees and rebates described
above are applicable to all Members, regardless of the overall volume
of a Member's trading activities on the Exchange.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b) of the Act,\12\ in general, and
furthers the objectives of Sections 6(b)(4) and (5) of the Act,\13\ in
particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees and other charges among its Members
and other persons using its facilities and is
[[Page 79246]]
not designed to unfairly discriminate between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
As discussed above, the Exchange operates in a highly fragmented
and competitive market in which market participants can readily direct
order flow to competing venues if they deem fee levels at a particular
venue to be excessive or incentives to be insufficient, and the
Exchange represents only a small percentage of the overall market. The
Commission and the courts have repeatedly expressed their preference
for competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \14\
---------------------------------------------------------------------------
\14\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------
The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to new or different pricing structures being
introduced into the market. Accordingly, competitive forces constrain
the Exchange's transaction fees and rebates, including with respect to
Added Displayed Retail Volume and transactions in Sub-Dollar
Securities, 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 proposed rule change reflects a
reasonable and competitive pricing structure designed to incentivize
market participants to direct order flow to the Exchange, which the
Exchange believes would enhance market quality to the benefit of all
Members and investors. The Exchange notes that the proposal does not
include different fees or rebates for Retail Orders or transactions in
Sub-Dollar Securities depending on the amount of orders submitted to,
and/or transactions executed on or through, the Exchange. Accordingly,
the proposed pricing structure is applicable to all Members, regardless
of the overall volume of a Member's trading activities on the Exchange.
Rebate for Added Displayed Retail Volume
The Exchange believes that the proposed ADRV Rebate is reasonable,
equitable, and consistent with the Act because it would incentivize
Members to submit additional displayed Retail Orders to the Exchange,
which would enhance liquidity in Retail Orders on the Exchange and
promote price discovery. The Exchange believes that this increased
displayed liquidity would potentially stimulate further price
competition for Retail Orders, thereby deepening the Exchange's
liquidity pool, enhancing market quality to the benefit of all Members
and investors by providing more trading opportunities, supporting price
discovery, and subjecting such transactions to the Exchange's
transparency, regulation, and oversight as a registered national
securities exchange.
The Exchange notes that a significant percentage of the orders of
individual (i.e., retail) investors are executed over-the-counter.\15\
In addition, other exchanges maintain special pricing to encourage
entry of retail orders to their markets, in part, to compete against
the over-the-counter market.\16\ Without such pricing, the Exchange is
not currently competitive with such other exchanges. The Exchange
believes that it is thus appropriate to create a financial incentive to
bring more Retail Order flow to the Exchange. The Exchange believes
that investor protection and transparency is promoted by rewarding
displayed liquidity on exchanges, including the Exchange. By offering a
proposed ADRV Rebate of $0.0034, which is higher than the Exchange's
standard rebate of $0.0029 for executions of added displayed volume,
the Exchange believes it will encourage use of Retail Orders, while
maintaining consistency with the Exchange's overall pricing philosophy
of encouraging displayed liquidity. The Exchange places a higher value
on displayed liquidity because the Exchange believes that displayed
liquidity is a public good that benefits investors generally by
providing greater price transparency and enhancing public price
discovery, which ultimately lead to substantial reductions in
transaction costs.
---------------------------------------------------------------------------
\15\ See, e.g., SEC Staff Report on Algorithmic Trading in U.S.
Capital Markets (August 5, 2020), available at https://www.sec.gov/files/Algo_Trading_Report_2020.pdf.
\16\ See infra note 17.
---------------------------------------------------------------------------
Furthermore, the Exchange believes that the proposed ADRV Rebate of
$0.0034 per share is reasonable and equitable because it is comparable
to, and competitive with, the rebates provided by other exchanges for
added displayed retail liquidity in securities priced at or above $1.00
per share.\17\ The Exchange also believes that providing a rebate to
the liquidity adder, and charging a fee to the liquidity remover, with
respect to the execution of a displayed Retail Order is reasonable,
equitable and not unfairly discriminatory because it is designed, and
the Exchange believes it is an appropriate effort, to incentivize
displayable liquidity provision on the Exchange, thereby contributing
to price discovery and price formation, consistent with the overall
goal of enhancing market quality. Moreover, the Exchange notes that
several other exchanges provide rebates to the liquidity adder, and
charge fees to the liquidity remover, with respect to executions of
retail orders, and that this aspect of the proposed ADRV Rebate does
not raise any new or novel issues that have not previously been
considered by the Commission in connection with the fees and rebates of
other exchanges.\18\
---------------------------------------------------------------------------
\17\ See, e.g., The Nasdaq Stock Market LLC equities trading fee
schedule on its public website (available at https://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2), which
reflects rebates to add displayed designated retail liquidity
ranging from $0.00325-$0.0033 per share depending on the percentage
add to total volume ratio, and a standard fee that generally applies
to retail orders that remove liquidity of $0.0030 per share; the
NYSE Arca, Inc. (``NYSE Arca'') equities trading fee schedule on its
public website (available at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf), which reflects
rebates for retail orders that provide displayed liquidity ranging
from $0.0033-$0.0038 per share depending on the applicable tier; the
Cboe EDGX Exchange, Inc. (``Cboe EDGX'') equities trading fee
schedule on its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/), which
reflects rebates for retail orders that add liquidity ranging from
$0.0032-$0.0037 per share depending on the applicable tier, and a
standard fee that generally applies to retail orders that remove
liquidity of $0.0027 per share.
\18\ Id.
---------------------------------------------------------------------------
The Exchange understands that Section 6(b)(5) of the Act \19\
prohibits an exchange from establishing rules that are designed to
permit unfair discrimination between market participants. However,
Section 6(b)(5) of the Act does not prohibit exchange members or other
broker-dealers from discriminating, so long as their activities are
otherwise consistent with the federal securities laws. While the
Exchange believes that markets and price discovery optimally function
through the interactions of diverse flow types, it also believes that
growth in internalization has required differentiation of Retail Order
flow from
[[Page 79247]]
other order flow types. The differentiation proposed herein by the
Exchange is not designed to permit unfair discrimination, but instead
to promote a competitive process around Retail Order executions such
that retail investors would receive better rebates on the Exchange than
they do currently in order to encourage entry of retail orders to the
Exchange. Accordingly, the Exchange believes the proposed ADRV Rebate
is not unfairly discriminatory.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Pricing for Transactions in Sub-Dollar Securities
The Exchange believes that the proposed changes with respect to
pricing for executions of transactions in Sub-Dollar Securities would
incentivize submission of additional liquidity in Sub-Dollar Securities
to the Exchange through the proposed rebate of 0.30% of the total
dollar value of any Added Sub-Dollar Volume transactions, thereby
promoting price discovery and transparency, and enhancing order
execution opportunities for all Members. The Exchange believes that the
proposed rebate for Added Sub-Dollar Volume is reasonable because it
would incentivize Members to direct more order flow in Sub-Dollar
Securities to the Exchange. The Exchange notes that other exchanges
provide rebates for liquidity-adding transactions in Sub-Dollar
Securities, but that these are denominated in dollar amounts per share
rather than a percentage of the total dollar amount of the
transaction.\20\ The Exchange expects that the proposed rebate for
Added Sub-Dollar Volume transactions would typically result in a higher
overall credit for a given transaction than the rebates offered by
other exchanges, although the Exchange notes that it may also result in
a lower overall credit for such transaction depending on the number of
shares traded and the total dollar value of the transaction.
---------------------------------------------------------------------------
\20\ See, e.g., the Cboe EDGX equities trading fee schedule on
its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/), which reflects a rebate of
$0.00009 per share for liquidity-adding transactions in securities
priced below $1.00 per share; the NYSE Arca equities trading fee
schedule on its public website (available at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf),
which reflects a rebate of $0.00004 per share for liquidity-adding
transactions in securities priced below $1.00 per share.
---------------------------------------------------------------------------
The Exchange also believes that the proposed fee for Removed Sub-
Dollar Volume is reasonable because it is in line with the fees charged
by other exchanges for liquidity-removing transactions in Sub-Dollar
Securities.\21\ The Exchange believes that, given the competitive
environment in which the Exchange currently operates, the proposed
pricing structure, with an offsetting fee and rebate, with respect to
executions of transactions in Sub-Dollar Securities, is a reasonable
attempt to increase liquidity in Sub-Dollar Securities on the Exchange
and improve the Exchange's market share relative to its competitors
while remaining revenue neutral with respect to such transactions.
---------------------------------------------------------------------------
\21\ See, e.g., the Cboe EDGX equities trading fee schedule on
its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/), which reflects a fee of
0.30% of the total dollar value of the transaction for liquidity-
removing transactions in securities priced below $1.00 per share;
the Cboe BZX Exchange, Inc. equities trading fee schedule on its
public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/), which reflects a fee of 0.30% of the
total dollar value of the transaction for liquidity-removing
transactions in securities priced below $1.00 per share; the NYSE
Arca equities trading fee schedule on its public website (available
at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf), which reflects a fee of 0.295% of
the total dollar value for liquidity-taking transactions in
securities priced below $1.00 per share.
---------------------------------------------------------------------------
The Exchange also believes that the proposed fee and rebate
structure applicable to executions of transactions in Sub-Dollar
Securities is equitably allocated and not unfairly discriminatory
because it applies equally to all Members and is reasonably related to
the value of the Exchange's market quality associated with higher
volume. A number of Members currently transact in Sub-Dollar Securities
and they, along with additional Members that choose to direct order
flow in Sub-Dollar Securities to the Exchange, would all qualify for
the proposed fee and rebate. The Exchange believes that maintaining or
increasing the proportion of transactions in Sub-Dollar Securities that
are executed on the Exchange would benefit all investors by deepening
the Exchange's liquidity pool, which would support price discovery,
promote market transparency and improve investor protection, further
rendering the proposed changes reasonable and equitable.
In conclusion, the Exchange also submits that its proposed fee
structure satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act for the reasons discussed above 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, including with respect to Retail Orders and
transactions in Sub-Dollar Securities, is subject to significant
competitive forces, and that the proposed fees and rebates described
herein are appropriate to address such forces.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change 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 Exchange believes that the proposed change would
encourage the submission of additional order flow, including Retail
Orders and orders in Sub-Dollar Securities, to the Exchange, thereby
promoting market depth, enhanced execution opportunities, as well as
price discovery and transparency for all Members. Furthermore, the
Exchange believes that the proposed changes would allow the Exchange to
compete more ably with other execution venues by providing more
competitive pricing for Added Displayed Retail Volume and transactions
in Sub-Dollar Securities, thereby making it a more desirable
destination venue for its customers. As a result, the Exchange believes
that the proposed change 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.'' \22\
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\22\ See supra note 14.
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Intramarket Competition
The Exchange believes that the proposed changes would incentivize
market participants to direct more order flow to the Exchange. Greater
liquidity benefits all Members by providing more trading opportunities
and encourages Members to send orders to the Exchange, thereby
contributing to robust levels of liquidity, which benefits all Members.
The proposed fees and rebates for Added Displayed Retail Volume and
transactions in Sub-Dollar Securities would be available to all
similarly-situated market participants, and, as such, the proposed
change would not impose a disparate burden on competition among market
participants on the Exchange. As such, the Exchange believes the
proposed changes would not impose any burden on intramarket competition
that is not necessary or
[[Page 79248]]
appropriate in furtherance of the purposes of the Act.
Intermarket Competition
The Exchange operates in a highly competitive market. 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 16% of the total market share of executed volume of
equities trading, and the Exchange currently represents less than 1% of
the overall market share. 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, including with respect to Added Displayed
Retail Volume and transactions in Sub-Dollar Securities, 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 are
competitive proposals through which the Exchange is seeking to
encourage certain order flow to be sent to the Exchange.
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.'' \23\ 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'. . . .''.\24\ Accordingly, the Exchange does not believe its
proposed fee change imposes any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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\23\ See supra note 14.
\24\ 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 \25\ and Rule 19b-4(f)(2) \26\ thereunder.
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\25\ 15 U.S.C. 78s(b)(3)(A)(ii).
\26\ 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 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-2020-14 on the subject line.
Paper Comments
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-2020-14. 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 personal identifying
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-2020-14, and should be submitted on
or before December 30, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26989 Filed 12-8-20; 8:45 am]
BILLING CODE 8011-01-P
