Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule, 32090-32099 [2021-12593]
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Federal Register / Vol. 86, No. 114 / Wednesday, June 16, 2021 / Notices
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Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2021–042, and
should be submitted on or before July 7,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Assistant Secretary.
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:
[FR Doc. 2021–12591 Filed 6–15–21; 8:45 am]
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–
CboeBZX–2021–042 on the subject line.
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend the Exchange’s Fee
Schedule
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–CboeBZX–2021–042. 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
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92150; File No. SR–MEMX–
2021–07]
June 10, 2021.
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 June 1,
2021, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange is filing with the
Commission a proposed rule change to
amend the Exchange’s fee schedule
applicable to Members 3 (the ‘‘Fee
Schedule’’) pursuant to Exchange Rules
15.1(a) and (c). The Exchange proposes
to implement the changes to the Fee
Schedule pursuant to this proposal on
June 1, 2021. 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
17 17
CFR 200.30–3(a)(12).
15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Exchange Rule 1.5(p).
1
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any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend the Fee Schedule to
(i) adopt a new pricing incentive (the
‘‘Displayed Liquidity Incentive’’ or
‘‘DLI’’) designed to improve market
quality on the Exchange in certain
specific securities and more generally in
the form of an enhanced rebate for
executions of displayed orders in
securities priced at or above $1.00 per
share that add liquidity to the Exchange
(such orders, ‘‘Added Displayed
Volume’’) for Members that meet certain
minimum quoting requirements across a
specified number of securities, as
further described below; (ii) introduce a
tiered pricing structure applicable to the
rebates provided for executions of
Added Displayed Volume; (iii) adopt an
enhanced rebate for executions of
Pegged Orders 4 with a Midpoint Peg 5
instruction in securities priced at or
above $1.00 per share (such orders,
‘‘Midpoint Peg Orders’’) that add
liquidity to the Exchange; (iv) increase
the standard fee for executions of orders
in securities priced at or above $1.00 per
share that remove liquidity from the
Exchange (such orders, ‘‘Removed
Volume’’); and (v) reduce the standard
rebate for executions of Added
Displayed Volume.
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
4 Pegged Orders are described in Exchange Rules
11.6(h) and 11.8(c) and generally defined as an
order that is pegged to a reference price and
automatically re-prices in response to changes in
the national best bid and/or offer (‘‘NBBO’’).
5 A Midpoint Peg instruction is an instruction
that may be placed on a Pegged Order that instructs
the Exchange to peg the order to midpoint of the
NBBO. See Exchange Rule 11.6(h)(2).
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registered equities exchange currently
has more than approximately 16% of
the total market share of executed
volume of equities trading.6 Thus, in
such a low-concentrated and highly
competitive market, no single equities
exchange possesses significant pricing
power in the execution of order flow,
and the Exchange currently represents
approximately 2.4% of the overall
market share.7
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Adoption of Displayed Liquidity
Incentive
The Exchange proposes to adopt a
new pricing incentive, referred to by the
Exchange as the ‘‘Displayed Liquidity
Incentive’’ or ‘‘DLI’’, in the form of an
enhanced rebate for executions of
Added Displayed Volume for Members
that qualify for the DLI by meeting
certain minimum quoting requirements
across a specified number of securities,
as further described below. The
proposed DLI is designed to encourage
Members to improve market quality on
the Exchange in certain specific
securities and more generally. As
proposed, a Member will qualify for the
DLI, and thus receive the proposed
enhanced rebate for executions of
Added Displayed Volume described
below, if the Member’s NBBO Time 8 is
at least 25% in an average of at least 250
securities, at least 75 of which must be
DLI Target Securities,9 per trading day
6 Market share percentage calculated as of May
27, 2021. The Exchange receives and processes data
made available through consolidated data feeds
(i.e., CTS and UTDF).
7 Id.
8 As proposed, the term ‘‘NBBO Time’’ means the
aggregate of the percentage of time during regular
trading hours during which one of a Member’s
market participant identifiers (‘‘MPIDs’’) has a
displayed order of at least one round lot at the
national best bid (‘‘NBB’’) or the national best offer
(‘‘NBO’’). If an MPID has a displayed order of at
least one round lot at both the NBB and the NBO,
the quoting activity on each side will be aggregated
and counted toward the NBBO Time. As an
example, where a Member’s MPID has a displayed
order of at least one round lot at the NBB for 20%
of the time during regular trading hours and a
displayed order of at least one round lot at the NBO
for 10% of the time during regular trading hours for
a security, the Member’s NBBO Time with respect
to that MPID for that security would be 30%. Thus,
it is possible for a single MPID to have an NBBO
Time for a security of up to 200% for a particular
day under this proposal. As proposed, the term
‘‘regular trading hours’’ refers to the time between
9:30 a.m. and 4:00 p.m. Eastern Time, or such
shorter period as may be designated by the
Exchange on a day when the securities markets
close early.
9 As proposed, the term ‘‘DLI Target Securities’’
means a list of securities designated as such, the
universe of which will be determined by the
Exchange and published on the Exchange’s website.
The Exchange anticipates that the initial DLI Target
Securities list will include between 275 and 300
securities. The DLI Target Securities list will always
include at least 75 securities and may be
periodically updated by the Exchange, provided
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during the month. Under this proposal,
the Exchange will determine on a daily
basis the number of securities in which
each of a Member’s MPIDs meets the
25% NBBO Time requirement (the
‘‘quoting requirement’’) for that day.
The Exchange will then aggregate the
number of securities in which each of a
Member’s MPIDs meets the quoting
requirement to determine the total
number of securities in which such
Member meets the quoting requirement
for that day.10 However, a single
security in which more than one of such
Member’s MPIDs meets the quoting
requirement for that day will only be
counted once for this purpose.11
Additionally, as proposed, the quoting
requirement with respect to a security
must be met by a single MPID achieving
the requisite NBBO Time for that day,
and the NBBO Time of multiple MPIDs
will not be aggregated to determine if
the Member has met the quoting
requirement in that security.12
As noted above, to qualify for the DLI,
a Member must meet the quoting
requirement in an average of at least 250
securities traded on the Exchange (the
‘‘250 securities requirement’’), at least
75 of which must be DLI Target
Securities (the ‘‘75 DLI Target Securities
requirement’’), per trading day during
the month. Each of the 250 securities
requirement and the 75 DLI Target
Securities requirement is referred to
under this proposal as a ‘‘securities
requirement.’’ The proposed DLI is
designed to enhance market quality both
in a broad manner with respect to all
securities traded on the Exchange,
through the 250 securities requirement,
that the Exchange will not remove a security from
the DLI Target Securities list without at least 30
days’ prior notice to Members as published on the
Exchange’s website (unless the security is no longer
eligible for trading on the Exchange).
10 For example, if a Member has four MPIDs and
each MPID has an NBBO Time of 30% in a different
security, this will count as four securities in which
such Member has met the quoting requirement for
that day.
11 Thus, if a Member has two MPIDs that meet
the quoting requirement in the same security for a
particular day, this will only count as one security
for purposes of determining the total number of
securities in which such Member has met the
quoting requirement for that day.
12 As an example, assume that a Member has two
MPIDs, and that MPID 1 has an NBBO Time of 15%
and MPID 2 has an NBBO Time of 20% in the same
security for a particular day. In this event, such
Member would not meet the quoting requirement in
that security for that day as it does not have an
MPID with an NBBO Time of at least 25% in that
security for that day. The Exchange notes that The
Nasdaq Stock Market LLC (‘‘Nasdaq’’) uses this
same methodology when calculating the time that
a member quotes at the NBBO under its Qualified
Market Maker program. See infra note 17; see also
Securities Exchange Act Release No. 77662 (April
20, 2016), 81 FR 24681, 24682 (April 26, 2016) (SR–
NASDAQ–2016–051).
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32091
and in a targeted manner with respect
to certain designated securities in which
the Exchange specifically seeks to inject
additional quoting competition (i.e., the
DLI Target Securities), through the 75
DLI Target Securities requirement. The
number of DLI Target Securities in
which a Member meets the quoting
requirement will be counted toward
both the 75 DLI Target Securities
requirement and the 250 securities
requirement. In order to determine
whether a Member meets the applicable
securities requirements during a month,
the average number of securities in
which such Member meets the quoting
requirement per trading day during the
month will be calculated by summing
the number of securities in which each
of such Member’s MPIDs met the
quoting requirement for each trading
day during the month then dividing the
resulting sum by the total number of
trading days in the month.13 The
Exchange proposes to add notes to the
Fee Schedule describing the criteria for
determining whether a Member
qualifies for the DLI and the related
calculation methodologies described
above.
In addition, the Exchange will
exclude for purposes of determining
qualification for the Displayed Liquidity
Incentive: (1) Any trading day that the
Exchange’s system experiences a
disruption that lasts for more than 60
minutes during regular trading hours
(‘‘Exchange System Disruption Days’’);
and (2) the day that Russell Investments
reconstitutes its family of indexes (the
‘‘Russell Reconstitution Day’’), which
occurs annually on the last Friday in
June. The Exchange will exclude
Exchange System Disruption Days and
the Russell Reconstitution Day when
determining both the numerator (i.e.,
the number of securities in which a
Member’s MPIDs met the quoting
requirement for each trading day during
the month) and the denominator (i.e.,
the total number of trading days in the
month) for purposes of calculating the
average number of securities in which
such Member meets the quoting
13 As an example, in a month with 20 trading
days, if a Member’s MPIDs collectively satisfied the
quoting requirement in 125 securities (of which 25
were DLI Target Securities) for ten of the trading
days in the month, and collectively satisfied the
quoting requirement in 375 securities (of which 125
were DLI Target Securities) for the other ten trading
days in the month, such Member would meet the
quoting requirement in an average of 250 securities
(i.e., ((125 × 10) + (375 × 10))/20), inclusive of an
average of 75 DLI Target Securities (i.e., ((25 × 10)
+ (125 × 10))/20), per trading day during the month.
Therefore, such Member would meet both of the
applicable securities requirements during the
month and would qualify for the DLI for that month
under this proposal.
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requirement per trading day during the
month.
As further detail regarding such
proposed exclusions, an Exchange
system disruption may occur, for
example, where a certain group of
securities traded on the Exchange is
unavailable for trading due to an
Exchange system issue. Similarly, the
Exchange may be able to perform certain
functions with respect to accepting and
processing orders, but may have a
failure to another significant process,
such as routing to other market centers,
that would lead Members that rely on
such process to avoid utilizing the
Exchange until the Exchange’s entire
system was operational. The Exchange
believes that these types of Exchange
system disruptions could preclude
Members from participating on the
Exchange to the extent that they might
have otherwise participated on such
days, and thus, the Exchange believes it
is appropriate to exclude such days
when determining whether a Member
meets the applicable securities
requirements during a month to avoid
penalizing Members that might
otherwise have met such requirements.
For similar reasons, the Exchange
believes it is appropriate to exclude the
Russell Reconstitution Day in the same
manner, as the Exchange believes that
the Russell Reconstitution Day typically
has extraordinarily high and abnormally
distributed trading volumes, and the
Exchange believes this change to normal
activity may affect a Member’s ability to
meet the quoting requirement across
various securities on that day. The
Exchange notes that the exclusion of
Exchange System Disruption Days and
the Russell Reconstitution Day is
consistent with the methodologies used
by other exchanges when calculating
certain member trading and other
volume metrics for purposes of
determining whether members qualify
for certain pricing incentives, and the
Exchange believes application of this
methodology is similarly appropriate for
the proposed DLI pricing incentive.14
A Member that qualifies for the DLI
by meeting the requirements described
above during a particular month will
receive an enhanced rebate of $0.0036
per share for all executions of Added
Displayed Volume (unless a higher
14 See, e.g., the Cboe BZX Exchange, Inc. (‘‘Cboe
BZX’’) equities trading fee schedule on its public
website (available at https://markets.cboe.com/us/
equities/membership/fee_schedule/bzx/); the Cboe
EDGX Exchange, Inc. equities trading fee schedule
on its public website (available at https://
markets.cboe.com/us/equities/membership/fee_
schedule/edgx/).
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rebate applies 15) during that month.16
This proposed enhanced rebate is
$0.0005 higher than the standard rebate
that would otherwise be applicable to
such executions, which the Exchange is
proposing to reduce from $0.0034 to
$0.0031, as further described below. The
proposed enhanced rebate will apply to
all executions of Added Displayed
Volume (other than orders receiving a
higher rebate, such as Retail Orders)
entered by each MPID of a qualifying
Member; thus, if a Member qualifies for
the DLI as a result of its quoting activity
from one of its MPIDs during a month,
the qualifying Member will receive the
proposed enhanced rebate of $0.0036
per share for all executions of Added
Displayed Volume (unless a higher
rebate applies) entered by that MPID as
well as those entered by each of its other
MPIDs during that month. The
Exchange notes that the proposed
enhanced rebate will only apply to
executions in securities priced at or
above $1.00 per share; executions of a
qualifying Member’s displayed orders
that add liquidity to the Exchange in
securities priced below $1.00 per share
will continue to receive the standard
rebate applicable to executions of such
orders on the Exchange (i.e., 0.05% of
the total dollar value of the transaction).
The Exchange is proposing to provide
the enhanced rebate for executions of
Added Displayed Volume for qualifying
Members as a means of recognizing the
value of market participants that
consistently quote at the NBBO in a
large number of securities, generally,
and in the DLI Target Securities, in
particular. Even when such market
15 As described further below, the Exchange is
also proposing to specify on the Fee Schedule that
the lowest fee/highest rebate will apply if a Member
qualifies for multiple fees/rebates with respect to a
particular transaction. Retail Orders in securities
priced at or above $1.00 per share that are displayed
and add liquidity to the Exchange receive a rebate
that is higher than the proposed enhanced rebate for
Members that qualify for the DLI. Thus, under the
Exchange’s proposed pricing structure, a Member
that qualifies for the DLI would not receive the
proposed DLI enhanced rebate for executions of
displayed Retail Orders that add liquidity to the
Exchange but instead would receive the rebate
applicable to executions of liquidity-adding
displayed Retail Orders.
16 This proposed pricing is referred to by the
Exchange on the Fee Schedule under the new
description ‘‘Added displayed volume, DLI’’ with a
Fee Code of ‘‘Bq’’, ‘‘Dq’’ or ‘‘Jq’’, as applicable, to
be provided by the Exchange on the monthly
invoices provided to Members. The Exchange notes
that because the determination of whether a
Member qualifies for the DLI for a particular month
will not be made until after the month-end, the
Exchange will provide the Fee Codes otherwise
applicable to such transactions (i.e., ‘‘B’’, ‘‘D’’ or
‘‘J’’) on the execution reports provided to Members
during the month and will only designate the Fee
Codes of ‘‘Bq’’, ‘‘Dq’’ or ‘‘Jq’’ on the monthly
invoices, which are provided after such
determination has been made.
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participants are not formally registered
as market makers, they risk capital by
offering immediately executable
liquidity at the price most favorable to
market participants on the opposite side
of the market. Such activity promotes
price discovery and dampens volatility
and enhances the attractiveness of the
Exchange as a trading venue. Given the
proposed requirements to qualify for the
DLI, a Member must make a significant
contribution to market quality by
providing liquidity at the NBBO in a
large number of securities, including
certain designated securities in which
the Exchange specifically seeks to inject
additional quoting competition (i.e., the
DLI Target Securities), for a significant
portion of the day.
A Member that qualifies for the DLI
may be, but is not required to be, a
registered market maker in any security;
thus, qualifying for the DLI does not by
itself impose a two-sided or any other
quotation obligation or convey any of
the benefits associated with being a
registered market maker. Qualification
for the DLI will, however, reflect the
Member’s commitment to provide
meaningful and consistent support to
market quality and price discovery by
extensive quoting at the NBBO in a large
number of securities, including the DLI
Target Securities. Thus, this proposal is
designed to attract liquidity both from
traditional market makers and from
other firms that are willing to commit
capital to support liquidity at the NBBO.
Through the proposed enhanced rebate
for qualifying Members, the Exchange
hopes to provide improved trading
conditions for all market participants
through narrower bid-ask spreads and
increased depth of liquidity available at
the NBBO for a large number of
securities, generally, including the DLI
Target Securities, in particular. In
addition, the proposal reflects an effort
to use a financial incentive to encourage
a wider variety of Members, including
Members that may be characterized as
high-frequency trading firms, to make
positive commitments to promote
market quality.
The Exchange notes that the proposed
DLI is similar in structure and purpose
to pricing programs in place at other
exchanges that are designed to enhance
market quality by incentivizing
members to achieve minimum quoting
standards, including minimum quoting
at the NBBO in a large number of
securities, generally, or certain
designated securities, in particular.17
17 See, e.g., the Nasdaq equities trading fee
schedule on its public website, available at https://
www.nasdaqtrader.com/
trader.aspx?id=pricelisttrading2) and Nasdaq Rule
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The Exchange further notes that, like the
proposed DLI, these programs include
as an incentive the provision of an
enhanced rebate for executions of
liquidity-adding displayed orders for
members that meet the quoting and
other requirements of those programs.18
In addition to the foregoing changes,
the Exchange proposes to add to the Fee
Schedule definitions of the terms
‘‘MPID’’, ‘‘DLI Target Securities’’,
‘‘quoting requirement’’, ‘‘regular trading
hours’’ and ‘‘securities requirement’’
that are consistent with the descriptions
of those terms set forth above, as such
terms are used in the notes describing
the calculation methodologies and
criteria for determining whether a
Member qualifies for the DLI that the
Exchange is proposing to add to the Fee
Schedule, as described above.
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Adoption of Liquidity Provision Tier
The Exchange is also proposing to
introduce a tiered pricing structure
applicable to the rebates provided for
executions of Added Displayed Volume.
Specifically, the Exchange proposes to
adopt a new volume-based tier, referred
to by the Exchange as the ‘‘Liquidity
Provision Tier’’, in which the Exchange
will provide an enhanced rebate for
executions of Added Displayed Volume
for Members that meet a certain
specified volume threshold on the
Exchange. Currently, the Exchange
provides a standard rebate of $0.0034
per share for executions of Added
Displayed Volume, which the Exchange
is proposing to reduce to $0.0031, as
Equity 7, Section 114(d) describing Nasdaq’s
Qualified Market Maker Program, which provides
for an additional rebate (ranging from $0.0001 to
$0.0002 per share) for executions of liquidityproviding displayed orders (other than designated
retail orders) in securities across all tapes priced at
or above $1.00 per share for members that, in
addition to executing transactions that represent a
specified percentage of consolidated volume and
avoiding inefficient order entry practices that place
excessive burdens on Nasdaq’s systems, quote at the
NBBO at least 25% of the time during regular
market hours in an average of at least 1,000
securities per day during the month; see also the
Cboe BZX equities trading fee schedule on its
public website (available at https://
markets.cboe.com/us/equities/membership/fee_
schedule/bzx/), which provides for an additional
rebate (ranging from $0.0001 to $0.0002 per share)
under Cboe BZX’s Liquidity Management Program
for executions of liquidity-providing displayed
orders in Tape B securities priced at or above $1.00
per share for members that, in addition to adding
a specified percentage of total consolidated volume
in Tape B securities and meeting certain other
quoting requirements with respect to a specified
number of securities designated as ‘‘LMP
Securities’’ on a list determined by Cboe BZX, quote
at the NBBO at least 15% of the time during regular
trading hours in a specified number of such
designated LMP Securities (or achieve an
alternative NBBO quoting standard involving a sizesetting element with respect to such designated
LMP Securities).
18 Id.
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further described below. The Exchange
now proposes to introduce a tiered
pricing structure in which it will
provide an enhanced rebate of $0.00335
per share for executions of Added
Displayed Volume for Members that
qualify for the Liquidity Provision Tier
by achieving an ADAV 19 of 15,000,000
shares or more.20 As proposed, ADAV
will be calculated on a monthly basis,
and Members that qualify for the
Liquidity Provision Tier by achieving
the specified ADAV threshold in a
particular month will receive the
proposed enhanced rebate of $0.00335
per share for all executions of Added
Displayed Volume in that month (unless
a higher rebate applies).
Similar to the exclusion for purposes
of determining qualification for the
Displayed Liquidity Incentive, the
Exchange proposes to exclude from the
calculation of ADAV: (1) Any Exchange
System Disruption Days; and (2) the
Russell Reconstitution Day, which
occurs annually on the last Friday in
June.21 As is true with respect to the
Displayed Liquidity Incentive, the
Exchange believes that Exchange system
disruptions could preclude Members
from participating on the Exchange to
the extent that they might have
otherwise participated on such days,
and thus, the Exchange believes it is
appropriate to exclude such days when
determining whether a Member
qualifies for the Liquidity Provision Tier
to avoid penalizing Members that might
otherwise have met the applicable
volume threshold. For similar reasons,
the Exchange believes it is appropriate
to exclude the Russell Reconstitution
Day in the same manner, as the
Exchange believes the change to normal
activity may affect a Member’s ability to
add liquidity to the Exchange on that
day.
The Exchange believes that the
proposed tiered pricing structure
provides an incremental incentive for
Members to strive for higher ADAV on
19 As proposed, the term ‘‘ADAV’’ means the
average daily added volume calculated as the
number of shares added per day.
20 This proposed pricing is referred to by the
Exchange on the Fee Schedule under the new
description ‘‘Added displayed volume, Liquidity
Provision Tier’’ with a Fee Code of ‘‘B1’’, ‘‘D1’’ or
‘‘J1’’, as applicable, to be provided by the Exchange
on the monthly invoices provided to Members. The
Exchange notes that because the determination of
whether a Member qualifies for the Liquidity
Provision Tier for a particular month will not be
made until after the month-end, the Exchange will
provide the Fee Codes otherwise applicable to such
transactions (i.e., ‘‘B’’, ‘‘D’’ or ‘‘J’’) on the execution
reports provided to Members during the month and
will only designate the Fee Codes of ‘‘B1’’, ‘‘D1’’ or
‘‘J1’’ on the monthly invoices, which are provided
after such determination has been made.
21 See supra note 14 and accompanying text.
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32093
the Exchange to receive the proposed
enhanced rebate for executions of
Added Displayed Volume. As such, the
proposed Liquidity Provision Tier is
designed to encourage Members that
provide liquidity on the Exchange to
maintain or increase their order flow,
thereby contributing to a deeper and
more liquid market to the benefit of all
market participants and enhancing the
attractiveness of the Exchange as a
trading venue.
Adoption of Enhanced Rebate for Added
Midpoint Volume
The Exchange is also proposing to
adopt an enhanced rebate for executions
of Midpoint Peg Orders that add
liquidity to the Exchange (such orders,
‘‘Added Midpoint Volume’’). Currently,
the Exchange provides a standard rebate
of $0.0020 per share for all executions
of non-displayed orders in securities
priced at or above $1.00 per share that
add liquidity to the Exchange, including
executions of Added Midpoint Volume.
The Exchange now proposes to adopt an
enhanced rebate for executions of
Added Midpoint Volume of $0.0025 per
share,22 while all other executions of
non-displayed orders in securities
priced at or above $1.00 per share that
add liquidity to the Exchange will
continue to receive the standard rebate
for such transactions (i.e., $0.0020 per
share). The Exchange notes that
executions of orders with a Midpoint
Peg instruction that add liquidity to the
Exchange in securities priced below
$1.00 per share will continue to receive
the standard rebate applicable to
executions of such orders on the
Exchange (i.e., 0.05% of the total dollar
value of the transaction).
The purpose of the proposed
enhanced rebate for executions of
Added Midpoint Volume is to
encourage Members that provide
liquidity through non-displayed orders
to do so, to a greater extent, through
orders that offer price improvement to
the benefit of other market participants.
While the Exchange’s pricing structure
is generally designed to encourage the
provision of liquidity through displayed
orders, as the rebates provided with
respect to such orders are consistently
higher than those for non-displayed
orders, the proposed enhanced rebate
for executions of Added Midpoint
Volume reflects a concomitant goal of
encouraging Members that use nondisplayed orders to offer price
22 This proposed pricing is referred to by the
Exchange on the Fee Schedule under the new
description ‘‘Added non-displayed volume,
Midpoint Peg’’ and such orders will continue to
receive a Fee Code of ‘‘M’’ assigned by the
Exchange.
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improvement through the use of orders
that are designed to execute at the
midpoint of the NBBO. The Exchange
believes that providing an enhanced
rebate for executions of Added
Midpoint Volume is a reasonable means
by which to incentivize Members to
provide additional liquidity at the
midpoint of the NBBO, which in turn
would increase the attractiveness of the
Exchange as a destination venue, as
Members seeking price improvement
would be more motivated to direct their
orders to the Exchange because they
would have a heightened expectation of
the availability of liquidity at the
midpoint of the NBBO. The Exchange
notes that the proposed enhanced rebate
is comparable to, and competitive with,
the rebate provided by at least one other
exchange for executions of nondisplayed orders in securities priced at
or above $1.00 per share that are pegged
to the midpoint of the NBBO.23
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Increased Standard Fee for Removed
Volume
The Exchange also proposes to
increase the standard fee for executions
of orders in securities priced at or above
$1.00 per share that remove liquidity
from the Exchange (i.e., Removed
Volume). Currently, the Exchange
charges a standard fee of $0.0026 per
share for executions of Removed
Volume. The Exchange now proposes to
increase the standard fee charged for
executions of Removed Volume to
$0.00265 per share.24 The purpose of
increasing the standard fee for
executions of Removed Volume is for
business and competitive reasons, as the
Exchange believes that increasing such
fee as proposed would generate
additional revenue to offset some of the
costs associated with the proposed
enhanced rebates for executions of
Added Displayed Volume for Members
that qualify for the DLI or the Liquidity
Provision Tier and executions of Added
Midpoint Volume, and the Exchange’s
operations generally, in a manner that is
still consistent with the Exchange’s
overall pricing philosophy of
encouraging added displayed liquidity.
The Exchange notes that despite the
modest increase to the standard fee, the
Exchange’s fee for executions of
23 See the Nasdaq PHLX LLC equities trading fee
schedule on its public website (available at https://
www.nasdaqtrader.com/Trader.aspx?id=PSX_
Pricing), which reflects a standard rebate of $0.0023
per share for adding non-displayed liquidity via an
order that is pegged to the midpoint of the NBBO
in a security priced at or above $1.00 per share.
24 This proposed pricing is referred to by the
Exchange on the Fee Schedule under the existing
description ‘‘Removed volume from MEMX Book’’
and such orders will continue to receive a Fee Code
of ‘‘R’’ assigned by the Exchange.
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Removed Volume remains lower than
the fee to remove liquidity in securities
priced at or above $1.00 charged by
several other exchanges.25
Reduced Standard Rebate for Added
Displayed Volume
The Exchange also proposes to reduce
the standard rebate for executions of
Added Displayed Volume. Currently,
the Exchange provides a standard rebate
of $0.0034 per share for executions of
Added Displayed Volume. The
Exchange now proposes to reduce the
standard rebate for executions of Added
Displayed Volume to $0.0031 per
share.26 The Exchange notes that
executions of displayed orders that add
liquidity to the Exchange in securities
priced below $1.00 per share will
continue to receive the standard rebate
applicable to executions of such orders
on the Exchange (i.e., 0.05% of the total
dollar value of the transaction).
The purpose of reducing the standard
rebate for executions of Added
Displayed Volume is also for business
and competitive reasons, as the
Exchange believes the reduction of such
rebate would decrease the Exchange’s
expenditures with respect to transaction
pricing and would also offset some of
the costs associated with the proposed
enhanced rebates for executions of
Added Displayed Volume for Members
that qualify for the DLI or the Liquidity
Provision Tier and executions of Added
Midpoint Volume, and the Exchange’s
operations generally, in a manner that is
still consistent with the Exchange’s
overall pricing philosophy of
encouraging added displayed liquidity.
The Exchange notes that the proposed
standard rebate is comparable to, and
competitive with, the standard rebates
provided by at least one other exchange
for executions of orders in securities
priced at or above $1.00 per share that
add displayed liquidity.27
25 See, e.g., the Cboe BZX equities trading fee
schedule on its public website (available at https://
markets.cboe.com/us/equities/membership/fee_
schedule/bzx/); 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/); Nasdaq Rule Equity 7, Section
118(a).
26 This proposed pricing is referred to by the
Exchange on the Fee Schedule under the existing
description ‘‘Added displayed volume’’ and such
orders will continue to receive a Fee Code of ‘‘B’’,
‘‘D’’ or ‘‘J’’, as applicable, assigned by the Exchange.
27 See the MIAX PEARL, LLC equities trading fee
schedule on its public website (available at https://
www.miaxoptions.com/sites/default/files/fee_
schedule-files/MIAX_PEARL_Equities_Fee_
Schedule_01012021.pdf), which reflects a standard
rebate of $0.0032 per share to add displayed
liquidity in Tape A and Tape C securities priced at
or above $1.00 per share and a standard rebate of
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Lastly, the Exchange proposes to add
a note to the Fee Schedule specifying
that to the extent a Member qualifies for
multiple fees/rebates with respect to a
particular transaction, the lowest fee/
highest rebate shall apply. The
Exchange notes that charging the fee or
providing the rebate that is most
favorable with respect to a particular
transaction is consistent with the
pricing practices of other exchanges.28
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,29
in general, and with Sections 6(b)(4) and
6(b)(5) of the Act,30 in particular, in that
it provides for the equitable allocation
of reasonable dues, fees and other
charges among its Members and other
persons using its facilities and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
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.’’ 31
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
$0.0035 per share to add displayed liquidity in
Tape B securities priced at or above $1.00 per share.
28 See, e.g., the Cboe BZX equities trading fee
schedule on its public website (available at https://
markets.cboe.com/us/equities/membership/fee_
schedule/bzx/), which provides ‘‘To the extent a
Member qualifies for higher rebates and/or lower
fees than those provided by a tier for which such
Member qualifies, the higher rebates and/or lower
fees shall apply.’’
29 15 U.S.C. 78f.
30 15 U.S.C. 78f(b)(4) and (5).
31 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
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different pricing structures being
introduced into the market.
Accordingly, competitive forces
constrain the Exchange’s transaction
fees and rebates, and market
participants can readily trade on
competing venues if they deem pricing
levels at those other venues to be more
favorable. The Exchange believes that
the proposal reflects a reasonable and
competitive pricing structure designed
to incentivize market participants to
direct their order flow to the Exchange,
to enhance market quality in both a
broad manner and in a targeted manner
with respect to the DLI Target
Securities, and to provide price
improvement through the use of orders
that are designed to execute at the
midpoint of the NBBO through the
provision of enhanced rebates for
executions of Added Displayed Volume
for Members that qualify for the DLI or
the Liquidity Provision Tier and for
executions of Added Midpoint Volume.
While the Exchange has proposed
increasing its standard fee for
executions of Removed Volume and
reducing its standard rebate for
executions of Added Displayed Volume,
as further discussed below, each of such
changes represents a modest increase
(decrease) from the current fee (rebate)
applicable to such executions.
As noted above, the proposed DLI is
intended to encourage Members to
promote price discovery and market
quality by quoting at the NBBO for a
significant portion of each day in a large
number of securities, generally, and in
the DLI Target Securities, in particular,
thereby benefitting the Exchange and
other investors by providing improved
trading conditions for all market
participants through narrower bid-ask
spreads and increased depth of liquidity
available at the NBBO in a broad base
of securities, including the DLI Target
Securities, and committing capital to
support the execution of orders.
Additionally, the Exchange believes the
proposed enhanced rebate for all
executions of a qualifying Member’s
Added Displayed Volume will
simultaneously incentivize such
Member to direct additional displayed
liquidity-providing orders to the
Exchange in a more general manner to
receive such enhanced rebate. Thus, the
Exchange believes that the proposed DLI
will promote price discovery and
market quality in the DLI Target
Securities and more generally on the
Exchange, and, further, that the
resulting tightened spreads and
increased displayed liquidity will
benefit all investors by deepening the
Exchange’s liquidity pool, offering
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additional flexibility for all investors to
enjoy cost savings, supporting the
quality of price discovery, enhancing
quoting competition across exchanges,
and promoting market transparency.
The Exchange believes the proposed
enhanced rebate of $0.0036 per share
provided to Members that qualify for the
DLI for executions of Added Displayed
Volume is reasonable, in that it does not
reflect a disproportionate increase above
the proposed standard rebate of $0.0031
per share provided to all Members with
respect to the provision of displayed
liquidity. The Exchange notes that the
$0.0005 additional rebate for such
executions for qualifying Members is a
competitive proposal given that it is
higher than the additional rebates
provided by other exchanges for
executions of displayed liquidityproviding orders for market participants
that meet minimum quoting standards
under similar programs designed to
enhance market quality.32 In addition,
the Exchange believes that it is
reasonable and consistent with an
equitable allocation of fees to pay a
higher rebate for executions of Added
Displayed Volume to Members that
qualify for the DLI because of the
additional commitment to market
quality reflected in the associated
quoting requirements. Such Members
benefit all investors by promoting price
discovery and increasing the depth of
liquidity available at the NBBO and also
benefit the Exchange itself by enhancing
its competitiveness as a market that
attracts actionable orders. Further, the
Exchange notes that the proposed DLI
would apply uniformly to all Members,
and any Member may choose to qualify
for the DLI by meeting the associated
requirements in any month, regardless
of the volume of transactions that it
executes on the Exchange. The
Exchange acknowledges that firms that
do not post displayed liquidity on the
Exchange or do so on a smaller scale
may not have the level of capital
necessary to support meeting the
proposed DLI’s requirements, however,
the Exchange believes that the
requirements are attainable for many
market participants who do actively
quote on exchanges and are reasonably
related to the enhanced market quality
that the DLI is designed to promote.
Additionally, the Exchange notes that
Members that do not meet the proposed
DLI’s requirements may still qualify for
a rebate that is higher than the standard
rebate for executions of Added
Displayed Volume through the proposed
Liquidity Provision Tier, which does
not require a Member to consistently
32
PO 00000
See supra note 17.
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32095
quote at the NBBO across a broad range
of securities. Accordingly, the Exchange
believes that it is consistent with an
equitable allocation of fees and is not
unfairly discriminatory to pay a higher
rebate in comparison with the rebate
paid to other Members for executions of
displayed liquidity-providing orders in
recognition of these benefits to the
Exchange and market participants,
particularly as the magnitude of the
additional rebate is not unreasonably
high and is, instead, reasonably related
to such enhanced market quality.
The Exchange also believes that
including in the proposed DLI
qualification criteria a quoting
requirement for certain specified
securities (i.e., the DLI Target
Securities), in addition to the more
general 250 securities requirement, is
equitable and not unfairly
discriminatory because the Exchange
has identified the DLI Target Securities
as securities in which it would like to
inject additional quoting competition,
which the Exchange believes will
generally act to narrow spreads, increase
size at the NBBO, and increase liquidity
depth in such securities, thereby
increasing the attractiveness of the
Exchange as a destination venue with
respect to such securities. Accordingly,
the Exchange believes that this aspect of
the proposal is reasonable, equitably
allocated, and not unfairly
discriminatory because it is consistent
with the overall goals of enhancing
market quality.
Furthermore, as noted above, the
proposed DLI is similar in structure and
purpose to pricing programs in place at
other exchanges that are designed to
enhance market quality.33 Specifically,
these programs, like the proposed DLI,
provide a higher rebate for executions of
liquidity-adding displayed orders for
members that achieve minimum quoting
standards, including minimum quoting
at the NBBO in a large number of
securities, generally, or certain
designated securities, in particular.34
The Exchange also notes that the
proposed DLI is not dissimilar from
volume-based rebates and fees
(‘‘Volume Tiers’’), like the Liquidity
Provision Tier proposed in this filing,
which have been widely adopted by
exchanges 35 and are equitable and not
Id.
Id.
35 See, e.g., the Cboe BZX equities trading fee
schedule on its public website (available at https://
markets.cboe.com/us/equities/membership/fee_
schedule/bzx/); the Cboe EDGX equities trading fee
schedule on its public website (available at https://
markets.cboe.com/us/equities/membership/fee_
schedule/edgx/).
33
34
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unfairly discriminatory because they are
generally open to all members on an
equal basis and provide higher rebates
and/or lower fees that are reasonably
related to the value to an exchange’s
market quality. Much like Volume Tiers
are generally designed to incentivize
higher levels of liquidity provision, the
proposed DLI is designed to incentivize
enhanced market quality on the
Exchange through tighter spreads,
greater size at the NBBO, and greater
quoting depth in a large number of
securities, generally, and in the DLI
Target Securities, in particular, through
the provision of an enhanced rebate for
all executions of a qualifying Member’s
Added Displayed Volume, where such
rebate will in turn incentivize higher
levels of displayed liquidity provision
in a general manner. Accordingly, the
Exchange believes that the proposed DLI
would act to enhance liquidity and
competition across exchanges in the DLI
Target Securities and enhance liquidity
provision in all securities on the
Exchange more generally by providing a
rebate reasonably related to such
enhanced market quality to the benefit
of all investors, thereby promoting the
principles discussed in Sections 6(b)(4)
and 6(b)(5) of the Act.36
The Exchange also believes that
adding to the Fee Schedule the notes
describing the calculation
methodologies and criteria for
determining whether a Member satisfies
the requirements to qualify for the DLI,
as well as the definitions of terms that
are used in these notes, is reasonable,
equitable, and non-discriminatory
because these notes and definitions are
designed to ensure that the Fee
Schedule is as clear and easily
understandable as possible with respect
to the requirements of the proposed DLI.
Additionally, the Exchange believes that
excluding Exchange System Disruption
Days and the Russell Reconstitution Day
when determining whether a Member
qualifies for the proposed DLI during a
month is reasonable, equitable, and nondiscriminatory because, as explained
above, the Exchange believes doing so
would help to avoid penalizing
Members that might otherwise have met
the requirements to qualify for the
proposed DLI due to Exchange system
disruptions and/or abnormal market
conditions. The Exchange notes that the
exclusion of Exchange System
Disruption Days and the Russell
Reconstitution Day is consistent with
the methodologies used by other
exchanges when calculating certain
member trading and other volume
metrics for purposes of determining
whether members qualify for certain
pricing incentives.37
As noted above, Volume Tiers, like
the Liquidity Provision Tier proposed in
this filing, have been widely adopted by
exchanges 38 and are equitable and not
unfairly discriminatory because they are
open to all members on an equal basis
and provide rebates that are reasonably
related to the value to an exchange’s
market quality associated with higher
levels of market activity, such as higher
levels of liquidity provision and
introduction of higher volumes of orders
into the price and volume discovery
process. The Exchange believes the
proposed Liquidity Provision Tier is
equitable and not unfairly
discriminatory for these same reasons,
as it is open to all Members and is
designed to encourage Members that
provide liquidity on the Exchange to
maintain or increase their order flow in
this regard, thereby contributing to a
deeper and more liquid market to the
benefit of all market participants and
enhancing the attractiveness of the
Exchange as a trading venue.
Additionally, the Exchange believes the
proposed enhanced rebate for
executions of Added Displayed Volume
for qualifying Members (i.e., $0.00335
per share) is reasonable, in that it
represents only a modest increase above
the proposed standard rebate for such
executions (i.e., $0.0031 per share) as
well as a modest decrease from the
current standard rebate for such
executions (i.e., $0.0034 per share).
Thus, the Exchange believes that it is
reasonable, consistent with an equitable
allocation of fees, and not unfairly
discriminatory to pay such higher rebate
for executions of Added Displayed
Volume to Members that qualify for the
Liquidity Provision Tier in comparison
with the standard rebate in recognition
of benefits to the Exchange and market
participants described above,
particularly as the magnitude of the
additional rebate is not unreasonably
high and is, instead, reasonably related
to the enhanced market quality it is
designed to achieve. The Exchange
further believes that such rebate is
reasonable as it offers an alternative way
for Members that do not meet the
proposed DLI’s requirements to qualify
for a rebate that is higher than the
proposed standard rebate for executions
of Added Displayed Volume that does
not require such Members to
consistently quote at the NBBO across a
broad range of securities.
Additionally, the Exchange believes
that excluding Exchange System
37
36
15 U.S.C. 78f(b)(4) and (5).
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See supra note 14.
See supra note 35.
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Disruption Days and the Russell
Reconstitution Day when determining
whether a Member qualifies for the
proposed Liquidity Provision Tier
during a month is reasonable, equitable,
and non-discriminatory because, as
explained above, the Exchange believes
doing so would help to avoid penalizing
Members that might otherwise have met
the requirements to qualify for the
proposed Liquidity Provision Tier due
to Exchange system disruptions and/or
abnormal market conditions. The
Exchange notes that the exclusion of
Exchange System Disruption Days and
the Russell Reconstitution Day is
consistent with the methodologies used
by other exchanges when calculating
certain member trading and other
volume metrics for purposes of
determining whether members qualify
for certain pricing incentives, including
calculations of ADAV for Volume Tiers
specifically.39
With respect to the proposed
enhanced rebate for executions of
Added Midpoint Volume, the Exchange
believes that providing a rebate for such
executions that is higher than the
standard rebate for executions of other
non-displayed orders in securities
priced at or above $1.00 per share that
add liquidity to the Exchange is
reasonable as the Exchange believes this
would encourage Members that provide
liquidity through non-displayed orders
to do so, to a greater extent, through
orders designed to execute at the
midpoint of the NBBO. Because such
orders provide price improvement to the
benefit of other market participants, the
Exchange believes it is reasonable and
consistent with an equitable allocation
of fees to provide an enhanced rebate to
encourage their use, while still
maintaining an overall pricing structure
that places even greater emphasis on the
value of displayed liquidity in
advancing transparency and price
discovery. The Exchange further
believes the proposed enhanced rebate
is reasonable because, as noted above, it
is comparable to, and competitive with,
the rebate provided by at least one other
exchange for executions of nondisplayed orders in securities priced at
or above $1.00 per share that are pegged
to the midpoint of the NBBO.40 The
Exchange also believes this proposed
enhanced rebate is not unfairly
discriminatory as it would apply
equally to all Members and the elements
of differentiation between displayed and
non-displayed liquidity and orders
designed to execute at the midpoint of
the NBBO and other non-displayed
39
40
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See supra note 14.
See supra note 23.
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orders promote the goals of price
discovery and encouraging market
participants to provide price
improvement.
The Exchange believes that the
proposed changes to increase the
standard fee for executions of Removed
Volume and reduce the standard rebate
for executions of Added Displayed
Volume are reasonable, equitable, and
consistent with the Act because such
changes are designed to generate
additional revenue and decrease the
Exchange’s expenditures with respect to
transaction pricing to offset some of the
costs associated with the proposed
enhanced rebates for executions of
Added Displayed Volume for Members
that qualify for the DLI or the Liquidity
Provision Tier and executions of Added
Midpoint Volume, and the Exchange’s
operations generally, in a manner that is
still consistent with the Exchange’s
overall pricing philosophy of
encouraging added displayed liquidity.
The Exchange also believes the
proposed increased standard fee for
executions of Removed Volume is
reasonable and appropriate because it
represents a modest increase from the
current standard fee and, as noted
above, remains lower than the fee to
remove liquidity in securities priced at
or above $1.00 charged by several other
exchanges.41 Similarly, the Exchange
believes the proposed reduced standard
rebate for executions of Added
Displayed Volume is reasonable and
appropriate because it represents a
modest decrease from the current
standard rebate and, as noted above,
remains comparable to, and competitive
with, the standard rebates provided by
at least one other exchange for
executions of orders in securities priced
at or above $1.00 per share that add
displayed liquidity.42 The Exchange
further believes that the proposed
increased standard fee for executions of
Removed Volume and the proposed
reduced standard rebate for executions
of Added Displayed Volume are
equitably allocated and not unfairly
discriminatory because they both will
apply equally to all Members.
For the reasons discussed above, the
Exchange submits that the proposal
satisfies the requirements of Sections
6(b)(4) and 6(b)(5) of the Act 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
41
42
See supra note 25.
See supra note 27.
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Exchange’s statement regarding the
burden on competition, the Exchange
believes that its transaction pricing is
subject to significant competitive forces,
and that the proposed fees and rebates
described herein are appropriate to
address such forces.
Finally, the Exchange believes that
the proposed change to add a note on
the Fee Schedule specifying that to the
extent a Member qualifies for multiple
fees/rebates with respect to a particular
transaction, the lowest fee/highest
rebate shall apply is reasonable,
equitable, and non-discriminatory
because it applies uniformly to all
Members and is designed to clarify for
Members which fee or rebate is
applicable to their transactions. Thus,
Exchange believes that this proposed
change will make the Fee Schedule
clearer and eliminate potential
confusion in this regard, thereby
removing impediments to and
perfecting the mechanism of a free and
open market and a national market
system, and, in general, protecting
investors and the public interest.
Further, as noted above, this practice is
consistent with the pricing practices of
other exchanges.43
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposal will result in any burden
on competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. Instead, as
discussed above, the proposal is
designed to enhance market quality on
the Exchange in a large number of
securities, generally, and in the DLI
Target Securities, in particular, to
encourage Members to maintain or
increase their order flow, thereby
contributing to a deeper and more liquid
market to the benefit of all market
participants and enhancing the
attractiveness of the Exchange as a
trading venue, and to encourage
Members to provide price improvement
through the use of orders that are
designed to execute at the midpoint of
the NBBO. In turn, the Exchange
believes the proposed enhanced rebates
for executions of Added Displayed
Volume for Members that qualify for the
DLI or the Liquidity Provision Tier and
for executions of Added Midpoint
Volume would encourage the
submission of additional order flow to
the Exchange, particularly in the form of
Added Displayed Volume and Added
Midpoint Volume, thereby promoting
market depth, enhanced execution
opportunities, price improvement, and
43
Jkt 253001
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See supra note 28.
Frm 00085
Fmt 4703
price discovery to the benefit of all
Members and market participants. As a
result, the Exchange believes the
proposal would enhance its
competitiveness as a market that attracts
actionable orders, thereby making it a
more desirable destination venue for its
customers. For these reasons, the
Exchange believes that the proposal
furthers the Commission’s goal in
adopting Regulation NMS of fostering
competition among orders, which
promotes ‘‘more efficient pricing of
individual stocks for all types of orders,
large and small.’’ 44
Intramarket Competition
The Exchange believes that the
proposal would incentivize Members to
promote price discovery and market
quality by quoting at the NBBO for a
significant portion of each day in a large
number of securities, including the DLI
Target Securities, to maintain or
increase their order flow, thereby
contributing to a deeper and more liquid
market to the benefit of all market
participants and enhancing the
attractiveness of the Exchange as a
trading venue, and to provide price
improvement through the use of orders
that are designed to execute at the
midpoint of the NBBO, which the
Exchange believes, in turn, would
continue to encourage participants to
direct 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 market participants. The opportunity
to qualify for the DLI, and thus receive
the proposed enhanced rebate for
executions of Added Displayed Volume,
would be available to all Members that
meet the associated requirements in any
month, regardless of the volume of
transactions that it executes on the
Exchange, and as noted above, the
Exchange believes that the DLI’s
requirements are attainable for many
market participants who actively quote
on exchanges and are reasonably related
to the enhanced market quality that the
DLI is designed to promote. Similarly,
the opportunity to qualify for the
Liquidity Provision Tier, and thus also
receive an enhanced rebate for
executions of Added Displayed Volume
(albeit a rebate lower than that provided
for Members who qualify for the DLI),
would be available to all Members that
meet the associated volume requirement
in any month. The Exchange believes
the volume requirement of the Liquidity
Provision Tier is attainable for several
44
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32097
See supra note 31.
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32098
Federal Register / Vol. 86, No. 114 / Wednesday, June 16, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES
market participants who add displayed
liquidity executed on the Exchange and
is reasonably related to the enhanced
market quality that the Liquidity
Provision Tier is designed to promote.
Similarly, the proposed enhanced rebate
for executions of Added Midpoint
Volume, the proposed increased
standard fee for executions of Removed
Volume, and the proposed reduced
standard rebate for executions of Added
Displayed Volume would apply equally
to all Members. As such, the Exchange
believes the proposed changes would
not impose any burden on intramarket
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
Intermarket Competition
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.
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 executions of Added Displayed
Volume, Added Midpoint Volume, and
Removed Volume, and market
participants can readily choose to send
their orders to other exchange and offexchange 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 and to
promote market quality through pricing
incentives that are similar in structure
and purpose to pricing programs in
place at other exchanges.45 Accordingly,
the Exchange believes the proposal
would not burden, but rather promote,
intermarket competition by enabling it
45
See supra notes 17, 23, and 35.
VerDate Sep<11>2014
17:27 Jun 15, 2021
Jkt 253001
to better compete with other exchanges
that offer similar incentives to market
participants that enhance market
quality.
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.’’ 46 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 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’. . . .’’.47 Accordingly, the
Exchange does not believe its proposed
pricing changes impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
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 48 and Rule
19b–4(f)(2) 49 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
See supra note 31.
NetCoalition v. SEC, 615 F.3d 525, 539 (D.C.
Cir. 2010) (quoting Securities Exchange Act Release
No. 59039 (December 2, 2008), 73 FR 74770, 74782–
83 (December 9, 2008) (SR–NYSE–2006–21)).
48 15 U.S.C. 78s(b)(3)(A)(ii).
49 17 CFR 240.19b–4(f)(2).
46
47
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Fmt 4703
Sfmt 4703
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• 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–2021–07 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–2021–07. 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
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
E:\FR\FM\16JNN1.SGM
16JNN1
Federal Register / Vol. 86, No. 114 / Wednesday, June 16, 2021 / Notices
submissions should refer to File
Number SR–MEMX–2021–07 and
should be submitted on or before July 7,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–12593 Filed 6–15–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–095, OMB Control No.
3235–0084]
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
jbell on DSKJLSW7X2PROD with NOTICES
Extension:
Rule 17Ac2–1
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Rule 17Ac2–1 (17 CFR
240.17Ac2–1), under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.). The Commission plans to submit
this existing collection of information to
the Office of Management and Budget
(‘‘OMB’’) for extension and approval.
Rule 17Ac2–1, pursuant to Section
17A(c) of the Exchange Act, generally
requires transfer agents for whom the
Commission is the transfer agent’s
Appropriate Regulatory Agency
(‘‘ARA’’), to file an application for
registration with the Commission on
Form TA–1 and to amend their
registrations under certain
circumstances.
Specifically, Rule 17Ac2–1 requires
transfer agents to file a Form TA–1
application for registration with the
Commission where the Commission is
their ARA. Such transfer agents must
also amend their Form TA–1 if the
existing information on their Form TA–
1 becomes inaccurate, misleading, or
incomplete within 60 days following the
date the information became inaccurate,
misleading or incomplete. Registration
filings on Form TA–1 and amendments
thereto must be filed with the
Commission electronically, absent an
50 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:27 Jun 15, 2021
Jkt 253001
exemption, on EDGAR pursuant to
Regulation S–T (17 CFR 232).
The Commission annually receives
approximately 199 filings on Form TA–
1 from transfer agents required to
register as such with the Commission.
Included in this figure are
approximately 167 amendments made
annually by transfer agents to their
Form TA–1 as required by Rule 17Ac2–
1(c) to address information that has
become inaccurate, misleading, or
incomplete and approximately 32 new
applications by transfer agents for
registration on Form TA–1 as required
by Rule 17Ac2–1(a). Based on past
submissions, the staff estimates that on
average approximately twelve hours are
required for initial completion of Form
TA–1 and that on average one and onehalf hours are required for an
amendment to Form TA–1 by each such
firm. Thus, the subtotal burden for new
applications for registration filed on
Form TA–1 each year is approximately
384 hours (12 hours times 32 filers =
384) and the subtotal burden for
amendments to Form TA–1 filed each
year is approximately 251 hours (1.5
hours times 167 filers = 250.5 rounded
up to 251). The cumulative total is
approximately 635 burden hours per
year (384 hours plus 251 hours).
Of the approximately 635 hours per
year associated with Rule 17Ac2–1, the
Commission staff estimates that (i) sixty
percent (380.7 hours) are spent by
compliance staff at an estimated hourly
wage of $283, for a total of $107,738.10
per year (380.7 hours × $283 per hour
= $107,738.10 per year; (ii) forty percent
(253.8 hours) are spent by attorneys at
an estimated hourly wage of $380, for a
total of $96,444 per year (253.8 hours ×
$380 per hour = $96,444 per year); and
(iii) the total internal cost of compliance
associated with the Rule is thus
approximately $204,182.10 per year
($107,738.10 in compliance staff costs +
$96,444 in attorney costs = $204,182.10
per year).
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information collected; and (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
PO 00000
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32099
writing within 60 days of this
publication.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: David Bottom, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Cynthia
Roscoe, 100 F Street NE, Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: June 10, 2021.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–12658 Filed 6–15–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92151; File No. SR–
CboeEDGA–2021–013]
Self-Regulatory Organizations; Cboe
EDGA Exchange, Inc.; Notice of Filing
of a Proposed Rule Change To
Introduce a New Data Product To Be
Known as Short Sale Volume Data
June 10, 2021.
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 May 28,
2021, Cboe EDGA Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGA’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGA Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGA’’) is filing with
the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change to introduce a
new data product to be known as Short
Sale Volume data. The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/edga/),
at the Exchange’s Office of the
1 15
2 17
E:\FR\FM\16JNN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
16JNN1
]]>Agencies
[Federal Register Volume 86, Number 114 (Wednesday, June 16, 2021)]
[Notices]
[Pages 32090-32099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-12593]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92150; File No. SR-MEMX-2021-07]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule
June 10, 2021.
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 June 1, 2021, 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 the
Substance of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the Exchange's fee schedule applicable to Members \3\ (the
``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and (c). The
Exchange proposes to implement the changes to the Fee Schedule pursuant
to this proposal on June 1, 2021. The text of the proposed rule change
is provided in Exhibit 5.
---------------------------------------------------------------------------
\3\ See Exchange Rule 1.5(p).
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Fee
Schedule to (i) adopt a new pricing incentive (the ``Displayed
Liquidity Incentive'' or ``DLI'') designed to improve market quality on
the Exchange in certain specific securities and more generally in the
form of an enhanced rebate for executions of displayed orders in
securities priced at or above $1.00 per share that add liquidity to the
Exchange (such orders, ``Added Displayed Volume'') for Members that
meet certain minimum quoting requirements across a specified number of
securities, as further described below; (ii) introduce a tiered pricing
structure applicable to the rebates provided for executions of Added
Displayed Volume; (iii) adopt an enhanced rebate for executions of
Pegged Orders \4\ with a Midpoint Peg \5\ instruction in securities
priced at or above $1.00 per share (such orders, ``Midpoint Peg
Orders'') that add liquidity to the Exchange; (iv) increase the
standard fee for executions of orders in securities priced at or above
$1.00 per share that remove liquidity from the Exchange (such orders,
``Removed Volume''); and (v) reduce the standard rebate for executions
of Added Displayed Volume.
---------------------------------------------------------------------------
\4\ Pegged Orders are described in Exchange Rules 11.6(h) and
11.8(c) and generally defined as an order that is pegged to a
reference price and automatically re-prices in response to changes
in the national best bid and/or offer (``NBBO'').
\5\ A Midpoint Peg instruction is an instruction that may be
placed on a Pegged Order that instructs the Exchange to peg the
order to midpoint of the NBBO. See Exchange Rule 11.6(h)(2).
---------------------------------------------------------------------------
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
[[Page 32091]]
registered equities exchange currently has more than approximately 16%
of the total market share of executed volume of equities trading.\6\
Thus, in such a low-concentrated and highly competitive market, no
single equities exchange possesses significant pricing power in the
execution of order flow, and the Exchange currently represents
approximately 2.4% of the overall market share.\7\
---------------------------------------------------------------------------
\6\ Market share percentage calculated as of May 27, 2021. The
Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\7\ Id.
---------------------------------------------------------------------------
Adoption of Displayed Liquidity Incentive
The Exchange proposes to adopt a new pricing incentive, referred to
by the Exchange as the ``Displayed Liquidity Incentive'' or ``DLI'', in
the form of an enhanced rebate for executions of Added Displayed Volume
for Members that qualify for the DLI by meeting certain minimum quoting
requirements across a specified number of securities, as further
described below. The proposed DLI is designed to encourage Members to
improve market quality on the Exchange in certain specific securities
and more generally. As proposed, a Member will qualify for the DLI, and
thus receive the proposed enhanced rebate for executions of Added
Displayed Volume described below, if the Member's NBBO Time \8\ is at
least 25% in an average of at least 250 securities, at least 75 of
which must be DLI Target Securities,\9\ per trading day during the
month. Under this proposal, the Exchange will determine on a daily
basis the number of securities in which each of a Member's MPIDs meets
the 25% NBBO Time requirement (the ``quoting requirement'') for that
day. The Exchange will then aggregate the number of securities in which
each of a Member's MPIDs meets the quoting requirement to determine the
total number of securities in which such Member meets the quoting
requirement for that day.\10\ However, a single security in which more
than one of such Member's MPIDs meets the quoting requirement for that
day will only be counted once for this purpose.\11\ Additionally, as
proposed, the quoting requirement with respect to a security must be
met by a single MPID achieving the requisite NBBO Time for that day,
and the NBBO Time of multiple MPIDs will not be aggregated to determine
if the Member has met the quoting requirement in that security.\12\
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\8\ As proposed, the term ``NBBO Time'' means the aggregate of
the percentage of time during regular trading hours during which one
of a Member's market participant identifiers (``MPIDs'') has a
displayed order of at least one round lot at the national best bid
(``NBB'') or the national best offer (``NBO''). If an MPID has a
displayed order of at least one round lot at both the NBB and the
NBO, the quoting activity on each side will be aggregated and
counted toward the NBBO Time. As an example, where a Member's MPID
has a displayed order of at least one round lot at the NBB for 20%
of the time during regular trading hours and a displayed order of at
least one round lot at the NBO for 10% of the time during regular
trading hours for a security, the Member's NBBO Time with respect to
that MPID for that security would be 30%. Thus, it is possible for a
single MPID to have an NBBO Time for a security of up to 200% for a
particular day under this proposal. As proposed, the term ``regular
trading hours'' refers to the time between 9:30 a.m. and 4:00 p.m.
Eastern Time, or such shorter period as may be designated by the
Exchange on a day when the securities markets close early.
\9\ As proposed, the term ``DLI Target Securities'' means a list
of securities designated as such, the universe of which will be
determined by the Exchange and published on the Exchange's website.
The Exchange anticipates that the initial DLI Target Securities list
will include between 275 and 300 securities. The DLI Target
Securities list will always include at least 75 securities and may
be periodically updated by the Exchange, provided that the Exchange
will not remove a security from the DLI Target Securities list
without at least 30 days' prior notice to Members as published on
the Exchange's website (unless the security is no longer eligible
for trading on the Exchange).
\10\ For example, if a Member has four MPIDs and each MPID has
an NBBO Time of 30% in a different security, this will count as four
securities in which such Member has met the quoting requirement for
that day.
\11\ Thus, if a Member has two MPIDs that meet the quoting
requirement in the same security for a particular day, this will
only count as one security for purposes of determining the total
number of securities in which such Member has met the quoting
requirement for that day.
\12\ As an example, assume that a Member has two MPIDs, and that
MPID 1 has an NBBO Time of 15% and MPID 2 has an NBBO Time of 20% in
the same security for a particular day. In this event, such Member
would not meet the quoting requirement in that security for that day
as it does not have an MPID with an NBBO Time of at least 25% in
that security for that day. The Exchange notes that The Nasdaq Stock
Market LLC (``Nasdaq'') uses this same methodology when calculating
the time that a member quotes at the NBBO under its Qualified Market
Maker program. See infra note 17; see also Securities Exchange Act
Release No. 77662 (April 20, 2016), 81 FR 24681, 24682 (April 26,
2016) (SR-NASDAQ-2016-051).
---------------------------------------------------------------------------
As noted above, to qualify for the DLI, a Member must meet the
quoting requirement in an average of at least 250 securities traded on
the Exchange (the ``250 securities requirement''), at least 75 of which
must be DLI Target Securities (the ``75 DLI Target Securities
requirement''), per trading day during the month. Each of the 250
securities requirement and the 75 DLI Target Securities requirement is
referred to under this proposal as a ``securities requirement.'' The
proposed DLI is designed to enhance market quality both in a broad
manner with respect to all securities traded on the Exchange, through
the 250 securities requirement, and in a targeted manner with respect
to certain designated securities in which the Exchange specifically
seeks to inject additional quoting competition (i.e., the DLI Target
Securities), through the 75 DLI Target Securities requirement. The
number of DLI Target Securities in which a Member meets the quoting
requirement will be counted toward both the 75 DLI Target Securities
requirement and the 250 securities requirement. In order to determine
whether a Member meets the applicable securities requirements during a
month, the average number of securities in which such Member meets the
quoting requirement per trading day during the month will be calculated
by summing the number of securities in which each of such Member's
MPIDs met the quoting requirement for each trading day during the month
then dividing the resulting sum by the total number of trading days in
the month.\13\ The Exchange proposes to add notes to the Fee Schedule
describing the criteria for determining whether a Member qualifies for
the DLI and the related calculation methodologies described above.
---------------------------------------------------------------------------
\13\ As an example, in a month with 20 trading days, if a
Member's MPIDs collectively satisfied the quoting requirement in 125
securities (of which 25 were DLI Target Securities) for ten of the
trading days in the month, and collectively satisfied the quoting
requirement in 375 securities (of which 125 were DLI Target
Securities) for the other ten trading days in the month, such Member
would meet the quoting requirement in an average of 250 securities
(i.e., ((125 x 10) + (375 x 10))/20), inclusive of an average of 75
DLI Target Securities (i.e., ((25 x 10) + (125 x 10))/20), per
trading day during the month. Therefore, such Member would meet both
of the applicable securities requirements during the month and would
qualify for the DLI for that month under this proposal.
---------------------------------------------------------------------------
In addition, the Exchange will exclude for purposes of determining
qualification for the Displayed Liquidity Incentive: (1) Any trading
day that the Exchange's system experiences a disruption that lasts for
more than 60 minutes during regular trading hours (``Exchange System
Disruption Days''); and (2) the day that Russell Investments
reconstitutes its family of indexes (the ``Russell Reconstitution
Day''), which occurs annually on the last Friday in June. The Exchange
will exclude Exchange System Disruption Days and the Russell
Reconstitution Day when determining both the numerator (i.e., the
number of securities in which a Member's MPIDs met the quoting
requirement for each trading day during the month) and the denominator
(i.e., the total number of trading days in the month) for purposes of
calculating the average number of securities in which such Member meets
the quoting
[[Page 32092]]
requirement per trading day during the month.
As further detail regarding such proposed exclusions, an Exchange
system disruption may occur, for example, where a certain group of
securities traded on the Exchange is unavailable for trading due to an
Exchange system issue. Similarly, the Exchange may be able to perform
certain functions with respect to accepting and processing orders, but
may have a failure to another significant process, such as routing to
other market centers, that would lead Members that rely on such process
to avoid utilizing the Exchange until the Exchange's entire system was
operational. The Exchange believes that these types of Exchange system
disruptions could preclude Members from participating on the Exchange
to the extent that they might have otherwise participated on such days,
and thus, the Exchange believes it is appropriate to exclude such days
when determining whether a Member meets the applicable securities
requirements during a month to avoid penalizing Members that might
otherwise have met such requirements. For similar reasons, the Exchange
believes it is appropriate to exclude the Russell Reconstitution Day in
the same manner, as the Exchange believes that the Russell
Reconstitution Day typically has extraordinarily high and abnormally
distributed trading volumes, and the Exchange believes this change to
normal activity may affect a Member's ability to meet the quoting
requirement across various securities on that day. The Exchange notes
that the exclusion of Exchange System Disruption Days and the Russell
Reconstitution Day is consistent with the methodologies used by other
exchanges when calculating certain member trading and other volume
metrics for purposes of determining whether members qualify for certain
pricing incentives, and the Exchange believes application of this
methodology is similarly appropriate for the proposed DLI pricing
incentive.\14\
---------------------------------------------------------------------------
\14\ See, e.g., the Cboe BZX Exchange, Inc. (``Cboe BZX'')
equities trading fee schedule on its public website (available at
https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/);
the Cboe EDGX Exchange, Inc. equities trading fee schedule on its
public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/).
---------------------------------------------------------------------------
A Member that qualifies for the DLI by meeting the requirements
described above during a particular month will receive an enhanced
rebate of $0.0036 per share for all executions of Added Displayed
Volume (unless a higher rebate applies \15\) during that month.\16\
This proposed enhanced rebate is $0.0005 higher than the standard
rebate that would otherwise be applicable to such executions, which the
Exchange is proposing to reduce from $0.0034 to $0.0031, as further
described below. The proposed enhanced rebate will apply to all
executions of Added Displayed Volume (other than orders receiving a
higher rebate, such as Retail Orders) entered by each MPID of a
qualifying Member; thus, if a Member qualifies for the DLI as a result
of its quoting activity from one of its MPIDs during a month, the
qualifying Member will receive the proposed enhanced rebate of $0.0036
per share for all executions of Added Displayed Volume (unless a higher
rebate applies) entered by that MPID as well as those entered by each
of its other MPIDs during that month. The Exchange notes that the
proposed enhanced rebate will only apply to executions in securities
priced at or above $1.00 per share; executions of a qualifying Member's
displayed orders that add liquidity to the Exchange in securities
priced below $1.00 per share will continue to receive the standard
rebate applicable to executions of such orders on the Exchange (i.e.,
0.05% of the total dollar value of the transaction).
---------------------------------------------------------------------------
\15\ As described further below, the Exchange is also proposing
to specify on the Fee Schedule that the lowest fee/highest rebate
will apply if a Member qualifies for multiple fees/rebates with
respect to a particular transaction. Retail Orders in securities
priced at or above $1.00 per share that are displayed and add
liquidity to the Exchange receive a rebate that is higher than the
proposed enhanced rebate for Members that qualify for the DLI. Thus,
under the Exchange's proposed pricing structure, a Member that
qualifies for the DLI would not receive the proposed DLI enhanced
rebate for executions of displayed Retail Orders that add liquidity
to the Exchange but instead would receive the rebate applicable to
executions of liquidity-adding displayed Retail Orders.
\16\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the new description ``Added displayed volume,
DLI'' with a Fee Code of ``Bq'', ``Dq'' or ``Jq'', as applicable, to
be provided by the Exchange on the monthly invoices provided to
Members. The Exchange notes that because the determination of
whether a Member qualifies for the DLI for a particular month will
not be made until after the month-end, the Exchange will provide the
Fee Codes otherwise applicable to such transactions (i.e., ``B'',
``D'' or ``J'') on the execution reports provided to Members during
the month and will only designate the Fee Codes of ``Bq'', ``Dq'' or
``Jq'' on the monthly invoices, which are provided after such
determination has been made.
---------------------------------------------------------------------------
The Exchange is proposing to provide the enhanced rebate for
executions of Added Displayed Volume for qualifying Members as a means
of recognizing the value of market participants that consistently quote
at the NBBO in a large number of securities, generally, and in the DLI
Target Securities, in particular. Even when such market participants
are not formally registered as market makers, they risk capital by
offering immediately executable liquidity at the price most favorable
to market participants on the opposite side of the market. Such
activity promotes price discovery and dampens volatility and enhances
the attractiveness of the Exchange as a trading venue. Given the
proposed requirements to qualify for the DLI, a Member must make a
significant contribution to market quality by providing liquidity at
the NBBO in a large number of securities, including certain designated
securities in which the Exchange specifically seeks to inject
additional quoting competition (i.e., the DLI Target Securities), for a
significant portion of the day.
A Member that qualifies for the DLI may be, but is not required to
be, a registered market maker in any security; thus, qualifying for the
DLI does not by itself impose a two-sided or any other quotation
obligation or convey any of the benefits associated with being a
registered market maker. Qualification for the DLI will, however,
reflect the Member's commitment to provide meaningful and consistent
support to market quality and price discovery by extensive quoting at
the NBBO in a large number of securities, including the DLI Target
Securities. Thus, this proposal is designed to attract liquidity both
from traditional market makers and from other firms that are willing to
commit capital to support liquidity at the NBBO. Through the proposed
enhanced rebate for qualifying Members, the Exchange hopes to provide
improved trading conditions for all market participants through
narrower bid-ask spreads and increased depth of liquidity available at
the NBBO for a large number of securities, generally, including the DLI
Target Securities, in particular. In addition, the proposal reflects an
effort to use a financial incentive to encourage a wider variety of
Members, including Members that may be characterized as high-frequency
trading firms, to make positive commitments to promote market quality.
The Exchange notes that the proposed DLI is similar in structure
and purpose to pricing programs in place at other exchanges that are
designed to enhance market quality by incentivizing members to achieve
minimum quoting standards, including minimum quoting at the NBBO in a
large number of securities, generally, or certain designated
securities, in particular.\17\
[[Page 32093]]
The Exchange further notes that, like the proposed DLI, these programs
include as an incentive the provision of an enhanced rebate for
executions of liquidity-adding displayed orders for members that meet
the quoting and other requirements of those programs.\18\
---------------------------------------------------------------------------
\17\ See, e.g., the Nasdaq equities trading fee schedule on its
public website, available at https://www.nasdaqtrader.com/trader.aspx?id=pricelisttrading2) and Nasdaq Rule Equity 7, Section
114(d) describing Nasdaq's Qualified Market Maker Program, which
provides for an additional rebate (ranging from $0.0001 to $0.0002
per share) for executions of liquidity-providing displayed orders
(other than designated retail orders) in securities across all tapes
priced at or above $1.00 per share for members that, in addition to
executing transactions that represent a specified percentage of
consolidated volume and avoiding inefficient order entry practices
that place excessive burdens on Nasdaq's systems, quote at the NBBO
at least 25% of the time during regular market hours in an average
of at least 1,000 securities per day during the month; see also the
Cboe BZX equities trading fee schedule on its public website
(available at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/), which provides for an additional rebate (ranging
from $0.0001 to $0.0002 per share) under Cboe BZX's Liquidity
Management Program for executions of liquidity-providing displayed
orders in Tape B securities priced at or above $1.00 per share for
members that, in addition to adding a specified percentage of total
consolidated volume in Tape B securities and meeting certain other
quoting requirements with respect to a specified number of
securities designated as ``LMP Securities'' on a list determined by
Cboe BZX, quote at the NBBO at least 15% of the time during regular
trading hours in a specified number of such designated LMP
Securities (or achieve an alternative NBBO quoting standard
involving a size-setting element with respect to such designated LMP
Securities).
\18\ Id.
---------------------------------------------------------------------------
In addition to the foregoing changes, the Exchange proposes to add
to the Fee Schedule definitions of the terms ``MPID'', ``DLI Target
Securities'', ``quoting requirement'', ``regular trading hours'' and
``securities requirement'' that are consistent with the descriptions of
those terms set forth above, as such terms are used in the notes
describing the calculation methodologies and criteria for determining
whether a Member qualifies for the DLI that the Exchange is proposing
to add to the Fee Schedule, as described above.
Adoption of Liquidity Provision Tier
The Exchange is also proposing to introduce a tiered pricing
structure applicable to the rebates provided for executions of Added
Displayed Volume. Specifically, the Exchange proposes to adopt a new
volume-based tier, referred to by the Exchange as the ``Liquidity
Provision Tier'', in which the Exchange will provide an enhanced rebate
for executions of Added Displayed Volume for Members that meet a
certain specified volume threshold on the Exchange. Currently, the
Exchange provides a standard rebate of $0.0034 per share for executions
of Added Displayed Volume, which the Exchange is proposing to reduce to
$0.0031, as further described below. The Exchange now proposes to
introduce a tiered pricing structure in which it will provide an
enhanced rebate of $0.00335 per share for executions of Added Displayed
Volume for Members that qualify for the Liquidity Provision Tier by
achieving an ADAV \19\ of 15,000,000 shares or more.\20\ As proposed,
ADAV will be calculated on a monthly basis, and Members that qualify
for the Liquidity Provision Tier by achieving the specified ADAV
threshold in a particular month will receive the proposed enhanced
rebate of $0.00335 per share for all executions of Added Displayed
Volume in that month (unless a higher rebate applies).
---------------------------------------------------------------------------
\19\ As proposed, the term ``ADAV'' means the average daily
added volume calculated as the number of shares added per day.
\20\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the new description ``Added displayed volume,
Liquidity Provision Tier'' with a Fee Code of ``B1'', ``D1'' or
``J1'', as applicable, to be provided by the Exchange on the monthly
invoices provided to Members. The Exchange notes that because the
determination of whether a Member qualifies for the Liquidity
Provision Tier for a particular month will not be made until after
the month-end, the Exchange will provide the Fee Codes otherwise
applicable to such transactions (i.e., ``B'', ``D'' or ``J'') on the
execution reports provided to Members during the month and will only
designate the Fee Codes of ``B1'', ``D1'' or ``J1'' on the monthly
invoices, which are provided after such determination has been made.
---------------------------------------------------------------------------
Similar to the exclusion for purposes of determining qualification
for the Displayed Liquidity Incentive, the Exchange proposes to exclude
from the calculation of ADAV: (1) Any Exchange System Disruption Days;
and (2) the Russell Reconstitution Day, which occurs annually on the
last Friday in June.\21\ As is true with respect to the Displayed
Liquidity Incentive, the Exchange believes that Exchange system
disruptions could preclude Members from participating on the Exchange
to the extent that they might have otherwise participated on such days,
and thus, the Exchange believes it is appropriate to exclude such days
when determining whether a Member qualifies for the Liquidity Provision
Tier to avoid penalizing Members that might otherwise have met the
applicable volume threshold. For similar reasons, the Exchange believes
it is appropriate to exclude the Russell Reconstitution Day in the same
manner, as the Exchange believes the change to normal activity may
affect a Member's ability to add liquidity to the Exchange on that day.
---------------------------------------------------------------------------
\21\ See supra note 14 and accompanying text.
---------------------------------------------------------------------------
The Exchange believes that the proposed tiered pricing structure
provides an incremental incentive for Members to strive for higher ADAV
on the Exchange to receive the proposed enhanced rebate for executions
of Added Displayed Volume. As such, the proposed Liquidity Provision
Tier is designed to encourage Members that provide liquidity on the
Exchange to maintain or increase their order flow, thereby contributing
to a deeper and more liquid market to the benefit of all market
participants and enhancing the attractiveness of the Exchange as a
trading venue.
Adoption of Enhanced Rebate for Added Midpoint Volume
The Exchange is also proposing to adopt an enhanced rebate for
executions of Midpoint Peg Orders that add liquidity to the Exchange
(such orders, ``Added Midpoint Volume''). Currently, the Exchange
provides a standard rebate of $0.0020 per share for all executions of
non-displayed orders in securities priced at or above $1.00 per share
that add liquidity to the Exchange, including executions of Added
Midpoint Volume. The Exchange now proposes to adopt an enhanced rebate
for executions of Added Midpoint Volume of $0.0025 per share,\22\ while
all other executions of non-displayed orders in securities priced at or
above $1.00 per share that add liquidity to the Exchange will continue
to receive the standard rebate for such transactions (i.e., $0.0020 per
share). The Exchange notes that executions of orders with a Midpoint
Peg instruction that add liquidity to the Exchange in securities priced
below $1.00 per share will continue to receive the standard rebate
applicable to executions of such orders on the Exchange (i.e., 0.05% of
the total dollar value of the transaction).
---------------------------------------------------------------------------
\22\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the new description ``Added non-displayed volume,
Midpoint Peg'' and such orders will continue to receive a Fee Code
of ``M'' assigned by the Exchange.
---------------------------------------------------------------------------
The purpose of the proposed enhanced rebate for executions of Added
Midpoint Volume is to encourage Members that provide liquidity through
non-displayed orders to do so, to a greater extent, through orders that
offer price improvement to the benefit of other market participants.
While the Exchange's pricing structure is generally designed to
encourage the provision of liquidity through displayed orders, as the
rebates provided with respect to such orders are consistently higher
than those for non-displayed orders, the proposed enhanced rebate for
executions of Added Midpoint Volume reflects a concomitant goal of
encouraging Members that use non-displayed orders to offer price
[[Page 32094]]
improvement through the use of orders that are designed to execute at
the midpoint of the NBBO. The Exchange believes that providing an
enhanced rebate for executions of Added Midpoint Volume is a reasonable
means by which to incentivize Members to provide additional liquidity
at the midpoint of the NBBO, which in turn would increase the
attractiveness of the Exchange as a destination venue, as Members
seeking price improvement would be more motivated to direct their
orders to the Exchange because they would have a heightened expectation
of the availability of liquidity at the midpoint of the NBBO. The
Exchange notes that the proposed enhanced rebate is comparable to, and
competitive with, the rebate provided by at least one other exchange
for executions of non-displayed orders in securities priced at or above
$1.00 per share that are pegged to the midpoint of the NBBO.\23\
---------------------------------------------------------------------------
\23\ See the Nasdaq PHLX LLC equities trading fee schedule on
its public website (available at https://www.nasdaqtrader.com/Trader.aspx?id=PSX_Pricing), which reflects a standard rebate of
$0.0023 per share for adding non-displayed liquidity via an order
that is pegged to the midpoint of the NBBO in a security priced at
or above $1.00 per share.
---------------------------------------------------------------------------
Increased Standard Fee for Removed Volume
The Exchange also proposes to increase the standard fee for
executions of orders in securities priced at or above $1.00 per share
that remove liquidity from the Exchange (i.e., Removed Volume).
Currently, the Exchange charges a standard fee of $0.0026 per share for
executions of Removed Volume. The Exchange now proposes to increase the
standard fee charged for executions of Removed Volume to $0.00265 per
share.\24\ The purpose of increasing the standard fee for executions of
Removed Volume is for business and competitive reasons, as the Exchange
believes that increasing such fee as proposed would generate additional
revenue to offset some of the costs associated with the proposed
enhanced rebates for executions of Added Displayed Volume for Members
that qualify for the DLI or the Liquidity Provision Tier and executions
of Added Midpoint Volume, and the Exchange's operations generally, in a
manner that is still consistent with the Exchange's overall pricing
philosophy of encouraging added displayed liquidity. The Exchange notes
that despite the modest increase to the standard fee, the Exchange's
fee for executions of Removed Volume remains lower than the fee to
remove liquidity in securities priced at or above $1.00 charged by
several other exchanges.\25\
---------------------------------------------------------------------------
\24\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the existing description ``Removed volume from
MEMX Book'' and such orders will continue to receive a Fee Code of
``R'' assigned by the Exchange.
\25\ See, e.g., the Cboe BZX equities trading fee schedule on
its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/); 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/); Nasdaq Rule Equity 7, Section 118(a).
---------------------------------------------------------------------------
Reduced Standard Rebate for Added Displayed Volume
The Exchange also proposes to reduce the standard rebate for
executions of Added Displayed Volume. Currently, the Exchange provides
a standard rebate of $0.0034 per share for executions of Added
Displayed Volume. The Exchange now proposes to reduce the standard
rebate for executions of Added Displayed Volume to $0.0031 per
share.\26\ The Exchange notes that executions of displayed orders that
add liquidity to the Exchange in securities priced below $1.00 per
share will continue to receive the standard rebate applicable to
executions of such orders on the Exchange (i.e., 0.05% of the total
dollar value of the transaction).
---------------------------------------------------------------------------
\26\ This proposed pricing is referred to by the Exchange on the
Fee Schedule under the existing description ``Added displayed
volume'' and such orders will continue to receive a Fee Code of
``B'', ``D'' or ``J'', as applicable, assigned by the Exchange.
---------------------------------------------------------------------------
The purpose of reducing the standard rebate for executions of Added
Displayed Volume is also for business and competitive reasons, as the
Exchange believes the reduction of such rebate would decrease the
Exchange's expenditures with respect to transaction pricing and would
also offset some of the costs associated with the proposed enhanced
rebates for executions of Added Displayed Volume for Members that
qualify for the DLI or the Liquidity Provision Tier and executions of
Added Midpoint Volume, and the Exchange's operations generally, in a
manner that is still consistent with the Exchange's overall pricing
philosophy of encouraging added displayed liquidity. The Exchange notes
that the proposed standard rebate is comparable to, and competitive
with, the standard rebates provided by at least one other exchange for
executions of orders in securities priced at or above $1.00 per share
that add displayed liquidity.\27\
---------------------------------------------------------------------------
\27\ See the MIAX PEARL, LLC equities trading fee schedule on
its public website (available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_PEARL_Equities_Fee_Schedule_01012021.pdf), which reflects a
standard rebate of $0.0032 per share to add displayed liquidity in
Tape A and Tape C securities priced at or above $1.00 per share and
a standard rebate of $0.0035 per share to add displayed liquidity in
Tape B securities priced at or above $1.00 per share.
---------------------------------------------------------------------------
Lastly, the Exchange proposes to add a note to the Fee Schedule
specifying that to the extent a Member qualifies for multiple fees/
rebates with respect to a particular transaction, the lowest fee/
highest rebate shall apply. The Exchange notes that charging the fee or
providing the rebate that is most favorable with respect to a
particular transaction is consistent with the pricing practices of
other exchanges.\28\
---------------------------------------------------------------------------
\28\ See, e.g., the Cboe BZX equities trading fee schedule on
its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/), which provides ``To the
extent a Member qualifies for higher rebates and/or lower fees than
those provided by a tier for which such Member qualifies, the higher
rebates and/or lower fees shall apply.''
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\29\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\30\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among its Members and other persons using its facilities
and is not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f.
\30\ 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.'' \31\
---------------------------------------------------------------------------
\31\ 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
[[Page 32095]]
different pricing structures being introduced into the market.
Accordingly, competitive forces constrain the Exchange's transaction
fees and rebates, and market participants can readily trade on
competing venues if they deem pricing levels at those other venues to
be more favorable. The Exchange believes that the proposal reflects a
reasonable and competitive pricing structure designed to incentivize
market participants to direct their order flow to the Exchange, to
enhance market quality in both a broad manner and in a targeted manner
with respect to the DLI Target Securities, and to provide price
improvement through the use of orders that are designed to execute at
the midpoint of the NBBO through the provision of enhanced rebates for
executions of Added Displayed Volume for Members that qualify for the
DLI or the Liquidity Provision Tier and for executions of Added
Midpoint Volume. While the Exchange has proposed increasing its
standard fee for executions of Removed Volume and reducing its standard
rebate for executions of Added Displayed Volume, as further discussed
below, each of such changes represents a modest increase (decrease)
from the current fee (rebate) applicable to such executions.
As noted above, the proposed DLI is intended to encourage Members
to promote price discovery and market quality by quoting at the NBBO
for a significant portion of each day in a large number of securities,
generally, and in the DLI Target Securities, in particular, thereby
benefitting the Exchange and other investors by providing improved
trading conditions for all market participants through narrower bid-ask
spreads and increased depth of liquidity available at the NBBO in a
broad base of securities, including the DLI Target Securities, and
committing capital to support the execution of orders. Additionally,
the Exchange believes the proposed enhanced rebate for all executions
of a qualifying Member's Added Displayed Volume will simultaneously
incentivize such Member to direct additional displayed liquidity-
providing orders to the Exchange in a more general manner to receive
such enhanced rebate. Thus, the Exchange believes that the proposed DLI
will promote price discovery and market quality in the DLI Target
Securities and more generally on the Exchange, and, further, that the
resulting tightened spreads and increased displayed liquidity will
benefit all investors by deepening the Exchange's liquidity pool,
offering additional flexibility for all investors to enjoy cost
savings, supporting the quality of price discovery, enhancing quoting
competition across exchanges, and promoting market transparency.
The Exchange believes the proposed enhanced rebate of $0.0036 per
share provided to Members that qualify for the DLI for executions of
Added Displayed Volume is reasonable, in that it does not reflect a
disproportionate increase above the proposed standard rebate of $0.0031
per share provided to all Members with respect to the provision of
displayed liquidity. The Exchange notes that the $0.0005 additional
rebate for such executions for qualifying Members is a competitive
proposal given that it is higher than the additional rebates provided
by other exchanges for executions of displayed liquidity-providing
orders for market participants that meet minimum quoting standards
under similar programs designed to enhance market quality.\32\ In
addition, the Exchange believes that it is reasonable and consistent
with an equitable allocation of fees to pay a higher rebate for
executions of Added Displayed Volume to Members that qualify for the
DLI because of the additional commitment to market quality reflected in
the associated quoting requirements. Such Members benefit all investors
by promoting price discovery and increasing the depth of liquidity
available at the NBBO and also benefit the Exchange itself by enhancing
its competitiveness as a market that attracts actionable orders.
Further, the Exchange notes that the proposed DLI would apply uniformly
to all Members, and any Member may choose to qualify for the DLI by
meeting the associated requirements in any month, regardless of the
volume of transactions that it executes on the Exchange. The Exchange
acknowledges that firms that do not post displayed liquidity on the
Exchange or do so on a smaller scale may not have the level of capital
necessary to support meeting the proposed DLI's requirements, however,
the Exchange believes that the requirements are attainable for many
market participants who do actively quote on exchanges and are
reasonably related to the enhanced market quality that the DLI is
designed to promote. Additionally, the Exchange notes that Members that
do not meet the proposed DLI's requirements may still qualify for a
rebate that is higher than the standard rebate for executions of Added
Displayed Volume through the proposed Liquidity Provision Tier, which
does not require a Member to consistently quote at the NBBO across a
broad range of securities. Accordingly, the Exchange believes that it
is consistent with an equitable allocation of fees and is not unfairly
discriminatory to pay a higher rebate in comparison with the rebate
paid to other Members for executions of displayed liquidity-providing
orders in recognition of these benefits to the Exchange and market
participants, particularly as the magnitude of the additional rebate is
not unreasonably high and is, instead, reasonably related to such
enhanced market quality.
---------------------------------------------------------------------------
\32\ See supra note 17.
---------------------------------------------------------------------------
The Exchange also believes that including in the proposed DLI
qualification criteria a quoting requirement for certain specified
securities (i.e., the DLI Target Securities), in addition to the more
general 250 securities requirement, is equitable and not unfairly
discriminatory because the Exchange has identified the DLI Target
Securities as securities in which it would like to inject additional
quoting competition, which the Exchange believes will generally act to
narrow spreads, increase size at the NBBO, and increase liquidity depth
in such securities, thereby increasing the attractiveness of the
Exchange as a destination venue with respect to such securities.
Accordingly, the Exchange believes that this aspect of the proposal is
reasonable, equitably allocated, and not unfairly discriminatory
because it is consistent with the overall goals of enhancing market
quality.
Furthermore, as noted above, the proposed DLI is similar in
structure and purpose to pricing programs in place at other exchanges
that are designed to enhance market quality.\33\ Specifically, these
programs, like the proposed DLI, provide a higher rebate for executions
of liquidity-adding displayed orders for members that achieve minimum
quoting standards, including minimum quoting at the NBBO in a large
number of securities, generally, or certain designated securities, in
particular.\34\ The Exchange also notes that the proposed DLI is not
dissimilar from volume-based rebates and fees (``Volume Tiers''), like
the Liquidity Provision Tier proposed in this filing, which have been
widely adopted by exchanges \35\ and are equitable and not
[[Page 32096]]
unfairly discriminatory because they are generally open to all members
on an equal basis and provide higher rebates and/or lower fees that are
reasonably related to the value to an exchange's market quality. Much
like Volume Tiers are generally designed to incentivize higher levels
of liquidity provision, the proposed DLI is designed to incentivize
enhanced market quality on the Exchange through tighter spreads,
greater size at the NBBO, and greater quoting depth in a large number
of securities, generally, and in the DLI Target Securities, in
particular, through the provision of an enhanced rebate for all
executions of a qualifying Member's Added Displayed Volume, where such
rebate will in turn incentivize higher levels of displayed liquidity
provision in a general manner. Accordingly, the Exchange believes that
the proposed DLI would act to enhance liquidity and competition across
exchanges in the DLI Target Securities and enhance liquidity provision
in all securities on the Exchange more generally by providing a rebate
reasonably related to such enhanced market quality to the benefit of
all investors, thereby promoting the principles discussed in Sections
6(b)(4) and 6(b)(5) of the Act.\36\
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\33\ Id.
\34\ Id.
\35\ See, e.g., the Cboe BZX equities trading fee schedule on
its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/); the Cboe EDGX equities
trading fee schedule on its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/).
\36\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange also believes that adding to the Fee Schedule the
notes describing the calculation methodologies and criteria for
determining whether a Member satisfies the requirements to qualify for
the DLI, as well as the definitions of terms that are used in these
notes, is reasonable, equitable, and non-discriminatory because these
notes and definitions are designed to ensure that the Fee Schedule is
as clear and easily understandable as possible with respect to the
requirements of the proposed DLI. Additionally, the Exchange believes
that excluding Exchange System Disruption Days and the Russell
Reconstitution Day when determining whether a Member qualifies for the
proposed DLI during a month is reasonable, equitable, and non-
discriminatory because, as explained above, the Exchange believes doing
so would help to avoid penalizing Members that might otherwise have met
the requirements to qualify for the proposed DLI due to Exchange system
disruptions and/or abnormal market conditions. The Exchange notes that
the exclusion of Exchange System Disruption Days and the Russell
Reconstitution Day is consistent with the methodologies used by other
exchanges when calculating certain member trading and other volume
metrics for purposes of determining whether members qualify for certain
pricing incentives.\37\
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\37\ See supra note 14.
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As noted above, Volume Tiers, like the Liquidity Provision Tier
proposed in this filing, have been widely adopted by exchanges \38\ and
are equitable and not unfairly discriminatory because they are open to
all members on an equal basis and provide rebates that are reasonably
related to the value to an exchange's market quality associated with
higher levels of market activity, such as higher levels of liquidity
provision and introduction of higher volumes of orders into the price
and volume discovery process. The Exchange believes the proposed
Liquidity Provision Tier is equitable and not unfairly discriminatory
for these same reasons, as it is open to all Members and is designed to
encourage Members that provide liquidity on the Exchange to maintain or
increase their order flow in this regard, thereby contributing to a
deeper and more liquid market to the benefit of all market participants
and enhancing the attractiveness of the Exchange as a trading venue.
Additionally, the Exchange believes the proposed enhanced rebate for
executions of Added Displayed Volume for qualifying Members (i.e.,
$0.00335 per share) is reasonable, in that it represents only a modest
increase above the proposed standard rebate for such executions (i.e.,
$0.0031 per share) as well as a modest decrease from the current
standard rebate for such executions (i.e., $0.0034 per share). Thus,
the Exchange believes that it is reasonable, consistent with an
equitable allocation of fees, and not unfairly discriminatory to pay
such higher rebate for executions of Added Displayed Volume to Members
that qualify for the Liquidity Provision Tier in comparison with the
standard rebate in recognition of benefits to the Exchange and market
participants described above, particularly as the magnitude of the
additional rebate is not unreasonably high and is, instead, reasonably
related to the enhanced market quality it is designed to achieve. The
Exchange further believes that such rebate is reasonable as it offers
an alternative way for Members that do not meet the proposed DLI's
requirements to qualify for a rebate that is higher than the proposed
standard rebate for executions of Added Displayed Volume that does not
require such Members to consistently quote at the NBBO across a broad
range of securities.
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\38\ See supra note 35.
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Additionally, the Exchange believes that excluding Exchange System
Disruption Days and the Russell Reconstitution Day when determining
whether a Member qualifies for the proposed Liquidity Provision Tier
during a month is reasonable, equitable, and non-discriminatory
because, as explained above, the Exchange believes doing so would help
to avoid penalizing Members that might otherwise have met the
requirements to qualify for the proposed Liquidity Provision Tier due
to Exchange system disruptions and/or abnormal market conditions. The
Exchange notes that the exclusion of Exchange System Disruption Days
and the Russell Reconstitution Day is consistent with the methodologies
used by other exchanges when calculating certain member trading and
other volume metrics for purposes of determining whether members
qualify for certain pricing incentives, including calculations of ADAV
for Volume Tiers specifically.\39\
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\39\ See supra note 14.
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With respect to the proposed enhanced rebate for executions of
Added Midpoint Volume, the Exchange believes that providing a rebate
for such executions that is higher than the standard rebate for
executions of other non-displayed orders in securities priced at or
above $1.00 per share that add liquidity to the Exchange is reasonable
as the Exchange believes this would encourage Members that provide
liquidity through non-displayed orders to do so, to a greater extent,
through orders designed to execute at the midpoint of the NBBO. Because
such orders provide price improvement to the benefit of other market
participants, the Exchange believes it is reasonable and consistent
with an equitable allocation of fees to provide an enhanced rebate to
encourage their use, while still maintaining an overall pricing
structure that places even greater emphasis on the value of displayed
liquidity in advancing transparency and price discovery. The Exchange
further believes the proposed enhanced rebate is reasonable because, as
noted above, it is comparable to, and competitive with, the rebate
provided by at least one other exchange for executions of non-displayed
orders in securities priced at or above $1.00 per share that are pegged
to the midpoint of the NBBO.\40\ The Exchange also believes this
proposed enhanced rebate is not unfairly discriminatory as it would
apply equally to all Members and the elements of differentiation
between displayed and non-displayed liquidity and orders designed to
execute at the midpoint of the NBBO and other non-displayed
[[Page 32097]]
orders promote the goals of price discovery and encouraging market
participants to provide price improvement.
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\40\ See supra note 23.
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The Exchange believes that the proposed changes to increase the
standard fee for executions of Removed Volume and reduce the standard
rebate for executions of Added Displayed Volume are reasonable,
equitable, and consistent with the Act because such changes are
designed to generate additional revenue and decrease the Exchange's
expenditures with respect to transaction pricing to offset some of the
costs associated with the proposed enhanced rebates for executions of
Added Displayed Volume for Members that qualify for the DLI or the
Liquidity Provision Tier and executions of Added Midpoint Volume, and
the Exchange's operations generally, in a manner that is still
consistent with the Exchange's overall pricing philosophy of
encouraging added displayed liquidity. The Exchange also believes the
proposed increased standard fee for executions of Removed Volume is
reasonable and appropriate because it represents a modest increase from
the current standard fee and, as noted above, remains lower than the
fee to remove liquidity in securities priced at or above $1.00 charged
by several other exchanges.\41\ Similarly, the Exchange believes the
proposed reduced standard rebate for executions of Added Displayed
Volume is reasonable and appropriate because it represents a modest
decrease from the current standard rebate and, as noted above, remains
comparable to, and competitive with, the standard rebates provided by
at least one other exchange for executions of orders in securities
priced at or above $1.00 per share that add displayed liquidity.\42\
The Exchange further believes that the proposed increased standard fee
for executions of Removed Volume and the proposed reduced standard
rebate for executions of Added Displayed Volume are equitably allocated
and not unfairly discriminatory because they both will apply equally to
all Members.
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\41\ See supra note 25.
\42\ See supra note 27.
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For the reasons discussed above, the Exchange submits that the
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act in that it provides for the equitable allocation of reasonable
dues, fees and other charges among its Members and other persons using
its facilities and is not designed to unfairly discriminate between
customers, issuers, brokers, or dealers. As described more fully below
in the Exchange's statement regarding the burden on competition, the
Exchange believes that its transaction pricing is subject to
significant competitive forces, and that the proposed fees and rebates
described herein are appropriate to address such forces.
Finally, the Exchange believes that the proposed change to add a
note on the Fee Schedule specifying that to the extent a Member
qualifies for multiple fees/rebates with respect to a particular
transaction, the lowest fee/highest rebate shall apply is reasonable,
equitable, and non-discriminatory because it applies uniformly to all
Members and is designed to clarify for Members which fee or rebate is
applicable to their transactions. Thus, Exchange believes that this
proposed change will make the Fee Schedule clearer and eliminate
potential confusion in this regard, thereby removing impediments to and
perfecting the mechanism of a free and open market and a national
market system, and, in general, protecting investors and the public
interest. Further, as noted above, this practice is consistent with the
pricing practices of other exchanges.\43\
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\43\ See supra note 28.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposal will result in any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Instead, as discussed above,
the proposal is designed to enhance market quality on the Exchange in a
large number of securities, generally, and in the DLI Target
Securities, in particular, to encourage Members to maintain or increase
their order flow, thereby contributing to a deeper and more liquid
market to the benefit of all market participants and enhancing the
attractiveness of the Exchange as a trading venue, and to encourage
Members to provide price improvement through the use of orders that are
designed to execute at the midpoint of the NBBO. In turn, the Exchange
believes the proposed enhanced rebates for executions of Added
Displayed Volume for Members that qualify for the DLI or the Liquidity
Provision Tier and for executions of Added Midpoint Volume would
encourage the submission of additional order flow to the Exchange,
particularly in the form of Added Displayed Volume and Added Midpoint
Volume, thereby promoting market depth, enhanced execution
opportunities, price improvement, and price discovery to the benefit of
all Members and market participants. As a result, the Exchange believes
the proposal would enhance its competitiveness as a market that
attracts actionable orders, thereby making it a more desirable
destination venue for its customers. For these reasons, the Exchange
believes that the proposal furthers the Commission's goal in adopting
Regulation NMS of fostering competition among orders, which promotes
``more efficient pricing of individual stocks for all types of orders,
large and small.'' \44\
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\44\ See supra note 31.
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Intramarket Competition
The Exchange believes that the proposal would incentivize Members
to promote price discovery and market quality by quoting at the NBBO
for a significant portion of each day in a large number of securities,
including the DLI Target Securities, to maintain or increase their
order flow, thereby contributing to a deeper and more liquid market to
the benefit of all market participants and enhancing the attractiveness
of the Exchange as a trading venue, and to provide price improvement
through the use of orders that are designed to execute at the midpoint
of the NBBO, which the Exchange believes, in turn, would continue to
encourage participants to direct 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 market
participants. The opportunity to qualify for the DLI, and thus receive
the proposed enhanced rebate for executions of Added Displayed Volume,
would be available to all Members that meet the associated requirements
in any month, regardless of the volume of transactions that it executes
on the Exchange, and as noted above, the Exchange believes that the
DLI's requirements are attainable for many market participants who
actively quote on exchanges and are reasonably related to the enhanced
market quality that the DLI is designed to promote. Similarly, the
opportunity to qualify for the Liquidity Provision Tier, and thus also
receive an enhanced rebate for executions of Added Displayed Volume
(albeit a rebate lower than that provided for Members who qualify for
the DLI), would be available to all Members that meet the associated
volume requirement in any month. The Exchange believes the volume
requirement of the Liquidity Provision Tier is attainable for several
[[Page 32098]]
market participants who add displayed liquidity executed on the
Exchange and is reasonably related to the enhanced market quality that
the Liquidity Provision Tier is designed to promote. Similarly, the
proposed enhanced rebate for executions of Added Midpoint Volume, the
proposed increased standard fee for executions of Removed Volume, and
the proposed reduced standard rebate for executions of Added Displayed
Volume would apply equally to all Members. As such, the Exchange
believes the proposed changes would not impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Intermarket Competition
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. 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 executions of
Added Displayed Volume, Added Midpoint Volume, and Removed Volume, 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 and to promote
market quality through pricing incentives that are similar in structure
and purpose to pricing programs in place at other exchanges.\45\
Accordingly, the Exchange believes the proposal would not burden, but
rather promote, intermarket competition by enabling it to better
compete with other exchanges that offer similar incentives to market
participants that enhance market quality.
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\45\ See supra notes 17, 23, and 35.
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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.'' \46\ 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'. . . .''.\47\ Accordingly, the Exchange does not believe its
proposed pricing changes impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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\46\ See supra note 31.
\47\ 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 \48\ and Rule 19b-4(f)(2) \49\ thereunder.
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\48\ 15 U.S.C. 78s(b)(3)(A)(ii).
\49\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
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-2021-07 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-2021-07. 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 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
[[Page 32099]]
submissions should refer to File Number SR-MEMX-2021-07 and should be
submitted on or before July 7, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12593 Filed 6-15-21; 8:45 am]
BILLING CODE 8011-01-P
