Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule, 56132-56136 [2022-19681]

Download as PDF 56132 Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–95688; File No. SR–MEMX– 2022–23] Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange’s Fee Schedule September 7, 2022. 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 August 31, 2022, 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 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 September 1, 2022. The text of the proposed rule change is provided in Exhibit 5. jspears on DSK121TN23PROD with NOTICES 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. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Exchange Rule 1.5(p). 2 17 VerDate Sep<11>2014 17:30 Sep 12, 2022 Jkt 256001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend the Fee Schedule to: (i) adopt a reduced fee for executions of Pegged Orders 4 with a Midpoint Peg 5 instruction (such orders, ‘‘Midpoint Peg Orders’’) and a time-in-force (‘‘TIF’’) instruction of IOC 6 or FOK 7 that execute at the midpoint of the national best bid and offer (‘‘NBBO’’); (ii) modify the required criteria under Liquidity Provision Tiers 1 and 2; and (iii) allow affiliated Members to aggregate their quoting activity for purposes of the Exchange’s Displayed Liquidity Incentive (‘‘DLI’’) Tiers with prior notice to the Exchange, each as further described below. The Exchange first notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive or incentives to be insufficient. More specifically, the Exchange is only one of 16 registered equities exchanges, as well as a number of alternative trading systems and other off-exchange venues, to which market participants may direct their order flow. Based on publicly available information, no single registered equities exchange currently has more than approximately 15.5% of the total market share of executed volume of equities trading.8 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 3% of the overall market share.9 The Exchange in particular operates a ‘‘Maker-Taker’’ model whereby it provides rebates to Members that add liquidity to the Exchange and charges fees to Members that remove liquidity from the Exchange. The Fee Schedule sets forth the standard rebates and fees applied per share for orders that add and remove liquidity, respectively. Additionally, in response to the competitive environment, the Exchange also offers tiered pricing, which provides Members with 4 See Exchange Rule 11.6(h). Exchange Rule 11.6(h)(2). 6 See Exchange Rule 11.6(o)(1). 7 See Exchange Rule 11.6(o)(3). 8 Market share percentage calculated as of August 30, 2022. The Exchange receives and processes data made available through consolidated data feeds (i.e., CTS and UTDF). 9 Id. 5 See PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 opportunities to qualify for higher rebates or lower fees where certain volume criteria and thresholds are met. Tiered pricing provides an incremental incentive for Members to strive for higher tier levels, which provides increasingly higher benefits or discounts for satisfying increasingly more stringent criteria. Midpoint Peg IOC/FOK Orders The Exchange currently charges a standard fee of $0.0030 per share for executions of orders in securities priced at or above $1.00 per share that remove liquidity from the Exchange (such orders, ‘‘Removed Volume’’). The Exchange now proposes to adopt a reduced fee of $0.0026 per share for executions of Midpoint Peg Orders in securities priced at or above $1.00 per share with a TIF instruction of IOC or FOK that execute at the midpoint of the NBBO and remove liquidity from the Exchange upon entry 10 (such orders, ‘‘Midpoint Peg IOC/FOK Orders’’).11 As proposed, executions of Midpoint Peg Orders in securities priced below $1.00 per share with a TIF instruction of IOC or FOK that execute at the midpoint of the NBBO and remove liquidity from the Exchange upon entry in will be charged a fee of 0.25% of the total dollar value of the transaction, which is the same fee that is currently charged for all such executions. The purpose of reducing the fee for executions of Midpoint Peg IOC/FOK Orders is to incentivize Members to submit additional liquidity-removing orders designed to execute at the midpoint upon entry (i.e., in the form of Midpoint Peg IOC/FOK Orders) to the Exchange, as the cost of such executions would be lower than it is today. In turn, the Exchange believes the submission of additional Midpoint Peg IOC/FOK Orders would encourage firms that post liquidity at the midpoint to submit additional liquidity-providing orders designed to execute at the midpoint to 10 The Exchange notes that all Midpoint Peg Orders with a TIF instruction of IOC or FOK, if executed on the Exchange, would remove liquidity from the Exchange upon entry, as orders with a TIF instruction of IOC or FOK do not post on the MEMX Book. The Exchange further notes that a Midpoint Peg Order with a TIF instruction of IOC may be eligible for routing away pursuant to Exchange Rule 11.11, and that if any such order is routed to and executed at an away market it would be charged the current standard fee of $0.0030 per share for orders that are routed to, and remove liquidity from, another market. See Exchange Rules 11.6(o)(1) and 11.6(o)(3). 11 The proposed pricing for executions of Midpoint Peg IOC/FOK Orders is referred to by the Exchange on the Fee Schedule under the new description ‘‘Removed volume from MEMX Book, Midpoint Peg (IOC/FOK)’’ and such orders will receive a Fee Code of ‘‘Rm’’ assigned by the Exchange. E:\FR\FM\13SEN1.SGM 13SEN1 Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices the Exchange, as such orders would have a greater chance of being executed as a result of additional contra-side liquidity-removing Midpoint Peg IOC/ FOK Orders to interact with. Thus, the Exchange’s proposal to reduce the fee for executions of Midpoint Peg IOC/ FOK Orders is designed to deepen liquidity and increase execution opportunities at the midpoint on the Exchange, thereby improving the Exchange’s market quality to the benefit of all Members and enhancing its attractiveness as a trading venue. jspears on DSK121TN23PROD with NOTICES Liquidity Provision Tiers 1 and 2 The Exchange currently provides a standard rebate of $0.0020 per share for executions of orders in securities priced at or above $1.00 per share that add displayed liquidity to the Exchange (such orders, ‘‘Added Displayed Volume’’). The Exchange also currently offers the Liquidity Provision Tiers under which a Member may receive an enhanced rebate for executions of Added Displayed Volume by achieving the corresponding required volume criteria for each tier. The Exchange now proposes to modify the required criteria under Liquidity Provision Tiers 1 and 2, as further described below, but the Exchange does not propose to change the rebates provided under such tiers. With respect to Liquidity Provision Tier 1, a Member currently qualifies for such tier by achieving: (1) a Displayed ADAV 12 that is equal to or greater than 0.40% of the TCV; 13 or (2) a Remove ADV 14 that is equal to or greater than 0.25% of the TCV and a Step-Up ADAV 15 from June 2022 that is equal to or greater than 0.05% of the TCV. Now, the Exchange proposes to modify the required criteria under such tier such that a Member would now qualify for Liquidity Provision Tier 1 by achieving: (1) a Displayed ADAV that is equal to or greater than 0.40% of the TCV; or (2) a Remove ADV that is equal to or greater than 0.20% of the TCV and a Step-Up 12 As set forth on the Fee Schedule, ‘‘ADAV’’ means the average daily added volume calculated as the number of shares added per day, which is calculated on a monthly basis, and ‘‘Displayed ADAV’’ means ADAV with respect to displayed orders. 13 As set forth on the Fee Schedule, ‘‘TCV’’ means total consolidated volume calculated as the volume reported by all exchanges and trade reporting facilities to a consolidated transaction reporting plan for the month for which the fees apply. 14 As set forth on the Fee Schedule, ‘‘ADV’’ means average daily volume calculated as the number of shares added or removed, combined, per day, which is calculated on a monthly basis, and the term ‘‘Remove ADV’’ means ADV with respect to orders that remove liquidity. 15 As set forth on the Fee Schedule, ‘‘Step-Up ADAV’’ means ADV in the relevant baseline month subtracted from current ADAV. VerDate Sep<11>2014 17:30 Sep 12, 2022 Jkt 256001 ADAV from June 2022 that is equal to or greater than 0.05% of the TCV. Thus, such proposed change would lower the Remove ADV threshold in one of the two alternative criteria under such tier. With respect to Liquidity Provision Tier 2, a Member currently qualifies for such tier by achieving an ADAV 16 that is equal to or greater than 0.25% of the TCV.17 Now, the Exchange proposes to modify the required criteria under such tier such that a Member would now qualify for Liquidity Provision Tier 2 by achieving an ADAV that is equal to or greater than 0.20% of the TCV. Thus, such proposed change would lower the ADAV threshold under such tier. The Exchange believes that lowering the Remove ADV threshold under Liquidity Provision Tier 1 and the ADAV threshold under Liquidity Provision Tier 2, as proposed, would make such tiers easier for Members to achieve, and, in turn, while the Exchange has no way of predicting with certainty how the proposed new criteria will impact Member activity, the Exchange anticipates that more Members will strive to qualify for such tiers than currently do, resulting in the submission of additional order flow to the Exchange. Aggregation of Affiliated Members’ DLI Quoting Activity Lastly, the Exchange proposes to add a note to the Fee Schedule to allow affiliated Members to aggregate the quoting activity of such affiliated Members’ MPIDs for purposes of DLI Tier qualification if such Members provide prior notice to the Exchange. As proposed, to the extent that two or more affiliated companies maintain separate memberships with the Exchange and can demonstrate their affiliation by showing they control, are controlled by, or are under common control with each other, the Exchange would permit such Members to aggregate the quoting activity (but not the NBBO Time 18) of such affiliated Members’ MPIDs in a manner that is consistent with the DLI Tier calculation methodologies currently set forth on the Fee 16 As set forth on the Fee Schedule, ‘‘ADAV’’ means the average daily added volume calculated as the number of shares added per day, which is calculated on a monthly basis. 17 As set forth on the Fee Schedule, ‘‘TCV’’ means total consolidated volume calculated as the volume reported by all exchanges and trade reporting facilities to a consolidated transaction reporting plan for the month for which the fees apply. 18 As set forth on the Fee Schedule, ‘‘NBBO Time’’ means the aggregate of the percentage of time during regular trading hours during which one of a Member’s MPIDs has a displayed order of at least one round lot at the national best bid or the national best offer. PO 00000 Frm 00146 Fmt 4703 Sfmt 4703 56133 Schedule.19 More specifically, the Exchange would use the same calculation methodologies currently applicable to the aggregation of the quoting activity (but not the NBBO Time) of multiple MPIDs of one Member to aggregate the quoting activity (but not the NBBO Time) of all MPIDs associated with the affiliated Members. As proposed, the Exchange will verify such affiliation using a Member’s Form BD, which lists control affiliates. The purpose of this proposed change is to avoid disparate treatment of firms that have divided their various business activities between separate corporate entities as compared to firms that operate those business activities within a single corporate entity, as allowing affiliated Member firms to count their aggregate quoting activity as proposed would produce the same result for purposes of the Exchange’s DLI Tier pricing as if such affiliated Member firms were instead organized as a single corporate entity. The Exchange notes that the proposed aggregation of affiliated Member firms’ quoting activity for purposes of DLI Tier qualification, as described above, is consistent with the current practice of the Exchange and other exchanges with respect to the aggregation of affiliated Member firms’ volumes for purposes of ADAV and ADV calculations with respect to pricing tiers.20 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,21 in general, and with Sections 6(b)(4) and 6(b)(5) of the Act,22 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 19 See the Exchange’s Fee Schedule (available at https://info.memxtrading.com/fee-schedule/) and the Exchange’s initial proposal to adopt the DLI (Securities Exchange Act Release No. 92150 (June 10, 2021), 86 FR 32090 (June 16, 2021) (SR–MEMX– 2021–07)) for additional details regarding the Exchange’s calculation methodologies for the DLI Tiers. 20 See, e.g., the Cboe EDGX Exchange, Inc. equities trading fee schedule on its public website (available at https://www.cboe.com/us/equities/ membership/fee_schedule/edgx/). 21 15 U.S.C. 78f. 22 15 U.S.C. 78f(b)(4) and (5). E:\FR\FM\13SEN1.SGM 13SEN1 jspears on DSK121TN23PROD with NOTICES 56134 Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices 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.’’ 23 The Exchange believes that the evershifting market share among the exchanges from month to month demonstrates that market participants can shift order flow or discontinue to reduce use of certain categories of products, in response to new or different pricing structures being introduced into the market. Accordingly, competitive forces constrain the Exchange’s transaction fees and rebates, and market participants can readily trade on competing venues if they deem pricing levels at those other venues to be more favorable. The Exchange believes the proposal reflects a reasonable and competitive pricing structure designed to incentivize market participants to direct additional order flow, including liquidity-adding and liquidity-removing orders designed to execute at the midpoint, to the Exchange, which the Exchange believes would enhance liquidity and market quality on the Exchange to the benefit of all Members. The Exchange believes that its proposal to charge a reduced fee for executions of Midpoint Peg IOC/FOK Orders is reasonable, equitable, and not unfairly discriminatory. Specifically, the Exchange believes such proposal is reasonable, as it is reasonably designed to incentivize Members to submit additional Midpoint Peg IOC/FOK Orders to the Exchange, which, in turn, the Exchange believes would encourage firms that post midpoint liquidity to submit additional liquidity-adding orders designed to execute at the midpoint to the Exchange in order to interact with such Midpoint Peg IOC/ FOK Orders, as described above. Thus, the Exchange believes the proposal reflects a reasonable attempt to deepen liquidity and increase execution opportunities at the midpoint on the Exchange, thereby improving the 23 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005). VerDate Sep<11>2014 17:30 Sep 12, 2022 Jkt 256001 Exchange’s market quality to the benefit of all Members and enhancing its attractiveness as a trading venue, particularly as the Exchange believes the proposed reduction in the fee for executions of Midpoint Peg IOC/FOK Orders (i.e., $0.0004 per share lower than the standard fee for Removed Volume) is not excessive and is instead reasonably related to the market quality benefits it is intended to achieve. The Exchange also believes that the proposed fee for executions of Midpoint Peg IOC/FOK Orders is equitable and not unfairly discriminatory, as such fee would be charged uniformly to all executions of such orders for all Members. With respect to Liquidity Provision Tiers 1 and 2, the Exchange notes that volume-based incentives and discounts have been widely adopted by exchanges, including the Exchange, and are reasonable, equitable and not unfairly discriminatory because they are open to all members on an equal basis and provide additional benefits or discounts that are reasonably related to the value to an exchange’s market quality associated with higher levels of market activity, such as higher levels of liquidity provision and/or growth patterns, and the introduction of higher volumes of orders into the price and volume discovery process. The Exchange believes that Liquidity Provision Tiers 1 and 2, as modified by the proposed changes to the required criteria under such tiers, are reasonable, equitable and not unfairly discriminatory for these same reasons, as such tiers would continue to provide Members with incremental incentives to achieve certain volume thresholds on the Exchange, are available to all Members on an equal basis, and, as described above, are designed to encourage Members to increase their order flow to the Exchange in order to qualify for the corresponding enhanced rebate for executions of Added Displayed Volume, thereby contributing to a deeper and more liquid market to the benefit of all Members. The Exchange also believes that the proposed changes to the required criteria under Liquidity Provision Tiers 1 and 2 reflect a reasonable and equitable allocation of fees and rebates, as the Exchange believes the enhanced rebate for executions of Added Displayed Volume under each such tier remains commensurate with the corresponding required criteria under the applicable tier and reasonably related to the market quality benefits the applicable tier is designed to achieve. Without having a view of activity on other markets and off-exchange venues, PO 00000 Frm 00147 Fmt 4703 Sfmt 4703 the Exchange has no way of knowing whether these proposed changes would definitely result in any Members qualifying for the proposed Liquidity Provision Tiers 1 and 2. While the Exchange has no way of predicting with certainty how the proposed changes will impact Member activity, the Exchange believes that the proposed changes to lower the Remove ADV threshold and the ADAV threshold under Liquidity Provision Tiers 1 and 2, respectively, would make such tiers easier to achieve, and the Exchange anticipates that more Members will strive to qualify for such tiers than currently do, resulting in the submission of additional order flow to the Exchange. As described above, the proposed language on the Fee Schedule permitting aggregation of quoting activity (but not NBBO Time) amongst affiliated Members for purposes of DLI Tier qualification is intended to avoid disparate treatment of firms that have divided their various business activities between separate corporate entities as compared to firms that operate those business activities within a single corporate entity, as allowing affiliated Member firms to count their aggregate quoting activity in determining DLI Tier qualification would produce the same result for purposes of the Exchange’s DLI Tier pricing as if such affiliated Member firms were instead organized as a single corporate entity. Accordingly, the Exchange believes that its proposed policy is fair and equitable, and not unreasonably discriminatory. In addition to ensuring fair and equal treatment of its Members, the Exchange does not want to create incentives for its Members to restructure their business operations or compliance functions simply due to the Exchange’s pricing structure. Moreover, as noted above, this proposed policy is consistent with the practice of the Exchange and other exchanges with respect to the aggregation of affiliated Members’ volumes for purposes of determining ADAV and ADV with respect to pricing tiers, and therefore, it does not raise any new or novel issues that have not previously been considered by the Commission.24 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 25 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 24 See 25 15 E:\FR\FM\13SEN1.SGM supra note 20. U.S.C. 78f(b)(4) and (5). 13SEN1 Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices 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. jspears on DSK121TN23PROD with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposal will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Instead, as discussed above, the proposal is intended to incentivize market participants to direct additional order flow, including in the form of orders designed to execute at the midpoint of the NBBO, to the Exchange, thereby enhancing liquidity and market quality on the Exchange to the benefit of all Members. 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.’’ 26 Intramarket Competition As discussed above, the Exchange believes that the proposal would incentivize Members to submit additional order flow, including liquidity-adding and liquidity-removing orders designed to execute at the midpoint, to the Exchange, thereby enhancing liquidity and market quality on the Exchange to the benefit of all Members, as well as enhancing the attractiveness of the Exchange as a trading venue, which the Exchange believes, in turn, would continue to encourage market participants to direct additional order flow to the Exchange. Greater liquidity benefits all Members by providing more trading opportunities and encourages Members to send additional orders to the Exchange, thereby contributing to robust levels of liquidity, which benefits all market participants. The opportunity to qualify for the proposed new criteria under Liquidity Provision Tiers 1 and 2, and thus receive the corresponding enhanced rebates for executions of 26 See supra note 23. VerDate Sep<11>2014 17:30 Sep 12, 2022 Jkt 256001 Added Displayed Volume, would continue to be available to all Members that meet the associated volume requirements in any month. As described above, the Exchange believes that the proposed new required criteria under each such tier are commensurate with the corresponding rebate under such tier and are reasonably related to the enhanced liquidity and market quality that such tier is designed to promote. Additionally, as noted above, the ability for Members to aggregate quoting activity amongst affiliated Member firms for purposes of the Exchange’s determination of DLI Tier qualification is designed to avoid disparate treatment of firms that have divided their various business activities between separate corporate entities as compared to firms that operate those business activities within a single corporate entity and would apply equally to all Members as does the Exchange’s current practice with respect to the aggregation of affiliated Members’ volumes for purposes of determining ADAV and ADV with respect to pricing tiers. For the foregoing reasons, the Exchange believes the proposed changes would not impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. Intermarket Competition As noted above, the Exchange operates in a highly competitive market in which market participants can readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive or incentives to be insufficient. Members have numerous alternative venues that they may participate on and direct their order flow to, including 15 other equities exchanges and numerous alternative trading systems and other off-exchange venues. As noted above, no single registered equities exchange currently has more than approximately 15.5% 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 PO 00000 Frm 00148 Fmt 4703 Sfmt 4703 56135 to executions of Midpoint Peg IOC/FOK Orders and Added Displayed 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 represent a competitive proposal through which the Exchange is seeking to encourage additional order flow to the Exchange through a reduced fee for executions of Midpoint Peg IOC/FOK Orders and modifications to the required criteria under certain volumebased tiers, which have been widely adopted by exchanges, including the Exchange. Additionally, as discussed above, the proposed change to allow affiliated Members to aggregate their quoting activity for purposes of the Exchange’s determination of DLI Tier qualification is consistent with the practice of the Exchange and other exchanges with respect to the aggregation of affiliated Member firms’ volumes for purposes of ADAV and ADV calculations with respect to pricing tiers. Accordingly, the Exchange believes the proposal would not burden, but rather promote, intermarket competition by enabling it to better compete with other exchanges that offer similar pricing incentives to market participants and aggregation of trading activity amongst affiliated firms with respect to pricing incentives. 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.’’ 27 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 27 See E:\FR\FM\13SEN1.SGM supra note 23. 13SEN1 56136 Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices the execution of order flow from broker dealers’. . . .’’.28 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 29 and Rule 19b–4(f)(2) 30 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule 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: jspears on DSK121TN23PROD with NOTICES 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–2022–23 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–2022–23. This file number should be included on the 28 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)). 29 15 U.S.C. 78s(b)(3)(A)(ii). 30 17 CFR 240.19b–4(f)(2). VerDate Sep<11>2014 17:30 Sep 12, 2022 Jkt 256001 subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–MEMX–2022–23 and should be submitted on or before October 4, 2022. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.31 J. Matthew DeLesDernier, Deputy Secretary. [FR Doc. 2022–19681 Filed 9–12–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–814, OMB Control No. 3235–0764] Proposed Collection; Comment Request; Extension: Rule 6c–11 Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (the ‘‘Commission’’) is soliciting comments on the collection of information 31 17 PO 00000 CFR 200.30–3(a)(12). Frm 00149 Fmt 4703 Sfmt 4703 summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget for extension and approval. Rule 6c–11 under the Investment Company Act of 1940 (the ‘‘Act’’) permits exchange-traded funds (‘‘ETFs’’) that satisfy certain conditions to operate without first obtaining an exemptive order from the Commission. The rule was designed to create a consistent, transparent, and efficient regulatory framework for ETFs and facilitate greater competition and innovation among ETFs. Rule 6c–11 requires an ETF to disclose certain information on its website, to maintain certain records, and to adopt and implement written policies and procedures governing its constructions of baskets, as well as written policies and procedures that set forth detailed parameters for the construction and acceptance of custom baskets that are in the best interests of the ETF and its shareholders. We estimate that the total hour burdens and time costs associated with rule 6c–11, including the burden associated with reviewing and updating website disclosures, recordkeeping, and reviewing and updating policies and procedures, will result in an average aggregate annual burden of 51,156 hours and an average aggregate time cost of $1,248,912. The requirements of this collection of information are mandatory. If information collected pursuant to rule 6c–11 is reviewed by the Commission’s examination staff, it will be accorded the same level of confidentiality accorded to other responses provided to the Commission in the context of its examination and oversight program. 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 estimate of the burden of the 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 by November 14, 2022. 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. E:\FR\FM\13SEN1.SGM 13SEN1

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[Federal Register Volume 87, Number 176 (Tuesday, September 13, 2022)]
[Notices]
[Pages 56132-56136]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19681]



[[Page 56132]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95688; File No. SR-MEMX-2022-23]


Self-Regulatory Organizations; MEMX LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend the 
Exchange's Fee Schedule

September 7, 2022.
    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 August 31, 2022, MEMX LLC (``MEMX'' or the ``Exchange'') filed 
with the Securities and Exchange Commission (the ``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposed rule change 
to amend the Exchange's fee schedule applicable to Members \3\ (the 
``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and (c). The 
Exchange proposes to implement the changes to the Fee Schedule pursuant 
to this proposal on September 1, 2022. The text of the proposed rule 
change is provided in Exhibit 5.
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    \3\ See Exchange Rule 1.5(p).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Fee 
Schedule to: (i) adopt a reduced fee for executions of Pegged Orders 
\4\ with a Midpoint Peg \5\ instruction (such orders, ``Midpoint Peg 
Orders'') and a time-in-force (``TIF'') instruction of IOC \6\ or FOK 
\7\ that execute at the midpoint of the national best bid and offer 
(``NBBO''); (ii) modify the required criteria under Liquidity Provision 
Tiers 1 and 2; and (iii) allow affiliated Members to aggregate their 
quoting activity for purposes of the Exchange's Displayed Liquidity 
Incentive (``DLI'') Tiers with prior notice to the Exchange, each as 
further described below.
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    \4\ See Exchange Rule 11.6(h).
    \5\ See Exchange Rule 11.6(h)(2).
    \6\ See Exchange Rule 11.6(o)(1).
    \7\ See Exchange Rule 11.6(o)(3).
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    The Exchange first notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of 16 registered equities exchanges, as well as a 
number of alternative trading systems and other off-exchange venues, to 
which market participants may direct their order flow. Based on 
publicly available information, no single registered equities exchange 
currently has more than approximately 15.5% of the total market share 
of executed volume of equities trading.\8\ 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 3% of the overall 
market share.\9\ The Exchange in particular operates a ``Maker-Taker'' 
model whereby it provides rebates to Members that add liquidity to the 
Exchange and charges fees to Members that remove liquidity from the 
Exchange. The Fee Schedule sets forth the standard rebates and fees 
applied per share for orders that add and remove liquidity, 
respectively. Additionally, in response to the competitive environment, 
the Exchange also offers tiered pricing, which provides Members with 
opportunities to qualify for higher rebates or lower fees where certain 
volume criteria and thresholds are met. Tiered pricing provides an 
incremental incentive for Members to strive for higher tier levels, 
which provides increasingly higher benefits or discounts for satisfying 
increasingly more stringent criteria.
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    \8\ Market share percentage calculated as of August 30, 2022. 
The Exchange receives and processes data made available through 
consolidated data feeds (i.e., CTS and UTDF).
    \9\ Id.
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Midpoint Peg IOC/FOK Orders
    The Exchange currently charges a standard fee of $0.0030 per share 
for executions of orders in securities priced at or above $1.00 per 
share that remove liquidity from the Exchange (such orders, ``Removed 
Volume''). The Exchange now proposes to adopt a reduced fee of $0.0026 
per share for executions of Midpoint Peg Orders in securities priced at 
or above $1.00 per share with a TIF instruction of IOC or FOK that 
execute at the midpoint of the NBBO and remove liquidity from the 
Exchange upon entry \10\ (such orders, ``Midpoint Peg IOC/FOK 
Orders'').\11\ As proposed, executions of Midpoint Peg Orders in 
securities priced below $1.00 per share with a TIF instruction of IOC 
or FOK that execute at the midpoint of the NBBO and remove liquidity 
from the Exchange upon entry in will be charged a fee of 0.25% of the 
total dollar value of the transaction, which is the same fee that is 
currently charged for all such executions.
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    \10\ The Exchange notes that all Midpoint Peg Orders with a TIF 
instruction of IOC or FOK, if executed on the Exchange, would remove 
liquidity from the Exchange upon entry, as orders with a TIF 
instruction of IOC or FOK do not post on the MEMX Book. The Exchange 
further notes that a Midpoint Peg Order with a TIF instruction of 
IOC may be eligible for routing away pursuant to Exchange Rule 
11.11, and that if any such order is routed to and executed at an 
away market it would be charged the current standard fee of $0.0030 
per share for orders that are routed to, and remove liquidity from, 
another market. See Exchange Rules 11.6(o)(1) and 11.6(o)(3).
    \11\ The proposed pricing for executions of Midpoint Peg IOC/FOK 
Orders is referred to by the Exchange on the Fee Schedule under the 
new description ``Removed volume from MEMX Book, Midpoint Peg (IOC/
FOK)'' and such orders will receive a Fee Code of ``Rm'' assigned by 
the Exchange.
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    The purpose of reducing the fee for executions of Midpoint Peg IOC/
FOK Orders is to incentivize Members to submit additional liquidity-
removing orders designed to execute at the midpoint upon entry (i.e., 
in the form of Midpoint Peg IOC/FOK Orders) to the Exchange, as the 
cost of such executions would be lower than it is today. In turn, the 
Exchange believes the submission of additional Midpoint Peg IOC/FOK 
Orders would encourage firms that post liquidity at the midpoint to 
submit additional liquidity-providing orders designed to execute at the 
midpoint to

[[Page 56133]]

the Exchange, as such orders would have a greater chance of being 
executed as a result of additional contra-side liquidity-removing 
Midpoint Peg IOC/FOK Orders to interact with. Thus, the Exchange's 
proposal to reduce the fee for executions of Midpoint Peg IOC/FOK 
Orders is designed to deepen liquidity and increase execution 
opportunities at the midpoint on the Exchange, thereby improving the 
Exchange's market quality to the benefit of all Members and enhancing 
its attractiveness as a trading venue.
Liquidity Provision Tiers 1 and 2
    The Exchange currently provides a standard rebate of $0.0020 per 
share for executions of orders in securities priced at or above $1.00 
per share that add displayed liquidity to the Exchange (such orders, 
``Added Displayed Volume''). The Exchange also currently offers the 
Liquidity Provision Tiers under which a Member may receive an enhanced 
rebate for executions of Added Displayed Volume by achieving the 
corresponding required volume criteria for each tier. The Exchange now 
proposes to modify the required criteria under Liquidity Provision 
Tiers 1 and 2, as further described below, but the Exchange does not 
propose to change the rebates provided under such tiers.
    With respect to Liquidity Provision Tier 1, a Member currently 
qualifies for such tier by achieving: (1) a Displayed ADAV \12\ that is 
equal to or greater than 0.40% of the TCV; \13\ or (2) a Remove ADV 
\14\ that is equal to or greater than 0.25% of the TCV and a Step-Up 
ADAV \15\ from June 2022 that is equal to or greater than 0.05% of the 
TCV. Now, the Exchange proposes to modify the required criteria under 
such tier such that a Member would now qualify for Liquidity Provision 
Tier 1 by achieving: (1) a Displayed ADAV that is equal to or greater 
than 0.40% of the TCV; or (2) a Remove ADV that is equal to or greater 
than 0.20% of the TCV and a Step-Up ADAV from June 2022 that is equal 
to or greater than 0.05% of the TCV. Thus, such proposed change would 
lower the Remove ADV threshold in one of the two alternative criteria 
under such tier.
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    \12\ As set forth on the Fee Schedule, ``ADAV'' means the 
average daily added volume calculated as the number of shares added 
per day, which is calculated on a monthly basis, and ``Displayed 
ADAV'' means ADAV with respect to displayed orders.
    \13\ As set forth on the Fee Schedule, ``TCV'' means total 
consolidated volume calculated as the volume reported by all 
exchanges and trade reporting facilities to a consolidated 
transaction reporting plan for the month for which the fees apply.
    \14\ As set forth on the Fee Schedule, ``ADV'' means average 
daily volume calculated as the number of shares added or removed, 
combined, per day, which is calculated on a monthly basis, and the 
term ``Remove ADV'' means ADV with respect to orders that remove 
liquidity.
    \15\ As set forth on the Fee Schedule, ``Step-Up ADAV'' means 
ADV in the relevant baseline month subtracted from current ADAV.
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    With respect to Liquidity Provision Tier 2, a Member currently 
qualifies for such tier by achieving an ADAV \16\ that is equal to or 
greater than 0.25% of the TCV.\17\ Now, the Exchange proposes to modify 
the required criteria under such tier such that a Member would now 
qualify for Liquidity Provision Tier 2 by achieving an ADAV that is 
equal to or greater than 0.20% of the TCV. Thus, such proposed change 
would lower the ADAV threshold under such tier.
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    \16\ As set forth on the Fee Schedule, ``ADAV'' means the 
average daily added volume calculated as the number of shares added 
per day, which is calculated on a monthly basis.
    \17\ As set forth on the Fee Schedule, ``TCV'' means total 
consolidated volume calculated as the volume reported by all 
exchanges and trade reporting facilities to a consolidated 
transaction reporting plan for the month for which the fees apply.
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    The Exchange believes that lowering the Remove ADV threshold under 
Liquidity Provision Tier 1 and the ADAV threshold under Liquidity 
Provision Tier 2, as proposed, would make such tiers easier for Members 
to achieve, and, in turn, while the Exchange has no way of predicting 
with certainty how the proposed new criteria will impact Member 
activity, the Exchange anticipates that more Members will strive to 
qualify for such tiers than currently do, resulting in the submission 
of additional order flow to the Exchange.
Aggregation of Affiliated Members' DLI Quoting Activity
    Lastly, the Exchange proposes to add a note to the Fee Schedule to 
allow affiliated Members to aggregate the quoting activity of such 
affiliated Members' MPIDs for purposes of DLI Tier qualification if 
such Members provide prior notice to the Exchange. As proposed, to the 
extent that two or more affiliated companies maintain separate 
memberships with the Exchange and can demonstrate their affiliation by 
showing they control, are controlled by, or are under common control 
with each other, the Exchange would permit such Members to aggregate 
the quoting activity (but not the NBBO Time \18\) of such affiliated 
Members' MPIDs in a manner that is consistent with the DLI Tier 
calculation methodologies currently set forth on the Fee Schedule.\19\ 
More specifically, the Exchange would use the same calculation 
methodologies currently applicable to the aggregation of the quoting 
activity (but not the NBBO Time) of multiple MPIDs of one Member to 
aggregate the quoting activity (but not the NBBO Time) of all MPIDs 
associated with the affiliated Members.
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    \18\ As set forth on the Fee Schedule, ``NBBO Time'' means the 
aggregate of the percentage of time during regular trading hours 
during which one of a Member's MPIDs has a displayed order of at 
least one round lot at the national best bid or the national best 
offer.
    \19\ See the Exchange's Fee Schedule (available at https://info.memxtrading.com/fee-schedule/) and the Exchange's initial 
proposal to adopt the DLI (Securities Exchange Act Release No. 92150 
(June 10, 2021), 86 FR 32090 (June 16, 2021) (SR-MEMX-2021-07)) for 
additional details regarding the Exchange's calculation 
methodologies for the DLI Tiers.
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    As proposed, the Exchange will verify such affiliation using a 
Member's Form BD, which lists control affiliates. The purpose of this 
proposed change is to avoid disparate treatment of firms that have 
divided their various business activities between separate corporate 
entities as compared to firms that operate those business activities 
within a single corporate entity, as allowing affiliated Member firms 
to count their aggregate quoting activity as proposed would produce the 
same result for purposes of the Exchange's DLI Tier pricing as if such 
affiliated Member firms were instead organized as a single corporate 
entity. The Exchange notes that the proposed aggregation of affiliated 
Member firms' quoting activity for purposes of DLI Tier qualification, 
as described above, is consistent with the current practice of the 
Exchange and other exchanges with respect to the aggregation of 
affiliated Member firms' volumes for purposes of ADAV and ADV 
calculations with respect to pricing tiers.\20\
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    \20\ See, e.g., the Cboe EDGX Exchange, Inc. equities trading 
fee schedule on its public website (available at https://www.cboe.com/us/equities/membership/fee_schedule/edgx/).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\21\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\22\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among its Members and other persons using its facilities 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \21\ 15 U.S.C. 78f.
    \22\ 15 U.S.C. 78f(b)(4) and (5).
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    As discussed above, the Exchange operates in a highly fragmented 
and competitive market in which market participants can readily direct 
order flow to competing venues if they deem fee levels at a particular 
venue to be

[[Page 56134]]

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.'' \23\
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    \23\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005).
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow or discontinue to reduce use of certain categories of 
products, in response to new or different pricing structures being 
introduced into the market. Accordingly, competitive forces constrain 
the Exchange's transaction fees and rebates, and market participants 
can readily trade on competing venues if they deem pricing levels at 
those other venues to be more favorable. The Exchange believes the 
proposal reflects a reasonable and competitive pricing structure 
designed to incentivize market participants to direct additional order 
flow, including liquidity-adding and liquidity-removing orders designed 
to execute at the midpoint, to the Exchange, which the Exchange 
believes would enhance liquidity and market quality on the Exchange to 
the benefit of all Members.
    The Exchange believes that its proposal to charge a reduced fee for 
executions of Midpoint Peg IOC/FOK Orders is reasonable, equitable, and 
not unfairly discriminatory. Specifically, the Exchange believes such 
proposal is reasonable, as it is reasonably designed to incentivize 
Members to submit additional Midpoint Peg IOC/FOK Orders to the 
Exchange, which, in turn, the Exchange believes would encourage firms 
that post midpoint liquidity to submit additional liquidity-adding 
orders designed to execute at the midpoint to the Exchange in order to 
interact with such Midpoint Peg IOC/FOK Orders, as described above. 
Thus, the Exchange believes the proposal reflects a reasonable attempt 
to deepen liquidity and increase execution opportunities at the 
midpoint on the Exchange, thereby improving the Exchange's market 
quality to the benefit of all Members and enhancing its attractiveness 
as a trading venue, particularly as the Exchange believes the proposed 
reduction in the fee for executions of Midpoint Peg IOC/FOK Orders 
(i.e., $0.0004 per share lower than the standard fee for Removed 
Volume) is not excessive and is instead reasonably related to the 
market quality benefits it is intended to achieve. The Exchange also 
believes that the proposed fee for executions of Midpoint Peg IOC/FOK 
Orders is equitable and not unfairly discriminatory, as such fee would 
be charged uniformly to all executions of such orders for all Members.
    With respect to Liquidity Provision Tiers 1 and 2, the Exchange 
notes that volume-based incentives and discounts have been widely 
adopted by exchanges, including the Exchange, and are reasonable, 
equitable and not unfairly discriminatory because they are open to all 
members on an equal basis and provide additional benefits or discounts 
that are reasonably related to the value to an exchange's market 
quality associated with higher levels of market activity, such as 
higher levels of liquidity provision and/or growth patterns, and the 
introduction of higher volumes of orders into the price and volume 
discovery process. The Exchange believes that Liquidity Provision Tiers 
1 and 2, as modified by the proposed changes to the required criteria 
under such tiers, are reasonable, equitable and not unfairly 
discriminatory for these same reasons, as such tiers would continue to 
provide Members with incremental incentives to achieve certain volume 
thresholds on the Exchange, are available to all Members on an equal 
basis, and, as described above, are designed to encourage Members to 
increase their order flow to the Exchange in order to qualify for the 
corresponding enhanced rebate for executions of Added Displayed Volume, 
thereby contributing to a deeper and more liquid market to the benefit 
of all Members. The Exchange also believes that the proposed changes to 
the required criteria under Liquidity Provision Tiers 1 and 2 reflect a 
reasonable and equitable allocation of fees and rebates, as the 
Exchange believes the enhanced rebate for executions of Added Displayed 
Volume under each such tier remains commensurate with the corresponding 
required criteria under the applicable tier and reasonably related to 
the market quality benefits the applicable tier is designed to achieve.
    Without having a view of activity on other markets and off-exchange 
venues, the Exchange has no way of knowing whether these proposed 
changes would definitely result in any Members qualifying for the 
proposed Liquidity Provision Tiers 1 and 2. While the Exchange has no 
way of predicting with certainty how the proposed changes will impact 
Member activity, the Exchange believes that the proposed changes to 
lower the Remove ADV threshold and the ADAV threshold under Liquidity 
Provision Tiers 1 and 2, respectively, would make such tiers easier to 
achieve, and the Exchange anticipates that more Members will strive to 
qualify for such tiers than currently do, resulting in the submission 
of additional order flow to the Exchange.
    As described above, the proposed language on the Fee Schedule 
permitting aggregation of quoting activity (but not NBBO Time) amongst 
affiliated Members for purposes of DLI Tier qualification is intended 
to avoid disparate treatment of firms that have divided their various 
business activities between separate corporate entities as compared to 
firms that operate those business activities within a single corporate 
entity, as allowing affiliated Member firms to count their aggregate 
quoting activity in determining DLI Tier qualification would produce 
the same result for purposes of the Exchange's DLI Tier pricing as if 
such affiliated Member firms were instead organized as a single 
corporate entity. Accordingly, the Exchange believes that its proposed 
policy is fair and equitable, and not unreasonably discriminatory. In 
addition to ensuring fair and equal treatment of its Members, the 
Exchange does not want to create incentives for its Members to 
restructure their business operations or compliance functions simply 
due to the Exchange's pricing structure. Moreover, as noted above, this 
proposed policy is consistent with the practice of the Exchange and 
other exchanges with respect to the aggregation of affiliated Members' 
volumes for purposes of determining ADAV and ADV with respect to 
pricing tiers, and therefore, it does not raise any new or novel issues 
that have not previously been considered by the Commission.\24\
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    \24\ See supra note 20.
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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 \25\ 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

[[Page 56135]]

between customers, issuers, brokers, or dealers. As described more 
fully below in the Exchange's statement regarding the burden on 
competition, the Exchange believes that its transaction pricing is 
subject to significant competitive forces, and that the proposed fees 
and rebates described herein are appropriate to address such forces.
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    \25\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposal will result in any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Instead, as discussed above, 
the proposal is intended to incentivize market participants to direct 
additional order flow, including in the form of orders designed to 
execute at the midpoint of the NBBO, to the Exchange, thereby enhancing 
liquidity and market quality on the Exchange to the benefit of all 
Members. 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.'' \26\
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    \26\ See supra note 23.
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Intramarket Competition
    As discussed above, the Exchange believes that the proposal would 
incentivize Members to submit additional order flow, including 
liquidity-adding and liquidity-removing orders designed to execute at 
the midpoint, to the Exchange, thereby enhancing liquidity and market 
quality on the Exchange to the benefit of all Members, as well as 
enhancing the attractiveness of the Exchange as a trading venue, which 
the Exchange believes, in turn, would continue to encourage market 
participants to direct additional order flow to the Exchange. Greater 
liquidity benefits all Members by providing more trading opportunities 
and encourages Members to send additional orders to the Exchange, 
thereby contributing to robust levels of liquidity, which benefits all 
market participants. The opportunity to qualify for the proposed new 
criteria under Liquidity Provision Tiers 1 and 2, and thus receive the 
corresponding enhanced rebates for executions of Added Displayed 
Volume, would continue to be available to all Members that meet the 
associated volume requirements in any month. As described above, the 
Exchange believes that the proposed new required criteria under each 
such tier are commensurate with the corresponding rebate under such 
tier and are reasonably related to the enhanced liquidity and market 
quality that such tier is designed to promote. Additionally, as noted 
above, the ability for Members to aggregate quoting activity amongst 
affiliated Member firms for purposes of the Exchange's determination of 
DLI Tier qualification is designed to avoid disparate treatment of 
firms that have divided their various business activities between 
separate corporate entities as compared to firms that operate those 
business activities within a single corporate entity and would apply 
equally to all Members as does the Exchange's current practice with 
respect to the aggregation of affiliated Members' volumes for purposes 
of determining ADAV and ADV with respect to pricing tiers. For the 
foregoing reasons, the Exchange believes the proposed changes would not 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
Intermarket Competition
    As noted above, the Exchange operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. Members have numerous 
alternative venues that they may participate on and direct their order 
flow to, including 15 other equities exchanges and numerous alternative 
trading systems and other off-exchange venues. As noted above, no 
single registered equities exchange currently has more than 
approximately 15.5% 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 
Midpoint Peg IOC/FOK Orders and Added Displayed 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 
represent a competitive proposal through which the Exchange is seeking 
to encourage additional order flow to the Exchange through a reduced 
fee for executions of Midpoint Peg IOC/FOK Orders and modifications to 
the required criteria under certain volume-based tiers, which have been 
widely adopted by exchanges, including the Exchange. Additionally, as 
discussed above, the proposed change to allow affiliated Members to 
aggregate their quoting activity for purposes of the Exchange's 
determination of DLI Tier qualification is consistent with the practice 
of the Exchange and other exchanges with respect to the aggregation of 
affiliated Member firms' volumes for purposes of ADAV and ADV 
calculations with respect to pricing tiers. Accordingly, the Exchange 
believes the proposal would not burden, but rather promote, intermarket 
competition by enabling it to better compete with other exchanges that 
offer similar pricing incentives to market participants and aggregation 
of trading activity amongst affiliated firms with respect to pricing 
incentives.
    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.'' \27\ 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

[[Page 56136]]

the execution of order flow from broker dealers'. . . .''.\28\ 
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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    \27\ See supra note 23.
    \28\ 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 \29\ and Rule 19b-4(f)(2) \30\ thereunder.
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    \29\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \30\ 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-2022-23 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-2022-23. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MEMX-2022-23 and should be submitted on 
or before October 4, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19681 Filed 9-12-22; 8:45 am]
BILLING CODE 8011-01-P
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