Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Risk Settings Rules Applicable to Options Trading, 71898-71903 [2023-22925]
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Federal Register / Vol. 88, No. 200 / Wednesday, October 18, 2023 / Notices
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
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you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–EMERALD–2023–26 and should be
submitted on or before November 8,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–22929 Filed 10–17–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98730; File No. SR–MEMX–
2023–28]
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Adopt Risk Settings Rules
Applicable to Options Trading
ddrumheller on DSK120RN23PROD with NOTICES1
October 12, 2023.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 29, 2023, MEMX LLC
(‘‘MEMX’’ or the ‘‘Exchange’’) 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.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing with the
Commission a proposed rule to amend
the Exchange’s risk settings rules
applicable to Options trading. The
Exchange has designated this proposal
as ‘‘non-controversial’’ pursuant to
section 19(b)(3)(A)(iii) of the Act and
provided the Commission with the
notice required by Rule 19b–4(f)(6)(iii)
thereunder. The Exchange has
commenced operations of MEMX
Options on September 27, 2023. As
such, the Exchange proposes to
implement the changes to its options
risk controls immediately. The text of
the proposed rule change is provided in
Exhibit 5.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to provide optional risk
controls for Members 3 who participate
in the Exchange’s options market (such
market, ‘‘MEMX Options’’ and such
Members, ‘‘Options Members’’), under
proposed Interpretation and Policies .01
and .02 of Exchange Rule 21.17, and to
provide clarifying language in proposed
Interpretation and Policy .03 of
Exchange Rule 21.17. In order to help
Options Users 4 to manage their risk, the
Exchange proposes to add certain risk
settings on MEMX Options which the
Exchange already offers to Users in its
market for equity securities (‘‘MEMX
Equities’’). Under the proposed
Interpretation and Policies .01 and .02
of Exchange Rule 21.17, Users will have
the same ability to manage their risk
with respect to orders on the MEMX
Options platform as Users currently
26 17
1 15
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3 See
4 See
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Exchange Rule 1.5(p).
Exchange Rule 1.5(jj).
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have on the MEMX Equities platform (as
set forth in Interpretation and Policies
.01 and .02 of Exchange Rule 11.10).
Lastly, the Exchange proposes to add
Interpretation and Policy .03 of
Exchange Rule 21.17 to clarify that the
risk controls described in Exchange
Rule 21.17 are meant to supplement,
and not replace, a User’s internal risk
monitoring and management systems.
The Exchange proposes to add
controls which will be exercisable and
configurable by individual Users, and
the thresholds of the controls may be
adjusted within certain limits away
from the assigned default values. The
Exchange notes that other national
securities exchanges have similar risk
settings rules in their rulebooks.5 As
previously noted, these risk settings will
largely mirror the MEMX Equities
settings rules in Interpretation and
Policies .01 and .02 to Rule 11.10. The
Exchange additionally proposes to add
clarifying language in proposed
Interpretation and Policy .03 of
Exchange Rule 21.17.
Specifically, in proposed
Interpretation and Policy .01 of
Exchange Rule 21.17, the Exchange
proposes to offer risk settings that will
result in orders being cancelled on
entry, including: (i) controls related to
the maximum dollar amount for a single
order and the maximum number of
contracts that may be included in a
single order; (ii) controls related to order
types or modifiers that can be utilized
as well as when the market is crossed;
(iii) controls to restrict the options
classes for which a User may enter
orders or to restrict activity to test
symbols only; (iv) controls prohibiting
the entry of duplicative orders; (v)
controls restricting the overall rate of
order entry; and (vi) credit controls
measuring both gross and net exposure
that warn when approached, and when
breached, prevent submission of either
all new orders or Market Orders 6 only.
The Exchange further proposes, in
proposed Interpretation and Policy .02
of Exchange Rule 21.17, to offer (vii)
risk functionality that permits a User to
5 See, e.g., Interpretations and Policies .01 and
.02(a) of Rule 11.13 of the BYX Exchange Rulebook,
available at https://cdn.cboe.com/resources/
regulation/rule_book/BYX_Rulebook.pdf;
Interpretations and Policies .01 and .02(a) of Rule
11.13 of the BZX Exchange Rulebook, available at
https://cdn.cboe.com/resources/regulation/rule_
book/BZX_Exchange_Rulebook.pdf; Interpretations
and Policies .01 and .02(a) of Rule 11.10 the EDGA
Exchange Rulebook, available at https://
cdn.cboe.com/resources/regulation/rule_book/
EDGA_Rulebook.pdf; and Interpretations and
Policies .01 and .02(a) of Rule 11.10 the EDGX
Exchange Rulebook, available at https://
cdn.cboe.com/resources/regulation/rule_book/
EDGX_Rulebook.pdf.
6 See Exchange Rule 21.1(d)(2).
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Federal Register / Vol. 88, No. 200 / Wednesday, October 18, 2023 / Notices
cancel all unexecuted orders and quotes
in the MEMX Options Book, block the
entry of any new orders or quotes, or
both cancel all unexecuted orders and
quotes and block the entry of any new
orders and quotes; and (viii) batch
cancel functionality. Each of these
functionalities will be further described
in the paragraphs below. Additionally,
in proposed Interpretation and Policy
.03 to Exchange Rule 21.17, the
Exchange would provide clarifying
language that the risk controls described
in Exchange Rule 21.17 do not replace
the User’s own internal risk
management systems, monitoring, and
procedures and are not designed for
compliance with Exchange Act Rule
15c3–5.7
ddrumheller on DSK120RN23PROD with NOTICES1
Publication of Established Numeric
Values
Current Rule 21.17 states that ‘‘all
numeric values established by the
Exchange pursuant to this Rule will be
maintained by the Exchange in publicly
available specifications and/or
published in a Regulatory Circular.’’ As
the proposed Interpretations and
Policies described below would be
contained in Rule 21.17, that language
would also apply to such Interpretations
and Policies. As a result, to the extent
the Exchange establishes default values
for certain risk settings, as described
below, such default values would be
readily ascertainable by Users and such
Users will be able to determine whether
they wish to maintain the default values
established by the Exchange or to adopt
different values in accordance with their
overall risk mitigation strategy.
The Exchange notes that other
national securities exchanges establish
numeric values pursuant to the risk
settings for their options platforms in
publicly available specifications and
regulatory circulars.8
Controls Related to Maximum Dollar
Amount and Maximum Number of
Contracts
Proposed paragraph (a) of proposed
Interpretation and Policy .01 of
Exchange Rule 21.17 would provide for
order entry controls related to (i) the
maximum dollar amount for a single
order, and (ii) the maximum number of
contracts that may be included in a
single order. These controls on
maximum notional value per order and
7 17
CFR 240.15c3–5.
e.g., Rule 21.17 of the BZX Exchange
Rulebook, available at: https://cdn.cboe.com/
resources/regulation/rule_book/BZX_Exchange_
Rulebook.pdf; and Rule 16.3 of the EDGX Exchange
Rulebook, available at: https://cdn.cboe.com/
resources/regulation/rule_book/EDGX_
Rulebook.pdf.
8 See,
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the maximum number of contracts per
order would each be User-configurable
up to a maximum allowable limit. The
Exchange would set default values on
the maximum notional value per order
and maximum number of contracts per
order.9 The System 10 will reject or
cancel an order that exceeds the Userconfigured limits or which exceeds the
default value if the User has not entered
any configuration for these controls.
This proposed paragraph (a) would
provide Options Members with the
same risk control functionality on
maximum notional value per order and
maximum number of contracts per order
as is currently provided to Members of
MEMX Equities under Interpretation
and Policy .01(a) and .01(b) of Exchange
Rule 11.10. The Exchange notes that at
least one other options exchange
provides similar functionality on its
trading platform.11 The Exchange also
notes that other national securities
exchanges, including the Exchange,
include this functionality on their
equities platforms.12 The purpose of
proposed paragraph (a) of Interpretation
and Policy .01 of Exchange Rule 21.17
is to provide the same maximum
notional value risk setting functionality
and maximum share risk setting
functionality for Users on MEMX
Options, as is currently provided to
Users on MEMX Equities.
Controls Related to Order Types or
Modifiers and Specific Market
Conditions
Proposed paragraph (b) of
Interpretation and Policy .01 of
Exchange Rule 21.17 would provide
controls designed to prevent the entry of
specific order types and modifiers, as
well as the entry of orders when specific
9 See ‘‘Publication of Established Numeric
Values’’ above for a description of how the
Exchange will notify Members of default values
applicable to risk settings.
10 See Exchange Rule 1.5(gg).
11 See, e.g., Rule 6.40P–O(a)(2)(A)(i) of the NYSE
Arca Exchange Rulebook, available at https://
nysearca.wolterskluwer.cloud/rules/
b44a170e7ccd1000a69b90b11c2ac4f10127.
12 See Interpretations and Policies .01(a) and
.01(b) of Rule 11.13 of the BYX Exchange Rulebook,
available at: https://cdn.cboe.com/resources/
regulation/rule_book/BYX_Rulebook.pdf;
Interpretations and Policies .01a and .01(b) of Rule
11.13 of the BZX Exchange Rulebook, available at:
https://cdn.cboe.com/resources/regulation/rule_
book/BZX_Exchange_Rulebook.pdf; Interpretations
and Policies .01(a) and .01(b) of Rule 11.10 of the
EDGA Exchange Rulebook, available at: https://
cdn.cboe.com/resources/regulation/rule_book/
EDGA_Rulebook.pdf; and Interpretations and
Policies .01(a) and .01(b) of Rule 11.10 of the EDGX
Exchange Rulebook, available at: https://
cdn.cboe.com/resources/regulation/rule_book/
EDGX_Rulebook.pdf. See also Interpretations and
Policies 01(a) and .01(b) of Rule 11.10 of the MEMX
Rulebook, available at: https://
info.memxtrading.com/regulation/memx-rules/.
PO 00000
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71899
market conditions occur. The Exchange
would provide a User-configurable on/
off switch to allow or disallow the entry
of specific types of orders or the entry
of any orders upon the existence of
certain market conditions. The default
value would be to allow the entry of
orders. Specifically, the Exchange at this
time would provide an on/off switch for
(i) orders marked as Intermarket Sweep
Orders (‘‘ISOs’’), (ii) orders entered
when the National Best Bid and Offer
(‘‘NBBO’’) is crossed, and (iii) Market
Orders. With respect to controls on
ISOs, the proposal would provide
MEMX Options Users with the same
ability to allow or disallow ISOs as is
currently available to Users of MEMX
Equities under Interpretation and Policy
.01(c) of Exchange Rule 11.10. With
respect to controls to allow or cancel
incoming orders when the market is
crossed, the proposal would provide
MEMX Options Users with the same
ability to allow or disallow incoming
orders during a crossed market as is
currently available to Members of
MEMX Equities under Exchange Rule
11.10(a)(2). To clarify, with respect to
controls on ISO orders and orders
during crossed markets, proposed
paragraph (b) of Interpretation and
Policy .01 of Exchange Rule 21.17
would provide the same ISO and
crossed market functionalities for Users
on MEMX Options, as are currently
provided to Users on MEMX Equities.
The Exchange notes that at least one
other options exchange provides similar
functionality on its trading platform.13
The Exchange also notes that other
national securities exchanges, including
the Exchange, provide this functionality
on their equities platforms.14
With respect to controls on Market
Orders, the Exchange does not presently
provide this functionality for MEMX
Equities. The Exchange notes that other
national securities exchanges provide
functionality for Users to apply a risk
13 See, e.g., Rule 6.40P–O(a)(2)(A)(iii) of the NYSE
Arca Exchange Rulebook, available at https://
nysearca.wolterskluwer.cloud/rules/
b44a170e7ccd1000a69b90b11c2ac4f10127.
14 See Interpretations and Policy .01(c) of Rule
11.13 of the BYX Exchange Rulebook, available at:
https://cdn.cboe.com/resources/regulation/rule_
book/BYX_Rulebook.pdf; Interpretations and Policy
.01(c) of Rule of Rule 11.13 of the BZX Exchange
Rulebook, available at: https://cdn.cboe.com/
resources/regulation/rule_book/BZX_Exchange_
Rulebook.pdf; Interpretations and Policy .01(c) of
Rule 11.10 the EDGA Exchange Rulebook, available
at: https://cdn.cboe.com/resources/regulation/rule_
book/EDGA_Rulebook.pdf; Interpretations and
Policy .01(c) of Rule 11.10 the EDGX Exchange
Rulebook, available at: https://cdn.cboe.com/
resources/regulation/rule_book/EDGX_
Rulebook.pdf. See also Interpretations and Policy
.01(c) of Rule 11.10 of the MEMX Rulebook,
available at: https://info.memxtrading.com/
regulation/memx-rules/.
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Federal Register / Vol. 88, No. 200 / Wednesday, October 18, 2023 / Notices
setting that would reject market orders
during continuous trading or auctions.15
The Exchange proposes to apply the
same functionality to MEMX Options.
Using this functionality, a User of
MEMX Options would be allowed to
reject Market Orders; the default setting
would be to allow Market Orders. The
Exchange proposes to make the risk
setting User-configurable and will not
require Users to utilize the Market Order
risk setting. The purpose of this
proposed risk setting is designed to
prevent the entry of orders that may
cause undue market impact, and reduce
the potential for disruptive, marketwide events.
Controls to Restrict Options Classes To
Test Symbols
ddrumheller on DSK120RN23PROD with NOTICES1
Proposed paragraph (c) of
Interpretation and Policy .01 of
Exchange Rule 21.17 would provide
controls to restrict the options classes
for which a User may enter orders to test
symbols only, which would apply upon
order entry. The Exchange would
provide a User-configurable on/off
switch to restrict orders entered to test
symbols only if configured by the User.
The default value of such on/off switch
will be to allow all options classes. The
proposal would provide MEMX Options
Users with the same ability to restrict
options classes as is currently available
to Users of MEMX Equities under
Interpretation and Policy .01(d) of
Exchange Rule 11.10.
The Exchange notes that at least one
other options exchange provides similar
functionality on its trading platform.16
The Exchange also notes that other
national securities exchanges, including
the Exchange, already have controls to
restrict the entry of orders in
specifically identified securities on their
equities platforms.17 The purpose of
15 See Exchange Act Release Nos. 97988 (July 25,
2023), 88 FR 49513 (July 31, 2023)(SR–CboeEDGA–
2023–012); 97986 (July 25, 2023), 88 FR 49540 (July
31, 2023) (SR–CboeBYX–2023–011); 97987 (July 25,
2023), 88 FR 49516 (July 31, 2023) (SR–CboeEDGX–
2023–046); see also Nasdaq Rulebook Section 5(b),
available at: https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules/nasdaq-equity-6.
16 See, e.g., Rule 6.40P–O(a)(2)(A)(iv) of the NYSE
Arca Exchange Rulebook, available at https://
nysearca.wolterskluwer.cloud/rules/
b44a170e7ccd1000a69b90b11c2ac4f10127.
17 See Interpretations and Policy .01(d) of Rule
11.13 of the BYX Exchange Rulebook, available at:
https://cdn.cboe.com/resources/regulation/rule_
book/BYX_Rulebook.pdf; Interpretations and Policy
.01(d) of Rule of Rule 11.13 of the BZX Exchange
Rulebook, available at: https://cdn.cboe.com/
resources/regulation/rule_book/BZX_Exchange_
Rulebook.pdf; Interpretations and Policy .01(d) of
Rule 11.10 the EDGA Exchange Rulebook, available
at: https://cdn.cboe.com/resources/regulation/rule_
book/EDGA_Rulebook.pdf; Interpretations and
Policy .01(d) of Rule 11.10 the EDGX Exchange
Rulebook, available at: https://cdn.cboe.com/
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proposed paragraph (c) of Interpretation
and Policy .01 of Exchange Rule 21.17
is to provide Users on MEMX Options
the same functionality to restrict the
types of options classes which can be
traded, as is currently provided to Users
on MEMX Equities to restrict the types
of securities which can be traded to test
symbols only.
Controls To Prohibit Duplicative Orders
Proposed paragraph (d) of
Interpretation and Policy .01 of
Exchange Rule 21.17 would provide
controls to prohibit duplicative orders,
which would apply upon order entry.18
The Exchange would provide the User
with the ability to set a duplicative
order count and time window in
seconds, subject to a maximum
allowable limit of order count and time
window. The Exchange would also
provide default values for order count
and time window in seconds, which
would be the minimum values to be
selected.19 The control would be
triggered when the duplicative order
count is exceeded within the time
window specified. When such control is
triggered, the System would reject
incoming orders. Order cancellations
would be processed normally during the
time when the control is triggered.
The Exchange notes that at least one
other options exchange provides similar
functionality to prevent duplicative
orders on its trading platform.20 The
Exchange notes that other national
securities exchanges, including the
Exchange, include controls on
duplicative orders in their risk settings
for their equities platforms.21 The
resources/regulation/rule_book/EDGX_
Rulebook.pdf. See also Interpretations and Policy
.01(d) of Rule 11.10 of the MEMX Rulebook,
available at: https://info.memxtrading.com/
regulation/memx-rules/.
18 A duplicative order is one with the same
Executing Firm Identifier (‘‘EFID’’), side, price, size,
and symbol.
19 See ‘‘Publication of Established Numeric
Values’’ above for a description of how the
Exchange will notify Members of default values
applicable to risk settings.
20 See, e.g., Rule 6.40P–O(a)(2)(A)(v) of the NYSE
Arca Exchange Rulebook, available at https://
nysearca.wolterskluwer.cloud/rules/
b44a170e7ccd1000a69b90b11c2ac4f10127.
21 See Interpretations and Policy .01(e) of Rule
11.13 of the BYX Exchange Rulebook, available at:
https://cdn.cboe.com/resources/regulation/rule_
book/BYX_Rulebook.pdf; Interpretations and Policy
.01(e) of Rule of Rule 11.13 of the BZX Exchange
Rulebook, available at: https://cdn.cboe.com/
resources/regulation/rule_book/BZX_Exchange_
Rulebook.pdf; Interpretations and Policy .01(f) of
Rule 11.10 the EDGA Exchange Rulebook, available
at: https://cdn.cboe.com/resources/regulation/rule_
book/EDGA_Rulebook.pdf; Interpretations and
Policy .01(e) of Rule 11.10 the EDGX Exchange
Rulebook, available at: https://cdn.cboe.com/
resources/regulation/rule_book/EDGX_
Rulebook.pdf. See also Interpretations and Policy
PO 00000
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Fmt 4703
Sfmt 4703
proposal would provide Users of MEMX
Options with the same ability to
prohibit duplicative orders as is
currently available to Users of MEMX
Equities under Interpretation and Policy
.01(e) of Exchange Rule 11.10. The
purpose of proposed paragraph (d) of
Interpretation and Policy .01 of
Exchange Rule 21.17 is to provide the
same functionality to prohibit
duplicative orders for Users on MEMX
Options, as is currently provided to
Users on MEMX Equities.
Controls To Restrict the Overall Rate of
Orders
Proposed paragraph (e) of
Interpretation and Policy .01 of
Exchange Rule 21.17 would provide
controls to restrict the overall rate of
orders, which would apply upon order
entry. The control would include a
default value for the time increment and
a default value for the number of orders
entered during that time increment.22
The Exchange would provide the User
with the ability to configure an order
count and time window, subject to
minimum and maximum values
identified by the Exchange. The control
would be triggered when the order
count is exceeded within the time
window specified. When such control is
triggered, the System would reject
incoming orders. Order cancellations
would be processed normally during the
time when the control is triggered. The
proposal would provide Users of MEMX
Options with the same ability to restrict
the rate of orders as is currently
available to Users of MEMX Equities
under Interpretation and Policy .01(f) of
Exchange Rule 11.10.
The Exchange also notes that other
national securities exchanges, including
the Exchange, already have risk settings
for their Equities platform which allow
Users to restrict the rate of orders.23 The
.01(e) of Rule 11.10 of the MEMX Rulebook,
available at: https://info.memxtrading.com/
regulation/memx-rules/.
22 See ‘‘Publication of Established Numeric
Values’’ above for a description of how the
Exchange will notify Members of default values
applicable to risk settings.
23 See, e.g., Interpretations and Policy .01(f) of
Rule 11.13 of the BYX Exchange Rulebook,
available at: https://cdn.cboe.com/resources/
regulation/rule_book/BYX_Rulebook.pdf;
Interpretations and Policy .01(f) of Rule of Rule
11.13 of the BZX Exchange Rulebook, available at:
https://cdn.cboe.com/resources/regulation/rule_
book/BZX_Exchange_Rulebook.pdf; Interpretations
and Policy .01(f) of Rule 11.10 the EDGA Exchange
Rulebook, available at: https://cdn.cboe.com/
resources/regulation/rule_book/EDGA_
Rulebook.pdf; and Interpretations and Policy .01(f)
of Rule 11.10 the EDGX Exchange Rulebook,
available at: https://cdn.cboe.com/resources/
regulation/rule_book/EDGX_Rulebook.pdf. See also
Interpretations and Policy .01(f) of Rule 11.10 of the
MEMX Rulebook, available at: https://
info.memxtrading.com/regulation/memx-rules/.
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Federal Register / Vol. 88, No. 200 / Wednesday, October 18, 2023 / Notices
purpose of proposed paragraph (e) of
Interpretation and Policy .01 of
Exchange Rule 21.17 is to provide the
same functionality to set the maximum
overall rate of orders for Users on
MEMX Options, as is currently provided
to Users on MEMX Equities.
ddrumheller on DSK120RN23PROD with NOTICES1
Credit Controls for Gross and Net
Exposure
Proposed paragraph (f) of
Interpretation and Policy .01 of
Exchange Rule 21.17 would provide for
credit controls on gross and net
exposure, which would apply upon
order entry. The default value for each
such controls would be set to a
maximum dollar amount.24 Users would
be able to configure the limit for each
control, subject to a minimum limit
amount. Users would be able to select
configurable controls on daily gross
notional exposure, either for (i) all
orders or (ii) only Market Orders. For
any bid or offer, the System will cancel
or reject it if such bid or offer causes the
User’s daily gross notional exposure to
exceed a User-configured limit. For any
Market Order, the System will cancel or
reject it if such Market Order causes the
User’s daily gross notional exposure to
exceed a User-configured limit.
Similarly, Users would be able to select
configurable controls on daily net
notional exposure, either for (i) all
orders or (ii) only Market Orders. For
any bid or offer, the System will cancel
or reject it if such bid or offer causes the
User’s daily net notional exposure to
exceed a User-configured limit. For any
Market Order, the system will cancel or
reject it if such Market Order causes the
User’s daily gross notional exposure to
exceed a User-configured limit. In
addition to blocking orders for each of
the controls set forth above, the System
will block either all new orders or
Market Orders only once an applicable
setting has been breached.
This proposal would provide Users of
MEMX Options with the same ability to
set configurable controls on daily net
notional and daily gross notional
exposure, for all orders or for Market
Orders, as is currently available to Users
of MEMX Equities under Interpretation
and Policy .01(g) of Exchange Rule
11.10. The Exchange notes that other
national securities exchanges, including
the Exchange, already provide
functionality to set configurable controls
on daily net notional exposure and daily
24 See ‘‘Publication of Established Numeric
Values’’ above for a description of how the
Exchange will notify Members of default values
applicable to risk settings.
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18:01 Oct 17, 2023
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gross notional exposure that apply on
order entry.25
The Exchange believes that credit
controls on daily net notional and daily
gross notional exposure are of
importance in the options markets. The
purpose of proposed paragraph (f) of
Interpretation and Policy .01 of
Exchange Rule 21.17 is to provide the
same functionality to set configurable
controls on daily net notional exposure
and daily gross notional exposure for
Users on MEMX Options, as is currently
provided to Users on MEMX Equities.
Controls for Block and Cancel
Functionality
Proposed paragraph (a) of
Interpretation and Policy .02 of
Exchange Rule 21.17 would provide
functionality to (i) cancel all unexecuted
orders and quotes in the MEMX Options
Book, (ii) block the entry of any new
orders and quotes, or (iii) both cancel all
unexecuted orders and quotes in the
MEMX Options Book and block the
entry of any new orders and quotes.
Additionally, in addition to
functionality (i), (ii), and (iii) described
in this paragraph, the Exchange will
provide functionality to (iv)
automatically cancel a User’s orders to
the extent the User loses its connection
to the Exchange. This proposal would
provide Users of MEMX Options with
the same block and cancel functionality
as is currently available to Users of
MEMX Equities under Interpretation
and Policy .02(a) of Exchange Rule
11.10. The Exchange notes that at least
one other options exchange provides
similar functionality on its trading
platform.26 The purpose of proposed
paragraph (a) of Interpretation and
Policy .02 of Exchange Rule 21.17 is to
provide the same functionality to block
new orders, cancel open orders, block
new orders and cancel open orders, and
cancel orders if a User loses connection
to the Exchange for Users on MEMX
25 See, e.g., Interpretations and Policy .01(h) of
Rule 11.13 of the BYX Exchange Rulebook,
available at: https://cdn.cboe.com/resources/
regulation/rule_book/BYX_Rulebook.pdf;
Interpretations and Policy .01(h) of Rule of Rule
11.13 of the BZX Exchange Rulebook, available at:
https://cdn.cboe.com/resources/regulation/rule_
book/BZX_Exchange_Rulebook.pdf; Interpretations
and Policy .01(h) of Rule 11.10 the EDGA Exchange
Rulebook, available at: https://cdn.cboe.com/
resources/regulation/rule_book/EDGA_
Rulebook.pdf; and Interpretations and Policy .01(h)
of Rule 11.10 the EDGX Exchange Rulebook,
available at: https://cdn.cboe.com/resources/
regulation/rule_book/EDGX_Rulebook.pdf. See also
Interpretations and Policy .01(h) of Rule 11.10 of
the MEMX Rulebook, available at: https://
info.memxtrading.com/regulation/memx-rules/.
26 See Rule 6.40P–O(e)(3) and 6.40P–O(e)(4) of
the NYSE Arca Exchange Rulebook, available at
https://nysearca.wolterskluwer.cloud/rules/
b44a170e7ccd1000a69b90b11c2ac4f10127.
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
71901
Options, as is currently provided to
Users on MEMX Equities.
Controls for Mass Cancellation of
Trading Interest Functionality
Finally, the Exchange proposes
paragraph (b) of Interpretation and
Policy .02 of Exchange Rule 21.17,
which would provide functionality to
Users of MEMX Options for the mass
cancellation of trading interest (i.e.,
‘‘batch cancel’’ functionality). Users
would be able to cancel any orders in
any series of options by requesting the
Exchange to affect such cancellation as
per the instructions of the User. A User
initiating such a request may also
request that the Exchange block new
inbound orders in any series of options.
The block will remain in effect until the
User requests the Exchange remove the
block. Proposed paragraph (b) of
Interpretation and Policy .02 of
Exchange Rule 21.17 would provide the
same batch cancel functionality to Users
of MEMX Options as is available to
Users of MEMX Equities under
Interpretation and Policy .02(b) of
Exchange Rule 11.10. The Exchange
notes that at least one other options
exchange provides similar functionality
on its trading platform.27 The purpose of
this proposed paragraph (b) is to
provide the same batch cancel
functionality to Users of MEMX Options
as is currently provided to Users of
MEMX Equities.
The purpose of these risk settings is
to provide MEMX Options Users with
functionality to assist in risk
management, which will protect both
the User as well as the Exchange from
entering potentially erroneous orders
that could have potential market impact.
The Exchange proposes to make these
risk settings available to all Users and
will not require Users to use any of the
risk settings provided. The Exchange
will not provide any preferential
treatment to Users based upon their use
of any, all, or none of the risk settings.
Clarifying Language On Risk Controls
Pursuant to Rule 15c3–5 under the
Act,28 a broker-dealer with market
access must perform appropriate due
diligence to assure that its controls are
reasonably designed to be effective, and
otherwise consistent with the rule.29
27 See, e.g., Nasdaq Options Market Rulebook
Chapter 3, Section 19, available at: https://
listingcenter.nasdaq.com/RuleBook/Nasdaq/rules/
Nasdaq%20Options%203.
28 See supra note 7.
29 See Division of Trading and Markets,
Responses to Frequently Asked Questions
Concerning Risk Management Controls for Brokers
or Dealers with Market Access, available at https://
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Federal Register / Vol. 88, No. 200 / Wednesday, October 18, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
Use of the Exchange’s proposed risk
settings for MEMX Options will not
automatically constitute compliance
with Exchange or federal rules and
responsibility for compliance with all
Exchange and SEC rules remains with
the User. In order to clarify that the risk
controls proposed for MEMX Options
are not a substitute for a User’s 15c3–
5 obligations, the Exchange proposes to
provide clarifying language to this effect
in proposed Interpretation and Policy
.03 to Exchange Rule 21.17. The
purpose of Interpretation and Policy .03
to Exchange Rule 21.17 is to make clear
that the User, and not the Exchange,
will have the full responsibility for
ensuring that their orders comply with
applicable securities rules, laws, and
regulations, and may not rely on the risk
settings for any such purpose. The
Exchange notes that other exchanges
have included similar clarifying
language in their options rules.30 The
Exchange wishes to make clear that the
use of the proposed risk settings can
replace User-managed risk management
solutions, and use of the proposed risk
settings does not automatically
constitute compliance with Exchange
rules. Rather, the Exchange intends
these controls to act as a complement to
its Members’ overall suite of controls
designed to comply with Rule 15c3–5
and other applicable securities rules,
laws and regulations.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of section 6(b) of the
Act,31 in general, and furthers the
objectives of sections and 6(b)(5) of the
Act,32 in particular, in that it is designed
to promote just and equitable principles
of trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and, in general, to protect
investors and the public interest.
The Exchange believes the proposed
risk settings promote just and equitable
principles of trade because the risk
settings will be equally available to all
Users who trade on MEMX Options and
such Users can employ such risk
settings as part of their overall risk
management strategy. Three of the
proposed risk settings will apply to
orders from all Users and cannot be
turned off, namely the duplicative order
www.sec.gov/divisions/marketreg/faq-15c-5riskmanagement-controls-bd.htm.
30 See, e.g., Commentary .01 to Rule 6.40P–O of
the NYSE Arca Exchange Rulebook, available at
https://nysearca.wolterskluwer.cloud/rules/
b44a170e7ccd1000a69b90b11c2ac4f10127.
31 15 U.S.C. 78f(b).
32 15 U.S.C. 78f(b)(5).
VerDate Sep<11>2014
18:01 Oct 17, 2023
Jkt 262001
check, the order rate check and the
maximum contracts and maximum
notional check. However, the Exchange
will establish default values for these
risk settings that are made publicly
available through a Regulatory Circular
and/or publicly available specifications,
as discussed above. Further, Users will
be able to configure these settings to
different levels that align with their
overall risk mitigation strategy. The
remaining risk settings are optional and
Users will be able to select whether they
would like to use any, all, or none of
these risk settings. No preferential
treatment will be provided to Users who
have elected to use any, all, or none of
the optional risk settings that are
available. Use of the risk settings does
not unfairly discriminate among the
Users of MEMX Options because each
risk setting is available to all Users.
The Exchange believes the proposed
risk settings will remove impediments
to and perfect the mechanism of a free
and open market and national market
system because it provides additional
functionality for Users to manage risk.
The proposed risk settings would
provide Users with the means to manage
and control their risk profile, helping to
ensure the proper functioning of the
market. The Exchange believes that
these controls are designed to protect
investors and the public interest
because the proposed risk mitigation
functionality will aid Users in
minimizing their financial exposure and
reducing the potential for marketdisrupting events. The risk management
functionality of the risk settings could,
in turn, enhance the integrity of trading
on the securities markets and help to
assure the stability of the financial
system.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes the proposal is
consistent with section 6(b)(8) of the
Act 33 in that it does not impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act as explained
below. The Exchange believes the
proposal will not impose a burden on
intermarket competition because Users
of MEMX Options will be able to decide
how they wish to utilize the risk settings
offered in the context of their overall
risk mitigation strategy. Users of MEMX
Options are free to include the risk
settings available as part of their
determination of where to trade, or in
many cases, not to use them at all. The
Exchange does not believe that the
proposed rule change imposes a burden
33 15
PO 00000
U.S.C. 78f(b)(8).
Frm 00086
Fmt 4703
Sfmt 4703
on intramarket competition because the
proposed risk settings will be available
equally to all Users. As previously
discussed, the proposed risk setting on
MEMX Options which differs from the
risk settings on MEMX Equities
(namely, controls on Market Orders) has
been implemented by other
exchanges.34 Users would be able to
choose the settings best suited to their
risk profile, potentially enabling them to
better manage their risk while trading
on the Exchange. The Exchange believes
that the proposed risk setting will
enable Users to strengthen their risk
management capabilities, which, in
turn, may enhance the integrity of
trading on the options markets and help
to assure the stability of the financial
system.
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)(iii) of the Act 35 and Rule
19b–4(f)(6) thereunder 36 in that it
effects a change that: (i) does not
significantly affect the protection of
investors or the public interest; (ii) does
not impose any significant burden on
competition; and (iii) by its terms, does
not become operative for 30 days after
the date of the filing, or such shorter
time as the Commission may designate
if consistent with the protection of
investors and the public interest.37
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii), the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposed rule change may become
operative upon filing. In support of its
34 See
supra note 15.
U.S.C. 78s(b)(3)(A)(iii).
36 17 CFR 240.19b–4(f)(6).
37 In addition, Rule 19b–4(f)(6) requires a selfregulatory organization to give the Commission
written notice of its intent to file the proposed rule
change, along with a brief description and text of
the proposed rule change, at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
35 15
E:\FR\FM\18OCN1.SGM
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ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 200 / Wednesday, October 18, 2023 / Notices
waiver request, the Exchange states that
the proposal will further the interests of
investors and the public by making
available a risk functionality by which
Members (and each Member’s Users)
can manage their risk on the Exchange’s
options platform, MEMX Options. These
risk settings will allow each User to
configure a risk profile applicable to
their risk tolerance and as necessary in
the context of their overall risk
management program, which the
Exchange believes will assist in
maintaining the Exchange as a fair and
orderly market that better serves the
interest of investors. Additionally, as
discussed above, the proposed changes
will not impose any significant or
undue burden on competition because
Options Members can decide how they
wish to utilize the risk settings offered
in the context of their overall risk
mitigation strategy.
Further, the Exchange launched
MEMX Options on September 27, 2023.
Waiver of the 30-day operative delay
would allow the Exchange to implement
the proposed change to offer the
proposed risk settings immediately,
which would benefit Members and
investors by enabling the Exchange to
provide additional functionality for
Options Members to manage their risk.
The Exchange states that these controls
are designed to protect investors and the
public interest because the proposed
risk mitigation functionality will aid
Members in minimizing their financial
exposure and reducing the potential for
market-disrupting events. For these
reasons, and because the proposal does
not raise any new or novel issues that
have not been previously considered by
the Commission, the Commission
believes that waiver of the operative
delay is consistent with the protection
of investors and the public interest.
Accordingly, the Commission hereby
waives the 30-day operative delay and
designates the proposal operative upon
filing.38
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: (i) necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
38 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule change’s impact on efficiency,
competition, and capital formation. See 15 U.S.C.
78c(f).
VerDate Sep<11>2014
18:01 Oct 17, 2023
Jkt 262001
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–2023–28 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–2023–28. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–MEMX–2023–28 and should be
submitted on or before November 8,
2023.
39 17
PO 00000
CFR 200.30–3(a)(12) and (a)(59).
Frm 00087
Fmt 4703
Sfmt 4703
71903
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–22925 Filed 10–17–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–XXX, OMB Control No.
3235–0779]
Proposed Collection; Comment
Request; Extension: Rule 2a–5
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. 3501–3520), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collections of information
summarized below. The Commission
plans to submit the existing collection
of information to the Office of
Management and Budget for extension
and approval.
Section 2(a)(41) of the Investment
Company Act of 1940 (‘‘Investment
Company Act’’) 1 requires funds to value
their portfolio investments using the
market value of their portfolio securities
when market quotations for those
securities are ‘‘readily available,’’ and,
when a market quotation for a portfolio
security is not readily available, by
using the fair value of that security, as
determined in good faith by the fund’s
board.2 The aggregate value of a fund’s
investments is the primary determinant
of the fund’s net asset value (‘‘NAV’’),
which for many funds determines the
price at which their shares are offered
and redeemed (or repurchased).3
Rule 2a–5 provides requirements for
determining in good faith the fair value
of the investments of a registered
investment company or companies that
have elected to be treated as business
development companies under the
Investment Company Act (‘‘BDCs’’ and,
collectively, ‘‘funds’’) for purposes of
section 2(a)(41) of the Investment
Company Act and rule 2a–4
1 15
2 15
U.S.C. 80a–1 et seq.
U.S.C. 80a–2(a)(41). See also 17 CFR 270.2a–
4.
3 See 15 U.S.C. 80a–22(c) and 23(c). See also 17
CFR 270.22c–1(a).
E:\FR\FM\18OCN1.SGM
18OCN1
]]>Agencies
[Federal Register Volume 88, Number 200 (Wednesday, October 18, 2023)]
[Notices]
[Pages 71898-71903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22925]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98730; File No. SR-MEMX-2023-28]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Adopt Risk
Settings Rules Applicable to Options Trading
October 12, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 29, 2023, MEMX LLC (``MEMX'' or the ``Exchange'')
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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule to amend
the Exchange's risk settings rules applicable to Options trading. The
Exchange has designated this proposal as ``non-controversial'' pursuant
to section 19(b)(3)(A)(iii) of the Act and provided the Commission with
the notice required by Rule 19b-4(f)(6)(iii) thereunder. The Exchange
has commenced operations of MEMX Options on September 27, 2023. As
such, the Exchange proposes to implement the changes to its options
risk controls immediately. The text of the proposed rule change is
provided in Exhibit 5.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to provide optional risk
controls for Members \3\ who participate in the Exchange's options
market (such market, ``MEMX Options'' and such Members, ``Options
Members''), under proposed Interpretation and Policies .01 and .02 of
Exchange Rule 21.17, and to provide clarifying language in proposed
Interpretation and Policy .03 of Exchange Rule 21.17. In order to help
Options Users \4\ to manage their risk, the Exchange proposes to add
certain risk settings on MEMX Options which the Exchange already offers
to Users in its market for equity securities (``MEMX Equities''). Under
the proposed Interpretation and Policies .01 and .02 of Exchange Rule
21.17, Users will have the same ability to manage their risk with
respect to orders on the MEMX Options platform as Users currently have
on the MEMX Equities platform (as set forth in Interpretation and
Policies .01 and .02 of Exchange Rule 11.10). Lastly, the Exchange
proposes to add Interpretation and Policy .03 of Exchange Rule 21.17 to
clarify that the risk controls described in Exchange Rule 21.17 are
meant to supplement, and not replace, a User's internal risk monitoring
and management systems.
---------------------------------------------------------------------------
\3\ See Exchange Rule 1.5(p).
\4\ See Exchange Rule 1.5(jj).
---------------------------------------------------------------------------
The Exchange proposes to add controls which will be exercisable and
configurable by individual Users, and the thresholds of the controls
may be adjusted within certain limits away from the assigned default
values. The Exchange notes that other national securities exchanges
have similar risk settings rules in their rulebooks.\5\ As previously
noted, these risk settings will largely mirror the MEMX Equities
settings rules in Interpretation and Policies .01 and .02 to Rule
11.10. The Exchange additionally proposes to add clarifying language in
proposed Interpretation and Policy .03 of Exchange Rule 21.17.
---------------------------------------------------------------------------
\5\ See, e.g., Interpretations and Policies .01 and .02(a) of
Rule 11.13 of the BYX Exchange Rulebook, available at https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf;
Interpretations and Policies .01 and .02(a) of Rule 11.13 of the BZX
Exchange Rulebook, available at https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and
Policies .01 and .02(a) of Rule 11.10 the EDGA Exchange Rulebook,
available at https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf; and Interpretations and Policies .01 and .02(a)
of Rule 11.10 the EDGX Exchange Rulebook, available at https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf.
---------------------------------------------------------------------------
Specifically, in proposed Interpretation and Policy .01 of Exchange
Rule 21.17, the Exchange proposes to offer risk settings that will
result in orders being cancelled on entry, including: (i) controls
related to the maximum dollar amount for a single order and the maximum
number of contracts that may be included in a single order; (ii)
controls related to order types or modifiers that can be utilized as
well as when the market is crossed; (iii) controls to restrict the
options classes for which a User may enter orders or to restrict
activity to test symbols only; (iv) controls prohibiting the entry of
duplicative orders; (v) controls restricting the overall rate of order
entry; and (vi) credit controls measuring both gross and net exposure
that warn when approached, and when breached, prevent submission of
either all new orders or Market Orders \6\ only. The Exchange further
proposes, in proposed Interpretation and Policy .02 of Exchange Rule
21.17, to offer (vii) risk functionality that permits a User to
[[Page 71899]]
cancel all unexecuted orders and quotes in the MEMX Options Book, block
the entry of any new orders or quotes, or both cancel all unexecuted
orders and quotes and block the entry of any new orders and quotes; and
(viii) batch cancel functionality. Each of these functionalities will
be further described in the paragraphs below. Additionally, in proposed
Interpretation and Policy .03 to Exchange Rule 21.17, the Exchange
would provide clarifying language that the risk controls described in
Exchange Rule 21.17 do not replace the User's own internal risk
management systems, monitoring, and procedures and are not designed for
compliance with Exchange Act Rule 15c3-5.\7\
---------------------------------------------------------------------------
\6\ See Exchange Rule 21.1(d)(2).
\7\ 17 CFR 240.15c3-5.
---------------------------------------------------------------------------
Publication of Established Numeric Values
Current Rule 21.17 states that ``all numeric values established by
the Exchange pursuant to this Rule will be maintained by the Exchange
in publicly available specifications and/or published in a Regulatory
Circular.'' As the proposed Interpretations and Policies described
below would be contained in Rule 21.17, that language would also apply
to such Interpretations and Policies. As a result, to the extent the
Exchange establishes default values for certain risk settings, as
described below, such default values would be readily ascertainable by
Users and such Users will be able to determine whether they wish to
maintain the default values established by the Exchange or to adopt
different values in accordance with their overall risk mitigation
strategy.
The Exchange notes that other national securities exchanges
establish numeric values pursuant to the risk settings for their
options platforms in publicly available specifications and regulatory
circulars.\8\
---------------------------------------------------------------------------
\8\ See, e.g., Rule 21.17 of the BZX Exchange Rulebook,
available at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; and Rule 16.3 of the EDGX Exchange
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf.
---------------------------------------------------------------------------
Controls Related to Maximum Dollar Amount and Maximum Number of
Contracts
Proposed paragraph (a) of proposed Interpretation and Policy .01 of
Exchange Rule 21.17 would provide for order entry controls related to
(i) the maximum dollar amount for a single order, and (ii) the maximum
number of contracts that may be included in a single order. These
controls on maximum notional value per order and the maximum number of
contracts per order would each be User-configurable up to a maximum
allowable limit. The Exchange would set default values on the maximum
notional value per order and maximum number of contracts per order.\9\
The System \10\ will reject or cancel an order that exceeds the User-
configured limits or which exceeds the default value if the User has
not entered any configuration for these controls. This proposed
paragraph (a) would provide Options Members with the same risk control
functionality on maximum notional value per order and maximum number of
contracts per order as is currently provided to Members of MEMX
Equities under Interpretation and Policy .01(a) and .01(b) of Exchange
Rule 11.10. The Exchange notes that at least one other options exchange
provides similar functionality on its trading platform.\11\ The
Exchange also notes that other national securities exchanges, including
the Exchange, include this functionality on their equities
platforms.\12\ The purpose of proposed paragraph (a) of Interpretation
and Policy .01 of Exchange Rule 21.17 is to provide the same maximum
notional value risk setting functionality and maximum share risk
setting functionality for Users on MEMX Options, as is currently
provided to Users on MEMX Equities.
---------------------------------------------------------------------------
\9\ See ``Publication of Established Numeric Values'' above for
a description of how the Exchange will notify Members of default
values applicable to risk settings.
\10\ See Exchange Rule 1.5(gg).
\11\ See, e.g., Rule 6.40P-O(a)(2)(A)(i) of the NYSE Arca
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
\12\ See Interpretations and Policies .01(a) and .01(b) of Rule
11.13 of the BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf;
Interpretations and Policies .01a and .01(b) of Rule 11.13 of the
BZX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and
Policies .01(a) and .01(b) of Rule 11.10 of the EDGA Exchange
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf; and Interpretations and Policies .01(a)
and .01(b) of Rule 11.10 of the EDGX Exchange Rulebook, available
at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policies 01(a) and
.01(b) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
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Controls Related to Order Types or Modifiers and Specific Market
Conditions
Proposed paragraph (b) of Interpretation and Policy .01 of Exchange
Rule 21.17 would provide controls designed to prevent the entry of
specific order types and modifiers, as well as the entry of orders when
specific market conditions occur. The Exchange would provide a User-
configurable on/off switch to allow or disallow the entry of specific
types of orders or the entry of any orders upon the existence of
certain market conditions. The default value would be to allow the
entry of orders. Specifically, the Exchange at this time would provide
an on/off switch for (i) orders marked as Intermarket Sweep Orders
(``ISOs''), (ii) orders entered when the National Best Bid and Offer
(``NBBO'') is crossed, and (iii) Market Orders. With respect to
controls on ISOs, the proposal would provide MEMX Options Users with
the same ability to allow or disallow ISOs as is currently available to
Users of MEMX Equities under Interpretation and Policy .01(c) of
Exchange Rule 11.10. With respect to controls to allow or cancel
incoming orders when the market is crossed, the proposal would provide
MEMX Options Users with the same ability to allow or disallow incoming
orders during a crossed market as is currently available to Members of
MEMX Equities under Exchange Rule 11.10(a)(2). To clarify, with respect
to controls on ISO orders and orders during crossed markets, proposed
paragraph (b) of Interpretation and Policy .01 of Exchange Rule 21.17
would provide the same ISO and crossed market functionalities for Users
on MEMX Options, as are currently provided to Users on MEMX Equities.
The Exchange notes that at least one other options exchange provides
similar functionality on its trading platform.\13\ The Exchange also
notes that other national securities exchanges, including the Exchange,
provide this functionality on their equities platforms.\14\
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\13\ See, e.g., Rule 6.40P-O(a)(2)(A)(iii) of the NYSE Arca
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
\14\ See Interpretations and Policy .01(c) of Rule 11.13 of the
BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; Interpretations and Policy
.01(c) of Rule of Rule 11.13 of the BZX Exchange Rulebook, available
at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and Policy .01(c) of Rule
11.10 the EDGA Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf;
Interpretations and Policy .01(c) of Rule 11.10 the EDGX Exchange
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policy
.01(c) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
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With respect to controls on Market Orders, the Exchange does not
presently provide this functionality for MEMX Equities. The Exchange
notes that other national securities exchanges provide functionality
for Users to apply a risk
[[Page 71900]]
setting that would reject market orders during continuous trading or
auctions.\15\ The Exchange proposes to apply the same functionality to
MEMX Options. Using this functionality, a User of MEMX Options would be
allowed to reject Market Orders; the default setting would be to allow
Market Orders. The Exchange proposes to make the risk setting User-
configurable and will not require Users to utilize the Market Order
risk setting. The purpose of this proposed risk setting is designed to
prevent the entry of orders that may cause undue market impact, and
reduce the potential for disruptive, market-wide events.
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\15\ See Exchange Act Release Nos. 97988 (July 25, 2023), 88 FR
49513 (July 31, 2023)(SR-CboeEDGA-2023-012); 97986 (July 25, 2023),
88 FR 49540 (July 31, 2023) (SR-CboeBYX-2023-011); 97987 (July 25,
2023), 88 FR 49516 (July 31, 2023) (SR-CboeEDGX-2023-046); see also
Nasdaq Rulebook Section 5(b), available at: https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-equity-6.
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Controls to Restrict Options Classes To Test Symbols
Proposed paragraph (c) of Interpretation and Policy .01 of Exchange
Rule 21.17 would provide controls to restrict the options classes for
which a User may enter orders to test symbols only, which would apply
upon order entry. The Exchange would provide a User-configurable on/off
switch to restrict orders entered to test symbols only if configured by
the User. The default value of such on/off switch will be to allow all
options classes. The proposal would provide MEMX Options Users with the
same ability to restrict options classes as is currently available to
Users of MEMX Equities under Interpretation and Policy .01(d) of
Exchange Rule 11.10.
The Exchange notes that at least one other options exchange
provides similar functionality on its trading platform.\16\ The
Exchange also notes that other national securities exchanges, including
the Exchange, already have controls to restrict the entry of orders in
specifically identified securities on their equities platforms.\17\ The
purpose of proposed paragraph (c) of Interpretation and Policy .01 of
Exchange Rule 21.17 is to provide Users on MEMX Options the same
functionality to restrict the types of options classes which can be
traded, as is currently provided to Users on MEMX Equities to restrict
the types of securities which can be traded to test symbols only.
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\16\ See, e.g., Rule 6.40P-O(a)(2)(A)(iv) of the NYSE Arca
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
\17\ See Interpretations and Policy .01(d) of Rule 11.13 of the
BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; Interpretations and Policy
.01(d) of Rule of Rule 11.13 of the BZX Exchange Rulebook, available
at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and Policy .01(d) of Rule
11.10 the EDGA Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf;
Interpretations and Policy .01(d) of Rule 11.10 the EDGX Exchange
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policy
.01(d) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
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Controls To Prohibit Duplicative Orders
Proposed paragraph (d) of Interpretation and Policy .01 of Exchange
Rule 21.17 would provide controls to prohibit duplicative orders, which
would apply upon order entry.\18\ The Exchange would provide the User
with the ability to set a duplicative order count and time window in
seconds, subject to a maximum allowable limit of order count and time
window. The Exchange would also provide default values for order count
and time window in seconds, which would be the minimum values to be
selected.\19\ The control would be triggered when the duplicative order
count is exceeded within the time window specified. When such control
is triggered, the System would reject incoming orders. Order
cancellations would be processed normally during the time when the
control is triggered.
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\18\ A duplicative order is one with the same Executing Firm
Identifier (``EFID''), side, price, size, and symbol.
\19\ See ``Publication of Established Numeric Values'' above for
a description of how the Exchange will notify Members of default
values applicable to risk settings.
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The Exchange notes that at least one other options exchange
provides similar functionality to prevent duplicative orders on its
trading platform.\20\ The Exchange notes that other national securities
exchanges, including the Exchange, include controls on duplicative
orders in their risk settings for their equities platforms.\21\ The
proposal would provide Users of MEMX Options with the same ability to
prohibit duplicative orders as is currently available to Users of MEMX
Equities under Interpretation and Policy .01(e) of Exchange Rule 11.10.
The purpose of proposed paragraph (d) of Interpretation and Policy .01
of Exchange Rule 21.17 is to provide the same functionality to prohibit
duplicative orders for Users on MEMX Options, as is currently provided
to Users on MEMX Equities.
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\20\ See, e.g., Rule 6.40P-O(a)(2)(A)(v) of the NYSE Arca
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
\21\ See Interpretations and Policy .01(e) of Rule 11.13 of the
BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; Interpretations and Policy
.01(e) of Rule of Rule 11.13 of the BZX Exchange Rulebook, available
at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and Policy .01(f) of Rule
11.10 the EDGA Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf;
Interpretations and Policy .01(e) of Rule 11.10 the EDGX Exchange
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policy
.01(e) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
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Controls To Restrict the Overall Rate of Orders
Proposed paragraph (e) of Interpretation and Policy .01 of Exchange
Rule 21.17 would provide controls to restrict the overall rate of
orders, which would apply upon order entry. The control would include a
default value for the time increment and a default value for the number
of orders entered during that time increment.\22\ The Exchange would
provide the User with the ability to configure an order count and time
window, subject to minimum and maximum values identified by the
Exchange. The control would be triggered when the order count is
exceeded within the time window specified. When such control is
triggered, the System would reject incoming orders. Order cancellations
would be processed normally during the time when the control is
triggered. The proposal would provide Users of MEMX Options with the
same ability to restrict the rate of orders as is currently available
to Users of MEMX Equities under Interpretation and Policy .01(f) of
Exchange Rule 11.10.
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\22\ See ``Publication of Established Numeric Values'' above for
a description of how the Exchange will notify Members of default
values applicable to risk settings.
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The Exchange also notes that other national securities exchanges,
including the Exchange, already have risk settings for their Equities
platform which allow Users to restrict the rate of orders.\23\ The
[[Page 71901]]
purpose of proposed paragraph (e) of Interpretation and Policy .01 of
Exchange Rule 21.17 is to provide the same functionality to set the
maximum overall rate of orders for Users on MEMX Options, as is
currently provided to Users on MEMX Equities.
---------------------------------------------------------------------------
\23\ See, e.g., Interpretations and Policy .01(f) of Rule 11.13
of the BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; Interpretations and
Policy .01(f) of Rule of Rule 11.13 of the BZX Exchange Rulebook,
available at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and Policy .01(f) of Rule
11.10 the EDGA Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf; and
Interpretations and Policy .01(f) of Rule 11.10 the EDGX Exchange
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policy
.01(f) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
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Credit Controls for Gross and Net Exposure
Proposed paragraph (f) of Interpretation and Policy .01 of Exchange
Rule 21.17 would provide for credit controls on gross and net exposure,
which would apply upon order entry. The default value for each such
controls would be set to a maximum dollar amount.\24\ Users would be
able to configure the limit for each control, subject to a minimum
limit amount. Users would be able to select configurable controls on
daily gross notional exposure, either for (i) all orders or (ii) only
Market Orders. For any bid or offer, the System will cancel or reject
it if such bid or offer causes the User's daily gross notional exposure
to exceed a User-configured limit. For any Market Order, the System
will cancel or reject it if such Market Order causes the User's daily
gross notional exposure to exceed a User-configured limit. Similarly,
Users would be able to select configurable controls on daily net
notional exposure, either for (i) all orders or (ii) only Market
Orders. For any bid or offer, the System will cancel or reject it if
such bid or offer causes the User's daily net notional exposure to
exceed a User-configured limit. For any Market Order, the system will
cancel or reject it if such Market Order causes the User's daily gross
notional exposure to exceed a User-configured limit. In addition to
blocking orders for each of the controls set forth above, the System
will block either all new orders or Market Orders only once an
applicable setting has been breached.
---------------------------------------------------------------------------
\24\ See ``Publication of Established Numeric Values'' above for
a description of how the Exchange will notify Members of default
values applicable to risk settings.
---------------------------------------------------------------------------
This proposal would provide Users of MEMX Options with the same
ability to set configurable controls on daily net notional and daily
gross notional exposure, for all orders or for Market Orders, as is
currently available to Users of MEMX Equities under Interpretation and
Policy .01(g) of Exchange Rule 11.10. The Exchange notes that other
national securities exchanges, including the Exchange, already provide
functionality to set configurable controls on daily net notional
exposure and daily gross notional exposure that apply on order
entry.\25\
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\25\ See, e.g., Interpretations and Policy .01(h) of Rule 11.13
of the BYX Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/BYX_Rulebook.pdf; Interpretations and
Policy .01(h) of Rule of Rule 11.13 of the BZX Exchange Rulebook,
available at: https://cdn.cboe.com/resources/regulation/rule_book/BZX_Exchange_Rulebook.pdf; Interpretations and Policy .01(h) of Rule
11.10 the EDGA Exchange Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGA_Rulebook.pdf; and
Interpretations and Policy .01(h) of Rule 11.10 the EDGX Exchange
Rulebook, available at: https://cdn.cboe.com/resources/regulation/rule_book/EDGX_Rulebook.pdf. See also Interpretations and Policy
.01(h) of Rule 11.10 of the MEMX Rulebook, available at: https://info.memxtrading.com/regulation/memx-rules/.
---------------------------------------------------------------------------
The Exchange believes that credit controls on daily net notional
and daily gross notional exposure are of importance in the options
markets. The purpose of proposed paragraph (f) of Interpretation and
Policy .01 of Exchange Rule 21.17 is to provide the same functionality
to set configurable controls on daily net notional exposure and daily
gross notional exposure for Users on MEMX Options, as is currently
provided to Users on MEMX Equities.
Controls for Block and Cancel Functionality
Proposed paragraph (a) of Interpretation and Policy .02 of Exchange
Rule 21.17 would provide functionality to (i) cancel all unexecuted
orders and quotes in the MEMX Options Book, (ii) block the entry of any
new orders and quotes, or (iii) both cancel all unexecuted orders and
quotes in the MEMX Options Book and block the entry of any new orders
and quotes. Additionally, in addition to functionality (i), (ii), and
(iii) described in this paragraph, the Exchange will provide
functionality to (iv) automatically cancel a User's orders to the
extent the User loses its connection to the Exchange. This proposal
would provide Users of MEMX Options with the same block and cancel
functionality as is currently available to Users of MEMX Equities under
Interpretation and Policy .02(a) of Exchange Rule 11.10. The Exchange
notes that at least one other options exchange provides similar
functionality on its trading platform.\26\ The purpose of proposed
paragraph (a) of Interpretation and Policy .02 of Exchange Rule 21.17
is to provide the same functionality to block new orders, cancel open
orders, block new orders and cancel open orders, and cancel orders if a
User loses connection to the Exchange for Users on MEMX Options, as is
currently provided to Users on MEMX Equities.
---------------------------------------------------------------------------
\26\ See Rule 6.40P-O(e)(3) and 6.40P-O(e)(4) of the NYSE Arca
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
---------------------------------------------------------------------------
Controls for Mass Cancellation of Trading Interest Functionality
Finally, the Exchange proposes paragraph (b) of Interpretation and
Policy .02 of Exchange Rule 21.17, which would provide functionality to
Users of MEMX Options for the mass cancellation of trading interest
(i.e., ``batch cancel'' functionality). Users would be able to cancel
any orders in any series of options by requesting the Exchange to
affect such cancellation as per the instructions of the User. A User
initiating such a request may also request that the Exchange block new
inbound orders in any series of options. The block will remain in
effect until the User requests the Exchange remove the block. Proposed
paragraph (b) of Interpretation and Policy .02 of Exchange Rule 21.17
would provide the same batch cancel functionality to Users of MEMX
Options as is available to Users of MEMX Equities under Interpretation
and Policy .02(b) of Exchange Rule 11.10. The Exchange notes that at
least one other options exchange provides similar functionality on its
trading platform.\27\ The purpose of this proposed paragraph (b) is to
provide the same batch cancel functionality to Users of MEMX Options as
is currently provided to Users of MEMX Equities.
---------------------------------------------------------------------------
\27\ See, e.g., Nasdaq Options Market Rulebook Chapter 3,
Section 19, available at: https://listingcenter.nasdaq.com/RuleBook/Nasdaq/rules/Nasdaq%20Options%203.
---------------------------------------------------------------------------
The purpose of these risk settings is to provide MEMX Options Users
with functionality to assist in risk management, which will protect
both the User as well as the Exchange from entering potentially
erroneous orders that could have potential market impact. The Exchange
proposes to make these risk settings available to all Users and will
not require Users to use any of the risk settings provided. The
Exchange will not provide any preferential treatment to Users based
upon their use of any, all, or none of the risk settings.
Clarifying Language On Risk Controls
Pursuant to Rule 15c3-5 under the Act,\28\ a broker-dealer with
market access must perform appropriate due diligence to assure that its
controls are reasonably designed to be effective, and otherwise
consistent with the rule.\29\
[[Page 71902]]
Use of the Exchange's proposed risk settings for MEMX Options will not
automatically constitute compliance with Exchange or federal rules and
responsibility for compliance with all Exchange and SEC rules remains
with the User. In order to clarify that the risk controls proposed for
MEMX Options are not a substitute for a User's 15c3-5 obligations, the
Exchange proposes to provide clarifying language to this effect in
proposed Interpretation and Policy .03 to Exchange Rule 21.17. The
purpose of Interpretation and Policy .03 to Exchange Rule 21.17 is to
make clear that the User, and not the Exchange, will have the full
responsibility for ensuring that their orders comply with applicable
securities rules, laws, and regulations, and may not rely on the risk
settings for any such purpose. The Exchange notes that other exchanges
have included similar clarifying language in their options rules.\30\
The Exchange wishes to make clear that the use of the proposed risk
settings can replace User-managed risk management solutions, and use of
the proposed risk settings does not automatically constitute compliance
with Exchange rules. Rather, the Exchange intends these controls to act
as a complement to its Members' overall suite of controls designed to
comply with Rule 15c3-5 and other applicable securities rules, laws and
regulations.
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\28\ See supra note 7.
\29\ See Division of Trading and Markets, Responses to
Frequently Asked Questions Concerning Risk Management Controls for
Brokers or Dealers with Market Access, available at https://www.sec.gov/divisions/marketreg/faq-15c-5-riskmanagement-controls-bd.htm.
\30\ See, e.g., Commentary .01 to Rule 6.40P-O of the NYSE Arca
Exchange Rulebook, available at https://nysearca.wolterskluwer.cloud/rules/b44a170e7ccd1000a69b90b11c2ac4f10127.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of section 6(b) of the Act,\31\ in general, and
furthers the objectives of sections and 6(b)(5) of the Act,\32\ in
particular, in that it is designed to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system and, in general,
to protect investors and the public interest.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes the proposed risk settings promote just and
equitable principles of trade because the risk settings will be equally
available to all Users who trade on MEMX Options and such Users can
employ such risk settings as part of their overall risk management
strategy. Three of the proposed risk settings will apply to orders from
all Users and cannot be turned off, namely the duplicative order check,
the order rate check and the maximum contracts and maximum notional
check. However, the Exchange will establish default values for these
risk settings that are made publicly available through a Regulatory
Circular and/or publicly available specifications, as discussed above.
Further, Users will be able to configure these settings to different
levels that align with their overall risk mitigation strategy. The
remaining risk settings are optional and Users will be able to select
whether they would like to use any, all, or none of these risk
settings. No preferential treatment will be provided to Users who have
elected to use any, all, or none of the optional risk settings that are
available. Use of the risk settings does not unfairly discriminate
among the Users of MEMX Options because each risk setting is available
to all Users.
The Exchange believes the proposed risk settings will remove
impediments to and perfect the mechanism of a free and open market and
national market system because it provides additional functionality for
Users to manage risk. The proposed risk settings would provide Users
with the means to manage and control their risk profile, helping to
ensure the proper functioning of the market. The Exchange believes that
these controls are designed to protect investors and the public
interest because the proposed risk mitigation functionality will aid
Users in minimizing their financial exposure and reducing the potential
for market-disrupting events. The risk management functionality of the
risk settings could, in turn, enhance the integrity of trading on the
securities markets and help to assure the stability of the financial
system.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposal is consistent with section
6(b)(8) of the Act \33\ in that it does not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act as explained below. The Exchange believes the
proposal will not impose a burden on intermarket competition because
Users of MEMX Options will be able to decide how they wish to utilize
the risk settings offered in the context of their overall risk
mitigation strategy. Users of MEMX Options are free to include the risk
settings available as part of their determination of where to trade, or
in many cases, not to use them at all. The Exchange does not believe
that the proposed rule change imposes a burden on intramarket
competition because the proposed risk settings will be available
equally to all Users. As previously discussed, the proposed risk
setting on MEMX Options which differs from the risk settings on MEMX
Equities (namely, controls on Market Orders) has been implemented by
other exchanges.\34\ Users would be able to choose the settings best
suited to their risk profile, potentially enabling them to better
manage their risk while trading on the Exchange. The Exchange believes
that the proposed risk setting will enable Users to strengthen their
risk management capabilities, which, in turn, may enhance the integrity
of trading on the options markets and help to assure the stability of
the financial system.
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78f(b)(8).
\34\ See supra note 15.
---------------------------------------------------------------------------
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)(iii) of the Act \35\ and Rule 19b-4(f)(6) thereunder \36\
in that it effects a change that: (i) does not significantly affect the
protection of investors or the public interest; (ii) does not impose
any significant burden on competition; and (iii) by its terms, does not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest.\37\
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\35\ 15 U.S.C. 78s(b)(3)(A)(iii).
\36\ 17 CFR 240.19b-4(f)(6).
\37\ In addition, Rule 19b-4(f)(6) requires a self-regulatory
organization to give the Commission written notice of its intent to
file the proposed rule change, along with a brief description and
text of the proposed rule change, at least five business days prior
to the date of filing of the proposed rule change, or such shorter
time as designated by the Commission. The Exchange has satisfied
this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii), the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative upon filing. In support of its
[[Page 71903]]
waiver request, the Exchange states that the proposal will further the
interests of investors and the public by making available a risk
functionality by which Members (and each Member's Users) can manage
their risk on the Exchange's options platform, MEMX Options. These risk
settings will allow each User to configure a risk profile applicable to
their risk tolerance and as necessary in the context of their overall
risk management program, which the Exchange believes will assist in
maintaining the Exchange as a fair and orderly market that better
serves the interest of investors. Additionally, as discussed above, the
proposed changes will not impose any significant or undue burden on
competition because Options Members can decide how they wish to utilize
the risk settings offered in the context of their overall risk
mitigation strategy.
Further, the Exchange launched MEMX Options on September 27, 2023.
Waiver of the 30-day operative delay would allow the Exchange to
implement the proposed change to offer the proposed risk settings
immediately, which would benefit Members and investors by enabling the
Exchange to provide additional functionality for Options Members to
manage their risk. The Exchange states that these controls are designed
to protect investors and the public interest because the proposed risk
mitigation functionality will aid Members in minimizing their financial
exposure and reducing the potential for market-disrupting events. For
these reasons, and because the proposal does not raise any new or novel
issues that have not been previously considered by the Commission, the
Commission believes that waiver of the operative delay is consistent
with the protection of investors and the public interest. Accordingly,
the Commission hereby waives the 30-day operative delay and designates
the proposal operative upon filing.\38\
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\38\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
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: (i)
necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-MEMX-2023-28 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-2023-28. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-MEMX-2023-28 and should be
submitted on or before November 8, 2023.
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\39\ 17 CFR 200.30-3(a)(12) and (a)(59).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22925 Filed 10-17-23; 8:45 am]
BILLING CODE 8011-01-P
