Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule Concerning Transaction Pricing, 57463-57467 [2024-15400]
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Federal Register / Vol. 89, No. 135 / Monday, July 15, 2024 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024–15408 Filed 7–12–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100469; File No. SR–
MEMX–2024–26]
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend the Exchange’s Fee
Schedule Concerning Transaction
Pricing
July 9, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that, on June 28,
2024, MEMX LLC (‘‘MEMX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing with the
Commission a proposed rule change to
amend the Exchange’s fee schedule
applicable to Members 3 (the ‘‘Fee
Schedule’’) pursuant to Exchange Rules
15.1(a) and (c). The Exchange proposes
to implement the changes to the Fee
Schedule pursuant to this proposal on
July 1, 2024. The text of the proposed
rule change is provided in Exhibit 5.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Exchange Rule 1.5(p).
1 15
18:25 Jul 12, 2024
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend the Fee Schedule to:
(1) adopt a new tier under the Liquidity
Provision Tiers; (2) modify the required
criteria under Liquidity Provision Tiers
2, 3, and 4; (3) modify NBBO Setter Tier
1 by modifying the required criteria
under such tier; and (4) eliminate the
DLI Additive Rebate, each as further
described below.
The Exchange first notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
16 registered equities exchanges, as well
as a number of alternative trading
systems and other off-exchange venues,
to which market participants may direct
their order flow. Based on publicly
available information, no single
registered equities exchange currently
has more than approximately 16.1% of
the total market share of executed
volume of equities trading.4 Thus, in
such a low-concentrated and highly
competitive market, no single equities
exchange possesses significant pricing
power in the execution of order flow,
and the Exchange currently represents
approximately 2.1% of the overall
market share.5 The Exchange in
particular operates a ‘‘Maker-Taker’’
model whereby it provides rebates to
Members that add liquidity to the
Exchange and charges fees to Members
that remove liquidity from the
Exchange. The Fee Schedule sets forth
the standard rebates and fees applied
per share for orders that add and remove
liquidity, respectively. Additionally, in
response to the competitive
environment, the Exchange also offers
tiered pricing, which provides Members
with opportunities to qualify for higher
rebates or lower fees where certain
volume criteria and thresholds are met.
Tiered pricing provides an incremental
incentive for Members to strive for
higher tier levels, which provides
increasingly higher benefits or discounts
4 Market share percentage calculated as of June
26, 2024. The Exchange receives and processes data
made available through consolidated data feeds
(i.e., CTS and UTDF).
5 Id.
12 17
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forth in sections A, B, and C below, of
the most significant aspects of such
statements.
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57463
for satisfying increasingly more
stringent criteria.
Adoption of New Liquidity Provision
Tier
The Exchange currently provides a
standard rebate of $0.0015 per share for
executions of orders in securities priced
at or above $1.00 per share that add
displayed liquidity to the Exchange
(such orders, ‘‘Added Displayed
Volume’’). The Exchange also currently
offers Liquidity Provision Tiers 1–5,
under which a Member may receive an
enhanced rebate for executions of
Added Displayed Volume by achieving
the corresponding required volume
criteria for each tier. The Exchange now
proposes to adopt a new tier under the
Liquidity Provision Tiers, which, as
proposed, would be the new Liquidity
Provision Tier 1, and the current
Liquidity Provision Tiers 1, 2, 3, 4 and
5 would be renumbered as Liquidity
Provision Tiers 2, 3, 4, 5 and 6
(hereinafter referred to as such). The
applicable rebates and required criteria
under Liquidity Provision Tiers 2, 3, 4,
5 and 6, would remain unchanged,
except for the required criteria under
Liquidity Provision Tiers 2, 3, and 4,
which the Exchange is proposing to
modify, as further described below.
Under the proposed new Liquidity
Provision Tier 1, the Exchange will
provide an enhanced rebate of $0.0034
per share for executions of Added
Displayed Volume for Members that
qualify for such tier by achieving either:
(1) an ADAV 6 (excluding Retail Orders)
that is equal to or greater than 0.50% of
the TCV,7 or (2) a Step-Up ADAV 8 June
6 As set forth on the Fee Schedule, ‘‘ADAV’’
means the average daily added volume calculated
as the number of shares added per day, which is
calculated on a monthly basis, and ‘‘Displayed
ADAV’’ means ADAV with respect to displayed
orders.
7 As set forth on the Fee Schedule, ‘‘TCV’’ means
total consolidated volume calculated as the volume
reported by all exchanges and trade reporting
facilities to a consolidated transaction reporting
plan for the month for which the fees apply. The
pricing for the proposed new Liquidity Provision
Tier 1 is referred to by the Exchange on the Fee
Schedule under the existing description ‘‘Added
displayed volume, Liquidity Provision Tier 1’’ with
a Fee Code of ‘‘B1’’, ‘‘D1’’, ‘‘J1’’, or ‘‘I1’’, as
applicable, to be provided by the Exchange on the
monthly invoices provided to Members. The
Exchange also notes that the pricing for Liquidity
Provision Tiers 2–5 will be referred to under the
existing applicable descriptions and Fee Codes, and
the pricing for Liquidity Provision Tier 6 will be
referred to by the Exchange under the new
description ‘‘Added displayed volume, Liquidity
Provision Tier 6’’ with a Fee Code of ‘‘B6’’, ‘‘D6’’,
‘‘J6’’, or ‘‘I6’’ as applicable, to be provided by the
Exchange on the monthly invoices provided to
Members.
8 As set forth on the Fee Schedule, ‘‘Step-Up
ADAV’’ means ADAV in the relevant baseline
month subtracted from current ADAV.
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2024 (excluding Retail Orders) that is
equal to or greater than 0.07% of the
TCV in securities priced at or above
$1.00 per share and an ADAV that is
equal to or greater than 0.20% of the
TCV in securities priced at or above
$1.00 per share.9 Additionally, the
Exchange is proposing that criteria (2) of
Liquidity Provision Tier 1 will expire no
later than December 31, 2024, and the
Exchange will indicate this in a note
under the Liquidity Provision Tiers
pricing table on the Fee Schedule.
Finally, the Exchange proposes to
provide Members that qualify for the
proposed new Liquidity Provision Tier
1 a rebate of 0.075% of the total dollar
value of the transaction for executions
of orders in securities priced below
$1.00 per share that add displayed
liquidity to the Exchange, which is the
same rebate that is currently applicable
to such executions for all Members.
The proposed new Liquidity
Provision Tier 1 is designed to
encourage Members to maintain or
increase their order flow that adds
displayed liquidity to the Exchange in
order to qualify for the proposed
enhanced rebate for executions of
Added Displayed Volume, thereby
promoting price discovery and
contributing to a deeper and more liquid
market to the benefit of all market
participants.
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Modify Liquidity Provision Tiers 2–4
The Exchange is also proposing to
modify the required criteria under
Liquidity Provision Tiers 2, 3, and 4.
First, with respect to Liquidity
Provision Tier 2 (previously named
Liquidity Provision Tier 1, as described
above), the Exchange currently provides
an enhanced rebate of $0.0033 per share
for executions of Added Displayed
Volume in securities priced at or above
$1.00 per share for Members that qualify
for such tier by achieving: (1) an ADAV
(excluding Retail Orders) that is equal to
or greater than 0.45% of the TCV; or (2)
an ADAV that is equal to or greater than
0.30% of the TCV and a Non-Displayed
ADAV 10 that is equal to or greater than
9 The Exchange is also proposing to include a
new note under the Notes section of the Fee
Schedule that clarifies to the extent any tiers have
required criteria that applies only to securities
priced at or above $1.00 per share (as seen in
criteria (2) of the proposed Liquidity Provision Tier
1), the Exchange determines whether a security
should be included in the calculation of the ADV,
ADAV, or TCV, as applicable, in securities priced
at or above $1.00 per share by utilizing the closing
price of the security on the date of execution.
10 As set forth on the Fee Schedule, ‘‘NonDisplayed ADAV’’ means ADAV with respect to
non-displayed orders (including orders subject to
Display-Price Sliding that receive price
improvement when executed and Midpoint Peg
orders).
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6,000,000 shares. The Exchange now
proposes to modify the required criteria
under Liquidity Provision Tier 2 such
that a Member would qualify for such
tier by achieving: (1) an ADAV
(excluding Retail Orders) that is equal to
or greater than 0.40% of the TCV; or (2)
an ADAV that is equal to or greater than
0.30% of the TCV in securities priced at
or above $1.00 per share and a NonDisplayed ADAV that is equal to or
greater than 6,000,000 shares. Thus,
such proposed change would decrease
the ADAV requirement in criteria (1)
and modify alternative criteria (2) by
excluding securities priced below $1.00
from the TCV calculation. In other
words, previously, a Member qualified
for criteria (2) of the tier by achieving an
ADAV of 0.30% of the total TCV (as
well as a Non-Displayed ADAV of at
least 6,000,000 shares), and now the
Exchange is proposing that a Member
would qualify for such criteria (2) by
achieving an ADAV of 0.30% of the
TCV only in securities priced at or
above $1.00 per share (again, as well as
a Non-Displayed ADAV of at least
6,000,000 shares).11 The Exchange is not
proposing to change the rebate provided
under such tier.
With respect to Liquidity Provision
Tier 3 (previously named Liquidity
Provision Tier 2, as described above),
the Exchange currently provides an
enhanced rebate of $0.0032 per share for
executions of Added Displayed Volume
in securities priced at or above $1.00 per
share for Members that qualify for such
tier by achieving an ADAV that is equal
to or greater than 0.20% of the TCV and
an ADV 12 that is equal to or greater than
0.35% of the TCV. Now, the Exchange
proposes to modify the required criteria
under Liquidity Provision Tier 3 such
that Members qualify for such tier by
achieving: (1) an ADAV that is equal to
or greater than 0.20% of the TCV in
securities priced at or above $1.00 per
share and an ADV that is equal to or
greater than 0.40% of the TCV in
securities priced at or above $1.00 per
share; or (2) a Step-Up ADAV from June
2024 (excluding Retail Orders) that is
equal to or greater than 0.05% of the
TCV in securities priced at or above
$1.00 per share and an ADAV
(excluding Retail Orders) that is equal to
or greater than 0.20% of the TCV in
securities priced at or above $1.00 per
share; or (3) an ADAV that is equal to
11 To clarify, in calculating a Member’s ADAV for
purposes of achieving criteria (2) of Liquidity
Provision Tier 2, the Exchange will include
executions in securities priced below $1.00.
12 As set forth on the Fee Schedule, ‘‘ADV’’ means
average daily volume calculated as the number of
shares added or removed, combined, per day,
which is calculated on a monthly basis.
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or greater than 0.30% of the TCV. Thus,
such proposed change would modify
the existing criteria as well as add two
alternative criteria. First, the Exchange
is proposing to modify the existing
criteria (now alternative criteria (1)) by
excluding securities priced below $1.00
from the TCV calculation in the ADAV
requirement, and increasing the ADV
requirement from 0.35% to 0.40% of the
TCV, again excluding securities priced
below $1.00 from the TCV calculation.
The two additional alternative criteria
are proposed criteria (2), which includes
a combined Step-Up ADAV and ADAV
requirement, and proposed criteria (3),
which includes an ADAV requirement.
The Exchange is not proposing to
change the rebate provided under such
tier. Additionally, the Exchange is
proposing that criteria (2) of Liquidity
Provision Tier 3 will expire no later
than December 31, 2024, and the
Exchange will indicate this in a note
under the Liquidity Provision Tiers
pricing table on the Fee Schedule.
With respect to Liquidity Provision
Tier 4 (previously named Liquidity
Provision Tier 3, as described above),
the Exchange currently provides an
enhanced rebate of $0.0030 per share for
executions of Added Displayed Volume
in securities priced at or above $1.00 per
share for Members that qualify for such
tier by achieving an ADAV that is equal
to or greater than 0.175% of the TCV.
Now, the Exchange proposes to modify
the required criteria under Liquidity
Provision Tier 4 such that Members
qualify for such tier by achieving: (1) an
ADAV that is equal to or greater than
0.20% of the TCV in securities priced at
or above $1.00 per share; or (2) an
ADAV that is equal to or greater than
0.175% of the TCV. Thus, such
proposed change would add alternative
criteria (1) and keep the existing criteria
intact as alternative criteria (2). The
Exchange is not proposing to change the
rebate provided under such tier.
The Exchange believes that the tiered
pricing structure for executions of
Added Displayed Volume under the
proposed modified Liquidity Provision
Tiers 2, 3, and 4 provides an
incremental incentive for Members to
strive for higher volume thresholds to
receive higher enhanced rebates for
such executions and, as such, is
intended to encourage Members to
maintain or increase their order flow,
primarily in the form of liquidity-adding
volume, to the Exchange, thereby
contributing to a deeper and more liquid
market to the benefit of all Members and
market participants. Specifically, the
Exchange believes that, after giving
effect to the proposed changes described
above, the rebate for executions of
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Added Displayed Volume provided
under each of the Liquidity Provision
Tiers remains commensurate with the
corresponding required criteria under
each such tier and is reasonably related
to the market quality benefits that each
such tier is designed to achieve.
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NBBO Setter Tier
The Exchange currently offers NBBO
Setter Tier 1 under which a Member
may receive an additive rebate of
$0.0002 per share for a qualifying
Member’s executions of Added
Displayed Volume (other than Retail
Orders) in securities priced at or above
$1.00 per share that establish the NBBO
and have a Fee Code B 13 (such orders,
‘‘Setter Volume’’), and an additive
rebate of $0.0001 per share for
executions of Added Displayed Volume
(other than Retail Orders) that do not
establish the NBBO (i.e., Fee Codes D
and J) 14 by achieving: (1) an ADAV with
respect to orders with Fee Code B that
is equal to or greater than 5,000,000
shares; or (2) an ADAV in securities
priced at or above $1.00 per share
(excluding Retail Orders) that is equal to
or greater than 0.30% of the TCV in
securities priced at or above over $1.00
per share.15 Now, the Exchange
proposes to modify the required criteria
under NBBO Setter Tier 1 such that a
Member would now qualify for such tier
by achieving: (1) an ADAV with respect
to orders with Fee Code B that is equal
to or greater than 5,000,000 shares; or
(2) an ADAV with respect to orders with
Fee Code B that is equal to or greater
than 2,000,000 shares and an ADAV in
securities priced at or above $1.00 per
share (excluding Retail Orders) that is
equal to or greater than 0.30% of the
TCV in securities priced at or above
over $1.00 per share. Thus, such
proposed change keeps the first
alternative criteria intact with no
changes but modifies the second
alternative criteria by adding a
requirement that a Member also achieve
an ADAV with respect to orders with
Fee Code B that is equal to or greater
13 The Exchange notes that orders with Fee Code
B include orders, other than Retail Orders, that
establish the NBBO.
14 The Exchange notes that orders with Fee Code
J include orders, other than Retail Orders, that
establish a new BBO on the Exchange that matches
the NBBO first established on an away market.
Orders with Fee Code D include orders that add
displayed liquidity to the Exchange but that are not
Fee Code B or J, and thus, orders with Fee Code
B, D or J include all orders, other than Retail
Orders, that add displayed liquidity to the
Exchange.
15 The pricing is referred to by the Exchange on
the Fee Schedule under the existing description
‘‘NBBO Setter Tier’’ with a Fee Code of ‘‘S1’’ to be
appended to the otherwise applicable Fee Code for
qualifying executions.
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than 2,000,000 shares.16 The Exchange
is not proposing to change the amount
of the additive rebates provided under
the NBBO Setter Tier 1.
The Exchange believes that the
proposed modified criteria provides an
incremental incentive for Members to
strive for higher ADAV in NBBO setting
orders (i.e., Fee Code B) on the
Exchange to receive the additive rebate
for qualifying executions of Added
Displayed Volume under such tier, and
thus, it is designed to encourage
Members that do not currently qualify
for such tier to increase their overall
orders that add liquidity to the
Exchange. The Exchange also believes
that the criteria change reflects a
reasonable and competitive pricing
structure that is right-sized and
consistent with the Exchange’s overall
pricing philosophy of encouraging
added and/or displayed liquidity. The
Exchange believes that the proposed
modified criteria would further
incentivize increased order flow to the
Exchange, thereby contributing to a
deeper and more liquid market to the
benefit of all Members.
DLI Additive Rebate
Lastly, the Exchange proposes to
eliminate the DLI Additive Rebate.
Currently, the Exchange offers a DLI
Additive Rebate incentive that is
applicable to DLI Tier 1, which provides
an additive rebate of $0.0005 per share
for executions of Added Displayed
Volume for a Member that qualifies for
DLI Tier 1 as well as either the criteria
under the previous Liquidity Provision
Tier 1 or Liquidity Provision Tier 2. The
Exchange now proposes to eliminate
such DLI Additive Rebate. The purpose
of eliminating the DLI Additive Rebate
is for business and competitive reasons,
as the Exchange believes the elimination
of such additive rebate would decrease
the Exchange’s expenditures with
respect to the Exchange’s transaction
pricing, which would enable the
Exchange to redirect future resources
and funding into other incentives and
tiers intended to incentivize increased
order flow. For these reasons, the
16 The Exchange notes that the remainder of
alternative criteria (2) under NBBO Setter Tier 1
was implemented on June 3, 2024. See Securities
Exchange Act Release No. 100320 (June 12, 2024),
89 FR 51576 (June 18, 2024) (SR–MEMX–2024–24).
In that filing, the Exchange indicated that it would
determine whether a security meets the ‘‘priced at
or above $1.00 per share’’ threshold for purposes of
calculating the ADAV and TCV by using the prior
day’s closing price. The Exchange is proposing
herein, however, to clarify with a note in the Notes
section on the Fee Schedule, as described above,
that it will determine whether a security is ‘‘priced
at or above $1.00 per share’’ by using the closing
price of the security on the date of execution.
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57465
Exchange no longer wishes to, nor is it
required to, maintain such tier.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,17
in general, and with Sections 6(b)(4) and
6(b)(5) of the Act,18 in particular, in that
it provides for the equitable allocation
of reasonable dues, fees and other
charges among its Members and other
persons using its facilities and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
As discussed above, the Exchange
operates in a highly fragmented and
competitive market in which market
participants can readily direct order
flow to competing venues if they deem
fee levels at a particular venue to be
excessive or incentives to be
insufficient, and the Exchange
represents only a small percentage of
the overall market. The Commission and
the courts have repeatedly expressed
their preference for competition over
regulatory intervention in determining
prices, products, and services in the
securities markets. In Regulation NMS,
the Commission highlighted the
importance of market forces in
determining prices and SRO revenues
and also recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 19
The Exchange believes that the evershifting market share among the
exchanges from month to month
demonstrates that market participants
can shift order flow or discontinue to
reduce use of certain categories of
products, in response to new or
different pricing structures being
introduced into the market.
Accordingly, competitive forces
constrain the Exchange’s transaction
fees and rebates, and market
participants can readily trade on
competing venues if they deem pricing
levels at those other venues to be more
favorable. The Exchange believes the
proposal reflects a reasonable and
competitive pricing structure designed
to incentivize market participants to
direct additional order flow to the
Exchange, which the Exchange believes
would promote price discovery and
enhance liquidity and market quality on
17 15
U.S.C. 78f.
U.S.C. 78f(b)(4) and (5).
19 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
18 15
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the Exchange to the benefit of all
Members and market participants.
The Exchange notes that volumebased incentives and discounts have
been widely adopted by exchanges,
including the Exchange, and are
reasonable, equitable and not unfairly
discriminatory because they are open to
all members on an equal basis and
provide additional benefits or discounts
that are reasonably related to the value
to an exchange’s market quality
associated with higher levels of market
activity, such as higher levels of
liquidity provision and/or growth
patterns, and the introduction of higher
volumes of orders into the price and
volume discovery process. The
Exchange believes that the proposed
new Liquidity Provision Tier 1 is
reasonable, equitable and not unfairly
discriminatory for these same reasons,
as it would provide Members with an
additional incentive to achieve a certain
volume threshold on the Exchange, is
available to all Members on an equal
basis, and, as noted above, is designed
to encourage Members to maintain or
increase their orders that add displayed
liquidity to the Exchange in order to
qualify for the enhanced rebate for
executions of Added Displayed Volume,
thereby promoting price discovery and
contributing to a deeper and more liquid
market to the benefit of all market
participants. The Exchange also believes
the enhanced rebate for executions of
Added Displayed Volume under the
proposed new Liquidity Provision Tier
1 reflects a reasonable and equitable
allocation of fees and rebates because it
is higher than the rebates provided for
such executions under Liquidity
Provision Tiers 2–6, which have lower
volume thresholds as their required
criteria, and is commensurate with its
required criteria and the market quality
benefits it is designed to achieve, as
described above.
The Exchange believes that Liquidity
Provisions Tier 2, 3, and 4, and NBBO
Setter Tier 1, each as modified by the
proposed changes to the required
criteria under each tier as described
above, are reasonable, equitable and not
unfairly discriminatory for these same
reasons. Such tiers would provide
Members with an incremental incentive
to achieve certain volume thresholds on
the Exchange, are available to all
Members on an equal basis, and, as
described above, are designed to
encourage Members to maintain or
increase their order flow, including in
the form of displayed, liquidity-adding,
and/or NBBO-setting orders to the
Exchange in order to qualify for an
enhanced rebate, as applicable, thereby
contributing to a deeper, more liquid
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and well balanced market ecosystem on
the Exchange to the benefit of all
Members and market participants.
The Exchange believes the proposed
change to eliminate the DLI Additive
Rebate is reasonable because, as noted
above, it would enable the Exchange to
redirect the associated resources and
funding into other incentives and tiers,
and the Exchange is not required to
maintain such incentive or provide
Members any opportunities to receive
additive rebates. The Exchange believes
the proposal to eliminate such incentive
is also equitable and not unfairly
discriminatory because it applies
equally to all Members, in that the
incentive would no longer be available
for any Member.
For the reasons discussed above, the
Exchange submits that the proposal
satisfies the requirements of Sections
6(b)(4) and 6(b)(5) of the Act 20 in that
it provides for the equitable allocation
of reasonable dues, fees and other
charges among its Members and other
persons using its facilities and is not
designed to unfairly discriminate
between customers, issuers, brokers, or
dealers. As described more fully below
in the Exchange’s statement regarding
the burden on competition, the
Exchange believes that its transaction
pricing is subject to significant
competitive forces, and that the
proposed fees and rebates described
herein are appropriate to address such
forces.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposal will result in any burden
on competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. Instead, as
discussed above, the proposal is
intended to incentivize market
participants to direct additional order
flow to the Exchange, thereby enhancing
liquidity and market quality on the
Exchange to the benefit of all Members
and market participants. As a result, the
Exchange believes the proposal would
enhance its competitiveness as a market
that attracts actionable orders, thereby
making it a more desirable destination
venue for its customers. For these
reasons, the Exchange believes that the
proposal furthers the Commission’s goal
in adopting Regulation NMS of fostering
competition among orders, which
promotes ‘‘more efficient pricing of
individual stocks for all types of orders,
large and small.’’ 21
PO 00000
20 15
U.S.C. 78f(b)(4) and (5).
supra note 19.
21 See
Frm 00083
Fmt 4703
Sfmt 4703
Intramarket Competition
As discussed above, the Exchange
believes that the proposal would
incentivize Members to submit
additional order flow, including
displayed, liquidity-adding, and/or
NBBO setting orders to the Exchange,,
thereby enhancing liquidity and market
quality on the Exchange to the benefit
of all Members, as well as enhancing the
attractiveness of the Exchange as a
trading venue, which the Exchange
believes, in turn, would continue to
encourage market participants to direct
additional order flow to the Exchange.
Greater liquidity benefits all Members
by providing more trading opportunities
and encourages Members to send
additional orders to the Exchange,
thereby contributing to robust levels of
liquidity, which benefits all market
participants. The opportunity to qualify
for the proposed new Liquidity
Provision Tier 1 and the modified
Liquidity Provision Tiers 2, 3, and 4 and
NBBO Setter Tier 1 and thus receive the
corresponding enhanced rebate for
executions of Added Displayed Volume,
as applicable, would be available to all
Members that meet the associated
volume requirements in any month. As
described above, the Exchange believes
that the proposed new required criteria
under each such tier are commensurate
with the corresponding rebate under
such tier and are reasonably related to
the enhanced liquidity and market
quality that such tier is designed to
promote. Additionally, as noted above,
the elimination of the DLI Additive
Rebate will apply to all Members
equally. For the foregoing reasons, the
Exchange believes the proposed changes
would not impose any burden on
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
Intermarket Competition
As noted above, the Exchange
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. Members
have numerous alternative venues that
they may participate on and direct their
order flow to, including 15 other
equities exchanges and numerous
alternative trading systems and other
off-exchange venues. As noted above, no
single registered equities exchange
currently has more than approximately
16.1% of the total market share of
executed volume of equities trading.
Thus, in such a low-concentrated and
highly competitive market, no single
E:\FR\FM\15JYN1.SGM
15JYN1
ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 135 / Monday, July 15, 2024 / Notices
equities exchange possesses significant
pricing power in the execution of order
flow. Moreover, the Exchange believes
that the ever-shifting market share
among the exchanges from month to
month demonstrates that market
participants can shift order flow or
discontinue to reduce use of certain
categories of products, in response to
new or different pricing structures being
introduced into the market.
Accordingly, competitive forces
constrain the Exchange’s transaction
fees and rebates, including with respect
to executions of Added Displayed
Volume, and market participants can
readily choose to send their orders to
other exchange and off-exchange venues
if they deem fee levels at those other
venues to be more favorable. As
described above, the proposed changes
represent a competitive proposal
through which the Exchange is seeking
to generate additional revenue with
respect to its transaction pricing and to
encourage the submission of additional
order flow to the Exchange through
volume-based tiers, which have been
widely adopted by exchanges, including
the Exchange. Accordingly, the
Exchange believes the proposal would
not burden, but rather promote,
intermarket competition by enabling it
to better compete with other exchanges
that offer similar pricing incentives to
market participants.
Additionally, the Commission has
repeatedly expressed its preference for
competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. Specifically, in Regulation
NMS, the Commission highlighted the
importance of market forces in
determining prices and SRO revenues
and, also, recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 22 The
fact that this market is competitive has
also long been recognized by the courts.
In NetCoalition v. SEC, the D.C. Circuit
stated as follows: ‘‘[n]o one disputes
that competition for order flow is
‘fierce.’ . . . As the SEC explained, ‘[i]n
the U.S. national market system, buyers
and sellers of securities, and the brokerdealers that act as their order-routing
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
22 Id.
VerDate Sep<11>2014
18:25 Jul 12, 2024
Jkt 262001
dealers’. . . .’’.23 Accordingly, the
Exchange does not believe its proposed
pricing changes impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act 24 and Rule
19b–4(f)(2) 25 thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–2024–26 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–2024–26. This file
number should be included on the
subject line if email is used. To help the
23 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C.
Cir. 2010) (quoting Securities Exchange Act Release
No. 59039 (December 2, 2008), 73 FR 74770, 74782–
83 (December 9, 2008) (SR–NYSE–2006–21)).
24 15 U.S.C. 78s(b)(3)(A)(ii).
25 17 CFR 240.19b–4(f)(2).
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
57467
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–2024–26 and should be
submitted on or before August 5, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024–15400 Filed 7–12–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100470; File No. SR–LCH
SA–2023–007]
Self-Regulatory Organizations; LCH
SA; Order Approving Proposed Rule
Change Relating to Liquidity Risk
Modelling Framework
July 9, 2024.
I. Introduction
On December 22, 2023, Banque
Centrale de Compensation, which
conducts business under the name LCH
SA (‘‘LCH SA’’), filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
26 17
E:\FR\FM\15JYN1.SGM
CFR 200.30–3(a)(12).
15JYN1
]]>Agencies
[Federal Register Volume 89, Number 135 (Monday, July 15, 2024)]
[Notices]
[Pages 57463-57467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15400]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100469; File No. SR-MEMX-2024-26]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend the
Exchange's Fee Schedule Concerning Transaction Pricing
July 9, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on June 28, 2024, MEMX LLC (``MEMX'' or the ``Exchange'') filed
with the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend the Exchange's fee schedule applicable to Members \3\ (the
``Fee Schedule'') pursuant to Exchange Rules 15.1(a) and (c). The
Exchange proposes to implement the changes to the Fee Schedule pursuant
to this proposal on July 1, 2024. The text of the proposed rule change
is provided in Exhibit 5.
---------------------------------------------------------------------------
\3\ See Exchange Rule 1.5(p).
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Fee
Schedule to: (1) adopt a new tier under the Liquidity Provision Tiers;
(2) modify the required criteria under Liquidity Provision Tiers 2, 3,
and 4; (3) modify NBBO Setter Tier 1 by modifying the required criteria
under such tier; and (4) eliminate the DLI Additive Rebate, each as
further described below.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues, to
which market participants may direct their order flow. Based on
publicly available information, no single registered equities exchange
currently has more than approximately 16.1% of the total market share
of executed volume of equities trading.\4\ Thus, in such a low-
concentrated and highly competitive market, no single equities exchange
possesses significant pricing power in the execution of order flow, and
the Exchange currently represents approximately 2.1% of the overall
market share.\5\ The Exchange in particular operates a ``Maker-Taker''
model whereby it provides rebates to Members that add liquidity to the
Exchange and charges fees to Members that remove liquidity from the
Exchange. The Fee Schedule sets forth the standard rebates and fees
applied per share for orders that add and remove liquidity,
respectively. Additionally, in response to the competitive environment,
the Exchange also offers tiered pricing, which provides Members with
opportunities to qualify for higher rebates or lower fees where certain
volume criteria and thresholds are met. Tiered pricing provides an
incremental incentive for Members to strive for higher tier levels,
which provides increasingly higher benefits or discounts for satisfying
increasingly more stringent criteria.
---------------------------------------------------------------------------
\4\ Market share percentage calculated as of June 26, 2024. The
Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
\5\ Id.
---------------------------------------------------------------------------
Adoption of New Liquidity Provision Tier
The Exchange currently provides a standard rebate of $0.0015 per
share for executions of orders in securities priced at or above $1.00
per share that add displayed liquidity to the Exchange (such orders,
``Added Displayed Volume''). The Exchange also currently offers
Liquidity Provision Tiers 1-5, under which a Member may receive an
enhanced rebate for executions of Added Displayed Volume by achieving
the corresponding required volume criteria for each tier. The Exchange
now proposes to adopt a new tier under the Liquidity Provision Tiers,
which, as proposed, would be the new Liquidity Provision Tier 1, and
the current Liquidity Provision Tiers 1, 2, 3, 4 and 5 would be
renumbered as Liquidity Provision Tiers 2, 3, 4, 5 and 6 (hereinafter
referred to as such). The applicable rebates and required criteria
under Liquidity Provision Tiers 2, 3, 4, 5 and 6, would remain
unchanged, except for the required criteria under Liquidity Provision
Tiers 2, 3, and 4, which the Exchange is proposing to modify, as
further described below.
Under the proposed new Liquidity Provision Tier 1, the Exchange
will provide an enhanced rebate of $0.0034 per share for executions of
Added Displayed Volume for Members that qualify for such tier by
achieving either: (1) an ADAV \6\ (excluding Retail Orders) that is
equal to or greater than 0.50% of the TCV,\7\ or (2) a Step-Up ADAV \8\
June
[[Page 57464]]
2024 (excluding Retail Orders) that is equal to or greater than 0.07%
of the TCV in securities priced at or above $1.00 per share and an ADAV
that is equal to or greater than 0.20% of the TCV in securities priced
at or above $1.00 per share.\9\ Additionally, the Exchange is proposing
that criteria (2) of Liquidity Provision Tier 1 will expire no later
than December 31, 2024, and the Exchange will indicate this in a note
under the Liquidity Provision Tiers pricing table on the Fee Schedule.
Finally, the Exchange proposes to provide Members that qualify for the
proposed new Liquidity Provision Tier 1 a rebate of 0.075% of the total
dollar value of the transaction for executions of orders in securities
priced below $1.00 per share that add displayed liquidity to the
Exchange, which is the same rebate that is currently applicable to such
executions for all Members.
---------------------------------------------------------------------------
\6\ As set forth on the Fee Schedule, ``ADAV'' means the average
daily added volume calculated as the number of shares added per day,
which is calculated on a monthly basis, and ``Displayed ADAV'' means
ADAV with respect to displayed orders.
\7\ As set forth on the Fee Schedule, ``TCV'' means total
consolidated volume calculated as the volume reported by all
exchanges and trade reporting facilities to a consolidated
transaction reporting plan for the month for which the fees apply.
The pricing for the proposed new Liquidity Provision Tier 1 is
referred to by the Exchange on the Fee Schedule under the existing
description ``Added displayed volume, Liquidity Provision Tier 1''
with a Fee Code of ``B1'', ``D1'', ``J1'', or ``I1'', as applicable,
to be provided by the Exchange on the monthly invoices provided to
Members. The Exchange also notes that the pricing for Liquidity
Provision Tiers 2-5 will be referred to under the existing
applicable descriptions and Fee Codes, and the pricing for Liquidity
Provision Tier 6 will be referred to by the Exchange under the new
description ``Added displayed volume, Liquidity Provision Tier 6''
with a Fee Code of ``B6'', ``D6'', ``J6'', or ``I6'' as applicable,
to be provided by the Exchange on the monthly invoices provided to
Members.
\8\ As set forth on the Fee Schedule, ``Step-Up ADAV'' means
ADAV in the relevant baseline month subtracted from current ADAV.
\9\ The Exchange is also proposing to include a new note under
the Notes section of the Fee Schedule that clarifies to the extent
any tiers have required criteria that applies only to securities
priced at or above $1.00 per share (as seen in criteria (2) of the
proposed Liquidity Provision Tier 1), the Exchange determines
whether a security should be included in the calculation of the ADV,
ADAV, or TCV, as applicable, in securities priced at or above $1.00
per share by utilizing the closing price of the security on the date
of execution.
---------------------------------------------------------------------------
The proposed new Liquidity Provision Tier 1 is designed to
encourage Members to maintain or increase their order flow that adds
displayed liquidity to the Exchange in order to qualify for the
proposed enhanced rebate for executions of Added Displayed Volume,
thereby promoting price discovery and contributing to a deeper and more
liquid market to the benefit of all market participants.
Modify Liquidity Provision Tiers 2-4
The Exchange is also proposing to modify the required criteria
under Liquidity Provision Tiers 2, 3, and 4. First, with respect to
Liquidity Provision Tier 2 (previously named Liquidity Provision Tier
1, as described above), the Exchange currently provides an enhanced
rebate of $0.0033 per share for executions of Added Displayed Volume in
securities priced at or above $1.00 per share for Members that qualify
for such tier by achieving: (1) an ADAV (excluding Retail Orders) that
is equal to or greater than 0.45% of the TCV; or (2) an ADAV that is
equal to or greater than 0.30% of the TCV and a Non-Displayed ADAV \10\
that is equal to or greater than 6,000,000 shares. The Exchange now
proposes to modify the required criteria under Liquidity Provision Tier
2 such that a Member would qualify for such tier by achieving: (1) an
ADAV (excluding Retail Orders) that is equal to or greater than 0.40%
of the TCV; or (2) an ADAV that is equal to or greater than 0.30% of
the TCV in securities priced at or above $1.00 per share and a Non-
Displayed ADAV that is equal to or greater than 6,000,000 shares. Thus,
such proposed change would decrease the ADAV requirement in criteria
(1) and modify alternative criteria (2) by excluding securities priced
below $1.00 from the TCV calculation. In other words, previously, a
Member qualified for criteria (2) of the tier by achieving an ADAV of
0.30% of the total TCV (as well as a Non-Displayed ADAV of at least
6,000,000 shares), and now the Exchange is proposing that a Member
would qualify for such criteria (2) by achieving an ADAV of 0.30% of
the TCV only in securities priced at or above $1.00 per share (again,
as well as a Non-Displayed ADAV of at least 6,000,000 shares).\11\ The
Exchange is not proposing to change the rebate provided under such
tier.
---------------------------------------------------------------------------
\10\ As set forth on the Fee Schedule, ``Non-Displayed ADAV''
means ADAV with respect to non-displayed orders (including orders
subject to Display-Price Sliding that receive price improvement when
executed and Midpoint Peg orders).
\11\ To clarify, in calculating a Member's ADAV for purposes of
achieving criteria (2) of Liquidity Provision Tier 2, the Exchange
will include executions in securities priced below $1.00.
---------------------------------------------------------------------------
With respect to Liquidity Provision Tier 3 (previously named
Liquidity Provision Tier 2, as described above), the Exchange currently
provides an enhanced rebate of $0.0032 per share for executions of
Added Displayed Volume in securities priced at or above $1.00 per share
for Members that qualify for such tier by achieving an ADAV that is
equal to or greater than 0.20% of the TCV and an ADV \12\ that is equal
to or greater than 0.35% of the TCV. Now, the Exchange proposes to
modify the required criteria under Liquidity Provision Tier 3 such that
Members qualify for such tier by achieving: (1) an ADAV that is equal
to or greater than 0.20% of the TCV in securities priced at or above
$1.00 per share and an ADV that is equal to or greater than 0.40% of
the TCV in securities priced at or above $1.00 per share; or (2) a
Step-Up ADAV from June 2024 (excluding Retail Orders) that is equal to
or greater than 0.05% of the TCV in securities priced at or above $1.00
per share and an ADAV (excluding Retail Orders) that is equal to or
greater than 0.20% of the TCV in securities priced at or above $1.00
per share; or (3) an ADAV that is equal to or greater than 0.30% of the
TCV. Thus, such proposed change would modify the existing criteria as
well as add two alternative criteria. First, the Exchange is proposing
to modify the existing criteria (now alternative criteria (1)) by
excluding securities priced below $1.00 from the TCV calculation in the
ADAV requirement, and increasing the ADV requirement from 0.35% to
0.40% of the TCV, again excluding securities priced below $1.00 from
the TCV calculation. The two additional alternative criteria are
proposed criteria (2), which includes a combined Step-Up ADAV and ADAV
requirement, and proposed criteria (3), which includes an ADAV
requirement. The Exchange is not proposing to change the rebate
provided under such tier. Additionally, the Exchange is proposing that
criteria (2) of Liquidity Provision Tier 3 will expire no later than
December 31, 2024, and the Exchange will indicate this in a note under
the Liquidity Provision Tiers pricing table on the Fee Schedule.
---------------------------------------------------------------------------
\12\ As set forth on the Fee Schedule, ``ADV'' means average
daily volume calculated as the number of shares added or removed,
combined, per day, which is calculated on a monthly basis.
---------------------------------------------------------------------------
With respect to Liquidity Provision Tier 4 (previously named
Liquidity Provision Tier 3, as described above), the Exchange currently
provides an enhanced rebate of $0.0030 per share for executions of
Added Displayed Volume in securities priced at or above $1.00 per share
for Members that qualify for such tier by achieving an ADAV that is
equal to or greater than 0.175% of the TCV. Now, the Exchange proposes
to modify the required criteria under Liquidity Provision Tier 4 such
that Members qualify for such tier by achieving: (1) an ADAV that is
equal to or greater than 0.20% of the TCV in securities priced at or
above $1.00 per share; or (2) an ADAV that is equal to or greater than
0.175% of the TCV. Thus, such proposed change would add alternative
criteria (1) and keep the existing criteria intact as alternative
criteria (2). The Exchange is not proposing to change the rebate
provided under such tier.
The Exchange believes that the tiered pricing structure for
executions of Added Displayed Volume under the proposed modified
Liquidity Provision Tiers 2, 3, and 4 provides an incremental incentive
for Members to strive for higher volume thresholds to receive higher
enhanced rebates for such executions and, as such, is intended to
encourage Members to maintain or increase their order flow, primarily
in the form of liquidity-adding volume, to the Exchange, thereby
contributing to a deeper and more liquid market to the benefit of all
Members and market participants. Specifically, the Exchange believes
that, after giving effect to the proposed changes described above, the
rebate for executions of
[[Page 57465]]
Added Displayed Volume provided under each of the Liquidity Provision
Tiers remains commensurate with the corresponding required criteria
under each such tier and is reasonably related to the market quality
benefits that each such tier is designed to achieve.
NBBO Setter Tier
The Exchange currently offers NBBO Setter Tier 1 under which a
Member may receive an additive rebate of $0.0002 per share for a
qualifying Member's executions of Added Displayed Volume (other than
Retail Orders) in securities priced at or above $1.00 per share that
establish the NBBO and have a Fee Code B \13\ (such orders, ``Setter
Volume''), and an additive rebate of $0.0001 per share for executions
of Added Displayed Volume (other than Retail Orders) that do not
establish the NBBO (i.e., Fee Codes D and J) \14\ by achieving: (1) an
ADAV with respect to orders with Fee Code B that is equal to or greater
than 5,000,000 shares; or (2) an ADAV in securities priced at or above
$1.00 per share (excluding Retail Orders) that is equal to or greater
than 0.30% of the TCV in securities priced at or above over $1.00 per
share.\15\ Now, the Exchange proposes to modify the required criteria
under NBBO Setter Tier 1 such that a Member would now qualify for such
tier by achieving: (1) an ADAV with respect to orders with Fee Code B
that is equal to or greater than 5,000,000 shares; or (2) an ADAV with
respect to orders with Fee Code B that is equal to or greater than
2,000,000 shares and an ADAV in securities priced at or above $1.00 per
share (excluding Retail Orders) that is equal to or greater than 0.30%
of the TCV in securities priced at or above over $1.00 per share. Thus,
such proposed change keeps the first alternative criteria intact with
no changes but modifies the second alternative criteria by adding a
requirement that a Member also achieve an ADAV with respect to orders
with Fee Code B that is equal to or greater than 2,000,000 shares.\16\
The Exchange is not proposing to change the amount of the additive
rebates provided under the NBBO Setter Tier 1.
---------------------------------------------------------------------------
\13\ The Exchange notes that orders with Fee Code B include
orders, other than Retail Orders, that establish the NBBO.
\14\ The Exchange notes that orders with Fee Code J include
orders, other than Retail Orders, that establish a new BBO on the
Exchange that matches the NBBO first established on an away market.
Orders with Fee Code D include orders that add displayed liquidity
to the Exchange but that are not Fee Code B or J, and thus, orders
with Fee Code B, D or J include all orders, other than Retail
Orders, that add displayed liquidity to the Exchange.
\15\ The pricing is referred to by the Exchange on the Fee
Schedule under the existing description ``NBBO Setter Tier'' with a
Fee Code of ``S1'' to be appended to the otherwise applicable Fee
Code for qualifying executions.
\16\ The Exchange notes that the remainder of alternative
criteria (2) under NBBO Setter Tier 1 was implemented on June 3,
2024. See Securities Exchange Act Release No. 100320 (June 12,
2024), 89 FR 51576 (June 18, 2024) (SR-MEMX-2024-24). In that
filing, the Exchange indicated that it would determine whether a
security meets the ``priced at or above $1.00 per share'' threshold
for purposes of calculating the ADAV and TCV by using the prior
day's closing price. The Exchange is proposing herein, however, to
clarify with a note in the Notes section on the Fee Schedule, as
described above, that it will determine whether a security is
``priced at or above $1.00 per share'' by using the closing price of
the security on the date of execution.
---------------------------------------------------------------------------
The Exchange believes that the proposed modified criteria provides
an incremental incentive for Members to strive for higher ADAV in NBBO
setting orders (i.e., Fee Code B) on the Exchange to receive the
additive rebate for qualifying executions of Added Displayed Volume
under such tier, and thus, it is designed to encourage Members that do
not currently qualify for such tier to increase their overall orders
that add liquidity to the Exchange. The Exchange also believes that the
criteria change reflects a reasonable and competitive pricing structure
that is right-sized and consistent with the Exchange's overall pricing
philosophy of encouraging added and/or displayed liquidity. The
Exchange believes that the proposed modified criteria would further
incentivize increased order flow to the Exchange, thereby contributing
to a deeper and more liquid market to the benefit of all Members.
DLI Additive Rebate
Lastly, the Exchange proposes to eliminate the DLI Additive Rebate.
Currently, the Exchange offers a DLI Additive Rebate incentive that is
applicable to DLI Tier 1, which provides an additive rebate of $0.0005
per share for executions of Added Displayed Volume for a Member that
qualifies for DLI Tier 1 as well as either the criteria under the
previous Liquidity Provision Tier 1 or Liquidity Provision Tier 2. The
Exchange now proposes to eliminate such DLI Additive Rebate. The
purpose of eliminating the DLI Additive Rebate is for business and
competitive reasons, as the Exchange believes the elimination of such
additive rebate would decrease the Exchange's expenditures with respect
to the Exchange's transaction pricing, which would enable the Exchange
to redirect future resources and funding into other incentives and
tiers intended to incentivize increased order flow. For these reasons,
the Exchange no longer wishes to, nor is it required to, maintain such
tier.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\17\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among its Members and other persons using its facilities
and is not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\17\ 15 U.S.C. 78f.
\18\ 15 U.S.C. 78f(b)(4) and (5).
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As discussed above, the Exchange operates in a highly fragmented
and competitive market in which market participants can readily direct
order flow to competing venues if they deem fee levels at a particular
venue to be excessive or incentives to be insufficient, and the
Exchange represents only a small percentage of the overall market. The
Commission and the courts have repeatedly expressed their preference
for competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \19\
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\19\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to new or different pricing structures being
introduced into the market. Accordingly, competitive forces constrain
the Exchange's transaction fees and rebates, and market participants
can readily trade on competing venues if they deem pricing levels at
those other venues to be more favorable. The Exchange believes the
proposal reflects a reasonable and competitive pricing structure
designed to incentivize market participants to direct additional order
flow to the Exchange, which the Exchange believes would promote price
discovery and enhance liquidity and market quality on
[[Page 57466]]
the Exchange to the benefit of all Members and market participants.
The Exchange notes that volume-based incentives and discounts have
been widely adopted by exchanges, including the Exchange, and are
reasonable, equitable and not unfairly discriminatory because they are
open to all members on an equal basis and provide additional benefits
or discounts that are reasonably related to the value to an exchange's
market quality associated with higher levels of market activity, such
as higher levels of liquidity provision and/or growth patterns, and the
introduction of higher volumes of orders into the price and volume
discovery process. The Exchange believes that the proposed new
Liquidity Provision Tier 1 is reasonable, equitable and not unfairly
discriminatory for these same reasons, as it would provide Members with
an additional incentive to achieve a certain volume threshold on the
Exchange, is available to all Members on an equal basis, and, as noted
above, is designed to encourage Members to maintain or increase their
orders that add displayed liquidity to the Exchange in order to qualify
for the enhanced rebate for executions of Added Displayed Volume,
thereby promoting price discovery and contributing to a deeper and more
liquid market to the benefit of all market participants. The Exchange
also believes the enhanced rebate for executions of Added Displayed
Volume under the proposed new Liquidity Provision Tier 1 reflects a
reasonable and equitable allocation of fees and rebates because it is
higher than the rebates provided for such executions under Liquidity
Provision Tiers 2-6, which have lower volume thresholds as their
required criteria, and is commensurate with its required criteria and
the market quality benefits it is designed to achieve, as described
above.
The Exchange believes that Liquidity Provisions Tier 2, 3, and 4,
and NBBO Setter Tier 1, each as modified by the proposed changes to the
required criteria under each tier as described above, are reasonable,
equitable and not unfairly discriminatory for these same reasons. Such
tiers would provide Members with an incremental incentive to achieve
certain volume thresholds on the Exchange, are available to all Members
on an equal basis, and, as described above, are designed to encourage
Members to maintain or increase their order flow, including in the form
of displayed, liquidity-adding, and/or NBBO-setting orders to the
Exchange in order to qualify for an enhanced rebate, as applicable,
thereby contributing to a deeper, more liquid and well balanced market
ecosystem on the Exchange to the benefit of all Members and market
participants.
The Exchange believes the proposed change to eliminate the DLI
Additive Rebate is reasonable because, as noted above, it would enable
the Exchange to redirect the associated resources and funding into
other incentives and tiers, and the Exchange is not required to
maintain such incentive or provide Members any opportunities to receive
additive rebates. The Exchange believes the proposal to eliminate such
incentive is also equitable and not unfairly discriminatory because it
applies equally to all Members, in that the incentive would no longer
be available for any Member.
For the reasons discussed above, the Exchange submits that the
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act \20\ in that it provides for the equitable allocation of
reasonable dues, fees and other charges among its Members and other
persons using its facilities and is not designed to unfairly
discriminate between customers, issuers, brokers, or dealers. As
described more fully below in the Exchange's statement regarding the
burden on competition, the Exchange believes that its transaction
pricing is subject to significant competitive forces, and that the
proposed fees and rebates described herein are appropriate to address
such forces.
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\20\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposal will result in any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Instead, as discussed above,
the proposal is intended to incentivize market participants to direct
additional order flow to the Exchange, thereby enhancing liquidity and
market quality on the Exchange to the benefit of all Members and market
participants. As a result, the Exchange believes the proposal would
enhance its competitiveness as a market that attracts actionable
orders, thereby making it a more desirable destination venue for its
customers. For these reasons, the Exchange believes that the proposal
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.'' \21\
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\21\ See supra note 19.
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Intramarket Competition
As discussed above, the Exchange believes that the proposal would
incentivize Members to submit additional order flow, including
displayed, liquidity-adding, and/or NBBO setting orders to the
Exchange,, thereby enhancing liquidity and market quality on the
Exchange to the benefit of all Members, as well as enhancing the
attractiveness of the Exchange as a trading venue, which the Exchange
believes, in turn, would continue to encourage market participants to
direct additional order flow to the Exchange. Greater liquidity
benefits all Members by providing more trading opportunities and
encourages Members to send additional orders to the Exchange, thereby
contributing to robust levels of liquidity, which benefits all market
participants. The opportunity to qualify for the proposed new Liquidity
Provision Tier 1 and the modified Liquidity Provision Tiers 2, 3, and 4
and NBBO Setter Tier 1 and thus receive the corresponding enhanced
rebate for executions of Added Displayed Volume, as applicable, would
be available to all Members that meet the associated volume
requirements in any month. As described above, the Exchange believes
that the proposed new required criteria under each such tier are
commensurate with the corresponding rebate under such tier and are
reasonably related to the enhanced liquidity and market quality that
such tier is designed to promote. Additionally, as noted above, the
elimination of the DLI Additive Rebate will apply to all Members
equally. For the foregoing reasons, the Exchange believes the proposed
changes would not impose any burden on intramarket competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
Intermarket Competition
As noted above, the Exchange operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. Members have numerous
alternative venues that they may participate on and direct their order
flow to, including 15 other equities exchanges and numerous alternative
trading systems and other off-exchange venues. As noted above, no
single registered equities exchange currently has more than
approximately 16.1% of the total market share of executed volume of
equities trading. Thus, in such a low-concentrated and highly
competitive market, no single
[[Page 57467]]
equities exchange possesses significant pricing power in the execution
of order flow. Moreover, the Exchange believes that the ever-shifting
market share among the exchanges from month to month demonstrates that
market participants can shift order flow or discontinue to reduce use
of certain categories of products, in response to new or different
pricing structures being introduced into the market. Accordingly,
competitive forces constrain the Exchange's transaction fees and
rebates, including with respect to executions of Added Displayed
Volume, and market participants can readily choose to send their orders
to other exchange and off-exchange venues if they deem fee levels at
those other venues to be more favorable. As described above, the
proposed changes represent a competitive proposal through which the
Exchange is seeking to generate additional revenue with respect to its
transaction pricing and to encourage the submission of additional order
flow to the Exchange through volume-based tiers, which have been widely
adopted by exchanges, including the Exchange. Accordingly, the Exchange
believes the proposal would not burden, but rather promote, intermarket
competition by enabling it to better compete with other exchanges that
offer similar pricing incentives to market participants.
Additionally, the Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \22\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. SEC, the D.C. Circuit stated as follows:
``[n]o one disputes that competition for order flow is `fierce.' . . .
As the SEC explained, `[i]n the U.S. national market system, buyers and
sellers of securities, and the broker-dealers that act as their order-
routing agents, have a wide range of choices of where to route orders
for execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .''.\23\ Accordingly, the Exchange does not believe its
proposed pricing changes impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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\22\ Id.
\23\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \24\ and Rule 19b-4(f)(2) \25\ thereunder.
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\24\ 15 U.S.C. 78s(b)(3)(A)(ii).
\25\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-MEMX-2024-26 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-2024-26. 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-2024-26 and should be
submitted on or before August 5, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15400 Filed 7-12-24; 8:45 am]
BILLING CODE 8011-01-P
