
[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68762-68768]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22011]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98648; File No. SR-MEMX-2023-26]


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

September 29, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 28, 2023, MEMX LLC (``MEMX'' or the ``Exchange'') filed 
with the Securities and Exchange Commission (``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) to 
establish membership fees for Members of the Exchange's options 
platform and make a number of clarifying, organizational changes to its 
Fee Schedule. The Exchange proposes to implement the changes to the Fee 
Schedule pursuant to this proposal immediately. 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
    In connection with the Exchange's launch of MEMX Options,\4\ its 
options trading platform, the Exchange proposes to modify its fee 
schedule applicable to use of the Exchange, effective immediately, in 
order to: (i) establish membership fees (``Membership Fees'') for MEMX 
Options Members, and (ii) make a number of clarifying, organizational 
changes to its single existing fee schedule, in order to create three 
separate fee schedules for: (A) executions that occur on the Exchange's 
pre-existing equities market (``MEMX Equities''), (B) executions that 
occur on MEMX Options, and (C) the Exchange's Membership Fees (for both 
MEMX Equities and MEMX Options), respectively.\5\ The Exchange believes 
that these changes will provide greater transparency to Members about 
how the Exchange assesses fees and calculates rebates, as well as 
allowing Members to more easily validate their bills on a monthly 
basis. The Exchange notes that none of these changes amend any existing 
fee or rebate for applicable to MEMX Equities (including non-
transaction fees such as membership, connectivity, and market data). 
Specifically, the Exchange is proposing the following:
---------------------------------------------------------------------------

    \4\ On August 8, 2022, the Commission approved SR-MEMX-2022-10, 
which proposed rules for the trading of options on the Exchange. See 
Securities Exchange Act Release No. 95445 (August 8, 2022), 87 FR 
49894 (August 12, 2022) (SR-MEMX-2022-010). The Exchange launched 
MEMX Options on September 27, 2023.
    \5\ The Exchange initially filed the proposed changes on 
September 1, 2023 (SR-MEMX-2023-22). On September 13, 2023, the 
Exchange withdrew that filing and submitted SR-MEMX-2023-23. On 
September 28, 2023, the Exchange withdrew SR-MEMX-2023-23 and 
submitted this filing.
---------------------------------------------------------------------------

     To more clearly separate pricing applicable to MEMX 
Options from the Exchange's current fee schedule, which will remain 
applicable to MEMX Equities. Although the Exchange has always 
maintained a single fee schedule applicable to trades on the Exchange, 
as the Exchange has launched the MEMX Options platform, the Exchange 
believes that separating the fee schedules for MEMX Options and MEMX 
Equities will reduce potential confusion. The Exchange currently 
intends to begin charging for connectivity and market data for MEMX 
Options in 2024 and will file separately to adopt such fees. The 
Exchange has also intentionally left blank certain additional portions 
of the MEMX Options fee schedule, including ``Transaction Fees'' and 
``Options Regulatory Fee'', and it has filed separately to adopt those 
specific fees.
     To more clearly separate Membership Fees from the 
Exchange's current fee schedule. Membership Fees are applicable to 
Members of both MEMX Equities and MEMX Options platforms. Because the 
Membership Fees section is applicable to members of both platforms, the 
Exchange believes that separating the fee schedule for Membership Fees 
(such separate fee schedule for Membership Fees, the ``Membership Fee 
Schedule'') will reduce potential confusion (e.g., as to which fees a 
Member that participates on both MEMX Equities and MEMX Options must 
pay on a monthly basis to maintain membership with the Exchange).
     To implement additional fees set forth on the Membership 
Fee Schedule that would be applicable to Options Order Entry Firms (as 
defined in Exchange Rule 16.1) and Options Market Makers (i.e., those 
Options Members that have registered as Market Makers on the Exchange 
under Exchange Rule 22.2.). Options Order Entry Firms and Options 
Market Makers would collectively be referred to on the Membership Fee 
Schedule as ``Options Trading Members.'' As proposed, the Membership 
Fee Schedule will easily identify the fees for membership that are 
applicable to all Members of MEMX (including Members of MEMX Equities 
and MEMX Options) and the additional fees for membership which are 
applicable to all Options Trading Members.
     To add a hyperlink within the ``Additional Fees'' sections 
of the MEMX Equities Fee Schedule and the

[[Page 68763]]

MEMX Options Fee Schedule, which will electronically hyperlink the 
reader to the Membership Fee Schedule on the Exchange's website.
(i) MEMX Options Membership Fees
    As the existing fee applicable to Membership is not specific to 
participation on a specific trading platform, the Exchange will 
continue to charge its current Membership Fee of $200 per month to each 
Exchange Member, other than those to whom a waiver applies as set forth 
below (i.e., the Exchange will charge a single fee of $200 to Members 
of MEMX Equities, Members of MEMX Options, and Members of both MEMX 
Equities and MEMX Options). In addition, the Exchange is proposing to 
charge an additional $1,000 per month to Options Order Entry Firms (as 
defined in Exchange Rule 16.1), and an additional $7,000 per month to 
Options Market Makers, (i.e., those Options Members that have 
registered as Market Makers on the Exchange under Exchange Rule 22.2.). 
The Exchange notes that the proposed fees for Options Trading Firms are 
competitive with and in several cases significantly lower than the fees 
for membership imposed by several other options exchanges that charge 
such fees. The Exchange provides the below table for comparison 
purposes to show how the Exchange's proposed fees for membership 
compare to fees for membership currently charged by other options 
exchanges.
---------------------------------------------------------------------------

    \6\ See PHLX Fee Schedule Section 8A, 8B, and 8C, available at 
https://listingcenter.nasdaq.com/rulebook/phlx/rules/phlx-options-7 
(last visited September 27, 2023).
    \7\ See BOX Options Fee Schedule Section I, available at https://boxoptions.com/fee-schedule/ (last visited September 27, 2023).
    \8\ See NYSE American Options Fees Schedule Section III(A), 
available at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf (last visited 
September 27, 2023).
    \9\ See NYSE Arca Options Fees and Charges, available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (last visited September 27, 
2023).
    \10\ See MIAX Options Fee Schedule, Section 3, available at 
https://www.miaxglobal.com/markets/us-options/miax-options/fees 
(last visited September 27, 2023).

------------------------------------------------------------------------
                                      Monthly membership trading permit
             Exchange                                fee
------------------------------------------------------------------------
MEMX Options (as proposed)........  All Members: $200.
                                    Options Order Entry Firm: $1,000.
                                    Options Market Maker: $7,000.
Nasdaq PHLX LLC (``PHLX'') \6\....  Streaming Quote Trader (``SQT'')
                                     permit fees:
                                    Tier 1 (up to 200 option classes):
                                     $0.00.
                                    Tier 2 (up to 400 option classes):
                                     $2,200.
                                    Tier 3 (up to 600 option classes):
                                     $3,200.
                                    Tier 4 (up to 800 option classes):
                                     $4,200.
                                    Tier 5 (up to 1,000 option classes):
                                     $5,200.
                                    Tier 6 (up to 1,200 option classes):
                                     $6,200.
                                    Tier 7 (all option classes): $7,200.
                                    Remote Market Maker Organization
                                     (``RMO'') permit fees:
                                    Tier 1 (less than 100 classes):
                                     $5,000.
                                    Tier 2 (more than 100 and less than
                                     999 classes): $8,000.
                                    Tier 3 (1000 or more classes):
                                     $11,000.
BOX Options Exchange LLC (``BOX'')  Participant Fee: $1,500 per month
 \7\.                                (Electronic Market Makers are not
                                     charged the Participant Fee).
                                    Market Maker Trading Permit fees:
                                    Up to and including 10 classes:
                                     $4,000.
                                    Up to and including 40 classes:
                                     $6,000.
                                    Up to and including 100 classes:
                                     $8,000.
                                    Over 100 classes: $10,000.
NYSE American, LLC (``NYSE          Permit (``ATP'') Fees:
 American'') \8\.                   Floor Broker: $500.
                                    Order Flow Provider: $1,000.
                                    Clearing Member: $1,000.
                                    Options Market Maker 1st ATP:
                                     $8,000.
                                    Options Market Maker 2nd ATP:
                                     $6,000.
                                    Options Market Maker 3rd ATP:
                                     $5,000.
                                    Options Market Maker 4th ATP:
                                     $4,000.
                                    Options Market Maker 5th ATP:
                                     $3,000.
                                    Options Market Maker 6th to 9th ATP:
                                     $2,000.
                                    Options Market Maker 10th or more
                                     ATPs: $500.
NYSE Arca, Inc. (``NYSE Arca'')     Permit (``OTP'') Fees:
 \9\.                               Office or Clearing Firms: $1,000.
                                    Floor Broker: $500.
                                    Options Market Maker 1st ATP:
                                     $8,000.
                                    Options Market Maker 2nd ATP:
                                     $6,000.
                                    Options Market Maker 3rd ATP:
                                     $5,000.
                                    Options Market Maker 4th ATP:
                                     $4,000.
                                    Options Market Maker 5th ATP:
                                     $3,000.
                                    Options Market Maker 6th to 9th ATP:
                                     $2,000.
                                    Options Market Maker 10th or more
                                     ATPs: $500.
                                    Reserve Market Maker OTP: $175.
MIAX Options Exchange (``MIAX       Electronic Exchange Members Trading
 Options'') \10\.                    Permit: $1,500.
                                    Market Maker Trading Permit (up to
                                     10 classes): $7,000.
                                    Market Maker Trading Permit (up to
                                     40 classes): $12,000.
                                    Market Maker Trading Permit (up to
                                     100 classes): $17,000.
                                    Market Maker Trading Permit (over
                                     100 classes): $22,000.
------------------------------------------------------------------------


[[Page 68764]]

    The Exchange proposes to maintain its existing billing practices 
for all Membership Fees, including the newly proposed Options 
Membership Fees. As is current practice, Members will be assessed their 
monthly Membership Fees at the close of business on the first day of 
each month. The Exchange will also maintain the current practice such 
that if a Member is pending a voluntary termination of rights as a 
Member pursuant to Exchange Rule 2.8 prior to its monthly Membership 
Fee being assessed and the Member does not utilize the facilities of 
the Exchange while such voluntary termination of rights is pending, 
then the Member will not be obligated to pay the monthly Membership 
Fee. Additionally, the Membership Fees will not be prorated if a 
membership is not active for an entire month, which the Exchange 
believes is reasonable based on the frequency that the fee is assessed 
(i.e., monthly instead of applying to a longer period).
    Lastly, to encourage new participants to join MEMX Options, 
effective June 30, 2023, the Exchange implemented a Membership Fee 
Waiver until January 1, 2024.\11\ The Exchange is proposing to maintain 
this language on the new Membership Fee Schedule, and as such, will 
apply this waiver to the additional proposed Membership Fees for new 
Members of MEMX Options as well.
---------------------------------------------------------------------------

    \11\ See Securities Exchange Act Release No. 97893 (July 13, 
2023), 88 FR 46285 (July 19, 2023) (SR-MEMX-2023-13).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change to reorganize 
the fee schedule as described above is consistent with the provisions 
of Section 6 of the Act,\12\ in general, and furthers the objective of 
Section 6(b)(1) of the Act,\13\ in particular, in that the proposed 
rule change enables the Exchange to be so organized as to have the 
capacity to be able to carry out the purposes of the Act and to comply 
with the provisions of the Act, the rules and regulations thereunder, 
and the rules of the Exchange. The proposed reorganization of the 
Exchange's fee schedule is designed to make the fee schedule easier to 
read and for Members to validate the bills they receive from the 
Exchange. The Exchange believes the proposed fee schedules, and the 
division thereof, will be clearer and less confusing for Members of the 
Exchange and will eliminate potential Member confusion.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    The Exchange believes that the proposed Membership Fee changes are 
consistent with the provisions of Section 6 of the Act,\14\ in general, 
and with Sections 6(b)(4) and 6(b)(5) of the Act,\15\ in particular, in 
that they provide 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 further discussed below.
---------------------------------------------------------------------------

    \14\ See supra note 12.
    \15\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    MEMX believes that its $200 Membership Fee which is assessed to all 
Members (Members of MEMX Options and Members of MEMX Equities alike) is 
consistent with the Act, as the Exchange assesses the same fee to all 
Members of the Exchange on all platforms. The Exchange believes that it 
is reasonable and consistent with the Act to assess this Membership Fee 
to all Members because there are technical, regulatory, and 
administrative services associated with a market participant being a 
Member of the Exchange. As a self-regulatory organization, MEMX's 
membership team reviews applicants to ensure that each applicant for 
membership meets the Exchange's qualification criteria prior to 
approval. The membership team, in conjunction with the Regulatory 
Department, reviews the registration and qualification of an 
applicant's associated persons, the applicant's financial health, the 
validity of its clearing relationship, and its disciplinary history. 
The membership team also provides ongoing support to Members with 
respect to membership changes, registration, and other questions that 
commonly arise from Members regarding such matters. The Exchange 
believes that it is consistent with the Act to charge the $200 
Membership Fee as it is reasonable to cover costs of administering its 
membership program.
    The Exchange believes that charging a $1,000 Membership Fee for 
Order Entry Firms is consistent with the Act, because this fee is in 
line with what other options exchanges charge members of their options 
platform who are not Market Makers.\16\ For example, MEMX would charge 
$1,200 after January 1, 2024, to an Order Entry Firm. If the same 
market participant (i.e., not a market maker) wanted to join to trade 
on the BOX Options Exchange, they would be charged $1,500 monthly.\17\ 
The Exchange anticipates that Order Entry Firms will require more 
resources than Members of the Exchange's equities platform due to 
various complexities inherent to the options markets, such as the 
process for Clearing Member Give Ups described in Exchange Rule 21.12 
and the process for listing classes and strikes made available for 
trading on MEMX Options described in Rules 19.3 through 19.5. The 
Exchange also anticipates that Order Entry Firms that are proprietary 
trading firms will generate a high volume of message traffic, which 
will result in additional costs to the Exchange.
---------------------------------------------------------------------------

    \16\ See supra notes 6 through 10.
    \17\ See supra note 7.
---------------------------------------------------------------------------

    The Exchange believes that charging a higher $7,000 Membership Fee 
for Market Makers on MEMX Options is consistent with the Act, because 
it is also in line with what other options exchanges charge members of 
their options platform who are Market Makers.\18\ As an example, MEMX 
would charge $7,200 monthly after January 1, 2024, to a new Options 
Member who is a Market Maker. If the same market participant wanted to 
join NYSE Arca Options Exchange, they would be charged $8,000 
monthly.\19\ Based upon the Exchange's projections, the Exchange 
anticipates that Market Makers will consume the most bandwidth and 
Exchange resources and produce the highest volume of message traffic on 
the Exchange. The Exchange anticipates the volume of message traffic 
which is generated by Options Market Makers to be higher than the 
volume of message traffic generated by Options Order Entry Firms and 
additional functionality is offered: (i) to Market Makers only (e.g., 
bulk messages described in Exchange Rule 21.1(l)), or (ii) with Market 
Makers as the most likely market participants to employ such 
functionality (e.g., the Risk Monitor Mechanism described in Exchange 
Rule 21.16). The MEMX Options functionality for bulk messages allows 
Market Makers to submit up to 20 two-sided quotes in a single bulk 
quote message and is only available to Market Makers registered with 
the Exchange.\20\ The Risk Monitor Mechanism is available to all 
Options Members but the Exchange anticipates that this functionality 
will be primarily used by Market Makers to manage their risk. Market 
Makers also require high touch network support services as provided by 
the Exchange and its staff. The Exchange anticipates that Order

[[Page 68765]]

Entry Firms \21\ will consume less Exchange resources and generate 
fewer costs to the Exchange.
---------------------------------------------------------------------------

    \18\ See id.
    \19\ See supra note 9.
    \20\ See MEMX U.S. Options FAQ, available at https://info.memxtrading.com/us-options-trading-resources/us-options-faq/ 
(last visited September 27, 2023).
    \21\ An Order Entry Firm means those Options Members 
representing as agent Customer Orders on MEMX Options, and non-
Market Maker Members conducting proprietary trading. Customer Orders 
are any orders for the account of a Priority Customer. ``Priority 
Customer'' means any person or entity that is neither a broker or 
dealer in securities nor a Professional. See Rule 16.1 of the MEMX 
Rulebook.
---------------------------------------------------------------------------

    The Exchange notes that, while it anticipates that Market Makers 
will account for a vast majority of the costs and resources placed on 
the Exchange and its systems (as discussed herein), Market Makers 
continue to be valuable market participants on the exchanges as the 
options market is a quote-driven industry. The Exchange recognizes the 
value that Market Makers bring to the Exchange and particularly to the 
MEMX Options platform. The Exchange believes that incentivizing Market 
Makers to direct order flow to the Exchange will benefit all market 
participants by increasing liquidity on the Exchange. The Membership 
Fees proposed herein are meant to strike a balance between offsetting 
the costs which Market Makers will place on the Exchange and continuing 
to incentivize Market Makers to access and make markets on the 
Exchange. As such, the Exchange proposes to establish higher, separate 
Membership Fees for Market Makers that are more aligned with the costs 
and resources that Market Makers will place on the Exchange and its 
systems and will align the Membership Fees with those of the majority 
of other options exchanges.\22\
---------------------------------------------------------------------------

    \22\ See supra notes 6 to 10.
---------------------------------------------------------------------------

    The Exchange proposes to charge a flat fee for Market Makers 
because it expects most Market Makers who trade on the Exchange to 
quote in many of the options classes available, and the Exchange wishes 
to structure the Membership Fee in order to incentivize these Market 
Makers to quote more. While some other exchanges have ranges of 
membership fees depending on the number of classes in which a Market 
Maker quotes, the Exchange believes that assessing a single Membership 
Fee for all Market Makers on MEMX Options will incentivize those Market 
Makers who already quote in a large number of classes to route more 
order flow to the Exchange. The Exchange believes that the proposed 
Membership Fees are consistent with the Act and will improve market 
quality and improve competitiveness for all market participants.
    The Exchange notes that there are material costs associated with 
providing the infrastructure, System functionality, and headcount to 
fully support access to the Exchange. The Exchange incurs technology 
expenses related to establishing and maintaining Information Security 
services, System upkeep, and regulatory services. While some of the 
expenses are fixed, much of the expenses are not fixed and increase as 
the expenses associated with access for Market Makers increase. For 
example, new Market Makers to the Exchange may require additional 
resources of the Exchange due to the volume of their activities (i.e., 
quote volumes, which are significantly higher on average than Order 
Entry Firms, thus leading to increased storage and capacity costs of 
the Exchange) and automatically will have access to additional features 
offered by the Exchange only to Market Makers free of charge (i.e., 
bulk message functionality as described above). As the total number of 
Market Makers increases, the Exchange may need to increase its data 
center footprint and consume additional power, resulting in increased 
costs charged by its third-party data center provider. As the cost to 
the Exchange to provide access to Market Makers will increase with the 
number of Market Makers, the Exchange believes the proposed Membership 
Fees are reasonable and consistent with the Act, in order to offset a 
portion of the costs to the Exchange associated with providing Market 
Makers access to the Exchange's quote and order infrastructure.
    The Exchange proposes higher, separate fees for Market Makers that 
are more aligned with the costs and resource requirements which the 
Exchange anticipates Market Makers will place on the Exchange and its 
systems. As previously stated, while the Exchange anticipates that 
Market Makers will account for the majority of the System usage on the 
Exchange, because the options market is a quote-driven industry, the 
Exchange recognizes the value that Market Makers bring to the Exchange 
and wishes to attract Market Makers to join the Exchange as Members. As 
the options market is quote-driven, attracting Market Makers to the 
Exchange will create additional liquidity on the Exchange by 
encouraging Market Makers to quote in option classes. A market making 
firm does not need to be a member of the Exchange in order to route 
orders to the Exchange.\23\ The Exchange notes that it operates in a 
highly competitive market in which market participants can readily 
favor competing venues if they deem the fees on any particular venue to 
be excessive. The Exchange's Membership Fees are restrained by 
competition. Many firms that actively trade on options markets are not 
currently Members of MEMX Options.\24\ No market makers are required by 
rule, regulation, or competitive forces to be a Market Maker on the 
Exchange and can choose not to access the Exchange if it is determined 
that the Exchange's Membership Fees do not make business or economic 
sense for such market maker. In such an environment, the Exchange must 
continually adjust its fees to remain competitive with other exchanges. 
The Exchange believes that the proposed Membership Fees reflect this 
competitive environment. If the Exchange is incorrect in this 
assessment, that error will be reflected in the Exchange's ability to 
compete with other options exchanges.
---------------------------------------------------------------------------

    \23\ For example, a market making firm could use a third-party 
connectivity service (where such third-party service is a Member of 
the Exchange) to route orders to the Exchange.
    \24\ See infra note 27.
---------------------------------------------------------------------------

    There is ample evidence that the Exchange is subject to competitive 
constraints on the amount it can charge for Membership Fees. Of the 16 
other operating options exchanges, none currently has more than a 19.2% 
market share.\25\ High levels of market share enhance the value of 
trading and membership. Market participants will distribute their 
transactions across exchanges according to their business needs. Market 
participants can and will choose where to become Members, as market 
participants do not need to become members of all exchanges and may 
utilize a third party to route their orders to the Exchange. Rather 
than becoming a Member of the exchange, a market participant could 
elect to have their orders routed to MEMX Options as nothing in the 
Options Order Protection and Locked/Crossed Market Plan \26\ requires 
any market participant to become a member of any exchange. These 
competitive forces ensure that the Exchange cannot charge supra-
competitive fees for membership. The Exchange expects that market 
participants will evaluate the Exchange's ability to meet market

[[Page 68766]]

participants' needs through technology, functionality, and liquidity to 
determine whether such market participant will route flow to the 
Exchange. In fact, as a new entrant to the options industry, the 
Exchange is particularly subject to competitive forces and has 
carefully crafted its proposed Membership Fees with the goal of 
attracting order flow to the Exchange. In this environment, the 
Exchange has no ability to set Membership Fees at levels that would be 
deemed supra-competitive, as doing so would limit the Exchange's 
ability to compete with larger, established competitors in the options 
market.
---------------------------------------------------------------------------

    \25\ See U.S. Options Market Volume Summary, available at 
https://www.cboe.com/us/options/market_statistics/market/2023-09-27/ 
(last visited September 27, 2023). Market share is the percentage of 
volume on a particular exchange relative to the total volume across 
all exchanges and indicates the amount of order flow directed to 
that exchange.
    \26\ See Options Order Protection and Locked/Crossed Market Plan 
(August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf (last visited September 28, 2023).
---------------------------------------------------------------------------

    At launch, the Exchange expects to have only around 30 Members of 
MEMX Options, which is lower than several other options exchanges.\27\ 
Competitive forces constrain what the Exchange can charge, because if 
the Exchange charges Membership Fees which market participants deem to 
be excessive, market participants would simply not become Members.
---------------------------------------------------------------------------

    \27\ For example, in an August 2023 filing, MIAX Pearl noted 
that MIAX Pearl and its affiliated options markets, MIAX and MIAX 
Emerald, have a total of 47 members. See Securities Exchange Act 
Release No. 98180 (August 21, 2023), 88 FR 58404 (August 25, 2023) 
(SR-PEARL-2023-35). In a July 2023 filing, BZX Exchange noted that 
it has 61 members who trade options, Cboe EDGX Exchange has 51 
members who trade options, and Cboe C2 has 52 Trading Permit 
Holders. See Securities Exchange Act Release No. 97928 (July 17, 
2023), 88 FR 47209 (August 21, 2023) (SR-CboeBZX-2023-047). Based on 
publicly available information, NYSE American Options has 71 
members. See NYSE American Options Membership Directory, available 
at https://www.nyse.com/markets/american-options/membership#directory (last visited September 27, 2023). Lastly, 
based on publicly available information, NYSE Arca Options has 68 
members. See NYSE Arca Options Membership Directory, available at 
https://www.nyse.com/markets/arca-options/membership#directory (last 
visited September 27, 2023).
---------------------------------------------------------------------------

    As noted above, the proposed fees are also competitive with and in 
several cases significantly lower than the fees for membership imposed 
by several other options exchanges.\28\ The Exchange also does not 
charge and does not have any plan to charge several types of fees that 
are charged by other exchanges with respect to membership or 
participation on the exchange--for example, the Exchange does not 
charge an application fee for Membership or any testing or 
certification fees--further highlighting the reasonableness of the 
proposed Options Membership Fees.\29\ The Exchange believes that the 
proposed Options Membership Fees are equitably allocated and not 
unfairly discriminatory because they would be assessed uniformly across 
all firms that seek to become Members. Additionally, the Exchange 
believes that the proposed fees are not unfairly discriminatory because 
no broker-dealer is required to become a Member of the Exchange or to 
register as a Market Maker with the Exchange. Even if a broker dealer 
does become a Member of the Exchange, the proposed fees are not 
unfairly discriminatory because the proposed Membership Fees are 
designed to account for the costs to MEMX of providing support for the 
Member trading on MEMX Options and, in the case of Market Makers, to 
provide additional support which the Exchange anticipates Market Makers 
would require on MEMX Options. As between Order Entry Firms and Market 
Makers, the Exchange believes that the higher fee for Market Makers is 
reasonable, equitably allocated and not unfairly discriminatory because 
the Exchange notes that other options exchanges currently charge Market 
Makers higher monthly fees for membership than are charged to other 
members of their options platform.\30\
---------------------------------------------------------------------------

    \28\ See supra notes 6 to 10.
    \29\ In contrast, for example, MIAX Options charges a $2,500.00 
one-time application fee for Electronic Exchange Members and a 
$3,000 one-time application fee for Market Makers. In addition, MIAX 
Options charges a $1,000 testing and certification fee for 
Electronic Exchange Members and a $2,500 testing and certification 
fee for Market Makers. See MIAX Options Fee Schedule, Section 3, 
available at https://www.miaxglobal.com/markets/us-options/miax-options/fees (last visited September 27, 2023).
    \30\ See id.
---------------------------------------------------------------------------

    The vigorous competition among national securities exchanges 
provides many alternatives for firms to voluntarily decide whether 
membership to the Exchange is appropriate and worthwhile. At the time 
of launch, MEMX Options was the 17th national registered options 
exchange, and as noted above, no broker-dealer is required to become a 
Member of the Exchange. Notwithstanding the foregoing, the Exchange 
still believes that the proposed Membership Fee for Options Order Entry 
Firms of $1,000 per month and the proposed Membership Fee for Options 
Market Makers of $7,000 per month are reasonable, equitably allocated 
and not unfairly discriminatory, even for a broker-dealer that 
determines it should join the Exchange for business purposes, as those 
business reasons should presumably result in revenue capable of 
covering the proposed fee.
    The Exchange commenced operation of MEMX Options in September 2023. 
The Exchange notes that on June 30, 2023, it filed to waive Membership 
Fees for all new Members of the Exchange until January 1, 2024, and it 
intends to keep this language in its fee schedule, thus any new Members 
of the Exchange will not be charged Membership Fees until January 1, 
2024.\31\ The Exchange believes it is reasonable to similarly waive the 
proposed Options Membership Fees for new Members of the Exchange to 
provide an incentive for Options Trading Firms to apply for Exchange 
membership in connection with the launch of MEMX Options. The Exchange 
believes waiving the additional Options Membership Fees in addition to 
waiving the existing Membership Fees that apply to both Equities and 
Options is reasonable, equitable and not unfairly discriminatory in 
that it will apply uniformly to all new Members of the Exchange, and 
because the majority of the Exchange's current Members joined at a time 
when the Exchange did not impose Membership Fees (also to incentivize 
such participants to join) and thus already received this benefit.
---------------------------------------------------------------------------

    \31\ See supra note 11.
---------------------------------------------------------------------------

    Although the Exchange will not charge Membership Fees for new 
Members until January 2024, the Exchange proposes the Membership Fee 
structure to communicate its intent to charge Membership Fees beginning 
January 2024. As a new exchange entrant, the Exchange chooses not to 
charge for new Members to join the Exchange until January 2024 to 
encourage market participants to trade on the Exchange and experience 
the quality of the Exchange's technology and trading functionality. 
This practice is not uncommon. New exchanges often do not charge fees 
or charge lower fees for certain services such as memberships/trading 
permits to attract order flow to an exchange, and later, once there is 
sufficient depth and breadth of liquidity, amend their fees to reflect 
the true value of those services, absorbing all costs to provide those 
services in the meantime. Allowing new exchange entrants time to build 
and sustain market share through various pricing incentives, before 
increasing non-transaction fees, encourages market entry and promotes 
competition. It also enables new exchanges to mature their markets and 
allow market participants to trade on the new exchanges without 
membership fees serving as a potential barrier to attracting 
memberships and order flow.\32\
---------------------------------------------------------------------------

    \32\ See Securities Exchange Act Release No. 94894 (May 11, 
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating, ``[t]he 
Exchange established this lower (when compared to other options 
exchanges in the industry) Participant Fee in order to encourage 
market participants to become Participants of BOX . . .''). See 
also, e.g., Securities Exchange Act Release No. 88211 (February 14, 
2020), 85 FR 9847 (February 20, 2020) (SR-NYSENAT-2020-05) 
(initiating market data fees for the NYSE National exchange after 
initially setting such fees at zero).

---------------------------------------------------------------------------

[[Page 68767]]

    The waiver is also a protection to new Members. If new Members join 
the Exchange in order to participate on MEMX Options and subsequently 
decide that they do not want to continue trading on MEMX Options prior 
to January 2024, they can cancel their membership with the Exchange 
prior to such date.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes its proposed amendments would not result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Intramarket Competition
    As it relates to the reorganization of the fee schedule and the 
Membership Fee waiver, as discussed above, the Exchange does not 
believe that the proposed changes would impose any burden on 
intramarket competition because such changes would encourage new 
participants to apply for Exchange membership, thereby enhancing 
liquidity and market quality on the Exchange, as well as enhancing the 
attractiveness of the Exchange as a trading venue. The proposed 
Membership Fees do not place certain market participants at a relative 
disadvantage to other market participants to impose a burden on 
competition. As noted above, all Members trading on any of the 
Exchange's platforms will be assessed a $200 fee applicable to all 
Members, all Order Entry Firms trading on the Exchange's options 
platform will be assessed the same $1,000 Membership Fee, and all 
Market Makers trading on the Exchange's options platform will be 
assessed the same $7,000 Membership Fee. Also as previously noted, the 
Exchange anticipates that Market Makers will consume the most bandwidth 
and resources of the Exchange's Systems, will transact the vast 
majority of the volume on the Exchange, and will require the most 
support services provided by Exchange staff. As opposed to Options 
Order Entry Firms, the Exchange anticipates that Market Makers will 
take up more Exchange resources than Order Entry Firms. As such, the 
Exchange does not believe charging Market Makers higher Membership Fees 
will impose a burden on intramarket competition.
    The Exchange does not believe that the proposed changes would 
impose any burden on intramarket competition because such changes will 
incentivize new participants to join the Exchange and the majority of 
the Exchange's current members joined at a time when the Exchange did 
not impose Membership Fees (also to incentivize such participants to 
join), and thus have already received this benefit. The options markets 
are quote-driven markets and are dependent on liquidity providers for 
liquidity and price discovery. The proposal will be of particular 
importance in encouraging liquidity providers to become members of the 
Exchange, which may result in more trading opportunities, enhanced 
competition, and improved overall market quality on the Exchange. 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 described above, the proposed reorganization of the fee schedule 
and Membership Fee waiver will incentive market participants to join 
the Exchange during the fee waiver period. Accordingly, the Exchange 
believes the proposal would not burden, but rather promote, intermarket 
competition by enabling it to better compete with other options 
exchanges at the time MEMX Options launches.
    The Exchange believes that adopting specific Membership Fees 
applicable to Options Trading Members does not place an undue burden on 
competition on other SROs that is not necessary or appropriate. As has 
been previously noted, other options exchanges have similar fees for 
their participants and several charge even higher rates.\33\ As a new 
entrant in an already highly competitive environment for equity options 
trading, MEMX does not have the market power necessary to set prices 
for services that are unreasonable or unfairly discriminatory in 
violation of the Exchange Act. The Exchange operates in a highly 
competitive market in which market participants can determine whether 
to join the Exchange based on the value compared to the cost of joining 
and maintain membership on the Exchange.
---------------------------------------------------------------------------

    \33\ See supra notes 6 to 10.
---------------------------------------------------------------------------

    As noted above, market making firms have no obligation to become 
market makers on all options exchanges. As a new options platform, the 
Exchange seeks to attract market making firms to become Members on the 
MEMX Options platform. If the Membership Fees charged are deemed too 
high by a market making firm, such market making firm can elect not to 
become a Member of the Exchange. The Exchange operates in a highly 
competitive market where market participants can favor an alternate 
venue if they deem the Exchange's Membership Fees to be excessive. In 
such an environment the Exchange must continually review and adjust its 
fees and credits to remain competitive with other exchanges and to 
attract order flow. For the reasons described above, the Exchange 
believes that the proposed rule change reflects this competitive 
environment.

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 \34\ and Rule 19b-4(f)(2) \35\ thereunder.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \35\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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-2023-26 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.


[[Page 68768]]


All submissions should refer to file number SR-MEMX-2023-26. 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-2023-26 and should be 
submitted on or before October 25, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22011 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P


