[Federal Register Volume 87, Number 155 (Friday, August 12, 2022)]
[Notices]
[Pages 49894-49907]
[FR Doc No: 2022-17320]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95445; File No. SR-MEMX-2022-10]

Self-Regulatory Organizations; MEMX LLC; Notice of Filing of
Amendment No. 1 and Order Granting Accelerated Approval of a Proposed
Rule Change, as Modified by Amendment No. 1, To Adopt Rules To Govern
the Trading of Options on the Exchange for a New Facility Called MEMX
Options

August 8, 2022.

I. Introduction

    On April 21, 2022, MEMX LLC (``MEMX'' or the ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to adopt rules
to establish a facility to trade options, which will be named MEMX
Options. The proposed rule change was published for comment in the
Federal Register on May 10, 2022.\3\ In its filing, MEMX consented to
an extension of time for Commission action to ninety (90) days after
the date of publication of the proposal.\4\ On August 8, 2022, the
Exchange filed Amendment No. 1 to the proposed rule change.\5\ This
order approves the proposed rule change, as modified by Amendment No.
1, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 94847 (May 4, 2022),
87 FR 28064 (``Notice''). The Commission received one comment letter
on the proposed rule change. See Letter from Andrew Robinson, dated
May 5, 2022, available at https://www.sec.gov/comments/sr-memx-2022-10/srmemx202210-289458.htm. The comments expressed by the commenter
are not relevant to the proposed rule change.
    \4\ See Item 6 of MEMX's Rule 19b-4 filing. See also Notice,
supra note 3, at 28076, n.37.
    \5\ Amendment No. 1 superseded and replaced the original filing.
In Amendment No. 1, the Exchange proposes non-material revisions to
the proposed rule text and added additional detail to the filing.
See infra Section VI. When it submitted Amendment No. 1, the
Exchange also submitted it as a comment letter to the filing,
available at: https://www.sec.gov/comments/sr-memx-2022-10/srmemx202210.htm.

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II. Description of the Proposed Rule Change

    The Exchange proposes to adopt new Chapters 16-29 into its rulebook
to govern MEMX Options. In addition, the Exchange proposes to add rule
text to existing Chapters 2 (Members of the Exchange) and 8
(Discipline) so that those chapters take into account the new options
rule set. MEMX Options will operate an electronic trading system for
options (the ``System'') that will provide for the electronic display
and execution of orders, which the Exchange intends to operate ``in a
manner similar to that of other options exchanges.'' \6\ As such, the
proposed rules for MEMX Options are, for the most part, substantially
similar to those of currently operating options exchanges, in
particular Cboe BZX Exchange, Inc. (``Cboe BZX'' or ``Cboe BZX
Options'').
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    \6\ See Notice, supra note 3, at 28064. See also Amendment No. 1
at 4.
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MEMX Options Members

    The proposed rules relating to qualification and participation on
MEMX Options are set forth in proposed Chapters 17 and 22. These rules
are substantively identical to the corresponding rules of Cboe BZX
Options, with the only differences being internal references and other
minor technical differences.\7\ A detailed summary of the provisions
set forth in Chapters 17 and 22 is provided in the filing.\8\
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    \7\ See Cboe BZX Rules, Chapters XVII and XXII.
    \8\ See Notice, supra note 3, at 28065. See also Amendment No. 1
at 5-8.
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    MEMX will have only one type of member, referred to as an ``Options
Member,'' which must be a registered broker-dealer.\9\ Only Options
Members and their Sponsored Participants will be permitted to transact
on the System.\10\ An Options Member must maintain membership in
another registered options exchange that is not registered solely under
Section 6(g) of the Act,\11\ or in the Financial Industry Regulatory
Authority (``FINRA'').\12\ Every Options Member will be required to
have at least one registered and licensed Options Principal that has
responsibility for the overall oversight of the Options Member's
options related activities on the Exchange.\13\
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    \9\ See MEMX Rule 2.3.
    \10\ See MEMX Rule 17.1(a). Options Members can provide
sponsored access to MEMX Options to a non-Member (i.e., a Sponsored
Participant) pursuant to MEMX Rule 11.3, subject the conditions of
that rule. MEMX Options will assign a unique Executing Firm ID
(``EFID'') to identify a single User and a specific number. See MEMX
Rule 21.1(j). A User may obtain one or more EFIDs from the Exchange.
    \11\ 15 U.S.C. 78f(g).
    \12\ See MEMX Rule 17.2(f).
    \13\ See MEMX Rule 17.2(g).
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    An Options Member that represents customer orders as an agent on
MEMX Options and those that conduct proprietary trading as principal
other than in the capacity of a market maker are referred to as Options
Order Entry Firms (``OEFs''). OEFs may only transact business with
Public Customers if they are members of FINRA.\14\
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    \14\ See id. See also MEMX Rule 16.1 (defining ``Public
Customer'' to means a person that is not a broker or dealer in
securities). In addition, an OEF may only transact business with
Public Customers if such Options Member also is an options member of
another registered national securities exchange or association with
which the Exchange has entered into an agreement under Rule 17d-2
under the Act pursuant to which such other exchange or association
is the designated options examining authority for the OEF. See MEMX
Rule 26.1.
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    In addition, an Options Member can seek to register with the
Exchange as an Options Market Maker to make markets in specific classes
of options it chooses in advance (``appointed classes'') where it would
have certain rights and bear certain responsibilities beyond those of
other Options Members.\15\ In particular, Options Market Makers commit
to electronically engage in a course of dealings to enhance liquidity
available on MEMX Options and to assist in the maintenance of fair and
orderly markets.\16\ Among other things, an Options Market Maker must,
at a minimum for its appointed classes subject to the provisions of
MEMX's rules, maintain a continuous two-sided quotation for 60% of time
those classes are open for trading, excluding any adjusted series, any
intraday add-on series on the day during which such series are added
for trading, any Quarterly Option Series, and any series with an
expiration of greater than 270 days.\17\ In their appointed classes,
Options Market makers must also: (i) engage to a reasonable degree
under the existing circumstances, in dealings for its own accounts when
there exists, or it is reasonably anticipated that there will exist, a
lack of price continuity, a temporary disparity between the supply of
(or demand for) a particular option contract, or a temporary distortion
of the price relationships between option contracts of the same class;
(ii) compete with other market makers, (iii) maintain firm quotes; (iv)
update their quotes in response to changed market conditions; and (v)
maintain active markets.\18\ Substantial or continued failure by an
Options Market Maker to meet any of its obligations and duties would
subject the Options Market Maker to disciplinary action or suspension
or revocation of registration as an Options Market Maker or its
appointment in one or more appointed classes.\19\
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    \15\ See MEMX Rule 22.2. Market Makers are designated as
specialists on MEMX Options for all purposes under the Act. See id.
    \16\ See MEMX Rule 22.5. MEMX's rules will not, at this time,
limit the number of Market Makers that can register to make markets
on MEMX Options or limit the number of class appointments a Market
Maker can hold. MEMX Rule 22.2(c) allows the Exchange to file a
proposed rule change to propose certain limitations based on system
constraints, capacity restrictions, or other factors relevant to
protecting the integrity of the System. In the absence of an
effective rule, the Exchange cannot restrict access in any options
class.
    \17\ See MEMX Rule 22.6.
    \18\ See MEMX Rule 22.5(a).
    \19\ See MEMX Rule 22.5(c).
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    Furthermore, existing Exchange Rules applicable to the MEMX
equities market contained in Chapters 1 through 15 of the Exchange
Rules will apply to Options Members unless a specific Exchange Rule
applicable to MEMX Options (i.e., proposed Chapters 16 through 29 of
the Exchange Rules) governs.\20\
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    \20\ See MEMX Rule 16.2(b).
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Definitions

    Chapter 16.1 sets forth the defined terms used in Chapters 16 to 29
relating to the trading of options contracts on the Exchange. Each of
the terms defined in Rule 16.1 is either identical or substantially
similar to definitions in Cboe BZX Rule 16.1. A complete list of the
defined terms is set forth in the filing.\21\
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    \21\ See Notice, supra note 3, at 28065-67. See also Amendment
No. 1 at 8-18.
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Options Trading System

    The Exchange states that MEMX Options will leverage the Exchange's
current technology, including its customer connectivity, messaging
protocols, quotation and execution engine, order router, data feeds,
and network infrastructure.\22\ According to the Exchange, MEMX Options
will closely resemble the Exchange's equities market, as well as other
options markets, such as Cboe BZX Options.\23\
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    \22\ See Notice, supra note 3, at 28067. See also Amendment No.
1 at 16. According to the Exchange, this will minimize the technical
effort required for existing Exchange members to begin trading
options on MEMX Options. See id.
    \23\ See id.
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    MEMX Options will not have a physical trading floor. All trading
interest entered into the System will be automatically executable.
Orders entered into the System will be displayed anonymously.\24\
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    \24\ However, aggregated and individual transaction reports
produced by the System will indicate the details of a User's
transactions, including the contra party's executing firm ID
(``EFID''), capacity, and clearing firm account number. The Exchange
also will reveal a User's identity: (i) when a registered clearing
agency ceases to act for a participant, or the User's clearing firm,
and the registered clearing agency determines not to guarantee the
settlement of the User's trades; and (ii) for regulatory purposes or
to comply with an order of an arbitrator or court. See MEMX Rule
21.10.

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    Like the Exchange's equities facility, MEMX Options will maintain a
price/time allocation model across all participants rather than
differentiating between participants. As such, MEMX Options will
execute all trading interest at the best price level within the System
before executing trading interest at the next best price.\25\ At each
price level, trading interest will be executed in time sequence, such
that the order established as the first entered into the System at such
price level will have priority up to its specific number of
contracts.\26\ MEMX has not proposed any additional priority overlays.
In addition, MEMX Options has not proposed to have non-displayed
orders, and thus all interest will be displayable.
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    \25\ See MEMX Rule 21.8(a).
    \26\ See id.
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    MEMX will be a member of the Options Price Reporting Authority
(``OPRA'') and will disseminate its quotations in accordance with Rule
602 of Regulation NMS.\27\ MEMX Options also will offer proprietary
data feeds including ``MEMOIR Options Depth'' (depth of book
quotations/orders and execution information), ``MEMIR Options Top''
(top of book quotations/orders and execution information), ``DROP''
(regarding the trading activity of the User), and Historical Data.\28\
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    \27\ See 17 CFR 242.602.
    \28\ See MEMX Rule 21.15(b).
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    The Exchange will become an exchange member of the Options Clearing
Corporation (``OCC''). The System will be linked to OCC for the
Exchange to transmit locked-in trades for clearance and settlement.
    Hours of Operation. MEMX Options will accept orders from 9:30 a.m.
until 4:00 p.m. Eastern Time, except that it will accept orders until
4:15 p.m. for option contracts on Fund Shares, exchange-traded notes,
and broad-based indexes.\29\
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    \29\ See MEMX Rule 21.2(a).
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    Minimum Quotation and Trading Increments. The Exchange's minimum
quotation and trading increments will be the same as on other
exchanges, including Cboe BZX Options.\30\ Specifically, the Exchange
will have the following standard quotation increments: (i) if the
options series is trading at less than $3.00, five (5) cents; (ii) if
the options series is trading at $3.00 or higher, ten (10) cents; and
(iii) if the options series is trading pursuant to the Penny Interval
Program, one (1) cent if the options series is trading at less than
$3.00, or five (5) cents if the options series is trading at $3.00 or
higher, unless for QQQ, SPY, or IWM where the minimum quoting increment
will be one (1) cent for all series.\31\ In addition, the minimum
trading increment will be one (1) cent for all series.\32\
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    \30\ See Cboe BZX Rule 21.5(a) and (b).
    \31\ See MEMX Rule 21.5(a).
    \32\ See MEMX Rule 21.5(b).
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    Penny Interval Program. The Exchange's Penny Interval Program is
substantially similar to the penny programs of other exchanges, which
includes minimum quoting requirements for option classes listed under
the Penny Interval Program. However, eligibility for inclusion in the
Penny Interval Program will be limited to those classes already
operating under penny programs of other options exchanges at the time
MEMX Options is launched.\33\ The list of option classes included in
the Penny Interval Program will be announced by the Exchange via
circular distributed to Options Members and published by the Exchange
on its website.\34\
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    \33\ See MEMX Rule 21.5(d)(1).
    \34\ See MEMX Rule 21.5(d).
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    Order Types and Handling Instructions. MEMX Options will make
available to Users two Order Types: Limit Orders \35\ and Market
Orders.\36\ MEMX Options also may make available to Users a few
additional instructions that can be designated on an order (``Handling
Instructions'').\37\ Those Handling Instructions include Book Only,\38\
Post Only,\39\ and Intermarket Sweep Order (``ISO'').\40\ The
characteristics and functionality of each Order Type and Handling
Instruction is substantially similar to what is used for the Exchange's
equities trading facility or on other options exchanges, including Cboe
BZX Options, except where discussed in the amended filing or as relates
to the display-price sliding process offered by Cboe BZX Options, which
the Exchange is not proposing to adopt.\41\ Cboe BZX Options offers
additional order types, such as reserve orders, minimum quantity
orders, price-improving orders, stop orders, and stop limit orders,
none of which the Exchange proposes to adopt.\42\
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    \35\ Limit Orders are orders (including bulk messages) to buy or
sell an option at a specified price or better. A Limit Order is
marketable when, for a Limit Order to buy, at the time it is entered
into the System the order is priced at the current inside offer or
higher, or for a Limit Order to sell, at the time it is entered into
the System the order is priced at the current inside bid or lower.
See MEMX Rule 21.1(d)(1).
    \36\ Market Orders are orders to buy or sell at the best price
available at the time of execution. Market Orders to buy or sell an
option traded on MEMX Options will be rejected if they are received
when the underlying security is subject to a ``Limit State'' or
``Straddle State'' as defined in the Plan to Address Extraordinary
Market Volatility Pursuant to Rule 608 of Regulation NMS under the
Act (the ``Limit Up-Limit Down Plan''). Bulk messages may not be
Market Orders. See MEMX Rule 21.1(d)(2).
    \37\ See MEMX Rule 21.1(e). A Handling Instruction applied to a
bulk message applies to each bid and offer within that bulk message.
See id.
    \38\ See MEMX Rule 21.1(e)(1). Book Only is an instruction that
an order is to be ranked and executed on the Exchange or cancelled,
as appropriate, without routing away to another options exchange.
See id. Users may designate bulk messages as Book Only as set forth
in MEMX Rule 21.1(l). See id.
    \39\ See MEMX Rule 21.1(e)(2). Post Only is an instruction that
an order is to be ranked and executed on the Exchange or cancelled,
as appropriate, without routing away to another options exchange
except that the order will not remove liquidity from the MEMX
Options Book. A Market Order cannot be designated as Post Only. See
id. Users may designate bulk messages as Post Only as set forth in
MEMX Rule 21.1(l). See id.
    \40\ See MEMX Rule 21.1(e)(3). ISO orders, defined in MEMX Rule
27.1(a)(10), may be executed at one or multiple price levels in the
System without regard to Protected Quotations at other options
exchanges (i.e., may trade through such quotations) because the User
represents that it simultaneously has routed additional orders to
execute against the full displayed size of any Protected Bid/Offer
(as applicable). See id. The Exchange will rely on the marking of an
order as an ISO order when handling such order. See id. ISOs are not
eligible for routing pursuant to MEMX Rule 21.9. See id. Users may
not designate a Market Order as an ISO. See id. Users may not
designate bulk messages as ISOs. See id.
    \41\ The Exchange explains that, in contrast to Cboe BZX
Options, it proposes characterizing Book Only, Post Only, and ISO as
Handling Instructions rather than Order Types, as each of these
instructions represents an additional modifier that can be appended
to an order rather than a unique Order Type. See Notice, supra note
3, at 28069. See also Amendment No. 1 at 23. Not all Handling
Instructions can be applied to all Order Types (e.g., Market Orders
cannot be designated ISO). See MEMX Rule 21.1(e)(3). The Exchange
does not believe that this characterization changes anything with
respect to the proposed operation of these order types and Handling
Instructions. See Notice, supra note 3, at 28069. See also Amendment
No. 1 at 23-24.
    \42\ See Notice, supra note 3, at 28069. See also Amendment No.
1 at 24.
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    Time-in-Force Designations. Users entering orders into the System
may designate such orders to remain in force and available for display
and/or potential execution for varying periods of time.\43\ Unless
cancelled earlier, once these time periods expire, the order (or the
unexecuted portion thereof) is returned to the entering party. The
Time-in-Force designations available on

MEMX Options include Immediate or Cancel (``IOC'') \44\ or Day.\45\
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    \43\ A Time-in-Force applied to a bulk message applies to each
bid and offer within that bulk message. See MEMX Rule 21.1(g).
    \44\ See MEMX Rule 21.1(g)(1). IOC orders are to be executed in
whole or in part as soon as such order is received. See id. The
portion not so executed immediately on the Exchange or another
options exchange is cancelled and is not posted to the MEMX Options
Book. See id. IOC orders that are not designated as Book Only and
that cannot be executed in accordance with MEMX Rule 21.8 on the
System when reaching the Exchange will be eligible for routing away
pursuant to proposed MEMX Rule 21.9. See id. Users may designate
bulk messages as IOC. See id.
    \45\ See MEMX Rule 21.1(g)(2). Day orders, if not executed,
expire at market close. Users may designate bulk messages as Day.
See id.
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    The Time-in-Force designations are identical to the same Time-in-
Force designations available on Cboe BZX Options, except that Cboe BZX
Options rules describe Time-in-Force designations as applicable only to
limit orders on Cboe BZX Options, whereas the Exchange has proposed
allowing such designations to be placed on both Limit Orders and Market
Orders.\46\
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    \46\ The Exchange notes that Cboe BZX Options offers additional
Times-in-Force, such as good til cancelled, fill-or-kill, at the
open, limit-on-close, and market-on-close, none of which the
Exchange proposes to adopt. See Notice, supra note 3, at 28069. See
also Amendment No. 1 at 25.
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    Member Match Trade Prevention Modifiers. As with its equities
market, the Exchange will allow Users to use certain Match Trade
Prevention (``MTP'') modifiers.\47\ Any incoming order designated with
an MTP modifier will be prevented from executing against a resting
opposite side order also designated with an MTP modifier and
originating from the same EFID, Exchange Member identifier, trading
group identifier, or Exchange Sponsored Participant identifier. The
Exchange will offer the following MTP modifiers: (i) MTP Cancel Newest;
(ii) MTP Cancel Oldest; and (iii) MTP Cancel Both.\48\ The Exchange
explains that each of the proposed MTP modifiers available on MEMX
Options is identical to the same MTP modifier available on Cboe BZX
Options.\49\
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    \47\ See MEMX Rule 21.1(h).
    \48\ See MEMX Rule 21.1(h)(1)-(3).
    \49\ See Notice, supra note 3, at 28069. See also Amendment No.
1 at 25. The Exchange notes that Cboe BZX Options offers additional
MTP modifiers, such as MTP Decrement and Cancel and MTP Cancel
Smallest, neither of which the Exchange proposes to adopt. See id.
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    Re-Pricing Mechanism. MEMX Options will offer a re-pricing
mechanism (``Price Adjust'') to comply with the order protection and
trade through restrictions of the Linkage Options Order Protection and
Locked/Crossed Market Plan (``Linkage Plan''). This re-pricing
mechanism is identical to the Price Adjust mechanism offered by Cboe
BZX Options, with the exception of the handling of an order with a Post
Only instruction subject to the Price Adjust process.\50\ The Exchange
explains that Cboe BZX Options applies the Price Adjust process when a
Post Only Order locks or crosses a Protected Quotation displayed on
Cboe BZX Options and re-prices such Post Only Order pursuant to Cboe
BZX Rule 21.1(i)(4), but MEMX is not proposing to adopt this clause.
Rather, the System will cancel a Post Only Order that locks or crosses
a Protected Quotation displayed on MEMX Options. If a User elects to
not subject an order (including bulk messages) to the Price Adjust
process, it can use a ``Cancel Back'' instruction.\51\ The System will
cancel or reject an order with a Cancel Back instruction if displaying
it on the Book would create a violation of Rule 27.3 (Locked and
Crossed Markets), or if the order cannot otherwise be executed or
displayed in the Book at its limit price.\52\
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    \50\ See MEMX Rule 21.1(i). See also Cboe BZX Rule 21.1(i).
    \51\ See MEMX Rule 21.1(m).
    \52\ See id.
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    Ports and Bulk Messages. MEMX Options will offer ``physical ports''
that provide a physical connection to the System and ``logical ports''
(or ``application sessions'') that provide Users with the ability
within the System to accomplish a specific function through a
connection, such as order entry, data receipt, or access to
information.\53\
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    \53\ A User is able to designate which of its EFIDs may be used
for each of its ports. See MEMX Rule 21.1(j)(3). If a User submits
an order or quote through a port with an EFID not enabled for that
port, the System cancels or rejects the order or quote. See id.
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    MEMX Options will offer ``bulk message'' functionality whereby
Market Makers will be able to use a single electronic message to enter,
modify, or cancel up to a specified number of bids and offers.\54\ Bulk
messages are subject to the following conditions: (i) bulk messages
must contain a Time-in-Force of Day or IOC; (ii) a Market Maker with an
appointment in a class must designate a bulk message for that class as
Post Only or Book Only, and a non-appointed Market Maker must designate
a bulk message for that class as Post Only; (iii) the System cancels or
rejects a Post Only bulk message bid (offer) with a price that locks or
crosses the Exchange best offer (bid) or ABO (ABB); \55\ and (iv) the
System executes a Book Only bulk message bid (offer) that locks or
crosses the ABO (ABB) against offers (bids) resting in the Book at
prices the same as or better than the ABO (ABB) and then cancels the
unexecuted portion of that bid (offer).\56\
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    \54\ Cboe BZX Options offers specific ports used for bulk
messages whereas the Exchange is not proposing to offer bulk ports.
See Notice, supra note 3, at 28070. See also Amendment No. 1 at 27.
    \55\ The term ``ABBO'' means the best bid(s) or offer(s)
disseminated by other Eligible Exchanges (as defined in MEMX Rule
27.1) and calculated by the Exchange based on market information the
Exchange receives. See MEMX Rule 16.1.
    \56\ See MEMX Rule 21.1(l)(1)-(4).
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    Market Opening Procedures. The Exchange is not proposing to have an
opening cross or opening auction. Rather, for stock options, the System
simply will open a class of options following the first regular hours
(i.e., after 9:30 a.m. Eastern Time) transaction in the underlying
security as reported on the first print disseminated pursuant to an
effective national market system plan.\57\ In the event of a delay, the
Exchange can determine in the interests of a fair and orderly market to
open trading in the class.\58\ With respect to index options, the
System will open a class for trading after a period following the first
post-9:30 a.m. (Eastern Time) disseminated index value for the
applicable index.\59\ Because the Exchange does not propose to adopt an
opening cross or similar opening process, the opening trade that occurs
on the Exchange will be a trade in the ordinary course of dealings on
the Exchange. Accordingly, the System will ensure that the opening
trade in an options series will not trade through a Protected Quotation
at another options exchange, consistent with the general standard
regarding trade throughs in MEMX Rule 21.6(e).\60\
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    \57\ See MEMX Rule 21.7(a). The proposed market opening
procedures for stock options are identical to the market opening
procedures for such options that were initially adopted by Cboe BZX
Options. See Securities Exchange Act Release No. 61419 (January 26,
2010), 75 FR 5157 (February 1, 2010) (SR-BATS-2009-031) (Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of
a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To
Establish Rules Governing the Trading of Options on the BATS Options
Exchange).
    \58\ See MEMX Rule 21.7(b).
    \59\ See MEMX Rule 21.7(a). The proposed opening procedures for
index options are similar to Cboe BZX Options (Cboe BZX Rule
21.7(d)(2)), with a difference in that once the Cboe BZX Options
system observes that an index value has been disseminated for the
applicable index, Cboe BZX Options then commences an opening
rotation (i.e., an opening process to match liquidity at a price
determined by the Cboe BZX Options system) while the Exchange is not
proposing to adopt an opening rotation.
    \60\ See Notice, supra note 3, at 28070. See also Amendment No.
1 at 29.
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    Additionally, the Exchange may delay the commencement of trading in
any class of options in the interests of a fair and orderly market.\61\
Orders received

prior to the opening of the System will be cancelled.\62\
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    \61\ See MEMX Rule 21.7(c).
    \62\ See MEMX Rule 21.6(c).
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    In the filing, the Exchange explains that it proposes a simplified
opening procedures because for a successful opening process to
function, MEMX believes an exchange needs a critical mass of liquidity
from market participants in order to price and execute opening
transactions.\63\ In turn, as a new options exchange, MEMX Options does
not know the amount of pre-opening interest it will have, and it will
have to gain market share in order to accumulate such interest.\64\
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    \63\ See Notice, supra note 3, at 28070. See also Amendment No.
1 at 30.
    \64\ See Notice, supra note 3, at 28070. See also Amendment No.
1 at 30. The Exchange states that it will re-evaluate its opening
procedures over time and may propose to add an opening process
through a proposed rule filing submitted to the Commission in the
future. See id.
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    Routing. Users may designate orders as eligible for routing to
another options exchange during regular trading hours when trading
interest on MEMX Options is not available.\65\ An order that is
designated as routable will be routed to other options exchanges to be
executed at the National Best Bid and Offer (``NBBO'') when MEMX
Options is not at the NBBO consistent with the Linkage Plan. Orders
routed to other options exchanges do not retain time priority with
respect to orders in the System, and the System will continue to
execute orders while routed orders are away.\66\ If a routed order is
returned to MEMX Options, in whole or in part, that order (or its
remainder) will receive a new time stamp reflecting the time of its
return to the System.\67\ Users whose orders are routed away will be
obligated to honor trades executed on other options exchanges.\68\
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    \65\ Bulk messages are not eligible for routing. See MEMX Rule
21.9(a). Alternatively, a User may designate an order as not
eligible for routing.
    \66\ See MEMX Rule 21.9(b).
    \67\ See id.
    \68\ See MEMX Rule 21.9(c).
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    Subject to the exceptions contained in Rule 27.2(b), the System
will ensure that an order will not be executed at a price that trades
through another options exchange. Any order entered with a price that
would lock or cross a Protected Quotation that is not eligible for
either routing or the price adjust process as defined in Rule 21.1(i)
will be cancelled.
    The Exchange explains that the routing functionality for MEMX
Options is designed to operate much like the routing functionality for
the Exchange's equities market, in that the Exchange ``offers a simple
routing service to facilitate compliance with applicable regulations
and does not currently offer other complex routing strategies.'' \69\
---------------------------------------------------------------------------

    \69\ See Notice, supra note 3, at 28071. See also Amendment No.
1 at 31. The Exchange notes that the proposed rules relating to the
routing of orders on MEMX Options to away options markets are
similar to the rules of Cboe BZX Options, except that the Exchange
proposes to cancel any unexecuted portion of a Market Order after
the System has routed to and received response from an away options
market, whereas Cboe BZX Options offers additional handling
instructions that may be chosen with respect to the unexecuted
portion of an order after the System has routed to and received a
response from an away options market, and Cboe BZX Options offers
various additional routing options, such as routing to a specific
destination or at specified price levels. See also Amendment No. 1
at 31-32.
---------------------------------------------------------------------------

    The Exchange will use its existing affiliated routing broker-
dealer, MEMX Execution Services LLC (``MEMX Execution Services''), to
route orders solely on behalf of MEMX Options.\70\ MEMX Options will
maintain a ``System routing table'' to determine the specific options
exchanges to which the System will route orders and the order in which
it will route them.\71\ MEMX Execution Services is subject to
regulation as a facility of the Exchange, including the requirement to
file proposed rule changes under Section 19 of the Act.\72\
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    \70\ See MEMX Rules 2.11 and 21.9. MEMX Options will also offer
back-up routing services in conjunction with one or more routing
brokers that are not affiliated with the Exchange in case it is not
able to provide order routing services through its affiliated
broker-dealer, subject to the certain conditions and limitations.
See MEMX Rule 21.9(e). Among other things, the Exchange would
control the routing logic and the routing broker would not have any
discretion. See MEMX Rule 21.9(e)(5). In addition, the Exchange
would enter into an agreement with each routing broker that would,
among other things, restrict the use of any confidential and
proprietary information that the routing broker receives. See MEMX
Rule 21.9(e)(1). The Exchange also must have procedures and internal
controls reasonably designed to adequately restrict the flow of
confidential and proprietary information between the Exchange and
the routing broker, and any other entity, including any affiliate of
the routing broker, and, if the routing broker or any of its
affiliates engages in any other business activities other than
providing routing services to the Exchange. See MEMX Rule
21.9(e)(2). The Exchange may not use a routing broker for which the
Exchange or any affiliate of the Exchange is the designated
examining authority. See MEMX Rule 21.9(e)(3).
    \71\ See MEMX Rule 21.9(a)(3).
    \72\ See 15 U.S.C. 78s. MEMX Execution Services is required to
be a member of a self-regulatory organization unaffiliated with the
Exchange that is its designated examining authority, and the
Exchange is required to establish and maintain procedures and
internal controls reasonably designed to restrict the flow of
confidential and proprietary information between MEMX and its
facilities. See MEMX Rule 2.11(a)(2) and (5). In addition, the
books, records, premises, officers, directors, agents, and employees
of MEMX Execution Services, as a facility of the Exchange, are
deemed to be those of the Exchange for purposes of and subject to
oversight pursuant to the Act. See MEMX Rule 2.11(b). Further, the
Exchange must provide its routing services in compliance with the
provisions of the Act and the rules thereunder, including, but not
limited to, the requirements in Section 6(b)(4) and (5) of the Act
that the rules of a national securities exchange provide for the
equitable allocation of reasonable dues, fees, and other charges
among its members and issuers and other persons using its
facilities, and not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers. See MEMX Rule
21.9(e)(4).
---------------------------------------------------------------------------

    Use of routing services, including routing using MEMX Execution
Services, is optional. Users that do not want to use routing services
provided by the Exchange must designate orders as not available for
routing.
    To mitigate the financial and regulatory risks associated with
providing Users with access to away options exchanges, MEMX has
implemented certain tests to comply with market access requirements
under Rule 15c3-5.\73\ Pursuant those policies and procedures, if an
order or series of orders are deemed to be erroneous or duplicative,
would cause the entering User's credit exposure to exceed a preset
credit threshold, or are non-compliant with applicable pre-trade
regulatory requirements (as defined in Rule 15c3-5), MEMX Execution
Services will reject such orders prior to routing and/or seek to cancel
any orders that have been routed.
---------------------------------------------------------------------------

    \73\ 17 CFR 240.15c3-5. See also MEMX Rule 21.9(f). The Exchange
states that MEMX Rule 21.9(f) is substantively identical to Cboe BZX
Rule 21.9(f). See Notice, supra note 3, at 28071. See also Amendment
No. 1 at 33.
---------------------------------------------------------------------------

    Risk Controls. Users of MEMX Options will have the ability to
establish certain risk control parameters and limits that are intended
to offer protection from entering orders outside of certain size and
price parameters, as well as certain parameters based on order type and
market conditions.\74\ The proposed risk controls are based, in part,
on those of Cboe BZX Options, with certain additions and differences
described below.
---------------------------------------------------------------------------

    \74\ See MEMX Rules 21.16 and 21.17.
---------------------------------------------------------------------------

    Rule 21.16 sets forth a Risk Monitor Mechanism that will offer
Users a choice between a ``passive'' risk counter \75\ and an
``active'' risk counter.\76\ Users may configure risk

limits for various parameters, including number of contracts executed
(``volume''), notional value of executions (``notional''), number of
executions (``count''), number of contracts executed as a percentage of
number of contracts outstanding within an Exchange-designated time
period or during the trading day (``percentage''), and the number of
times the limits on any of the foregoing parameters are reached (``risk
trips'').\77\ The System will track each of the parameters within an
underlying for an EFID (``underlying limit''), across all underlyings
for an EFID (``EFID limit''), across all underlyings for a group of
EFIDs (``EFID Group limit''), and/or across a customized group of
orders designated by the User (``Custom Group Limit''), over a User-
established time period (``interval'') and on an absolute basis for a
trading day (``absolute limits'').\78\
---------------------------------------------------------------------------

    \75\ See MEMX Rule 21.16(a). In a ``passive'' risk counter, the
Exchange counts a specific metric (e.g., number of contracts
executed) over a specific time interval and takes a specific action
based on a User-configured parameter. For example, once a User
executes its pre-defined limit of 10,000 contracts, the User might
have instructed the Exchange to cancel or reject pending and
additional orders.
    \76\ See MEMX Rule 21.16(b). In an ``active'' risk counter, the
User can manage its risk limits by acknowledging its activity during
the day. For example, if a User set a pre-defined limit of 10,000
contracts and then executes a series of trades exceeding 10,000
contracts, but with each execution the user submits an electronic
instruction to the System acknowledging the execution and
decrementing the counting program by a specific amount, then the
System would decrement that value from the ongoing tally it
maintains. In other words, only non-acknowledged trades would cause
the pre-defined limit to be reached.
    \77\ See MEMX Rule 21.16(a).
    \78\ See MEMX Rule 21.16(a).
---------------------------------------------------------------------------

    When the System determines that a specified parameter has reached
the User's pre-defined risk limit and instructions, the Risk Monitor
Mechanism will effectuate a User's pre-determined action from among the
following options: (i) cancel or reject such User's orders or quotes in
all series of the applicable underlying(s) and cancel or reject any
additional orders or quotes from the User in the applicable
underlying(s) until the counting program is reset; or (ii) suspend all
of a User's resting orders or quotes in all series of the applicable
underlying(s) and cancel or reject any additional orders or quotes from
the User in the applicable underlying(s) until the Exchange is
instructed to reinstate such bids and offers. A User may also engage
the Risk Monitor Mechanism to cancel resting bids and offers, as well
as subsequent orders as set forth in Rule 22.10 (``mass cancellation'')
or to suspend all resting bids and offers until the Exchange is
instructed to reinstate such bids and offers (``mass suspension'').
When a User's resting orders or quotes have been suspended and the User
instructs the Exchange to reinstate all such bids and offers, each
reinstated order or quote shall receive a new timestamp reflecting the
time it was re-posted to the MEMX Options Book.\79\
---------------------------------------------------------------------------

    \79\ See MEMX Rule 21.16(e)(1).
---------------------------------------------------------------------------

    The Risk Monitor Mechanism's ``passive'' functionality is
substantially similar to that offered on Cboe BZX Options, except that
Cboe BZX Options' rule does not permit Users to designate a Custom
Group Limit to track risk parameters across a customized group of
orders, nor does Cboe BZX Options permit Users to choose to suspend,
rather than cancel or reject, resting interest when a risk limit has
been reached or to engage the Risk Monitor Mechanism for mass
suspension as an alternative to mass cancellation.\80\
---------------------------------------------------------------------------

    \80\ See Notice, supra note 3, at 28072. See also Amendment No.
1 at 35-36.
---------------------------------------------------------------------------

    Cboe BZX Options rules do not presently contain a similar version
of MEMX Option's proposed ``active'' Risk Monitor Mechanism
functionality. As described above, in the ``active'' version, the
System will increment the active risk counter associated with a defined
parameter when the relevant activity occurs, and the System will
decrement the active risk counter upon positive confirmation from the
User via an electronic instruction that the User has acknowledged a
change in the active risk counter. The User will be able to specify the
value by which each parameter increments and decrements in the active
risk counter. The proposed active risk counter will therefore enable a
User to interact with the Risk Monitor Mechanism dynamically such that
the User may actively acknowledge executions and decrement the counting
program by a specified amount as such executions occur (or at any
time), rather than waiting until a risk limit is reached or the User
otherwise sends a specific instruction to the Exchange to completely
reset the counting program. In the filing, the Exchange provides
several examples to demonstrate how both the passive and active risk
counters will operate.\81\
---------------------------------------------------------------------------

    \81\ See Notice, supra note 3, at 28072. See also Amendment No.
1 at 37-39.
---------------------------------------------------------------------------

    In addition to the Risk Monitor Mechanism functionality, the
Exchange also will offer additional price protection mechanisms and
risk controls that relate to certain standard or Exchange-established
parameters based on order type and market conditions.\82\ For example,
MEMX Options will offer Market Order NBBO Width Protection, a Limit
Order Fat Finger Check, a Buy Order Put Check, Drill-Through Price
Protection, Protection for Market Orders in No-Bid Series, and a Bulk
Message Fat Finger Check, each of which are described in the rule.\83\
The Exchange explains that the additional price protection mechanisms
and risk controls are substantially similar to those offered on Cboe
BZX Options pursuant to Cboe BZX Rule 21.17, with slight modifications
to align with the Exchange's proposed market opening procedures and
available order types and instructions on MEMX Options, except that the
Exchange is proposing a simplified version of the drill-through price
protection mechanism described in proposed Rule 21.17(d).\84\ Whereas
the drill-through price protection mechanism offered on Cboe BZX
Options pursuant to Cboe BZX Rule 21.17(d) executes an incoming order
to a determined ``Drill-Through Price'' and then displays the remainder
of the order on Cboe BZX Options at that price for a brief period of
time, the Exchange is proposing to simply cancel the remainder of an
incoming order after executing the order to the Drill-Through
Price.\85\
---------------------------------------------------------------------------

    \82\ See MEMX Rule 21.17.
    \83\ See MEMX Rule 21.17(a)-(f).
    \84\ See Notice, supra note 3, at 28073. See also Amendment No.
1 at 40.
    \85\ See MEMX Rule 21.17(d).
---------------------------------------------------------------------------

    One Second Exposure Period. Similar to other exchanges, MEMX
Options will prohibit Options Members from executing, as principal,
orders they represent as agent unless the agency order is first exposed
on the Exchange for at least one second or the Options Member has been
bidding or offering on MEMX Options at the execution price for at least
one second prior to receiving the executable agency order.\86\ During
this one second exposure period, other Options Members will be able to
enter orders to trade against the exposed order.
---------------------------------------------------------------------------

    \86\ See MEMX Rule 22.11. See also, e.g., MIAX Rule 520(b).
---------------------------------------------------------------------------

Options Order Protection and Locked/Crossed Market Plan Rules

    The Exchange represents that it will participate in the Linkage
Plan, and therefore will be required to comply with the obligations of
participants under the Plan.\87\ The Plan applies price-protection
provisions to the options markets that are similar to those applicable
to equities under Regulation NMS. Similar to Regulation NMS, the Plan
requires the Plan Participants to adopt rules reasonably designed to
prevent trade-throughs while exempting ISOs from that prohibition.
---------------------------------------------------------------------------

    \87\ See Notice, supra note 3, at 28073. See also Amendment No.
1 at 41.
---------------------------------------------------------------------------

    The Exchange explains that Chapter 27 (Options Order Protection and
Locked and Crossed Markets Rules) is designed to conform to the
requirements of the Plan, and the rules in that chapter are
substantively identical to the rules of Cboe BZX Options.\88\ Rule 27.2

prohibits trade-throughs and exempts ISOs from that prohibition, and
also contains additional exceptions to the trade-through prohibition
that track the exceptions under Regulation NMS or accommodate the
unique aspects of the options market. Rule 27.3 sets forth the general
prohibition against locking/crossing other eligible exchanges as well
as certain enumerated exceptions that permit locked markets in limited
circumstances.\89\
---------------------------------------------------------------------------

    \88\ See Notice, supra note 3, at 28073. See also Amendment No.
1 at 42-43. See also MEMX Rules 27.1 (definitions), 27.2 (order
protection), and 27.3 (locked and crossed markets).
    \89\ See MEMX Rule 27.3(b). Specifically, the exceptions to the
general prohibition on locking and crossing occur when: (1) the
locking or crossing quotation was displayed at a time when the
Exchange was experiencing a failure, material delay, or malfunction
of its systems or equipment; (2) the locking or crossing quotation
was displayed at a time when there is a crossed market; or (3) the
Options Member simultaneously routed an ISO to execute against the
full displayed size of any locked or crossed Protected Bid or
Protected Offer.
---------------------------------------------------------------------------

Securities Traded on MEMX Options

    General Listing Standards. The listing standards for options traded
on MEMX Options are set forth in Chapter 19 (Securities Traded on MEMX
Options), and the listing standards for index options are described in
Chapter 29 (Index Rules). The Exchange explains that these rules are
substantively identical to those of Cboe BZX Options.\90\ The Exchange
also represents that it will join the Options Listings Procedures Plan,
will list and trade options already listed on other options exchanges,
and will gradually phase-in trading of option classes upon initial
launch, beginning with a selection of actively traded options. The
Exchange states that, initially, it does not plan to develop new
options products or listing standards.\91\
---------------------------------------------------------------------------

    \90\ See Notice, supra note 3, at 28073. See also Amendment No.
1 at 41-42. With respect to index options, the Exchange notes that
it is not proposing to include references to any specific index
options products or indices at this time and therefore has included
a placeholder with the rule text ``(Reserved.)'' where such
references would otherwise be. The Exchange represents that it would
file a proposed rule change with the Commission with respect to such
products if it decides to list and trade index options in the
future. See id.
    \91\ See Notice, supra note 3, at 28073. See also Amendment No.
1 at 43.
---------------------------------------------------------------------------

Conduct and Operational Rules for Options Members

    The Exchange proposes to adopt operational and member conducts
rules for MEMX Options that are substantively identical to the rules of
Cboe BZX Options regarding: (i) exercises and deliveries; \92\ (ii)
records, reports and audits; \93\ (iii) minor rule violations; \94\
(iv) doing business with the public; \95\ and (v) margin.\96\
---------------------------------------------------------------------------

    \92\ See MEMX Rules, Chapter 23. See also Cboe BZX Rules,
Chapter XXIII.
    \93\ See MEMX Rules, Chapter 24. See also Cboe BZX Rules,
Chapter XXIV.
    \94\ See MEMX Rules, Chapter 25. See also Cboe BZX Rules,
Chapter XXV.
    \95\ See MEMX Rules, Chapter 26. See also Cboe BZX Rules,
Chapter XXVI.
    \96\ See MEMX Rules, Chapter 27. See also Cboe BZX Rules,
Chapter XXVII.
---------------------------------------------------------------------------

National Market System

    Before commencing operations, MEMX Options will become a member of
the Options Price Reporting Authority (``OPRA''), the Options Linkage
Authority (``OLA''), the Options Regulatory Surveillance Authority
(``ORSA''), and the Options Listing Procedures Plan (``OLPP'').\97\
---------------------------------------------------------------------------

    \97\ See Notice, supra note 3, at 28073. See also Amendment No.
1 at 42.
---------------------------------------------------------------------------

Regulation

    The Exchange represents that it will leverage many of the
structures it established to operate a national securities exchange for
trading equities in compliance with Section 6 of the Act.\98\
Specifically, the Exchange represents that there will be three elements
of that regulation: (i) the Exchange will join the existing options
industry agreements pursuant to Section 17(d) of the Act prior to
commencing operations; \99\ (ii) the Exchange's Regulatory Services
Agreement with FINRA will be amended as necessary prior to MEMX Options
commencing operations and will govern many aspects of the regulation
and discipline of members that participate in options trading, just as
it does for equities regulation; \100\ and (iii) the Exchange will
perform options listing regulation, as well as authorize Options
Members to trade on MEMX Options, and conduct surveillance of options
trading as it does today for equities.\101\
---------------------------------------------------------------------------

    \98\ 15 U.S.C. 78f. See Notice, supra note 3, at 28074. See also
Amendment No. 1 at 44.
    \99\ 15 U.S.C. 78q(d). The Exchange also explains that it is
party to a bilateral Rule 17d-2 with FINRA, which will require minor
modifications to accommodate the proposed launch of MEMX Options.
The Exchange represents that it will seek to have the Commission
declare effective those amendments to the bilateral Rule 17d-2
agreement prior to commencing operations for MEMX Options. See also
Amendment No. 1 at 46.
    \100\ The Exchange represents that it has entered into a
Regulatory Services Agreement with FINRA, pursuant to which FINRA
personnel operate as agents for the Exchange in performing certain
functions. As is the case with the Exchange's equities market, the
Exchange represents that it will supervise FINRA personnel acting as
agent and continue to bear ultimate regulatory responsibility for
the MEMX Options Exchange. See Notice, supra note 3, at 28074. See
also Amendment No. 1 at 46-47.
    \101\ See Notice, supra note 3, at 28074. See also Amendment No.
1 at 44-45.
---------------------------------------------------------------------------

    Consistent with the Exchange's existing regulatory structure, the
Exchange's Chief Regulatory Officer will have general supervision of
the regulatory operations of MEMX Options, including responsibility for
overseeing the surveillance, examination, and enforcement functions and
for administering all regulatory services agreements applicable to MEMX
Options.\102\ Similarly, the Exchange's existing Regulatory Oversight
Committee will be responsible for overseeing the adequacy and
effectiveness of Exchange's regulatory and self-regulatory organization
responsibilities, including those applicable to MEMX Options.\103\
---------------------------------------------------------------------------

    \102\ See Notice, supra note 3, at 28074. See also Amendment No.
1 at 47.
    \103\ See Notice, supra note 3, at 28074. See also Amendment No.
1 at 47.
---------------------------------------------------------------------------

    The Exchange's existing rules governing members will apply to
Options Members and their associated persons. The Exchange's existing
rules provide that members, a term that includes Options Members, agree
to be regulated by the Exchange as a condition of effecting securities
transactions on the Exchange's trading facilities.\104\ The Exchange's
rules also permit it to sanction members, including Options Members,
for violations of its rules and governing documents and of the federal
securities laws by, among other things, expelling or suspending
members, limiting members' activities, functions, or operations, fining
or censuring members, or suspending or barring a person from being
associated with a member.\105\
---------------------------------------------------------------------------

    \104\ See MEMX Rule 2.2. See also Second Amended and Restated
Limited Liability Company Agreement of MEMX LLC (May 19, 2020),
Section 17.2 (providing the Exchange with disciplinary jurisdiction
over its members).
    \105\ See MEMX Rule 2.2.
---------------------------------------------------------------------------

    As it does with equities trading, the Exchange will perform
automated surveillance of trading on MEMX Options for the purpose of
maintaining a fair and orderly market at all times, and it will monitor
MEMX Options to identify unusual trading patterns and determine whether
particular trading activity requires further regulatory
investigation.\106\
---------------------------------------------------------------------------

    \106\ See Notice, supra note 3, at 28074. See also Amendment No.
1 at 47.
---------------------------------------------------------------------------

    Additionally, the Exchange will oversee the process for determining
and implementing trade halts, identifying and responding to unusual
market conditions, and administering the Exchange's process for
identifying and remediating ``obvious errors'' by and among its Options
Members.\107\ The Exchange explains that Chapter 20

(Regulation of Trading on MEMX Options) regarding halts, unusual market
conditions, extraordinary market volatility, obvious errors, audit
trail, and rules regarding prohibited and permissible transfers of
options positions off the Exchange are substantively identical to the
rules of Cboe BZX Options.\108\
---------------------------------------------------------------------------

    \107\ See Notice, supra note 3, at 28074. See also Amendment No.
1 at 47-48.
    \108\ See also Amendment No. 1 at 47-48.
---------------------------------------------------------------------------

Minor Rule Violation Plan

    The Commission approved the Exchange's Minor Rule Violation Plan
(``MRVP'') in 2020.\109\ The Exchange's MRVP specifies those
uncontested minor rule violations with sanctions not exceeding $2,500
that would not be subject to the provisions of Rule 19d-1(c)(1) under
the Act \110\ requiring that an SRO promptly file notice with the
Commission of any final disciplinary action taken with respect to any
person or organization.\111\ The Exchange's MRVP includes the policies
and procedures included in Rule 8.15 (Imposition of Fines for Minor
Violation(s) of Rules) and in Rule 8.15, Interpretation and Policy .01.
---------------------------------------------------------------------------

    \109\ See Securities Exchange Act Release No. 89836 (September
11, 2020), 85 FR 58081 (September 17, 2020) (Order Declaring
Effective a Minor Rule Violation Plan) (``MRVP Order'').
    \110\ 17 CFR 240.19d-1(c)(1).
    \111\ The Commission adopted amendments to paragraph (c) of Rule
19d-1 to allow SROs to submit for Commission approval plans for the
abbreviated reporting of minor disciplinary infractions. See
Securities Exchange Act Release No. 21013 (June 1, 1984), 49 FR
23828 (June 8, 1984). Any disciplinary action taken by an SRO
against any person for violation of a rule of the SRO which has been
designated as a minor rule violation pursuant to such a plan filed
with and declared effective by the Commission will not be considered
``final'' for purposes of Section 19(d)(1) of the Act if the
sanction imposed consists of a fine not exceeding $2,500 and the
sanctioned person has not sought an adjudication, including a
hearing, or otherwise exhausted his administrative remedies.
---------------------------------------------------------------------------

    In connection with MEMX Options, the Exchange is amending its MRVP
and Exchange Rule 8.15, Interpretation and Policy .01, to include Rule
25.3 (Penalty for Minor Rule Violations). Rule 25.3 contains provisions
addressing the following: (i) position limit and exercise limit
violations; (ii) violations regarding the failure to accurately report
position and account information; (iii) Market Maker quoting
obligations; (iv) violations regarding expiring exercise declarations;
(v) violations relating to the failure to respond to the Exchange's
requests for the submission of trade data; and (vi) violations relating
to noncompliance with the Consolidated Audit Trail Compliance Rule
requirements. The Exchange further states that the rules included in
proposed Rule 25.3 are the same as the rules included in the MRVPs of
other options exchanges.\112\
---------------------------------------------------------------------------

    \112\ See Notice, supra note 3, at 28075. See also Amendment No.
1 at 49.
---------------------------------------------------------------------------

    The Exchange represents that, upon implementation, it will include
the enumerated options trading rule violations in the Exchange's
standard quarterly report of actions taken on minor rule violations
under the MRVP.\113\ The Exchange asserts that its amended MRVP is
consistent with Sections 6(b)(1), 6(b)(5) and 6(b)(6) of the Act, which
require, in part, that an exchange have the capacity to enforce
compliance with, and provide appropriate discipline for, violations of
the rules of the Commission and of the exchange.\114\ In addition, the
Exchange states that it will provide a fair procedure for the
disciplining of members and associated persons, consistent with Section
6(b)(7) of the Act,\115\ because amended Rule 8.15 will offer
procedural rights to a person sanctioned for a violation listed in Rule
25.3.\116\ The Exchange represents that it will continue to conduct
surveillance with due diligence and make a determination based on its
finding, on a case-by-case basis, whether a fine of more or less than
the recommended amount is appropriate for a violation under the MRVP or
whether a violation requires a formal disciplinary action.\117\
---------------------------------------------------------------------------

    \113\ See Notice, supra note 3, at 28075. See also Amendment No.
1 at 49-50. The Exchange states that the quarterly report currently
includes: the Exchange's internal file number for the case, the name
of the individual and/or organization, the nature of the violation,
the specific rule provision violated, the fine imposed, the number
of times the rule violation has occurred, and the date of
disposition. See id.
    \114\ 15 U.S.C. 78f(b)(1), 78f(b)(5) and 78f(b)(6). See also
Notice, supra note 3, at 28075. See also Amendment No. 1 at 49-50.
    \115\ 15 U.S.C. 78f(b)(7).
    \116\ See Notice, supra note 3, at 28075. See also Amendment No.
1 at 50.
    \117\ See Notice, supra note 3, at 28075. See also Amendment No.
1 at 50.
---------------------------------------------------------------------------

Amendments to Existing Exchange Rules

    In addition to the new rules for MEMX Options, the Exchange also
proposes to amend certain of its existing rules in order to reflect the
Exchange's proposed operation of MEMX Options. First, the Exchange is
amending paragraph (d) of Interpretations and Policies .01 to Rule 2.5
(Restrictions), which generally requires each member to register at
least two Principals with the Exchange subject to certain exceptions
described therein, to provide that such paragraph (d) shall not apply
to a member that solely conducts business on the Exchange as an Options
Member, however, Options Members must comply with the registration
requirements set forth in proposed Rule 17.2(g).\118\ In connection
with this change, the Exchange also is amending paragraph (i) of
Interpretations and Policies .01 to Rule 2.5 to include Options
Principal as a registration category and to set forth the Exchange's
qualification requirements for an Options Principal, which the Exchange
states are the same as those for an Options Principal on Cboe BZX
Options.\119\
---------------------------------------------------------------------------

    \118\ The Exchange notes that proposed MEMX Rule 17.2(g), which
provides that every Options Member shall have at least one Options
Principal and sets forth the Exchange's Options Principal
registration requirements, is identical to Cboe BZX Rule 17.2(g).
See Notice, supra note 3, at 28075. See also Amendment No. 1 at 53.
    \119\ See Notice, supra note 3, at 28075. See also Amendment No.
1 at 53.
---------------------------------------------------------------------------

    The Exchange also is deleting the word ``equities'' in the first
sentence of Rule 2.7 (Revocation of Membership or Association with a
Member), which currently provides that members or associated persons of
members may effect approved equities securities transactions on the
Exchange's trading facilities only so long as they possess all the
qualifications set forth in the Exchange Rules.
    The Exchange proposes to modify Rule 2.11(a)(6), which states that
MEMX Execution Services shall maintain an error account for the purpose
of addressing positions that are the result of an execution or
executions that are not clearly erroneous under Rule 11.15 and result
from a technical or systems issue at MEMX Execution Services, the
Exchange, a routing destination, or a non-affiliate third-party routing
broker that affects one or more orders (``Error Positions''). The
proposed change to Rule 2.11(a)(6) adds a reference to the comparable
provision in Rule 20.6 that governs review and resolution of options
transactions that may qualify as obvious errors.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's
proposal is consistent with the requirements of the Act and the rules
and regulations thereunder applicable to a national securities
exchange.\120\ In particular, the Commission finds that the proposed
rule change is consistent with, among others, Sections 6(b)(1),\121\
6(b)(5),\122\

and 6(b)(8) \123\ of the Act. Section 6(b)(1) of the Act requires that
an exchange be so organized and have the capacity to be able to carry
out the purposes of the Act and to comply and enforce compliance by its
members and persons associated with its members with the provisions of
the Act, the rules and regulations thereunder, and the rules of the
Exchange. Section 6(b)(5) of the Act requires that the rules of a
national securities exchange be designed, among other things, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system and, in general, to protect investors and the public
interest, and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act
requires that the rules of a national securities exchange not impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \120\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \121\ 15 U.S.C. 78f(b)(1).
    \122\ 15 U.S.C. 78f(b)(5).
    \123\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    As detailed above, MEMX Options' proposed rules are substantially
similar to those of other exchanges, especially Cboe BZX, though the
Exchange is not proposing to adopt certain optional features offered by
other exchanges so that its trading platform at launch will, as the
Exchange described it, have ``a simplified suite of conventional order
types and functionality that is designed to provide for an efficient,
robust, and transparent order matching process.'' \124\ While some of
these features may be available on other option exchanges, such as
price improvement auctions, directed market makers, facilitation
mechanisms, and price-sliding mechanisms, those features are optional
and supplementary to the core exchange matching engine functionality,
and they are not necessary for the Commission to find that the rules
governing MEMX Options are consistent with the Act.
---------------------------------------------------------------------------

    \124\ See Notice, supra note 3, at 28064. See also Amendment No.
1 at 4.
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Exchange Members

    As described above, only Options Members, and their Sponsored
Participants,\125\ will be permitted to transact on the System. The
Exchange also proposes to adopt rules governing member operations and
member conduct, all of which are substantively identical to the rules
of other exchanges, including Cboe BZX. Those rules include
recordkeeping and reporting requirements,\126\ discipline,\127\ margin
requirements,\128\ and requirements applicable to doing business with
the public.\129\
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    \125\ See MEMX Rule 1.5(dd) (defining ``Sponsored Participant''
to mean ``a person which has entered into a sponsorship arrangement
with a Sponsoring Member pursuant to Rule 11.3'').
    \126\ See MEMX Chapter 24 (Records, Reports and Audits).
    \127\ See MEMX Chapter 25 (Discipline and Summary Suspensions).
    \128\ See MEMX Chapter 28 (Margin Requirements).
    \129\ See MEMX Chapter 26 (Doing Business with the Public).
---------------------------------------------------------------------------

    The Commission finds that the rules applicable to qualification,
registration, member operations, and use of MEMX Options, which are
substantially similar to those of other options exchanges, are
consistent with the Act, including Sections 6(b)(1), (2), and (6)
thereof, in that they provide the Exchange with the capacity to
regulate access to and conduct on MEMX Options and enforce the federal
securities laws among persons using its facilities, provide that
registered broker-dealers can become members and have access to MEMX
Options, and ensure that Options Members and their associated persons
can be appropriately disciplined for violations of the Act, the rules
and regulations thereunder, and Exchange rules.
    With respect to Market Maker members, the Commission finds that the
proposed Market Maker qualification requirements, which also are
substantially similar to those of other options exchanges, are
consistent with the Act. The Commission further finds that the Options
Market Maker participation requirements are consistent with the Act.
Market makers receive certain benefits for carrying out their
responsibilities. For example, a broker-dealer or other lender may
extend ``good faith'' credit to a member of a national securities
exchange or registered broker-dealer to finance its activities as a
market maker or specialist.\130\ In addition, market makers are
exempted from the prohibition in Section 11(a) of the Act.\131\ The
Commission believes that a market maker must have sufficient
affirmative obligations, including the obligation to hold itself out as
willing to buy and sell options for its own account on a regular or
continuous basis, to justify this favorable treatment. The Commission
believes that the MEMX Options Market Maker participation requirements
are consistent with the Act and are substantially similar to the
participation requirements of other options exchanges that the
Commission has previously approved.
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    \130\ See 12 CFR 221.5 and 12 CFR 220.7; see also 17 CFR
240.15c3-1(a)(6) (capital requirements for market makers).
    \131\ 15 U.S.C. 78k(a)(1).
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MEMX Options Market Structure and Trading Operations

    The functionalities and features of MEMX Options' market structure
and trading system are based on functionalities and features currently
used and previously approved for other options exchanges. Among other
things, the rules are reasonably designed to provide for a simple,
orderly opening process for an exchange that only trades multiply
listed options, as well as an orderly re-opening process following the
conclusion of a trading halt. Further, the rules provide for the
electronic display and execution of orders in traditional price/time
priority. MEMX Options will utilize only two order types (limit orders
and market orders) and offer a limited suite of order handling
instructions, all of which are well-established in both the equities
and options markets. These proposed execution priority rules and order
types are consistent with the Act, in particular Section 6(b)(5) of the
Act, in that, among other things, they are designed to promote just and
equitable principles of trade and are not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
    MEMX also is requiring a one-second exposure period in order to
execute as principal orders represented as agent, which is the same
standard required by other exchanges. This exposure requirement should
facilitate the prompt execution of orders while continuing to provide
members with an opportunity to compete for exposed bids and offers.
    MEMX listing standards for options traded on MEMX Options are
substantively identical to those currently utilized by other exchanges.
MEMX will join the Options Listings Procedures Plan and will list and
trade options already listed on other options exchanges. The Commission
finds that the Exchange's proposed listing standards are consistent
with the Act, including Section 6(b)(5), in that they are designed to
protect investors and the public interest and promote just and
equitable principles of trade. As explained below, MEMX's operation of
MEMX Options is conditioned on MEMX joining and participating in the
OLPP. The Exchange has represented that it will join the OLPP and will
become an exchange member of OCC.
    Further, MEMX proposes operational rules that are substantively
identical to the rules of other options exchanges, such as Cboe BZX,
including rules

applicable to exercise and deliveries.\132\ Those rules adopt the
standard requirements applicable to exercise notices and applicable
cut-off times for submission of exercise-related notices, the
assignment of exercise notices, and delivery and payment requirements.
The Commission finds that these rules are consistent with the Act,
including Section 6(b)(5), in that they promote just and equitable
principles of trade, foster cooperation and coordination with persons
engaged in regulating, clearing, settling, processing information with
respect to, and facilitating transactions in securities, remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, protect investors and the
public interest.
---------------------------------------------------------------------------

    \132\ See MEMX Chapter 23 (Exercises and Deliveries).
---------------------------------------------------------------------------

    And, as described above, in those cases where MEMX Options'
proposed rules vary from current functionality on other options
exchanges, many of those variations are because MEMX proposes a more
streamlined system and is not proposing to introduce those optional
features.
    As such, the Commission finds that the proposed functionalities and
features of MEMX Options' overall structure and trading operations are
consistent with the Act, and in particular, with Section 6(b)(5) of the
Act, which requires an exchange's rules, among other things, be
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest, and are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.

Options Order Protection, Locked/Crossed Market Plan, and Outbound
Routing

    The MEMX Options rules are designed to comply with applicable
federal securities laws and regulations and the obligations of the
Linkage Plan. Specifically, the rules are designed to ensure that an
order is not executed at a price that would trade through another
options exchange. In this regard, the Commission notes that MEMX
Options is required under Rule 608(c) of Regulation NMS \133\ to comply
with and enforce compliance by its members with the Linkage Plan,
including the requirement to avoid trading through better prices
available on other markets. Any order designated by an Options Member
as routable will be routed by MEMX in compliance with applicable trade-
through restrictions, and any order entered with a price that would
lock or cross a Protected Quotation that is not eligible for either
routing or the price adjust process in Rule 21.1(i) will be cancelled.
The Commission finds these order protection rules to be consistent with
the Act. Further, in light of the protections discussed above that
apply to the optional use of outbound routing services offered through
MEMX Execution Services, which currently apply to the Exchange's
equities trading facility, as well as the back-up optional routing
services through an unaffiliated routing broker, the Commission finds
the routing rules to be consistent with the Act.
---------------------------------------------------------------------------

    \133\ See 17 CFR 242.608(c).
---------------------------------------------------------------------------

    Before commencing operations, MEMX represents that it will become a
participant in the Linkage Plan.\134\ To meet their regulatory
responsibilities under the Linkage Plan, including the requirement to
avoid trading through better-priced protected quotations available on
other markets, other options exchanges that are Linkage Plan
participants must have sufficient notice of new protected quotations,
as well as all necessary information (such as final technical
specifications). Therefore, the Commission believes that it would be a
reasonable policy and procedure under the Linkage Plan for industry
participants to begin treating MEMX Options' best bid and best offer as
a protected quotation within the later of 60 days after the date of
this order or such date as MEMX Options begins operation.
---------------------------------------------------------------------------

    \134\ See Notice, supra note 3, at 28073. See also Amendment No.
1 at 41.
---------------------------------------------------------------------------

Risk Monitoring and Protection

    As discussed above, MEMX Options will offer Users an optional
mechanism to establish certain risk control parameters and limits. The
``passive'' functionality is substantially similar to that offered on
Cboe BZX Options, except that MEMX Options will permit Users to track
risk parameters across a customized group of orders and will permit
Users to choose to suspend, rather than cancel or reject, resting
interest when a risk limit has been reached.\135\ The proposed
``active'' functionality is novel, as Cboe BZX Options rules do
presently offer similar functionality. As described above, in the
``active'' version, a User can effectively interact with the Risk
Monitor Mechanism to decrement the counting program as executions
occur.
---------------------------------------------------------------------------

    \135\ See Notice, supra note 3, at 28072. See also Amendment No.
1 at 34-36.
---------------------------------------------------------------------------

    In addition to the Risk Monitor Mechanism, the Exchange will offer
additional price protection mechanisms and risk controls. These
controls are substantially similar to those offered on Cboe BZX, with
slight modifications to align with the Exchange's proposed streamlined
market opening procedures and fewer available order types and
instructions on MEMX Options. Also, whereas the drill-through price
protection mechanism offered on Cboe BZX executes an incoming order to
a determined ``Drill-Through Price'' and then displays the remainder of
the order on Cboe BZX Options at that price for a brief period of time,
the Exchange proposes to cancel the remainder of an incoming order
after executing the order.
    The Commission believes that the proposed risk protections for MEMX
Options are reasonably designed to provide liquidity providers with
protections to help them manage risk and efficiently use capital when
trading options. These protections are in addition to, and do not take
the place of, members' required market access controls, vigilant
oversight of trading and algorithms, and overall risk management. For
example, these mechanisms are intended to provide market makers and
other liquidity providers with optional supplemental tools as an
additional layer of protection to assist them in managing risk and
utilizing available capital in leveraged options securities. To the
extent they achieve that intended objective, liquidity providers should
be able to provide additional liquidity to the market at potentially
improved prices, thus benefitting investors.
    While most of these protections are substantively similar to those
available on other options markets, some of the differences discussed
above are designed to offer market participants additional flexibility
when using the Risk Monitor Mechanism in a manner consistent with the
functionality and scope of protections that the Risk Monitor Mechanism
provides. Accordingly, the Commission finds that the proposed risk
controls for MEMX Options are consistent with the Act in that they are
designed to, among other things, promote just and equitable principles
of trade and protect investors and the public interest.

Participation in Multiparty Options--Related Plans

    The Exchange represents that it will become a participant in the
various applicable multiparty plans for options

trading. Specifically, the Exchange represents that MEMX Options will
become a member of OPRA, OLA, ORSA, and OLPP before commencing
operations. Doing so will integrate MEMX Options into the national
market system for standardized listed options.

Regulation

    The Exchange represents that it will leverage the structures it
currently maintains to operate and oversee its equities trading
facility, which involve the following three elements: (i) the Exchange
will join the existing options industry agreements pursuant to Section
17(d) of the Act,\136\ as it did with respect to equities; (ii) the
Exchange's Regulatory Services Agreement with FINRA will be amended to
govern many aspects of the regulation and discipline of Options
Members, just as it does for equities; \137\ and (iii) the Exchange
will perform options listing regulation, as well as authorize Options
Members to trade on MEMX Options, and conduct surveillance of options
trading as it does today for equities. Furthermore, MEMX proposes to
amend its Minor Rule Violation Plan to encompass MEMX Options in a
manner that is substantially similar to and consistent with the
analogous rules and plans on other options exchanges.
---------------------------------------------------------------------------

    \136\ See 15 U.S.C. 78q(d) and 17 CFR 240.17d-2. There are three
17d-2 plans that apply to options: the Options-Related Sales
Practice Plan (File No. S7-966), the Options-Related Market
Surveillance Plan (File No. 4-551), and the Regulation NMS Plan
(File No. 4-566). MEMX already is a member of the Regulation NMS
Plan.
    \137\ Importantly, the Commission notes that unless relieved by
the Commission of its responsibility pursuant to Rule 17d-2, the
Exchange bears the responsibility for its self-regulatory
obligations and primary liability for self-regulatory failures, not
the SRO retained to perform regulatory functions on the Exchange's
behalf. See Section 17(d)(1) of the Act and Rule 17d-2 thereunder
(15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2). In performing these
functions as agent for MEMX, however, FINRA may nonetheless bear
liability for causing or aiding and abetting the failure of the
Exchange to perform its regulatory functions. Accordingly, although
FINRA will not act on its own behalf under its SRO responsibilities
in carrying out these regulatory services for the Exchange relating
to the operation of MEMX Options, FINRA also may have secondary
liability if, for example, the Commission finds the contracted
functions are being performed so inadequately as to cause a
violation of the federal securities laws by the Exchange. See, e.g.,
Securities Exchange Act Release No. 53128 (January 13, 2006), 71 FR
3550 (January 23, 2006) (File No. 10-131) (``Nasdaq Exchange
Registration Order'').
---------------------------------------------------------------------------

    Also, as explained above, consistent with the Exchange's existing
regulatory structure, the Exchange's Chief Regulatory Officer will have
general supervision of the regulatory operations of MEMX Options,
including responsibility for overseeing the surveillance, examination,
and enforcement functions and for administering all regulatory services
agreements applicable to MEMX Options. Similarly, the Exchange's
existing Regulatory Oversight Committee will be responsible for
overseeing the adequacy and effectiveness of Exchange's regulatory and
self-regulatory organization responsibilities, including those
applicable to MEMX Options.
    As it does with equities, the Exchange will perform automated
surveillance of trading on MEMX Options for the purpose of maintaining
a fair and orderly market at all times. As it does with its equities
trading facility, the Exchange will monitor MEMX Options to identify
unusual trading patterns and determine whether particular trading
activity requires further regulatory investigation by FINRA.
    In addition, the Exchange will oversee the process for determining
and implementing trade halts, identifying and responding to unusual
market conditions, and administering the Exchange's process for
identifying and remediating ``obvious errors'' by and among its Options
Members. The proposed rules in Chapter 20 (Regulation of Trading on
MEMX Options) regarding halts, unusual market conditions, extraordinary
market volatility, obvious errors, and audit trail are substantively
identical to the rules of Cboe BZX Options.
    Based on the foregoing, the Commission finds that the Exchange's
proposed rules and regulatory structure with respect to MEMX Options
are consistent with the requirements of the Act, in particular with
Section 6(b)(1) of the Act, which requires an exchange to be so
organized and have the capacity to be able to carry out the purposes of
the Act and to comply, and to enforce compliance by its members and
persons associated with its members, with the Act and the rules and
regulations thereunder, and the rules of the Exchange, and with
Sections 6(b)(6) and 6(b)(7) of the Act, which require an Exchange to
provide fair procedures for the disciplining of members and persons
associated with members. The Commission further believes that it is
consistent with the Act to allow the Exchange to contract with FINRA to
perform functions relating to the regulation and discipline of members
and the regulation of MEMX Options.\138\ These functions are
fundamental elements to a regulatory program and constitute core self-
regulatory functions. The Commission believes that FINRA has the
expertise and experience to perform these functions on behalf of the
Exchange.\139\
---------------------------------------------------------------------------

    \138\ See, e.g., Regulation of Exchanges and Alternative Trading
Systems, Securities Exchange Act Release No. 40760 (December 8,
1998), 63 FR 70844 (December 22, 1998). See also, e.g., Securities
Exchange Act Release Nos. 50122 (July 29, 2004), 69 FR 47962 (August
6, 2004) (SR-Amex-2004-32) (approving rule that allowed Amex to
contract with another SRO for regulatory services).
    \139\ The Commission notes that the RSA is not before the
Commission and, therefore, the Commission is not acting on it.
---------------------------------------------------------------------------

    The Commission finds that the amended MRVP is consistent with
Sections 6(b)(1), 6(b)(5), and 6(b)(6) of the Act, which require, in
part, that an exchange have the capacity to enforce compliance with,
and provide appropriate discipline for, violations of the rules of the
Exchange and the federal securities laws. As existing MEMX Rule 8.15
will continue to offer procedural rights to a person sanctioned for a
violation listed in proposed MEMX Options Rule 25.3, the Commission
believes that the Exchange's rules provide a fair procedure for the
disciplining of members and associated persons, consistent with Section
6(b)(7) of the Act.\140\ The Commission also finds that the MRVP
changes are consistent with the public interest, the protection of
investors, or otherwise in furtherance of the purposes of the Act, as
required by Rule 19d-1(c)(2) under the Act,\141\ because they should
strengthen the Exchange's ability to carry out its oversight and
enforcement responsibilities as an SRO in cases where full disciplinary
proceedings are unsuitable in view of the minor nature of the
particular violation.
---------------------------------------------------------------------------

    \140\ 15 U.S.C. 78f(b)(7).
    \141\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

    In approving the proposed change to the Exchange's MRVP, the
Commission in no way minimizes the importance of compliance with the
Exchange's rules and all other rules subject to the imposition of fines
under the Exchange's MRVP. The Commission believes that the violation
of any SRO rules, as well as the federal securities laws, is a serious
matter. However, the Exchange's MRVP provides a reasonable means of
addressing rule violations that do not rise to the level of requiring
formal disciplinary proceedings, while providing flexibility in
handling certain violations. The Commission expects that the Exchange
will continue to conduct surveillance with due diligence and make a
determination based on its findings, on a case-by-case basis, whether a
fine of more or less than the recommended amount is appropriate for a
violation under the Exchange's MRVP or whether a violation requires a
formal disciplinary action.

Section 11(a) of the Act

    Section 11(a)(1) of the Act \142\ prohibits a member of a national
securities exchange from effecting transactions on that exchange for
its own account, the account of an associated person, or an account
over which it or its associated person exercises investment discretion
(collectively, ``covered accounts'') unless an exception applies. Rule
11a2-2(T) under the Act,\143\ known as the ``effect versus execute''
rule, provides exchange members with an exemption from the Section
11(a)(1) prohibition. Rule 11a2-2(T) permits an exchange member,
subject to certain conditions, to effect transactions for covered
accounts by arranging for an unaffiliated member to execute
transactions on the exchange. To comply with Rule 11a2-2(T)'s
conditions, a member: (i) must transmit the order from off the exchange
floor; (ii) may not participate in the execution of the transaction
once it has been transmitted to the member performing the execution;
\144\ (iii) may not be affiliated with the executing member; and (iv)
with respect to an account over which the member or an associated
person has investment discretion, neither the member nor its associated
person may retain any compensation in connection with effecting the
transaction except as provided in the Rule.
---------------------------------------------------------------------------

    \142\ 15 U.S.C. 78k(a)(1).
    \143\ 17 CFR 240.11a2-2(T).
    \144\ This prohibition also applies to associated persons. The
member may, however, participate in clearing and settling the
transaction.
---------------------------------------------------------------------------

    In a letter to the Commission, the Exchange requests that the
Commission concur with the Exchange's conclusion that Options Members
that enter orders into the System satisfy the requirements of Rule
11a2-2(T).\145\ For the reasons set forth below, the Commission
believes that Options Members entering orders into the System could
satisfy the requirements of Rule 11a2-2(T).
---------------------------------------------------------------------------

    \145\ See Letter from Anders Franzon, General Counsel, MEMX, to
Vanessa Countryman, Secretary, Commission, dated August 8, 2022
(``MEMX 11(a) Letter'').
---------------------------------------------------------------------------

    The Rule's first requirement is that orders for covered accounts be
transmitted from off the exchange floor. In the context of automated
trading systems, the Commission has found that the off-floor
transmission requirement is met if a covered account order is
transmitted from a remote location directly to an exchange's floor by
electronic means.\146\ MEMX has represented that MEMX Options does not
have a physical trading floor, and the MEMX Options trading system will
receive orders from members electronically through remote terminals or
computer-to-computer interfaces.\147\ The Commission believes that the
MEMX Options trading system satisfies this off-floor transmission
requirement.
---------------------------------------------------------------------------

    \146\ See, e.g., Securities Exchange Act Release Nos. 85828 (May
10, 2019), 84 FR 21841 (May 15, 2019) (registration of Long-Term
Stock Exchange); 75760 (August 7, 2015) 80 FR 48600 (August 13,
2015) (SR-EDGX-2015-18); 61419 (January 26, 2010), 75 FR 5157
(February 1, 2010) (SR-BATS-2009-031) (approving BATS options
trading); 59154 (December 23, 2008), 73 FR 80468 (December 31, 2008)
(SR-BSE-2008-48) (approving equity securities listing and trading on
BSE); 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) (SR-
NASDAQ-2007-004 and SR-NASDAQ-2007-080) (approving NOM options
trading); 53128 (January 13, 2006), 71 FR 3550, 3553 (January 23,
2006) (File No. 10-131) (granting the exchange registration of
Nasdaq Stock Market, Inc.); 44983 (October 25, 2001), 66 FR 55225
(November 1, 2001) (SR-PCX-00-25) (approving Archipelago Exchange);
29237 (May 24, 1991), 56 FR 24853 (May 31, 1991) (SR-NYSE-90-52 and
SR-NYSE-90-53) (approving NYSE's Off-Hours Trading Facility); and
15533 (January 29, 1979), 44 FR 6084 (January 31, 1979) (``1979
Release'').
    \147\ See MEMX 11(a) Letter, supra note 145, at 5-6.
---------------------------------------------------------------------------

    Second, the Rule requires that the member and any associated person
not participate in the execution of its order after the order has been
transmitted. MEMX represented that at no time following the submission
of an order is an Options Member or an associated person of the Options
Member able to acquire control or influence over the result or timing
of the order's execution.\148\ According to the Exchange, the execution
of a member's order is determined solely by what quotes and orders are
present in the System at the time the member submits the order, and the
order priority based on the MEMX Options rules.\149\ Accordingly, the
Commission believes that an Options Member and its associated persons
do not participate in the execution of an order submitted to the MEMX
Options System.\150\
---------------------------------------------------------------------------

    \148\ See MEMX 11(a) Letter, supra note 145, at 6-7. MEMX notes
that a member may cancel or modify the order, or modify the
instructions for executing the order, after the order has been
transmitted, provided that such cancellations or modifications are
transmitted from off an exchange floor. See id. at 6. The Commission
has stated that the non-participation requirement is satisfied under
such circumstances so long as such modifications or cancellations
are also transmitted from off the floor. See Securities Exchange Act
Release No. 14563 (March 14, 1978), 43 FR 11542 (March 17, 1978)
(``1978 Release'') (stating that the ``non-participation requirement
does not prevent initiating members from canceling or modifying
orders (or the instructions pursuant to which the initiating member
wishes orders to be executed) after the orders have been transmitted
to the executing member, provided that any such instructions are
also transmitted from off the floor'').
    \149\ See MEMX 11(a) Letter, supra note 145, at 2. The
Commission notes that MEMX proposes rules for the registration,
obligations, and operation of market makers on MEMX Options. MEMX
has represented that market makers, if any, will submit quotes in
the form of orders in their assigned symbols. See id. at n. 4.
    \150\ See, e.g., Securities Exchange Act Release No. 58375
(August 18, 2008), 73 FR 49498, 49505 (August 21, 2008) (File No.
10-182) (order granting the registration of BATS Exchange) (``Bats
Order'') and 61698 (March 12, 2010), 75 FR 13151, 13164 (March 18,
2010) (File Nos. 10-194 and 10-196) (order approving DirectEdge
exchanges) (``DirectEdge Order'').
---------------------------------------------------------------------------

    Third, Rule 11a2-2(T) requires that the order be executed by an
exchange member who is unaffiliated with the member initiating the
order. The Commission has stated that this requirement is satisfied
when automated exchange facilities, such as the MEMX Options trading
system are used, as long as the design of these systems ensures that
members do not possess any special or unique trading advantages in
handling their orders after transmitting them to the exchange.\151\ The
Exchange has represented that the design of the MEMX Options trading
system ensures that no Options Member has any special or unique trading
advantages in the handling of its orders after transmitting its orders
to the Exchange.\152\ Based on the Exchange's representation, the
Commission believes that the MEMX Options trading system satisfies this
requirement.
---------------------------------------------------------------------------

    \151\ See, e.g., Bats Order, supra note 150, at 49505 and
DirectEdge Order, supra note 150, at 13164. In considering the
operation of automated execution systems operated by an exchange,
the Commission noted that, while there is not an independent
executing exchange member, the execution of an order is automatic
once it has been transmitted into the system. Because the design of
these systems ensures that members do not possess any special or
unique trading advantages in handling their orders after
transmitting them to the exchange, the Commission has stated that
executions obtained through these systems satisfy the independent
execution requirement of Rule 11a2-2(T). See 1979 Release, supra
note 146.
    \152\ See MEMX 11(a) Letter, supra note 145, at 7.
---------------------------------------------------------------------------

    Fourth, in the case of a transaction effected for an account with
respect to which the initiating member or an associated person thereof
exercises investment discretion, neither the initiating member nor any
associated person thereof may retain any compensation in connection
with effecting the transaction, unless the person authorized to
transact business for the account has expressly provided otherwise by
written contract referring to Section 11(a) of the Act and Rule 11a2-
2(T) thereunder.\153\ MEMX

Options Members trading for covered accounts over which they exercise
investment discretion must comply with this condition in order to rely
on the rule's exemption.\154\
---------------------------------------------------------------------------

    \153\ See Bats Order, supra note 150, at 49505 and DirectEdge
Order, supra note 150, at 13164. In addition, Rule 11a2-2(T)(d)
requires a member or associated person authorized by written
contract to retain compensation, in connection with effecting
transactions for covered accounts over which such member or
associated persons thereof exercises investment discretion, to
furnish at least annually to the person authorized to transact
business for the account a statement setting forth the total amount
of compensation retained by the member or any associated person
thereof in connection with effecting transactions for the account
during the period covered by the statement. See 17 CFR 240.11a2-
2(T)(d). See also 1978 Release, supra note 148 (stating ``[t]he
contractual and disclosure requirements are designed to assure that
accounts electing to permit transaction-related compensation do so
only after deciding that such arrangements are suitable to their
interests'').
    \154\ See MEMX 11(a) Letter, supra note 145, at 3. The Exchange
represented that it will advise its membership through the issuance
of a Regulatory Circular that those members trading for covered
accounts over which they exercise investment discretion must comply
with this condition in order to rely on the rule's exemption. See
id.
---------------------------------------------------------------------------

IV. Exemption From Section 19(b) of the Act With Regard to Cboe, NYSE,
and FINRA Rules Incorporated by Reference

    The Exchange proposes to incorporate by reference as MEMX Options
Rules certain rules of Cboe Exchange (``Cboe''), the New York Stock
Exchange (``NYSE''), and FINRA.\155\ Thus, for certain MEMX Options
rules, Exchange members will comply with a MEMX Options rule by
complying with the Cboe, NYSE, or FINRA rule referenced. In connection
with its proposal to incorporate Cboe, NYSE, and FINRA rules by
reference, the Exchange requests, pursuant to Rule 240.0-12 under the
Act,\156\ an exemption under Section 36 of the Act from the rule filing
requirements of Section 19(b) of the Act for changes to those MEMX
Options rules that are effected solely by virtue of a change to a
cross-referenced Cboe, NYSE, or FINRA rule.\157\ The Exchange proposes
to incorporate by reference categories of rules (rather than individual
rules within a category) that are not trading rules. The Exchange
agrees to provide written notice to Options Member prior to the launch
of MEMX Options of the specific Cboe, NYSE, and FINRA rules that it is
incorporating by reference.\158\ In addition, the Exchange will notify
Options Members whenever Cboe, NYSE, or FINRA proposes a change to a
cross-referenced Cboe, NYSE, or FINRA rule.\159\
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    \155\ Specifically, MEMX Rule 26.16 proposes to incorporate by
reference the applicable rules of FINRA with respect to
Communications with Public Customers; MEMX Rule 28.3 proposes to
incorporate by reference initial and maintenance margin requirements
of either Cboe or NYSE; MEMX Rule 29.5 proposes to incorporate by
reference the applicable rules of Cboe with respect to position
limits for broad based index options; and MEMX Rule 29.7 proposes to
incorporate by reference the applicable rules of Cboe with respect
to position limits for narrow-based and micro-narrow based index
options traded on MEMX Options and also on Cboe.
    \156\ 17 CFR 240.0-12.
    \157\ See Amendment No. 1 at 51-53.
    \158\ See Amendment No. 1 at 52.
    \159\ The Exchange represents that it will provide such notice
through a posting on the same website location where the Exchange
will post its own rule filings pursuant to Rule 19b-4(l) under Act,
within the time frame required by that rule. The website posting
will include a link to the location on the Cboe, NYSE, or FINRA
website where the proposed rule change is posted. See id. at n. 38.
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    Using its authority under Section 36 of the Act, the Commission
previously exempted certain SROs from the requirement to file proposed
rule changes under Section 19(b) of the Act.\160\ Each such exempt SRO
agreed to be governed by the incorporated rules, as amended from time
to time, but is not required to file a separate proposed rule change
with the Commission each time the SRO whose rules are incorporated by
reference seeks to modify its rules. In addition, each SRO incorporated
by reference only regulatory rules (e.g., margin, suitability,
arbitration), not trading rules, and incorporated by reference whole
categories of rules (i.e., did not ``cherry-pick'' certain individual
rules within a category). Each exempt SRO had procedures in place to
provide written notice to its members each time a change is proposed to
the incorporated rules of another SRO in order to provide its members
with notice of a proposed rule change that affects their interests, so
that they would have an opportunity to comment on it.
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    \160\ See Securities Exchange Act Release No. 49260 (February
17, 2004), 69 FR 8500 (February 24, 2004) (granting application for
exemptions pursuant to Section 36(a) under the Act by the American
Stock Exchange LLC, the International Securities Exchange, Inc., the
Municipal Securities Rulemaking Board, the Pacific Exchange, Inc.,
the Philadelphia Stock Exchange, Inc., and the Boston Stock
Exchange, Inc.). See also, e.g., Securities Exchange Act Release
Nos.); 75760 (August 7, 2015) 80 FR 48600 (August 13, 2015) (SR-
EDGX-2015-18) (approving the operations of EDGX Options Exchange,
which included exemptive relief pursuant to Section 36(a) under the
Act); 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) (order
approving SR-NASDAQ-2007-004 and SR-NASDAQ-2007-080, which included
exemptive relief pursuant to Section 36(a) under the Act) and 53128
(January 13, 2006).
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    The Commission is granting the Exchange's request for exemption,
pursuant to Section 36 of the Act, from the rule filing requirements of
Section 19(b) of the Act with respect to the rules that the Exchange
proposes to incorporate by reference into MEMX Options Rules. The
Commission believes that this exemption is appropriate in the public
interest and consistent with the protection of investors because it
will promote more efficient use of Commission and SRO resources by
avoiding duplicative rule filings based on simultaneous changes to
identical rule text sought by more than one SRO. Consequently, the
Commission grants the Exchange's exemption request for MEMX Options.
This exemption is conditioned upon the Exchange providing written
notice to Options Members whenever Cboe, NYSE, or FINRA proposes to
change a rule that MEMX Options has incorporated by reference.

V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
is consistent with the Act. Comments may be submitted by any of the
following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-MEMX-2022-10 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-MEMX-2022-10. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of this filing will also be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from

comment submissions. You should submit only information that you wish
to make available publicly. All submissions should refer to File Number
SR-MEMX-2022-10 and should be submitted on or before September 2, 2022.

VI. Accelerated Approval of Proposed Rule Change

    The Commission finds good cause to approve the proposed rule change
prior to the 30th day after the date of publication of Amendment No. 1
in the Federal Register. Amendment No.1 does not include any material
changes to the proposed rules for MEMX Options or the descriptions of
those rules in the original filing. In Amendment No. 1, the Exchange,
among other items, provides additional detail about how some of the
proposed MEMX Options rules will function, revises other existing MEMX
rules to reference and accommodate MEMX Options, provides
representations about how MEMX will inform Users about certain
parameters or variables set forth in the MEMX Options Rules, requests
exemptive relief under Section 36 of the Act from Section 19 of the Act
for rules incorporated by reference, and makes other minor technical
changes to the filing.
    The Commission finds that Amendment No.1 raises no novel regulatory
issues and is reasonably designed to perfect the mechanism of a free
and open market and the national market system, protect investors and
the public interest, and not be unfairly discriminatory, or impose an
unnecessary or inappropriate burden on competition. The Amendment makes
minor and non-material clarifying and conforming changes and makes
additional representations that each provide more clarity on the
application of the MEMX Options rules and the commencement of operation
of MEMX Options. Accordingly, pursuant to Section 19(b)(2) of the
Act,\161\ the Commission finds good cause to approve the proposed rule
change on an accelerated basis.
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    \161\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\162\ that the proposed rule change (SR-MEMX-2022-10), as modified
by Amendment No. 1, be, and it hereby is, approved on an accelerated
basis.
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    \162\ Id.
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    Although the Commission's approval of the proposed rule change is
final, and the proposed rules are therefore effective, it is further
ordered that the operation of MEMX Options is conditioned on the
satisfaction of the requirements below:
    A. Participation in Plans Relating to Options Trading. MEMX must
join: (i) the OPRA Plan; (ii) the OLPP; (iii) the Linkage Plan; and
(iv) the Plan of the Options Regulatory Surveillance Authority.
    B. RSA and Rule 17d-2 Agreements. MEMX must ensure that all
necessary changes are made to its Regulatory Services Agreement and
bilateral Rule 17d-2 agreement with FINRA, and it must be a party to
the multiparty Rule 17d-2 agreements concerning options-related sales
practice matters and options-related market surveillance.
    C. Participation in the Options Clearing Corporation. MEMX must
join the Options Clearing Corporation.
    D. Participation in the Intermarket Surveillance Group. MEMX must
be a member of the Intermarket Surveillance Group.
    It is further ordered, pursuant to Section 36 of the Act,\163\ that
MEMX shall be exempted from the rule filing requirements of Section
19(b) of the Act \164\ with respect to the Cboe, FINRA, and NYSE rules
that MEMX proposes to incorporate by reference in MEMX Rules 26.16,
28.3, 29.5, and 29.7, subject to the conditions specified in this
Order.
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    \163\ See 15 U.S.C. 78mm.
    \164\ 15 U.S.C. 78s(b).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\165\
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    \165\ 17 CFR 200.30-3(a)(12) and 17 CFR 200.30-3(a)(76).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17320 Filed 8-11-22; 8:45 am]
BILLING CODE 8011-01-P