[Federal Register Volume 88, Number 154 (Friday, August 11, 2023)]
[Notices]
[Pages 54699-54706]
[FR Doc No: 2023-17209]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98070; File No. SR-MEMX-2023-16]

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

August 7, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 3, 2023, MEMX LLC (``MEMX'' or the ``Exchange'') filed
with the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

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

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

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

1. Purpose
    The purpose of the proposed rule change is to amend the Fee
Schedule to: (i) reduce the base rebate for executions of orders in
securities priced at or above $1.00 per share that add displayed
liquidity to the Exchange (such orders, ``Added Displayed Volume'');
(ii) modify the Liquidity Provision Tiers by modifying the rebate for
Liquidity Provision Tier 1 and the criteria for Liquidity Provision
Tier 2; (iii) modify NBBO Set/Join Tier 2; (iv) modify the Displayed
Liquidity Initiative Tiers by modifying the criteria for Displayed
Liquidity Initiative Tier 1 and modifying the rebate for Displayed
Liquidity Initiative Tier 2; (v) add a new Non-Display Add Tier 1 to
the three existing Non-Display Add Tiers, which will be renamed Non-
Display Add Tier 2, Non-Display Add Tier 3, and Non-

Display Add Tier 4, respectively; (vi) modify the required criteria
under renamed Non-Display Add Tier 3 and renamed Non-Display Add Tier
4; (vii) reduce the base rebates for executions of orders in securities
that add non-displayed liquidity to the Exchange (such orders, ``Added
Non-Displayed Volume'') in securities priced at or above $1.00 per
share; and (viii) increase the base rebates for executions of Added
Non-Displayed Volume in securities priced below $1.00 per share.\4\
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    \4\ The Exchange initially filed the proposed Fee Schedule
changes on August 1, 2023 (SR-MEMX-2023-15). On August 3, 2023, the
Exchange withdrew that filing and submitted this proposal.
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    The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 16 registered equities exchanges, as well as a
number of alternative trading systems and other off-exchange venues, to
which market participants may direct their order flow. Based on
publicly available information, no single registered equities exchange
currently has more than approximately 16% of the total market share of
executed volume of equities trading.\5\ Thus, in such a low-
concentrated and highly competitive market, no single equities exchange
possesses significant pricing power in the execution of order flow, and
the Exchange currently represents approximately 3% of the overall
market share.\6\ The Exchange in particular operates a ``Maker-Taker''
model whereby it provides rebates to Members that add liquidity to the
Exchange and charges fees to Members that remove liquidity from the
Exchange. The Fee Schedule sets forth the standard rebates and fees
applied per share for orders that add and remove liquidity,
respectively. Additionally, in response to the competitive environment,
the Exchange also offers tiered pricing, which provides Members with
opportunities to qualify for higher rebates or lower fees where certain
volume criteria and thresholds are met. Tiered pricing provides an
incremental incentive for Members to strive for higher tier levels,
which provides increasingly higher benefits or discounts for satisfying
increasingly more stringent criteria.
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    \5\ Market share percentage calculated as of July 31, 2023. The
Exchange receives and processes data made available through
consolidated data feeds (i.e., CTS and UTDF).
    \6\ Id.
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Reduce Base Rebate for Added Displayed Volume
    Currently, the Exchange provides a base rebate of $0.0018 per share
for executions of Added Displayed Volume in securities priced at or
above $1.00 per share. The Exchange now proposes to reduce the base
rebate for executions of Added Displayed Volume to $0.0015 per
share.\7\ The purpose of reducing the base rebate for executions of
Added Displayed Volume is for business and competitive reasons, as the
Exchange believes that reducing such rebate as proposed would decrease
the Exchange's expenditures with respect to its transaction pricing in
a manner that is still consistent with the Exchange's overall pricing
philosophy of encouraging added displayed liquidity. The Exchange notes
that despite the reduction proposed herein, the proposed base rebate
for executions of Added Displayed Volume remains competitive with the
base rebates provided by other exchanges for executions of orders in
securities priced at or above $1.00 per share that add displayed
liquidity.\8\
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    \7\ The proposed base rebate for executions of Added Displayed
Volume is referred to by the Exchange on the Fee Schedule under the
existing description ``Added displayed volume'' with a Fee Code of
``B'', ``D'' or ``J'', as applicable, on execution reports.
    \8\ See, e.g., the Nasdaq Stock Market LLC (``Nasdaq'') Price
List--Trading Connectivity (available at https://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2), which reflects a base rebate of
$0.0018 per share for executions of orders in Tape A and Tape B
securities priced at or above $1.00 per share that add displayed
liquidity and a base rebate of $0.0013 per share for executions of
orders in Tape C securities priced at or above $1.00 per share that
add displayed liquidity; the Cboe BZX Exchange, Inc. (``Cboe BZX'')
equities trading fee schedule on its public website (available at
https://www.cboe.com/us/equities/membership/fee_schedule/bzx/),
which reflects a base rebate of $0.0016 per share for executions of
orders in securities priced at or above $1.00 per share that add
displayed liquidity.
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Liquidity Provision Tiers
    The Exchange currently provides a base rebate of $0.0018 per share
for executions of Added Displayed Volume in securities priced at or
above $1.00 per share, which the Exchange is proposing to reduce to
$0.0015 per share, as described above. The Exchange also currently
offers Liquidity Provision Tiers 1-6 under which a Member may receive
an enhanced rebate for executions of Added Displayed Volume by
achieving the corresponding required volume criteria for each such
tier. The Exchange now proposes to modify the Liquidity Provision Tiers
by reducing the rebate for executions of Added Displayed Volume under
Liquidity Provision Tier 1, as further described below.
    With respect to Liquidity Provision Tier 1,\9\ the Exchange
currently provides an enhanced rebate of $0.00335 per share for
executions of Added Displayed Volume in securities priced at or above
$1.00 per share for Members that qualify for such tier by achieving an
ADAV \10\ (excluding Retail Orders \11\) that is equal to or greater
than 0.45% of the TCV.\12\ The Exchange now proposes to reduce the
rebate for executions of Added Displayed Volume under Liquidity
Provision Tier 1 to $0.0033 per share. The Exchange is not proposing to
change the criteria required to qualify for Liquidity Provision Tier 1.
The Exchange is also not proposing to change the rebate for executions
of orders in securities priced below $1.00 per share under such tier.
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    \9\ The pricing for Liquidity Provision Tier 1 is referred to by
the Exchange on the Fee Schedule under the existing description
``Added displayed volume, Liquidity Provision Tier 1'' with a Fee
Code of ``B1'', ``D1'' or ``J1'', as applicable, to be provided by
the Exchange on the monthly invoices provided to Members.
    \10\ As set forth on the Fee Schedule, ``ADAV'' means the
average daily added volume calculated as the number of shares added
per day, which is calculated on a monthly basis, and ``Displayed
ADAV'' means ADAV with respect to displayed orders.
    \11\ As set forth in Exchange Rule 11.21(a), a ``Retail Order''
means an agency or riskless principal order that meets the criteria
of FINRA Rule 5320.03 that originates from a natural person and is
submitted to the Exchange by a Retail Member Organization, provided
that no change is made to the terms of the order with respect to
price or side of market and the order does not originate from a
trading algorithm or any other computerized methodology.
    \12\ As set forth on the Fee Schedule, ``TCV'' means total
consolidated volume calculated as the volume reported by all
exchanges and trade reporting facilities to a consolidated
transaction reporting plan for the month for which the fees apply.
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    With respect to Liquidity Provision Tier 2,\13\ the Exchange
currently provides an enhanced rebate of $0.00325 per share for
executions of Added Displayed Volume in securities priced at or above
$1.00 per share for Members that qualify for such tier by achieving (1)
an ADAV (excluding Retail Orders) that is equal to or greater than
0.25% of the TCV and (2) a Non-Displayed ADAV that is equal to or
greater than 4,000,000 shares. The Exchange now proposes to eliminate
the retail exclusion under qualification (1) above for such tier.
Specifically, the Exchange will offer an enhanced rebate of $0.00325
per share for executions of

Added Displayed Volume in securities priced at or above $1.00 per share
for Members that qualify for such tier by achieving (1) an ADAV that is
equal to or greater than 0.25% of the TCV and (2) a Non-Displayed ADAV
that is equal to or greater than 4,000,000 shares.
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    \13\ The pricing for Liquidity Provision Tier 2 is referred to
by the Exchange on the Fee Schedule under the existing description
``Added displayed volume, Liquidity Provision Tier 1'' with a Fee
Code of ``B2'', ``D2'' or ``J2'', as applicable, to be provided by
the Exchange on the monthly invoices provided to Members.
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    The purpose of reducing the rebates for executions of Added
Displayed Volume under Liquidity Provision Tier 1 as proposed, which
the Exchange believes in each case represents a modest reduction, is
for business and competitive reasons, as the Exchange believes that
such rebate reductions would decrease the Exchange's expenditures with
respect to its transaction pricing in a manner that is still consistent
with the Exchange's overall pricing philosophy of encouraging added
liquidity. The purpose of removing the retail exclusion under Liquidity
Provision Tier 2 as proposed is to allow Members to more easily reach
Liquidity Provision Tier 2, which, in turn, the Exchange believes will
encourage more Members to seek to qualify for such Tier.
    The tiered pricing structure for executions of Added Displayed
Volume under the Liquidity Provision Tiers provides an incremental
incentive for Members to strive for higher volume thresholds to receive
higher enhanced rebates for such executions and, as such, is intended
to encourage Members to maintain or increase their order flow,
primarily in the form of liquidity-adding volume, to the Exchange,
thereby contributing to a deeper and more liquid market to the benefit
of all Members and market participants. The Exchange believes that the
Liquidity Provision Tiers, as modified by the proposed changes
described above, reflect a reasonable and competitive pricing structure
that is right-sized and consistent with the Exchange's overall pricing
philosophy of encouraging added and/or displayed liquidity.
Specifically, the Exchange believes that, after giving effect to the
proposed changes described above, the rebate for executions of Added
Displayed Volume provided under each of the Liquidity Provision Tiers
1-6 remains commensurate with the corresponding required criteria under
each such tier and is reasonably related to the market quality benefits
that each such tier is designed to achieve.
NBBO Setter/Joiner Tier 2
    The Exchange currently offers NBBO Setter/Joiner Tiers 1-2 under
which a Member may receive an additive rebate for a qualifying Member's
executions of Added Displayed Volume (other than Retail Orders) that
establish the NBBO (such orders, ``Setter Volume'') and executions of
Added Displayed Volume (other than Retail Orders) that establish a new
best bid or offer on the Exchange that matches the NBBO first
established on an away market (such orders, ``Joiner Volume''). With
respect to NBBO Setter/Joiner Tier 2, the Exchange currently provides
an additive rebate of $0.0003 per share for executions of Setter Volume
and Joiner Volume for Members that qualify for such tier by achieving
an ADAV equal to or greater than 0.05% of the TCV and a Displayed ADAV
with respect to orders with Fee Code B \14\ or J \15\ that is equal to
or greater than 40% of the Member's Displayed ADAV with respect to
orders with Fee Code B, D or J.\16\ The Exchange proposes to reduce the
rebate for NBBO Setter/Joiner Tier 2 to $0.0002 per share. The Exchange
does not propose to change the criteria under NBBO Setter/Joiner Tier
2. The Exchange believes that the new additive rebate remains
commensurate with the required criteria under such tier, as modified,
and is reasonably related to the market quality benefits that such tier
is designed to achieve.
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    \14\ The Exchange notes that orders with Fee Code B include
orders, other than Retail Orders, that establish the NBBO.
    \15\ The Exchange notes that orders with Fee Code J include
orders, other than Retail Orders, that establish a new BBO on the
Exchange that matches the NBBO first established on an away market.
    \16\ The Exchange notes that orders with Fee Code D include
orders that add displayed liquidity to the Exchange but that are not
Fee Code B or J, and thus, orders with Fee Code B, D or J include
all orders, other than Retail Orders, that add displayed liquidity
to the Exchange. The pricing for NBBO Setter/Joiner Tier 2 is
referred to by the Exchange on the Fee Schedule under the new
description ``NBBO Setter/Joiner Tier 2'' with a Fee Code of S2 to
be appended to the otherwise applicable Fee Code assigned by the
Exchange on the monthly invoices for qualifying executions.
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Displayed Liquidity Incentive (``DLI'') Tiers
    The Exchange currently offers DLI Tiers 1 and 2 under which a
Member may receive an enhanced rebate for executions of Added Displayed
Volume by achieving the corresponding required criteria for each such
tier. The DLI Tiers are designed to encourage Members, through the
provision of an enhanced rebate for executions of Added Displayed
Volume, to promote price discovery and market quality by quoting at the
NBBO for a significant portion of each day (i.e., through the
applicable quoting requirement \17\) in a broad base of securities
(i.e., through the applicable securities requirement \18\), thereby
benefitting the Exchange and investors by providing improved trading
conditions for all market participants through narrower bid-ask spreads
and increased depth of liquidity available at the NBBO in a broad base
of securities and committing capital to support the execution of
orders.\19\ Now, the Exchange proposes to modify the required criteria
under DLI Tier 1 and to modify the rebate under DLI Tier 2.
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    \17\ As set forth on the Fee Schedule, the term ``quoting
requirement'' means the requirement that a Member's NBBO Time be at
least 25%, and the term ``NBBO Time'' means the aggregate of the
percentage of time during regular trading hours during which one of
a Member's market participant identifiers (``MPIDs'') has a
displayed order of at least one round lot at the national best bid
or the national best offer.
    \18\ As set forth on the Fee Schedule, the term ``securities
requirement'' means the requirement that a Member meets the quoting
requirement in the applicable number of securities per trading day.
Currently, each of DLI Tiers 1 and 2 has a securities requirement
that may be achieved by a Member meeting the quoting requirement in
the specified number of securities traded on the Exchange.
    \19\ See the Exchange's Fee Schedule (available at https://info.memxtrading.com/fee-schedule/) for additional details regarding
the Exchange's DLI Tiers. See also Securities Exchange Act Release
No. 92150 (June 10, 2021), 86 FR 32090 (June 16, 2021) (SR-MEMX-
2021-07) (notice of filing and immediate effectiveness of fee
changes adopted by the Exchange, including the adoption of DLI).
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    With respect to DLI Tier 1, currently, a Member qualifies for DLI
Tier 1 by achieving (1) an NBBO Time of at least 25% in an average of
at least 1,000 securities per trading day during the month and (2) an
ADAV equal to or greater than 0.05% of the TCV. The Exchange proposes
to modify the second criteria under DLI Tier 1 by increasing the ADAV
requirement such that a Member would now qualify for DLI Tier 1 by
achieving an ADAV equal to or greater than 0.10% of the TCV. The
purpose of increasing the ADAV requirement is to encourage Members to
strive for higher displayed volume on the Exchange, encouraging an
overall increase in liquidity on the Exchange. The Exchange is not
proposing to change the rebate for executions under such tier.\20\
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    \20\ The pricing for DLI Tier 1 is referred to by the Exchange
on the Fee Schedule under the existing description ``Added displayed
volume, DLI Tier 1'' with a Fee Code of Bq1, Bq1 or Jq1, as
applicable.
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    With respect to DLI Tier 2, currently, the Exchange provides a
rebate of $0.0028 per share under such tier. Now, the Exchange is
proposing to reduce this rebate to $0.0026.\21\ The Exchange is not
proposing to change any of the criteria required to reach such tier.
The purpose of reducing the rebate is for business and competitive
reasons, as the Exchange believes the reduction of such rebates would
decrease the Exchange's expenditures with respect to its

transaction pricing in a manner that is still consistent with the
Exchange's overall pricing philosophy of encouraging added and/or
displayed liquidity and promoting the price discovery and market
quality objectives of the DLI Tiers described above. The Exchange
believes that the proposed reduction by $0.0002 per share represents a
modest reduction and that the proposed rebate under DLI Tier 2 remains
commensurate with the required criteria under the tier. The Exchange is
not proposing to change the rebates provided under such tiers for
executions of orders in securities priced below $1.00 per share.
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    \21\ The pricing for DLI Tier 2 is referred to by the Exchange
on the Fee Schedule under the existing description ``Added displayed
volume, DLI Tier 2'' with a Fee Code of Bq2, Dq2 or Jq2, as
applicable.
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Non-Display Add Tiers
    The Exchange currently offers Non-Display Add Tiers 1-3 under which
a Member may receive an enhanced rebate for executions of Added Non-
Displayed Volume by achieving the corresponding required volume
criteria for each such tier. The Exchange now proposes to modify the
Non-Display Add Tiers by adding a new Non-Display Add Tier 1 to the
three existing Non-Display Add Tiers, which will be renamed Non-Display
Add Tier 2, Non-Display Add Tier 3, and Non-Display Add Tier 4,
respectively. The Exchange also now proposes to modify the required
criteria under renamed Non-Display Add Tier 3 and renamed Non-Display
Add Tier 4.
    With respect to the proposed addition of a new Non-Display Add Tier
1, the Exchange currently provides three Non-Display Add tiers.
Currently, under Non-Display Add Tier 1, the Exchange provides an
enhanced rebate of $0.0027 per share for executions of Added Non-
Displayed Volume in securities priced at or above $1.00 per share for
Members that qualify for such tier by achieving a Non-Displayed ADAV
\22\ that is equal to or greater than 5,000,000 shares.\23\ The
Exchange also currently provides under Non-Display Add Tier 2 an
enhanced rebate of $0.0024 per share for executions of Added Non-
Displayed Volume in securities priced at or above $1.00 per share for
Members that qualify for such tier by achieving a Non-Displayed ADAV
that is equal to or greater than 1,500,000 shares,\24\ and under Non-
Display Add Tier 3 the Exchange currently provides an enhanced rebate
of $0.0018 per share for executions of Added Non-Displayed Volume in
securities priced at or above $1.00 per share for Members that qualify
for such tier by achieving a Non-Displayed ADAV that is equal to or
greater than 500,000 shares.\25\ The Exchange proposes to provide an
enhanced rebate of $0.0028 per share for executions of Added Non-
Displayed Volume in securities priced at or above $1.00 per share for
Members that qualify for such tier by achieving a Non-Displayed ADAV
that is equal to or greater than 8,000,000 shares or the Member has an
ADAV (excluding Retail Orders) equal to or greater than 0.45% of the
TCV. This additional rebate tier would become the new Non-Display Add
Tier 1.
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    \22\ As set forth on the Fee Schedule, ``Non-Displayed ADAV''
means ADAV with respect to non-displayed orders (including orders
subject to Display-Price Sliding that receive price improvement when
executed and Midpoint Peg orders).
    \23\ The pricing for Non-Display Add Tier 1 is referred to by
the Exchange on the Fee Schedule under the existing description
``Added non-displayed volume, Non-Display Add Tier 1'' with a Fee
Code of ``H1'', ``M1'' or ``P1'', as applicable, to be provided by
the Exchange on the monthly invoices provided to Members.
    \24\ The pricing for Non-Display Add Tier 2 is referred to by
the Exchange on the Fee Schedule under the existing description
``Added non-displayed volume, Non-Display Add Tier 2'' with a Fee
Code of ``H2'', ``M2'' or ``P2'', as applicable, to be provided by
the Exchange on the monthly invoices provided to Members.
    \25\ The pricing for Non-Display Add Tier 3 is referred to by
the Exchange on the Fee Schedule under the existing description
``Added non-displayed volume, Non-Display Add Tier 3'' with a Fee
Code of ``H3'', ``M3'' or ``P3'', as applicable, to be provided by
the Exchange on the monthly invoices provided to Members.
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    With respect to the former Non-Display Add Tier 1, as a result of
the addition of a new Non-Display Add Tier 1 as described above, the
former Non-Display Add Tier 1 would be re-named Non-Display Add Tier 2.
The Exchange does not propose any changes to the amount of the rebate
($0.0027 per share in securities priced at or above $1.00 per share)
for this tier. The Exchange also does not propose any change to the
criteria required to meet this tier.
    With respect to the former Non-Display Add Tier 2, as a result of
the addition of a new Non-Display Add Tier 1 as described above, the
former Non-Display Add Tier 2 would be renamed Non-Display Add Tier 3.
The Exchange does not propose any changes to the amount of the rebate
($0.0024 per share in securities priced at or above $1.00 per share)
for this tier. In addition to the name change, the Exchange proposes to
modify the criteria required to meet this tier. Currently, in order to
qualify for the rebate of $0.0024 per share (for the current Non-
Display Add Tier 2, which the Exchange proposes to rename Non-Display
Add Tier 3) Members must achieve a Non-Display ADAV equal to or greater
than 1,500,000 shares, as noted above. The Exchange proposes that a
Member would qualify for such tier by achieving a Non-Display ADAV
equal to or greater than 2,000,000 shares. In summary, the Exchange
proposes that in order to qualify for the renamed Non-Display Add Tier
3, Members must achieve a Non-Display ADAV equal to or greater than
2,000,000 shares.
    With respect to the former Non-Display Add Tier 3, as a result of
the addition of a new Non-Display Add Tier 1 as described above, the
former Non-Display Add Tier 3 would be renamed Non-Display Add Tier 4.
The Exchange does not propose any changes to the amount of the rebate
($0.0018 per share in securities priced at or above $1.00 per share)
for this tier. In addition to the name change, the Exchange proposes to
modify the criteria required to meet this tier. The Exchange currently
provides an enhanced rebate of $0.0018 per share for executions of
Added Non-Displayed Volume for Members that qualify for such tier by
achieving a Non-Displayed ADAV that is equal to or greater than 500,000
shares, as noted above. The Exchange now proposes that a Member would
now qualify for such tier by achieving a Non-Displayed ADAV that is
equal to or greater than 1,000,000 shares. In summary, the Exchange
proposes that in order to qualify for the renamed Non-Display Add Tier
4, Members must achieve a Non-Display ADAV equal to or greater than
1,000,000 shares.\26\
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    \26\ The pricing for Non-Display Add Tier 4 would be referred to
by the Exchange on the Fee Schedule under the existing description
``Added non-displayed volume, Non-Display Add Tier 4'' with a Fee
Code of ``H4'', ``M4'' or ``P4'', as applicable, to be provided by
the Exchange on the monthly invoices provided to Members.
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    As described in further detail below, the Exchange is also
proposing to increase the rebate for all Added Non-Displayed Volume in
securities priced below $1.00 per share. The Exchange proposed to adopt
this same rebate for each of the Non-Display Add Tiers, Tiers 1 through
4, in order to maintain consistency across all executions of Added Non-
Displayed Volume.
    The purpose of adding a new Non-Display Add Tier 1 is for business
and competitive reasons. The proposed new Non-Display Add Tier 1 is
designed to encourage Members to maintain or increase their order flow
to the Exchange in order to qualify for the proposed enhanced rebate
for executions of Added Non-Displayed Volume. The purpose of re-naming
the currently existing tiers is to present the fee schedule in a way
that is easy for Members to understand, starting with the largest
rebate. The purpose of raising the Non-Display ADAV required to

achieve Non-Display Add Tier 3 as proposed, which the Exchange believes
represents a modest increase, is for business and competitive reasons.
The purpose of raising the Non-Displayed ADAV required to achieve Non-
Display Add Tier 4 as proposed, which the Exchange believes represents
a modest increase, is also for business and competitive reasons. The
modest increase in the Non-Displayed ADAV required to achieve Tiers 3
and 4 will encourage Members to strive for higher non-displayed added
volume on the Exchange, encouraging an overall increase in liquidity on
the Exchange.
    The tiered pricing structure for executions of Added Non-Displayed
Volume under the Non-Display Add Tiers provides an incremental
incentive for Members to strive for higher volume thresholds to receive
higher enhanced rebates for such executions and, as such, is intended
to encourage Members to maintain or increase their order flow,
particularly in the form of liquidity-adding non-displayed volume, to
the Exchange, thereby contributing to a deeper and more robust and
well-balanced market ecosystem to the benefit of all Members and market
participants. The Exchange believes that the Non-Display Add Tiers, as
modified by the proposed changes described above, reflect a reasonable
and competitive pricing structure that is right-sized and consistent
with the Exchange's overall pricing philosophy of encouraging added
and/or displayed liquidity. Specifically, the Exchange believes that,
after giving effect to the proposed changes described above, the rebate
for executions of Added Non-Displayed Volume provided under each of the
Non-Display Add Tiers is commensurate with the corresponding required
criteria under each such tier and is reasonably related to the market
quality benefits that each such tier is designed to achieve.
Reduce Base Rebates for Added Non-Displayed Volume
    The Exchange is also proposing to uniformly reduce the base rebates
provided for executions of Added Non-Displayed Volume in securities
priced at or above $1.00 per share. Added Non-Displayed Volume is
comprised of the three following types of orders: (i) Midpoint Peg
Orders in securities that add liquidity to the Exchange (such orders,
``Added Midpoint Volume''); (ii) orders, which are not orders subject
to Display-Price Sliding that receive price improvement when executed
or Midpoint Peg Orders, that add non-displayed liquidity to the
Exchange (such orders, ``Added Non-Midpoint Hidden Volume''); and (iii)
orders in securities subject to Display-Price Sliding that add
liquidity to the Exchange and receive price improvement when executed
(such orders, ``Added Price-Improved Volume'').
    Currently, the Exchange provides base rebates of $0.0010 per share
for executions of Added Midpoint Volume, Added Non-Midpoint Hidden
Volume, and Added Price-Improved Volume in securities priced at or
above $1.00 per share. The Exchange now proposes to reduce each of
these base rebates to $0.0008 per share.\27\ The purpose of uniformly
reducing the standard rebates for executions of Added Midpoint Volume,
Added Non-Midpoint Hidden Volume, and Added Price-Improved Volume is
for business and competitive reasons, as the Exchange believes reducing
such rebates as proposed would decrease the Exchange's expenditures
with respect to its transaction pricing in a manner that is still
consistent with the Exchange's overall pricing philosophy of
encouraging added displayed liquidity. The Exchange notes that the
proposed base rebate for executions of Added Non-Midpoint Hidden Volume
remains in line and competitive with the base rebates provided by at
least one other exchange for executions of similar orders.\28\
Additionally, the Exchange believes it is appropriate to also provide
the same base rebate for executions of Added Price-Improved Volume and
Added Midpoint Volume as for Added Non-Midpoint Hidden Volume, as all
of these orders similarly add liquidity to the Exchange and are
executed at prices that are not displayed on the Exchange's order book,
and the Exchange notes that all of these orders are also currently
subject to the same base rebate and pricing structure today.
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    \27\ The proposed base rebate for executions of Added Midpoint
Volume is referred to by the Exchange on the Fee Schedule under the
existing description ``Added non-displayed volume, Midpoint Peg''
and such orders will continue to receive a Fee Code of ``M'' on
execution reports. The proposed base rebate for executions of Added
Non-Midpoint Hidden Volume is referred to by the Exchange on the Fee
Schedule under the existing description ``Added non-displayed
volume'' and such orders will continue to receive a Fee Code of
``H'' on execution reports. The proposed base rebate for executions
of Added Price-Improved Volume is referred to by the Exchange on the
Fee Schedule under the existing description ``Added volume, order
subject to Display-Price Sliding that receives price improvement
when executed'' and such orders will continue to receive a Fee Code
of ``P'' on execution reports.
    \28\ See, e.g., the Cboe BZX equities trading fee schedule on
its public website (available at https://www.cboe.com/us/equities/membership/fee_schedule/bzx/), which reflects a standard rebate of
$0.0008 per share for executions of orders in securities priced at
or above $1.00 per share that add non-displayed liquidity.
---------------------------------------------------------------------------

Increase Rebates for Sub-Dollar Non-Displayed Volume
    The Exchange is also proposing to increase the rebates provided for
all sub-dollar executions of Added Non-Displayed Volume. As noted
above, Added Non-Displayed Volume is comprised of the three following
types of orders: (i) Added Midpoint Volume; (ii) Added Non-Midpoint
Hidden Volume; and (iii) Added Price-Improved Volume. Currently, the
Exchange provides no rebate and charges no fees for Added Midpoint
Volume, Added Non-Midpoint Hidden Volume, and Added Price-Improved
Volume in securities priced below $1.00 per share. This pricing
structure is similarly applied to all executions of Added Non-Displayed
Volume by Members that qualify for enhanced rebates in securities
priced at or above $1.00 per share pursuant to the Non-Display Add
Tiers. The Exchange now proposes to increase the rebate for all Added
Non-Displayed Volume to 0.075% of total dollar value. Specifically, the
Exchange will provide a rebate of 0.075% of total dollar value for each
of Added Midpoint Volume, Added Non-Midpoint Hidden Volume, and Added
Price-Improved Volume in securities priced below $1.00 per share. The
Exchange is similarly proposing to provide a rebate of 0.075% of total
dollar value to Members that qualify for enhanced rebates pursuant to
the Non-Display Add Tiers in securities priced below $1.00 per share.
Thus, all Added Non-Displayed Volume will qualify for the same rebate
for executions in securities priced below $1.00 per share.
    The purpose of the rebate increase for sub-dollar executions in
Added Non-Displayed Volume is to encourage participants to add sub-
dollar liquidity on the Exchange. The increase to 0.075% of total
dollar value is the same rebate provided to sub-dollar executions which
provide displayed liquidity on the Exchange. The Exchange believes by
offering the same rebate for sub-dollar non-displayed liquidity as for
displayed liquidity, the resulting pricing structure will encourage the
provision of sub-dollar liquidity on the Exchange. Additionally, the
Exchange believes it is appropriate to provide the same rebate for sub-
dollar executions of Added Price-Improved Volume and Added Midpoint
Volume as for Added Non-Midpoint Hidden Volume, as all of these orders
similarly add liquidity to the Exchange and are executed at prices that
are not displayed on the Exchange's order book, and the Exchange notes
that

all of these orders are also currently subject to the same sub-dollar
rebate and pricing structure today.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\29\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\30\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among its Members and other persons using its facilities
and is not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f.
    \30\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    As discussed above, the Exchange operates in a highly fragmented
and competitive market in which market participants can readily direct
order flow to competing venues if they deem fee levels at a particular
venue to be excessive or incentives to be insufficient, and the
Exchange represents only a small percentage of the overall market. The
Commission and the courts have repeatedly expressed their preference
for competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \31\
---------------------------------------------------------------------------

    \31\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
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    The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to new or different pricing structures being
introduced into the market. Accordingly, competitive forces constrain
the Exchange's transaction fees and rebates, and market participants
can readily trade on competing venues if they deem pricing levels at
those other venues to be more favorable. The Exchange believes the
proposal reflects a reasonable and competitive pricing structure
designed to encourage market participants to strive for higher volume
on the Exchange, which the Exchange believes would promote price
discovery and enhance liquidity and market quality on the Exchange to
the benefit of all Members and market participants.
    The Exchange notes that volume-based incentives (such as Liquidity
Provision Tiers, NBBO Setter/Joiner Tiers, Non-Display Add Tiers, and
DLI Tiers) have been widely adopted by exchanges (including the
Exchange), and are reasonable, equitable, and not unfairly
discriminatory because they are open to all members on an equal basis
and provide additional benefits or discount that are reasonably related
to the value to an exchange's market quality associated with higher
levels of market activity, such as higher levels of liquidity provision
and/or growth patterns, and the introduction of higher volumes of
orders into the price and volume discovery process.
    The Exchange believes the proposal to reduce the base rebate for
Added Displayed Volume is reasonable because, as described above, it is
designed to decrease the Exchange's expenditures with respect to its
transaction pricing in a manner that is still consistent with the
Exchange's overall pricing philosophy of encouraging added and/or
displayed liquidity, and the proposed new base rebate remains
competitive with the base rebates provided by other exchanges in each
case for executions of similar orders.\32\ The Exchange also believes
the proposed change to the base rebate is equitable and not unfairly
discriminatory because it will apply equally to all Members and because
the opportunity to qualify for enhanced rebates is open to all members
on an equal basis, as described above.
---------------------------------------------------------------------------

    \32\ See supra note 8.
---------------------------------------------------------------------------

    The Exchange believes that the proposed changes to reduce the
rebates provided pursuant to Liquidity Provision Tier 1, NBBO Setter/
Joiner Tier 2, and DLI Tier 2 are reasonable, because the change in
rebate for each is a modest decrease and consistent with an equitable
allocation of fees. The Exchange believes the proposed change are
equitable and not unfairly discriminatory because it will apply to all
Members equally, in that all Members will continue to have the
opportunity to achieve the required criteria under such tiers. The
Exchange believes that each such rebate is commensurate with the
corresponding required criteria under such tiers and are reasonably
related to such market quality benefits that such tiers are designed to
achieve. The Exchange believes that the proposed change to the criteria
in Liquidity Provision Tier 2 is reasonable, equitable, and not
unfairly discriminatory because it will apply equally to all Members
and allow all Members to more easily reach Liquidity Provision Tier 2,
which, in turn, the Exchange believes will encourage more Members to
seek to qualify for such Tier. The Exchange believes that the proposed
change is reasonably related to such market quality benefits that the
tier is designed to achieve.
    The Exchange believes that the proposed changes to the DLI Tier 1
criteria would continue to provide Members with an incremental
incentive to achieve certain volume thresholds on the Exchange. The
proposed new DLI Tier 1 criteria would provide Members with an
incremental incentive to achieve certain volume thresholds on the
Exchange, is available to all Members on an equal basis, and, as
described above, is reasonably designed to encourage Members to
maintain or increase their order flow by displaying liquidity, which
the Exchange believes would promote price discovery, enhance liquidity
and market quality, and contribute to a more robust and well-balanced
market ecosystem on the Exchange to the benefit of all Members and
market participants. The Exchange believes the proposed change is
equitable and not unfairly discriminatory because it will apply to all
Members equally, in that all Members will continue to have the
opportunity to achieve the required criteria under such tier, and this
proposed increase is intended to enhance market quality in a broader
range of securities on the Exchange to the benefit of all Members.
    The Exchange believes that the proposed changes to add Non-Display
Add Tier 1, increase the Non-Displayed ADAV requirement under Non-
Display Add Tier 3 to 2,000,000 shares, and to increase the Non-
Displayed ADAV requirement under Non-Display Add Tier 3 to 1,000,000
shares are reasonable, because each change is a modest increase
designed to increase non-displayed liquidity on the Exchange for the
benefit of all market participants. The Exchange believes the proposed
changes are equitable and not unfairly discriminatory because they will
apply to all Members equally, in that all Members will continue to have
the opportunity to achieve the required criteria under such tier.
    The Exchange believes that the proposed changes to reduce the base
rebates provided for executions of Added Non-Displayed Volume are
reasonable because, as described above, such changes are designed to
decrease the Exchange's expenditures with respect to its transaction
pricing in a manner that is still consistent with the

Exchange's overall pricing philosophy of encouraging added and/or
displayed liquidity and the proposed new base rebates for Added Non-
Displayed Volume remain in line and competitive with the base rebates
provided by other exchanges for executions of similar orders.\33\
Additionally, as noted above, the Exchange believes that providing the
same base rebate for executions of Added Price-Improved Volume and
Added Midpoint Volume as for Added Non-Midpoint Hidden Volume is
reasonable and appropriate because all of these orders similarly add
liquidity to the Exchange, are executed at prices that are not
displayed on the Exchange's order book, and are currently subject to
the same base rebate and pricing structure today. The Exchange also
believes the proposed base rebates for executions of Added Non-
Displayed Volume are equitable and not unfairly discriminatory, as such
base rebates will apply equally to all Members.
---------------------------------------------------------------------------

    \33\ See supra note 28.
---------------------------------------------------------------------------

    The Exchange believes that the proposed change to increase the sub-
dollar rebate for executions of Added Non-Displayed Volume is
reasonable because an increase in rebate will encourage more Members to
place executions increasing Added Non-Displayed Volume on the Exchange.
The Exchange believes that the proposed changes to increase the Added
Non-Displayed Volume rebate are equitable and not unfairly
discriminatory as these rebates will apply equally to all Members of
the Exchange.
    The Exchange believes that the proposed base rebate, Liquidity
Provision Tiers, NBBO Setter/Joiner Tiers, Non-Display Add Tiers, DLI
Tiers, and Added Non-Display Volume rebates, each as modified by the
changes proposed herein, are reasonable, equitable and not unfairly
discriminatory for these same reasons, as such tiers would provide
Members with an incremental incentive to achieve certain volume
thresholds on the Exchange, are available to all Members on an equal
basis, and, as described above, are reasonably designed to encourage
Members to maintain or increase their order flow, including in the form
of Added Displayed Volume and Added Non-Displayed Volume to the
Exchange, which the Exchange believes would promote price discovery,
enhance liquidity and market quality, and contribute to a more robust
and well-balanced market ecosystem on the Exchange to the benefit of
all Members and market participants.
    For the reasons discussed above, the Exchange submits that the
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act \34\ in that it provides for the equitable allocation of
reasonable dues, fees and other charges among its Members and other
persons using its facilities and is not designed to unfairly
discriminate between customers, issuers, brokers, or dealers. As
described more fully below in the Exchange's statement regarding the
burden on competition, the Exchange believes that its transaction
pricing is subject to significant competitive forces, and that the
proposed fees and rebates described herein are appropriate to address
such forces.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposal will result in any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Instead, as discussed above,
the proposal is intended to incentivize market participants to direct
additional order flow to the Exchange, which the Exchange believes
would promote price discovery and enhance liquidity and market quality
on the Exchange to the benefit of all Members and market participants.
As a result, the Exchange believes the proposal would enhance its
competitiveness as a market that attracts actionable orders, thereby
making it a more desirable destination venue for its customers. For
these reasons, the Exchange believes that the proposal furthers the
Commission's goal in adopting Regulation NMS of fostering competition
among orders, which promotes ``more efficient pricing of individual
stocks for all types of orders, large and small.'' \35\
---------------------------------------------------------------------------

    \35\ See supra note 31.
---------------------------------------------------------------------------

Intramarket Competition
    As discussed above, the Exchange believes that the proposal would
maintain a tiered pricing structure that is still consistent with the
Exchange's overall pricing philosophy of encouraging added and/or
displayed liquidity and would incentivize market participants to direct
additional order flow to the Exchange through volume-based tiers,
thereby enhancing liquidity and market quality on the Exchange to the
benefit of all Members, as well as enhancing the attractiveness of the
Exchange as a trading venue, which the Exchange believes, in turn,
would continue to encourage market participants to direct additional
order flow to the Exchange. Greater liquidity benefits all Members by
providing more trading opportunities and encourages Members to send
additional orders to the Exchange, thereby contributing to robust
levels of liquidity, which benefits all market participants.
    The Exchange does not believe that the proposed changes would
impose any burden on intramarket competition because such changes will
incentivize members to submit additional order flow, thereby
contributing to a more robust and well-balanced market ecosystem on the
Exchange to the benefit of all Members as well as enhancing the
attractiveness of the Exchange as a trading venue, which the Exchange
believes, in turn, would continue to encourage market participants to
direct additional order flow to the Exchange. Greater liquidity
benefits all Members by providing more trading opportunities and
encourages Members to send additional orders to the Exchange, thereby
contributing to robust levels of liquidity, which benefits all market
participants. The opportunity to qualify for the modified Liquidity
Provision Tiers, NBBO Setter/Joiner Tiers, Non-Displayed Add Tiers and
DLI Tiers, and thus receive the corresponding enhanced rebates or
discounted fees, as applicable, would be available to all Members that
meet the associated volume requirements in any month. As described
above, the Exchange believes that the required criteria under each such
tier are commensurate with the corresponding rebate under such tier and
are reasonably related to the enhanced liquidity and market quality
that such tier is designed to promote. The Exchange does not believe
that the proposed changes to reduce the base rebates for executions of
Added Displayed Volume and Added Non-Displayed volume would impose any
burden on intramarket competition because such changes will apply to
all Members uniformly, in that the proposed base rebates for such
executions would be the base rebates applicable to all Members, and the
opportunity to qualify for enhanced rebates or discounted fees, as
applicable, is available to all Members. The Exchange does not believe
that the proposed changes to provide a rebate for sub-dollar executions
of Added Non-Displayed Volume would impose any burden on intramarket
competition because such changes will apply to all Members uniformly.
For the foregoing reasons, the Exchange believes the proposed changes
would not impose

any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
Intermarket Competition
    As noted above, the Exchange operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. Members have numerous
alternative venues that they may participate on and direct their order
flow to, including 15 other equities exchanges and numerous alternative
trading systems and other off-exchange venues. As noted above, no
single registered equities exchange currently has more than
approximately 16% of the total market share of executed volume of
equities trading. Thus, in such a low-concentrated and highly
competitive market, no single equities exchange possesses significant
pricing power in the execution of order flow. Moreover, the Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow or discontinue to reduce use of certain categories of products, in
response to new or different pricing structures being introduced into
the market. Accordingly, competitive forces constrain the Exchange's
transaction fees and rebates and market participants can readily choose
to send their orders to other exchange and off-exchange venues if they
deem fee levels at those other venues to be more favorable. As
described above, the proposed changes represent a competitive proposal
through which the Exchange is seeking to incentivize market
participants to direct additional order flow to the Exchange through
volume-based tiers, which have been widely adopted by exchanges,
including the Exchange. Accordingly, the Exchange believes the proposal
would not burden, but rather promote, intermarket competition by
enabling it to better compete with other exchanges that offer similar
pricing structures and incentives to market participants.
    Additionally, the Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \36\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. SEC, the D.C. Circuit stated as follows:
``[n]o one disputes that competition for order flow is `fierce.' . . .
As the SEC explained, `[i]n the U.S. national market system, buyers and
sellers of securities, and the broker-dealers that act as their order-
routing agents, have a wide range of choices of where to route orders
for execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers' . . . .''.\37\ Accordingly, the Exchange does not believe its
proposed pricing changes impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \36\ See supra note 31.
    \37\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \38\ and Rule 19b-4(f)(2) \39\ thereunder.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \39\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
file number SR-MEMX-2023-16 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-MEMX-2023-16. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-MEMX-2023-16 and should be
submitted on or before September 1, 2023.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
---------------------------------------------------------------------------

    \40\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17209 Filed 8-10-23; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 81, Number 242 (Friday, December 16, 2016)]
[Notices]
[Pages 91215-91216]
[FR Doc No: 2016-30251]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32389; 812-14663]

Alpha Architect ETF Trust, et al.; Notice of Application

December 12, 2016
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1
under the Act, under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under
section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and
12(d)(1)(B) of the Act. The requested order would permit (a) index-
based series of certain open-end management investment companies to
issue shares (``Shares'') redeemable in large aggregations only
(``Creation Units''); (b) secondary market transactions in Shares to
occur at negotiated market prices rather than at net asset value
(``NAV''); (c) certain Funds to pay redemption proceeds, under certain
circumstances, more than seven days after the tender of Shares for
redemption; (d) certain affiliated persons of a fund to deposit
securities into, and receive securities from, the fund in connection
with the purchase and redemption of Creation Units; and (e) certain
registered management investment companies and unit investment trusts
outside of the same group of investment companies as the funds (``Funds
of Funds'') to acquire Shares of the Funds.

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

Applicants: Alpha Architect ETF Trust (the ``Trust''), a Delaware
statutory trust registered under the Act as an open-end management
investment company with multiple series, Empowered Funds, LLC (the
``Adviser''), a Pennsylvania limited liability company registered as an
investment adviser under the Investment Advisers Act of 1940, and
Quasar Distributors, LLC (the ``Initial Distributor''), a Delaware
limited liability company and broker-dealer registered under the
Securities Exchange Act of 1934 (``Exchange Act'').

Filing Dates: The application was filed on June 15, 2016, and amended
on October 7, 2016.

Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on January 6, 2017, and should be accompanied by proof of
service on applicants, in the form of an affidavit, or for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-1090; Applicants: Alpha Architect ETF Trust
and Empowered Funds, LLC, 213 Foxcroft Road, Broomall, PA 19008; Quasar
Distributors, LLC, 615 East Michigan Street, 4th Floor, Milwaukee,
Wisconsin 53202.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel at
(202) 551-6868, or Daniele Marchesani, Assistant Chief Counsel, at
(202) 551-6821 (Division of Investment Management, Chief Counsel's
Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling<PHONE_NUMBER>.

Summary of the Application

    1. Applicants request an order that would allow funds to operate as
index exchange traded funds (``ETFs'').\1\ Fund Shares will be
purchased and redeemed at their NAV in Creation Units only. All orders
to purchase Creation Units and all redemption requests will be placed
by or through an ``Authorized Participant'', which will have signed a
participant agreement with a broker-dealer registered under the
Securities Exchange Act of 1943 (``Exchange Act'') (the Initial
Distributor, together with any future distributor, the
``Distributor''). Shares will be listed and traded individually on a
national securities exchange, where share prices will be based on the
current bid/offer market. Any order granting the requested relief would
be subject to the terms and conditions stated in the application.
---------------------------------------------------------------------------

    \1\ Applicants request that the order apply to the initial
series of the Trust and any additional series of the Trust, and any
other open-end management investment companies or series thereof
that may be created in the future (each, included in the term
``Fund''), each of which will operate as an ETF and will track a
specified index comprised of domestic and/or foreign equity
securities or domestic and/or foreign fixed income securities (each,
an ``Underlying Index''). Any Fund will (a) be advised by the
Adviser or an entity controlling, controlled by, or under common
control with the Adviser (included in the term ``Adviser'') and (b)
comply with the terms and conditions of the application.
---------------------------------------------------------------------------

    2. Each Fund will hold investment positions selected to correspond
generally to the performance of an Underlying Index. In the case of
self-indexing Funds, an affiliated person, as defined in section
2(a)(3) of the Act (``Affiliated Person''), or an affiliated person of
an Affiliated Person (``Second-Tier Affiliate''), of the Trust or a
Fund, of the Adviser, of any sub-adviser to or promoter of a Fund, or
of the Distributor will compile, create, sponsor or maintain the
Underlying Index.\2\
---------------------------------------------------------------------------

    \2\ Each self-indexing fund (``Self-Indexing Fund'') will post
on its Web site the identities and quantities of the investment
positions that will form the basis for the Fund's calculation of its
NAV at the end of the day. Applicants believe that requiring Self-
Indexing Funds to maintain full portfolio transparency will help
address, together with other protections, conflicts of interest with
respect to such Funds.
---------------------------------------------------------------------------

    3. Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis. Except where the purchase or redemption
will include cash under the limited circumstances specified in the
application, purchasers will be required to purchase Creation Units by
depositing specified instruments (``Deposit Instruments''), and
shareholders redeeming their Shares will receive specified instruments
(``Redemption Instruments''). The Deposit Instruments and the
Redemption Instruments will each correspond pro rata to the positions
in the Fund's portfolio (including cash positions) except as specified
in the application.
    4. Because Shares will not be individually redeemable, applicants
request an exemption from section 5(a)(1) and section 2(a)(32) of the
Act that would permit the Funds to register as open-end management
investment companies and issue Shares that are redeemable in Creation
Units only.
    5. Applicants also request an exemption from section 22(d) of the
Act and rule 22c-1 under the Act as

secondary market trading in Shares will take place at negotiated
prices, not at a current offering price described in a Fund's
prospectus, and not at a price based on NAV. Applicants state that (a)
secondary market trading in Shares does not involve a Fund as a party
and will not result in dilution of an investment in Shares, and (b) to
the extent different prices exist during a given trading day, or from
day to day, such variances occur as a result of third-party market
forces, such as supply and demand. Therefore, applicants assert that
secondary market transactions in Shares will not lead to discrimination
or preferential treatment among purchasers. Finally, applicants
represent that share market prices will be disciplined by arbitrage
opportunities, which should prevent Shares from trading at a material
discount or premium from NAV.
    6. With respect to Funds that effect creations and redemptions of
Creation Units in-kind and that are based on certain Underlying Indexes
that include foreign securities, applicants request relief from the
requirement imposed by section 22(e) in order to allow such Funds to
pay redemption proceeds within fifteen calendar days following the
tender of Creation Units for redemption. Applicants assert that the
requested relief would not be inconsistent with the spirit and intent
of section 22(e) to prevent unreasonable, undisclosed or unforeseen
delays in the actual payment of redemption proceeds.
    7. Applicants request an exemption to permit Funds of Funds to
acquire Fund Shares beyond the limits of section 12(d)(1)(A) of the
Act; and the Funds, and any principal underwriter for the Funds, and/or
any broker or dealer registered under the Exchange Act, to sell Shares
to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act.
The application's terms and conditions are designed to, among other
things, help prevent any potential (i) undue influence over a Fund
through control or voting power, or in connection with certain
services, transactions, and underwritings, (ii) excessive layering of
fees, and (iii) overly complex fund structures, which are the concerns
underlying the limits in sections 12(d)(1)(A) and (B) of the Act.
    8. Applicants request an exemption from sections 17(a)(1) and
17(a)(2) of the Act to permit persons that are Affiliated Persons, or
Second Tier Affiliates, of the Funds, solely by virtue of certain
ownership interests, to effectuate purchases and redemptions in-kind.
The deposit procedures for in-kind purchases of Creation Units and the
redemption procedures for in-kind redemptions of Creation Units will be
the same for all purchases and redemptions and Deposit Instruments and
Redemption Instruments will be valued in the same manner as those
investment positions currently held by the Funds. Applicants also seek
relief from the prohibitions on affiliated transactions in section
17(a) to permit a Fund to sell its Shares to and redeem its Shares from
a Fund of Funds, and to engage in the accompanying in-kind transactions
with the Fund of Funds.\3\ The purchase of Creation Units by a Fund of
Funds directly from a Fund will be accomplished in accordance with the
policies of the Fund of Funds and will be based on the NAVs of the
Funds.
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    \3\ The requested relief would apply to direct sales of Shares
in Creation Units by a Fund to a Fund of Funds and redemptions of
those Shares. Applicants, moreover, are not seeking relief from
section 17(a) for, and the requested relief will not apply to,
transactions where a Fund could be deemed an Affiliated Person, or a
Second-Tier Affiliate, of a Fund of Funds because an Adviser or an
entity controlling, controlled by or under common control with an
Adviser provides investment advisory services to that Fund of Funds.
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    9. Section 6(c) of the Act permits the Commission to exempt any
persons or transactions from any provision of the Act if such exemption
is necessary or appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities, or
transactions, from any provision of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Section 17(b) of the Act authorizes the Commission to grant an order
permitting a transaction otherwise prohibited by section 17(a) if it
finds that (a) the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (b) the proposed transaction is consistent with the policies
of each registered investment company involved; and (c) the proposed
transaction is consistent with the general purposes of the Act.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Brent J. Fields,
Secretary.
[FR Doc. 2016-30251 Filed 12-15-16; 8:45 am]
 BILLING CODE 8011-01-P