Overview
Title
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fee Schedule
Agencies
ELI5 AI
MEMX, a stock exchange, wants to change its fees to make it more attractive for people to use by offering bigger "thank you" rewards when someone helps by making transactions easier for others, but charging more when people take away chances for others to trade.
Summary AI
MEMX LLC has proposed changes to its fee schedule, which were filed with the Securities and Exchange Commission (SEC). The changes include increasing rebates for certain orders that add liquidity and increasing fees for orders that remove liquidity. The aim is to attract more orders to the MEMX exchange by offering competitive pricing. This proposal is publicly available for comments, allowing interested parties to share their views on the changes.
Keywords AI
Sources
AnalysisAI
Summary of the Document
The document describes a proposed rule change by MEMX LLC, an equities exchange, which was filed with the U.S. Securities and Exchange Commission (SEC). This proposal outlines changes to the exchange's fee schedule. These include increasing rebates for added liquidity orders and increasing fees for orders that remove liquidity. The primary goal of this proposal is to make MEMX more competitive by enticing more orders through adjusted pricing. This notice was published to invite comments from interested parties, providing them an opportunity to express their views.
Significant Issues and Concerns
The document contains a number of complexities that could raise issues for those trying to understand the proposed changes:
Complex Language and Jargon: The document heavily uses industry-specific terms like "Added Displayed Retail Volume" and "Routed Removed Sub-Dollar Volume," potentially alienating readers not well-versed in financial jargon.
Assumed Knowledge: It assumes readers understand certain financial regulations and terms such as "Regulation NMS" and "FINRA Rule 5320.03" without providing basic explanations, making it challenging for those outside the sector to fully grasp the context and implications.
Competitive Pricing Rationale: While it details the rationale for specific fee and rebate amounts, understanding why these figures are competitive may be unclear without familiarity with exchange operations and market dynamics.
Equitable Treatment Concerns: The document proposes differing rebate amounts. The justification for why certain rebates are higher than others could raise concerns about favoritism, even though equal treatment of members is claimed.
Financial Impact on Smaller Members: There's a mention of increased costs offsetting competitive rebates, but the specific financial impacts, especially on smaller members, aren't clarified, which could be a concern.
Reliance on Market Competition: The document presumes that competition will self-regulate the market effectively but lacks detail on protection measures for smaller market participants or investors.
Potential Impact on the Public
The proposed changes might not have a direct impact on the general public but could affect the broader financial ecosystem. These fee adjustments could influence where and how trades are executed, potentially affecting market liquidity and pricing, which can indirectly impact investors and the public at large.
Impact on Stakeholders
Exchange Members: The changes are designed to attract more order flow to the MEMX platform, potentially benefiting members through increased trading opportunities. However, the impacts are ambiguous for smaller stakeholders who may bear the brunt of cost structures not detailed in the proposal.
Investors: While not directly mentioned, the proposed changes could influence market pricing structures, which may affect retail investors. A focus on increasing liquidity could potentially benefit investors through improved price discovery.
Non-Members and Smaller Market Participants: These groups could face challenges if the competitive pressure from larger entities sways market dynamics unfavorably due to a lack of in-depth protective regulation or safeguards highlighted in the document.
Overall Market Dynamics: By enhancing competitiveness, the changes aim to foster a more dynamic market environment; however, without careful consideration, they could potentially exacerbate inequities among market participants.
In conclusion, while the proposal aims to make MEMX fees more competitive and attractive, the document lacks detail in certain areas that could significantly impact diverse stakeholders. Addressing these gaps could ensure a more balanced and transparent approach to the proposed fee adjustments.
Financial Assessment
In examining the document regarding MEMX LLC's proposed changes to its fee schedule, several financial references and their implications arise.
Summary of Financial Changes
The Exchange proposes multiple changes to its fee structure that impact financial incentives and costs for its members:
Increased Standard Rebate for Executions of Orders: The Exchange plans to increase the rebate for orders (excluding Retail Orders) priced above $1.00 per share that add displayed liquidity from $0.0029 to $0.0034 per share. Similarly, the rebate for Retail Orders in the same category would rise from $0.0034 to $0.0037 per share. This aims to promote additional trading activity and increase the amount of liquidity displayed on the Exchange.
Increased Standard Fee for Removed Volume: The Exchange proposes raising the fee for orders priced at or above $1.00 per share that remove liquidity from $0.0025 to $0.0026 per share. This incremental rise is expected to balance the costs incurred by offering higher rebates mentioned earlier.
Adoption of a Fee for Routed Removed Sub-Dollar Volume: For orders priced below $1.00 that are routed away for execution, a new fee of 0.30% of the total dollar value is proposed. This represents a new cost for members who engage in these specific transactions.
Relation to Identified Issues
The changes in financial allocations highlight several key issues within the document:
Complex Industry Terms: The document uses technical terms such as "Added Displayed Retail Volume," making it challenging for a general audience to grasp the exact nature and motivation behind these financial changes. An explanation of how these terms relate to the overall cost structure and rebates might help clarify their relevance and necessity.
Competitive Dynamics: The Exchange argues that the increased rebates are competitive and align with those offered by other exchanges. This assumes the audience understands market competitiveness, but greater transparency regarding how these rebates specifically compare and impact market behaviors would be beneficial.
Equitability Concerns: The differential in rebate amounts (higher for Retail Orders) raises questions about fair treatment and whether this could possibly advantage certain members over others. The document suggests this is to ensure retail investors receive competitive rebates, yet lacks detailed rationale linking these decisions to broader market fairness.
Financial Sustainability: Notably, the Exchange acknowledges incurring losses ("negative net capture") with these changes, proposing that this is a temporary measure to attract members. While it asserts the strategy is intended to increase participation, it does not clearly detail how this will transition to long-term profitability, leaving ambiguity about financial sustainability.
This analysis illustrates that, while the financial references are used to justify changes in the Exchange’s fee structure, there is a need for more accessible explanations and greater transparency to illuminate the rationale behind these economic strategies, especially for stakeholders with less specialized knowledge.
Issues
• The document uses industry-specific language and jargon, such as 'Added Displayed Retail Volume' and 'Routed Removed Sub-Dollar Volume,' which may be complex and difficult to understand for general readers.
• The document assumes that readers understand certain financial regulations and terms, such as 'Regulation NMS' and 'FINRA Rule 5320.03,' without providing basic explanations or definitions.
• The rationale for the specific fee and rebate amounts, and why they are considered competitive, is detailed but might still be unclear to those unfamiliar with exchange operations and market dynamics.
• There is a lack of detailed justification for why certain rebates are higher than others, which could raise concerns about favoritism, even though the document claims equitable treatment of all members.
• The document states that increased costs will offset the competitive rebates but does not detail the specific cost structures or potential financial impacts on smaller members.
• The document relies heavily on the assumption that competition will self-regulate the market without detailing how this safeguards smaller market participants or investors.
• There is no discussion of potential impacts on investors or non-member stakeholders, focusing primarily on exchange members.
• The document mentions that the Exchange will continue to lose money ('negative net capture') in the short term without clear strategies on how to ensure long-term financial sustainability.