MEMX Comments on the SEC’s Proposal to Rescind the Order Protection Rule

Promoting Robust Displayed Liquidity Post-611:

MEMX Comments on the SEC’s Proposal to Rescind the Order Protection Rule

Displayed liquidity forms the backbone of the U.S. equity market. As discussed in our comments to the SEC, MEMX is concerned that simply eliminating the Order Protection Rule, without making similar pro-competitive changes to other SEC rules, would have a negative impact on that displayed liquidity. However, there is a way to promote competition and innovation without putting displayed liquidity at risk and without strict government mandates that restrict broker-dealer choices about which venues to interact with. But promoting displayed liquidity in the absence of government incentives requires addressing other SEC rules that prohibit exchanges from offering their own market-based incentives on a competitive basis. Therefore, if the SEC decides to move forward with the proposed rescission of the Order Protection Rule, we recommend that it make five key additional changes to its regulations:

1. Establish an access fee cap of $0.0030 or $0.0015 per share, based on the associated minimum pricing increment, and apply that fee cap to any trading center that disseminates displayed quotations to market participants.
2. Amend the definition of the NBBO to provide that a displayed quotation must be considered automated to set the NBBO.
3. Relax fair access obligations for quotations that are not included in the NBBO in order to allow exchanges to innovate and improve execution quality within the larger exchange liquidity pool.
4. Repeal the prohibition on locked and crossed markets, as proposed.
5. Amend the revenue allocation formula for the SIPs to allow Participants to earn Quote Credits for locking and crossing quotations and to reward executions against displayed liquidity. 

You can read our entire comment letter to the SEC on this important issue here.