MEMX Urges Reconsideration of Retail Midpoint Liquidity Program

Why the SEC should reconsider the MEMX Retail Midpoint Liquidity Program

Earlier this year, the SEC’s Division of Trading and Markets (“Staff”) disapproved MEMX’s proposal to introduce a new retail midpoint program designed to provide an opportunity for retail investors to receive substantial price improvement at the midpoint of the national best bid and offer, while allowing institutional and other investors to interact with retail order flow on a national securities exchange. These goals will sound familiar to anyone that’s been following the recent market structure debate as they are some of the same goals that the Commission intends to facilitate through upcoming rulemakings anticipated in mid-December.

We urge the Commission to think carefully about how the MEMX Retail Midpoint Liquidity Program—and the disapproval thereof—fits into the debate on competition for retail order execution. Before engaging in broad efforts to reshape the U.S. equity market through its rulemaking authority, we respectfully request that the Commission consider how these same policy objectives can be fulfilled by permitting innovation by national securities exchanges rather than mandating the use of specific mechanisms by market participants. With the potential for significant market structure changes on the horizon, now is an opportune time to re-consider our proposal, which is currently under review by the Commission following the Staff’s disapproval.

As argued in a comment letter MEMX submitted today, the Staff’s disapproval order wrongly concludes that it is “unfairly discriminatory” to award priority to retail midpoint liquidity orders that would attract contra-side retail order flow to the program by lighting up an indicator signaling the presence of such liquidity ahead of fully non-displayed midpoint orders. More importantly, by denying our ability to facilitate retail order flow through this program, the Staff’s disapproval contributes to the very problem that the Commission is looking to solve through its upcoming rulemakings. This should give everyone in the industry pause.

Enhancing competition in the capital markets means allowing venues of all kinds to compete, not enacting prescriptive rules that would limit competition by one subset of venues to facilitate execution opportunities for others.