8011-01p
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95754; File No. SR-MEMX-2022-25]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change to Amend MEMX Rule 11.15, Clearly Erroneous Executions
September 13, 2022.
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 [insert date], MEMX LLC (“MEMX” or
the “Exchange”) filed with the Securities and Exchange Commission (the “Commission”) the
proposed rule change as described in Items I and II below, which Items have been prepared by
the Exchange. The Exchange filed the proposal as a “non-controversial” proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act3 and Rule 19b-4(f)(6) thereunder.4 The
Commission is publishing this notice to solicit comments on the proposed rule change from
interested persons.
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 extend the current

pilot program related to amend MEMX Rule 11.15, Clearly Erroneous Executions. The text of
the proposed rule change is provided in Exhibit 5.
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

15 U.S.C. 78s(b)(1).

17 CFR 240.19b-4.

15 U.S.C. 78s(b)(3)(A)(iii).

17 CFR 240.19b-4(f)(6).

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 MEMX Rule 11.15, Clearly
Erroneous Executions. On September 1, 2022, the Commission approved the proposal of Cboe
BZX Exchange, Inc. (“BZX”), to adopt on a permanent basis the pilot program for Clearly
Erroneous Executions in BZX Rule 11.17.5 Based on the BZX Approval, the Exchange
proposes: (1) make the current clearly erroneous pilot program permanent; and (2) limit the
circumstances where clearly erroneous review would continue to be available during Regular
Trading Hours,6 when the LULD Plan to Address Extraordinary Market Volatility (the “LULD
Plan”)7 already provides similar protections for trades occurring at prices that may be deemed
erroneous. The Exchange believes that these changes are appropriate as the LULD Plan has been
approved by the Commission on a permanent basis,8 and in light of amendments to the LULD
Plan, including changes to the applicable Price Bands9 around the open and close of trading.
Further, the proposed rule change is based on and substantively identical to BZX Rule 11.17.
The only differences between proposed MEMX Rule 11.15 and BZX Rule 11.17 relate to
different terms to define trading sessions (i.e., the Exchange uses the terms Pre-Market Session
and Post-Market Session whereas BZX uses the terms Early Trading Session, Pre-Opening

See Securities Exchange Act Release No. 95658 (September 1, 2022) (SR-CboeBZX2022-037) (“BZX Approval”).

The term “Regular Trading Hours” means the time between 9:30 a.m. and 4 p.m. eastern
time. See MEMX Rule 1.5(bb).

See Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6,
2012).

See Securities Exchange Act Release No. 84843 (December 18, 2018), 83 FR 66464
(December 26, 2018) (“Notice”); 85623 (April 11, 2019), 84 FR 16086 (April 17, 2019)
(File No. 4-631) (“Amendment Eighteen”).

“Price Bands” refers to the term provided in Section V of the LULD Plan.

Session and After Hours Trading Session), minor language differences for clarity, and the
omission of language related to halt auctions for securities listed on the Exchange, as the
Exchange does not list any securities or conduct halt auctions while BZX does.
Proposal to Make the Clearly Erroneous Pilot Permanent
On May 4, 2020, the Commission approved MEMX’s Form 1 Application to register as a
national securities exchange with rules including, on a pilot basis, MEMX Rule 11.15.10 Rule
11.15, among other things (i) provides for uniform treatment of clearly erroneous execution
reviews in multi-stock events involving twenty or more securities; and (ii) reduces the ability of
the Exchange to deviate from objective standards set forth in the rule. The rule further provides
that: (i) a series of transactions in a particular security on one or more trading days may be
viewed as one event if all such transactions were effected based on the same fundamentally
incorrect or grossly misinterpreted issuance information resulting in a severe valuation error for
all such transactions; and (ii) in the event of any disruption or malfunction in the operation of the
electronic communications and trading facilities of the Exchange, another SRO, or responsible
single plan processor in connection with the transmittal or receipt of a trading halt, an Officer of
the Exchange or senior level employee designee, acting on his or her own motion, shall nullify
any transaction that occurs after a trading halt has been declared by the primary listing market for
a security, and before such a trading halt has officially ended according to the primary listing
market.11
When it originally approved the clearly erroneous pilot, the Commission explained that
the changes were “being implemented on a pilot basis so that the Commission and the Exchanges
can monitor the effects of the pilot on the markets and investors, and consider appropriate

See Securities Exchange Release No. 88806 (May 4, 2020), 85 FR 27451 (May 8, 2020).

See MEMX Rule 11.15.

adjustments, as necessary.”12 In the 12 years since that time, national securities exchanges have
gained considerable experience in the operation of the rule, as amended on a pilot basis. Based
on that experience, the Exchange believes that the program should be allowed to continue on a
permanent basis so that equities market participants and investors can benefit from the increased
certainty provided by the amended rule.
The clearly erroneous pilot was implemented following a severe disruption in the U.S.
equities markets on May 6, 2010 (“Flash Crash”) to “provide greater transparency and certainty
to the process of breaking trades.”13 Largely, the pilot reduced the discretion of the Exchange,
other national securities exchanges, and Financial Industry Regulatory Authority (“FINRA”) to
deviate from the objective standards in their respective rules when dealing with potentially
erroneous transactions. The pilot has thus helped afford greater certainty to Members and
investors about when trades will be deemed erroneous pursuant to self-regulatory organization
(“SRO”) rules and has provided a more transparent process for conducting such reviews. The
Exchange proposes to make the current pilot permanent so that market participants can continue
to benefit from the increased certainty afforded by the current rule.
Amendments to the Clearly Erroneous Rules
When the Participants to the LULD Plan filed to introduce the Limit Up-Limit Down
(“LULD”) mechanism, itself a response to the Flash Crash, a handful of commenters noted the
potential discordance between the clearly erroneous rules and the Price Bands used to limit the
price at which trades would be permitted to be executed pursuant to the LULD Plan. For
example, two commenters requested that the clearly erroneous rules be amended so the
presumption would be that trades executed within the Price Bands would not be not subject to

See e.g., Securities Exchange Act Release No. 62886 (September 10, 2010), 75 FR 56613
(September 16, 2010) (SR-BATS-2010-016).

Id.

review.14 While the Participants acknowledged that the potential to prevent clearly erroneous
executions would be a “key benefit” of the LULD Plan, the Participants decided not to amend
the clearly erroneous rules at that time.15 In the years since, industry feedback has continued to
reflect a desire to eliminate the discordance between the LULD mechanism and the clearly
erroneous rules so that market participants would have more certainty that trades executed with
the Price Bands would stand. For example, the Equity Market Structure Advisory Committee
(“EMSAC”) Market Quality Subcommittee included in its April 19, 2016, status report a
preliminary recommendation that clearly erroneous rules be amended to conform to the Price
Bands – i.e., “any trade that takes place within the band would stand and not be broken and
trades outside the LU/LD bands would be eligible for the consideration of the Clearly Erroneous
rules.”16
The Exchange believes that it is important for there to be some mechanism to ensure that
investors’ orders are either not executed at clearly erroneous prices or are subsequently busted as
needed to maintain a fair and orderly market. At the same time, the Exchange believes that the
LULD Plan, as amended, would provide sufficient protection for trades executed during Regular
Trading Hours. Indeed, the LULD mechanism could be considered to offer superior protection as
it prevents potentially erroneous trades from being executed in the first instance. After gaining
experience with the LULD Plan, the Exchange now believes that it is appropriate to largely
eliminate clearly erroneous review during Regular Trading Hours when Price Bands are in effect.
Thus, as proposed, trades executed within the Price Bands would stand, barring one of a handful
of identified scenarios where such review may still be necessary for the protection of investors.

See Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6,
2012) (File No. 4-631) (n. 33505).

Id.

See EMSAC Market Quality Subcommittee, Recommendations for Rulemaking on Issues
of Market Quality (November 29, 2016), available at
https://www.sec.gov/spotlight/emsac/emsac-recommendations-rulemaking-marketquality.pdf.

The Exchange believes that this change would be beneficial for the U.S. equities markets as it
would ensure that trades executed within the Price Bands are subject to clearly erroneous review
in only rare circumstances, resulting in greater certainty for Members and investors.
The current LULD mechanism for addressing extraordinary market volatility is available
solely during Regular Trading Hours. Thus, trades during the Exchange’s Pre-Market Session17
or Post-Market Session18 would not benefit from this protection and could ultimately be executed
at prices that may be considered erroneous. For this reason, the Exchange proposes that
transactions executed during the Pre-Market Session or Post-Market Session would continue to
be reviewable as clearly erroneous. Continued availability of the clearly erroneous rule during
pre- and post-market trading sessions would therefore ensure that investors have appropriate
recourse when erroneous trades are executed outside of the hours where similar protection can be
provided by the LULD Plan. Further, the proposal is designed to eliminate the potential
discordance between clearly erroneous review and LULD Price Bands, which does not exist
outside of Regular Trading Hours because the LULD Plan is not in effect. Thus, the Exchange
believes that it is appropriate to continue to allow transactions to be eligible for clearly erroneous
review if executed outside of Regular Trading Hours.
On the other hand, there would be much more limited potential to request that a
transaction be reviewed as potentially erroneous during Regular Trading Hours. With the
introduction of the LULD mechanism in 2013, clearly erroneous trades are largely prevented by
the requirement that trades be executed within the Price Bands. In addition, in 2019, Amendment
Eighteen to the LULD Plan eliminated double-wide Price Bands: (1) at the Open, and (2) at the
Close for Tier 2 NMS Stocks 2 with a Reference Price above $3.00.19 Due to these changes, the

The term “Pre-Market Session” means the time between 7 a.m. and 9:30 a.m. eastern
time. See MEMX Rule 1.5(x).

The term “Post-Market Session” means the time between 4 p.m. and 5 p.m. eastern time.
See MEMX Rule 1.5(w).

See Amendment Eighteen, supra note 8.

Exchange believes that the Price Bands would provide sufficient protection to investor orders
such that clearly erroneous review would no longer be necessary during Regular Trading Hours.
As the Participants to the LULD Plan explained in Amendment Eighteen: “Broadly, the Limit
Up-Limit Down mechanism prevents trades from happening at prices where one party to the
trade would be considered ‘aggrieved,’ and thus could be viewed as an appropriate mechanism to
supplant clearly erroneous rules.” While the Participants also expressed concern that the Price
Bands might be too wide to afford meaningful protection around the open and close of trading,
amendments to the LULD Plan adopted in Amendment Eighteen narrowed Price Bands at these
times in a manner that the Exchange believes is sufficient to ensure that investors’ orders would
be appropriately protected in the absence of clearly erroneous review. The Exchange therefore
believes that it is appropriate to rely on the LULD mechanism as the primary means of
preventing clearly erroneous trades during Regular Trading Hours.
At the same time, the Exchange is cognizant that there may be limited circumstances
where clearly erroneous review may continue to be appropriate, even during Regular Trading
Hours. Thus, the Exchange proposes to amend its clearly erroneous rules to enumerate the
specific circumstances where such review would remain available during the course of Regular
Trading Hours, as follows. All transactions that fall outside of these specific enumerated
exceptions would be ineligible for clearly erroneous review.
First, pursuant to proposed paragraph (c)(1)(A), a transaction executed during Regular
Trading Hours would continue to be eligible for clearly erroneous review if the transaction is not
subject to the LULD Plan. In such case, the Numerical Guidelines set forth in paragraph (c)(2) of
Rule 11.15 will be applicable to such NMS Stock. While the majority of securities traded on the
Exchange would be subject to the LULD Plan, certain equity securities, such as rights and
warrants, are explicitly excluded from the provisions of the LULD Plan and would therefore be

eligible for clearly erroneous review instead.20 Similarly, there are instances, such as the opening
auction on the primary listing market,21 where transactions are not ordinarily subject to the
LULD Plan, or circumstances where a transaction that ordinarily would have been subject to the
LULD Plan is not – due, for example, to some issue with processing the Price Bands. These
transactions would continue to be eligible for clearly erroneous review, effectively ensuring that
such review remains available as a backstop when the LULD Plan would not prevent executions
from occurring at erroneous prices in the first instance.
Second, investors would also continue to be able to request review of transactions that
resulted from certain systems issues pursuant to proposed paragraph (c)(1)(B). This limited
exception would help to ensure that trades that should not have been executed would continue to
be subject to clearly erroneous review. Specifically, as proposed, transactions executed during
Regular Trading Hours would be eligible for clearly erroneous review pursuant to proposed
paragraph (c)(1)(B) if the transaction is the result of an Exchange technology or systems issue
that results in the transaction occurring outside of the applicable LULD Price Bands pursuant to
Rule 11.15(g). A transaction subject to review pursuant to this paragraph shall be found to be
clearly erroneous if the price of the transaction to buy (sell) that is the subject of the complaint is
greater than (less than) the Reference Price, described in paragraph (d) of this Rule, by an
amount that equals or exceeds the applicable Percentage Parameter defined in Appendix A to the
LULD Plan (“Percentage Parameters”).
Third, the Exchange proposes to narrowly allow for the review of transactions during
Regular Trading Hours when the Reference Price, described in proposed paragraph (d), is
determined to be erroneous by an Officer of the Exchange. Specifically, a transaction executed
during Regular Trading Hours would be eligible for clearly erroneous review pursuant to

See Appendix A of the LULD Plan.

The initial Reference Price used to calculate Price Bands is typically set by the Opening
Price on the primary listing market. See Section V(B) of the LULD Plan.

proposed paragraph (c)(1)(C) if the transaction involved, in the case of (1) a corporate action or
new issue or (2) a security that enters a Trading Pause pursuant to the LULD Plan and resumes
trading without an auction,22 a Reference Price that is determined to be erroneous by an Officer
of the Exchange because it clearly deviated from the theoretical value of the security. In such
circumstances, the Exchange may use a different Reference Price pursuant to proposed
paragraph (d)(2) of this Rule. A transaction subject to review pursuant to this paragraph shall be
found to be clearly erroneous if the price of the transaction to buy (sell) that is the subject of the
complaint is greater than (less than) the new Reference Price, described in paragraph (d)(2)
below, by an amount that equals or exceeds the applicable Numerical Guidelines or Percentage
Parameters, as applicable depending on whether the security is subject to the LULD Plan.
Specifically, the Percentage Parameters would apply to all transactions except those in an NMS
Stock that is not subject to the LULD Plan, as described in paragraph (c)(1)(A).
In the context of a corporate action or a new issue, there may be instances where the
security’s Reference Price is later determined by the Exchange to be erroneous (e.g., because of a
bad first trade for a new issue), and subsequent LULD Price Bands are calculated from that
incorrect Reference Price. In determining whether the Reference Price is erroneous in such
instances, the Exchange would generally look to see if such Reference Price clearly deviated
from the theoretical value of the security. In such cases, the Exchange would consider a number
of factors to determine a new Reference Price that is based on the theoretical value of the
security, including but not limited to, the offering price of the new issue , the ratio of the stock
split applied to the prior day’s closing price, the theoretical price derived from the numerical
terms of the corporate action transaction such as the exchange ratio and spin-off terms, and the

The Exchange notes that the “resumption of trading without an auction” provision of the
proposed rule text applies only to securities that enter a Trading Pause pursuant to LULD
and does not apply to a corporate action or new issue.

prior day’s closing price on the OTC market for an OTC up-listing.23 In the foregoing instances,
the theoretical value of the security would be used as the new Reference Price when applying the
Percentage Parameters under the LULD Plan (or Numerical Guidelines if the transaction is in an
NMS Stock that is not subject to the LULD Plan) to determine whether executions would be
cancelled as clearly erroneous.
The following illustrate the proposed application of the rule in the context of a corporate
action or new issue:
Example 1:
1. ABCD is subject to a corporate action, 1 for 10 reverse split, and the previous day close
was $5, but the new theoretical price based on the terms of the corporate action is $50.
2. The security opens at $5, with LULD bands at $4.50 x $5.50
3. The bands will be calculated correctly but the security is trading at an erroneous price
based on the valuation of the remaining outstanding shares
4. The theoretical price of $50 would be used as the new Reference Price when applying
LULD bands to determine if executions would be cancelled as clearly erroneous
Example 2:
1. ABCD is subject to a corporate action, the company is doing a spin off where a new issue
will be listed, BCDE. ABCD trades at $50, and the spinoff company is worth 1/5 of
ABCD
2. BCDE opens at $50 in the belief it is the same company as ABCD
3. The theoretical values of the two companies are ABCD $40 and BCDE $10
4. BCDE would be deemed to have had an incorrect Reference Price and the theoretical
value of $10 would be used as the new Reference Price when applying the LULD Bands
to determine if executions would be cancelled as clearly erroneous
Example 3:
1. ABCD is an uplift from the OTC market, the prior days close on the OTC market was
$20
2. ABCD opens trading on the new listing exchange at $0.20 due to an erroneous order
entry
3. The new Reference Price to determine clearly erroneous executions would be $20, the
theoretical value of the stock from where it was last traded
In the context of the rare situation in which a security that enters a LULD Trading Pause

Using transaction data reported to the FINRA OTC Reporting Facility, FINRA
disseminates via the Trade Data Dissemination Service a final closing report for OTC
equity securities for each business day that includes, among other things, each security’s
closing last sale price.

and resumes trading without an auction (i.e., reopens with quotations), the LULD Plan requires
that the new Reference Price in this instance be established by using the mid-point of the best bid
and offer (“BBO”) on the primary listing exchange at the reopening time.24 This can result in a
Reference Price and subsequent LULD Price Band calculation that is significantly away from the
security’s last traded or more relevant price, especially in less liquid names. In such rare
instances, the Exchange is proposing to use a different Reference Price that is based on the prior
LULD Band that triggered the Trading Pause, rather than the midpoint of the BBO.
The following example illustrates the proposed application of the rule in the context of a
security that reopens without an auction:
Example 4:
1. ABCD stock is trading at $20, with LULD Bands at $18 x $22
2. An incoming buy order causes the stock to enter a Limit State Trading Pause and then a
Trading Pause at $22
3. During the Trading Pause, the buy order causing the Trading Pause is cancelled
4. At the end of the 5-minute halt, there is no crossed interest for an auction to occur, thus
trading would resume on a quote
5. Upon resumption, a quote that was available prior to the Trading Pause (e.g., a quote was
resting on the book prior to the Trading Pause), is widely set at $10 x $90
6. The Reference Price upon resumption is $50 (mid-point of BBO)
7. The SIP will use this Reference Price and publish LULD Bands of $45 x $55 (i.e., far
away from BBO prior to the halt)
8. The bands will be calculated correctly, but the $50 Reference Price is subsequently
determined to be incorrect as the price clearly deviated from where it previously traded
prior to the Trading Pause
9. The new Reference Price would be $22 (i.e., the last effective Price Band that was in a
limit state before the Trading Pause), and the LULD Bands would be applied to
determine if the executions should be cancelled as clearly erroneous
In all of the foregoing situations, investors would be left with no remedy to request clearly
erroneous review without the proposed carveouts in paragraph (c)(1)(C) because the trades
occurred within the LULD Price Bands (albeit LULD Price Bands that were calculated from an
erroneous Reference Price). The Exchange believes that removing the current ability for the
Exchange to review in these narrow circumstances would lessen investor protections.

See LULD Plan, Section I(U) and V(C)(1).

Numerical Guidelines
Today, paragraph (c)(1) defines the Numerical Guidelines that are used to determine if a
transaction is deemed clearly erroneous during Regular Trading Hours, or during the Pre-Market
Session and Post-Market Session. With respect to Regular Trading Hours, trades are generally
deemed clearly erroneous if the execution price differs from the Reference Price (i.e., last sale)
by 10% if the Reference Price is greater than $0.00 up to and including $25.00; 5% if the
Reference Price is greater than $25.00 up to and including $50.00; and 3% if the Reference Price
is greater than $50.00. Wider parameters are also used for reviews for Multi-Stock Events, as
described in paragraph (c)(2). With respect to transactions in Leveraged ETF/ETN securities
executed during Regular Trading Hours, Pre-Market Session and Post-Market Session, trades are
deemed clearly erroneous if the execution price exceeds the Regular Trading Hours Numerical
Guidelines multiplied by the leverage multiplier.
Given the changes described in this proposed rule change, the Exchange proposes to
amend the way that the Numerical Guidelines are calculated during Regular Trading Hours in the
handful of instances where clearly erroneous review would continue to be available. Specifically,
the Exchange would base these Numerical Guidelines, as applied to the circumstances described
in paragraph (c)(1)(A), on the Percentage Parameters used to calculate Price Bands, as set forth
in Appendix A to the LULD Plan. Without this change, a transaction that would otherwise stand
if Price Bands were properly applied to the transaction may end up being subject to review and
deemed clearly erroneous solely due to the fact that the Price Bands were not available due to a
systems or other issue. The Exchange believes that it makes more sense to instead base the Price
Bands on the same parameters as would otherwise determine whether the trade would have been
allowed to execute within the Price Bands. The Exchange also proposes to modify the Numerical
Guidelines applicable to leveraged ETF/ETN securities during Regular Trading Hours. As noted
above, the Numerical Guidelines will only be applicable to transactions eligible for review
pursuant paragraph (c)(1)(A) (i.e., to NMS Stocks that are not subject to the LULD Plan). As

leveraged ETF/ETN securities are subject to LULD and thus the Percentage Parameters will be
applicable during Regular Trading Hours, the Exchange proposes to eliminate the Numerical
Guidelines for leveraged ETF/ETN securities traded during Regular Trading Hours. However, as
no Price Bands are available outside of Regular Trading Hours, the Exchange proposes to keep
the existing Numerical Guidelines in place for transactions in leveraged ETF/ETN securities that
occur during the Pre-Market Session and Post-Market Session.
The Exchange also proposes to move existing paragraphs (c)(2), (c)(3), and (d) to
proposed paragraph (c)(2)(B), (c)(2)(C), and (C)(2)(D), respectively, as Multi-Stock Events,
Additional Factors, and Outlier Transactions will only be subject to review if those NMS Stocks
are not subject to the LULD Plan or occur during the Pre-Market Session and Post-Market
Session. Proposed paragraph (c)(2)(B) is substantially similar to existing paragraph (c)(2) except
for a change in rule reference to paragraph (c)(1) has been updated to paragraph (c)(1)(A).
Further, given the proposal to move existing paragraph (c)(2) to paragraph (c)(2)(B), the
Exchange also proposes to amend applicable rule references throughout paragraph (c)(2)(A).
Finally, the Exchange proposes to update applicable rule references in paragraph (c)(2)(D) based
on the above-described structural changes to the Rule.
Reference Price
As proposed, the Reference Price used would continue to be based on last sale and would
be memorialized in proposed paragraph (d). Continuing to use the last sale as the Reference Price
is necessary for operational efficiency as it may not be possible to perform a timely clearly
erroneous review if doing so required computing the arithmetic mean price of eligible reported
transactions over the past five minutes, as contemplated by the LULD Plan. While this means
that there would still be some differences between the Price Bands and the clearly erroneous
parameters, the Exchange believes that this difference is reasonable in light of the need to ensure
timely review if clearly erroneous rules are invoked. The Exchange also proposes to allow for an
alternate Reference Price to be used as prescribed in proposed paragraphs (d)(1), (2), and (3).

Specifically, the Reference Price may be a value other than the consolidated last sale
immediately prior to the execution(s) under review (1) in the case of Multi-Stock Events
involving twenty or more securities, as described in paragraph (c)(2)(B) above, (2) in the case of
an erroneous Reference Price, as described in paragraph (c)(1)(C) above,25 or (3) in other
circumstances, such as, for example, relevant news impacting a security or securities, periods of
extreme market volatility, sustained illiquidity, or widespread system issues, where use of a
different Reference Price is necessary for the maintenance of a fair and orderly market and the
protection of investors and the public interest, provided that such circumstances occurred during
Pre-Market Session or Post-Market Session or the execution(s) are eligible for review pursuant
to paragraph (c)(1)(A).
Appeals
As described more fully below, the Exchange proposes to eliminate paragraph (f), System
Disruption or Malfunction. Accordingly, the Exchange proposes to remove from paragraph
(e)(2), Appeals, each reference to paragraph (f), and include language referencing proposed
paragraph (g), Transactions Occurring Outside of the LULD Bands.
System Disruption or Malfunction
To conform with the structural changes described above, the Exchange now proposes to
remove paragraph 11.15(f), System Disruption or Malfunction, and proposes new paragraph
(c)(1)(B). Specifically, as described in paragraph (c)(1)(B), transactions occurring during
Regular Trading Hours that are executed outside of the LULD Price Bands due to an Exchange
technology or system issue, may be subject to clearly erroneous review pursuant to proposed

As discussed above, in the case of (c)(1)(C)(1), the Exchange would consider a number
of factors to determine a new Reference Price that is based on the theoretical value of the
security, including but not limited to, the offering price of the new issue , the ratio of the
stock split applied to the prior day’s closing price, the theoretical price derived from the
numerical terms of the corporate action transaction such as the exchange ratio and spinoff terms, and the prior day’s closing price on the OTC market for an OTC up-listing. In
the case of (c)(1)(C)(2), the Reference Price will be the last effective Price Band that was
in a limit state before the Trading Pause.

paragraph 11.15(g). Proposed paragraph 11.15(c)(1)(B) further provides that a transaction
subject to review pursuant to this paragraph shall be found to be clearly erroneous if the price of
the transaction to buy (sell) that is the subject of the complaint is greater than (less than) the
Reference Price, described in paragraph (d), by an amount that equals or exceeds the applicable
Percentage Parameter defined in Appendix A to the LULD Plan.
Trade Nullification for UTP Securities that are the Subject of Initial Public Offerings
Current paragraph (h) of Rule 11.15 provides different procedures for conducting clearly
erroneous review in initial public offering (“IPO”) securities that are traded pursuant to unlisted
trading privileges (“UTP”) after the initial opening of such IPO securities on the listing market.
Specifically, this paragraph provides that a clearly erroneous error may be deemed to have
occurred in the opening transaction of the subject security if the execution price of the opening
transaction on the Exchange is the lesser of $1.00 or 10% away from the opening price on the
listing exchange or association. The Exchange no longer believes that this provision is necessary
as opening transactions on the Exchange following an IPO are subject to Price Bands pursuant to
the LULD Plan. The Exchange therefore proposes to eliminate this provision in connection with
the broader changes to clearly erroneous review during Regular Trading Hours.
Securities Subject to Limit Up-Limit Down Plan
The Exchange proposes to renumber paragraph (i) to paragraph (h) based on the proposal
to eliminate existing paragraph (h), and to rename the paragraph to provide for transactions
occurring outside of LULD Price Bands. Given that proposed paragraph (c)(1) defines the LULD
Plan, the Exchange also proposes to eliminate redundant language from proposed paragraph (h).
Finally, the Exchange also proposes to update references to the LULD Plan and Price Bands so
that they are uniform throughout the Rule and to update rule references throughout the paragraph
to conform to the structural changes to the Rule described above.
Multi-Day Event and Trading Halts
The Exchange proposes to renumber paragraphs (j) and (k) to paragraphs (h) and (i),

respectively, based on the proposal to eliminate existing paragraph (h). Additionally, the
Exchange proposes to modify the text of both paragraphs to reference the Percentage Parameters
as well as the Numerical Guidelines. Specifically, the existing text of proposed paragraphs (h)
and (i) provides that any action taken in connection with this paragraph will be taken without
regard to the Numerical Guidelines set forth in this Rule. The Exchange proposes to amend the
rule text to provide that any action taken in connection with this paragraph will be taken without
regard to the Percentage Parameters or Numerical Guidelines set forth in this Rule, with the
Percentage Parameters being applicable to an NMS Stock subject to the LULD Plan and the
Numerical Guidelines being applicable to an NMS Stock not subject to the LULD Plan.
2.

Statutory Basis

The Exchange believes the proposed rule change is consistent with the requirements of
Section 6(b) of the Act,26 in general, and Section 6(b)(5) of the Act,27 in particular, in that it is
designed to remove impediments to and perfect the mechanism of a free and open market and a
national market system, to promote just and equitable principles of trade, and, in general, to
protect investors and the public interest and not to permit unfair discrimination between
customers, issuers, brokers, or dealers.
As explained in the purpose section of this proposed rule change, the current pilot was
implemented following the Flash Crash to bring greater transparency to the process for
conducting clearly erroneous reviews, and to help assure that the review process is based on
clear, objective, and consistent rules across the U.S. equities markets. The Exchange believes
that the amended clearly erroneous rules have been successful in that regard and have thus
furthered fair and orderly markets. Specifically, the Exchange believes that the pilot has
successfully ensured that such reviews are conducted based on objective and consistent standards
across SROs and has therefore afforded greater certainty to Members and investors. The

15 U.S.C. 78f(b).

15 U.S.C. 78f(b)(5).

Exchange therefore believes that making the current pilot a permanent program is appropriate so
that equities market participants can continue to reap the benefits of a clear, objective, and
transparent process for conducting clearly erroneous reviews. In addition, the Exchange
understands that the other U.S. equities exchanges and FINRA will also file largely identical
proposals to make their respective clearly erroneous pilots permanent. The Exchange therefore
believes that the proposed rule change would promote transparency and uniformity across
markets concerning review of transactions as clearly erroneous and would also help assure
consistent results in handling erroneous trades across the U.S. equities markets, thus furthering
fair and orderly markets, the protection of investors, and the public interest.
Similarly, the Exchange believes that it is consistent with just and equitable principles of
trade to limit the availability of clearly erroneous review during Regular Trading Hours. The
Plan was approved by the Commission to operate on a permanent rather than pilot basis. As a
number of market participants have noted, the LULD Plan provides protections that ensure that
investors’ orders are not executed at prices that may be considered clearly erroneous. Further,
amendments to the LULD Plan approved in Amendment Eighteen serve to ensure that the Price
Bands established by the LULD Plan are “appropriately tailored to prevent trades that are so far
from current market prices that they would be viewed as having been executed in error.”28 Thus,
the Exchange believes that clearly erroneous review should only be necessary in very limited
circumstances during Regular Trading Hours. Specifically, such review would only be necessary
in instances where a transaction was not subject to the LULD Plan, or was the result of some
form of systems issue, as detailed in the purpose section of this proposed rule change.
Additionally, in narrow circumstances where the transaction was subject to the LULD Plan, a
clearly erroneous review would be available in the case of (1) a corporate action or new issue or
(2) a security that enters a Trading Pause pursuant to LULD and resumes trading without an

See Amendment Eighteen, supra note 8.

auction, where the Reference Price is determined to be erroneous by an Officer of the Exchange
because it clearly deviated from the theoretical value of the security. Thus, eliminating clearly
erroneous review in all other instances will serve to increase certainty for Members and investors
that trades executed during Regular Trading Hours would typically stand and would not be
subject to review.
Given the fact that clearly erroneous review would largely be limited to transactions that
were not subject to the LULD Plan, the Exchange also believes that it is necessary to change the
parameters used to determine whether a trade is clearly erroneous. Specifically, due to the
different parameters currently used for clearly erroneous review and for determining Price
Bands, it is possible that a trade that would have been permitted to execute within the Price
Bands would later be deemed clearly erroneous, if, for example, a systems issue prevented the
dissemination of the Price Bands. The Exchange believes that this result is contrary to the
principle that trades within the Price Bands should stand and has the potential to cause investor
confusion if trades that are properly executed within the applicable parameters described in the
LULD Plan are later deemed erroneous. By using consistent parameters for clearly erroneous
reviews conducted during Regular Trading Hours and the calculation of the Price Bands, the
Exchange believes that this change would also serve to promote greater certainty with regards to
when trades may be deemed erroneous.
The Exchange believes that it is consistent with the protection of investors and the public
interest to remove the current provision of the clearly erroneous rule dealing with UTP securities
that are the subject of IPOs. This provision applies specifically to opening transactions on a nonlisting market following an IPO on the listing market. As such, review under this paragraph is
limited to trades conducted during Regular Trading Hours. As previously addressed, trades
executed during Regular Trading Hours would generally not be subject to clearly erroneous
review but would instead be protected by the Price Bands. The Exchange therefore no longer
believes that this paragraph is necessary, as all trades subject to this provision today would either

be subject to the LULD Plan, or, in the event of some systems or other issue, would be subject to
the provisions that apply to transactions that are not adequately protected by the LULD Plan.
Finally, the proposed rule changes make organizational updates to the Exchange’s
Clearly Erroneous Execution Rule as well as minor updates and corrections to the Rule to
improve readability and clarity.
B.

Self-Regulatory Organization’s Statement on Burden on Competition

The Exchange does not believe that the proposed rule change would impose any burden
on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The
proposal would ensure the continued, uninterrupted operation of harmonized clearly erroneous
execution rules across the U.S. equities markets while also amending those rules to provide
greater certainty to Members and investors that trades will stand if executed during Regular
Trading Hours where the LULD Plan provides adequate protection against trading at erroneous
prices. The Exchange understands that the other national securities exchanges and FINRA will
also file similar proposals, the substance of which are identical to this proposal. Thus, the
proposed rule change will help to ensure consistency across SROs without implicating any
competitive issues.
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
Because the foregoing proposed rule change does not: (i) significantly affect the

protection of investors or the public interest; (ii) impose any significant burden on competition;
and (iii) become operative for 30 days from the date on which it was filed, or such shorter time
as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the

Act29 and Rule 19b-4(f)(6)30 thereunder.
A proposed rule change filed under Rule 19b-4(f)(6)31 normally does not become
operative prior to 30 days after the date of the filing. However, Rule 19b-4(f)(6)(iii)32 permits
the Commission to designate a shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has asked the Commission to waive the 30-day
operative delay so that the proposed rule change may become operative on October 1, 2022. The
Commission believes that waiving the 30-day operative delay is consistent with the protection of
investors and the public interest, as it will allow the Exchange to coordinate its implementation
of the revised clearly erroneous execution rules with the other national securities exchanges and
FINRA, and will help ensure consistency across the SROs.33 For this reason, the Commission
hereby waives the 30-day operative delay and designates the proposed rule change as operative
upon filing.34
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 should be
approved or disapproved.

15 U.S.C. 78s(b)(3)(A).

17 CFR 240.19b-4.

17 CFR 240.19b-4(f)(6).

17 CFR 240.19b-4(f)(6)(iii).

See SR-CboeBZX-2022-37 (July 8, 2022).

For purposes only of waiving the 30-day operative delay, the Commission has also
considered the proposed rule’s impact on efficiency, competition, and capital formation.
See 15 U.S.C. 78c(f).

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:
ï‚·

Use the Commission’s Internet comment form (http://www.sec.gov/rules/sro.shtml); or

ï‚·

Send an e-mail to rule-comments@sec.gov. Please include File SR-MEMX-2022-25 on
the subject line.

Paper comments:
ï‚·

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-2022-25. This file number should be
included on the subject line if e-mail 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 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. 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-2022-25 and should be submitted on or
before [INSERT DATE 21 DAYS FROM PUBLICATION IN THE FEDERAL REGISTER].
For the Commission, by the Division of Trading and Markets, pursuant to delegated
authority.35

J. Matthew DeLesDernier,
Deputy Secretary.

[FR Doc. 2022-20144 Filed: 9/16/2022 8:45 am; Publication Date: 9/19/2022]

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