[Federal Register Volume 85, Number 120 (Monday, June 22, 2020)]
[Notices]
[Pages 37488-37491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13312]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89073; File No. SR-NYSEArca-2020-46]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Amend NYSE Arca Rule 5.2-E(j)(6) Relating to
Options-Linked Securities
June 16, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on June 10, 2020, NYSE Arca, Inc. (``NYSE Arca'' 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 self-regulatory
organization. The Commission is publishing.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 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 proposes to amend NYSE Arca Rule 5.2-E(j)(6) (``Index-
Linked Securities'') to accommodate Exchange listing and trading of
Options-Linked Securities. The proposed rule change is available on the
Exchange's website at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
NYSE Arca Rule 5.2-E(j)(6) provides for Exchange listing and
trading, including listing pursuant to Rule 19b-4(e) under the Act,\4\
of ``Index-Linked Securities.'' \5\
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\4\ Rule 19b-4(e) under the Act provides that the listing and
trading of a new derivative securities product by a self-regulatory
organization (``SRO'') shall not be deemed a proposed rule change,
pursuant to section (c)(1) of Rule 19b-4, if the Commission has
approved, pursuant to Section 19(b) of the Act, the SRO's trading
rules, procedures, and listing standards for the product class and
the SRO has a surveillance program for the product class.
\5\ Rule 5.2-E(j)(6) currently accommodates Exchange listing of
Equity Index-Linked Securities, Commodity-Linked Securities,
Currency-Linked Securities, Fixed Income Index-Linked Securities,
Futures-Linked Securities and Multifactor Index-Linked Securities.
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The Exchange proposes to amend NYSE Arca Rule 5.2-E(j)(6) to add
Options-Linked Securities to the type of Index-Linked Securities
permitted to list and trade on the Exchange.\6\
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\6\ Index-Linked Securities are sometimes referred to as
``exchange-traded notes'' or ``ETNs.''
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Proposed Rule 5.2-E(j)(6)(vii) would provide that the payment at
maturity with respect to Options-Linked Securities would be based on
the performance of one or more U.S. exchange-traded options on any one
or combination of the following: (a) Investment Company Units; (b)
Exchange-Traded Fund Shares; (c) Index-Linked Securities; (d)
securities defined in Section 2 of Rule 8-E; \7\ (e)
[[Page 37489]]
the S&P 100 Index, the S&P 500 Index, the Nasdaq 100 Index, the Dow
Jones Industrial Average, the MSCI EAFE Index, the MSCI Emerging
Markets Index, the NYSE FANG Index or the Russell 2000 Index; or (f) a
basket or index of any of the foregoing (collectively, ``Options
Reference Asset'').\8\ To the extent that the Options Reference Asset
consists of options based on Investment Company Units, Exchange-Traded
Fund Shares, Index-Linked Securities, or securities defined in Section
2 of Rule 8-E, such Investment Company Units, Exchange-Traded Fund
Shares, Index-Linked Securities, or securities defined in Section 2 of
Rule 8-E shall not seek to provide investment results, before fees and
expenses, that correspond to the inverse, a specific multiple, or a
specific inverse multiple of the percentage performance on a given day
of a particular index or combination of indexes.
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\7\ The following securities currently are included in Section 2
of NYSE Arca Rule 8-E: Portfolio Depositary Receipts (Rule 8.100);
Trust Issued Receipts (Rule 8.200); Commodity-Based Trust Shares
(Rule 8.201); Currency Trust Shares (Rule 8.202); Commodity Index
Trust Shares (Rule 8.203); Commodity Futures Trust Shares (Rule
8.204); Partnership Units (Rule 8.300); Paired Trust Shares (Rule
8.400); Trust Units (Rule 8.500); Managed Fund Shares (Rule 8.600);
Managed Trust Securities (Rule 8.700); and Managed Portfolio Shares
(Rule 8.900-E).
\8\ Current Rule 5.2-E(j)(6)(vi) applicable to Multifactor
Index-Linked Securities would be amended to add Options Reference
Asset as a Multifactor Reference Asset. In addition, the new term
``Options-Linked Securities'' would be added to certain headings in
Rule 5.2-E(j)(6).
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Proposed Rule 5.2-E(j)(6)(B)(VII) (Options-Linked Securities
Listing Standards) would set forth initial and continued listing
criteria applicable to Options-Linked Securities. Proposed Section
VII(1) would provide that an issue of Options-Linked Securities must
meet the initial listing standard set forth in either (a) or (b) below:
(a) The Options Reference Asset to which the security is linked
shall have been reviewed and approved for the trading of Options-Linked
Securities or options or other derivatives by the Commission under
Section 19(b)(2) of the Securities Exchange Act of 1934 and rules
thereunder and the conditions set forth in the Commission's approval
order, including with respect to comprehensive surveillance sharing
agreements, continue to be satisfied.
(b) The pricing information for components of the Options Reference
Asset must be derived from a market which is an ISG member or affiliate
or with which the Exchange has a comprehensive surveillance sharing
agreement.
In addition, an issue of Options-Linked Securities must meet the
following initial listing criteria:
(a) The value of the Options Reference Asset must be calculated and
widely disseminated by one or more major market data vendors on at
least a 15-second basis during the Core Trading Session (as defined in
NYSE Arca Rule 7.34-E); and
(b) in the case of Options-Linked Securities that are periodically
redeemable, the indicative value of the subject Options-Linked
Securities must be calculated and widely disseminated by the Exchange
or one or more major market data vendors on at least a 15-second basis
during the Core Trading Session.
Proposed Section VII(2) would provide that an issue of Options-
Linked Securities must meet the following continued listing criteria:
\9\
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\9\ The continued listing criteria in proposed Rule 5.2-
E(j)(6)(B)(VII)(2) are substantively identical to continued listing
criteria in Rule 5.2-E(j)(6) applicable to other Index Linked
Securities.
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(a) The Exchange may halt trading in the securities and will
initiate delisting proceedings pursuant to Rule 5.5-E(m) if any of the
initial listing criteria described above are not continuously
maintained; and
(b) The Exchange may also halt trading in the securities and will
initiate delisting proceedings pursuant to Rule 5.5-E(m) under any of
the following circumstances:
(i) If the aggregate market value or the principal amount of the
Options-Linked Securities publicly held is less than $400,000;
(ii) The value of the Options Reference Asset is no longer
calculated or available and a new Options Reference Asset is
substituted, unless the new Options Reference Asset meets the
requirements of this Rule 5.2-E(j)(6); or
(iii) If such other event shall occur or condition exists which in
the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
The Exchange also proposes to amend Commentary .01(a) and (b) to
Rule 5.2-E(j)(6), which relate to specified requirements and
obligations of an Equity Trading Permit (ETP) Holder acting as a
registered Market Maker, to include Options Linked Securities and
options to the financial instruments covered by Commentary .01.\10\
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\10\ The Exchange also proposes to make certain technical
corrections to the existing rule text of Commentary .01 to Rule 5.2-
E(j)(6).
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As noted above, proposed NYSE Arca Rule 5.2-E(j)(6)(vii) provides
that the Options Reference Asset for Options Linked Securities consists
of one or more U.S. exchange-traded options on any one or combination
of the following: (a) Investment Company Units; \11\ (b) Exchange-
Traded Fund Shares; \12\ (c) Index-Linked Securities; (d) securities
defined in Section 2 of Rule 8-E; (e) the S&P 100 Index, the S&P 500
Index, the Nasdaq 100 Index, the Dow Jones Industrial Average, the MSCI
EAFE Index, the MSCI Emerging Markets Index, the NYSE FANG Index or the
Russell 2000 Index (collectively, the ``Indexes''); or (f) a basket or
index of any of the foregoing.
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\11\ Investment Company Units are securities described in NYSE
Arca Rule 5.2-E(j)(3) or comparable rules of other national
securities exchanges.
\12\ Exchange-Traded Fund Shares are securities described in
NYSE Arca Rule 5.2-E(j)(8) or comparable rules of other national
securities exchanges.
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With respect to underlying components of the Options Reference
Asset, the Exchange notes that, to the extent that Investment Company
Units, Exchange-Traded Fund Shares, Index-Linked Securities and
securities defined in Section 2 of Rule 8-E are listed and traded on
the Exchange, such securities are subject to Exchange initial and
continued listing criteria under applicable Exchange rules as approved
by the Commission. In addition, the Commission has approved or issued a
notice of effectiveness to permit listing on a national securities
exchange of securities based on certain Indexes.\13\ With respect
underlying components of the Options Reference Asset, the Exchange
notes that, to the extent that securities comparable to Investment
Company Units, Exchange-Traded Fund Shares, Index-Linked Securities and
securities defined in Section 2 of Rule 8-E are listed and traded on
other national securities exchanges, such securities are subject to
rules for initial
[[Page 37490]]
and continued listing criteria as approved by the Commission for such
exchanges. With respect to options on the Indexes, options on all of
the Indexes are currently traded on U.S. options exchanges.
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\13\ See, e.g., Securities Exchange Act Release Nos. 31591
(December 11, 1992), 57 FR 60253 (December 18, 1992) (SR-Amex-92-18)
(approving the listing and trading of Portfolio Depositary Receipts
based on the S&P 500 Index); 39525 (January 8, 1998), 63 FR 2438
(January 15, 1998) (SR-Amex-97-29) (approving the listing and
trading of DIAMONDS Trust Units, Portfolio Depositary Receipts based
on the Dow Jones Industrial Average); 39011 (September 3, 1997), 62
FR 47840 (September 11, 1997) (SR-CBOE-97-26) (approving the listing
and trading of options on the Dow Jones Industrial Average); 19907
(June 24, 1983), 48 FR 30814 (July 5, 1983) (SR-CBOE-83-08)
(approving the listing and trading of options on the S&P 500 Index
on the CBOE); 41119 (February 26, 1999), 64 FR 11510 (March 9, 1999)
(SR-Amex-98-34) (Order Approving and Notice of Filing and Order
Granting Accelerated Approval of Amendment Nos. 3 and 4 to the
Proposed Rule Change Relating to the Listing and Trading of Shares
of the Nasdaq-100 Trust); 87437 (October 31, 2019), 84 FR 59900
(November 6, 2019) (SR-NYSEArca-2019-62) (Notice of Filing of
Amendment No. 1, and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, Relating to
the Listing and Trading of Shares of the Innovator MSCI EAFE Power
Buffer ETFs and Innovator MSCI Emerging Markets Power Buffer ETFs
under NYSE Arca Rule 8.600-E).
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Finally, all Options-Linked Securities listed pursuant to NYSE Arca
Rule 5.2-E(j)(6) would be included within the definition of
``security'' or ``securities'' as such terms are used in the Exchange's
rules and, as such, are subject to Exchange rules and procedures that
currently govern the trading of securities on the Exchange. In addition
to proposed NYSE Arca Rule 5.2-E (j)(6)(vii) and proposed NYSE Arca
Rule 5.2-E(j)(6)(B)(VII), all other provisions of Rule 5.2-E(j)(6) will
apply to Options-Linked Securities as applicable.
The Exchange believes that the proposed standards would continue to
ensure transparency surrounding the listing process for Index-Linked
Securities. The Exchange also believes that the standards for listing
and trading Options-Linked Securities are reasonably designed to
promote a fair and orderly market for such securities. The proposed
addition of Options Reference Asset, as described above, would also
work in conjunction with the initial and continued listing criteria
related to surveillance procedures and trading guidelines for Index-
Linked Securities.
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of Options-Linked Securities in all
trading sessions and to deter and detect violations of Exchange rules.
The issuer of a series of Options-Linked Securities will be required to
comply with Rule 10A-3 under the Act \14\ for the initial and continued
listing of Index-Linked Securities, as provided in NYSE Arca Rule 5.2-
E(j)(6)(A)(f). The Exchange notes that the proposed change is not
intended to amend any other component or requirement of NYSE Arca Rule
5.2-E(j)(6). With respect to options comprising the Options Reference
Asset, the pricing information for components of the Options Reference
Asset must be derived from a market which is an ISG member or affiliate
or with which the Exchange has a comprehensive surveillance sharing
agreement.
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\14\ 17 CFR 240.10A-3.
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Quotation and last sale information for Options-Linked Securities,
Investment Company Units, Exchange-Traded Fund Shares, Index-Linked
Securities, and securities defined in Section 2 of Rule 8-E are
available via the Consolidated Tape Association (``CTA'') high speed
line. Quotation and last sale information for such securities also will
be available from the exchange on which they are listed. Quotation and
last sale information for options on Investment Company Units,
Exchange-Traded Fund Shares, Index-Linked Securities, securities
defined in Section 2 of Rule 8-E and the Indexes will be available via
the Options Price Reporting Authority and major market data vendors.
Information regarding values of the Indexes is available from major
market data vendors.
The Exchange believes that the proposed rule change will provide
investors with the ability to better diversify and hedge their
portfolios using an exchange-listed security without having to trade
directly in the underlying options contracts, and will facilitate the
listing and trading of additional Index-Linked Securities that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\15\ in general, and furthers the
objectives of Sections 6(b)(5) of the Act,\16\ in particular, because
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to, and
perfect the mechanisms of, a free and open market and a national market
system and, in general, to protect investors and the public interest
and because it is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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With respect to underlying components of the Options Reference
Asset, the Exchange notes that Investment Company Units, Exchange-
Traded Fund Shares, Index-Linked Securities and securities defined in
Section 2 of Rule 8-E are subject to Exchange initial and continued
listing criteria under applicable Exchange rules as approved by the
Commission. With respect underlying components of the Options Reference
Asset, the Exchange notes that, to the extent that securities
comparable to Investment Company Units, Exchange-Traded Fund Shares,
Index-Linked Securities and securities defined in Section 2 of Rule 8-E
are listed and traded on other national securities exchanges, such
securities are subject to rules for initial and continued listing
criteria as approved by the Commission for such exchanges. In addition,
the Commission has approved or issued a notice of effectiveness to
permit listing on a national securities exchange of securities based on
certain Indexes.\17\ With respect to options on the Indexes, options on
all of the Indexes are currently traded on U.S. options exchanges. All
options included in the Options Reference Asset will be U.S. exchange-
traded.
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\17\ See note 13, supra.
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Under proposed NYSE Arca Rule 5.2-E(j)(6)(vii), to the extent that
the Options Reference Asset consists of options based on Investment
Company Units, Exchange-Traded Fund Shares, Index-Linked Securities, or
securities defined in Section 2 of Rule 8-E, such Investment Company
Units, Exchange-Traded Fund Shares, Index-Linked Securities, or
securities defined in Section 2 of Rule 8-E shall not seek to provide
investment results, before fees and expenses, that correspond to the
inverse, a specific multiple, or a specific inverse multiple of the
percentage performance on a given day of a particular index or
combination of indexes.
Under proposed NYSE Arca Rule 5.2-E(j)(6)(B)(VII)(1), an issue of
Options-Linked Securities would be required to meet the initial listing
standard in either (a) or (b) as follows: (a) The Options Reference
Asset to which the security is linked shall have been reviewed and
approved for the trading of Options-Linked Securities or options or
other derivatives by the Commission under Section 19(b)(2) of the
Securities Exchange Act of 1934 and rules thereunder and the conditions
set forth in the Commission's approval order, including with respect to
comprehensive surveillance sharing agreements, continue to be
satisfied; or (b) The pricing information for components of the Options
Reference Asset must be derived from a market which is an ISG member or
affiliate or with which the Exchange has a comprehensive surveillance
sharing agreement.
In addition, an issue of Options-Linked Securities must meet the
following initial listing criteria in NYSE Arca Rule 5.2-
E(j)(6)(B)(VII): (a) The value of the Options Reference Asset must be
calculated and widely disseminated by one or more major market data
vendors on at least a 15-second basis during the Core Trading Session
(as defined in NYSE Arca Rule
[[Page 37491]]
7.34-E); and (b) In the case of Options-Linked Securities that are
periodically redeemable, that the indicative value of the subject
Option-Linked Securities must be calculated and widely disseminated by
the Exchange or one or more major market data vendors on at least a 15-
second basis during the Core Trading Session.
Options-Linked Securities also will be subject to the continued
listing criteria in proposed Rule 5.2-E(j)(6)(B)(VII)(2) as described
above. Finally, all Options-Linked Securities listed pursuant to NYSE
Arca Rule 5.2-E(j)(6) would be included within the definition of
``security'' or ``securities'' as such terms are used in the Exchange's
rules and, as such, are subject to Exchange rules and procedures that
currently govern the trading of securities on the Exchange. In addition
to proposed NYSE Arca Rule 5.2-E(j)(6)(vii) and proposed Rule 5.2-
E(j)(6)(B)(VII), all other provisions of Rule 5.2-E(j)(6) will apply to
Options-Linked Securities as applicable.
The Exchange also proposes to amend Commentary .01(a) and (b) to
Rule 5.2-E(j)(6), which relate to specified requirements and
obligations of an Equity Trading Permit (ETP) Holder acting as a
registered Market Maker, to include Options Linked Securities and
options to the financial instruments covered by Commentary .01.
The Exchange also proposes to make certain technical corrections to
the existing rule text of Commentary .01 to Rule 5.2-E(j)(6).
The Exchange believes that the proposed standards would continue to
ensure transparency surrounding the listing process for Index-Linked
Securities. The Exchange also believes that the standards for listing
and trading Options-Linked Securities are reasonably designed to
promote a fair and orderly market for such securities. The proposed
addition of Options Reference Asset, as described above, would also
work in conjunction with the initial and continued listing criteria
related to surveillance procedures and trading guidelines for Index-
Linked Securities. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of Options-
Linked Securities in all trading sessions and to deter and detect
violations of Exchange rules. Trading in the securities may be halted
under the conditions specified in NYSE Arca Rule 5.2-E(j)(6)(E).
The Exchange believes that the proposed rule change will provide
investors with the ability to better diversify and hedge their
portfolios using an exchange listed security without having to trade
directly in the underlying options contracts, and will facilitate the
listing and trading of additional Index-Linked Securities that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\18\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The proposed rule change will facilitate the
listing and trading of additional Index-Linked Securities that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
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\18\ 15 U.S.C. 78f(b)(8).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2020-46 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-NYSEArca-2020-46. 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 (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 10:00 a.m. and
3:00 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-NYSEArca-2020-46, and should be
submitted on or before July 13, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13312 Filed 6-19-20; 8:45 am]
BILLING CODE 8011-01-P