[Federal Register Volume 85, Number 50 (Friday, March 13, 2020)]
[Notices]
[Pages 14716-14719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05105]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88345; File No. SR-NYSEArca-2020-18]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
March 9, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 2, 2020, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') filed
with the Securities and Exchange Commission (``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 this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 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 modify the NYSE Arca Options Fee Schedule
(``Fee Schedule''). The Exchange proposes to implement the fee change
effective March 2, 2020. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to amend the Fee Schedule to modify
the Limit of Fees on Options Strategy Executions (``Strategy Cap''), as
set forth below.
Currently, the Fee Schedule provides that transaction fees for OTP
Holders and OTP Firms (collectively, ``OTP Holders'') are limited or
capped at $700 for certain options strategy executions ``on the same
trading day in the same option class'' and such fees are further capped
at $25,000 per month per initiating firm.\3\ Strategy executions that
qualify for the Strategy Cap are (a) reversals and conversions, (b) box
spreads, (c) short stock interest spreads, (d) merger spreads, and (e)
jelly rolls, which are described in detail in the Fee Schedule (the
``Strategy Executions'').\4\
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\3\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES
FOR STANDARD OPTIONS, LIMIT OF FEES ON OPTIONS STRATEGY EXECUTIONS,
available here: https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
\4\ See id., at Endnote 10 (describing the Strategy Executions).
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The Exchange proposes to increase the daily Strategy Cap from $700
to $1,000 and to include in the Cap all Strategy Executions traded in
the same day (i.e., to eliminate the Cap requirement that strategies be
in the same option class). In connection with this change, the Exchange
proposes to eliminate the $25,000 monthly Strategy Cap. The Exchange
believes that the proposed Strategy Cap would encourage OTP Holders to
execute more Strategy Executions, particularly those that would not
individually qualify for inclusion in the Cap because of the current
per-symbol limitation, as such strategies would become more
economically feasible (and thus more attractive), when combined under
the proposed Cap with all of an OTP Holder's Strategy Executions on the
same trading day.
The Exchange also proposes to exclude from the cap any qualifying
Strategy Execution executed as a QCC order, as QCC transactions for
Non-Customers are eligible for other Fee Cap programs, and eligible for
credits for a Floor Broker executing a QCC (see infra note 10).
The Exchange proposes to implement the rule change on March 2,
2020.
Background
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \5\
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\5\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\6\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity & ETF options order flow.
More specifically, in the fourth quarter of 2019, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\7\
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\6\ The OCC publishes options and futures volume in a variety of
formats, including daily and monthly volume by exchange, available
here: https://www.theocc.com/market-data/volume/default.jsp.
\7\ Based on OCC data, see id., the Exchange's market share in
equity-based options was 9.57% for the month of January 2019 and
9.59% for the month of January 2020.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue or reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees.
In response to this competitive environment, the Exchange has
established incentives, such as the Strategy Cap, to encourage OTP
Holders to participate in certain large volume options strategies that
capture potentially small profits by capping the fees paid for such
transactions.
As noted above, the current Strategy Cap limits or caps at $700
transaction fees for options Strategy Executions ``on
[[Page 14717]]
the same trading day in the same option class'' and further caps such
fees at $25,000 per month.\8\
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\8\ See Fee Schedule, supra note 4.
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Proposed Rule Change
The Exchange proposes to modify the Strategy Cap by eliminating the
requirement that Strategy Executions on the same trading day all be in
the same symbol for inclusion in the Cap. Specifically, as proposed,
the daily Strategy Cap on transaction fees for options Strategy
Executions would be changed from $700 to $1,000 and would apply to all
Strategy Executions by an OTP Holder on the same trading day
(regardless of option class/symbol). In addition, given the proposal to
cap an OTP Holder's fee for all Strategy Executions in a given trading
day at $1,000, the Exchange proposed to eliminate the $25,000 per month
Strategy Cap as unnecessary.
For example, per the current Fee Schedule, an OTP Holder that
executes the following Strategy Executions on the same trading day
would be charged as follows:
A Jelly Roll in ABC for $800 in fees, capped at $700;
A Reversal Conversion in DEF for $500 in fees; and
A Merger Spread in XYZ for $600.
The total fees for these Strategy Executions under the current Fee
Schedule would be $1,800. Under the proposed Strategy Cap, the same
trades would be billed as follows:
A Jelly Roll in ABC for $800 in fees;
A Reversal Conversion in DEF for $500 in fees; and
A Merger Spread in XYZ for $600.
The total fees for these Strategy Executions under the proposed Fee
Schedule would be $1,000. Thus, although the amount of the Cap would be
increased, the number of eligible Strategy Executions would also be
increased, making it easier to meet the Strategy Cap.
The Exchange also proposes to clarify that, consistent with other
options exchanges that offer similar caps, a qualifying Strategy
Execution executed as a QCC order will not be eligible for this fee
cap.\9\ The Exchange notes that QCC transactions for Non-Customers are
eligible for other Fee Cap programs, and eligible for credits for a
Floor Broker executing a QCC.\10\
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\9\ See e.g., NYSE American Options fee schedule, Section I.J.,
Strategy Execution Fee Cap (providing that ``Any qualifying Strategy
Execution executed as a QCC order will not be eligible for this fee
cap'').
\10\ See e.g., Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED
CHARGES FOR STANDARD OPTIONS, FIRM AND BROKER DEALER MONTHLY FEE CAP
(including in monthly cap any ``QCC transactions executed by a Floor
Broker from the Floor of the Exchange'') and QUALIFIED CONTINGENT
CROSS (``QCC'') TRANSACTION FEES AND CREDITS (providing a per
contract credit for QCCs executed by Floor Brokers).
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The Exchange's fees are constrained by intermarket competition, as
OTP Holders may direct their order flow to any of the 16 options
exchanges, including those with similar Strategy Fee Caps.\11\ Thus,
OTP Holders have a choice of where they direct their order flow. This
proposed change is designed to incent OTP Holders to increase their
Strategy Execution volumes by executing (often smaller) strategies that
are not necessarily economically viable on a per symbol basis, but
which may be profitable when fees on Strategy Executions--regardless of
symbol--are capped for the trading day. The Exchange notes that all
market participants stand to benefit from increased volume, which
promotes market depth, facilitates tighter spreads and enhances price
discovery, and may lead to a corresponding increase in order flow from
other market participants.
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\11\ The proposed change is substantially identical to a change
made by NYSE American Options in September 2019 wherein that
exchange increased its Strategy Execution Cap from $750 (not $700,
as here) to $1,000 and applied cap to all Strategy Executions by a
given ATP Holder on the same trading day and to eliminate the
$25,000 monthly Strategy Cap. See Securities Exchange Act Release
No. 86917 (September 10, 2019), 84 FR 48672 (September 16, 2019)
(SR-NYSEAMER-2019-36); NYSE American Options fee schedule, Section
I.J., Strategy Execution Fee Cap (excluding QCC transactions from
the cap). See also BOX Options Market LLC (``BOX'') fee schedule,
Section II.D (Strategy QOO Order Fee Cap and Rebate).
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The Exchange cannot predict with certainty whether any OTP Holders
would avail themselves of this proposed fee change. At present, whether
or when an OTP Holder qualifies for the current daily Strategy Cap (of
$700) varies day-to-day in a given month. Thus, the Exchange cannot
predict with any certainty the number of OTP Holders that may qualify
for the modified Strategy Cap, but believes that OTP Holders would be
encouraged to take advantage of the modified Cap. The Exchange believes
the proposed Strategy Cap, which applies to all qualifying strategies
executed on the same trading day, regardless of symbol, would provide
an incentive for OTP Holders to submit these types of strategy orders
to the Exchange Trading Floor, which brings increased liquidity and
order flow for the benefit of all market participants.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\12\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\13\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
The Exchange operates in a highly competitive market. The
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and, also, recognized that current regulation of the
market system ``has been remarkably successful in promoting market
competition in its broader forms that are most important to investors
and listed companies.'' \14\
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\14\ See Reg NMS Adopting Release, supra note 6, at 37499.
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\15\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity & ETF options order flow.
More specifically, in the fourth quarter of 2019, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\16\
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\15\ See supra note 7.
\16\ Based on OCC data, see supra note 8, in 2019, the
Exchange's market share in equity-based options was 9.57% for the
month of January 2019 and 9.59% for the month of January 2020.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue or reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees. Stated otherwise, changes
to exchange transaction fees can have a direct effect on the ability of
an exchange to compete for order flow.
The Exchange believes that the proposed modification to the
Strategy
[[Page 14718]]
Cap is designed to incent OTP Holders to increase the number and type
of Strategy Executions sent to the Exchange. In addition, the proposal
caps fees on all similar transactions, regardless of size and
similarly-situated OTP Holders can opt to try to achieve the modified
Strategy Cap. The proposal is designed to encourage OTP Holders to send
all Strategy Executions to the Exchange regardless of size or type. To
the extent that the proposed change attracts more Strategy Executions
to the Exchange Trading Floor, this increased order flow would continue
to make the Exchange a more competitive venue for, among other things,
order execution, which, in turn, promotes just and equitable principles
of trade and removes impediments to and perfects the mechanism of a
free and open market and a national market system.
Finally, to the extent the proposed change continues to attract
greater volume and liquidity (to the Floor or otherwise), the Exchange
believes the proposed change would improve the Exchange's overall
competitiveness and strengthen its market quality for all market
participants. In the backdrop of the competitive environment in which
the Exchange operates, the proposed rule change is a reasonable attempt
by the Exchange to increase the depth of its market and improve its
market share relative to its competitors. The Exchange's fees are
constrained by intermarket competition, as OTP Holders may direct their
order flow to any of the 16 options exchanges, including those with
similar Strategy Fee Caps.\17\ Thus, OTP Holders have a choice of where
they direct their order flow--including their Strategy Executions. The
proposed rule change is designed to incent OTP Holders to direct
liquidity to the Exchange--in particular Strategy Executions, thereby
promoting market depth, price discovery and improvement and enhancing
order execution opportunities for market participants.
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\17\ See supra note 12 (regarding the substantially identical
change to the NYSE American Fee Schedule, which also excludes QCC
transactions from the cap, and the $1,000 cap on strategy executions
in place on and BOX).
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The Exchange cannot predict with certainty whether any OTP Holders
would avail themselves of this proposed fee change. At present, whether
or when an OTP Holder qualifies for the current daily Strategy Cap (of
$700) varies day-to-day in a given month. Thus, the Exchange cannot
predict with any certainty the number of OTP Holders that may qualify
for the modified Strategy Cap, but believes that OTP Holders would be
encouraged to take advantage of the modified Cap. The Exchange believes
the proposed Strategy Cap, which applies to all qualifying strategies
executed on the same trading day, regardless of symbol, would provide
an incentive for OTP Holders to submit these types of strategy orders
to the Exchange Trading Floor, which brings increased liquidity and
order flow for the benefit of all market participants.
The Proposed Rule Change Is an Equitable Allocation of Credits and Fees
The Exchange believes the proposed rule change is an equitable
allocation of its fees and credits. The proposal is based on the amount
and type of business transacted on the Exchange and OTP Holders can opt
to avail themselves of the Strategy Cap or not. Moreover, the proposal
is designed to encourage OTP Holders to aggregate all Strategy
Executions at the Exchange as a primary execution venue. To the extent
that the proposed change attracts more Strategy Executions to the
Exchange, this increased order flow would continue to make the Exchange
a more competitive venue for, among other things, order execution.
Thus, the Exchange believes the proposed rule change would improve
market quality for all market participants on the Exchange and, as a
consequence, attract more order flow to the Exchange thereby improving
market-wide quality and price discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes it is not unfairly discriminatory to modify
the Strategy Cap because the proposed modification would be available
to all similarly-situated market participants on an equal and non-
discriminatory basis.
The proposal is based on the amount and type of business transacted
on the Exchange and OTP Holders are not obligated to try to achieve the
Strategy Cap. Rather, the proposal is designed encourage OTP Holders to
utilize the Exchange as a primary trading venue for Strategy Executions
(if they have not done so previously) or increase volume sent to the
Exchange. To the extent that the proposed change attracts more Strategy
Executions to the Exchange, this increased order flow would continue to
make the Exchange a more competitive venue for, among other things,
order execution. Thus, the Exchange believes the proposed rule change
would improve market quality for all market participants on the
Exchange and, as a consequence, attract more order flow to the Exchange
thereby improving market-wide quality and price discovery. The
resulting increased volume and liquidity would provide more trading
opportunities and tighter spreads to all market participants and thus
would promote just and equitable principles of trade, remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act, 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. Instead, as discussed above, the Exchange believes
that the proposed changes would encourage the submission of additional
liquidity to a public exchange, thereby promoting market depth, price
discovery and transparency and enhancing order execution opportunities
for all market participants. As a result, the Exchange believes that
the proposed change furthers the Commission's goal in adopting
Regulation NMS of fostering integrated competition among orders, which
promotes ``more efficient pricing of individual stocks for all types of
orders, large and small.'' \18\
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\18\ See Reg NMS Adopting Release, supra note 6, at 37499.
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Intramarket Competition. The proposed change is designed to attract
additional order flow (particularly Strategy Executions) to the
Exchange. The Exchange believes that the proposed Strategy Cap would
incent market participants to direct their Strategy Execution volume to
the Exchange. Greater liquidity benefits all market participants on the
Exchange and increased Strategy Executions would increase opportunities
for execution of other trading interest. The proposed Strategy Cap
would be available to all similarly-situated market participants that
incur transaction fees on Strategy Executions, and, as such, the
proposed change would not impose a disparate burden on competition
among market participants on the Exchange.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market
[[Page 14719]]
participants can readily favor one of the 16 competing option exchanges
if they deem fee levels at a particular venue to be excessive. In such
an environment, the Exchange must continually adjust its fees to remain
competitive with other exchanges and to attract order flow to the
Exchange. Based on publicly-available information, and excluding index-
based options, no single exchange has more than 16% of the market share
of executed volume of multiply-listed equity and ETF options
trades.\19\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity & ETF options order flow.
More specifically, in the fourth quarter of 2019, the Exchange had less
than 10% market share of executed volume of multiply-listed equity &
ETF options trades.\20\
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\19\ See supra note 7.
\20\ Based on OCC data, supra note 8, the Exchange's market
share in equity-based options was 9.57% for the month of January
2019 and 9.59% for the month of January, 2020.
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The Exchange believes that the proposed rule change reflects this
competitive environment because it modifies the Exchange's fees in a
manner designed to encourage OTP Holders to direct trading interest
(particularly Strategy Executions) to the Exchange, to provide
liquidity and to attract order flow. To the extent that this purpose is
achieved, all the Exchange's market participants should benefit from
the improved market quality and increased opportunities for price
improvement.
The Exchange believes that the proposed change could promote
competition between the Exchange and other execution venues, including
those that currently offer similar Strategy Caps, by encouraging
additional orders to be sent to the Exchange for execution. The
Exchange also believes that the proposed change is designed to provide
the public and investors with a Fee Schedule that is clear and
consistent, thereby reducing burdens on the marketplace and
facilitating investor protection.
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
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \21\ of the Act and subparagraph (f)(2) of Rule
19b-4 \22\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) \23\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\23\ 15 U.S.C. 78s(b)(2)(B).
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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-2020-18 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-2020-18. 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-2020-18, and should be
submitted on or before April 3, 2020.
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\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05105 Filed 3-12-20; 8:45 am]
BILLING CODE 8011-01-P