
[Federal Register Volume 81, Number 108 (Monday, June 6, 2016)]
[Notices]
[Pages 36367-36373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13209]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77949; File No. SR-NYSEMKT-2016-56]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Implementing the 
Quoting and Trading Provisions of the Plan To Implement a Tick Size 
Pilot Program Submitted to the Commission Pursuant to Rule 608 of 
Regulation NMS Under the Act

May 31, 2016.
    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 May 20, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') 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 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\ 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 implement the quoting and trading 
provisions of the Plan to Implement a Tick Size Pilot Program submitted 
to the Commission pursuant to Rule 608 of Regulation NMS \4\ under the 
Act (the ``Plan''). The proposed rule change is substantially similar 
to proposed rule changes recently approved or published by the 
Commission by New York Stock Exchange LLC to adopt NYSE Rules 67(a) and 
67(c)-(e), which also implemented the quoting and trading provisions of 
the Plan.\5\ Therefore, the Exchange has designated this proposal as 
``non-controversial'' and provided the Commission with the notice 
required by Rule 19b-4(f)(6)(iii) under the Act.\6\ The proposed rule 
change is available on the Exchange's Web site at www.nyse.com, at the 
principal office of the Exchange,

[[Page 36368]]

and at the Commission's Public Reference Room.
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    \4\ 17 CFR 242.608.
    \5\ See, Securities Exchange Act Release No. 76229 (October 22, 
2015), 80 FR 66065 (October 28, 2015) (SR-NYSE-2015-46), as amended 
by Partial Amendments No. 1 and No. 2 to the Quoting & Trading Rules 
Proposal. See, Securities Exchange Act Release No. 77703 (April 25, 
2016), 81 FR 25725 (April 29, 2016) (SR-NYSE-2015-46).
    \6\ 17 CFR 240.19b-4(f)(6)(iii).
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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
    The Exchange proposes to establish rules to require its member 
organizations to comply with the requirements of the Plan to Implement 
a Tick Size Pilot Program (the ``Plan''),\7\ which is designed to study 
and assess the impact of increment conventions on the liquidity and 
trading of the common stocks of small capitalization companies. The 
Exchange proposes changes to its rules for a two-year pilot period that 
coincides with the pilot period for the Plan, which is currently 
scheduled as a two year pilot to begin on October 3, 2016.
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    \7\ See Securities and Exchange Act Release No. 74892 (May 6, 
2015), 80 FR 27513 (File No. 4-657) (``Tick Plan Approval Order''). 
See, also, Securities and Exchange Act Release No. 76382 (November 
6, 2015) (File No. 4-657), 80 FR 70284 (File No. 4-657) (November 
13, 2015), which extended the pilot period commencement date from 
May 6, 2015 to October 3, 2016.
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Background
    On August 25, 2014, NYSE Group, Inc., on behalf of Bats BZX 
Exchange, Inc. (f/k/a BATS Exchange, Inc.), Bats BYX Exchange, Inc. (f/
k/a BATS Y-Exchange, Inc.), Chicago Stock Exchange, Inc., EDGA 
Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory 
Authority, Inc. (``FINRA''), NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, 
the Nasdaq Stock Market LLC, New York Stock Exchange LLC, the Exchange 
and NYSE Arca, Inc. (collectively ``Participants''), filed with the 
Commission, pursuant to Section 11A of the Act \8\ and Rule 608 of 
Regulation NMS thereunder, the Plan to Implement a Tick Size Pilot 
Program.\9\ The Participants filed the Plan to comply with an order 
issued by the Commission on June 24, 2014 (the ``June 2014 
Order'').\10\ The Plan \11\ was published for comment in the Federal 
Register on November 7, 2014,\12\ and approved by the Commission, as 
modified, on May 6, 2015.\13\
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    \8\ 15 U.S.C. 78k-1.
    \9\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \10\ See Securities Exchange Act Release No. 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \11\ Unless otherwise specified, capitalized terms used in this 
rule filing are based on the defined terms of the Plan.
    \12\ See Securities and Exchange Act Release No. 73511 (November 
3, 2014), 79 FR 66423 (File No. 4-657) (Tick Plan Filing).
    \13\ See Tick Plan Approval Order, supra note 7. See, also, 
Securities Exchange Act Release No. 77277 (March 3, 2016), 81 FR 
12162 (March 8, 2016) (File No. 4-657), which amended the Plan to 
add National Stock Exchange, Inc. as a Participant.
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    The Plan is designed to allow the Commission, market participants, 
and the public to study and assess the impact of increment conventions 
on the liquidity and trading of the common stocks of small 
capitalization companies. The Commission plans to use the Tick Size 
Pilot Program to assess whether wider tick sizes enhance the market 
quality of Pilot Securities for the benefit of issuers and investors. 
Each Participant is required to comply with, and to enforce compliance 
by its member organizations, as applicable, with the provisions of the 
Plan.
    On October 9, 2015, the Operating Committee approved the Exchange's 
proposed rules as model Participant rules that would require compliance 
by a Participant's members with the provisions of the Plan, as 
applicable, and would establish written policies and procedures 
reasonably designed to comply with applicable quoting and trading 
requirements specified in the Plan.\14\ As described more fully below, 
the proposed rules would require member organizations to comply with 
the Plan and provide for the widening of quoting and trading increments 
for Pilot Securities, consistent with the Plan.
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    \14\ The Operating Committee is required under Section III(C)(2) 
of the Plan to ``monitor the procedures established pursuant to the 
Plan and advise Participants with respect to any deficiencies, 
problems, or recommendations as the Operating Committee may deem 
appropriate.'' The Operating Committee is also required to 
``establish specifications and procedures for the implementation and 
operation of the Plan that are consistent with the provisions of the 
Plan.''
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    The Tick Size Pilot Program will include stocks of companies with 
$3 billion or less in market capitalization, an average daily trading 
volume of one million shares or less, and a volume weighted average 
price of at least $2.00 for every trading day. The Tick Pilot Program 
will consist of a control group of approximately 1400 Pilot Securities 
and three test groups with 400 Pilot Securities in each selected by a 
stratified sampling.\15\ During the pilot, Pilot Securities in the 
control group will be quoted at the current tick size increment of 
$0.01 per share and will trade at the currently permitted increments. 
Pilot Securities in the first test group (``Test Group One'') will be 
quoted in $0.05 minimum increments but will continue to trade at any 
price increment that is currently permitted.\16\ Pilot Securities in 
the second test group (``Test Group Two'') will be quoted in $0.05 
minimum increments and will trade at $0.05 minimum increments subject 
to a midpoint exception, a retail investor exception, and a negotiated 
trade exception.\17\ Pilot Securities in the third test group (``Test 
Group Three'') will be subject to the same terms as Test Group Two and 
also will be subject to the ``Trade-at'' requirement to prevent price 
matching by a person not displaying at a price of a Trading Center's 
``Best Protected Bid or ``Best Protected Offer,'' unless an enumerated 
exception applies.\18\ In addition to the exceptions provided under 
Test Group Two, an exception for Block Size orders and exceptions that 
closely resemble those under Rule 611 of Regulation NMS \19\ will apply 
to the Trade-at requirement.
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    \15\ See Section V of the Plan for identification of Pilot 
Securities, including criteria for selection and grouping.
    \16\ See Section VI(B) of the Plan. Pilot Securities in Test 
Group One will be subject to a midpoint exception and a retail 
investor exception.
    \17\ See Section VI(C) of the Plan.
    \18\ See Section VI(D) of the Plan.
    \19\ 17 CFR 242.611.
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    The Tick Pilot Program also contains requirements for the 
collection and transmission of data to the Commission and the public. A 
variety of data generated during the Tick Pilot Program will be 
released publicly on an aggregated basis to assist in analyzing the 
impact of wider tick sizes on smaller capitalization stocks.\20\
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    \20\ See Section VII of the Plan.
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Proposed Rule 67--Equities
    The Plan requires the Exchange to establish, maintain, and enforce 
written policies and procedures that are reasonably designed to comply 
with applicable quoting and trading requirements specified in the 
Plan.\21\

[[Page 36369]]

Accordingly, the Exchange is proposing new Rule 67--Equities to require 
its member organizations to comply with the quoting and trading 
provisions of the Plan. The proposed Rule is also designed to ensure 
the Exchange's compliance with the Plan.
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    \21\ The Exchange was also required by the Plan to develop 
appropriate policies and procedures that provide for data collection 
and reporting to the Commission of data described in Appendixes B 
and C of the Plan. See, Securities Exchange Act Release No. 77478 
(March 30, 2016), 81 FR 19665 (April 5, 2016) (SR-NYSEMKT-2016-40.
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    Proposed paragraph (a)(1) of new Rule 67--Equities would establish 
the following defined terms:
     ``Plan'' means the Tick Size Pilot Plan submitted to the 
Commission pursuant to Rule 608(a)(3) of Regulation NMS under the Act;
     ``Pilot Test Groups'' means the three test groups 
established under the Plan, consisting of 400 Pilot Securities each, 
which satisfy the respective criteria established by the Plan for each 
such test group.
     ``Retail Investor Order'' would mean an agency order or a 
riskless principal order that meets the criteria of FINRA Rule 5320.03 
that originates from a natural person and is submitted to the Exchange 
by a retail member organization, provided that no change is made to the 
terms of the order with respect to price or side of market and the 
order does not originate from a trading algorithm or any other 
computerized methodology. A Retail Investor Order may be an odd lot, 
round lot, or partial round lot.\22\
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    \22\ This definition is the approved definition for ``Retail 
Investor Order'' as contemplated by the Plan. It is also the same 
definition as given to ``Retail Orders'' pursuant to the approved 
rules of other national securities exchanges. See Rule 107C(a)(3)--
Equities. See also NYSE Rule 107C(a)(3), NYSE Arca, Inc. Rule 
7.44(a)(3), BATS Y-Exchange, Inc. Rule 11.24(a)(2) and NASDAQ Stock 
Market LLC Rule 4780(a)(2). The Retail Investor Order definition 
includes any order originating from a natural person and is not 
limited to orders submitted to the Exchange under the Exchange's 
retail liquidity program rule (Rule 107C--Equities). Therefore, any 
member organization that operates a Trading Center may execute 
against a Retail Investor Order otherwise than on an exchange to 
satisfy the retail investor order exception proposed in Rule 67--
Equities.
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     Trade-at Intermarket Sweep Order'' \23\ would mean a limit 
order for a Pilot Security that meets the following requirements:
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    \23\ The Plan defines a Trade-at Intermarket Sweep Order 
(``ISO'') as a limit order for a Pilot Security that, when routed to 
a Trading Center, is identified as an ISO, and simultaneous with the 
routing of the limit order identified as an ISO, one or more 
additional limit orders, as necessary, are routed to execute against 
the full displayed size of any protected bid (in the case of a limit 
order to sell) or the full displayed size of any protected offer (in 
the case of a limit order to buy) for the Pilot Security with a 
price that is equal to the limit price of the limit order identified 
as an ISO. These additional routed orders also must be marked as 
ISOs. See Plan, Section I(MM). Since the Plan allows (i) an order 
that is identified as an ISO to be executed at the price of a 
Protected Quotation (see, Plan, Section VI(D)(8) and proposed Rule 
67(a)(e)(4)(C)(ix)--Equities) and (ii) an order to execute at the 
price of a Protected Quotation that ``is executed by a trading 
center that simultaneously routed Trade-at ISO to execute against 
the full displayed size of the Protected Quotation that was trade 
at'' (see, Plan, Section VI(D)(9) and proposed Rule 
67(a)(e)(4)(C)(x)--Equities), the Exchange proposes to clarify the 
use of an ISO in connection with the Trade-at requirement by 
adopting, as part of proposed Rule 67(a)(1)--Equities, a 
comprehensive definition of ``Trade-at ISO.'' As set forth in the 
Plan and as noted above, the definition of a Trade-at ISO used in 
the Plan does not distinguish ISOs that are compliant with Rule 611 
or Regulation NMS from ISOs that are compliant with Trade-at. The 
Exchange therefore proposes the separate definition of Trade-at ISO 
contained in proposed Rule 67(a)--Equities. The Exchange believes 
that this proposed definition will further clarify to recipients of 
ISOs in Test Group Three securities whether the ISO satisfies the 
requirements of Rule 611 of Regulation NMS or Trade-at.
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    (i) When routed to a Trading Center, the limit order is identified 
as a Trade-at Intermarket Sweep Order; and
    (ii) Simultaneously with the routing of the limit order identified 
as a Trade-at Intermarket Sweep Order, one or more additional limit 
orders, as necessary, are routed to execute against the full size of 
any protected bid, in the case of a limit order to sell, or the full 
displayed size of any protected offer, in the case of a limit order to 
buy, for the Pilot Security with a price that is better than or equal 
to the limit price of the limit order identified as a Trade-at 
Intermarket Sweep Order. These additional routed orders also must be 
marked as Trade-at Intermarket Sweep Orders.
     Paragraph (a)(1)(E) would provide that all capitalized 
terms not otherwise defined in this rule shall have the meanings set 
forth in the Plan, Regulation NMS under the Act, or Exchange rules, as 
applicable.
    Proposed Paragraph (a)(2) would state that the Exchange is a 
Participant in, and subject to the applicable requirements of, the 
Plan; proposed Paragraph (a)(3) would require member organizations to 
establish, maintain and enforce written policies and procedures that 
are reasonably designed to comply with the applicable requirements of 
the Plan, which would allow the Exchange to enforce compliance by its 
member organizations with the provisions of the Plan, as required 
pursuant to Section II(B) of the Plan.
    In addition, Paragraph (a)(4) would provide that Exchange systems 
would not display, quote or trade in violation of the applicable 
quoting and trading requirements for a Pilot Security specified in the 
Plan and this proposed rule, unless such quotation or transaction is 
specifically exempted under the Plan.\24\
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    \24\ The Exchange is still evaluating its internal policies and 
procedures to ensure compliance with the Plan, and plans to 
separately propose rules that would address violations of the Plan.
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    The Exchange also proposes to add Rule 67(a)(5)--Equities to 
provide for the treatment of Pilot Securities that drop below a $1.00 
value during the Pilot Period.\25\ The Exchange proposes that if the 
price of a Pilot Security drops below $1.00 during regular trading on 
any given business day, such Pilot Security would continue to be 
subject to the Plan and the requirements described below that 
necessitate member organizations to comply with the specific quoting 
and trading obligations for each respective Pilot Test Group under the 
Plan, and would continue to trade in accordance with the proposed rules 
below as if the price of the Pilot Security had not dropped below 
$1.00. However, if the Closing Price of a Pilot Security on any given 
business day is below $1.00, such Pilot Security would be moved out of 
its respective Pilot Test Group into the control group (which consists 
of Pilot Securities not placed into a Pilot Test Group), and may then 
be quoted and traded at any price increment that is currently permitted 
by Exchange rules for the remainder of the Pilot Period. 
Notwithstanding anything contained herein to the contrary, the Exchange 
proposes that, at all times during the Pilot Period, Pilot Securities 
(whether in the control group or any Pilot Test Group) would continue 
to be subject to the data collection rules, which are enumerated in 
Rule 67(b)--Equities.
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    \25\ New York Stock Exchange LLC, on behalf of the Participants, 
submitted a letter to Commission requesting exemption from certain 
provisions of the Plan related to quoting and trading. See letter 
from Elizabeth K. King, NYSE, to Brent J. Fields, Secretary, 
Commission, dated October 14, 2015 (the ``October Exemption 
Request''). FINRA, also on behalf of the Plan Participants, 
submitted a separate letter to Commission requesting additional 
exemptions from certain provisions of the Plan related to quoting 
and trading. See letter from Marcia E. Asquith, Senior Vice 
President and Corporate Secretary, FINRA, to Robert W. Errett, 
Deputy Secretary, Commission, dated February 23, 2016 (the 
``February Exemption Request,'' and together with the October 
Exemption Request, the ``Exemption Request Letters''). The 
Commission, pursuant to its authority under Rule 608(e) of 
Regulation NMS, granted New York Stock Exchange LLC a limited 
exemption from the requirement to comply with certain provisions of 
the Plan as specified in the Exemption Request Letters and noted 
herein. See letter from David Shillman, Associate Director, Division 
of Trading and Markets, Commission to Sherry Sandler, Associate 
General Counsel, New York Stock Exchange LLC, dated April 25, 2016 
(the ``Exemption Letter''). The Exchange is seeking the same 
exemptions as requested in the Exemption Request Letters, including 
without limitation, an exemption relating to proposed Rule 
67(a)(5)--Equities.
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    The Exchange proposes Rules 67(c)-(e)--Equities, which would 
require member organizations to comply with the specific quoting and 
trading

[[Page 36370]]

obligations for each Pilot Test Group under the Plan. With regard to 
Pilot Securities in Test Group One, proposed Rule 67(c)--Equities would 
provide that no member organization may display, rank, or accept from 
any person any displayable or non-displayable bids or offers, orders, 
or indications of interest in increments other than $0.05. However, 
orders priced to trade at the midpoint of the National Best Bid and 
National Best Offer (``NBBO'') or Best Protected Bid and Best Protect 
Offer (``PBBO'') and orders entered in the Exchange's Retail Liquidity 
Program as Retail Price Improvement Orders (``Retail Price Improvement 
Order'') \26\ may be ranked and accepted in increments of less than 
$0.05. Pilot Securities in Test Group One may continue to trade at any 
price increment that is currently permitted by Rule 62.10--
Equities.\27\
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    \26\ A Retail Price Improvement Order consists of non-displayed 
interest in NYSE MKT-listed securities that is priced better than 
the Best Protected Bid or Best Protected Offer, as such terms are 
defined in Regulation NMS Rule 600(b)(57), by at least $0.001 and 
that is identified as such. See Rule 107C(a)(4)--Equities.
    \27\ Rule 62.10--Equities describes the minimum price variation 
for quoting and entry of orders in equity securities admitted to 
dealings on the Exchange.
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    With regard to Pilot Securities in Test Group Two, proposed Rule 
67(d)(1)--Equities would provide that such Pilot Securities would be 
subject to all of the same quoting requirements as described above for 
Pilot Securities in Test Group One, along with the applicable quoting 
exceptions. In addition, proposed Rule 67(d)(2)--Equities would provide 
that, absent one of the listed exceptions in proposed Rule 67(d)(3)--
Equities enumerated below, no member organization may execute orders in 
any Pilot Security in Test Group Two in price increments other than 
$0.05. The $0.05 trading increment would apply to all trades, including 
Brokered Cross Trades.
    Paragraph (d)(3) would set forth further requirements for Pilot 
Securities in Test Group Two. Specifically, member organizations 
trading Pilot Securities in Test Group Two would be allowed to trade in 
increments less than $0.05 under the following circumstances:
    (A) Trading may occur at the midpoint between the NBBO or PBBO;
    (B) Retail Investor Orders may be provided with price improvement 
that is at least $0.005 better than the Best Protected Bid or the Best 
Protected Offer;
    (C) Negotiated Trades may trade in increments less than $0.05; and
    (D) Execution of a customer order to comply with Rule 5320--
Equities \28\ following the execution of a proprietary trade by the 
member organization at an increment other than $0.05, where such 
proprietary trade was permissible pursuant to an exception under the 
Plan.\29\
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    \28\ Rule 5320--Equities is the Exchange's Prohibition Against 
Trading Ahead of Customer Orders rule and states:
     (a) Except as provided herein, a member organization that 
accepts and holds an order in an equity security from its own 
customer or a customer of another broker-dealer without immediately 
executing the order is prohibited from trading that security on the 
same side of the market for its own account at a price that would 
satisfy the customer order, unless it immediately thereafter 
executes the customer order up to the size and at the same or better 
price at which it traded for its own account.
    (b) A member organization must have a written methodology in 
place governing the execution and priority of all pending orders 
that is consistent with the requirements of this Rule and NASD Rule 
2320. A member organization also must ensure that this methodology 
is consistently applied.
    \29\ The Exchange proposes to add this exemption to permit 
member organizations to fill a customer order in a Pilot Security at 
a non-nickel increment to comply with Rule 5320--Equities under 
limited circumstances. Specifically, the exception would allow the 
execution of a customer order following a proprietary trade by the 
member organization at an increment other than $0.05 in the same 
security, on the same side and at the same price as (or within the 
prescribed amount of) a customer order owed a fill pursuant to Rule 
5320--Equities, where the triggering proprietary trade was 
permissible pursuant to an exception under the Plan. The Commission 
granted New York Stock Exchange LLC an exemption from Rule 608(c) 
related to this provision. See, the Exemption Letter, supra note 25. 
The Exchange is seeking the same exemptions as requested in the 
Exemption Request Letters. The Exchange believes such an exception 
best facilitates the ability of member organizations to continue to 
protect customer orders while retaining the flexibility to engage in 
proprietary trades that comply with an exception to the Plan.
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    Paragraph (e)(1)-(e)(3) would set forth the requirements for Pilot 
Securities in Test Group Three. Member organizations quoting or trading 
such Pilot Securities would be subject to all of the same quoting and 
trading requirements as described above for Pilot Securities in Test 
Group Two, including the quoting and trading exceptions applicable to 
Test Group Two Pilot Securities. In addition, proposed Paragraph (e)(4) 
would provide for an additional prohibition on Pilot Securities in Test 
Group Three referred to as the ``Trade-at Prohibition.'' \30\ Paragraph 
(e)(4)(B)--Equities would provide that, absent one of the listed 
exceptions in proposed Rule 67(e)(4)(C)--Equities enumerated below, no 
member organization may execute a sell order for a Pilot Security in 
Test Group Three at the price of a Protected Bid or execute a buy order 
for a Pilot Security in Test Group Three at the price of a Protected 
Offer.
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    \30\ Proposed Rule 67(e)(4)(A)--Equities would define the 
``Trade-at Prohibition'' to mean the prohibition against executions 
by a Trading Center of a sell order for a Pilot Security at the 
price of a Protected Bid or the execution of a buy order for a Pilot 
Security at the price of a Protected Offer during regular trading 
hours.
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    Proposed Rule 67(e)(4)(C)--Equities would allow member 
organizations to execute a sell order for a Pilot Security in Test 
Group Three at the price of a Protected Bid or execute a buy order for 
a Pilot Security in Test Group Three at the price of a Protected Offer 
if any of the following circumstances exist:
    (i) The order is executed as agent or riskless principal by an 
independent trading unit, as defined under Rule 200(f) of Regulation 
SHO,\31\ of a Trading Center within a member organization that has a 
displayed quotation as agent or riskless principal, via either a 
processor or an SRO Quotation Feed, at a price equal to the traded-at 
Protected Quotation, that was displayed before the order was 
received,\32\ but only up to the full displayed size of that 
independent trading unit's previously displayed quote; \33\
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    \31\ The Exchange is proposing that, for proposed Rules 
67(e)(4)(C)(i) and (ii)--Equities, a Trading Center operated by a 
broker-dealer would mean an independent trading unit, as defined 
under Rule 200(f) of Regulation SHO, within such broker-dealer. See, 
17 CFR 242.200.
    Independent trading unit aggregation is available if traders in 
an aggregation unit pursue only the particular trading objective(s) 
or strategy(s) of that aggregation unit and do not coordinate that 
strategy with any other aggregation unit. Therefore, a Trading 
Center cannot rely on quotations displayed by that broker dealer 
from a different independent trading unit. As an example, an agency 
desk of a broker-dealer cannot rely on the quotation of a 
proprietary desk in a separate independent trading unit at that same 
broker-dealer.
    \32\ The Exchange is proposing to adopt this limitation to 
ensure that a Trading Center does not display a quotation after the 
time of order receipt solely for the purpose of trading at the price 
of a protected quotation without routing to that protected 
quotation.
    \33\ This proposed exception to Trade-at would allow a Trading 
Center to execute an order at the Protected Quotation in the same 
capacity in which it has displayed a quotation at a price equal to 
the Protected Quotation and up to the displayed size of such 
displayed quotation.
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    (ii) The order is executed by an independent trading unit, as 
defined under Rule 200(f) of Regulation SHO, of a Trading Center within 
a member organization that has a displayed quotation for the account of 
that Trading Center on a principal (excluding riskless principal \34\) 
basis, via either a processor or an SRO Quotation Feed, at a price 
equal to the traded-at Protected Quotation, that was displayed before 
the

[[Page 36371]]

order was received, but only up to the full displayed size of that 
independent unit's previously displayed quote; \35\
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    \34\ As described above, proposed Rule 67(e)(4)(C)(i)--Equities 
would establish the circumstances in which a Trading Center 
displaying an order as riskless principal would be permitted to 
Trade-at the Protected Quotation. Accordingly, the Exchange proposes 
that proposed Rule 67(e)(4)(C)(ii)--Equities would exclude such 
circumstances.
    \35\ The display exceptions to Trade-at set forth in proposed 
Rules 67(e)(4)(C)(i) and (ii)--Equities would not permit a broker-
dealer to trade on the basis of interest it is not responsible for 
displaying. In particular, a broker-dealer that matches orders in 
the over-the-counter market shall be deemed to have ``executed'' 
such orders as a Trading Center for purposes of proposed Rule 67--
Equities. Accordingly, if a broker-dealer is not displaying a 
quotation at a price equal to the Protected Quotation, it could not 
submit matched trades to an alternative trading center (``ATS'') 
that was displaying on an agency basis the quotation of another ATS 
subscriber. However, a broker-dealer that is displaying, as 
principal, via either a processor or an SRO Quotation Feed, a buy 
order at the protected bid, could internalize a customer sell order 
up to its displayed size. The display exceptions would not permit a 
non-displayed Trading Center to submit matched trades to an ATS that 
was displaying on an agency basis the quotation of another ATS 
subscriber and confirmed [sic] that a broker-dealer would not be 
permitted to trade on the basis of interest that it is not 
responsible for displaying.
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    (iii) The order is of Block Size \36\ at the time of origin and may 
not be:
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    \36\ ``Block Size'' is defined in the Plan as an order (1) of at 
least 5,000 shares or (2) for a quantity of stock having a market 
value of at least $100,000.
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    A. An aggregation of non-block orders;
    B. broken into orders smaller than Block Size prior to submitting 
the order to a Trading Center for execution; or
    C. executed on multiple Trading Centers; \37\
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    \37\ Once a Block Size order or portion of such Block Size order 
is routed from one Trading Center to another Trading Center in 
compliance with Rule 611 of Regulation NMS, the Block Size order 
would lose the Trade-at exemption provided under proposed Rule 
67(e)(4)(C)(iii)--Equities, unless the Block Size remaining after 
the first route and execution meets the Block Size definition under 
the Plan (see footnote 35). For example, if an exchange has a 
Protected Bid of 3,000 shares, with 2,000 shares in reserve, and 
receives a 5,000 share order to sell, the exchange would be able to 
execute the entire 5,000 share order without having to route to an 
away market at any other Protected Bid at the same price. If, 
however, that exchange only has 1,000 shares in reserve, the entire 
order would not be able to be executed on that exchange, and the 
exchange would only be able to execute 3,000 shares and route the 
rest to away markets at other Protected Bids at the same price, 
before executing the 1,000 shares in reserve. The same analysis 
would hold true at the next price point, if the size of the incoming 
order would exceed all available shares at the first price, and the 
remaining shares to be executed would be 5,000 shares or more.
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    (iv) The order is a Retail Investor Order executed with at least 
$0.005 price improvement;
    (v) The order is executed when the Trading Center displaying the 
Protected Quotation that was traded at was experiencing a failure, 
material delay, or malfunction of its systems or equipment;
    (vi) The order is executed as part of a transaction that was not a 
``regular way'' contract;
    (vii) The order is executed as part of a single-priced opening, 
reopening, or closing transaction on the Exchange;
    (viii) The order is executed when a Protected Bid was priced higher 
than a Protected Offer in the Pilot Security in Test Group Three;
    (ix) The order is identified as a Trade-at Intermarket Sweep Order; 
\38\
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    \38\ In connection with the definition of a Trade-at ISO 
proposed in Rule 67(a)(1)(D)--Equities, this exception refers to the 
ISO that is received by a Trading Center.
    The Exchange proposed an exemption to the Trade-at Prohibition 
for Trade-at ISOs to clarify that an ISO that is received by a 
Trading Center (and which could form the basis of an execution at 
the price of a Protected Quotation pursuant to Section VI(D)(8) of 
the Plan), is identified as a Trade-at ISO. Depending on whether 
Rule 611 of Regulation NMS or the Trade-at requirement applies, an 
ISO may mean that the sender of the ISO has swept better-priced 
Protected Quotations, so that the recipient of that ISO may trade 
through the price of the Protected Quotation (Rule 611 of Regulation 
NMS), or it could mean that the sender of the ISO has swept 
Protected Quotations at the same price that it wishes to execute at 
(in addition to any better-priced quotations), so the recipient of 
that ISO may trade at the price of the Protected Quotation (Trade-
at). Given that the meaning of an ISO may differ under Rule 611 of 
Regulation NMS and Trade-at, the Exchange proposed an exemption to 
the Trade-at Prohibition for Trade-at ISOs so that the recipient of 
an ISO in a Test Group Three security would know, upon receipt of 
that ISO, that the Trading Center that sent the ISO had already 
executed against the full size of displayed quotations at that 
price, e.g., the recipient of that ISO could permissibly trade at 
the price of the Protected Quotation.
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    (x) The order is executed by a Trading Center that simultaneously 
routed Trade-at Intermarket Sweep Orders to execute against the full 
displayed size of the Protected Quotation that was traded at; \39\
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    \39\ In connection with the definition of a Trade-at ISO 
proposed in Rule 67(a)(1)(D)--Equities, this exception refers to the 
Trading Center that routed the ISO.
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    (xi) The order is executed as part of a Negotiated Trade;
    (xii) The order is executed when the Trading Center displaying the 
Protected Quotation that was traded at had displayed, within one second 
prior to execution of the transaction that constituted the Trade-at, a 
Best Protected Bid or Best Protected Offer, as applicable, for the 
Pilot Security in Test Group Three with a price that was inferior to 
the price of the Trade-at transaction;
    (xiii) The order is executed by a Trading Center which, at the time 
of order receipt, the Trading Center had guaranteed an execution at no 
worse than a specified price (a ``stopped order''), where:
    A. The stopped order was for the account of a customer;
    B. The customer agreed to the specified price on an order-by-order 
basis; and
    C. The price of the Trade-at transaction was, for a stopped buy 
order, equal to or less than the National Best Bid in the Pilot 
Security in Test Group Three at the time of execution or, for a stopped 
sell order, equal to or greater than the National Best Offer in the 
Pilot Security in Test Group Three at the time of execution, as long as 
such order is priced at an acceptable increment; \40\
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    \40\ The stopped order exemption in Rule 611 of Regulation NMS 
applies where ``[t]he price of the trade-through transaction was, 
for a stopped buy order, lower than the national best bid in the NMS 
stock at the time of execution or, for a stopped sell order, higher 
than the national best offer in the NMS stock at the time of 
execution'' (see, 17 CFR 242.611(b)(9)). The Trade-at stopped order 
exception applies where ``the price of the Trade-at transaction was, 
for a stopped buy order, equal to the national best bid in the Pilot 
Security at the time of execution or, for a stopped sell order, 
equal to the national best offer in the Pilot Security at the time 
of execution'' (see, Plan, Section VI(D)(12)).
    To illustrate the application of the stopped order exemption as 
it currently operates under Rule 611 of Regulation NMS and as it is 
currently proposed for Trade-at, assume the National Best Bid is 
$10.00 and another protected quote is at $9.95. Under Rule 611 of 
Regulation NMS, a stopped order to buy can be filled at $9.95 and 
the firm does not have to send an ISO to access the protected quote 
at $10.00 since the price of the stopped order must be lower than 
the National Best Bid. For the stopped order to also be executed at 
$9.95 and satisfy the Trade-at requirements, the Trade-at exception 
would have to be revised to allow an order to execute at the price 
of a protected quote which, in this case, could be $9.95.
    Based on the fact that a stopped order would be treated 
differently under the Rule 611 of Regulation NMS exception than 
under the Trade-at exception in the Plan, the Exchange believes that 
it is appropriate to amend the Trade-at stopped order exception in 
the Plan to ensure that the application of this exception would 
produce a consistent result under both Regulation NMS and the Plan. 
Therefore, the Exchange proposes in this proposed Rule 
67(e)(4)(C)(xiii)--Equities to allow a transaction to satisfy the 
Trade-at requirement if the stopped order price, for a stopped buy 
order, is equal to or less than the National Best Bid, and for a 
stopped sell order, is equal to or greater than the National Best 
Offer, as long as such order is priced at an acceptable increment. 
The Commission granted New York Stock Exchange LLC an exemption from 
Rule 608(c) related to this provision. See, the Exemption Letter, 
supra note 25. The Exchange is seeking the same exemptions as 
requested in the Exemption Request Letters.
---------------------------------------------------------------------------

    (xiv) The order is for a fractional share of a Pilot Security in 
Test Group Three, provided that such fractional share order was not the 
result of breaking an order for one or more whole shares of a Pilot 
Security in Test Group Three into orders for fractional shares or was 
not otherwise effected to evade the requirements of the Trade-at 
Prohibition or any other provisions of the Plan; or
    (xv) The order is to correct a bona fide error, which is recorded 
by the Trading Center in its error account.\41\ A bond fide error is 
defined as:
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    \41\ The exceptions to the Trade-at requirement set forth in the 
Plan and in the Exchange's proposed Rule 67(e)(4)(C)--Equities are, 
in part, based on the exceptions to the trade-through requirement 
set forth in Rule 611 of Regulation NMS, including exceptions for an 
order that is executed as part of a transaction that was not a 
``regular way'' contract, and an order that is executed as part of a 
single-priced opening, reopening, or closing transaction by the 
Trading Center (see, 17 CFR 242.611(b)(2) and (b)(3)). Following the 
adoption of Rule 611 of Regulation NMS and its exceptions, the 
Commission issued exemptive relief that created exceptions from Rule 
611 of Regulation NMS for certain error correction transactions. 
See, Securities Exchange Act Release No. 55884 (June 8, 2007), 72 FR 
32926 (June 14, 2007); Securities Exchange Act Release No. 55883 
(June 8, 2007), 72 FR 32927 (June 14, 2007). The Exchange has 
determined that it is appropriate to incorporate this additional 
exception to the Trade-at Prohibition, as this exception is equally 
applicable in the Trade-at context.
    Accordingly, the Exchange is proposing to exempt certain 
transactions to correct bona fide errors in the execution of 
customer orders from the Trade-at Prohibition, subject to the 
conditions set forth by the SEC's order exempting these transactions 
from Rule 611 of Regulation NMS. The Commission granted New York 
Stock Exchange LLC an exemption from Rule 608(c) related to this 
provision. See, the Exemption Letter, supra note 25. The Exchange is 
seeking the same exemptions as requested in the Exemption Request 
Letters.
    As with the corresponding exception under Rule 611 of Regulation 
NMS, the bona fide error would have to be evidenced by objective 
facts and circumstances, the Trading Center would have to maintain 
documentation of such facts and circumstances and record the 
transaction in its error account. To avail itself of the exemption, 
the Trading Center would have to establish, maintain, and enforce 
written policies and procedures reasonably designed to address the 
occurrence of errors and, in the event of an error, the use and 
terms of a transaction to correct the error in compliance with this 
exemption. Finally, the Trading Center would have to regularly 
surveil to ascertain the effectiveness of its policies and 
procedures to address errors and transactions to correct errors and 
take prompt action to remedy deficiencies in such policies and 
procedures. See, Securities Exchange Act Release No. 55884 (June 8, 
2007), 72 FR 32926 (June 14, 2007).

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[[Page 36372]]

    A. The inaccurate conveyance or execution of any term of an order 
including, but not limited to, price, number of shares or other unit of 
trading; identification of the security; identification of the account 
for which securities are purchased or sold; lost or otherwise misplaced 
order tickets; short sales that were instead sold long or vice versa; 
or the execution of an order on the wrong side of a market;
    B. The unauthorized or unintended purchase, sale, or allocation of 
securities, or the failure to follow specific client instructions;
    C. The incorrect entry of data into relevant systems, including 
reliance on incorrect cash positions, withdrawals, or securities 
positions reflected in an account; or
    D. A delay, outage, or failure of a communication system used to 
transmit market data prices or to facilitate the delivery or execution 
of an order.
    Finally, Proposed Rule 67(e)(4)(D)--Equities would prevent member 
organizations from breaking an order into smaller orders or otherwise 
effecting or executing an order to evade the requirements of the Trade-
at Prohibition or any other provisions of the Plan.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\42\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\43\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to 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. The 
Exchange believes that the proposed rule change is consistent with the 
Act because it ensures that the Exchange and its member organizations 
would be in compliance with a Plan approved by the Commission pursuant 
to an order issued by the Commission in reliance on Section 11A of the 
Act.\44\ Such approved Plan gives the Exchange authority to establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to comply with applicable quoting and trading 
requirements specified in the Plan. The Exchange believes that the 
proposed rule change is consistent with the authority granted to it by 
the Plan to establish specifications and procedures for the 
implementation and operation of the Plan that are consistent with the 
provisions of the Plan. Likewise, the Exchange believes that the 
proposed rule change provides interpretations of the Plan that are 
consistent with the Act, in general, and furthers the objectives of the 
Act, in particular.
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    \42\ 15 U.S.C. 78f(b).
    \43\ 15 U.S.C. 78f(b)(5).
    \44\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    Furthermore, the Exchange is a Participant under the Plan and 
subject, itself, to the provisions of the Plan. The proposed rule 
change ensures that the Exchange's systems would not display or execute 
trading interests outside the requirements specified in such Plan. The 
proposal would also help allow market participants to continue to trade 
NMS Stocks within quoting and trading requirements that are in 
compliance with the Plan, with certainty on how certain orders and 
trading interests would be treated. This, in turn, will help encourage 
market participants to continue to provide liquidity in the 
marketplace.
    Because the Plan supports further examination and analysis on the 
impact of tick sizes on the trading and liquidity of the securities of 
small capitalization companies, and the Commission believes that 
altering tick sizes could result in significant market-wide benefits 
and improvements to liquidity and capital formation, adopting rules 
that enforce compliance by its member organizations with the provisions 
of the Plan would help promote liquidity in the marketplace and perfect 
the mechanism of a free and open market and national market system.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed changes are 
being made to establish, maintain, and enforce written policies and 
procedures that are reasonably designed to comply with the trading and 
quoting requirements specified in the Plan, of which other equities 
exchanges are also Participants. Other competing national securities 
exchanges are subject to the same trading and quoting requirements 
specified in the Plan. Therefore, the proposed changes would not impose 
any burden on competition, while providing certainty of treatment and 
execution of trading interests on the Exchange to market participants 
in NMS Stocks that are acting in compliance with the requirements 
specified in the Plan.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \45\ and Rule 19b-4(f)(6) thereunder.\46\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the

[[Page 36373]]

proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \46\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \47\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\48\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
---------------------------------------------------------------------------

    \47\ 17 CFR 240.19b-4(f)(6).
    \48\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    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) \49\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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 rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2016-56 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2016-56. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEMKT-2016-56 and should 
be submitted on or before June 27, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
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    \50\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-13209 Filed 6-3-16; 8:45 am]
 BILLING CODE 8011-01-P


