[Federal Register Volume 84, Number 65 (Thursday, April 4, 2019)]
[Notices]
[Pages 13324-13328]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06507]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85449; File No. SR-NYSENAT-2019-03]


Self-Regulatory Organizations; NYSE National, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its 
Schedule of Fees and Rebates Related to Co-Location Services

March 29, 2019.
    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 March 15, 2019, NYSE National, Inc. (the ``Exchange'' or 
``NYSE National'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the 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 amend its Schedule of Fees and Rebates 
(the ``Price List'') related to co-location services to provide access 
to the execution system of Global OTC. 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
    The Exchange proposes to amend the Price List related to co-
location \4\ services offered by the Exchange to provide Users \5\ with 
access to the execution system of Global OTC (the ``Global OTC 
System''). Global OTC is an alternative trading system (``ATS'') that 
facilitates transactions in over-the-counter equity securities.\6\
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    \4\ The Exchange initially filed rule changes relating to its 
co-location services with the Commission on May 18, 2018. See 
Securities Exchange Act Release No. 83351 (May 31, 2018), 83 FR 
26314 (June 6, 2018) (SR-NYSENAT-2018-07). The Exchange operates a 
data center in Mahwah, New Jersey (the ``data center'') from which 
it provides co-location services to Users.
    \5\ For purposes of the Exchange's co-location services, a 
``User'' means any market participant that requests to receive co-
location services directly from the Exchange. See id. at note 9. As 
specified in the Price List, a User that incurs co-location fees for 
a particular co-location service pursuant thereto would not be 
subject to co-location fees for the same co-location service charged 
by the Exchange's affiliates the New York Stock Exchange (``NYSE''), 
NYSE American LLC (``NYSE American''), and NYSE Arca, Inc. (``NYSE 
Arca'' and together, the ``Affiliate SROs''). See id. at note 11.
    \6\ See 17 CFR 242.300(a). An ATS is a trading system that meets 
the definition of ``exchange'' under federal securities laws but is 
not required to register as a national securities exchange if the 
ATS operates under an exemption provided under the Act.
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    The Exchange proposes to implement the rule change on the first day 
of the month after it becomes operative. The Exchange will announce the 
implementation date through a customer notice.
    As set forth in the Price List, the Exchange charges fees for 
connectivity to the execution systems of third party markets and other 
content service providers (``Third Party Systems'').\7\ The Exchange 
has an indirect interest in Global OTC because it is owned by the 
Exchange's ultimate parent, Intercontinental Exchange, Inc.\8\ The 
Exchange proposes to treat Global OTC as a Third Party System and add 
it to the list of Third Party Systems set forth in the Price List.
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    \7\ See 83 FR 26314, supra note 4, at 26322.
    \8\ See id.
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    As with the current Third Party Systems, in order to obtain access 
to the

[[Page 13325]]

Global OTC System, the User would enter into an agreement with Global 
OTC, pursuant to which Global OTC would charge the User for access to 
the Global OTC System. Once the Exchange receives authorization from 
Global OTC, the Exchange would establish a connection between the User 
and the Global OTC System.\9\
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    \9\ See id.
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    As with the existing connections to Third Party Systems, the 
Exchange proposes to charge a monthly recurring fee for connectivity to 
the Global OTC System. The Exchange does not propose to change the 
current fee, which is for connectivity only.\10\
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    \10\ See id.
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    Currently, connectivity to the Third Party Systems is over the 
internet protocol (``IP'') network, a local area network available in 
the data center.\11\ Users would have two options for connecting to the 
OTC Global System: Over the IP network or the Liquidity Center Network 
(``LCN''), the other local area network available in the data 
center.\12\ Accordingly, the Exchange proposes to amend the third 
sentence of the paragraph under ``Connectivity to Third Party Systems'' 
in the Price List to state that ``[c]onnectivity to Third Party Systems 
is over the IP network, with the exception that Users can connect to 
Global OTC over the IP network or LCN.''
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    \11\ See id. at 26316.
    \12\ See id.
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    The proposed treatment of Global OTC would be consistent with its 
treatment in other contexts. The Exchange also treats Global OTC as a 
third party with respect to connectivity to data feeds from third party 
markets and other content service providers (the ``Third Party Data 
Feeds'').\13\ The Exchange proposes that Users could connect to the 
Global OTC System over the IP network or LCN: This is substantially the 
same as with Third Party Data Feeds, where ``[c]onnectivity . . . is 
over the IP network, with the exception that Users can connect to 
Global OTC and ICE Data Global Index over the IP network or LCN.'' \14\
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    \13\ See id. at 26322-26323.
    \14\ Price List, at 17; see 83 FR 26314, supra note 4, at 26323.
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    The Exchange would provide access to the Global OTC System 
(``Access'') as a convenience to Users. Use of Access is completely 
voluntary, and it is the Exchange's understanding that currently third 
party options are available to a User to access the Global OTC System. 
The Exchange is not aware of any impediment to additional third parties 
offering such access. With respect to third parties that presently 
offer, or in the future opt to offer, access to the Global OTC Systems, 
a User may access such services through the Secure Financial 
Transaction Infrastructure (``SFTI'') network, a third party 
telecommunication network, third party wireless network, a cross 
connect, or a combination thereof to access such services and products 
through a connection to an access center outside the data center (which 
could be a SFTI access center, a third-party access center, or both), 
another User, or a third party vendor.
    Establishing a User's access to the Global OTC System would not 
give the Exchange any right to use the Global OTC System. Connectivity 
to the Global OTC System would not provide access or order entry to the 
Exchange's execution system, and a User's connection to the Global OTC 
System would not be through the Exchange's execution system.
General
    As is the case with all Exchange co-location arrangements, (i) 
neither a User nor any of the User's customers would be permitted to 
submit orders directly to the Exchange unless such User or customer is 
a member organization, a Sponsored Participant or an agent thereof 
(e.g., a service bureau providing order entry services); (ii) use of 
the co-location services proposed herein would be completely voluntary 
and available to all Users on a non-discriminatory basis; \15\ and 
(iii) a User would only incur one charge for the particular co-location 
service described herein, regardless of whether the User connects only 
to the Exchange or to the Exchange and one or more of the Affiliate 
SROs.\16\
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    \15\ As is currently the case, Users that receive co-location 
services from the Exchange will not receive any means of access to 
the Exchange's trading and execution systems that is separate from, 
or superior to, that of other Users. In this regard, all orders sent 
to the Exchange enter the Exchange's trading and execution systems 
through the same order gateway, regardless of whether the sender is 
co-located in the data center or not. In addition, co-located Users 
do not receive any market data or data service product that is not 
available to all Users, although Users that receive co-location 
services normally would expect reduced latencies in sending orders 
to, and receiving market data from, the Exchange.
    \16\ See id. at 26315. NYSE, NYSE American, and NYSE Arca have 
submitted substantially the same proposed rule change to propose the 
changes described herein. See SR-NYSE-2019-07, SR-NYSEAmer-2019-03, 
and SR-NYSEArca-2019-07.
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    The proposed change is not otherwise intended to address any other 
issues relating to co-location services and/or related fees, and the 
Exchange is not aware of any problems that Users would have in 
complying with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed fee change is consistent 
with Section 6(b) of the Act,\17\ in general, and furthers the 
objectives of Sections 6(b)(5) of the Act,\18\ 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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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed changes would remove 
impediments to, and perfect the mechanisms of, a free and open market 
and a national market system and, in general, protect investors and the 
public interest because, by offering access to the Global OTC System, 
the Exchange would give each User additional options for addressing its 
access needs, responding to User demand for access options. Providing 
additional services would help each User tailor its data center 
operations to the requirements of its business operations by allowing 
it to select the form and latency of access that best suits its needs.
    The Exchange would provide Access as a convenience to Users. Use of 
Access is completely voluntary, and it is the Exchange's understanding 
that currently third party options are available to a User to access 
the Global OTC System. The Exchange is not aware of any impediment to 
additional third parties offering such access. With respect to third 
parties that presently offer, or in the future opt to offer, access to 
the Global OTC Systems, a User may access such services through the 
SFTI network, a third party telecommunication network, third party 
wireless network, a cross connect, or a combination thereof to access 
such services and products through a connection to an access center 
outside the data center (which could be a SFTI access center, a third-
party access center, or both), another User, or a third party vendor.
    The Exchange believes that the proposed change would remove 
impediments to, and perfect the mechanisms of, a free and open market

[[Page 13326]]

and a national market system and, in general, protect investors and the 
public interest because the proposed treatment of Global OTC would be 
consistent with its treatment in other contexts. The Exchange also 
treats Global OTC as a third party with respect to connectivity to 
Third Party Data Feeds.\19\ The Exchange proposes that Users could 
connect to the Global OTC System over the IP network or LCN: This is 
substantially the same as with Third Party Data Feeds, where 
connectivity is over the IP network, with the exception that Users can 
connect to Global OTC and one other Third Party Data Feed over the IP 
network or LCN.\20\
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    \19\ Supra note 13.
    \20\ Supra note 14.
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    The Exchange also believes that the proposed fee change is 
consistent with Section 6(b)(4) of the Act,\21\ 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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    \21\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed fee change is consistent 
with Section 6(b)(4) of the Act for multiple reasons. The Exchange 
operates in a highly competitive market in which exchanges offer co-
location services as a means to facilitate the trading and other market 
activities of those market participants who believe that co-location 
enhances the efficiency of their operations. Accordingly, fees charged 
for co-location services are constrained by the active competition for 
the order flow of, and other business from, such market participants. 
If a particular exchange charges excessive fees for co-location 
services, affected market participants will opt to terminate their co-
location arrangements with that exchange, and adopt a possible range of 
alternative strategies, including placing their servers in a physically 
proximate location outside the exchange's data center (which could be a 
competing exchange), or pursuing strategies less dependent upon the 
lower exchange-to-participant latency associated with co-location. 
Accordingly, the exchange charging excessive fees would stand to lose 
not only co-location revenues but also the liquidity of the formerly 
co-located trading firms, which could have additional follow-on effects 
on the market share and revenue of the affected exchange.
    The Exchange believes that the proposed charges would be 
reasonable, equitably allocated and not unfairly discriminatory because 
it would treat connectivity to the Global OTC System the same as 
connectivity to the execution system of other ATSs. Currently, the 
Third Party Systems include two ATSs.\22\
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    \22\ Credit Suisse and OTC Markets have ATSs. See Commission 
list of ATSs at https://www.sec.gov/foia/docs/atslist.htm.
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    The Exchange believes that the additional service proposed herein 
would be equitably allocated and not unfairly discriminatory because, 
in addition to Access being completely voluntary, it would be available 
to all Users on an equal basis (i.e., the same Access would be 
available to all Users). All Users that voluntarily selected to receive 
Access would be charged the same amount for the same service. Users 
that opted to use Access would not receive access that is not available 
to all Users, as all market participants that contracted with Global 
OTC would receive access.
    The Exchange believes that the proposed charges would be 
reasonable, equitably allocated and not unfairly discriminatory because 
the Exchange would offer the Access as a convenience to Users, but in 
order to do so must provide, maintain and operate the data center 
facility hardware and technology infrastructure. The Exchange must 
handle the installation, administration, monitoring, support and 
maintenance of such services, including by responding to any production 
issues. Since the inception of co-location, the Exchange has made 
numerous improvements to the network hardware and technology 
infrastructure and has established additional administrative controls. 
The Exchange has expanded the network infrastructure to keep pace with 
the increased number of services available to Users, including 
resilient and redundant feeds. In addition, in order to provide Access, 
the Exchange would maintain multiple connections to the Global OTC 
System, allowing the Exchange to provide resilient and redundant 
connections; adapt to any changes made by Global OTC; and cover any 
applicable fees charged by Global OTC, such as port fees. In addition, 
Users would not be required to use any of their bandwidth for Access 
unless they wish to do so.
    The Exchange believes the fees for Access are reasonable because 
they allow the Exchange to defray or cover the costs associated with 
offering Users Access while providing Users the convenience of 
receiving such Access within co-location, helping them tailor their 
data center operations to the requirements of their business 
operations.
    For the reasons above, the proposed changes would not unfairly 
discriminate between or among market participants that are otherwise 
capable of satisfying any applicable co-location fees, requirements, 
terms and conditions established from time to time by the Exchange.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\23\ the Exchange 
believes that the proposed rule change will not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because all of the proposed services are completely 
voluntary.
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    \23\ 15 U.S.C. 78f(b)(8).
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    The Exchange believes that providing Users with additional options 
for access to the Global OTC Systems would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because such proposed Access would satisfy User 
demand for access options. The Exchange would provide Access as a 
convenience to Users. Use of Access is completely voluntary, and it is 
the Exchange's understanding that currently third party options are 
available to a User to access the Global OTC System. The Exchange is 
not aware of any impediment to additional third parties offering such 
access. With respect to third parties that presently offer, or in the 
future opt to offer, access to the Global OTC Systems, a User may 
access such services through the SFTI network, a third party 
telecommunication network, third party wireless network, a cross 
connect, or a combination thereof to access such services and products 
through a connection to an access center outside the data center (which 
could be a SFTI access center, a third-party access center, or both), 
another User, or a third party vendor.
    Users that opt to use the proposed Access would not receive access 
that is not available to all Users, as all market participants that 
contract with Global OTC may receive access. In this way, the proposed 
changes would enhance competition by helping Users tailor their Access 
to the needs of their business operations by allowing them to select 
the form and latency of access and connectivity that best suits their 
needs.

[[Page 13327]]

    The Exchange believes that the proposed change would not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because it would treat 
connectivity to the Global OTC System the same as connectivity to the 
execution system of other ATSs. Specifically, they would all be Third 
Party Systems subject to the same fees. In addition, the proposed 
treatment of Global OTC would be consistent with its treatment in other 
contexts. The Exchange also treats Global OTC as a third party with 
respect to connectivity to Third Party Data Feeds.\24\
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    \24\ Supra note 13.
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    Currently, connectivity to the Third Party Systems is over the IP 
network. The Exchange believes that allowing Users to connect to the 
Global OTC System over either the IP network or LCN would not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Currently, the Third Party 
Systems include two ATS, of which the Exchange believes OTC Markets is 
the most comparable to Global OTC, although Global OTC is substantially 
the smaller of the two.\25\ While an LCN connection provides lower 
latency than the IP network, that latency difference is relevant, as a 
practical matter, only for connections within the Mahwah data center, 
where the Global OTC System is located. When connecting to a 
comparable, competing ATS located in another data center, such as OTC 
Markets, Users within the Mahwah data center would incur geographical 
latency that would dwarf any differences between the IP network and 
LCN. Furthermore, it is the Exchange's understanding that market 
participants trading in non-NMS securities tend to be less latency 
sensitive due to the smaller pools of liquidity in the over-the-counter 
markets.
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    \25\ Both Global OTC and the OTC Markets are inter-dealer 
quotation systems. The third is the OTC Bulletin Board, a facility 
of the Financial Industry Regulatory Authority. Global OTC's market 
share is approximately 10% of average daily volume of trades of 
over-the-counter equities, compared to OTC Markets' market share of 
approximately 90% of average daily volume of trades. See https://www.globalotc.com/brokers/market-share.
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    Allowing Users to connect to the Global OTC System would be 
consistent with the treatment of Third Party Data Feeds, where 
connectivity is over the IP network, with the exception that Users can 
connect to Global OTC and one other Third Party Data Feed over the IP 
network or LCN.\26\
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    \26\ Supra note 14.
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    The Exchange operates in a highly competitive market in which 
exchanges offer co-location services as a means to facilitate the 
trading and other market activities of those market participants who 
believe that co-location enhances the efficiency of their operations. 
Accordingly, fees charged for co-location services are constrained by 
the active competition for the order flow of, and other business from, 
such market participants. If a particular exchange charges excessive 
fees for co-location services, affected market participants will opt to 
terminate their co-location arrangements with that exchange, and adopt 
a possible range of alternative strategies, including placing their 
servers in a physically proximate location outside the exchange's data 
center (which could be a competing exchange), or pursuing strategies 
less dependent upon the lower exchange-to-participant latency 
associated with co-location. Accordingly, the exchange charging 
excessive fees would stand to lose not only co-location revenues but 
also the liquidity of the formerly co-located trading firms, which 
could have additional follow-on effects on the market share and revenue 
of the affected exchange. For the reasons described above, the Exchange 
believes that the proposed rule change reflects this competitive 
environment.

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 \27\ and Rule 19b-4(f)(6) thereunder.\28\ 
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 proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\29\
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    \27\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \28\ 17 CFR 240.19b-4(f)(6).
    \29\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of its 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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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) \30\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \30\ 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-NYSENAT-2019-03 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-NYSENAT-2019-03. 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

[[Page 13328]]

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-
NYSENAT-2019-03 and should be submitted on or before April 25, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06507 Filed 4-3-19; 8:45 am]
 BILLING CODE 8011-01-P


