[Federal Register Volume 85, Number 69 (Thursday, April 9, 2020)]
[Notices]
[Pages 20002-20006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07433]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88562; File No. SR-NYSE-2020-29]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Add Commentary .03 to Rule 7.35C

April 3, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on April 3, 2020, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. 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 add Commentary .03 to Rule 7.35C to 
provide that, for a temporary period that begins April 6, 2020, and 
ends on the earlier of the reopening of the Trading Floor facilities or 
after the Exchange closes on May 15, 2020, certain DMM Interest would 
not be cancelled following an Exchange-facilitated Auction. 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.

[[Page 20003]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to add Commentary .03 to Rule 7.35C to 
provide that, for a temporary period that begins April 6, 2020, and 
ends on the earlier of the reopening of the Trading Floor facilities or 
after the Exchange closes on May 15, 2020, if the Exchange facilitates 
an Auction, DMM Interest \4\ (i) would not be eligible to participate 
if an Exchange-facilitated Auction \5\ results in a trade, and would be 
eligible to participate if such Auction results in a quote, and (ii) 
would not be cancelled following such Auction, unless the limit price 
of such DMM Interest would be priced through the Auction Price or 
Auction Collar, or such DMM Interest would be marketable against other 
unexecuted orders.
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    \4\ For purposes of Auctions, the term ``DMM Interest'' is 
defined in Rule 7.35(a)(8) to mean all buy and sell interest entered 
by a DMM unit in its assigned securities and includes: ``DMM Auction 
Liquidity,'' which is non-displayed buy and sell interest that is 
designated for an Auction only (see Rule 7.35(a)(8)(A)); ``DMM 
Orders'' which are orders, as defined under Rule 7.31, entered by a 
DMM unit (see Rule 7.35(a)(8)(B)); and ``DMM After-Auction Orders,'' 
which are orders entered by a DMM unit before either the Core Open 
Auction or Trading Halt Auction that do not participate in an 
Auction and are intended instead to maintain price continuity with 
reasonable depth following an Auction (see Rule 7.35(a)(8)(C)).
    \5\ As defined in Rule 7.35(a)(1), an ``Auction'' refers to the 
process for opening, reopening, or closing of trading of Auction-
Eligible Securities on the Exchange, which can result in either a 
trade or a quote.
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Background
    Since March 9, 2020, markets worldwide have been experiencing 
unprecedented market-wide declines and volatility because of the 
ongoing spread of COVID-19. Beginning on March 16, 2020, to slow the 
spread of COVID-19 through social-distancing measures, significant 
limitations were placed on large gatherings throughout the country. On 
March 18, 2020, the CEO of the Exchange made a determination under Rule 
7.1(c)(3) that beginning March 23, 2020, the Trading Floor facilities 
located at 11 Wall Street in New York City would close and the Exchange 
would move, on a temporary basis, to fully electronic trading.\6\
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    \6\ The Exchange's current rules establish how the Exchange will 
function fully-electronically. The CEO also closed the NYSE American 
Options Trading Floor, which is located at the same 11 Wall Street 
facilities, and the NYSE Arca Options Trading Floor, which is 
located in San Francisco, CA. See Press Release, dated March 18, 
2020, available here: https://ir.theice.com/press/press-releases/all-categories/2020/03-18-2020-204202110. Pursuant to Rule 7.1(e), 
the CEO notified the Board of Directors of the Exchange of this 
determination.
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    Because the Trading Floor facilities are now temporarily closed, 
Designated Market Makers (``DMMs'') are not on the Trading Floor and 
therefore cannot facilitate Auctions manually. While the Trading Floor 
is temporarily closed, DMMs participate electronically both intraday 
and for Auctions. As provided for under Rule 7.35C, any Auctions that 
cannot be facilitated electronically by the DMM will be facilitated by 
the Exchange.
    Rule 7.35C sets forth the procedures for Exchange-facilitated 
Auctions. Among other things, if the Exchange facilitates an Auction, 
DMM Interest would not be eligible to participate in such Auction and 
previously-entered DMM Interest would be cancelled.\7\
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    \7\ See Rule 7.35C(a)(1).
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    DMM Interest does not participate in an Exchange-facilitated 
Auction and is cancelled following such Auction in part to reduce DMM 
units' risk should their automated systems be impaired. When a DMM 
cannot facilitate an Auction because the DMM unit is experiencing a 
system issue that prevents it from communicating with Exchange systems, 
it is particularly important to cancel DMM Interest following an 
Exchange-facilitated Auction to ensure that DMM Interest that may be at 
stale prices does not participate in trading on the Exchange. On the 
other hand, by canceling DMM Interest when the DMM units' systems are 
operating normally, DMMs may be limited in their ability to maintain 
price continuity with reasonable depth, i.e., provide passive liquidity 
at the Exchange best bid and offer and at depth, immediately following 
an Exchange-facilitated Auction.
    The first time the Exchange facilitated any Auctions pursuant to 
Rule 7.35C was on March 19, 2020, when two DMM firms implemented their 
own business continuity plans and temporarily left the Trading Floor. 
Beginning on March 23, 2020, the Exchange began facilitating Auctions 
on behalf of all DMM firms.\8\
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    \8\ Over the first four days of the temporary Trading Floor 
closure, DMMs have facilitated over 90% of the Core Open Auctions 
and Closing Auctions. See ``NYSE Auctions and Price Collars,'' NYSE 
Equities/Options Data Insights, dated March 26, 2020, available 
here: https://www.nyse.com/data-insights#20200326.
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    Now that the Exchange has experience operating Exchange-facilitated 
Auctions, during the temporary period while the Trading Floor is 
closed, the Exchange has identified a way to provide DMMs with a 
greater opportunity to provide passive liquidity immediately following 
an Auction, thereby dampening volatility while still limiting DMM risk.
Proposed Rule Change
    The Exchange proposes to add Commentary .03 to Rule 7.35C to 
provide that, for a temporary period that begins April 6, 2020, and 
ends on the earlier of the reopening of the Trading Floor facilities or 
after the Exchange closes on May 15, 2020, if the Exchange facilitates 
an Auction, DMM Interest (i) would not be eligible to participate if 
such Auction results in a trade, and would be eligible to participate 
if such Auction results in a quote, and (ii) would not be cancelled 
unless the limit price of such DMM Interest would be priced through the 
Auction Price or Auction Collars, as applicable, or such DMM Interest 
would be marketable against other unexecuted orders. The Exchange is 
proposing to make this change so that DMMs can provide passive 
liquidity in order to maintain continuity with reasonable depth in 
their assigned securities immediately following a Core Open Auction or 
Trading Halt Auction.
    To effect this change, the Exchange proposes that subparagraph (a) 
of Commentary .03 would provide that, during this temporary period, 
Rule 7.35(a)(1) would be replaced with the following text:

    If the Exchange facilitates an Auction, DMM Interest will not be 
eligible to participate if such Auction results in a trade, and will 
be eligible to participate if such Auction results in a quote.

    With this proposed rule change, during the temporary period while 
the Trading Floor is closed, DMM Interest would not participate in any 
Exchange-facilitated Auctions that would result in a trade. When a DMM 
facilitates an Auction, the DMM determines whether to participate on 
the buy or sell side. Because a DMM may have entered both buy and sell 
interest in advance of an Auction, when the Exchange facilitates that 
Auction, the DMM would not be able to control whether the DMM's buy or 
sell interest would participate in a trade. Accordingly, the Exchange 
proposes that DMM Interest would not participate in an Exchange-
facilitated Auction that would result in a trade.
    However, if an Auction does not result in a trade, the Exchange 
believes that DMM Interest should be included in the Exchange's quote 
as a result of such Auction. Including DMM Interest in the Exchange's 
quote would assist the DMMs in meeting their obligation to maintain 
continuity and depth in their assigned securities.

[[Page 20004]]

    In addition, during this temporary period, following a Core Open 
Auction or Trading Halt Auction that was facilitated by the Exchange, 
the Exchange proposes to process DMM Interest in the same way that 
unexecuted orders are processed following such Auctions, as described 
in Rule 7.35C(g).
    Rule 7.35C(g)(1) currently describes how unexecuted orders are 
processed if a security opens or reopens on a trade via an Exchange-
facilitated Auction. Rule 7.35C(g)(2) currently describes how 
unexecuted orders are processed if a security opens or reopens on a 
quote that is above (below) the upper (lower) Auction Collar via an 
Exchange-facilitated Auction. During the temporary period, the Exchange 
proposes that these two subparagraphs would be replaced with the 
following text, which would be set forth in paragraphs (b)(1) and 
(b)(2) to Commentary .03 to Rule 7.35C, to reference DMM Interest 
(difference noted in italicized text):

    (1) If a security opens or reopens on a trade, Market Orders 
(including sell short Market Orders during a Short Sale Period) and 
Limit Orders, including DMM Interest, with a limit price that is 
better-priced than the Auction Price and were not executed in the 
applicable Auction will be cancelled.
    (2) If a security opens or reopens on a quote that is above 
(below) the upper (lower) Auction Collar, Market Orders (including 
sell short Market Orders during a Short Sale Period) and Limit 
Orders, including DMM Interest, with a limit price that is better-
priced than the upper (lower) Auction Collar will be cancelled 
before such quote is published.

    Finally, as noted above, the Exchange does not believe that DMM 
Interest should be included in an Exchange-facilitated Auction that 
results in a trade. Because DMM Interest would not participate in such 
an Exchange-facilitated Auction, it is possible that previously-entered 
DMM Interest could be marketable against either other DMM Interest or 
contra-side unexecuted orders.
    In such case, during this temporary period, the Exchange proposes 
to cancel any DMM Interest that is marketable against unexecuted 
contra-side orders. If the contra-side unexecuted order is DMM 
Interest, the Exchange proposes to cancel the DMM Interest with the 
earlier working time.
    For example, if for a security, the Auction Reference Price is 
$10.00, the lower Auction Collar is $9.00 and the upper Auction Collar 
is $11.00, and the orders on the Exchange Book in advance of the 
Auction are as follows:
     Order 1--Buy DMM Order 1000 shares at $10.05,
     Order 2--Sell DMM Order 1000 shares at $10.00,
     Order 3--Buy DMM Order 1000 shares at $10.02,
     Order 4--Sell Limit Order at $10.03,
    the Exchange would process the orders as follows:
     Order 1 would be cancelled (because DMM Interest would not 
be eligible to participate in Auction trade, and here, Order 1 is 
marketable with Orders 2 and 4),
     Order 2 would be cancelled (because DMM Interest would not 
be eligible to participate in an Auction trade, and here Order 2 is 
marketable with Order 3), and
     Order 3 would not be cancelled because it is no longer 
marketable with any other interest, i.e., it no longer locks or crosses 
the price of any other contra-side interest in the Exchange Book.
    In this example, the Exchange-facilitated Auction would not result 
in a trade and the security would be opened on a quote that would be 
$10.02 (Order 3--DMM Order) x $10.03 (Order 4--Limit Order).
    The proposed rule text that would describe this temporary 
functionality would be set forth in paragraph (b)(3) to Commentary .03 
to Rule 7.35C as follows:

    The Exchange will cancel DMM Interest that is marketable against 
contra-side unexecuted orders. If the contra-side unexecuted order 
against which such DMM Interest is marketable is DMM Interest, the 
DMM Interest with the earlier working time will be canceled.

    The Exchange believes that these proposed rule changes would 
promote fair and orderly markets whenever the Exchange facilitates an 
Auction under Rule 7.35C during the temporary period while the Trading 
Floor is closed by supporting DMMs in maintaining continuity with 
reasonable depth in their assigned securities immediately following an 
Exchange-facilitated Core Open Auction or Trading Halt Auction that was 
facilitated by the Exchange.
    There are technology changes associated with this proposed rule 
change that the Exchange anticipates will be implemented on April 6, 
2020.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\9\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\10\ in particular, in that 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    As a result of uncertainty related to the ongoing spread of COVID-
19, the U.S. equities markets are experiencing unprecedented market 
volatility. In addition, social-distancing measures have been 
implemented throughout the country, including in New York City, to 
reduce the spread of COVID-19. Directly related to such social-
distancing measures, the CEO of the Exchange made a determination under 
Rule 7.1(c)(3) that beginning March 23, 2020, the Trading Floor 
facilities located at 11 Wall Street in New York City would close and 
the Exchange would move, on a temporary basis, to fully electronic 
trading.
    Beginning March 19, 2020, the Exchange began facilitating auctions 
as provided for under Rule 7.35C for the first time. The Exchange has 
identified a change that, during the period while the Trading Floor is 
temporarily closed, would provide DMMs with a greater opportunity to 
provide passive liquidity immediately following an Exchange-facilitated 
Auction, thereby reducing volatility while still limiting DMM risk.
    The Exchange believes that the proposed rule change to provide 
that, during this temporary period while the Trading Floor is closed, 
if the Exchange facilitates an Auction, DMM Interest (i) would not be 
eligible to participate if such Auction results in a trade, and would 
be eligible to participate if such Auction results in a quote, and (ii) 
would not be cancelled unless the limit price of such DMM Interest 
would be priced through the Auction Price or Auction Collars, as 
applicable, or such DMM Interest would be marketable against other 
orders that were not executed in the Auction would remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system because it would allow DMMs to maintain continuity with 
reasonable depth in their assigned securities immediately following an 
Auction.
    The Exchange further believes that, during this temporary period 
while the Trading Floor is closed, it would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system to process DMM Interest that, following an Exchange-facilitated 
Auction, would be priced through the Auction Price or Auction Collars, 
as applicable, in the same manner that other unexecuted

[[Page 20005]]

orders are processed, by cancelling such interest. In addition, because 
during this period, DMM Interest would not be participating in an 
Exchange-facilitated Auction that results in a trade, the Exchange 
similarly believes it would remove impediments to and perfect the 
mechanism of a free and open market and a national market system to 
cancel DMM Interest that would be marketable against unexecuted orders 
because, if not cancelled, such interest could trade at a price that 
would not be consistent with the Auction Price or opening or reopening 
quote determined in the Exchange-facilitated Auction.

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues but rather is designed 
to provide the DMMs with additional functionality to allow them to 
maintain price continuity with reasonable depth in their assigned 
securities following an Exchange-facilitated Auction during a temporary 
period when the Trading Floor has been closed in response to social-
distancing measures designed to reduce the spread of the COVID-19.

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 \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
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 for 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 \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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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    A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\16\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative immediately.
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange has proposed that certain DMM Interest would not be 
cancelled following an Exchange-facilitated Auction, during the 
temporary period when the Trading Floor is closed. Specifically, the 
Exchange has proposed that, if the Exchange facilitates an Auction, DMM 
Interest will not be eligible to participate if the Auction results in 
a trade, but will be eligible to participate if the Auction results in 
a quote. The Exchange states that including DMM Interest in the 
Exchange's quote resulting from the Auction would assist the DMMs in 
meeting their obligation to maintain price continuity with reasonable 
depth in their assigned securities immediately following the Auction. 
However, under the proposal, DMM Interest would be cancelled if it is 
priced through either the Auction Price or the Auction Collars, or if 
it would be marketable with contra-side orders that were not executed 
in the Auction. The Exchange believes that, by not cancelling DMM 
Interest that would be marketable against unexecuted orders, DMM 
Interest could then trade at a price that would be inconsistent with 
the Auction Price or opening or reopening quote determined in the 
Exchange-facilitated Auction. The Exchange anticipates that it will be 
able to implement these proposed rule changes by April 6, 2020. The 
Commission notes that the proposed rule change would allow DMM Interest 
to participate in an Exchange-facilitated Auction that results in a 
quote, provided that the DMM Interest does not price through either the 
Auction Price or the Auction Collars and would not be marketable 
against contra-side orders that were not executed in the Auction. The 
Commission also notes that the proposal should assist DMMs in 
maintaining price continuity with reasonable depth in their assigned 
securities immediately following an Exchange-facilitated Auction. 
Moreover, the Commission notes that the proposal is a temporary measure 
designed to respond to current, unprecedented market conditions. For 
these reasons, the Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposal operative upon filing.\17\
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    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2020-29 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-NYSE-2020-29. 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/

[[Page 20006]]

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-NYSE-2020-29, and should be 
submitted on or before April 30, 2020.
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    \18\ 17 CFR 200.30-3(a)(12), (59).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07433 Filed 4-8-20; 8:45 am]
 BILLING CODE 8011-01-P


