[Federal Register Volume 85, Number 110 (Monday, June 8, 2020)]
[Notices]
[Pages 34793-34796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12272]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88988; File No. SR-MIAX-2020-13]


Self-Regulatory Organizations; Miami International Securities 
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Exchange Rule 404, Series of Option 
Contracts Open for Trading, Exchange Rule 510, Minimum Price Variations 
and Minimum Trading Increments, and Exchange Rule 516, Order Types 
Defined, To Conform the Rules to Section 3.1 of the Plan for the 
Purpose of Developing and Implementing Procedures Designed To 
Facilitate the Listing and Trading of Standardized Options

June 2, 2020.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on May 29, 2020, Miami International Securities 
Exchange, LLC (``MIAX'' or the ``Exchange'') filed with the Securities 
and Exchange Commission (``Commission'') a proposed rule change as 
described in Items I, II, and III 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\ 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 is filing a proposal to amend certain of the 
Exchange's rules to conform to Section 3.1 of the Plan for the Purpose 
of Developing and Implementing Procedures Designed to Facilitate the 
Listing and Trading of Standardized Options (the ``OLPP'') and add new 
subparagraphs (a)(3)(i)-(iii) and (c) to Exchange Rule 510.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/ at MIAX's principal 
office, 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 Exchange 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 these 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 aspects of such 
statements.

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

1. Purpose
    The purpose of this rule change is to amend Exchange Rule 404, 
Series of Option Contracts Open for Trading, Exchange Rule 510, Minimum 
Price Variations and Minimum Trading Increments, and Exchange Rule 516, 
Order Types Defined, to align the Exchange's rules with the recently 
approved amendment to the OLPP.
Background
    On January 23, 2007, the Commission approved on a limited basis a 
Penny Pilot in option classes in certain issues (``Penny Pilot''). The 
Penny Pilot was designed to determine whether investors would benefit 
from options being quoted in penny increments, and in which classes the 
benefits were most significant. The Penny Pilot was initiated at the 
then existing option exchanges in January 2007 \3\ and expanded and 
extended numerous times over the last 13 years.\4\ In each instance, 
these approvals relied upon the consideration of data periodically 
provided by the Exchanges that analyzed how quoting options in penny 
increments affects spreads, liquidity, quote traffic, and volume. 
Today, the Penny Pilot includes 363 option classes, which are among the 
most actively traded, multiply listed option classes. The Penny Pilot 
is scheduled to expire by its own terms on June 30, 2020.\5\
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    \3\ See Securities Exchange Act Release Nos. 55154 (January 23, 
2007), 72 FR 4743 (February 1, 2007) (SR-CBOE-2006-92); 55161 
(January 24, 2007), 72 FR 4754 (February 1, 2007) (SR-ISE-2006-62); 
54886 (December 6, 2006), 71 FR 74979 (December 13, 2006) (SR-Phlx-
2006-74); 54590 (October 12, 2006), 71 FR 61525 (October 18, 2006) 
(SR-NYSEArca-2006-73); and 54741 (November 9, 2006), 71 FR 67176 
(November 20, 2006) (SR-Amex-2006-106).
    \4\ See Securities Exchange Act Release Nos. 87606 (November 25, 
2019), 84 FR 66030 (December 2, 2019) (SR-MIAX-2019-47); 86054 (June 
6, 2019), 84 FR 27385 (June 12, 2019) (SR-MIAX-2019-27); 84864 
(December 19, 2018), 83 FR 66778 (December 27, 2018) (SR-MIAX-2018-
38); 83515 (June 25, 2018), 83 FR 30786 (June 29, 2018) (SR-MIAX-
2018-12); 82354 (December 19, 2017), 82 FR 61058 (December 26, 2017) 
(SR-MIAX-2017-48); 80757 (May 24, 2017), 82 FR 25032 (May 31, 2017) 
(SR-MIAX-2017-23); 79432 (November 30, 2016), 81 FR 87990 (December 
6, 2016) (SR-MIAX-2016-45); 78080 (June 15, 2016), 81 FR 40377 (June 
21, 2016) (SR-MIAX-2016-16); 75284 (June 24, 2015), 80 FR 37349 
(June 30, 2015) (SR-MIAX-2015-40); 70972 (December 3, 2013), 78 FR 
73909 (December 9, 2013) (SR-MIAX-2013-54); 69785 (June 18, 2013), 
78 FR 37856 (June 24, 2013) (SR-MIAX-2013-28); and 68551 (December 
31, 2012), 78 FR 973 (January 7, 2013) (SR-MIAX-2012-04).
    \5\ See Securities Exchange Act Release No. 87606 (November 25, 
2019), 84 FR 66030 (December 2, 2019) (SR-MIAX-2019-47).
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    In light of the imminent expiration of the Penny Pilot, on June 30, 
2020, the Exchange, together with other participating exchanges, filed, 
on July 18, 2019, a proposal to amend the OLPP.\6\ On April 1, 2020, 
the U.S. Securities and Exchange Commission (``Commission'') approved 
the amendment to the OLPP to make permanent the Pilot Program (the 
``OLPP Program'').\7\
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    \6\ See Securities Exchange Act Release No. 87681 (December 9, 
2019), 84 FR 68960 (December 17, 2019) (``Notice'').
    \7\ See Securities Exchange Act Release No. 88532 (April 1, 
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval 
Order'').
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    The OLPP Program replaces the Penny Pilot by instituting a 
permanent program that would permit quoting in penny increments for 
certain option classes. Under the terms of the OLPP Program, designated 
option classes would continue to be quoted in $0.01 and $0.05 
increments according to the

[[Page 34794]]

same parameters for the Penny Pilot. In addition, the OLPP Program 
would: (i) Establish an annual review process to add option classes to, 
or to remove option classes from, the OLPP Program; (ii) allow an 
option class to be added to the OLPP Program if it is a newly listed 
option class and it meets certain criteria; (iii) allow an option class 
to be added to the OLPP Program if it is an option class that has seen 
significant growth in activity; (iv) provide that if a corporate action 
involves one or more option classes in the OLPP Program, all adjusted 
and unadjusted series and classes emerging as a result of the corporate 
action will be included in the OLPP Program; and (v) provide that any 
series in an option class participating in the OLPP Program that have 
been delisted, or are identified by OCC as ineligible for opening 
Customer transactions, will continue to trade pursuant to the OLPP 
Program until they expire.
    To conform its rules with the OLPP Program, the Exchange proposes 
to delete Interpretation and Policy .01 to Exchange Rule 510 (the 
``Penny Pilot Rule''), which will be ``Reserved,'' and replace it with 
new Exchange Rule 510(c) (Requirements for Penny Interval Program), 
which is described below, and to replace references to the ``Penny 
Pilot'' in several Exchange rules with ``Penny Interval Program.''
    The Exchange also proposes to amend Exchange Rule 510, Minimum 
Price Variations and Minimum Trading Increments, to adopt subparagraphs 
(a)(3)(i)-(iii) to conform the Exchange's rules regarding minimum price 
variations for options in the proposed Penny Interval Program with 
similar rules of other option exchanges.\8\ In particular, the Exchange 
proposes to adopt subparagraph (a)(3)(i)-(iii), which will describe 
that for options contracts traded pursuant to the proposed Penny 
Interval Program (which the Exchange has proposed as new Exchange Rule 
510(c)): (i) All option contracts in QQQ, SPY and IWM will quote in a 
minimum of one cent ($0.01) price variations; (ii) for all other option 
contracts included in the Penny Interval Program that are trading at 
less than $3, those option contracts will quote in a minimum of one 
cent ($0.01) price variations; and (iii) for all other option contracts 
included in the Penny Interval Program that are trading at or above $3, 
those option contracts will quote in a minimum of five cents ($0.05) 
price variations. The Exchange notes that the Commission previously 
approved minimum quoting increments of one cent ($0.01) for all option 
contracts in QQQ, IWM and SPY, regardless of price, over the course of 
the expansion of the Penny Pilot rules.\9\ Accordingly, the Exchange 
proposes to align its rules regarding minimum price variations for 
option contracts in the Penny Interval Program with other option 
exchanges.
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    \8\ See NYSE Arca Rule 6.72-O (Trading Differentials); see also 
Nasdaq Stock Market, Options 3, Section 3, Supplementary Material 
.01.
    \9\ See Securities Exchange Act Release Nos. 55156 (January 23, 
2007), 72 FR 4759 (February 1, 2007) (SR-NYSEArca-2006-73) (Order 
Granting Approval to Proposed rule Change as Modified by Amendment 
No. 1 Thereto, To Create an Options Penny Pilot Program); 61061 
(November 24, 2009), 74 FR 62857 (December 1, 2009) (SR-NYSEArca-
2009-44) (Order Granting Partial Approval of a Proposed Rule Change, 
as Modified by Amendment No. 4 Thereto, Expanding the Penny Pilot 
Program).
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Penny Interval Program
    The Exchange proposes to codify the OLPP Program in new Exchange 
Rule 510(c) (Requirements for Penny Interval Program) (the ``Penny 
Program''), which will replace the Penny Pilot Rule and permanently 
permit the Exchange to quote certain option classes in minimum 
increments of one cent ($0.01) and five cents ($0.05) (``penny 
increments''). The penny increments that currently apply under the 
Penny Pilot will continue to apply for option classes included in the 
Penny Program. Specifically, (i) the minimum quoting increment for all 
series in the QQQ, SPY, and IWM would continue to be $0.01, regardless 
of price (which the Exchange proposes to codify in proposed Exchange 
Rule 510(a)(3)(i)-(iii)); (ii) all series of an option class included 
in the Penny Program with a price of less than $3.00 would be quoted in 
$0.01 increments; and (iii) all series of an option class included in 
the Penny Program with a price of $3.00 or higher would be quoted in 
$0.05 increments.\10\
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    \10\ See proposed Exchange Rule 510(a)(3)(i)-(iii).
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    The Penny Program would initially apply to the 363 most actively 
traded multiply listed option classes, based on National Cleared Volume 
at The Options Clearing Corporation (``OCC'') in the six full calendar 
months ending in the month of approval (i.e., November 2019-April 2020) 
that currently quote in penny increments, or overlie securities priced 
below $200, or any index at an index level below $200. Eligibility for 
inclusion in the Penny Program will be determined at the close of 
trading on the monthly Expiration Friday of the second full month 
following April 1, 2020 (i.e., June 19, 2020).
    Once in the Penny Program, an option class will remain included 
until it is no longer among the 425 most actively traded option classes 
at the time the annual review is conducted (described below), at which 
point it will be removed from the Penny Program. As described in more 
detail below, the removed class will be replaced by the next most 
actively traded multiply listed option class overlying securities 
priced below $200 per share, or any index at an index level below $200, 
and not yet in the Penny Program. Advanced notice regarding the option 
classes included, added, or removed from the Penny Program will be 
provided to the Exchange's Members via Regulatory Circular and 
published by the Exchange on its website.
Annual Review
    The Penny Program would include an annual review process that 
applies objective criteria to determine option classes to be added to, 
or removed from, the Penny Program. Specifically, on an annual basis 
beginning in December 2020 and occurring every December thereafter, the 
Exchange will review and rank all multiply listed option classes based 
on National Cleared Volume at OCC for the six full calendar months from 
June 1st through November 30th for determination of the most actively 
traded option classes. Any option classes not yet in the Penny Program 
may be added to the Penny Program if the class is among the 300 most 
actively traded multiply listed option classes and priced below $200 
per share, or any index at an index level below $200.
    Following the annual review, option classes to be added to the 
Penny Program would begin quoting in penny increments (i.e., $0.01 if 
trading at less than $3.00; and $0.05 if trading at $3.00 and above) on 
the first trading day of January. In addition, following the annual 
review, any option class in the Penny Program that falls outside of the 
425 most actively traded option classes would be removed from the Penny 
Program. After the annual review, option classes that are removed from 
the Penny Program will be subject to the minimum trading increments set 
forth in Exchange Rule 510, effective on the first trading day of 
April.
Changes to the Composition of the Penny Program Outside of the Annual 
Review
Newly Listed Option Classes and Option Classes With Significant Growth 
in Activity
    The Penny Program would specify a process and parameters for 
including option classes in the Penny Program outside the annual review 
process in two circumstances. These provisions are designed to provide 
objective criteria to

[[Page 34795]]

add to the Penny Program new option classes in issues with the most 
demonstrated trading interest from market participants and investors on 
an expedited basis prior to the annual review, with the benefit that 
market participants and investors will then be able to trade these new 
option classes based upon quotes expressed in finer trading increments.
    First, the Penny Program provides for certain newly listed option 
classes to be added to the Penny Program outside of the annual review 
process, provided that (i) the class is among the 300 most actively 
traded, multiply listed option classes, as ranked by National Cleared 
Volume at OCC, in its first full calendar month of trading and (ii) the 
underlying security is priced below $200 or the underlying index is at 
an index level below $200. Such newly listed option classes added to 
the Penny Program pursuant to this process would remain in the Penny 
Program for one full calendar year and then would be subject to the 
annual review process.
    Second, the Penny Program would allow an option class to be added 
to the Penny Program outside of the annual review process if it is an 
option class that meets certain specific criteria. Specifically, new 
option classes may be added to the Penny Program if: (i) The option 
class is among the 75 most actively traded multiply listed option 
classes, as ranked by National Cleared Volume at OCC, in the prior six 
full calendar months of trading and (ii) the underlying security is 
priced below $200 or the underlying index is at an index level below 
$200. Any option class added under this provision will be added on the 
first trading day of the second full month after it qualifies and will 
remain in the Penny Program for the rest of the calendar year, after 
which it will be subject to the annual review process.
Corporate Actions
    The Penny Program would also specify a process to address option 
classes in the Penny Program that undergo a corporate action and is 
designed to ensure continuous liquidity in the affected option classes. 
Specifically, if a corporate action involves one or more option classes 
in the Penny Program, all adjusted and unadjusted series of an option 
class would continue to be included in the Penny Program.\11\ 
Furthermore, neither the trading volume threshold, nor the initial 
price test would apply to option classes added to the Penny Program as 
a result of the corporate action. Finally, the newly added adjusted and 
unadjusted series of the option class would remain in the Penny Program 
for one full calendar year and then would become subject to the annual 
review process.
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    \11\ For example, if Company A acquires Company B and Company A 
is not in the Penny Program but Company B is in the Penny Program, 
once the merger is consummated and an options contract adjustment is 
effective, then Company A would be added to the Penny Program and 
remain in the Penny Program for one calendar year.
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Delisted or Ineligible Option Classes
    Finally, the Penny Program would provide a mechanism to address 
option classes that have been delisted or those that are no longer 
eligible for listing. Specifically, any series in an option class 
participating in the Penny Program in which the underlying has been 
delisted, or is identified by OCC as ineligible for opening customer 
transactions, would continue to quote pursuant to the terms of the 
Penny Program until all options series have expired.
Technical Changes
    The Exchange proposes to replace references to the Penny Pilot with 
the new reference to the Penny Interval Program. These proposed changes 
would be to Penny Pilot references in Exchange Rule 404, Interpretation 
and Policy .08(d) and Exchange Rule 516(b)(3). The Exchange believes 
these technical changes would add clarity, transparency and internal 
consistency to the Exchange's rules making them easier for market 
participants to navigate.
Implementation
    This proposed rule change will become operative on July 1, 2020, 
upon expiration of the current Penny Pilot on June 30, 2020. The 
Exchange proposes to implement the Penny Program on July 1, 2020, which 
is the first trading day of the third month following the Approval 
Order issued on April 1, 2020--i.e., July 1, 2020.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \12\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \13\ 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, 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change, which conforms the 
Exchange rules to the recently adopted OLPP Program, allows the 
Exchange to provide market participants with a permanent Penny Program 
for quoting options in penny increments, which maximizes the benefit of 
quoting in a finer quoting increment to investors while minimizing the 
burden that a finer quoting increment places on quote traffic.
    Accordingly, the Exchange believes that the proposal is consistent 
with the Act because, in conforming the Exchange rules to the OLPP 
Program, the Penny Program would employ processes, based upon objective 
criteria, that would rebalance the composition of the Penny Program, 
thereby helping to ensure that the most actively traded option classes 
are included in the Penny Program, which helps facilitate the 
maintenance of a fair and orderly market.
Technical Changes
    The Exchange notes that the proposed changes to Exchange Rule 404, 
Interpretation and Policy .08(d) and Exchange Rule 516(b)(3) to replace 
references to the Penny Pilot with references to the Penny Interval 
Program would provide clarity and transparency to the Exchange rules 
and would promote just and equitable principles of trade and remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system. The proposed rule changes would also 
provide internal consistency within Exchange rules and operate to 
protect investors and the investing public by making the Exchange rules 
easier to navigate and comprehend.

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 Penny Program, 
which modifies the Exchange's rules to align them with the Commission 
approved OLPP Program, is not designed to be a competitive filing nor 
does it impose an undue burden on intermarket competition as the 
Exchange anticipates that the options exchanges will adopt 
substantially identical rules. Moreover, the Exchange believes that by 
conforming Exchange rules to the OLPP Program, the Exchange would 
promote regulatory clarity and consistency,

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thereby reducing burdens on the marketplace and facilitating investor 
protection. To the extent that there is a competitive burden on those 
option classes that do not qualify for the Penny Program, the Exchange 
believes that it is appropriate because the proposal should benefit all 
market participants and investors by maximizing the benefit of a finer 
quoting increment in those option classes with the most trading 
interest while minimizing the burden of greater quote traffic in option 
classes with less trading interest. The Exchange believes that adopting 
rules, which it anticipates will likewise be adopted by all option 
exchanges that are participants in the OLPP, would allow for continued 
competition between Exchange market participants trading similar 
products as their counterparts on other exchanges, while at the same 
time allowing the Exchange to continue to compete for order flow with 
other exchanges.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing 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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) \15\ 
thereunder.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 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 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-MIAX-2020-13 on the subject line

Paper Comments

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

All submissions should refer to File Number SR-MIAX-2020-13. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
    Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MIAX-2020-13 and should be submitted on 
or before June 29, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12272 Filed 6-5-20; 8:45 am]
 BILLING CODE 8011-01-P


