[Federal Register Volume 85, Number 218 (Tuesday, November 10, 2020)]
[Notices]
[Pages 71691-71695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24885]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90334; File No. SR-NYSEArca-2020-97]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Equities Fees and Charges To Adopt an Alternative Method To 
Qualify for the Tier 2 Pricing Tier

November 4, 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 November 2, 2020, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the 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 amend the NYSE Arca Equities Fees and 
Charges (``Fee Schedule'') to adopt an alternative method to qualify 
for the Tier 2 pricing tier. The Exchange proposes to implement the fee 
change effective November 2, 2020. The proposed rule change is 
available on the Exchange's website at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange proposes to amend the Fee Schedule to adopt an 
alternative method to qualify for the Tier 2 pricing tier.
    The proposed change responds to the current competitive environment 
where order flow providers have a choice of where to direct liquidity-
providing orders by offering further incentives for ETP Holders \4\ to 
send additional liquidity to the Exchange.
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    \4\ All references to ETP Holders in connection with this 
proposed fee change include Market Makers.
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    The Exchange proposes to implement the fee change effective 
November 2, 2020.
Background
    The Exchange operates in a highly competitive market. The 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. In Regulation NMS, the Commission 
highlighted the importance of market forces in determining prices and 
SRO revenues and, also, recognized that current regulation of the 
market system ``has been remarkably successful in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.'' \5\
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    \5\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (File No. S7-10-04) (Final 
Rule) (``Regulation NMS'').
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    While Regulation NMS has enhanced competition, it has also fostered 
a ``fragmented'' market structure where trading in a single stock can 
occur across multiple trading centers. When multiple trading centers 
compete for order flow in the same stock, the Commission has recognized 
that ``such competition can lead to the fragmentation of order flow in 
that stock.'' \6\ Indeed, equity trading is

[[Page 71692]]

currently dispersed across 16 exchanges,\7\ numerous alternative 
trading systems,\8\ and broker-dealer internalizers and wholesalers, 
all competing for order flow. Based on publicly-available information, 
no single exchange currently has more than 18% market share.\9\ 
Therefore, no exchange possesses significant pricing power in the 
execution of equity order flow. More specifically, the Exchange 
currently has less than 10% market share of executed volume of equities 
trading.\10\
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    \6\ See Securities Exchange Act Release No. 61358, 75 FR 3594, 
3597 (January 21, 2010) (File No. S7-02-10) (Concept Release on 
Equity Market Structure).
    \7\ See Cboe Global Markets, U.S Equities Market Volume Summary, 
available at https://markets.cboe.com/us/equities/market_share. See 
generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
    \8\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of 
alternative trading systems registered with the Commission is 
available at https://www.sec.gov/foia/docs/atslist.htm.
    \9\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, available at http://markets.cboe.com/us/equities/market_share/.
    \10\ See id.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
move order flow, or discontinue or reduce use of certain categories of 
products. While it is not possible to know a firm's reason for shifting 
order flow, the Exchange believes that one such reason is because of 
fee changes at any of the registered exchanges or non-exchange venues 
to which a firm routes order flow. With respect to non-marketable order 
flow that would provide liquidity on an Exchange against which market 
makers can quote, ETP Holders can choose from any one of the 16 
currently operating registered exchanges to route such order flow. 
Accordingly, competitive forces constrain exchange transaction fees 
that relate to orders that would provide liquidity on an exchange.
    In response to the competitive environment described above, the 
Exchange has established incentives for ETP Holders who submit orders 
that provide liquidity on the Exchange. The proposed fee change is 
designed to attract additional order flow to the Exchange by offering 
an alternative method to qualify for the Tape 2 fees and credits to 
incentivize ETP Holders to direct their liquidity-providing orders in 
Tapes A, B and C securities.
Proposed Rule Change
    Currently, ETP Holders qualify for Tier 2 fees and credits by 
providing liquidity an average daily share volume per month of 0.30% or 
more, but less than 0.70% of US consolidated average daily volume (``US 
CADV'').\11\
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    \11\ US CADV means the United States Consolidated Average Daily 
Volume for transactions reported to the Consolidated Tape, excluding 
odd lots through January 31, 2014 (except for purposes of Lead 
Market Maker pricing), and excludes volume on days when the market 
closes early and on the date of the annual reconstitution of the 
Russell Investments Indexes. Transactions that are not reported to 
the Consolidated Tape are not included in US CADV. See Fee Schedule, 
footnote 3.
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    The Exchange proposes to permit ETP Holders to alternatively 
qualify for Tier 2 fees and credits if they (a) provide liquidity an 
average daily share volume per month of 0.25% or more, but less than 
0.70% of the US CADV, (b) execute removing volume in Tape B Securities 
equal to at least 0.40% of US Tape B CADV, and (c) are affiliated with 
an OTP Holder or OTP Firm that provides an ADV of electronic posted 
Customer and Professional Customer executions in all issues on NYSE 
Arca Options (excluding mini options) of at least 0.25% of total 
Customer equity and ETF option ADV as reported by The Options Clearing 
Corporation (``OCC''). The Exchange is not proposing any change to the 
level of fees and credits applicable under Tier 2.
    The purpose of this proposed rule change is to incentivize ETP 
Holders to increase the liquidity-providing orders they send to the 
Exchange, which would support the quality of price discovery on the 
Exchange and provide additional liquidity for incoming orders. The 
Exchange believes that the proposal would create an added incentive for 
ETP Holders to bring additional order flow to a public market while 
also providing an alternative method for ETP Holders to qualify for 
Tier 2 fees and credits. The Exchange further believes that providing 
fees and credits to ETP Holders that are affiliated with an OTP Holder 
or OTP Firm could lead to increased trading on the Exchange's equities 
and options markets.\12\ As noted above, the Exchange operates in a 
competitive environment, particularly as it relates to attracting non-
marketable orders, which add liquidity to the Exchange. Because the 
proposed alternative method requires that an ETP Holder, in addition to 
providing liquidity at a level below the current requirement under Tier 
2, also remove liquidity in Tape B securities coupled with the required 
minimum of options volume, the Exchange believes that the proposed 
change would provide an incentive for a greater number of ETP Holders 
to send additional liquidity to the Exchange in order to qualify for 
the Tier 2 fees and credits.
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    \12\ There are currently 53 firms that are both ETP Holders and 
OTP Holders.
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    The Exchange believes that, by providing for an additional method 
of qualifying for Tier 2, this proposed change will provide a greater 
incentive to attract additional liquidity from additional ETP Holders 
so as to qualify for the Tier 2 fees and credits. The Exchange does not 
know how much order flow ETP Holders choose to route to other exchanges 
or to off-exchange venues. The Exchange anticipates, based on their 
current trading profile, that a small number of ETP Holders could 
qualify for Tier 2 under the proposed alternative method if they so 
choose. However, without having a view of ETP Holders' activity on 
other exchanges and off-exchange venues, the Exchange has no way of 
knowing whether this proposed rule change would result in any ETP 
Holder directing orders to the Exchange in order to qualify for Tier 2 
under the proposed alternative method.
    The proposed changes are not otherwise intended to address any 
other issues, and the Exchange is not aware of any significant problems 
that market participants would have in complying with the proposed 
changes.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\13\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Fee Change is Reasonable
    As discussed above, the Exchange operates in a highly fragmented 
and competitive market. The Commission has repeatedly expressed its 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. Specifically, 
in Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \15\
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    \15\ See Regulation NMS, 70 FR at 37499.

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[[Page 71693]]

    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow, or discontinue to reduce use of certain categories of 
products, in response to fee changes. With respect to non-marketable 
orders that provide liquidity on an Exchange, ETP Holders can choose 
from any one of the 16 currently operating registered exchanges to 
route such order flow. Accordingly, competitive forces reasonably 
constrain exchange transaction fees that relate to orders that would 
provide displayed liquidity on an exchange. Stated otherwise, changes 
to exchange transaction fees can have a direct effect on the ability of 
an exchange to compete for order flow.
    Given this competitive environment, the proposal represents a 
reasonable attempt to attract additional order flow to the Exchange. In 
particular, the Exchange believes the proposed amendment to Tier 2 is 
reasonable because it provides ETP Holders affiliated with an OTP 
Holder or OTP Firm with an additional way to qualify for the Tier 2 
fees and credits through equity and options orders. The Exchange 
believes that the proposed alternative to qualify for the pricing tier 
utilizing a lower equity adding volume requirement coupled with a 
minimum equity removing volume requirement and a minimum options volume 
requirement is reasonable because the proposal provides firms with 
greater flexibility to reach volume tiers across asset classes, thereby 
creating an added incentive for ETP Holders to bring additional order 
flow to a public exchange, thereby encouraging greater participation 
and liquidity.
    The Exchange notes that volume-based incentives and discounts have 
been widely adopted by exchanges, including the Exchange, and are 
reasonable, equitable and not unfairly discriminatory because they are 
available to all ETP Holders on an equal basis. They also provide 
additional benefits or discounts that are reasonably related to the 
value of the Exchange's market quality and associated higher levels of 
market activity, such as higher levels of liquidity provision and/or 
growth patterns. Additionally, as noted above, the Exchange operates in 
a highly competitive market. The Exchange is one of many venues and 
off-exchange venues to which market participants may direct their order 
flow, and it represents a small percentage of the overall market. 
Competing exchanges offer similar tiered pricing structures to that of 
the Exchange, including schedules of rebates and fees that apply based 
on members achieving certain volume thresholds. Moreover, the Exchange 
believes the proposed amendment to Tier 2 is a reasonable means to 
encourage ETP Holders to increase their liquidity on the Exchange and 
their participation on NYSE Arca Options. The Exchange believes 
amending the current pricing tier by adopting an alternative 
requirement may encourage those ETP Holders who could not previously 
achieve the pricing tier to increase their order flow on both the 
Exchange and on NYSE Arca Options. Increased liquidity benefits all 
investors by deepening the Exchange's liquidity pool, offering 
additional flexibility for all investors to enjoy cost savings, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
The Proposed Fee Change is an Equitable Allocation of Fees and Credits
    The Exchange believes the proposed rule change to adopt an 
alternative way to qualify for the Tier 2 fees and credits equitably 
allocates its fees and credits among market participants because it is 
reasonably related to the value of the Exchange's market quality 
associated with higher equities and options volume. Additionally, a 
number of ETP Holders have a reasonable opportunity to satisfy the 
tier's criteria.\16\
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    \16\ See supra note 12.
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    The Exchange does not know how much order flow ETP Holders choose 
to route to other exchanges or to off-exchange venues. The proposed 
alternative method to qualify for the Tier 2 fees and credits would be 
available to all ETP Holders that are affiliated with OTP Holders or 
OTP Firms. There are currently 3 ETP Holders that qualify for the Tier 
2 fees and credits. And as noted above, there are 53 firms that are 
both ETP Holders and OTP Holders and a number of such firms could 
qualify for Tier 2 pricing tier under the proposed alternative method. 
However, without having a view of an ETP Holder's activity on other 
markets and off-exchange venues, the Exchange has no way of knowing 
whether this proposed rule change would result in any ETP Holder 
affiliated with an OTP Holder or OTP Firm to increase participation in 
the Exchange's equities and options markets to qualify for the Tier 2 
fees and credits. The Exchange cannot predict with certainty how many 
ETP Holders would avail themselves of this opportunity. The Exchange 
believes the proposed amended tier could provide an incentive for other 
ETP Holders to submit additional liquidity on the Exchange and on NYSE 
Arca Options to qualify for the Tier 2 fees and credits. To the extent 
an ETP Holder participates on the Exchange but not on NYSE Arca 
Options, the Exchange believes that the proposal is still reasonable, 
equitable and not unfairly discriminatory with respect to such ETP 
Holder based on the overall benefit to the Exchange resulting from the 
success of NYSE Arca Options. In particular, such success would allow 
the Exchange to continue to provide and potentially expand its existing 
incentive programs to the benefit of all participants on the Exchange, 
whether they participate on NYSE Arca Options or not.
    The proposal neither targets nor will it have a disparate impact on 
any particular category of market participant. Rather, should an ETP 
Holder not meet the proposed criteria, the ETP Holder can still qualify 
for the same credit by meeting the current criteria which does not 
require it to have any affiliation with an OTP Holder or OTP Firm and 
conduct options trading on NYSE Arca Options.
The Proposed Fee Change is not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. In the prevailing competitive environment, ETP Holders 
are free to disfavor the Exchange's pricing if they believe that 
alternatives offer them better value.
    The Exchange believes it is not unfairly discriminatory to provide 
an alternative way to qualify for per share fees and credits, as each 
would be provided on an equal basis to all ETP Holders that are 
affiliated with an OTP Holder or OTP Firm that meet the proposed 
alternative requirement of Tier 2. Further, the Exchange believes the 
proposed alternative requirement would incentivize ETP Holders that are 
affiliated with an OTP Holder or OTP Firm to send their options orders 
to the Exchange to qualify for the pricing tier. The Exchange also 
believes that the proposed change is not unfairly discriminatory 
because it is reasonably related to the value to the Exchange's market 
quality associated with higher volume.
    The proposal to amend the volume requirement to qualify for the 
Tier 2 fees and credits neither targets nor will it have a disparate 
impact on any particular category of market participant. The proposal 
does not permit unfair discrimination because the amended threshold 
would be applied to all similarly situated ETP Holders, who would all 
be eligible for

[[Page 71694]]

the same fees and credits on an equal basis. Accordingly, no ETP Holder 
already operating on the Exchange would be disadvantaged by this 
allocation of fees.
    Finally, the submission of orders to the Exchange is optional for 
ETP Holders in that they could choose whether to submit orders to the 
Exchange and, if they do, the extent of its activity in this regard. 
The Exchange believes that it is subject to significant competitive 
forces, as described below in the Exchange's statement regarding the 
burden on competition.
    For the foregoing 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,\17\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed changes would encourage the submission of additional 
liquidity to a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution opportunities 
for ETP Holders. As a result, the Exchange believes that the proposed 
change furthers the Commission's goal in adopting Regulation NMS of 
fostering integrated competition among orders, which promotes ``more 
efficient pricing of individual stocks for all types of orders, large 
and small.'' \18\
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    \17\ 15 U.S.C. 78f(b)(8).
    \18\ See Regulation NMS, 70 FR at 37498-99.
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    Intramarket Competition. The proposed change is designed to attract 
additional equities and options order flow to the Exchange. The 
Exchange believes that the proposed amendment to the volume requirement 
under Tier 2 would continue to incentivize market participants to 
direct providing displayed order flow to the Exchange and greater 
participation on NYSE Arca Options. Greater liquidity benefits all 
market participants on the Exchange by providing more trading 
opportunities and encourages ETP Holders to send orders to the 
Exchange, thereby contributing to robust levels of liquidity, which 
benefits all market participants. The proposed volume requirement would 
be applicable to all similarly-situated market participants, and, as 
such, the proposed change would not impose a disparate burden on 
competition among market participants on the Exchange. As such, the 
Exchange believes the proposed amendments to its Fee Schedule would not 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
    Intermarket Competition. The Exchange operates in a highly 
competitive market in which market participants can readily choose to 
send their orders to other exchange and off-exchange venues if they 
deem fee levels at those other venues to be more favorable. As noted 
above, the Exchange's market share of intraday trading (i.e., excluding 
auctions) is currently less than 10%. In such an environment, the 
Exchange must continually adjust its fees and rebates to remain 
competitive with other exchanges and with off-exchange venues. Because 
competitors are free to modify their own fees and credits in response, 
and because market participants may readily adjust their order routing 
practices, the Exchange does not believe its proposed fee change can 
impose any burden on intermarket competition.
    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar order types and comparable 
transaction pricing, by encouraging additional orders to be sent to the 
Exchange for execution.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \19\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \20\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \21\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \21\ 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 rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2020-97 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2020-97. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2020-97, and

[[Page 71695]]

should be submitted on or before December 1, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-24885 Filed 11-9-20; 8:45 am]
BILLING CODE 8011-01-P


