[Federal Register Volume 87, Number 67 (Thursday, April 7, 2022)]
[Notices]
[Pages 20471-20475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07337]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94578; No. SR-NYSEArca-2022-20]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE 
Arca Options Fee Schedule

April 1, 2022.
    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 31, 2022, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify the NYSE Arca Options Fee Schedule 
(``Fee Schedule'') regarding fees and credits relating to Complex 
Orders. The Exchange proposes to implement the fee change effective 
April 1, 2022. 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 purpose of this filing is to amend the Fee Schedule to modify 
fees and credits for electronic Complex Orders. Specifically, the 
Exchange proposes to (1) establish a surcharge applicable to electronic 
Non-Customer Complex Orders that execute against a Customer Complex 
Order, as well as discounts available on such surcharge, and (2) 
introduce credits on electronic executions of Customer Complex interest 
against Non-Customer Complex interest. The Exchange proposes to 
implement the rule change on April 1, 2022.
Non-Customer Complex Surcharge
    Currently, the Exchange charges a per contract transaction fee 
based on whether the trade participant is a Customer or Non-Customer, 
and whether the trade is in a Penny Issue or a Non-Penny Issue.\4\
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    \4\ See Fee Schedule, ELECTRONIC COMPLEX, ORDER EXECUTIONS, 
TRANSACTION FEE--PER CONTRACT.
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    The Exchange now proposes to establish a surcharge of $0.12 per 
contract that would be applied to an electronic Non-Customer Complex 
Order that executes against a Customer Complex Order (the ``Non-
Customer Complex Surcharge''). The Exchange notes that the proposed 
Non-Customer Complex Surcharge is consistent with similar surcharges 
imposed by other option exchanges.\5\
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    \5\ See, e.g., NYSE American Options Fee Schedule, Section I.A. 
(Rates for Options transactions), footnote 5 (assessing $0.12 per 
contract surcharge to any Electronic Non-Customer Complex Order that 
executes against a Customer Complex Order); MIAX Options Fee 
Schedule, Sections 1)a)i)-ii) (assessing a $0.12 per contract 
surcharge for trading against a Priority Customer Complex Order for 
Penny and Non-Penny classes).
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    The Exchange also proposes to offer two alternative discounts on 
the Non-Customer Complex Surcharge. OTP Holders and OTP Firms 
(collectively, ``OTP Holders'') that achieve ADV from Non-Customer 
posted interest in all issues other than SPY \6\ equal to at least 
0.10% of TCADV from Non-Customer posting would earn a $0.05 per 
contract discount on the Non-Customer Complex Surcharge. OTP Holders 
may earn a $0.07 per contract discount applied to the Non-Customer 
Complex Surcharge by achieving either at least 1.50% of

[[Page 20472]]

TCADV from Customer posted interest in all issues or at least 0.75% of 
TCADV in Complex executions from all account types. OTP Holders may 
earn the greater of the discounts for which they qualify.
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    \6\ SPY is the symbol for the SPDR S&P 500 ETF Trust.
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Customer Complex Credit Tiers
    The Exchange also proposes to introduce new credits applicable to 
electronic executions of Customer Complex interest against Non-Customer 
Complex interest (the ``Customer Complex Credit Tiers''). OTP Holders 
would continue to receive a $0.39 credit for such executions in Penny 
issues and a $0.75 credit for such executions in non-Penny issues (as 
already set forth in the Fee Schedule) \7\ and may qualify for enhanced 
credits across four tiers if they achieve volume levels based on 
percentages of TCADV from Complex executions from all account types, as 
outlined in the table below. The proposed credits would not apply to 
Customer Complex Orders executed against individual orders in the 
Consolidated Book, but volume from Complex Orders that execute against 
individual orders would count towards the qualification basis for the 
Customer Complex Credit Tiers. The Exchange notes that the proposed 
credits are similar in structure to incentives relating to Customer 
Complex Orders offered by other options exchanges.\8\
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    \7\ See note 4, supra.
    \8\ See, e.g., Nasdaq ISE, Options 7 Pricing Schedule, Section 
4. Complex Order Fees and Rebates (providing for tiered rebates on 
Priority Customer Complex orders based on qualifying Complex Order 
volume); Cboe EDGX Options Exchange Fee Schedule (providing for 
tiered rebates on Customer Complex orders based on qualifying 
Complex Order volume).

 
 
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                       Credit applied to electronic executions of
                          customer complex interest against non-
                                customer complex interest
                                                                   ---------------------------------------------
Tier                     Qualification basis (average electronic    Penny................  Non-penny
                                   executions per day)
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Base................  .....................  .....................  ($0.39)..............  ($0.75)
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Tier 1..............  At least 0.40% of TCADV from Complex          (0.41)...............  (0.77)
                       executions, all account types.
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Tier 2..............  At least 0.60% of      At least 2.75% of      (0.44)...............  (0.80)
                       TCADV from Complex     TCADV from Customer
                       executions, all        posted interest in
                       account types, or      all issues and 2.75%
                                              of TCADV from
                                              Professional
                                              Customer and Non-
                                              Customer taking
                                              volume.
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Tier 3..............  At least 0.75% of TCADV from Complex          (0.49)...............  (0.85)
                       executions, all account types.
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Tier 4..............  At least 1.00% of TCADV from Complex          (0.50)...............  (0.90)
                       executions, all account types.
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    The Exchange also proposes an alternative qualification for Tier 2. 
An OTP holder that meets at least 2.75% of TCADV from Customer posting 
volume in all issues and at least 2.75% of TCADV from Professional 
Customer and Non-Customer taking volume would also qualify for the 
credits offered in Tier 2.
    Finally, the Exchange proposes that existing Endnotes 8 and 15 in 
the Fee Schedule would apply to the Customer Complex Credit Tiers. 
Endnote 8 provides that the calculations for qualifications for monthly 
posting credits or discounts only include electronic executions and the 
Exchange will include the activity of either (i) affiliates or (ii) an 
Appointed OFP or Appointed MM, per Endnote 15. Endnote 15 in turn 
provides for the inclusion of transaction volume from an OTP Holder's 
or OTP Firm's affiliates or its Appointed OFP or Appointed MM.\9\
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    \9\ An ``Appointed MM'' is an NYSE Arca Market Maker that has 
been designated by an Order Flow Provider (``OFP'') (as defined in 
NYSE Arca Rule 6.1A-O(a)(21)). An ``Appointed OFP'' is an OFP that 
has been designated by an NYSE Arca Market Maker.
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    The Exchange believes that the proposed Non-Customer Complex 
Surcharge, the proposed discounts on the Non-Customer Complex 
Surcharge, and the proposed Customer Complex Credit Tiers would, on 
balance, incent OTP Holders to direct Complex Orders (and, in 
particular, Customer Complex Orders), to the Exchange, thereby creating 
more trading opportunities for all market participants.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
    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.'' \12\
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    \12\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS 
Adopting Release'').
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    There are currently 16 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than 16% of the market 
share of executed volume of multiply-listed equity and ETF options 
trades.\13\ Therefore, currently no exchange possesses significant 
pricing power in the execution of multiply-listed equity and ETF 
options order flow. More specifically, in February 2022, the Exchange 
had less than 14% market share of executed volume of multiply-listed 
equity and ETF options trades.\14\
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    \13\ The OCC publishes options and futures volume in a variety 
of formats, including daily and monthly volume by exchange, 
available here: https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics.
    \14\ Based on a compilation of OCC data for monthly volume of 
equity-based options and monthly volume of ETF-based options, see 
id., the Exchange's market share in equity-based options increased 
from 10.74% for the month of February 2021 to 13.99% for the month 
of February 2022.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants

[[Page 20473]]

can shift order flow or discontinue or reduce use of certain categories 
of products, in response to fee changes. Accordingly, competitive 
forces constrain options exchange transaction fees.
    The Exchange believes that the proposed changes are reasonably 
designed to incent OTP Holders to increase the amount of Customer 
interest sent to the Exchange, especially posted interest and Complex 
Order interest. An increase in Customer volume would create more 
trading opportunities for all market participants and would in turn 
attract Non-Customer activity to the Exchange. A resulting increase in 
Non-Customer activity may facilitate tighter spreads, which may lead to 
an additional increase of order flow from other market participants, 
further contributing to a deeper, more liquid market to the benefit of 
all market participants.
    The proposed Non-Customer Complex Surcharge is reasonable because 
it is designed to offset costs associated with the proposed credits on 
Customer Complex executions offered in the Customer Complex Credit 
Tiers, which are intended to attract more Customer Complex Orders to 
the Exchange. To the extent this purpose is achieved, the Exchange 
believes that the Non-Customer Complex Surcharge would not 
disincentivize Non-Customer Complex activity because increased Customer 
Complex order flow would benefit Non-Customers as well by providing 
more opportunities to trade. The proposed discounts on the Non-Customer 
Complex Surcharge are also reasonably designed to incent OTP Holders 
(and their affiliates) to transact more options volume on the Exchange 
and to provide OTP Holders with an opportunity to decrease the 
surcharge on electronic Non-Customer Complex Orders that execute 
against a Customer Complex Order. The resulting increase in volume and 
liquidity would benefit all market participants by providing more 
trading opportunities and tighter spreads and may lead to a 
corresponding increase in order flow from other market participants. 
The Exchange also believes that the Non-Customer Complex Surcharge, as 
proposed, is reasonable because it is consistent with similar 
surcharges imposed by other options exchanges.\15\
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    \15\ See note 5, supra.
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    The proposed Customer Complex Credit Tiers are reasonably designed 
to encourage increased Complex Order executions and are similar in 
structure to incentive programs relating to Customer Complex executions 
offered by competing options exchanges.\16\ The Exchange also believes 
that the proposed credits, which are intended to attract more Customer 
Complex Orders to the Exchange, are reasonable because increased 
Customer volume would in turn provide more opportunities to trade for 
Non-Customers.
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    \16\ See note 8, supra.
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    To the extent the proposed rule change continues to attract greater 
volume and liquidity by encouraging OTP Holders (and their affiliates) 
to increase their options volume on the Exchange in an effort to 
achieve the proposed discounts offered on the Non-Customer Complex 
Surcharge and/or the proposed Customer Complex Credit Tiers, the 
Exchange believes the proposed changes would improve the Exchange's 
overall competitiveness and strengthen its market quality for all 
market participants. In the backdrop of the competitive environment in 
which the Exchange operates, the proposed rule change is a reasonable 
attempt by the Exchange to increase the depth of its market and improve 
its market share relative to its competitors.
The Proposed Rule Change Is an Equitable Allocation of Credits and Fees
    The Exchange believes the proposed rule change is an equitable 
allocation of its fees and credits because it is based on the amount 
and type of business transacted on the Exchange, and OTP Holders can 
opt to try to earn the Non-Customer Complex Surcharge discounts or 
achieve the Customer Complex Credit Tiers or not. The Exchange also 
believes that the proposed Non-Customer Complex Surcharge is equitable 
because it is designed to balance costs associated with encouraging 
Customer Complex Order flow to the Exchange, and an increase in such 
orders would in turn enhance trading opportunities for Non-Customers. 
The Exchange further believes that the proposed changes are equitably 
designed to provide credits to OTP Holders that transact more options 
volume on the Exchange, and, with respect to the Non-Customer Complex 
Surcharge, would mitigate the impact of the proposed fee.
    Moreover, the proposal is designed to incent OTP Holders to 
aggregate all Customer posting interest at the Exchange as a primary 
execution venue and to attract more Complex Order executions on the 
Exchange. To the extent that the proposed change attracts more Complex 
Order interest to the Exchange, this increased order flow would 
continue to make the Exchange a more competitive venue for, among other 
things, order execution. Thus, the Exchange believes the proposed rule 
change would improve market quality for all market participants on the 
Exchange and, as a consequence, attract more order flow to the Exchange 
thereby improving market-wide quality and price discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes it is not unfairly discriminatory to impose a 
surcharge on Non-Customer Complex executions against Customer Complex 
interest because the proposed modification, along with the proposed 
discounts, would apply to all Non-Customers equally, and as discussed 
above, the Exchange believes it is not unfairly discriminatory to 
incent Customer order flow, which would enhance liquidity on the 
Exchange to the benefit of all market participants. The Exchange also 
believes that the proposed Customer Complex Credit Tiers are not 
unfairly discriminatory because they would be available to all 
similarly-situated market participants on an equal and non-
discriminatory basis.
    The proposal is based on the amount and type of business transacted 
on the Exchange, and OTP Holders are not obligated to try to achieve 
the enhanced qualifications. Rather, the proposal is designed to 
encourage OTP Holders to utilize the Exchange as a primary trading 
venue for Customer Complex interest (if they have not done so 
previously). To the extent that the proposed change attracts more 
Complex interest from all account types to the Exchange, and, in 
particular, more Customer Complex interest, this increased order flow 
would continue to make the Exchange a more competitive venue for, among 
other things, order execution. Thus, the Exchange believes the proposed 
rule change would improve market quality for all market participants on 
the Exchange and, as a consequence, attract more order flow to the 
Exchange thereby improving market-wide quality and price discovery. The 
resulting increased volume and liquidity would provide more trading 
opportunities and tighter spreads to all market participants and thus 
would promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.

[[Page 20474]]

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

    In accordance with Section 6(b)(8) of the Act, 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. 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 all market participants. 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.'' \17\
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    \17\ See Reg NMS Adopting Release, supra note 12, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow (particularly Complex interest) to the Exchange. 
The Exchange believes that the proposed surcharge on Non-Customer 
Complex executions against Customer interest, the proposed discounts to 
the Non-Customer Complex Surcharge, and the proposed Customer Complex 
Credit Tiers would, on balance, incent OTP Holders to direct their 
Complex Orders to the Exchange. Greater liquidity benefits all market 
participants on the Exchange and increased Complex order flow would 
increase opportunities for execution of other trading interest. The 
proposed modifications would apply and be available to all similarly-
situated market participants that execute Complex interest, and, 
accordingly, the proposed changes would not impose a disparate burden 
on competition among market participants on the Exchange.
    Intermarket Competition. The Exchange operates in a highly 
competitive market in which market participants can readily favor one 
of the 16 competing option exchanges if they deem fee levels at a 
particular venue to be excessive. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges and to attract order flow to the Exchange. Based on publicly-
available information, and excluding index-based options, no single 
exchange has more than 16% of the market share of executed volume of 
multiply-listed equity and ETF options trades.\18\ Therefore, currently 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
February 2022, the Exchange had less than 14% market share of executed 
volume of multiply-listed equity & ETF options trades.\19\
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    \18\ See note 13, supra.
    \19\ Based on a compilation of OCC data for monthly volume of 
equity-based options and monthly volume of ETF-based options, see 
id., the Exchange's market share in equity-based options increased 
from 10.74% for the month of February 2021 to 13.99% for the month 
of February 2022.
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    The Exchange believes that the proposed rule change reflects this 
competitive environment because it modifies the Exchange's fees in a 
manner designed to continue to incent OTP Holders to direct trading 
interest (particularly Complex interest and Customer posted interest) 
to the Exchange, to provide liquidity and to attract order flow. To the 
extent that this purpose is achieved, all the Exchange's market 
participants should benefit from the improved market quality and 
increased opportunities for price improvement.
    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that currently apply a similar surcharge or offer similarly 
structured Customer Complex incentives,\20\ by encouraging additional 
orders to be sent to the Exchange for execution.
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    \20\ See notes 5 & 8, supra.
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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) \21\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \22\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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) \23\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \23\ 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-NYSEArca-2022-20 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-2022-20. 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-2022-20, and

[[Page 20475]]

should be submitted on or before April 28, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-07337 Filed 4-6-22; 8:45 am]
BILLING CODE 8011-01-P


