[Federal Register Volume 88, Number 74 (Tuesday, April 18, 2023)]
[Notices]
[Pages 23707-23711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08141]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97287; File No. SR-NYSEARCA-2023-29]


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 12, 2023.
    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, 2023, 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 and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify the NYSE Arca Options Fee Schedule 
(``Fee Schedule'') regarding the Limit of Fees on Options Strategy 
Executions (the ``Strategy Cap''). The Exchange proposes to implement 
the fee change effective April 3, 2023. 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 include 
certain strategy executions which are the result of a QCC order \4\ in 
the Strategy Cap. The Exchange proposes to implement the rule change on 
April 3, 2023.
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    \4\ A QCC Order is defined as an originating order to buy or 
sell at least 1,000 contracts that is identified as being part of a 
qualified contingent trade coupled with a contra-side order or 
orders totaling an equal number of contracts. See Rule 6.62P-
O(g)(1)(A).
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    The Fee Schedule currently provides that the Strategy Cap is a 
$1,000 cap on transaction fees for orders that are executed to achieve 
certain investment strategies (``Strategy Executions'').\5\ 
Specifically, the Strategy Cap provides for a cap on Strategy 
Executions

[[Page 23708]]

involving (a) reversals and conversions, (b) box spreads, (c) short 
stock interest spreads, (d) merger spreads, and (e) jelly rolls.\6\ The 
Strategy Cap applies to each Strategy Execution executed in standard 
option contracts on the same trading. Currently, qualifying Strategy 
Executions that are executed as QCC orders are not eligible for the 
Strategy Cap, as QCC orders are subject to separate fees and credits 
set forth in the Fee Schedule.\7\ All Royalty fees associated with 
Strategy Executions on Index and Exchange Traded Funds will be passed 
through to trading participants on the Strategy Executions on a pro-
rata basis. These Royalty fees will not be included in the calculation 
of the $1,000 cap. Manual Broker Dealer and Firm Proprietary Strategy 
trades that do not reach the $1,000 cap will be billed at $0.25 per 
contract. The Strategy Cap is reduced to $200 on transactions fees for 
qualifying strategies traded on the same trading day for those OTP 
Holders that trade at least 25,000 monthly billable contract sides in 
qualifying Strategy Executions.
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    \5\ See Fee Schedule, LIMIT OF FEES ON OPTIONS STRATEGY 
EXECUTIONS.
    \6\ See Fee Schedule, Endnote 10 for definitions of the various 
Strategy Executions.
    \7\ See Fee Schedule, QUALIFIED CONTINGENT CROSS (``QCC'') 
TRANSACTION FEES AND CREDITS.
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    The Exchange now proposes to modify the Strategy Cap to provide 
that fees associated with a reversal and conversion strategy \8\ 
executed as a QCC order (a ``Reversal/Conversion QCC'') would be 
eligible for the Strategy Cap.\9\ The Exchange believes that including 
Reversal/Conversion QCCs in the Strategy Cap, but not other types of 
QCC transactions, would be appropriate because of the specific fee 
sensitivity resulting from the arbitrage of components of a reversal 
and conversion strategy (whereas the fee sensitivity is less 
significant for other strategies executed as a QCC order). The proposed 
change would extend the benefits of the Strategy Cap to an additional 
type of Strategy Execution and is intended to encourage the submission 
of additional Reversal/Conversion QCCs to the Exchange. The Exchange 
notes that this proposed change would align its Strategy Cap with the 
cap on Strategy Executions currently offered by its affiliated options 
exchange, NYSE American Options.\10\
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    \8\ A ``reversal'' is established by combining a short security 
position with a short put and a long call position that shares the 
same strike and expiration. A ``conversion'' is established by 
combining a long position in the underlying security with a long put 
and a short call position that shares the same strike and 
expiration. See Fee Schedule, Endnote 10.
    \9\ The Exchange also proposes a non-substantive change to add a 
missing period to the end of the last sentence in the first 
paragraph of the Fee Schedule text describing the Strategy Cap. See 
proposed Fee Schedule, LIMIT OF FEES ON OPTIONS STRATEGY EXECUTIONS.
    \10\ See NYSE American Options Fee Schedule, Strategy Execution 
Fee Cap, available at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf (including 
Reversal/Conversion QCCs in cap on Strategy Executions).
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    The Exchange also proposes to modify Endnote 17, which currently 
provides that Submitting Broker QCC credits and Floor Broker rebates 
earned through the Manual Billable Rebate Program shall not combine to 
exceed $2,000,000 per month per firm. The Exchange proposes to amend 
Endnote 17 to add a sentence providing that Submitting Broker QCC 
credits will not apply to any QCC trades that are included in the 
Strategy Cap. The Exchange believes this proposed change is reasonable 
because it is intended to clarify which incentives are applicable to 
Reversal/Conversion QCCs once such transactions are eligible for the 
Strategy Cap, as proposed.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\11\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 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.'' \13\
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    \13\ 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.\14\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity and ETF options order flow. 
More specifically, in February 2023, the Exchange had less than 13% 
market share of executed volume of multiply-listed equity and ETF 
options trades.\15\
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    \14\ 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.
    \15\ Based on a compilation of OCC data for monthly volume of 
equity-based options and monthly volume of equity-based ETF options, 
see id., the Exchange's market share in equity-based options 
decreased from 13.99% for the month of February 2022 to 12.89% for 
the month of February 2023.
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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 
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. Stated otherwise, 
modifications to exchange transaction fees can have a direct effect on 
the ability of an exchange to compete for order flow.
    The Exchange believes that the proposed modification of the 
Strategy Cap to add Reversal/Conversion QCCs to the transactions 
included in the Strategy Cap is reasonable because the proposed change 
is designed to incent OTP Holders to increase the number of QCC 
transactions sent to the Exchange. Specifically, the proposed change is 
intended to encourage OTP Holders to direct additional QCC transactions 
to the Exchange by limiting fees associated with Reversal/Conversion 
QCCs. The Exchange believes that it is reasonable to include Reversal/
Conversion QCCs, but not other strategies executed as QCCs, in the 
Strategy Cap because of the specific fee sensitivity related to 
arbitrage of components of a reversal and conversion strategy. 
Accordingly, the proposed change is intended to encourage additional 
Reversal/Conversion QCCs by making fees for such transactions eligible 
for the Strategy Cap. As noted above, NYSE American Options already 
includes Reversal/Conversion QCCs in its cap on fees for Strategy 
Executions, and the proposed change would thus also provide consistency 
between the Exchange's fees and those of its affiliated options market. 
The Exchange also believes that the proposed change to Endnote 17 of 
the Fee Schedule is reasonable considering the proposed

[[Page 23709]]

change to make Reversal/Conversion QCCs eligible for the Strategy Cap 
and would add clarity to the Fee Schedule that such transactions would 
only be eligible for the benefits of the Strategy Cap and would not 
also entitle OTP Holders to Submitting Broker QCC credits. To the 
extent that the proposed change attracts more volume to the Exchange, 
this increased order flow would continue to make the Exchange a more 
competitive venue for order execution, which, in turn, promotes just 
and equitable principles of trade and removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system. The Exchange notes that all market participants stand to 
benefit from any increase in volume, which could promote market depth, 
facilitate tighter spreads and enhance price discovery, to the extent 
the proposed change encourages OTP Holders to utilize the Exchange as a 
primary trading venue, and may lead to a corresponding increase in 
order flow from other market participants. In addition, any increased 
liquidity on the Exchange would result in enhanced market quality for 
all participants.
    Finally, to the extent the proposed change continues to attract 
greater volume and liquidity, the Exchange believes the proposed change 
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 Exchange's fees are constrained by intermarket 
competition, as OTP Holders may direct their order flow to any of the 
16 options exchanges, including at least one other exchange that limits 
fees for QCC Strategy Executions.\16\ Thus, OTP Holders have a choice 
of where they direct their order flow, including their QCC transactions 
and Strategy Executions. The proposed rule change is designed to 
continue to incent OTP Holders to direct liquidity and, in particular, 
Reversal/Conversion QCCs to the Exchange. In addition, to the extent 
OTP Holders are incentivized to aggregate their trading activity at the 
Exchange, that increased liquidity could promote market depth, price 
discovery and improvement, and enhanced order execution opportunities 
for market participants.
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    \16\ See, e.g., BOX Options Exchange Fee Schedule, Section 
IV.D.2., available at: https://boxoptions.com/fee-schedule/ 
(providing for no fee on QCC Strategy Executions). See also note 10, 
supra.
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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. The proposed inclusion of Reversal/
Conversion QCCs under the Strategy Cap and an OTP Holder's ability to 
qualify for the Strategy Cap are based on the type and amount of 
business transacted on the Exchange, and OTP Holders can attempt to 
submit such transactions or not to achieve the Strategy Cap. The 
Exchange also believes that the proposed change to Endnote 17 is 
equitable because it would promote clarity in the Fee Schedule as to 
which fees and credits are applicable to QCC transactions, in light of 
the proposed change to include Reversal/Conversion QCCs in the 
transactions eligible for limited fees pursuant to the Strategy Cap. In 
addition, the proposed changes to make Reversal/Conversion QCCs 
eligible for the Strategy Cap and to clarify Endnote 17 are equally 
applicable to all OTP Holders. To the extent the proposed changes 
continue to incent OTP Holders to direct increased liquidity to the 
Exchange, all market participants would benefit from enhanced 
opportunities for price improvement and order execution. Moreover, the 
proposed fee limitations are designed to encourage OTP Holders to 
aggregate their executions--including Reversal/Conversion QCC 
transactions--at the Exchange as a primary execution venue. To the 
extent that the proposed change achieves its purpose in attracting more 
volume 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 the proposed change is not unfairly 
discriminatory because the proposed change to the Strategy Cap to 
include Reversal/Conversion QCC transactions and the proposed 
modification of Endnote 17 would apply to all qualifying OTP Holders on 
an equal and non-discriminatory basis. The proposed change is based on 
the amount and type of business transacted on the Exchange, and OTP 
Holders are not obligated to execute QCC transactions or Strategy 
Executions. Rather, the proposal is designed to expand the benefits 
offered by the Strategy Cap and to encourage OTP Holders to increase 
Reversal/Conversion QCC volume sent to the Exchange and to utilize the 
Exchange as a primary trading venue for all transactions (if they have 
not done so previously). To the extent that the proposed change 
attracts more Reversal/Conversion QCC transactions to the Exchange, 
this increased order flow would continue to make the Exchange a more 
competitive venue for 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, protect 
investors and the public interest.
    Thus, the Exchange believes that, to the extent the proposed rule 
change would continue to improve market quality for all market 
participants on the Exchange and attract more order flow to the 
Exchange, 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, 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.

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 change would encourage the submission of additional 
liquidity to a public exchange, thereby promoting market

[[Page 23710]]

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 13, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow--and, in particular, Reversal/Conversion QCC 
transactions--to the Exchange, which could increase the volumes of 
contracts traded on the Exchange. Greater liquidity benefits all market 
participants on the Exchange, and the proposed change could also 
increase opportunities for execution of other trading interest, to the 
extent it encourages OTP Holders to aggregate executions at the 
Exchange. The Exchange also does not believe that the proposed change 
would impose any burden on competition not necessary or appropriate, as 
the proposed change would be applicable to all similarly-situated OTP 
Holders equally.
    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 and ETF options order flow. More specifically, 
in February 2023, the Exchange had less than 13% market share of 
executed volume of multiply-listed equity and ETF options trades.\19\
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    \18\ 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.
    \19\ Based on a compilation of OCC data for monthly volume of 
equity-based options and monthly volume of equity-based ETF options, 
see id., the Exchange's market share in equity-based options 
decreased from 13.99% for the month of February 2022 to 12.89% for 
the month of February 2023.
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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 Reversal/Conversion QCC transactions) to the 
Exchange, to provide liquidity and to attract order flow. To the extent 
that OTP Holders are incentivized to utilize the Exchange as a primary 
trading venue for all transactions, all of the Exchange's market 
participants should benefit from the improved market quality and 
increased opportunities for price improvement.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues. In 
such an environment, the Exchange must continually review, and consider 
adjusting, its fees and credits to remain competitive with other 
exchanges. For the reasons described above, the Exchange believes that 
the proposed rule change reflects this competitive environment. The 
Exchange further believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
another options exchange that currently limits fees for QCC Strategy 
Executions, by encouraging additional orders to be sent to the Exchange 
for execution.\20\
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    \20\ See note 16, 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-2023-29 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-NYSEARCA-2023-29. 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/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

[[Page 23711]]

submissions should refer to File Number SR-NYSEARCA-2023-29, and should 
be submitted on or before May 9, 2023.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08141 Filed 4-17-23; 8:45 am]
BILLING CODE 8011-01-P


