[Federal Register Volume 76, Number 199 (Friday, October 14, 2011)]
[Notices]
[Pages 63966-63969]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-26512]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65505; File No. SR-NYSEAmex-2011-76]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Amex 
Options Rule 975NY (Obvious and Catastrophic Errors)

October 6, 2011.
    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 September 29, 2011, NYSE Amex LLC (the ``Exchange'' or 
``NYSE Amex'') 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 amend NYSE Amex Options Rule 975NY 
(Obvious and Catastrophic Errors). The text of the proposed rule change 
is available at the Exchange, the Commission's Public Reference Room, 
and http://www.nyse.com.

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 is proposing to amend NYSE Amex Options Rule 975NY 
(Obvious and Catastrophic Errors) as described below.
Applicability
    The Exchange proposes to amend Rule 975NY to reflect that, unless 
otherwise stated, the provisions therein are applicable to electronic 
transactions only.\4\
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    \4\ Rule 975NY was originally substantially based on Rule 6.87 
of NYSE Arca Inc. (``NYSE Arca'') and was adopted in conjunction 
with new rules for the implementation of a new Exchange trading 
platform for options. See Securities Exchange Act Release No. 59472 
(February 27, 2009), 74 FR 9843 (March 6, 2009) (SR-NYSEALTR-2008-
14). Rule 975NY replaced then-existing Exchange Rules 936 and 936C. 
See Securities Exchange Act Release Nos. 59454 (February 25, 2009), 
74 FR 9461 (March 4, 2009) (SR-NYSEALTR-2009-17) and 59660 (March 
31, 2009), 74 FR 15802 (April 7, 2009) (SR-NYSEAmex-2009-03). NYSE 
Arca Rule 6.87 was originally applicable to the NYSE Arca ``Auto-
Ex'' electronic system, not manual or open-outcry trading, and has 
been amended on an incremental basis over time. See, e.g., 
Securities Exchange Act Release Nos. 48538 (September 25, 2003), 68 
FR 56858 (October 2, 2003) (SR-PCX-2002-01); 50549 (October 15, 
2004), 69 FR 62107 (October 22, 2004) (SR-PCX-2004-87); and 53221 
(February 3, 2006), 71 FR 6811(February 9, 2006) (SR-PCX-2005-102).
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Erroneous Prints & Quotes in the Underlying Security
    The Exchange proposes to make the following changes relating to 
erroneous prints or quotes in the underlying security: \5\
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    \5\ See Rule 975NY(a)(4) and (5). The changes to these 
provisions are based on Chicago Board Options Exchange (``CBOE'') 
Rule 6.25. See Securities Exchange Act Release No. 59981 (May 27, 
2009), 74 FR 26447 (June 2, 2009) (SR-CBOE-2009-024).
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1. Adjustments
    Rule 975NY(a)(4) currently provides only for nullifications with 
respect to erroneous prints, whereas Rule 975NY(a)(5) provides for 
nullifications and adjustments for erroneous quotes. For consistency, 
the Exchange proposes to amend Rule 975NY(a)(4) to allow for 
adjustments and nullifications of erroneous prints in the underlying 
security.\6\ The Exchange also proposes to clarify that such adjustment 
or nullification would be in the same manner and subject to the same 
conditions as set forth in Rule 975NY(a)(3) for Obvious Errors.
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    \6\ See, e.g., CBOE Rule 6.25(a)(4).
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2. Average Quote Width
    Rule 975NY(a)(4) and (5) currently provide that the ``average quote 
width'' thereunder is determined by adding the quote widths of each 
separate quote during the two minute time period before and after the 
erroneous print or erroneous quote. The Exchange proposes to revise the 
provisions used to determine the average quote width and instead make 
such a determination by adding the quote widths of sample quotations at 
regular 15-second intervals during the two minute time period before 
and after the erroneous quote or print. Such a change would make the 
administration of Rule 975NY(a)(4) and (5) less time consuming and 
burdensome, while also aligning the Exchange's method of calculation 
with the methods used by other options exchanges.\7\
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    \7\ See, e.g., CBOE Rule 6.25(a)(4)(ii) and CBOE Rule 
6.25(a)(5)(ii).
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3. Designation of Underlying Security or Market
    The erroneous print and quote provisions of Rule 975NY(a)(4) and 
(5) currently only address the security underlying the particular 
option. The Exchange proposes to modify these provisions to allow the 
Exchange to designate the applicable underlying security(ies) or 
related instruments for any option.\8\
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    \8\ See, e.g., CBOE Rule 6.25(a)(4) and CBOE Rule 6.25(a)(5).
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    Under the revised rule, the Exchange would identify the particular 
underlying security--or with respect to ETF(s), HOLDRS(s), and index 
options the related instrument(s) that would be used to determine an 
erroneous print or quote--and would also identify the relevant 
market(s) trading the underlying security or related instrument to 
which the Exchange would look for purposes of applying the obvious 
error analysis. The ``related instrument(s)'' may include related 
ETF(s), HOLDRS(s), and/or index value(s),\9\ and/or related futures 
product(s),\10\ and the ``relevant

[[Page 63967]]

market(s)'' may include one or more markets. The underlying security or 
related instrument(s) and relevant market(s) would be designated by the 
Exchange and announced via Regulatory Bulletin. For a particular ETF, 
HOLDRS, index value and/or futures product to qualify for consideration 
as a ``related instrument,'' the revised rule would require that the 
option class and related instrument be derived from or designed to 
track the same underlying index.
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    \9\ An ``index value'' is the value of an index as calculated 
and reported by the index's reporting authority. Use of an index 
value would only be applicable for purposes of identifying an 
erroneous print in the underlying security (and not an erroneous 
quote).
    \10\ The Exchange is only proposing that it may designate 
underlying or related ETF(s), HOLDRS(s), and/or index value(s), and/
or related futures product(s). The Exchange is not proposing to 
designate any of the individual underlying stocks (or related 
options or futures on any of the individual underlying stocks) that 
comprise a particular ETF, HOLDR or index. Any such proposal would 
be the subject of a separate rule filing.
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    Thus, as an example for illustrative purposes only, for options on 
the Powershares QQQ Trust, Series 1 (the ``Nasdaq 100 ETF''), the 
Exchange may determine to designate the underlying ETF (ETF symbol 
``QQQ'') and the primary market where it trades, as well as a related 
futures product overlying the Nasdaq 100 Index and the primary market 
where that futures product trades, as the instruments that would be 
considered by the Exchange in determining whether an erroneous print or 
an erroneous quote has occurred that would form the basis for an 
adjustment or nullification of a transaction in the related 
options.\11\ As another example for illustrative purposes only, for the 
Exchange's class of options on International Business Machines 
Corporation, the underlying security would be its common stock, which 
trades under the symbol IBM. The Exchange may determine to designate 
one or more underlying stock exchanges as the ``relevant market(s),'' 
such as the New York Stock Exchange LLC (``NYSE'') and the NYSE Arca, 
Inc. (``NYSE Arca'').\12\ The proposed change is intended to provide 
relief in those scenarios where an erroneous option transaction may 
occur as the result of an erroneous print or erroneous quote in markets 
other than the primary market for the underlying security.
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    \11\ Using this example, under the revised rule, the designated 
instruments and markets would be announced by Regulatory Bulletin. 
Thereafter, for a transaction in the QQQ options class to be 
adjusted or nullified due to an erroneous print in an underlying 
security or related instrument that is later cancelled or corrected, 
the trade must be the result of (i) an erroneous print in the 
underlying Nasdaq 100 ETF that is higher or lower than the average 
trade in the underlying Nasdaq 100 ETF on the designated relevant 
market during a two-minute period before and after the erroneous 
print by an amount at least five times greater than the average 
quote width for the ETF during the same period, or (ii) an erroneous 
print in the designated futures product overlying the Nasdaq 100 
Index that is higher or lower than the average trade in the 
designated futures product on the designated relevant market during 
a two-minute period before and after the erroneous print by an 
amount at least five times greater than the average quote width for 
the futures product during the same period. For an options 
transaction to be adjusted or nullified due to an erroneous quote in 
an underlying or related instrument, an erroneous quote would occur 
when (i) the underlying Nasdaq 100 ETF has a width of at least $1.00 
and has a width at least five times greater than the average quote 
width for such ETF on the designated relevant market during the time 
period encompassing two minutes before and after the dissemination 
of such quote, or (ii) the designated futures product overlying the 
Nasdaq 100 Index has a width of at least $1.00 and has a width at 
least five times greater than the average quote width for such 
futures product on the designated relevant market during the period 
encompassing two minutes before and after the dissemination of such 
quote.
    \12\ Using this example, under the revised rule, the relevant 
market(s) would be announced by Regulatory Bulletin. Thereafter, for 
a transaction in the IBM options class to be adjusted or nullified 
due to an erroneous print in an underlying security that is later 
cancelled or corrected, the trade must be the result of an erroneous 
report of the underlying IBM stock value on NYSE or NYSE Arca that 
is higher or lower than the average price in the stock on the NYSE 
or NYSE Arca market, as applicable, during a two minute period 
before and after the erroneous report by an amount at least five 
times higher or lower than the difference between the highest and 
lowest index values during the same period. To be adjusted or 
nullified due to an erroneous quote in the underlying security, an 
erroneous quote would occur when the IBM quote on the NYSE or NYSE 
Arca market, as applicable, has a width of at least $1.00 and has a 
width at least five times greater than the average quote width for 
IBM on the relevant market during the time period encompassing two 
minutes before and after the dissemination of such quote.
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    The Exchange believes the proposed change recognizes that market 
participants trading in the equity, index, ETF and HOLDRS options may 
base their option prices on trading in various products and markets, 
while maintaining reasonable and objective criteria for these types of 
obvious error reviews.
No Bid Series
    As discussed below, the Exchange proposes to renumber Commentary 
.04 to Rule 975NY as Rule 975NY(a)(6), which provides that a buyer of 
an option with a zero bid may request that such execution be busted. 
This would include certain proposed substantive changes, including with 
respect to the circumstances under which such an execution could be 
busted by specifying that certain bids and offers will not be included 
within such a determination, and explaining the treatment of different 
groups of series in an option with non-standard deliverables being 
treated as a separate options class for purposes of the rule.\13\ These 
changes would benefit buyers of an option with a zero bid by adding 
greater specificity to the circumstances under which such a buyer may 
request that such execution be busted.
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    \13\ See, e.g., CBOE Rule 6.25(a)(2).
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Catastrophic Error Theoretical Price
    For purposes of determining whether a Catastrophic Error has 
occurred on the Exchange, the Theoretical Price of an option currently 
is (A) if the series is traded on at least one other options exchange, 
the last bid price with respect to an erroneous sell transaction and 
the last offer price with respect to an erroneous buy transaction, just 
prior to the trade, that comprise the National Best Bid or Offer 
(``NBBO''), as disseminated by the Options Price Reporting Authority 
(``OPRA'') or (B) if there are not quotes for comparison purposes, as 
determined by a designated Trading Official.\14\ The Exchange proposes 
that a designated Trading Official also determine the Theoretical Price 
in circumstances where the bid/ask differential of the NBBO for the 
affected series just prior to the erroneous transactions was at least 
two times the permitted bid/ask differential pursuant to Rule 
925NY(b)(4). This proposed change would align the determination of what 
constitutes the Theoretical Price for both Catastrophic and Obvious 
Errors and is consistent with the methods used by other options 
exchanges.\15\
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    \14\ See Rule 975NY(b), which, as proposed below, would be 
renumbered as Rule 975NY(d).
    \15\ See, e.g., CBOE Rule 6.25(a)(1)(iv), which is applicable 
for both Obvious and Catastrophic Errors on CBOE.
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Technical and Clarifying Changes
    The Exchange proposes the following technical and clarifying 
changes to the existing text of Rule 975NY: \16\
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    \16\ The Exchange is reformatting Rule 975NY to make it more 
consistent with CBOE Rule 6.25.
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     First, the introductory text of Rule 975NY(a) would be 
amended to clarify that an ATP Holder or person associated therewith 
may have a trade adjusted or nullified if, in addition to satisfying 
the procedural requirements of Rule 975NY(b), the conditions of Rule 
975NY(a)(3)--Obvious Errors, Rule 975NY(a)(4)--Erroneous Print in 
Underlying, Rule 975NY(a)(5)--Erroneous Quote in Underlying, or Rule 
975NY(a)(6)--No Bid Series are satisfied.
     Second, Rule 975NY(a)(3)(A) and (B) would be renumbered as 
Rule 975NY(b)(1) and (3), respectively. Rule 975NY(b)(2) would be added 
to clarify that once a party to a transaction has applied for review, 
the transaction shall be reviewed and a determination rendered, unless 
both parties to the transaction agree to withdraw the application for 
review prior to the time

[[Page 63968]]

a decision is rendered. Rule 975NY(a)(3)(C) would be renumbered as Rule 
975NY(a)(3).
     Third, Rule 975NY(a)(6) would be renumbered as Rule 
975NY(c) and re-titled ``Obvious Error Panel'' to clarify the content 
of the text therein. This change would also include text clarifying the 
applicability to a ``party to a determination,'' as rendered by the 
Exchange, instead of a ``party to an Obvious Error,'' as the current 
text reads.
     Fourth, Rule 975NY(b), which pertains to Catastrophic 
Errors on the Exchange, would be renumbered as Rule 975NY(d) and 
include certain other minor changes.
     Lastly, the text of Commentary .04 to Rule 975NY would be 
deleted and Commentary .04 would be ``reserved,'' because, as discussed 
above, the circumstances where a buyer of an option with a zero bid may 
request that such execution be busted would be moved to Rule 
975NY(a)(6).
    The aforementioned technical changes require that cross-references 
to various subsections throughout Rule 975NY be updated, as proposed 
herein. Additional updates to cross-references within Rule 975NY, 
including the subsections pertaining to erroneous prints or quotes in 
the underlying and pertaining to the applicable bid/ask differential 
under Rule 925NY,\17\ are necessary for clarification purposes.
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    \17\ A previous rule change filed by the Exchange with the 
Commission inadvertently added a reference within Rule 
945NY(a)(2)(B) to the bid/ask differentials of Rule 925NY(b)(4)-(5) 
when instead only a reference to 925NY(b)(4) should have been added. 
See Securities Exchange Act Release No. 61394 (January 21, 2010), 75 
FR 4435 (January 27, 2010) (SR-NYSEAmex-2010-02). The bid/ask 
differentials of Rule 925NY(b)(5) are not applicable to the 
reference within Rule 945NY(a)(2)(B).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\18\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\19\ in particular, because it 
is designed to promote just and equitable principles of trade, 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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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange understands that, in approving proposals of other 
exchanges related to adjusting and nullifying option trades involving 
obvious errors, the Commission has focused on the need for specificity 
and objectivity with respect to exchange determinations and processes 
for reviewing such determinations.\20\ In this regard, the Exchange 
believes that the proposed rule change would clarify the content of the 
Exchange's rule for adjusting and nullifying trades, including obvious 
errors, while also simplifying the administration of the rule in order 
to more efficiently render such determinations. The Exchange further 
believes that the proposed rule change would benefit investors and be 
in the public's interest because it would provide increased clarity and 
specificity concerning the objective standards used by the Exchange 
when making trade nullification and adjustment determinations.
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    \20\ See, e.g., supra note 5. See also Securities Exchange Act 
Release No. 63692 (January 11, 2011), 76 FR 2940 (January 18, 2011) 
(Order Granting Approval of SR-Phlx-2010-163).
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    The Exchange also believes that the increased specificity resulting 
from the proposed rule change would benefit investors and market 
participants that are members of multiple exchanges by more closely 
aligning the Exchange's rules with respect to obvious errors with those 
of other exchanges, including text to reflect that, unless otherwise 
stated, the provisions of Rule 975NY are applicable to electronic 
transactions only. In this respect, the proposed rule change helps 
foster certainty for market participants trading on multiple exchanges.
    Accordingly, the Exchange believes that the increased specificity 
resulting from the proposed rule change, combined with the continued 
objective nature of the Exchange's process for rendering and reviewing 
trade nullification and adjustment determinations, is consistent with 
prior guidance from the Commission, is consistent with the Act and is 
consistent with the maintenance of a fair and orderly market and the 
protection of investors and the public interest.

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.

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

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

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \21\ and Rule 19b-4(f)(6) thereunder.\22\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\23\
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    \21\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ Pursuant to Rule 19b-4(f)(6)(iii) under the Act, the 
Exchange is required to give the Commission written notice of its 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Commission notes that the Exchange has satisfied this requirement.
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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.

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 e-mail to [email protected]. Please include 
File Number SR-NYSEAmex-2011-76 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEAmex-2011-76. This 
file number should be included on the

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subject line if e-mail 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 Web site 
(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 Web site 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 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at the 
Exchange's principal office, and on its Web site at http://www.nyse.com. The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov. All comments received will 
be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly.
    All submissions should refer to File Number SR-NYSEAmex-2011-76 and 
should be submitted on or before November 4, 2011.

    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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-26512 Filed 10-13-11; 8:45 am]
BILLING CODE 8011-01-P