[Federal Register Volume 81, Number 250 (Thursday, December 29, 2016)]
[Notices]
[Pages 96143-96146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31473]



[[Page 96143]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79658; File No. SR-NYSEMKT-2016-119]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change To Conform to Proposed Amendments to Securities 
Exchange Act Rule 15c6-1(a) To Shorten the Standard Settlement Cycle 
From Three Business Days After the Trade Date (``T+3'') to Two Business 
Days After the Trade Date (``T+2'')

December 22, 2016.
    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 December 15, 2016, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') 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 adopt new Rules 14T--Equities, 64T--
Equities, 235T--Equities, 236T--Equities, 257T--Equities and 282.65T--
Equities, and Sections 510T and 512T of the NYSE MKT Company Guide to 
conform to proposed amendments to Securities Exchange Act Rule 15c6-
1(a) to shorten the standard settlement cycle from three business days 
after the trade date to two business days after the trade date. The 
proposed rule change is available on the Exchange's Web site 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 Exchange proposes to adopt the following new rules to conform 
to proposed amendments to Securities Exchange Act Rule 15c6-1(a) \4\ to 
shorten the standard settlement cycle from T+3 to T+2:
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    \4\ See 17 CFR 240.15c6-1(a); see also notes 8-9, infra.
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     Rule 14T--Equities (Non-Regular Way Settlement 
Instructions for Orders);
     Rule 64T--Equities (Bonds, Rights and 100-Share-Unit 
Stocks);
     Rule 235T--Equities (Ex-Dividend, Ex-Rights);
     Rule 236T--Equities (Ex-Warrants);
     Rule 257T--Equities (Deliveries After ``Ex'' Date);
     Rule 282.65T--Equities (Failure to Deliver and Liability 
Notice Procedures); and
     Sec. 510T (Two Day Delivery Plan) and Sec. 512T (Ex-
Dividend Procedure) of the NYSE MKT Company Guide (the ``Company 
Guide'').
    The proposed new rules would have the same numbering as the current 
rules, but with the modifier ``T'' appended to the rule number. For 
example, Rule 14--Equities, governing non-regular way settlement 
instructions for orders, would remain unchanged and continue to apply 
to non-regular way settlements on the Exchange. Proposed Rule 14T--
Equities would reflect that a regular way settlement would be two days 
and not the current three days. As discussed below, because the 
Exchange would not implement the proposed rules until after the final 
implementation of T+2, the Exchange proposes to retain the current 
versions of each rule on its books and not delete it until after the 
proposed rules are approved. The Exchange also proposes to file 
separate proposed rule changes to establish the operative date of the 
proposed rules and to delete the current version of each rule.
Background
    In 1993, the Securities and Exchange Commission (the ``SEC'' or 
``Commission'') adopted Rule 15c6-1(a) \5\ under the Act, which 
established three business days after trade date instead of five 
business days (``T+5''), as the standard trade settlement cycle for 
most securities transactions. The rule became effective in June 
1995.\6\ In November 1994, the Exchange amended its rules to be 
consistent with the T+3 settlement cycle for securities 
transactions.\7\
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    \5\ 17 CFR 240.15c6-1(a).
    \6\ See Securities Exchange Act Release Nos. 33023 (October 6, 
1993), 58 FR 52891 (order adopting Rule 15c6-1) and 34952 (November 
9, 1994), 59 FR 59137 (order changing the effective date from June 
1, 1995, to June 7, 1995).
    \7\ See Securities Exchange Act Release Nos. 35110 (December 16, 
1994), 59 FR 0 (December 23, 1994) (SR-NYSE-94-40) (Notice) and 
35506 (March 17, 1995), 60 FR 15618 (March 24, 1995) (SR-NYSE-94-40) 
(Approval Order).
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    On September 28, 2016, the SEC proposed amendments to Rule 15c6-
1(a) to shorten the standard settlement cycle from T+3 to T+2 on the 
basis that the shorter settlement cycle would reduce the risks that 
arise from the value and number of unsettled securities transactions 
prior to completion of settlement, including credit, market and 
liquidity risk faced by U.S. market participants.\8\ The proposed rule 
amendment was published for comment in the Federal Register on October 
5, 2016.\9\ In light of this action by the SEC, the Exchange proposes 
new rules to reflect ``regular way'' settlement as occurring on 
T+2.\10\
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    \8\ See SEC Press Release 2016-200: ``SEC Proposes Rule 
Amendment to Expedite Process for Settling Securities Transactions'' 
(September 28, 2016).
    \9\ See Securities Exchange Act Release No. 78962 (September 28, 
2016), 81 FR 69240 (October 5, 2016) (File No. S7-22-16) (``SEC 
Proposing Release'').
    \10\ Earlier this year the MSRB also filed a rule change to 
reflect ``regular way'' settlement as occurring on T+2. See 
Securities Exchange Act Release Nos. 77744 68678 [sic] (April 29, 
2016), 81 FR 14906 (March 18, 2016) (SR-MSRB-2016-04) (approving 
proposed amendments to MSRB Rules G-12 and G-15 to define regular-
way settlement for municipal securities transactions as occurring on 
a two-day settlement cycle and technical conforming amendments).
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Proposed Rule Change
    The Exchange proposes the following new rules identified with the 
modifier ``T'' in order to reflect a T+2 settlement cycle. Except for 
changes reflecting the shortened settlement period, the proposed rules 
are the same as their current counterparts:
     Current Rule 14(a)(i)--Equities defines non-regular way 
settlement instructions as instructions that allow for settlement other 
than regular way, that is, ``settlement on the third business day 
following trade date for securities other than U.S. Government 
Securities''. The Exchange proposes a new Rule 14T--Equities that 
replaces ``third'' business day with ``second'';
     Current Rule 64(a)--Equities defines ``regular way'' as 
``for delivery on the third business day following the day of the 
contract.'' The Exchange proposes new Rule 64T(a)--Equities

[[Page 96144]]

that changes ``third'' business day to ``second.'' Current Rule 64--
Equities (a)(ii) provides that on the second and third business days 
preceding the final day for subscription, bids and offers in rights to 
subscribe shall be made only ``next day.'' To conform with the move to 
a T+2 settlement cycle, proposed Rule 64T(a)(ii)--Equities would not 
contain a clause referring to the second and third business days 
preceding the final day for subscription because the third business day 
preceding the final day for subscription in a T+2 settlement cycle 
would simply be a regular way settlement. Finally, current Rule 64(c)--
Equities requires ``seller's option'' trades, defined as trades for 
delivery between two and 60 business days, to be reported to the tape 
only in calendar day. Proposed Rule 64T(c)--Equities would define 
``seller's option'' trades as trades for delivery between three and 60 
business days to reflect the shortened settlement period. Further, the 
final sentence of the current Rule provides that the settlement date of 
a ``seller's option'' transaction printed as calendar days cannot 
coincide with the normal three business day ``regular way'' settlement. 
In proposed Rule 64T--Equities, the Exchange would change the reference 
to ``regular way'' settlements to two business day.\11\
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    \11\ The Exchange also proposes to make several non-substantive 
changes. As reflected in proposed Rule 64T(a)(i)--Equities, italics 
would be removed from the single quote before the words ``issued'' 
and ``regular'' and a missing parenthesis added before the word 
``See'' in the second sentence of the second paragraph. Italics 
would also be removed from the single quote before the word 
``seller's'' in five places in proposed Rule 64T(c)--Equities as 
well as before the word ``regular'' in the last sentence. Finally, 
as reflected in proposed Rule 64T(a)(1), (a)(ii) and (b)--Equities, 
bold would be removed from ``(a)(i),'' ``(ii)'' and ``(b).''
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     Rule 235--Equities provides that transactions in stocks, 
except those made for ``cash'' as prescribed in Rule 14--Equities, 
shall be ex-dividend or ex-rights on the second business day preceding 
the record date fixed by the corporation or the date of the closing of 
transfer books. The Exchange proposes to adopt proposed Rule 235T--
Equities that would delete the word ``second'' so the reference would 
be to the ``business day'' preceding the record date. The current Rule 
further provides that if the record date or closing of transfer books 
occurs upon a day other than a business day, Rule 235--Equities shall 
apply for the third preceding business day. The Exchange proposes to 
change ``third preceding business day'' to ``second preceding business 
day'' in proposed Rule 235T--Equities; \12\
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    \12\ The Exchange also proposes to make non-substantive changes 
to correct punctuation in proposed Rule 235T--Equities by removing 
italics from the single quote before the word ``cash'' in two 
places.
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     Current Rule 236--Equities prescribes that ex-warrant 
trading will begin on the second business day preceding the date of 
expiration of the warrants, except that when expiration occurs on a 
non-business day, in which case it will begin on the third business day 
preceding date of expiration. The Exchange proposes to adopt proposed 
Rule 236T--Equities and change the warrant period to the business day 
preceding expiration of the warrants instead of the second business 
day. Under the proposed Rule, when warrant expiration occurs on other 
than a business day, the ex-warrant period will begin on the second 
business day preceding the expiration date instead of on the third 
business day; \13\
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    \13\ The Exchange also proposes to make non-substantive changes 
to correct punctuation in proposed Rule 236T--Equities by removing 
italics from the single quote before the word ``cash'' in two 
places.
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     Current Rule 257--Equities prescribes the time frame for 
delivery of dividends or rights for securities sold before the ``ex'' 
date but delivered after the record date. The current time frame is 
within three days after the record date. Consistent with the T+2 
initiative, proposed Rule 257T--Equities the time frame is being 
shortened to two days; \14\
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    \14\ The Exchange also proposes to make non-substantive changes 
to correct punctuation in proposed Rule 257T--Equities by removing 
italics from the single quote before the word ``Ex'' in the heading 
and the word ``cash'' in the rule text.
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     Subdivision (1)(A) of Supplementary Material .65 to 
current Rule 282--Equities sets forth the fail-to-deliver and liability 
notice procedures where a securities contract is for warrants, rights, 
convertible securities or other securities which have been called for 
redemption; are due to expire by their terms; are the subject of a 
tender or exchange offer; or are subject to other expiring events such 
as a record date for the underlying security and the last day on which 
the securities must be delivered or surrendered is the settlement date 
of the contract or later.
    Under current Rule 282.65(1)(A)--Equities, the receiving member 
organization delivers a liability notice to the delivering member 
organization as an alternative to the close-out procedures set forth in 
the Rule. The liability notice sets a cutoff date for the delivery or 
surrender of the securities and provides notice to the delivering 
member organization of the liability attendant to its failure to 
deliver or surrender the securities in time. If the delivering member 
organization delivers or surrenders the securities in response to the 
liability notice, it has met its delivery obligation. If the delivering 
member organization fails to deliver or surrender the securities on the 
expiration date, it will be liable for any damages that may accrue 
thereby.
    Current Rule 282.65(1)(A)--Equities further provides that when the 
parties to a contract are both participants in a Qualified Clearing 
Agency that has an automated service for notifying a failing party of 
the liability that will be attendant to a failure to deliver, the 
transmission of the liability notice must be accomplished through such 
automated notification service. When the parties to a contract are not 
both participants in a Qualified Clearing Agency \15\ that has an 
automated service for notifying a failing party of the liability that 
will be attendant to a failure to deliver, such notice must be issued 
using written or comparable electronic media having immediate receipt 
capabilities no later than one business day prior to the latest time 
and the date of the offer or other event in order to obtain the 
protection provided by this Rule.\16\
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    \15\ Rule 180--Equities governs failure to deliver and provides 
in part that ``[w]hen the parties to a contract are both 
participants in a registered clearing agency which has an automated 
service for notifying a failing party of the liability that will be 
attendant to a failure to deliver and that contract was to be 
settled through the facilities of said registered clearing agency, 
the transmission of the liability notification must be accomplished 
through use of said automated notification service.'' Rule 180--
Equities does not address the transmission of the liability 
notification for parties to a contract that are not both 
participants in a registered clearing agency, which is governed by 
Rule 282.65--Equities.
    \16\ The one-day time frame also appears in comparable 
provisions of other SROs. See, e.g., FINRA Rule 11810(j)(1)(A); NSCC 
Rules & Procedures, Procedure X (Execution of Buy-Ins) (Effective 
August 10, 2016); and Nasdaq Rule IM-11810 (Buying-in).
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    Given the proposed shortened settlement cycle, and in order to 
address concerns that the requirement for the delivering member 
organization to deliver a liability notice to the receiving member no 
later than one business day prior to the latest time and the date of 
the offer or other event in order to obtain the protection provided by 
the Rule may no longer be appropriate in a T+2 environment,\17\ the 
Exchange

[[Page 96145]]

proposes to amend Rule 282.65(1)(A)--Equities in situations where both 
parties to a contract are not participants of a registered clearing 
agency with an automated notification service by extending the time 
frame for delivery of the liability notice. Rule 282.65(1)(A)--Equities 
would accordingly be amended to provide that in such cases, the 
receiving member organization must send the liability notice to the 
delivering member organization as soon as practicable but not later 
than two hours prior to the cutoff time set forth in the instructions 
on a specific offer or other event to obtain the protection provided by 
the Rule. The proposed change would be the only change to the text of 
current Supplementary Material .65;
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    \17\ See, e.g., Letter from Thomas F. Price, Managing Director, 
Operations, Technology & BCP, Securities Industry and Financial 
Markets Association, to Marcia E. Asquith, Corporate Secretary, 
FINRA, dated April 4, 2016 (``SIFMA'') (April 4, 2016), noting in 
connection with FINRA Rule 11810(j), the comparable provision to 
Rule 282.65(1)(A)--Equities, that the ``industry has identified a 
number of situations where one-day notice may no longer be 
appropriate in a T+2 environment, including (1) where the delivery 
obligation is transferred to another party as a result of continuous 
net settlement, (2) settlements outside of National Securities 
Clearing Corporation (the ``NSCC'') and (3) settlements where the 
third party is not a[n NYSE MKT] member.''
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     Current Sec. 510 of the Company Guide provides that all 
transactions effected on the Exchange (unless otherwise specified) will 
be settled in three business days and that a ``regular way'' 
transaction is due for settlement by delivery of the securities against 
payment on the third business day after the transaction date. To 
reflect the change to a two day delivery rule, proposed Sec. 510T would 
change both references from three business days to two business days. 
Additionally, current Sec. 510 provides an example of the delivery plan 
for ex-dividend and ex-rights, and states that a ``regular way'' 
transaction made on a Friday is due for settlement on Wednesday of the 
following week and that a transaction on Monday is due for settlement 
on Thursday. To reflect the change to a two day delivery rule, proposed 
Sec. 510T would change the Wednesday to Tuesday and Thursday to 
Wednesday in the example; and
     Current Sec. 512 of the Company Guide provides that 
transactions in stocks (except those made for ``cash'') are ex-dividend 
on the second business day preceding the record date unless the record 
date selected is not a business day, in which case the stock will be 
quoted ex-dividend on the third preceding business day. Consistent with 
the T+2 initiative, proposed Sec. 512 would shorten the time frames to 
the business day preceding the record date and in cases where the 
record date is not a business day, the second preceding business day.
Operative Date Preambles
    As noted above, because the Exchange would not implement the 
proposed rules until after the final implementation of T+2, the 
Exchange proposes to retain the current versions of each rule on its 
books and not delete them until after the proposed rules are approved. 
The Exchange also proposes to file separate proposed rule changes as 
necessary to establish the operative date of the proposed rules and to 
delete the current version of each rule.
    To reduce the potential for confusion regarding which version of a 
given rule governs, the Exchange proposes to add a preamble to each 
current rule providing that: (1) The rule will remain operative until 
the Exchange files separate proposed rule changes as necessary to 
establish the operative date of the revised rule, to delete the current 
rule and proposed preamble, and to remove the preamble text from the 
revised rule; and (2) in addition to filing the necessary proposed rule 
changes, the Exchange will announce via Information Memo the operative 
date of the deletion of the current rule and implementation of the 
proposed rule designated with a T.
    The Exchange also proposes to add a preamble to each proposed rule 
that would provide that: (1) The Exchange will file a separate rule 
change to establish the operative date of the proposed rule, delete the 
current version and the proposed preamble, and remove the preamble text 
from the revised rule; and (2) until such time, the current version of 
the rule will remain operative and that, in addition to filing the 
necessary proposed rule changes, the Exchange will announce via 
Information Memo the implementation of the proposed rule and the 
operative date of the deletion of the current rule.
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 prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and 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.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that the proposed rule change 
supports the industry-led initiative to shorten the settlement cycle to 
two business days. Moreover, the proposed rule change is consistent 
with the SEC's proposed amendment to SEA Rule 15c6-1(a) to require 
standard settlement no later than T+2. The Exchange believes that the 
proposed rule change will provide the regulatory certainty to 
facilitate the industry-led move to a T+2 settlement cycle. Further, 
the Exchange believes that, by shortening the time period for 
settlement of most securities transactions, the proposed rule change 
would protect investors and the public interest by reducing the number 
of unsettled trades in the clearance and settlement system at any given 
time, thereby reducing the risk inherent in settling securities 
transactions to clearing corporations, their members and public 
investors. The Exchange also believes that adding a preamble to each 
current rule and to each proposed rule clarifying the operative dates 
of the respective versions would remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
adding clarity and transparency to the Exchange's rules, reducing 
potential confusion, and making the Exchange's rules easier to 
navigate.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed change is not 
designed to address any competitive issue but rather facilitate the 
industry's transition to a T+2 regular-way settlement cycle. The 
Exchange also believes that the proposed rule change will serve to 
promote clarity and consistency, thereby reducing burdens on the 
marketplace and facilitating investor protection. Moreover, the 
proposed rule changes are consistent with the SEC's proposed amendment 
to SEA Rule 15c6-1(a) to require standard settlement no later than T+2. 
Accordingly, the Exchange believes that the proposed changes do not 
impose any burdens on the industry in addition to those necessary to 
implement amendments to SEA Rule 15c6-1(a) as described and enumerated 
in the SEC Proposing Release.\20\
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    \20\ See note 9, supra.

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[[Page 96146]]

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEMKT-2016-119 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEMKT-2016-119. 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 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 
10:00 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; 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-NYSEMKT-2016-119, and should 
be submitted on or before January 19, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31473 Filed 12-28-16; 8:45 am]
 BILLING CODE 2011-01-P