[Federal Register Volume 83, Number 47 (Friday, March 9, 2018)]
[Notices]
[Pages 10530-10533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-04713]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82804; File No. SR-NYSE-2017-53]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Amend the Listed Company Manual for Special 
Purpose Acquisition Companies To Lower the Initial Holders Requirement 
From 300 to 150 Round Lot Holders and To Eliminate Completely the 300 
Public Stockholders Continued Listing Requirement, To Require at Least 
$5 Million in Net Tangible Assets for Initial and Continued Listing, 
and To Impose a 30-Day Deadline To Demonstrate Compliance With Certain 
Initial Listing Requirements Following a Business Combination

March 5, 2018.

I. Introduction

    On November 16, 2017, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend the listing requirements for Special 
Purpose Acquisition Companies (``SPACs'') \3\ by reducing the number of 
round lot holders required for initial listing from 300 to 150 and 
eliminating the continued listing requirement for a minimum number of 
holders, which is also currently 300, that applies until a SPAC 
completes one or more business combinations.\4\ NYSE also proposes to 
require that a SPAC maintain at least $5 million in net tangible assets 
for initial and continued listing. NYSE is proposing to allow companies 
30 days to demonstrate compliance with the applicable holder 
requirements of Section 102.01A in the Listed Companies Manual 
(``Manual'') following a business combination.\5\ Finally, the NYSE 
proposes to eliminate certain alternative initial listing distribution 
criteria for SPACs that list in connection with a transfer or 
quotation.\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission notes that throughout this order we have used 
the term ``SPAC'' or ``SPACs.'' These terms have the same meaning as 
an ``Acquisition Company'' or ``AC'' which is the term used by NYSE 
in its current rules and the proposed rule filing.
    \4\ See Section 102.06 of the Listed Company Manual, and infra 
note 11, and accompanying text, which describes the requirements for 
the value of the business combination(s).
    \5\ Id.
    \6\ See Section 102.06 of the Manual.
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    The proposed rule change was published for comment in the Federal 
Register on December 6, 2017.\7\ On January 18, 2018, the Commission 
extended the time period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to approve or disapprove the proposed rule change, 
to March 6, 2018.\8\ The Commission received two comments on the 
proposal.\9\ This order institutes proceedings under Section 
19(b)(2)(B) of the Act to determine whether to approve or disapprove 
the proposal.
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    \7\ See Securities Exchange Act Release No. 82180 (November 30, 
2017), 82 FR 57632 (``Notice'').
    \8\ See Securities Exchange Act Release No. 82531, (January 19, 
2018), 83 FR 3371 (``Extension'').
    \9\ See Letters to Brent J. Fields, Secretary, Commission, from 
Michael Kitlas, dated November 30, 2017 (``Kitlas Letter'') and 
Jeffrey P. Mahoney, General Counsel, Council of Institutional 
Investors, dated December 20, 2017 (``CII Letter'').
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II. Description of Proposal

A. Background on SPACs

    A SPAC is a special purpose company whose business plan is to raise 
capital in an initial public offering (``IPO'') and, within a specific 
period of time, engage in a merger or acquisition with one or more 
unidentified companies. Among other things, a SPAC must keep 90% of the 
gross proceeds of its IPO in an escrow account through the date of a 
business combination.\10\ The SPAC must complete one or more business 
combinations, having an aggregate market value of at least 80% of the 
value of the deposit account at the time of the agreement to enter into 
the initial combination, within 36 months of the effectiveness of the 
IPO registration statement.\11\ Additionally, shareholders who object 
to a business combination have the right to convert their common stock 
into a pro rata share of the funds held in escrow.\12\ Following each 
business combination the combined company must meet the Exchange's 
requirements for initial listing of an operating company, including the 
requirement to maintain a minimum of 300 holders.\13\
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    \10\ See Section 102.06 of the Manual.
    \11\ Id. Amounts disbursed to management for working capital 
purposes and any deferred underwriter fees are excluded when 
calculating the 80% value of the deposit account.
    \12\ See Sections 102.06(b) and 102.06(c) of the Manual. If a 
shareholder vote is taken however, under Section 102.06(b) of the 
Manual, the right of shareholders voting against a business 
combination to redeem their shares for cash may be subject to a 
limit established by the SPAC (that can be set no lower than 10% of 
the shares sold in the IPO).
    \13\ See Sections 102.06 and 802.01B(ii) of the Manual.
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B. Description of Proposed Changes to SPAC Listing Standards

    The Exchange has proposed to reduce the number of round lot holders 
required for SPACs initially listing on the Exchange from 300 to 
150.\14\ The Exchange also proposed to completely eliminate the current 
continued listing requirement that there be a minimum of 300 holders 
until such time as the SPAC completes one or more business 
combinations.\15\ In support of this proposal, as set forth in more 
detail in the Notice, the Exchange states that SPACs often have 
difficulty demonstrating compliance with these initial and continued 
listing standards. Based on conversations with market participants, 
NYSE believes this is due to the unique nature of SPACs which limits 
the number of interested retail investors and encourages owners to hold 
their shares until an acquisition is announced, which can be as long as

[[Page 10531]]

three years after the IPO.\16\ NYSE believes that these same features 
limit the benefit to investors of having a holder requirement, the 
purpose of which, according to NYSE, is ``to help ensure that a 
security has a sufficient number of investors to provide a liquid 
trading market.'' \17\ Among other things, NYSE asserted that because 
``the price of [a SPAC] is based primarily on the value of the funds it 
holds in trust, and the [SPAC] shareholders have the right to redeem 
their shares for a pro rata share of that trust in conjunction with the 
Business Combination, the impact of the number of shareholders on [a 
SPAC] security's price is less relevant than is the case for operating 
company common stocks.'' \18\ For these reasons, NYSE states that 
``[SPACs] historically trade close to the value in the trust, even when 
they have had few shareholders'' and that these ``trading patterns 
suggest that [SPACs'] low number of shareholders has not resulted in 
distorted prices.'' \19\ NYSE also notes, that ``it can be difficult 
for a company, once listed, to obtain evidence demonstrating the number 
of its shareholders because many accounts are held in street name'' and 
that this process ``is particularly burdensome for [SPACs] because most 
operating expenses are typically borne by the [SPAC's] sponsors due to 
the requirement that the gross proceeds of the initial public offering 
remain in the trust account until the closing of the business 
combination.'' \20\
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    \14\ See proposed Section 102.06 of the Manual, in Exhibit 5 to 
NYSE-2017-53.
    \15\ See proposed Section 802.01B(ii) of the Manual in Exhibit 5 
to NYSE-2017-53. Section 802.01B of the Manual currently requires at 
least 300 public stockholders for continued listing. ``Public 
stockholders'' are defined to exclude holders that are directors, 
officers, or their immediate families and holders of other 
concentrated holdings of 10% or more. See Section 802.01B(ii) of the 
Manual.
    \16\ See Notice at 57633.
    \17\ Id.
    \18\ Id. See also, supra note 12, and accompanying text, that 
refer to possible limits on the amount of shares that can be 
redeemed on a pro rata basis.
    \19\ Id.
    \20\ Id.
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    The Exchange also proposed to add a new requirement for SPACs to 
list, and remain listed, that would require SPACs to maintain at least 
$5 million in net tangible assets.\21\ This requirement is being 
proposed by NYSE as an alternative exception to the Commission's penny 
stock rule, Rule 3a51-1 under the Act, because NYSE's proposed changes 
to the minimum number of holders would result in SPACs listed on NYSE 
no longer qualifying for the current penny stock rule exception that 
requires listed companies to have 300 round lot holders.\22\ The $5 
million net tangible assets requirement is an alternative exception to 
the penny stock rule. As of the date the Exchange filed its proposal, 
(November 16, 2017) the Exchange stated that ``all [SPACs] currently 
listed satisfy this alternative.'' \23\ If a SPAC does not meet the net 
tangible assets requirement then it would be subject to immediate 
suspension and the delisting procedures set forth in Section 804 of the 
Manual and would not be eligible to follow the procedures outlined in 
Sections 802.02 and 802.03 of the Manual.\24\
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    \21\ Net Tangible Assets is defined as total assets less 
intangible assets and liabilities. See proposed Section 102.06 of 
the Manual.
    \22\ Rule 15g-1 through 15-9 under the Act impose certain 
disclosure and additional requirements on brokers and dealers when 
effecting transactions in penny stocks. See 17 CFR 240.15g-1 to 15g-
9. Rule 3a51-1 includes an exception from the definition of penny 
stock for securities registered on a national securities exchange 
that has initial listing standards, among others, that requires at 
least 300 round lot holders. Rule 3a51-1 also has an exception from 
the penny stock definition if a company has $5 million in net 
tangible assets. See 17 CFR 240.3a51-1(a) and 17 CFR 240.3a51-1(g).
    \23\ See Notice at 57634.
    \24\ Id.
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    Finally, the Exchange proposed to allow a company 30 days to 
demonstrate that it is has met the holder requirement following a 
business combination. The Exchange noted that, under its existing 
rules, following a SPAC business combination, the resulting company 
must satisfy all initial listing requirements, including the minimum 
number of shareholders as set forth in Section 102.01A of the 
Manual.\25\ According to the Exchange, the proposed additional 30 days 
for a post business combination SPAC to demonstrate compliance with the 
holder requirement is intended to address delays related to obtaining 
information about the number of shareholders holding shares in `street 
name' accounts.\26\ If the SPAC has not demonstrated that it meets the 
holder requirement within 30 days following a business combination, 
then the SPAC would be subject to immediate suspension and delisting 
procedures set forth in Section 804 of the Manual.\27\
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    \25\ See Notice at 57634. See also Section 802.01B(iv) of the 
Manual.
    \26\ See Notice at 57634
    \27\ A SPAC not meeting this requirement would not be eligible 
to follow the procedures outlined in Sections 802.02 and 802.03 of 
the Manual. See Notice at 57634.
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III. Summary of Comments

    The Commission received two comment letters on the proposal.\28\ 
One commenter stated that the proposed rule change is consistent with 
the Act.\29\ The other commenter stated that it did not support the 
proposed rule change, noting that ``it does not provide sufficient 
information for us to make a determination as to whether our members 
and the capital markets would benefit from the proposed rule changes.'' 
\30\
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    \28\ See supra note 9.
    \29\ See Kitlas Letter (stating, in full, ``[t]he proposed rule 
change is consistent with the Act.'').
    \30\ See CII Letter at 1.
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    This commenter believed more evidence was necessary in several 
areas to support the proposed changes including: (1) The assertion that 
price distortions or illiquidity are a lesser concern for SPACs; (2) 
the assertion that SPACs trade close to the redemption value of the 
assets held in trust; (3) the number of companies constrained by 
existing listing standards; (4) the difficulties demonstrating 
compliance with determining the number of shareholders, including the 
frequency and length of delays; and (5) why having more listed SPACs 
would benefit investors or the capital markets.\31\
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    \31\ See CII Letter at 2-3.
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    Further, the commenter raised questions regarding the necessity and 
operation of the proposed $5 million net tangible assets requirement 
and the lack of monitoring SPACs that no longer meet the penny stock 
rules.\32\ The commenter also raised speculation that the lack of 
evidence in support of this proposal closely mirrors a similar proposal 
by NASDAQ Stock Market LLC (``Nasdaq'').\33\ This commenter stated 
that, ``we believe it is a mistake for NYSE to follow the actions of 
other exchanges in an effort to compete based on reduced standards 
around public listings.'' \34\
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    \32\ See CII Letter at 3.
    \33\ See CII Letter at 4. See also Securities Exchange Act 
Release No. 81816 (October 4, 2017), 82 FR 47269 (October 11, 2017) 
(``Nasdaq Proposal'') and Securities Exchange Act Release No. 82478 
(January 9, 2018), 83 FR 2278 (January 16, 2018) (``Nasdaq Order 
Instituting Proceedings'').
    \34\ See CII Letter at 4.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2017-53 and Ground for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act to determine whether the proposal should be 
approved or disapproved.\35\ Institution of such proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the proposal, as discussed below. Institution of disapproval 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved.
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    \35\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis and input

[[Page 10532]]

concerning the proposed rule change's consistency with the Act \36\ 
and, in particular, with Section 6(b)(5) of the Act, which requires, 
among other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.\37\
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    \36\ 15 U.S.C. 78f(b)(5).
    \37\ Id.
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    The Commission has consistently recognized the importance of the 
minimum number of holders and other similar requirements in exchange 
listing standards.\38\ Among other things, such listing standards help 
ensure that exchange listed companies have sufficient public float, 
investor base, and trading interest to provide the depth and liquidity 
necessary to promote fair and orderly markets.\39\
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    \38\ For example, the Commission has repeatedly stated in 
approving exchange listing requirements, including NYSE's original 
SPAC listing standards, that the development and enforcement of 
adequate standards governing the listing of securities on an 
exchange is an activity of critical importance to financial markets 
and the investing public. See e.g., Securities Exchange Act Release 
No. 57785 (May 6, 2008), 73 FR 27597 (May 13, 2008) (stating also 
that the distribution standards, which include exchange holder 
requirements, ``. . . should help to ensure that the [SPACs] 
securities have sufficient public float, investor base, and 
liquidity to promote fair and orderly markets''); Securities 
Exchange Act Release No. 58228 (July 25, 2008), 73 FR 44794 (July 
31, 2008).
    \39\ Id. The Commission has further stated that once a security 
has been approved for initial listing, maintenance criteria allow an 
exchange to monitor the status and trading characteristics of that 
issue to ensure that it continues to meet the exchange's standards 
for market depth and liquidity so that fair and orderly markets can 
be maintained. See e.g., Securities Exchange Act Release No. 57785 
(May 6, 2008), 73 FR 27597 (May 13, 2008) also stating that the 
continued listing standards for SPACs, which include the holder 
requirements, protect investors and promote fair and orderly 
markets.
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    NYSE proposes to lower the minimum number of holders required for 
initial listing of a SPAC from 300 to 150, and to eliminate the 
continued listing requirement to have a minimum number of holders until 
the SPAC completes a business combination. In support of its proposal, 
NYSE asserts that SPACs often have difficulty demonstrating compliance 
with the minimum number of holders requirements because many accounts 
are held in street name, so that this information must be obtained from 
broker-dealers and other third parties. NYSE states that this effort is 
particularly burdensome for SPACs because most of the expenses incurred 
in determining the number of holders must be borne by the SPAC's 
sponsors. The Commission notes that the vast majority of shares of most 
listed companies are held in street name, and it is not clear from 
NYSE's proposal how the burdens on SPACs in determining the number of 
holders are different than for listed companies generally, other than 
the fact that the SPAC's sponsor bears most of the costs. In addition, 
as noted by a commenter, it is not clear from NYSE's proposal the 
extent to which SPACs actually have had difficulties complying with the 
existing minimum number of holders requirements.\40\
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    \40\ See CII Letter at 2.
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    NYSE also takes the position that the benefits of the minimum 
number of holders requirements are less with SPACs because their value 
is based primarily on the value of the funds held in trust. NYSE notes 
that SPACs historically have traded close to the value of the funds 
held in trust, and concludes that a lack of shareholders has not 
resulted in distorted prices and the associated concerns. The 
Commission, however, does not believe it is clear from NYSE's proposal 
how these historic trading patterns bear on the role of the minimum 
number of holders requirements in maintaining fair and orderly markets, 
particularly since NYSE's observations were made while the current 
minimum number of holder requirements were in place.
    Finally, NYSE proposes to allow a listed SPAC 30 days following a 
business combination to demonstrate compliance with the initial holder 
requirement. NYSE states that, following a SPAC's business combination, 
the resulting company must meet all initial listing requirements for 
operating companies, including the requirement to have a minimum of 300 
holders. The Commission notes that initial listing standards, absent an 
explicit exception, apply upon initial listing. Further, the Commission 
notes that, because the same number of holders today (i.e., 300) 
applies to SPACs listed on NYSE before and after a business 
combination,\41\ the issue of a post-combination transition period has 
not been raised. NYSE proposes to eliminate the continued listing 
requirement for SPACs, so that a listed SPAC with very few holders may 
need to have at least 300 holders a short time after a business 
combination. The Commission does not believe it is clear from NYSE's 
proposal that such a structure is workable, or how a listed SPAC would 
ensure it is in a position to sufficiently increase its number of 
holders.
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    \41\ The Commission recognizes that the initial holder 
requirement is 300 round lot holders while the continued listing 
requirement is 300 public shareholders. Therefore, when a SPAC 
transitions to listing as an operating company after a business 
combination, it should have at least 300 public shareholders, many 
of which may also be round lot holders.
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V. Commission's Solicitation of Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5), or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\42\
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    \42\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975), 
grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Act Amendments of 
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 
75, 94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by March 30, 2018. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by April 13, 
2018. The Commission asks that commenters address the sufficiency of 
the Exchange's statements in support of the proposal which are set 
forth in the Notice, in addition to any other comments they may wish to 
submit about the proposed rule change. In particular, the Commission 
seeks comment, including where relevant, any specific data, statistics, 
or studies, on the following:
    1. Would the proposal ensure that a sufficient liquid market exists 
for the shares of SPACs on the Exchange? Why or why not?
    2. Without any continued listing holder requirement, would the 
shares of SPACs still trade close to their redemption value, as the 
Exchange has

[[Page 10533]]

stated? If yes, would that trading pattern continue after an 
announcement of a business combination?
    3. Without any continued listing holder requirement, could shares 
of SPACs be more prone to manipulation, either post-IPO or at the time 
of the business combination announcement (but before consummation of 
the business combination)?
    4. Has the Exchange demonstrated with specific data, analysis, and 
studies that the shares of SPACs trade consistently as stated in the 
proposal, and does the analysis support the proposed reductions in the 
holder initial and continued listing standards? If not, what data 
should be reviewed and analyzed? How many SPACs have not been able to 
meet the Exchange's initial or continued listing applicable holder 
requirements? In the Exchange's examination of SPACs that were below 
the continued public holder listing requirement, if any, how few 
holders did these SPACs have?
    5. The Exchange asserted that it is time consuming and burdensome 
for a SPAC to obtain a list of holders to demonstrate the number of 
holders, because many shares are held in street name with broker-
dealers. The Commission notes that the process of obtaining number of 
holders is similar for all listed companies. Do commenters think SPACs 
are particularly burdened by this process and the costs? Is the fact 
the costs are usually borne by the sponsors relevant?
    6. Under its proposal, should the Exchange monitor SPACS that fall 
below the $5 million net tangible assets standard to assist broker-
dealers in complying with the penny stock rules, including during any 
period when immediate suspension under Section 804.00 of the Manual has 
not been imposed?
    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-NYSE-2017-53 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-NYSE-2017-53. 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 such 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-NYSE-2017-53 and should be submitted on 
or before March 30, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-04713 Filed 3-8-18; 8:45 am]
 BILLING CODE 8011-01-P