[Federal Register Volume 84, Number 120 (Friday, June 21, 2019)]
[Notices]
[Pages 29258-29262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13123]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86122; File No. SR-NYSEArca-2019-43]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE 
Arca Equities Fees and Charges

June 17, 2019.
    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 June 3, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Equities Fees and 
Charges (``Fee Schedule'') to modify the per share credits associated 
with the Step Up Tier 4. The Exchange proposes to implement the fee 
changes effective June 3, 2019. 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.

[[Page 29259]]

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 amend the Fee Schedule to modify the per 
share credits available for ETP Holders (including Market Makers) that 
provide displayed liquidity under the Step Up Tier 4. The Exchange 
currently provides credits to ETP Holders \4\ who submit orders that 
provide displayed liquidity on the Exchange. The Exchange currently has 
multiple levels of credits for orders that provide displayed liquidity 
that are based on the amount of volume of such orders that ETP Holders 
send to the Exchange. The purpose of this proposed rule change is to 
increase the credit for providing displayed liquidity that would be 
paid to ETP Holders that qualify for the Step Up Tier 4. The Exchange 
proposes to implement the fee changes effective June 3, 2019.
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    \4\ All references to ETP Holders in connection with the Step Up 
Tier 4 include Market Makers.
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Background
    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.'' \5\
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    \5\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005)
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    As the Commission itself recognized, the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\6\ Indeed, equity trading is currently dispersed across 13 
exchanges,\7\ 32 alternative trading systems,\8\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on publicly-available information, no single exchange has more 
than 18% market share (whether including or excluding auction 
volume).\9\ Therefore, no exchange possesses significant pricing power 
in the execution of equity order flow. More specifically, in the first 
quarter of 2019, the Exchange averaged less than 9% market share of 
executed volume of equity trades.\10\
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    \6\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Final rule).
    \7\ See Cboe U.S Equities Market Volume Summary at https://markets.cboe.com/us/equities/market_share.
    \8\ See FINRA ATS Transparency Data (May 6, 2019), available at 
https://otctransparency.finra.org/otctransparency/AtsIssueData. 
Although 54 alternative trading systems were registered with the 
Commission as of April 30, 2019, only 32 are currently trading. A 
list of alternative trading systems registered with the Commission 
is available at https://www.sec.gov/foia/docs/atslist.htm.
    \9\ See Cboe Global Markets U.S. Equities Market Volume Summary 
(May 31, 2019), available at http://markets.cboe.com/us/equities/market_share/.
    \10\ Based on Cboe U.S. Equities Market Volume Summary, the 
Exchange's market share of intraday trading (excluding auctions) for 
the months of January 2019, February 2019 and March 2019 was 9.01%, 
8.33% and 9.02%, respectively.
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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 
move order flow, or discontinue or reduce use of certain categories of 
products, in response to fee changes. With respect to non-marketable 
order flow that would provide displayed liquidity on an Exchange, ETP 
Holders can choose from any one of the 13 currently operating 
registered exchanges to route such order flow. Accordingly, competitive 
forces constrain exchange transaction fees that relate to orders that 
would provide displayed liquidity on an exchange.
    In response to this competitive environment, the Exchange has 
already established Step Up Tiers 1-4, which are designed to encourage 
ETP Holders that provide displayed liquidity on the Exchange to 
increase that order flow, which would benefit all ETP Holders by 
providing greater execution opportunities on the Exchange. In order to 
provide an incentive for ETP Holders to direct providing displayed 
order flow to the Exchange, the credits increase in the various tiers 
based on increased levels of volume directed to the Exchange.
    Under the Step Up Tier 4, if an ETP Holder increases its providing 
liquidity on the Exchange by a specified percentage over the level that 
such ETP Holder provided liquidity in January 2019, it is eligible to 
earn higher credits for providing displayed liquidity. Specifically, to 
qualify for the credits under the Step Up Tier 4, an ETP Holder must 
directly execute providing average daily volume (ADV) per month that is 
an increase of no less than 0.70% of US CADV for that month over the 
ETP Holder's providing ADV in January 2019, taken as a percentage of US 
CADV.
    Currently, if an ETP Holder meets these Step Up Tier 4 
qualifications, such ETP Holder is eligible to earn a credit of:
     $0.0031 per share for orders that provide displayed 
liquidity to the Book in Tape A Securities, and
     $0.0032 per share for orders that provide displayed 
liquidity to the Book in Tape B and Tape C Securities.\11\
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    \11\ See Securities Exchange Act Release No. 85311 (March 14, 
2019), 84 FR 10348 (March 20, 2019) (SR-NYSEArca-2019-10).
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Proposed Rule Change
    With this proposed rule change, the Exchange proposes to increase 
the credits available for ETP Holders that qualify for the Step Up Tier 
4 as follows:
     $0.0033 per share for orders that provide displayed 
liquidity to the Book in Tape A Securities;
     $0.0034 per share for orders that provide displayed 
liquidity to the Book in Tape B Securities; and
     $0.0033 per share for orders that provide displayed 
liquidity to the Book in Tape C Securities.
    The Exchange is not proposing to change any of the requirements to 
qualify for the Step Up Tier 4.
    With this proposed rule change, the following credits would be 
available to ETP Holders that provide increased levels of displayed 
liquidity on the Exchange:

------------------------------------------------------------------------
                                         Credit for providing  displayed
                  Tier                               liquidity
------------------------------------------------------------------------
Step Up Tier...........................  $0.0030 (Tape A).
                                         $0.0023 (Tape B).
                                         $0.0031 (Tape C).
Step Up Tier 2.........................  $0.0028 (Tape A and C).
                                         $0.0022 (Tape B).
Step Up Tier 3.........................  $0.0025 (Tape A and C).
                                         $0.0022 (Tape B).
Step Up Tier 4.........................  $0.0033 (Tape A and C).
                                         $0.0034 (Tape B).
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    The goal of the proposed change to the Step Up Tier 4 pricing tier 
is to incentivize ETP Holders to increase the orders sent to the 
Exchange that would provide displayed liquidity, which would support 
the quality of price discovery on the Exchange and promote market 
transparency. This tier is available to all ETP Holders. However, to 
date, not one ETP Holder has qualified for the Step Up Tier 4.
    The Exchange proposes to increase the credits available under the 
established Step Up Tier 4 to provide an incentive for ETP Holders to 
send order flow to qualify for this tier. As noted above, the Exchange 
operates in a competitive environment, particularly as it relates to 
attracting displayed providing liquidity. Because the Step Up Tier 4 
pricing tier has a singular

[[Page 29260]]

requirement for ETP Holders, i.e., providing an increased liquidity 
over that ETP Holder's baseline providing volume, the Exchange believes 
that the proposed increased credits would provide an incentive for ETP 
Holders to route additional displayed providing liquidity to the 
Exchange to qualify for the higher credit.
    The proposed changes are not otherwise intended to address any 
other issues, and the Exchange is not aware of any significant problems 
that market participants would have in complying with the proposed 
changes.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\12\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed rule change provides for 
the equitable allocation of reasonable dues and fees and is not 
unfairly discriminatory for the following reasons.
    As noted above, the Exchange operates in 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. Specifically, 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.'' \14\
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    \14\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
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    As the Commission itself recognized, the market for trading 
services in NMS stocks has become ``more fragmented and competitive.'' 
\15\ Indeed, equity trading is currently dispersed across 13 
exchanges,\16\ 32 alternative trading systems,\17\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on publicly-available information, no single exchange has more 
than 18% market share (whether including or excluding auction 
volume).\18\ Therefore, no exchange possesses significant pricing power 
in the execution of equity order flow. More specifically, in the first 
quarter of 2019, the Exchange averaged less than 9% market share of 
executed volume of equity trades (excluding auction volume).\19\ 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 to reduce use of certain categories of 
products, in response to fee changes. Accordingly, competitive forces 
constrain exchange transaction fees. Stated otherwise, changes to 
exchange transaction fees can have a direct effect on the ability of an 
exchange to compete for order flow.
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    \15\ See Securities Exchange Act Release No. 51808, 84 FR 5202, 
5253 (February 20, 2019) (File No. S7-05-18) (Final rule).
    \16\ See Cboe U.S. Equities Market Volume Summary at https://markets.cboe.com/us/equities/market_share.
    \17\ See FINRA ATS Transparency Data (May 6, 2019), available at 
https://otctransparency.finra.org/otctransparency/AtsIssueData. 
Although 54 alternative trading systems were registered with the 
Commission as of April 30, 2019, only 32 are currently trading. A 
list of alternative trading systems registered with the Commission 
is available at https://www.sec.gov/foia/docs/atslist.htm.
    \18\ See Cboe Global Markets U.S. Equities Market Volume Summary 
(May 31, 2019), available at http://markets.cboe.com/us/equities/market_share/.
    \19\ Based on Cboe U.S. Equities Market Volume Summary, the 
Exchange's market share of intraday trading (excluding auctions) for 
the months of January 2019, February 2019 and March 2019 was 9.01%, 
8.33% and 9.02%, respectively.
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    The Exchange believes the proposed change is reasonable because the 
higher credits under the Step Up Tier 4 would continue to allow ETP 
Holders that meet the requirement of the pricing tier to receive 
increased per share credits. As noted above, the Exchange operates in a 
highly competitive environment, particularly for attracting order flow 
that provides displayed liquidity on an exchange. The Exchange believes 
it is reasonable to continue to provide a higher credit for orders that 
provide displayed liquidity if an ETP Holder meets the qualification 
for the Step Up Tier 4. Because no ETP Holder to date has qualified for 
the Step Up Tier 4, the Exchange believes the proposed increased 
credits are reasonable as they would provide an additional incentive 
for ETP Holders to qualify for this established tier and direct their 
order flow to the Exchange and provide meaningful added levels of 
displayed liquidity, thereby contributing to the depth and market 
quality on the Exchange. The proposed increased credits would also 
enable the Exchange to compete for order flow.
    As noted above, no ETP Holder currently qualifies for the Step Up 
Tier 4 pricing tier. Without having a view of ETP Holders' activity on 
other markets and off-exchange venues, the Exchange has no way of 
knowing whether this proposed rule change would result in any ETP 
Holders qualifying for this tier. However, the Exchange believes the 
proposed higher credits would provide an incentive for ETP Holders to 
submit additional adding liquidity to qualify for the higher credits.
    The Exchange believes that the proposed increased credit is 
equitable and not unfairly discriminatory because the magnitude of the 
additional credit is not unreasonably high in comparison to the credit 
paid with respect to other pricing tiers noted in the table above, and 
in comparison to the credits paid by other exchanges for orders that 
add liquidity. For example, ETP Holders that meet the requirement under 
Tier 1 currently receive credits of $0.0031 per share in Tape A 
securities, $0.0023 per share in Tape B securities, and $0.0032 per 
share in Tape C Securities. ETP Holders that do not qualify for any of 
the Exchange's tiers currently receive a credit of $0.0020 per share in 
all tapes, and would continue to receive such credit for adding 
liquidity.
    With respect to credits paid by other exchanges, the Cboe BZX 
Exchange, Inc. (``BZX'') provides its members that have an adding ADV 
of 1.25% or more of US CADV a credit of $0.0032 per share for adding 
liquidity.\20\ Additionally, the Nasdaq Stock Market LLC (``Nasdaq'') 
provides a credit of $0.00305 per share for orders that add liquidity 
on that market for members that have greater than 1.25% add of US CADV. 
However, Nasdaq members can receive additional credits, as follows:
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    \20\ See BZX Fee Schedule, Footnote 1, Add Volume Tiers, Tier 6, 
at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
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     An additional credit of $0.0002 per share by meeting the 
requirements of Nasdaq's Qualified Market Maker Program;
     An additional credit of $0.0001 per share in Tape B 
securities by having greater than 0.10% added in Tape B securities of 
Tape B CADV; and
     An additional credit of $0.00005 per share in Tape B 
securities by having greater than 1.75% added of US CADV of which 0.60% 
or greater is in Tape B securities.
    Nasdaq members meeting all of the above requirements would receive 
a combined credit of $0.00325 per share in Tape A and Tape C 
securities, and $0.0034 per share in Tape B securities.\21\
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    \21\ See https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2.

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[[Page 29261]]

    The Exchange believes it is not unfairly discriminatory to provide 
increased per share credits as the proposed increased credits would be 
provided on an equal basis to all ETP Holders that add liquidity by 
meeting the Step Up Tier 4 requirement. Further, the Exchange believes 
the proposed increased per share credits would incentivize ETP Holders 
that meet the current Tier 1 requirement and send more of their orders 
to the Exchange to qualify for increased credits. The proposed 
increased per share credits would apply equally to all ETP Holders as 
each would be required to execute providing ADV per month that is an 
increase of no less than 0.70% of US CADV over their January baseline 
taken as a percentage of US CADV, regardless of whether an ETP Holder 
currently meets the requirement of another pricing tier.
    The Exchange believes that recalibrating the credits for providing 
liquidity will continue to attract order flow and liquidity to the 
Exchange, thereby contributing to price discovery on the Exchange and 
benefiting investors generally.
    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.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\22\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed changes would encourage the submission of additional 
liquidity to a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution opportunities 
for ETP Holders. 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.'' \23\
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    \22\ 15 U.S.C. 78f(b)(8).
    \23\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow to the Exchange. The Exchange believes that the 
proposed increased credits would continue to incentivize market 
participants to direct providing displayed order flow to the Exchange. 
Greater liquidity benefits all market participants on the Exchange by 
providing more trading opportunities and encourages ETP Holders, to 
send orders, thereby contributing to robust levels of liquidity, which 
benefits all market participants. The proposed credits would be 
available to all similarly-situated market participants, and, as such, 
the proposed change would not impose a disparate burden on competition 
among market participants on the Exchange.
    Intermarket Competition. The Exchange operates in a highly 
competitive market in which market participants can readily choose to 
send their orders to other exchange and off-exchange venues if they 
deem fee levels at those other venues to be more favorable. The 
Exchange notes that for the months of January 2019, February 2019 and 
March 2019, the Exchange's market share of intraday trading (excluding 
auctions) was 9.01%, 8.33% and 9.02%, respectively.\24\ In such an 
environment, the Exchange must continually adjust its fees and rebates 
to remain competitive with other exchanges and with off-exchange 
venues. Because competitors are free to modify their own fees and 
credits in response, and because market participants may readily adjust 
their order routing practices, the Exchange does not believe its 
proposed fee change can impose any burden on competition.
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    \24\ See note 10, supra.
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    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar order types and comparable 
transaction pricing, by encouraging additional orders to be sent to the 
Exchange for execution. The Exchange also believes that the proposed 
change is designed to provide the public and investors with a Schedule 
of Fees and Rebates that is clear and consistent, thereby reducing 
burdens on the marketplace and facilitating investor protection.

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) \25\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \26\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 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) \27\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \27\ 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-2019-43 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-2019-43. 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

[[Page 29262]]

Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549 on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NYSEArca-2019-43 and should be submitted on or before July 12, 2019.
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    \28\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019-13123 Filed 6-20-19; 8:45 am]
 BILLING CODE 8011-01-P