[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:
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Credit for providing displayed
Tier liquidity
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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