[Federal Register Volume 84, Number 197 (Thursday, October 10, 2019)]
[Notices]
[Pages 54707-54710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22137]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87223; File No. SR-NYSEArca-2019-55]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change To Amend NYSE Arca Rule 8.700-E and To List and 
Trade Shares of the Dynamic Short Short-Term Volatility Futures ETF

October 4, 2019.

I. Introduction

    On August 7, 2019, NYSE Arca, Inc. (``NYSE Arca'' 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 proposal to: (1) Amend 
NYSE Arca Rule 8.700-E to add futures contracts and swaps on the Cboe 
Volatility Index (``VIX'' or ``VIX Index'') to the financial 
instruments that an issue of Managed Trust Securities \3\ may hold; and 
(2) to list and trade shares (``Shares'') of the Dynamic Short Short-
Term Volatility Futures ETF (``Fund''), a

[[Page 54708]]

series of Dynamic Shares Trust (``Trust'') under proposed amended NYSE 
Arca Rule 8.700-E. The proposed rule change was published for comment 
in the Federal Register on August 26, 2019.\4\ The Commission has 
received no comments on the proposed rule change. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Managed Trust Security means a security that is registered 
under the Securities Act of 1933 (15 U.S.C. 77a), as amended (the 
``Securities Act''), and (i) is issued by a trust (``Trust''), or 
any series thereof, that (1) is a commodity pool as defined in the 
Commodity Exchange Act and regulations thereunder, is not registered 
or required to be registered as an investment company under the 
Investment Company Act of 1940, as amended, and is managed by a 
commodity pool operator registered with the Commodity Futures 
Trading Commission, and (2) holds long and/or short positions in 
exchange-traded futures contracts and/or certain currency forward 
contracts and/or swaps selected by the Trust's advisor consistent 
with the Trust's investment objectives, which will only include 
exchange-traded futures contracts involving commodities, commodity 
indices, currencies, currency indices, stock indices, the EURO STOXX 
50 Volatility Index (VSTOXX), fixed income indices, interest rates 
and sovereign, private and mortgage or asset backed debt 
instruments, and/or forward contracts on specified currencies, and/
or swaps on stock indices, fixed income indices, commodity indices, 
VSTOXX, commodities, currencies, currency indices, or interest 
rates, each as disclosed in the Trust's prospectus as such may be 
amended from time to time, and cash and cash equivalents; and (ii) 
is issued and redeemed continuously in specified aggregate amounts 
at the next applicable net asset value. See NYSE Arca Rule 8.700-
E(c)(1).
    \4\ See Securities Exchange Act Release No. 86714 (August 209, 
2019), 84 FR 44642 (``Notice'').
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II. Summary of the Proposed Rule Change 5
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    \5\ For a complete description of the Exchange's proposal, see 
Notice, supra note 3.
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A. Proposed Amendments to NYSE Arca Rule 8.700-E

    NYSE Arca Rule 8.700-E governs the listing and trading of Managed 
Trust Securities. The Exchange proposes to amend NYSE Arca Rule 8.700-
E(c)(1) by expanding the definition of ``Managed Trust Securities.'' 
Currently, the definition of Managed Trust Securities specifies (among 
other things) that the trust that issues Managed Trust Securities may 
hold futures and swaps overlying certain types of reference assets, in 
addition to certain currency forwards.\6\ The proposed rule change 
would add the VIX Index to the list of permitted reference assets 
underlying such futures and swaps.
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    \6\ See supra note 3
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    The Exchange states the following regarding the VIX Index.\7\ The 
VIX Index is an up-to-the-minute market estimate of expected volatility 
that is calculated by using real-time prices of options on the S&P 
500[supreg] Index (``SPX options'') listed on Cboe Exchange, Inc. 
(``Cboe''). It is designed to reflect investors' consensus view of 
future (30-day) expected stock market volatility. Only SPX options with 
Friday expirations are used to calculate the VIX Index. The VIX Index 
is calculated between 2:15 a.m. Central Time (``C.T.'') and 8:15 a.m. 
C.T. and between 8:30 a.m. C.T. and 3:15 p.m. C.T. The VIX Index is 
calculated by using the midpoints of real-time SPX option bid/ask 
quotes. Only SPX options with more than 23 days and less than 37 days 
to the Friday SPX expiration are used to calculate the VIX Index. These 
SPX options are then weighted to yield a constant, 30-day measure of 
the expected volatility of the S&P 500 Index. VIX levels are calculated 
by Cboe and disseminated at 15-second intervals to market information 
vendors via the Options Price Reporting Authority.
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    \7\ See Notice, supra note 4, 84 FR at 44644.
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    The Exchange states the following regarding futures on the VIX 
Index (``VIX Futures'' or ``VIX Futures Contracts'').\8\ The Cboe 
Futures Exchange (``CFE'') began listing and trading VIX Futures'' on 
March 26, 2004 under the ticker symbol VX. VIX Futures reflect the 
market's estimate of the value of the VIX Index on various expiration 
dates in the future. According to the Registration Statement,\9\ the 
value of a VIX Futures Contract is based on the expected reading of the 
VIX Index at the expiration of such VIX Futures, and therefore 
represents forward implied volatility of the S&P 500 over the 30-day 
period following the expiration of the VIX Futures. As a result, a 
movement in the VIX Index today will not necessarily result in a 
corresponding movement in the price of VIX Futures. VIX Futures, which 
trade only on CFE, trade between the hours of 8:30 a.m.-3:15 p.m. C.T. 
The CFE is a member of the Intermarket Surveillance Group (``ISG''). 
Monthly and weekly expirations in VIX Futures are available and trade 
nearly 24 hours a day, five days a week. VIX Weekly futures began 
trading on CFE in 2015.
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    \8\ See id. at 44644.
    \9\ On June 5, 2019, the Trust submitted to the Commission its 
draft registration statement on Form S-1 under the Securities Act.
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B. Listing and Trading of the Shares

    The Exchange proposes to list and trade the Shares under proposed 
amended NYSE Arca Rule 8.700-E. The Exchange states the following 
regarding the Fund. The Trust's sponsor, Dynamic Shares LLC 
(``Sponsor''), will serve as its commodity pool operator upon its 
registration with the Commodity Futures Trading Commission and is not 
registered or affiliated with a broker-dealer. Wilmington Trust Company 
is the sole ``Trustee'' of the Trust. The Nottingham Company will be 
the ``Administrator'' for the Fund. Nottingham Shareholder Services, 
LLC will serve as the ``Transfer Agent'' for the Fund for ``Authorized 
Participants.'' Capital Investment Group, Inc. will serve as the 
``Distributor'' for the Fund. The Fund will seek to provide investors 
with inverse exposure to the implied volatility of the broad-based, 
large-cap U.S. equity market. Such exposure will be for one full 
trading day. The Fund will be actively managed and will not be 
benchmarked to the VIX Index.\10\ The pursuit of the Fund's daily 
investment objective means that the Fund's return for a period longer 
than a full trading day will be the product of the series of daily 
returns, with daily repositioned exposure, for each trading day during 
the relevant period. As a consequence, the return for investors that 
invest for periods less than a full trading day or for a period 
different than a trading day will not be the product of the return of 
the Fund's stated daily inverse investment objective. Under normal 
market conditions,\11\ the Fund will seek to achieve its investment 
objective by obtaining investment exposure to an actively managed 
portfolio of short positions in VIX Futures Contracts with monthly 
expirations. The Fund expects to primarily take short positions in VIX 
Futures by shorting the next two near term VIX Futures and rolling the 
nearest month VIX Futures Contract to the next month on a daily basis. 
As such, the Fund expects to have a constant one-month rolling short 
position in first and second month VIX Futures. The Fund also may hold 
cash and cash equivalents, including U.S. Treasury securities. The Fund 
will seek to dynamically manage its notional exposure to VIX Futures. 
For example, when the VIX Index is below its historical average, the 
Fund's notional exposure will be lower than a traditional short VIX 
short term futures ETF, which may maintain a fixed notional exposure 
every day. When the VIX Index is going up, the Fund will gradually 
increase its notional exposure, up to a ceiling of -0.5 times its net 
asset value (``NAV''). The Fund expects that its notional exposure will 
not exceed -0.5 times its NAV, but that its notional exposure may 
exceed -0.5 times its NAV during intraday trading before recalibration.
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    \10\ The Fund does not seek to track the performance of the VIX 
Index or the S&P 500[supreg] and can be expected to perform very 
differently from the VIX Index over all periods of time.
    \11\ Normal market conditions'' is defined in NYSE Arca Rule 
8.600-E(c)(5).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \12\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\13\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\14\ 
which requires, among other things, that the Exchange's rules 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 a free and open market and a national 
market system, and, in

[[Page 54709]]

general, to protect investors and the public interest. The Commission 
also finds that the proposal is consistent with Section 
11A(a)(1)(C)(iii) of the Act,\15\ which sets forth Congress' finding 
that it is in the public interest and appropriate for the protection of 
investors and the maintenance of fair and orderly markets to assure the 
availability to brokers, dealers, and investors of information with 
respect to quotations for, and transactions in, securities.
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    \12\ 15 U.S.C. 78f.
    \13\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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A. Exchange's Proposal To Amend Rule 8.700-E

    The Commission believes that the proposal to amend NYSE Arca Rule 
8.700-E(c)(1) to add futures contracts and swaps on the VIX Index to 
the financial instruments in which an issue of Managed Trust Securities 
may hold long and/or short positions is consistent with Section 6(b)(5) 
of the Act. The Commission notes that it has previously approved: (1) 
The addition of VIX Futures to the definition of Futures Reference 
Assets applicable to ``Futures-Linked Securities'' in NYSE Arca Rule 
5.2-E(j)(6) (Index-Linked Securities); \16\ (2) the listing and trading 
on the Exchange of series of Trust Issued Receipts that reference VIX 
Futures; \17\ and (3) an earlier expansion of NYSE Arca Rule 8.700-E to 
add the VSTOXX as a permitted reference asset to the futures contracts 
and swaps that may be held by trusts that issue Managed Trust 
Securities.\18\
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    \16\ See Securities Exchange Act Release No. 58968 (November 17, 
2008), 73 FR 71082 (November 24, 2008) (SR-NYSEArca-2008-111).
    \17\ See Securities Exchange Act Release No. 58968 (November 17, 
2008), 73 FR 71082 (November 24, 2008) (SR-NYSEArca-2008-111).
    \18\ See Securities Exchange Act Release No. 82066 (November 13, 
2007), 82 FR 54434 (November 17, 2017) (SR-NYSEArca-2017-85). The 
VSTOXX is designed to reflect market expectations of near-term to 
long-term volatility by measuring the square root of the implied 
variances across all options of a given time to expiration. See id. 
at 54434.
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    The existing initial and continued listing criteria applicable to 
Managed Trust Securities would continue to apply, and the continued 
listing standards require, among other things, that: (1) The Disclosed 
Portfolio (as defined in NYSE Arca Rule 8.700-E(c)(2) be disseminated 
at least daily and to all market participants at the same time; (2) an 
intraday indicative value (``IIV'') be calculated and widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Exchange's Core Trading Session; and (3) following 
the initial 12-month period after the commencement of trading of an 
issue of Managed Trust Securities, (a) the trust must have 50,000 or 
more Managed Trust Securities issued and outstanding, (b) the market 
value of all Managed Trust Securities issued and outstanding must be 
$1,000,000 or more, and (c) there must be 50 or more record and/or 
beneficial holders.\19\
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    \19\ See NYSE Arca Rule 8.700-E(e)(2).
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    Further, the Commission notes that the Exchange has represented 
that its surveillance procedures are adequate to deter and detect 
violations of Exchange rules.\20\
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    \20\ See Notice, supra note 4, at 44647.
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B. Exchange's Proposal To List and Trade the Shares

    The Commission believes that the proposal to list and trade the 
Shares is consistent with Section 11A(a)(1)(C)(iii) of the Act. 
Quotation and last-sale information for the Shares will be available 
via the Consolidated Tape Association (``CTA'') high-speed line, and 
the previous day's closing price and trading volume information for the 
Shares will be published daily in the financial section of newspapers. 
Additionally, information regarding market price and trading volume of 
the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services.
    The Commission also believes that the proposal to list and trade 
the Shares is consistent with Section 6(b)(5) of the Act. The 
Commission believes that the proposal to list and trade the Shares is 
reasonably designed to promote fair disclosure of information that may 
be necessary to price the Shares appropriately and to prevent trading 
when a reasonable degree of transparency cannot be assured. The Trust's 
NAV and the NAV per Share will be calculated and disseminated daily. 
The Exchange will disseminate for the Trust on a daily basis by means 
of the CTA high-speed line information with respect to the most recent 
NAV per Share, and the number of Shares outstanding. The Exchange also 
will make available on its website daily trading volume, closing prices 
and the NAV per Share. The IIV for the Shares will be calculated and 
disseminated by one or more major market data vendors at least every 15 
seconds during the Exchange's Core Trading Session. On a daily basis, 
the Trust will disclose on its website (www.dynamicsharesetf.com) for 
all of the assets held by the Fund the following information: Name; 
ticker symbol (if applicable); CUSIP or other identifier (if 
applicable); description of the holding; with respect to derivatives, 
the identity of the security, commodity, index or other underlying 
asset; the quantity or aggregate amount of the holding as measured by 
par value, notional value or amount, number of contracts or number of 
units (if applicable); maturity date; coupon rate (if applicable); 
effective date or issue date (if applicable); market value; percentage 
weighting in the Disclosed Portfolio; and expiration date (if 
applicable). The Trust's website information will be publicly available 
at no charge. Pricing for VIX, VIX Futures, as well as the underlying 
SPX options, will be available from major market data vendors. Pricing 
for VIX Futures will also be available from CFE. Pricing for SPX 
options is also available from Cboe. Price information for cash 
equivalents is available from major market data vendors.
    The Exchange will obtain a representation from the Trust that the 
NAV and the NAV per Share will be calculated daily and that the NAV, 
the NAV per Share, and the composition of the Disclosed Portfolio will 
be made available to all market participants at the same time. Further, 
trading in the Shares will be subject to NYSE Arca Rule 7.12-E and 
8.700-E(e)(2)(D), which set forth circumstances under which trading in 
the Shares may be halted. Trading may also be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. The Commission notes 
that the Exchange has represented that its surveillance procedures are 
adequate to continue to properly monitor the Exchange trading of the 
Shares in all trading sessions.\21\
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    \21\ See Notice, supra note 4, at 44647.
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    Additionally, the Reporting Authority that provides the Disclosed 
Portfolio must implement and maintain, or be subject to, procedures 
designed to prevent the use and dissemination of material, non-public 
information regarding the actual components of the portfolio.\22\ The 
Exchange represents that it has a general policy prohibiting the 
distribution of material, non-public information by its employees.
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    \22\ See NYSE Arca Rule 8.700-E(c)(2)(B)(ii).
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    In support of this proposal, the Exchange has made the following 
representations:
    1. The Trust will be subject to the criteria in NYSE Arca Rule 
8.700-E for

[[Page 54710]]

initial and continued listing of the Shares.\23\
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    \23\ See Notice, supra note 4, at 44647.
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    2. In the event (a) the Sponsor becomes registered as a broker-
dealer or newly affiliated with a broker-dealer, or (b) any new sponsor 
is a registered broker-dealer or becomes affiliated with a broker-
dealer, it will implement and maintain a fire wall with respect to its 
relevant personnel or its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the Disclosed 
Portfolio.\24\
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    \24\ See id. at 44644.
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    3. The Exchange has appropriate rules to facilitate transactions in 
the Shares during all trading sessions.\25\
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    \25\ See id. at 44647.
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    4. Trading in the Shares will be subject to the existing trading 
surveillances administered by the Exchange, as well as cross-market 
surveillances administered by the Financial Industry Regulatory 
Authority (``FINRA'') on behalf of the Exchange, and these procedures 
are adequate to properly monitor Exchange trading of the Shares in all 
trading sessions and to deter and detect violations of Exchange rules 
and applicable federal securities laws.\26\
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    \26\ See id. at 44647.
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    5. The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares and VIX Futures 
with other markets or other entities that are members of the ISG, and 
the Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in the Shares and VIX Futures 
from such markets or entities. In addition, the Exchange may obtain 
information regarding trading in the Shares and VIX Futures from 
markets or other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
FINRA, on behalf of the Exchange, is able to access, as needed, trade 
information for certain cash equivalents held by the Fund reported to 
FINRA's Trade Reporting and Compliance Engine.\27\
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    \27\ See id. at 44647.
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    6. Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin (``Bulletin'') of the 
special characteristics and risks associated with trading the Shares. 
Specifically, the Bulletin will discuss the following: (1) The 
procedures for purchases and redemptions of Shares (and that Shares are 
not individually redeemable); (2) NYSE Arca Rule 9.2-E(a), which 
imposes a duty of due diligence on its ETP Holders to learn the 
essential facts relating to every customer prior to trading the Shares; 
(3) the requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; (4) how information regarding the IOPV 
and the Disclosed Portfolio is disseminated; (5) the risks involved in 
trading the Shares during the opening and late trading sessions when an 
updated IOPV will not be calculated or publicly disseminated; and (6) 
trading information.\28\
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    \28\ See id. at 44647-44648.
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    7. The Exchange represents that, for the initial and continued 
listing of the Shares, the Trust must be in compliance with NYSE Arca 
Rule 5.3-E and Rule 10A-3 under the Act.\29\
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    \29\ See id. at 44647.
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    8. A minimum of 100,000 Shares will be outstanding at the start of 
trading on the Exchange.\30\
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    \30\ See id. at 44647.
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    9. All statements and representations made in this filing regarding 
(a) the description of the portfolio of the Fund, (b) limitations on 
portfolio of the Fund, or (c) the applicability of Exchange listing 
rules specified in this rule filing shall constitute continued listing 
requirements for listing the Shares on the Exchange.\31\
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    \31\ See id. at 44647.
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    10. The issuer has represented to the Exchange that it will advise 
the Exchange of any failure by the Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Fund is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).\32\
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    \32\ See id. at 44647.

This approval order is based on all of the Exchange's representations, 
including those set forth above and in the Notice.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act \33\ the rules and regulations 
thereunder applicable to a national securities exchange.
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    \33\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\34\ that the proposed rule change (SR-NYSEArca-2019-55), be, and 
hereby is, approved.
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    \34\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22137 Filed 10-9-19; 8:45 am]
 BILLING CODE 8011-01-P