[Federal Register Volume 85, Number 155 (Tuesday, August 11, 2020)]
[Notices]
[Pages 48587-48591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17452]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89483; File No. SR-NYSEAMER-2020-62]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Change To Amend the NYSE 
American Options Fee Schedule

August 5, 2020.
    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 August 3, 2020, NYSE American LLC (``NYSE American'' 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 American Options Fee 
Schedule (``Fee Schedule'') regarding qualifications for rebates for 
initiating a Customer Best Execution Auction. The Exchange proposes to 
implement the fee change effective August 3, 2020. The proposed 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.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to modify the Fee Schedule regarding 
the qualifications for a rebate for initiating a Customer Best 
Execution (``CUBE'') auction, whether Single-Leg or Complex 
(collectively, ``CUBE Orders'').
    In brief, the proposed changes are designed to encourage ATP 
Holders to increase their initiating CUBE volume while maintaining a 
meaningful level of Electronic volume in the ``Professional'' range.\4\ 
Specifically, the Exchange proposes to increase the qualification level 
to earn a rebate on initiating CUBE

[[Page 48588]]

volume while lowering the minimum qualifying level for Professional 
volume.
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    \4\ For purposes of this filing, ``Professional'' volume 
includes Electronic volume from the following: Professional 
Customer, Broker Dealer, Non-NYSE American Options Market Maker, and 
Firm (the ``Professional volume'').
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    The Exchange proposes to implement the rule changes on August 3, 
2020.
Background
    The Exchange has established various pricing incentives designed to 
encourage increased Electronic volume executed on the Exchange, 
including (but not limited to) the American Customer Engagement 
(``ACE'') Program and the Professional Step-Up Incentive Program. The 
Exchange also offers an ACE Initiating Participant Rebate to 
participants in the ACE Program that initiate Single-Leg or Complex 
CUBE Auctions as well as an alternative to the ACE Initiating 
Participant Rebate--the Alternative Initiating Participant Rebate--that 
enables non-ACE Program participants to qualify for a rebate on certain 
initiating Single-Leg or Complex CUBE Orders provided they meet certain 
Professional volume requirements and increase their initiating CUBE 
volume.
    As discussed further below, the Exchange is proposing to modify the 
qualification levels for the Alternative Initiating Participant Rebate 
to continue to encourage ATP Holders to increase their initiating CUBE 
Orders and to maintain a meaningful level of Professional volume. 
Because volume executed in Electronic auction mechanisms, such as the 
CUBE, has increased across the industry, the Exchange believes the 
proposed change would encourage more participants to try to achieve the 
Alternative Initiating Participant Rebate by directing more auction-
eligible order flow to the Exchange.\5\ To the extent that this 
proposed change to the incentive results in that additional flow, the 
increased liquidity on the Exchange would result in enhanced market 
quality for all participants.
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    \5\ A daily analysis of OPRA trade codes indicates that auction 
volume has increased from 19.2% of all options industry volume at 
the end of 2019 to 23.4% at the end of June 2020. See, e.g., https://www.nyse.com/data-insights/q2-2020-options-review.
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Proposed Rule Change
CUBE Auction Fees & Credits: CUBE Initiating Participant Rebates
    Section I.G. of the Fee Schedule sets forth the rates for per 
contract fees and credits for executions associated with Single-Leg and 
Complex CUBE Auctions (together, ``CUBE Auctions'').\6\ To encourage 
participants to utilize CUBE Auctions, the Exchange offers rebates on 
certain initiating CUBE volume, including an Alternative Initiating 
Participant Rebate, which applies to each of the first 5,000 contracts 
per Single-Leg CUBE Order or to each of the first 1,000 contracts per 
leg of a Complex CUBE Order and is available to ATP Holders that do not 
qualify for or participate in the ACE Program.\7\ Currently, to qualify 
for the Alternative Initiating Participant Rebate in a Single-Leg or 
Complex CUBE Auction, an ATP Holder must execute a minimum of 10,000 
contracts ADV in Professional volume and increase their Initiating 
Single-Leg CUBE Orders by the greater of 20% over their August 2019 
volume or 10,000 contracts ADV.\8\ An ATP Holder that qualifies for 
both the ACE Initiating Participant Rebate (which is ($0.12) for 
Single-Leg CUBE orders and ($0.10) for Complex CUBE Orders) and the 
Alternative Initiating Participant Rebate (which is ($0.10)) is 
entitled the greater of the two rebates.\9\
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    \6\ See Section I.G. of the Fee Schedule, CUBE Auction Fees & 
Credits.
    \7\ See id., note 2 to each of Single-Leg and Complex CUBE 
table.
    \8\ See id.
    \9\ See id.
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    The Exchange proposes to modify the qualification levels to earn 
the ($0.10) per contract Alternative Initiating Participant Rebate in a 
Single-Leg or Complex CUBE Auction by decreasing the minimum required 
Professional volume from 10,000 ADV to 5,000 ADV, while increasing the 
required amount of Initiating Single-Leg CUBE Orders to the greater of 
40% over their August 2019 volume or 15,000 ADV (from 20% over August 
2019 or 10,000 ADV, respectively).\10\ As is the case today, an ATP 
Holder that qualifies for both the ACE Initiating Participant Rebate 
and the Alternative Initiating Participant Rebate is entitled only to 
one of the two rebates; however both of these Initiating Participant 
Rebates are available in addition to other CUBE Auction-related credits 
set forth in the Fee Schedule. The Exchange is not proposing to alter 
the amount of the rebate at this time.
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    \10\ See proposed Section I.G. of the Fee Schedule, CUBE Auction 
Fees & Credits, Complex CUBE Auction, note 2.
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    The Exchange's fees are constrained by intermarket competition, as 
ATP Holders may direct their order flow to any of the 16 options 
exchanges, including those with similar incentive programs.\11\ Thus, 
ATP Holders have a choice of where they direct their order flow, 
including auction volume which, as noted above, has increased in the 
last year, and Professional volume.
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    \11\ See e.g., Cboe Exchange Inc. (``Cboe''), Fee Schedule, 
Volume Incentive Program (VIP), available here, https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (providing 
per contract credits for volume executed in Cboe's complex price 
improvement auction) and MIAX Options fee schedule, Section 1.a.iv, 
Professional Rebate Program, available here, https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_04012019.pdf (setting forth per contract 
credits on volume submitted for the account of Public Customers that 
are not Priority Customers, Non-MIAX Market Makers, Non-Member 
Broker Dealers, and Firms (collectively, Professional for purposes 
of MIAX program), provided the Member achieves certain Professional 
volume increase percentage thresholds (set forth in the schedule) in 
the month relative to the fourth quarter of 2015).
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    To the extent that the proposed modification encourages the 
submission of CUBE Orders, all market participants stand to benefit 
from increased liquidity and opportunities for price improvement. The 
proposed change also continues to offer ATP Holders an additional 
incentive to direct Professional order flow to the Exchange.\12\ 
Because the ACE Initiating Participant Rebate and the Alternative 
Initiating Participant Rebate are tied to Customer (ACE) and 
Professional (Alternative) order flow--in addition to initiating CUBE 
volume, the Exchange believes all market participants stand to benefit 
from increased order flow, which promotes market depth, facilitates 
tighter spreads and enhances price discovery.
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    \12\ See, e.g., Fee Schedule, Section I. H, Professional Step-up 
Incentive (offering discounted rates on monthly Professional volume 
for ATP Holders that increase their Professional volume by specified 
percentages of TCADV over their August 2019 volume--or, for new ATP 
Holders that increase such volume by a specified percentages of 
TCADV above 10,000 contracts ADV).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\13\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
    The Exchange operates in a 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. 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

[[Page 48589]]

in promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \15\
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    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS 
Adopting Release'').
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    There are currently 16 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than 16% of the market 
share of executed volume of multiply-listed equity and ETF options 
trades.\16\ Therefore, currently no exchange possesses significant 
pricing power in the execution of multiply-listed equity & ETF options 
order flow. More specifically, in June 2020, the Exchange had less than 
10% market share of executed volume of multiply-listed equity & ETF 
options trades.\17\
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    \16\ The OCC publishes options and futures volume in a variety 
of formats, including daily and monthly volume by exchange, 
available here: https://www.theocc.com/market-data/volume/default.jsp.
    \17\ Based on OCC data, see id., the Exchange's market share in 
equity and ETF-based options increased slightly from 8.20% for the 
month of June 2019 to 8.32% for the month of June 2020.
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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 
shift order flow, or discontinue or reduce use of certain categories of 
products, in response to fee changes. Accordingly, competitive forces 
constrain options exchange transaction fees. Stated otherwise, changes 
to exchange transaction fees and rebates can have a direct effect on 
the ability of an exchange to compete for order flow including auction 
volume which, as noted above, has increased in the last year.
    Given the increase in auction volume since late 2019, the Exchange 
believes it is reasonable to raise the required increase in initiating 
Single-Leg CUBE volume from 20% to 40% over that ATP Holder's 2019 
volume and to likewise raise the alternative minimum ``greater of' 
qualification basis from 10,000 to 15,000 contracts ADV.\18\ The 
Exchange believes these changes are commensurate with the overall 
increase in industry auction volume. At the same time, the Exchange 
believes it is reasonable to reduce minimum required Professional 
volume from 10,000 ADV to 5,000 ADV as this makes this (non-auction 
related) aspect of the rebate requirement easier to achieve, while 
still encouraging ATP Holders to direct a meaningful level of 
Professional volume to the Exchange, which should provide additional 
incentive (to the Professional Step-Up Incentive Program) to direct 
such order flow to the Exchange.\19\
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    \18\ See supra note 5 (regarding an increase in auction volume 
from 19.2% of all options industry volume at the end of 2019 to 
23.4% at the end of June 2020).
    \19\ See supra note 12 (regarding discounted rates offered via 
the Professional Step-up Incentive).
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    This proposed change is designed to encourage ATP Holders to 
participate in the CUBE Auctions and to further increase their 
initiating Single-Leg CUBE Orders or minimum ADV to qualify for the 
rebate. The Exchange believes that modifying the qualification bases to 
achieve the CUBE Alternative Initiating Participant Rebate may 
encourage greater use of the CUBE Auctions by all ATP Holders, which 
may lead to greater opportunities to trade--and for price improvement--
for all participants. And, for ATP Holders that already execute some 
Professional Volume, the initial qualification as modified, should be 
easier to achieve, thus encouraging the ATP Holder to increase the 
amount of auction volume directed to the Exchange.
    The Exchange notes that all market participants stand to benefit 
from increased transaction volume, as such increase promotes market 
depth, facilitates tighter spreads and enhances price discovery, and 
may lead to a corresponding increase in order flow from other market 
participants that do not participate in (or qualify for) the 
Professional Step-Up Incentive (or the ACE) program.
    Finally, to the extent the proposed changes attract greater volume 
and liquidity, the Exchange believes the proposed changes would improve 
the Exchange's overall competitiveness and strengthen its market 
quality for all market participants. In the backdrop of the competitive 
environment in which the Exchange operates, the proposed rule changes 
are a reasonable attempt by the Exchange to increase the depth of its 
market and improve its market share relative to its competitors. The 
proposed rule change is designed to continue to incent ATP Holders to 
direct liquidity to the Exchange in Electronic executions, similar to 
other exchange programs with competitive pricing programs, thereby 
promoting market depth, price discovery and improvement and enhancing 
order execution opportunities for market participants.\20\
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    \20\ See, e.g., supra note 11 (Cboe VIP program and regarding 
MIAX Professional Rebate Program).
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The Proposed Rule Change Is an Equitable Allocation of Fees and Rebates
    The Exchange believes the proposed rule change is an equitable 
allocation of its fees and rebates. The proposal is based on the amount 
and type of business transacted on the Exchange and ATP Holders can opt 
to avail themselves of these incentives or not. Moreover, the proposal 
is designed to continue to encourage ATP Holders to aggregate their 
executions at the Exchange as a primary execution venue. To the extent 
that the proposed change attracts more CUBE volume to the Exchange, 
this increased order flow would continue to make the Exchange a more 
competitive venue for order execution. Thus, the Exchange believes the 
proposed rule change would improve market quality for all market 
participants on the Exchange and, as a consequence, attract more order 
flow to the Exchange thereby improving market-wide quality and price 
discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory because the proposed modifications would be available to 
all similarly-situated market participants on an equal and non-
discriminatory basis. The Exchange's proposed modification to qualify 
for the CUBE Alternative Initiating Participant Rebate is designed to 
encourage greater use of the CUBE Auctions, which may lead to greater 
opportunities to trade--and for price improvement--for all 
participants.
    The proposals are based on the amount and type of business 
transacted on the Exchange and ATP Holders are not obligated to try to 
achieve the incentive pricing option. Rather, the proposals are 
designed to encourage participants to utilize the Exchange as a primary 
trading venue (if they have not done so previously) or increase 
Electronic volume sent to the Exchange. To the extent that the proposed 
change attracts more executions to the Exchange, this increased order 
flow would continue to make the Exchange a more competitive venue for 
order execution. Thus, the Exchange believes the proposed rule change 
would improve market quality for all market participants on the 
Exchange and, as a consequence, attract more order flow to the Exchange 
thereby improving market-wide quality and price discovery. The 
resulting increased volume and liquidity would provide more trading 
opportunities and tighter spreads to all market participants and thus 
would promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.

[[Page 48590]]

    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.

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

    In accordance with Section 6(b)(8) of the Act, the Exchange does 
not believe that the proposed rule change would 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 all market participants. As a result, the Exchange believes that 
the proposed changes further 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.'' \21\
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    \21\ See Reg NMS Adopting Release, supra note 15, at 37499.
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    Intramarket Competition. The proposed change is designed to 
continue to attract order flow to the Exchange by offering competitive 
rates and rebates (via the CUBE Alternative Initiating Participant 
Rebate) based on increased volumes on the Exchange, which would enhance 
the quality of quoting and may increase the volumes of contracts traded 
on the Exchange. To the extent that this purpose is achieved, all of 
the Exchange's market participants should benefit from the improved 
market liquidity. Enhanced market quality and increased transaction 
volume that results from the anticipated increase in order flow 
directed to the Exchange will benefit all market participants and 
improve competition on the Exchange.
    Intermarket Competition. The Exchange operates in a highly 
competitive market in which market participants can readily favor one 
of the 16 competing option exchanges if they deem fee levels at a 
particular venue to be excessive. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges and to attract order flow to the Exchange. Based on publicly-
available information, and excluding index-based options, no single 
exchange currently has more than 16% of the market share of executed 
volume of multiply-listed equity and ETF options trades.\22\ Therefore, 
no exchange currently possesses significant pricing power in the 
execution of multiply-listed equity & ETF options order flow. More 
specifically, in June 2020, the Exchange had less than 10% market share 
of executed volume of multiply-listed equity & ETF options trades.\23\
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    \22\ See supra note 15.
    \23\ Based on OCC data, supra note 17, the Exchange's market 
share in equity-based options was 8.20% for the month of June 2019 
and 8.32% for the month of June 2020.
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    The Exchange believes that the proposed rule change reflects this 
competitive environment because it modifies the Exchange's fees and 
rebates in a manner designed to encourage ATP Holders to direct trading 
interest to the Exchange, to provide liquidity and to attract order 
flow. To the extent that this purpose is achieved, all the Exchange's 
market participants should benefit from the improved market quality and 
increased opportunities for price improvement.
    The Exchange believes that the proposed changes could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar pricing incentives, by encouraging 
additional orders to be sent to the Exchange for execution.

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) \24\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \25\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 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) \26\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \26\ 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-NYSEAMER-2020-62 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-NYSEAMER-2020-62. 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 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-NYSEAMER-2020-62 and should be submitted 
on or before September 1, 2020.


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17452 Filed 8-10-20; 8:45 am]
BILLING CODE 8011-01-P