[Federal Register Volume 85, Number 184 (Tuesday, September 22, 2020)]
[Notices]
[Pages 59576-59580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20837]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89884; File No. SR-NYSENAT-2020-28]


Self-Regulatory Organizations; NYSE National, Inc.; Notice of 
Filing of Proposed Rule Change To Establish Procedures for the 
Allocation of Cabinets to Its Co-Located Users

September 16, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on September 2, 2020, NYSE National, Inc. (``NYSE National'' 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 Exchange. 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 establish procedures for the allocation of 
cabinets to its co-located Users. 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 59577]]

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

1. Purpose
    The Exchange proposes to establish procedures for the allocation of 
cabinets to its co-located \4\ Users.\5\
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    \4\ The Exchange initially filed rule changes relating to its 
co-location services with the Securities and Exchange Commission 
(``Commission'') in 2018. See Securities Exchange Act Release No. 
83351 (May 31, 2018), 83 FR 26314 (June 6, 2018) (SR-NYSENAT-2018-
07) (``NYSE National Co-location Notice'').
    \5\ For purposes of the Exchange's co-location services, a 
``User'' means any market participant that requests to receive co-
location services directly from the Exchange. See id., supra note 4, 
at 26314 n.9. As specified in the NYSE National, Inc. Schedule of 
Fees and Rebates (``Fee Schedule''), a User that incurs co-location 
fees for a particular co-location service pursuant thereto would not 
be subject to co-location fees for the same co-location service 
charged by the Exchange's affiliates New York Stock Exchange, LLC, 
NYSE American LLC, NYSE Arca, Inc., and NYSE Chicago, Inc. 
(together, the ``Affiliate SROs''). See id. at 26314 n.11. Each 
Affiliate SRO has submitted substantially the same proposed rule 
change to propose the changes described herein. See SR-NYSE-2020-73, 
SR-NYSEAMER-2020-66, SR-NYSEArca-2020-82, and SR-NYSECHX-2020-26.
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Background
    Presently, Users have two options for cabinets with power: 
dedicated cabinets and partial cabinets. Both options use power and 
house Users' servers and other equipment. When a User purchases a new 
cabinet, whether dedicated or partial, the Exchange provides the 
cabinet with power, and the User pays an initial fee and a monthly fee 
based on the number of kilowatts (``kW'') contracted for the cabinet. 
The Exchange allocates cabinets on a first-come/first-serve basis.
    The Exchange also offers a third cabinet option, cabinets for which 
power is not utilized (``PNU cabinets''). PNU cabinets are reserved 
cabinet space that can be converted to a dedicated cabinet when the 
User requests it.\6\
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    \6\ See NYSE National Co-location Notice, supra note 4, at 
26316.
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Proposed Cabinet Allocation Procedure
    The Exchange believes that it would be prudent for it to put in 
place measures for the allocation of cabinets (the ``Cabinet 
Allocation'') that could be used if, in the future, a situation arises 
where the Exchange cannot satisfy all User demand for cabinets.\7\ The 
proposed Cabinet Allocation is as follows:
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    \7\ The Exchange believes that the proposed procedures are 
consistent with the Nasdaq procedures for allocating cabinets if 
Nasdaq's inventory shrinks to zero. See Securities Exchange Act 
Release No. 62397 (June 28, 2010), 75 FR 38860 (July 6, 2010) (SR-
NASDAQ-2010-019) (``Nasdaq Cabinet Waitlist Procedures'').
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    1. Cabinet Purchasing Limits:
    a. The Exchange would place the following limits on Users' ability 
to purchase new cabinets (``Purchasing Limits'') if the Exchange's 
unallocated cabinet inventory is at or below 40 cabinets (the ``Cabinet 
Threshold''):
    i. A User with PNU cabinets would be required to either convert its 
PNU cabinets into dedicated cabinets or relinquish its PNU cabinets 
before being permitted to purchase new cabinets.\8\
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    \8\ See NYSE National Co-location Notice, supra note 4, at 
26316.
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    ii. The Exchange would limit the purchase of new cabinets 
(dedicated and partial) to a maximum of four dedicated cabinets, each 
with a maximum of 8 kW, per User.\9\
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    \9\ A User may opt to purchase a mixture of dedicated and 
partial cabinets. In such a case, it would still be subject to the 
maximum, whether expressed in dedicated cabinets, partial cabinets, 
or a mixture thereof. The maximum is the equivalent of eight partial 
cabinets, at 2 kW each. The Nasdaq procedures similarly limit the 
purchase of cabinets if available cabinet inventory falls to 40 
cabinets or fewer. Nasdaq Cabinet Waitlist Procedures, supra note 7, 
at 38861 (``Should available cabinet inventory shrink to 40 cabinets 
or less, the Exchange will limit new cabinet orders to a maximum of 
4 cabinets each, and all new cabinets will be limited to a maximum 
power level of 5kW.'').
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    iii. A User would have to wait 30 days from the date of its signed 
order form before purchasing new cabinets again.
    b. If the Cabinet Threshold is reached, the Exchange would cease 
offering new PNU cabinets to all Users.
    2. Waitlist:
    a. The Exchange would create a waitlist if the available cabinet 
inventory is zero, or if a User requests, in writing, a number of 
cabinets that, if provided, would cause the available cabinet inventory 
to be below zero.
    b. The Exchange would place Users seeking cabinets on a waitlist, 
as follows: \10\
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    \10\ The waitlist provisions are based on the Nasdaq Cabinet 
Waitlist Procedures and the procedures in General Note 3 of the Fee 
Schedule. See id. at 38861; NYSE National Co-location Notice, supra 
note 7, at 26315.
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    i. A User with PNU cabinets would not be placed on the waitlist if 
the User could meet its new cabinet request by converting its PNU 
cabinets to dedicated cabinets. A User would only be placed on the 
waitlist for the portion of its new cabinet request that exceeds its 
existing PNU cabinets, subject to the Purchasing Limitations.
    ii. A User would be placed on the waitlist based on the date its 
signed order is received. A User may only have one order for new 
cabinets on the waitlist at a time, and the order would be subject to 
the Purchasing Limits.
    iii. As cabinets become available,\11\ the Exchange would offer 
them to the User at the top of the waitlist. If the User's order is 
completed, it would be removed from the waitlist. If the User's order 
is not completed, it would remain at the top of the waitlist.
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    \11\ Cabinets may become available if, for example, a User 
vacates a dedicated or partial cabinet.
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    iv. A User would be removed from the waitlist (a) at the User's 
request or (b) if the User turns down an offer of a cabinet of the same 
size it requested in its order. If the Exchange offers the User a 
cabinet of a different size than the User requested in its order, the 
User may turn down the offer and remain at the top of the waitlist 
until its order is completed.
    v. A User that is removed from the waitlist but subsequently 
submits a new written order for cabinets would be added to the bottom 
of the waitlist.
    3. Termination of Purchasing Limits and Waitlist: When unallocated 
cabinet inventory is more than 10 cabinets, the Exchange would cease 
use of the waitlist. When unallocated cabinet inventory is more than 40 
cabinets, the Exchange would discontinue the Purchasing Limits.
Proposed New General Notes
    The Exchange proposes to add a new General Note 7 to the Exchange's 
Fee Schedule setting forth the proposed Purchasing Limits, as follows:
    7. Cabinet Purchasing Limits. If unallocated cabinet inventory is 
at or below 40 cabinets (``Cabinet Threshold''), the following limits 
on the purchase of new cabinets (``Purchasing Limits'') will apply:
     A User with PNU cabinets will be required to either 
convert its PNU cabinets into dedicated cabinets or relinquish its PNU 
cabinets before being permitted to purchase new cabinets.
     The Exchange will limit a User's purchase of new cabinets 
(dedicated and partial) to a maximum of four dedicated cabinets, each 
with a maximum of 8 kw.
     A User will have to wait 30 days from the date of its 
signed order form before purchasing new cabinets again.
     If the Cabinet Threshold is reached, the Exchange will 
cease offering new PNU cabinets to all Users.
     When unallocated cabinet inventory is more than 40 
cabinets, the Exchange will discontinue the Purchasing Limits.
    The Exchange proposes to add a new General Note 8 to the Exchange's 
Fee Schedule setting forth the proposed Waitlist, as follows:
    8. Cabinet Waitlist. The Exchange will create a waitlist if the 
available cabinet

[[Page 59578]]

inventory is zero, or if a User requests, in writing, a number of 
cabinets that, if provided, would cause the available cabinet inventory 
to be zero. The Exchange will place Users seeking cabinets on a 
waitlist, as follows:
     A User with PNU cabinets will not be placed on the 
waitlist if the User could meet its new cabinet request by converting 
its PNU cabinets to dedicated cabinets. A User will only be placed on 
the waitlist for the portion of its new cabinet request that exceeds 
its existing PNU cabinets, subject to the Purchasing Limitations.
     A User will be placed on the waitlist based on the date 
its signed order is received. A User may only have one order for new 
cabinets on the waitlist at a time, and the order is subject to the 
Purchasing Limits.
     As cabinets become available, the Exchange will offer them 
to the User at the top of the waitlist. If the User's order is 
completed, it will be removed from the waitlist. If the User's order is 
not completed, it will remain at the top of the waitlist.
     A User will be removed from the waitlist (a) at the User's 
request or (b) if the User turns down an offer of a cabinet of the same 
size it requested in its order. If the Exchange offers the User a 
cabinet of a different size than the User requested in its order, the 
User may turn down the offer and remain at the top of the waitlist 
until its order is completed.
     A User that is removed from the waitlist but subsequently 
submits a new written order for cabinets will be added back to the 
bottom of the waitlist.
     When unallocated cabinet inventory is more than 10 
cabinets, the Exchange will cease use of the waitlist.
    The proposed change would apply the same way to all types and sizes 
of market participants. As is currently the case, the purchase of any 
colocation service is completely voluntary and the Fee Schedule is 
applied uniformly to all Users. The proposed change is not otherwise 
intended to address any other issues relating to co-location services 
and/or related fees, and the Exchange is not aware of any problems that 
Users would have in complying with the proposed change.
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. In addition, it is designed to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system and, in general, to protect investors and the public interest 
and because it is not designed to permit unfair discrimination 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 Proposed Rule Change Is Reasonable and Equitable
    The Exchange believes that the proposed rule change is reasonable 
and equitable for the following reasons.
    The Exchange believes that User demand for cabinets will continue. 
In this context, the Exchange believes that it would be reasonable for 
it to put in place the proposed Cabinet Allocation to establish the 
allocation of cabinets on an equitable basis. The Cabinet Allocation 
would establish a rational, objective procedure that would be applied 
uniformly by the Exchange to all Users that requested new cabinets.
    The Exchange believes that the Cabinet Allocation's two-tier 
structure of establishing, first, a purchasing limitation on order 
size, and second, a waitlist, would be a reasonable method to respond 
to increasing demand for cabinets in the future, and would be 
consistent with the Nasdaq procedures for allocating cabinets if 
Nasdaq's cabinet inventory shrinks to zero.\14\
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    \14\ See Nasdaq Cabinet Waitlist Procedures, supra note 7.
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    The Exchange believes that the proposed Cabinet Threshold is 
reasonable and equitable. Based on experience, the Exchange believes 
that the Cabinet Threshold is sufficiently low that it would not be 
triggered easily.
    The Exchange believes that the proposed Purchasing Limits are 
reasonable and equitable. Based on its experience with co-location and 
purchasing trends over the last few years, the Exchange believes that 
in most cases the number of cabinets that a User would be allowed to 
buy under the proposed Purchasing Limits would be sufficient to allow 
the User to use its system to access the markets while leaving a margin 
for potential growth.
    Further, the Exchange believes that, by establishing a waitlist on 
the basis of the date it receives signed orders, limiting the size and 
number of orders a User may have on the waitlist at any one time, and 
removing a User from the waitlist if it turns down a cabinet that is 
the size that it requested, the Cabinet Allocation is reasonably 
designed to prevent Users from utilizing the waitlist as a method to 
obtain a greater portion of the cabinets available, thereby 
facilitating a more equitable distribution of cabinets. Similarly, the 
Exchange believes that by requiring a 30-day delay before a User 
subject to the Purchasing Limits could purchase cabinets again, the 
Cabinet Allocation is reasonably designed to prevent a User from 
obtaining a greater portion of the cabinets available.
    The Exchange believes that the proposed change is reasonable and 
equitable because the Exchange would only place limits on Users' 
ability to purchase new cabinets if cabinet inventory fell to specific 
thresholds. Similarly, the Exchange believes that the proposed change 
is reasonable and equitable because the waitlist would only be created 
if unallocated cabinet inventory fell to zero, and because there would 
be an established threshold for cessation of the waitlist.
The Proposed Rule Change Would Protect Investors and the Public 
Interest
    The Exchange believes that the proposed rule change would perfect 
the mechanisms of a free and open market and a national market system 
and, in general, protect investors and the public interest for the 
following reasons.
    The Exchange believes that User demand for cabinets will continue. 
In this context, the proposed rule change would allow the Exchange to 
protect investors and the public interest, first, by setting limits on 
Users' ability to purchase cabinets, and second, by using a waitlist to 
allocate any unallocated cabinets on a first come-first served rolling 
basis.
    Based on experience, the Exchange believes that the Cabinet 
Threshold is sufficiently low that it would not be triggered easily, 
which would protect investors and the public interest. Similarly, the 
Exchange believes that in most cases the number of cabinets that a User 
would be allowed to buy under the proposed Purchasing Limits would be 
sufficient to allow the User to use its system to access the markets 
while leaving a margin for potential growth, which would protect 
investors and the public interest.
    In addition, the proposed Cabinet Allocation would protect 
investors and the public interest in that it is designed to prevent 
Users from utilizing the

[[Page 59579]]

Purchasing Limit and waitlist procedures to obtain a greater portion of 
the cabinets available, thereby facilitating a more equitable 
distribution.
    The proposed rule change would protect investors and the public 
interest because the proposed new General Notes would articulate 
rational, objective procedures and would serve to reduce any potential 
for confusion on how cabinets would be allocated if a shortage in 
unallocated cabinets were to arise in the future, and would thereby 
make the Fee Schedule more transparent and reduce any potential 
ambiguity.
The Proposed Change Is Not Unfairly Discriminatory
    The Exchange believes that the proposed change is not unfairly 
discriminatory for the following reasons.
    The proposed change would apply equally to all types and sizes of 
market participants. If the Cabinet Allocation were in place, all Users 
would be able to identify the permitted cabinet options and the 
procedures that would apply to them in the event that unallocated 
cabinet supply runs low in the future. The Cabinet Allocation would 
assist the Exchange in accommodating demand for co-location services, 
and cabinets in particular, on an equitable basis.
    For the reasons above, the proposed changes do not unfairly 
discriminate between or among market participants that are otherwise 
capable of satisfying any applicable co-location fees, requirements, 
terms and conditions established from time to time by the Exchange.
    For these 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,\15\ the Exchange 
believes that the proposed rule change will not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \15\ 15 U.S.C. 78f(b)(8).
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Intramarket Competition
    The Exchange does not believe that the proposed change would place 
any burden on intramarket competition that is not necessary or 
appropriate. The proposed change would not apply differently to 
distinct types or sizes of market participants. Rather, it would apply 
to all Users equally.
    The Exchange believes that, if triggered, the imposition of the 
Cabinet Allocation would not impose a burden on a User's ability to 
compete that is not necessary or appropriate. The Exchange believes 
that User demand for cabinets will continue in the future. In this 
context, the Exchange believes that it would be reasonable for it to 
put in place the proposed Cabinet Allocation to establish a method for 
allocating cabinets on an equitable basis. The Exchange would only 
follow the Cabinet Allocation and place limits on Users' ability to 
purchase new cabinets if unallocated cabinet inventory fell to the 
proposed Cabinet Threshold. Similarly, the Exchange would only create 
the waitlist if unallocated cabinet inventory fell to zero. Based on 
its experience with co-location and purchasing trends over the last few 
years, the Exchange believes that in most cases the number of cabinets 
that a User would be allowed to buy under the proposed Purchasing 
Limits would be sufficient to allow the User to use its system to 
access the markets while leaving a margin for potential growth.
    The Exchange believes that the proposed new General Notes would 
articulate rational, objective procedures and would serve to reduce any 
potential for confusion on how cabinets would be allocated if a 
shortage in unallocated cabinets were to arise in the future, and would 
thereby make the Fee Schedule more transparent and reduce any potential 
ambiguity.
    Use of any co-location service is completely voluntary, and each 
market participant is able to determine whether to use co-location 
services based on the requirements of its business operations.
Intermarket Competition
    The Exchange does not believe that the proposed change would impose 
any burden on intermarket competition that is not necessary or 
appropriate.
    The Exchange operates in a highly competitive market in which 
exchanges and other vendors (i.e., Hosting Users) offer co-location 
services as a means to facilitate the trading and other market 
activities of those market participants who believe that co-location 
enhances the efficiency of their operations. Accordingly, fees charged 
for co-location services are constrained by the active competition for 
the order flow of, and other business from, such market participants.
    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.'' \16\
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    \16\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
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    The proposed rule change would protect investors and the public 
interest because the proposed new General Notes would articulate 
rational, objective procedures and would serve to reduce any potential 
for confusion on how cabinets would be treated in the case of a 
shortage in unallocated cabinets, and would thereby make the Fee 
Schedule more transparent and reduce any potential ambiguity.
    For the reasons described above, the Exchange believes that the 
proposed rule change reflects this competitive environment.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-NYSENAT-2020-28 on the subject line.

[[Page 59580]]

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-NYSENAT-2020-28. 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-NYSENAT-2020-28, and should be submitted 
on or before October 13, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20837 Filed 9-21-20; 8:45 am]
BILLING CODE 8011-01-P