[Federal Register Volume 85, Number 216 (Friday, November 6, 2020)]
[Notices]
[Pages 71127-71130]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24631]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90309; File No. SR-NYSE-2020-87]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 7.31

November 2, 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 October 20, 2020, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 Rule 7.31 to (1) cancel ALO Orders 
that lock displayed interest and (2) add two new types of Self Trade 
Prevention modifiers. 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.

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 Rule 7.31 (Orders and Modifiers) to: 
(1) Provide that ALO Orders that lock displayed interest would be 
cancelled and (2) provide for two additional types of Self Trade 
Prevention Modifiers.
ALO Orders
    The Exchange proposes to amend Rules 7.31(e)(2), which describes 
how the Exchange processes ALO Orders, and 7.31(e)(3)(D), which 
describes how the Exchange processes Day ISO ALO Orders. Currently, 
under Rule 7.31(e)(2)(B)(iii), an arriving ALO Order to buy (sell) with 
a limit price that would lock a displayed order priced equal to or 
below (above) the PBO (PBB) on the Exchange Book will be assigned a 
working price and display price one minimum price variation (``MPV'') 
below (above) the displayed order. Day ISO ALO Orders that would lock 
displayed interest on the Exchange Book are processed in the same 
manner.\4\ The Exchange proposes to amend these rules to provide that 
arriving ALO and Day ISO ALO Orders with a limit price that would lock 
displayed interest on the Exchange Book would be cancelled.
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    \4\ See Rule 7.31(e)(3)(D)(ii).

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[[Page 71128]]

    To effect this change, the Exchange proposes to delete the portion 
of Rule 7.31(e)(2)(B)(iii) providing that an ALO Order that locks 
displayed interest will be ``assigned a working price and display price 
one MPV below (above) the displayed order on the Exchange Book'' and 
instead provide that such order would be cancelled. In addition, to 
simplify the rule text, the Exchange proposes to combine Rule 
7.31(e)(2)(B)(iii), as revised, into Rule 7.31(e)(2)(B)(ii). Proposed 
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amended Rule 7.31(e)(2)(B)(ii) would thus provide:

    If the limit price of the ALO Order to buy (sell) crosses the 
working price of any displayed or non-displayed order on the 
Exchange Book priced equal to or below (above) the PBO (PBB), it 
will trade as the liquidity taker with such order(s). Any untraded 
quantity of the ALO Order will have a working price equal to the PBO 
(PBB) and a display price one MPV below (above) the PBO (PBB), 
provided that if the limit price of the ALO Order to buy (sell) 
locks the display price of any order ranked Priority 2--Display 
Orders on the Exchange Book priced equal to or below (above) the PBO 
(PBB), it will be cancelled.

    The Exchange also proposes the following conforming changes to 
Rules 7.31(e)(2)(B) and 7.31(e)(2)(C) to reflect the proposed change to 
how ALO Orders that lock displayed interest would be handled:
     The Exchange proposes to renumber current Rule 
7.31(e)(2)(B)(iv) as 7.31(e)(2)(B)(iii) to accommodate the proposed 
combination of current Rules 7.31(e)(2)(B)(ii) and 7.31(e)(2)(B)(iii), 
as described above.
     The Exchange proposes to replace introductory references 
providing that an ALO Order will be ``priced'' or ``priced or trade, or 
both,'' with the phrase ``will be processed'' in Rules 7.31(e)(2)(B), 
7.31(e)(2)(B)(iv)(a) (which would become Rule 7.31(e)(2)(B)(iii)(a) 
after renumbering), 7.31(e)(2)(C), and 7.31(e)(2)(C)(i). The Exchange 
proposes to use the term ``processed'' because some ALO Orders would be 
cancelled (and therefore not priced or traded).
     The Exchange proposes to renumber current Rule 
7.31(e)(2)(B)(v) as 7.31(e)(2)(B)(iv) to accommodate the proposed 
combination of current Rules 7.31(e)(2)(B)(ii) and 7.31(e)(2)(B)(iii), 
as described above.
     The Exchange further proposes to revise Rule 
7.31(e)(2)(C)(i) to delete the reference to orders ranked Priority 2--
Display Orders because, as noted above, an ALO Order would no longer be 
repriced based on contra-side Priority 2--Display Orders and instead 
would be cancelled. Accordingly, the only time a resting ALO Order 
would be repriced is if the contra-side PBBO re-prices.
    The Exchange proposes to amend Rule 7.31(e)(3)(D) to align the 
rules governing Day ISO ALOs with the proposed changes to ALO Orders. 
Currently, pursuant to Rule 7.31(e)(3)(D)(ii), if the limit price of an 
arriving Day ISO ALO locks the display price of a displayed order on 
the Exchange Book, it will be assigned a working price and display 
price one MPV below (above) the price of the displayed order. As with 
ALO Orders, the Exchange proposes to amend this rule to specify that 
arriving Day ISO ALOs that lock displayed interest would be cancelled.
    To effect this change, the Exchange proposes to delete the portion 
of Rule 7.31(e)(3)(D)(ii) that provides that a Day ISO ALO that locks 
displayed interest will be ``assigned a working price and display price 
one MPV below (above) the displayed order on the Exchange Book'' and 
instead provide that such order would be cancelled. In addition, to 
simplify the rule text, the Exchange proposes to combine Rule 
7.31(e)(3)(D)(ii), as revised, with Rule 7.31(e)(3)(D)(i). Proposed 
amended Rule 7.31(e)(3)(D)(i) would thus provide:

    If the limit price of the Day ISO ALO to buy (sell) crosses the 
working price of any displayed or non-displayed order on the 
Exchange Book, it will trade as the liquidity taker with such 
order(s). Any untraded quantity of the Day ISO ALO will have a 
working price and display price equal to its limit price, provided 
that if the limit price of the Day ISO ALO to buy (sell) locks the 
display price of any order ranked Priority 2--Display Orders on the 
Exchange Book, it will be cancelled.

    The Exchange also proposes the following conforming changes 
consistent with the proposed change to cancel Day ISO ALOs that lock 
displayed interest:
     The Exchange proposes to renumber Rule 7.31(e)(3)(D)(iii) 
as Rule 7.31(e)(3)(D)(ii) to accommodate the proposed combination of 
current Rules 7.31(e)(3)(D)(i) and 7.31(e)(3)(D)(ii), as described 
above.
     The Exchange proposes to replace introductory references 
providing that a Day ISO ALO Order will be ``priced'' or ``priced or 
trade, or both,'' with the phrase ``will be processed'' in Rules 
7.31(e)(3)(D) and 7.31(3)(D)(ii)(a) (as renumbered). The Exchange 
proposes this change to reflect that certain ALO Orders would be 
cancelled (and therefore not priced or traded).
     The Exchange proposes to delete Rule 7.31(e)(3)(D)(iv), 
which currently specifies how a Day ISO ALO will be processed after it 
is displayed. Because a Day ISO ALO would now either display at its 
limit price (because, by its terms, it can be displayed at a price that 
locks or crosses the contra-side PBBO) \5\ or be cancelled if it locks 
displayed interest on the Exchange Book, there would no longer be any 
circumstances where a resting Day ISO ALO would reprice and therefore 
this rule text would no longer be applicable.
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    \5\ See Rule 7.31(e)(3)(C).
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Self Trade Prevention Modifiers
    The Exchange proposes to amend Rule 7.31(i)(2), which sets forth 
the Self Trade Prevention (``STP'') modifiers on the Exchange. As 
defined in Rule 7.31(i)(2), any incoming order to buy (sell) designated 
with an STP modifier would be prevented from trading with a resting 
order to sell (buy) also designated with an STP modifier and from the 
same Client ID,\6\ as designated by the member organization. The STP 
modifier on the incoming order controls how the Exchange evaluates the 
interaction between two orders marked with STP modifiers. The Exchange 
evaluates the interaction between two orders marked with STP modifiers 
from the same Client ID consistent with the allocation logic applicable 
to the priority category of the resting order, and if resting orders in 
a priority category do not have an STP modifier from the same Client 
ID, the incoming order designated with an STP modifier would trade with 
resting orders in that priority category before being evaluated for STP 
with resting orders in the next priority category.
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    \6\ As specified in current Rule 7.31(i)(2)(D), for purposes of 
STP, references to Client ID mean a Client ID when using Pillar 
phase I protocols to communicate with the Exchange or an MPID when 
using Pillar phase II protocols to communicate with the Exchange.
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    Currently, the Exchange offers two versions of STP: STP Cancel 
Newest (``STPN'') and STP Cancel Oldest (``STPO''), as described in 
Rules 7.31(i)(2)(A) and 7.31(i)(2)(B), respectively. The Exchange 
proposes to expand its STP offerings to establish STP Decrement and 
Cancel (``STPD'') and STP Cancel Both (``STPC''), which would be set 
forth in proposed Rules 7.31(i)(2)(C) and 7.31(i)(2)(D), respectively. 
The proposed STPD and STPC offerings are based in part on the STPD and 
STPC offerings on the Exchange's affiliates NYSE Arca, Inc. (``NYSE 
Arca''), NYSE American LLC (``NYSE American''), NYSE Chicago, Inc. 
(``NYSE Chicago''), and NYSE National, Inc. (``NYSE National'') 
(collectively, the ``Affiliated Exchanges''),\7\ with differences to

[[Page 71129]]

separately describe order processing for orders that are allocated in 
price-time priority and how STPD and STPC would function consistent 
with the Exchange's parity allocation model.
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    \7\ See NYSE Arca Rule 7.31-E(i)(2); NYSE American Rule 
7.31E(i)(2); NYSE National Rule 7.31(i)(2); and NYSE Chicago Rule 
7.31(i)(2).
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    For STPD, proposed Rule 7.31(i)(2)(C) would provide that an 
incoming order to buy (sell) with an STPD modifier would not trade with 
resting interest to sell (buy) marked with any of the STP modifiers 
from the same Client ID, as outlined in proposed Rules 7.31(i)(2)(C)(i) 
and (ii).
    Proposed Rule 7.31(i)(2)(C)(i) would apply to resting orders in a 
priority category that allocates orders on price-time priority. As 
proposed, if both orders with an STP modifier are equivalent in size, 
both orders would be cancelled back to the originating member 
organization. If the orders are not equivalent in size, the equivalent 
size would be cancelled back to the originating Client ID and the 
larger order would be decremented by the size of the smaller order, 
with the balance remaining on the Exchange Book. This proposed 
functionality is based on the STPD functionality available on the 
Affiliated Exchanges.
    Proposed Rule 7.31(i)(2)(C)(ii) would address how STPD would 
function for resting orders in a priority category that allocates 
orders on parity. As proposed, if a resting order would have been 
considered for an allocation, both the portion of the resting order 
that would receive an allocation and the portion of the incoming order 
marked with the STPD modifier that would be allocated to the resting 
order would be cancelled back to the originating member organization. 
Resting orders with an STP modifier from the same Client ID that would 
not have been eligible for a parity allocation would remain on the 
Exchange Book. The Exchange believes that if a member organization 
designates an order with an STPD modifier, that member organization has 
instructed the Exchange to cancel the equivalent portion of both the 
incoming order and resting order with an STP modifier from the same 
Client ID, resulting in the larger order being decremented by the size 
of the smaller order and remaining on the Exchange Book. In the case of 
a parity allocation, because resting orders are allocated based on 
their position on an allocation wheel,\8\ it would be consistent with 
the incoming order's decrementing instruction to provide a parity 
allocation to an eligible resting order with an STP modifier from the 
same Client ID and cancel both the portion of the resting order 
corresponding to the allocation and the portion of the incoming order 
that would have been allocated to the resting order. This proposed 
functionality is similar to how the Exchange currently processes STPO 
modifiers if a resting order with an STP modifier from the same Client 
ID is in a priority category that allocates orders on parity, as 
described in Rule 7.31(i)(2)(B)(ii).
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    \8\ See Rule 7.37(b)(2).
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    For STPC, proposed Rule 7.31(i)(2)(D) would provide that an 
incoming order to buy (sell) marked with the STPC modifier would not 
trade with resting interest to sell (buy) marked with any of the STP 
modifiers from the same Client ID, as outlined in proposed Rules 
7.31(i)(2)(D)(i) and (ii).
    Proposed Rule 7.31(i)(2)(D)(i) would apply to resting orders in a 
priority category that allocates orders on price-time priority. As 
proposed, the entire size of both orders with an STP modifier would be 
cancelled back to the originating member organization. This proposed 
functionality is based on the STPC functionality available on the 
Affiliated Exchanges.
    Proposed Rule 7.31(i)(2)(D)(ii) would address how STPC would 
function for resting orders in a priority category that allocates 
orders on parity. As proposed, if a resting order is in a priority 
category that allocates orders on parity and would have been considered 
for an allocation, none of the resting orders eligible for a parity 
allocation in that priority category would receive an allocation. The 
first resting order with an STP modifier eligible for a parity 
allocation would be cancelled back, as would the incoming order. The 
Exchange believes that this proposed processing would be consistent 
with the member organization's instruction that both the incoming order 
and resting order with an STP modifier from the same Client ID be 
cancelled if there were a potential for an execution between the two 
orders. This proposed functionality is similar to how the Exchange 
currently processes STPN modifiers if a resting order with an STP 
modifier from the same Client ID is in a priority category that 
allocates orders on parity, as described in Rule 7.31(i)(2)(A)(ii).
    The Exchange also proposes non-substantive changes to renumber 
current Rules 7.31(i)(2)(C) and 7.31(i)(2)(D) as Rules 7.31(i)(2)(E) 
and 7.31(i)(2)(F) to accommodate the addition of the proposed rules 
governing STPD and STPC. The Exchange also proposes a conforming change 
to current Rules 7.31(d)(4)(F) and 7.31(i)(2)(C) to clarify that D 
Orders could only be designated with an STPN or STPO modifier (i.e., 
that the new STPD and STPC modifiers would not be available for use 
with D Orders). The Exchange also proposes to amend current Rule 
7.31(i)(2)(D) to specify that STPD and STPC modifiers would only be 
available for use with Pillar phase II protocols.
* * * * *
    Because of the technology changes associated with this proposed 
rule change, the Exchange will announce the implementation date by 
Trader Update. Subject to approval of this proposed rule change, the 
Exchange anticipates that the proposed changes will be implemented in 
January 2021.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\9\ in general, and furthers the objectives of Section 6(b)(5),\10\ 
in particular, because it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    With respect to the proposed change to ALO Orders, the Exchange 
believes the proposed rule change would remove impediments to and 
perfect the mechanism of a free and open market by simplifying the 
treatment of ALO Orders that lock displayed orders. The Exchange 
believes that cancelling ALO Orders that lock displayed interest, 
rather than re-pricing them, would provide member organizations with 
greater determinism with respect to how ALO Orders would be processed 
on the Exchange and enhance member organizations' ability to manage 
order flow to suit their business needs. In addition, the Exchange 
believes that cancelling ALO Orders that would otherwise be marketable 
against displayed interest on the Exchange Book is consistent with the 
terms of the ALO Order, i.e., that such orders would not take liquidity 
on the Exchange. The Exchange further believes that the proposed 
changes would promote just and equitable principles of trade and remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system and, in general, protect investors and the 
public interest because the proposed behavior to cancel ALO Orders on 
the Exchange if the limit price would lock contra-side displayed orders 
would be consistent with functionality available on other

[[Page 71130]]

exchanges for similar order types when they lock displayed 
interest.\11\
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    \11\ See, e.g., Cboe BZX Exchange, Inc. (``BZX'') Rules 
11.9(c)(6), 11.9(g)(1)(D), 11.9(g)(2)(D), and 11.13(a)(2)(C) (a Post 
Only Order that locks displayed interest on BZX may be cancelled at 
the User's option); Nasdaq Stock Exchange LLC (``Nasdaq'') Rule 
4702(b)(4)(A) (Nasdaq Participants may opt to have Post-Only Orders 
cancel if they lock orders displayed on the Nasdaq Book); MEMX LLC 
(``MEMX'') Rules 11.6(a), 11.6(l), and 11.8(b)(10) (Users have the 
option to apply Post Only and Cancel Back instructions to orders 
that would lock displayed interest, and MEMX cancels ISO orders with 
Post Only and Day instructions if they lock displayed interest).
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    With respect to the proposed addition of STPD and STPC modifiers, 
the Exchange believes the proposed change would remove impediments to 
and perfect the mechanism of a free and open market by allowing member 
organizations to better manage order flow and prevent executions with 
themselves. Because orders routed by the same member organization via 
different connections may, in certain circumstances, be eligible to 
trade against each other, the Exchange believes that its proposal to 
establish additional STP modifiers would remove impediments to and 
perfect the mechanism of a free and open market, and serve to protect 
investors and the public interest, by enhancing member organizations' 
ability to prevent potentially undesirable trades and internalize order 
flow. The Exchange also believes that the proposed rule change is 
designed to 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 because the proposed changes 
are based on the approved rules of its Affiliated Exchanges, with 
modifications to address functionality specific to the Exchange's 
parity allocation model, and aligning its STP modifiers with those 
offered by its Affiliated Exchanges would promote consistency for 
member organizations that are members of the Exchange and one or more 
other Affiliated Exchanges. The Exchange further believes that the 
proposed differences to address how the proposed STPD and STPC 
modifiers would function for resting orders that are in a priority 
category that allocates orders on parity would remove impediments to 
and perfect the mechanism of a free and open market because the 
proposed rules are designed to honor the STPD and STPC instructions 
consistent with the Exchange's parity model. These proposed rules are 
also similar to how the Exchange currently processes STPN and STPO 
modifiers for resting orders that are in a priority category that 
allocates orders on parity.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange believes that the proposed rule change with respect to 
ALO Orders would reduce the burden on competition because it would 
simplify the treatment of such orders when they lock displayed interest 
and promote consistency with functionality offered for similar order 
types on other exchanges.\12\ With respect to the proposed rules 
governing STPD and STPC, the Exchange has based its proposed rules on 
those of its Affiliated Exchanges, thereby providing member 
organizations with consistency between its rules and those of its 
Affiliated Exchanges and enabling the Exchange to compete with 
unaffiliated exchange competitors that similarly operate multiple 
exchanges on the same trading platforms.
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    \12\ See id.
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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 within such longer period 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-NYSE-2020-87 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-NYSE-2020-87. 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-NYSE-2020-87 and should be submitted on 
or before November 27, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-24631 Filed 11-5-20; 8:45 am]
BILLING CODE 8011-01-P