[Federal Register Volume 88, Number 14 (Monday, January 23, 2023)]
[Notices]
[Pages 4047-4051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01120]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96680; File No. SR-NYSEARCA-2023-01]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE 
Arca Equities Fees and Charges

January 17, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 3, 2023, NYSE Arca, Inc. (``NYSE Arca'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Equities Fees and 
Charges (``Fee Schedule'') to amend the fee for Retail Orders with a 
time-in-force of Day that remove liquidity. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to amend the fee 
for Retail

[[Page 4048]]

Orders \3\ with a time-in-force of Day that remove liquidity. The 
proposed change responds to the current competitive environment where 
ETP Holders have a choice among both exchange and off-exchange venues 
of where to route marketable retail flow.
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    \3\ A Retail Order is an agency order that originates from a 
natural person and is submitted to the Exchange by an ETP Holder, 
provided that no change is made to the terms of the order to price 
or side of market and the order does not originate from a trading 
algorithm or any other computerized methodology. See Securities 
Exchange Act Release No. 67540 (July 30, 2012), 77 FR 46539 (August 
3, 2012) (SR-NYSEArca-2012-77).
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    The Exchange proposes to implement the fee change effective January 
3, 2023.
Background
    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 in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.'' \4\
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    \4\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (File No. S7-10-04) (Final 
Rule) (``Regulation NMS'').
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    While Regulation NMS has enhanced competition, it has also fostered 
a ``fragmented'' market structure where trading in a single stock can 
occur across multiple trading centers. When multiple trading centers 
compete for order flow in the same stock, the Commission has recognized 
that ``such competition can lead to the fragmentation of order flow in 
that stock.'' \5\ Indeed, equity trading is currently dispersed across 
16 exchanges,\6\ numerous alternative trading systems,\7\ and broker-
dealer internalizers and wholesalers, all competing for order flow. 
Based on publicly available information, no single exchange currently 
has more than 17% market share.\8\ Therefore, no exchange possesses 
significant pricing power in the execution of equity order flow. More 
specifically, the Exchange currently has less than 10% market share of 
executed volume of equities trading.\9\
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    \5\ See Securities Exchange Act Release No. 61358, 75 FR 3594, 
3597 (January 21, 2010) (File No. S7-02-10) (Concept Release on 
Equity Market Structure).
    \6\ See Cboe U.S Equities Market Volume Summary, available at 
https://markets.cboe.com/us/equities/market_share.
    \7\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of 
alternative trading systems registered with the Commission is 
available at https://www.sec.gov/foia/docs/atslist.htm.
    \8\ See Cboe Global Markets U.S. Equities Market Volume Summary, 
available at http://markets.cboe.com/us/equities/market_share/.
    \9\ See id.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
move order flow, or discontinue or reduce use of certain categories of 
products. While it is not possible to know a firm's reason for shifting 
order flow, the Exchange believes that one such reason is because of 
fee changes at any of the registered exchanges or non-exchange venues 
to which a firm routes order flow. The competition for Retail Orders is 
even more stark, particularly as it relates to exchange versus off-
exchange venues.
    The Exchange thus needs to compete in the first instance with non-
exchange venues for Retail Order flow, and with the 15 other exchange 
venues for that Retail Order flow that is not directed off-exchange. 
Accordingly, competitive forces compel the Exchange to use exchange 
transaction fees and credits, particularly as they relate to competing 
for Retail Order flow, because market participants can readily trade on 
competing venues if they deem pricing levels at those other venues to 
be more favorable.
    To respond to this competitive environment, the Exchange has 
established a number of Retail Tiers, which are designed to provide an 
incentive for ETP Holders to route Retail Orders to the Exchange by 
providing higher credits for adding liquidity correlated to an ETP 
Holder's higher trading volume in Retail Orders on the Exchange. Under 
three of these four tiers, i.e., Retail Tier 1, Retail Tier 2, Retail 
Tier 3 and Retail Step-Up Tier, ETP Holders also do not pay a fee when 
such Retail Orders have a time-in-force of Day that remove liquidity 
from the Exchange. Under Retail Tier 4, ETP Holders currently pay a 
standard fee of $0.0030 per share for Retail Orders that that remove 
liquidity.\10\
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    \10\ See Fee Schedule, Section III. Standard Rates--Transactions 
(applicable when Tier Rates do not apply).
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Proposed Rule Change
    The proposed rule change is designed to be available to all ETP 
Holders on the Exchange and is intended to provide ETP Holders an 
opportunity to not pay a fee for Retail Orders with a time-in-force of 
Day that remove liquidity from the Exchange. Specifically, the Exchange 
proposes to adopt new footnote (f) under the Retail Tiers table.\11\ 
Proposed footnote (f) would state that ``ETP Holders that increase 
Retail Orders with a time-in-force of Day that add and remove that is 
an increase over May 2022 of at least 0.05% of CADV would not pay a fee 
for Retail Removing with a time-in-force of Day.''
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    \11\ With the proposed adoption of new footnote (f) under the 
Retail Tiers table, the Exchange proposes to renumber current 
footnote (f) under the Tape B Tiers table as footnote (g) and 
renumber current footnote (g) under the Tape B Tiers table as 
footnote (h).
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    As noted above, ETP Holders that qualify for Retail Tiers 1, 2, 3 
and Retail Step-Up Tier currently do not pay a fee for Retail Orders 
with a time-in-force of Day that remove liquidity from the Exchange. 
ETP Holders that do not currently qualify for Retail Tiers 1, 2, 3 and 
Retail Step-Up Tier would benefit from this proposed rule change by 
increasing the amount of Retail Orders with a time-in-force of Day that 
add and remove liquidity by 0.05% over their May 2022 CADV. ETP Holders 
that meet the proposed lower volume requirement would qualify to not 
pay a fee for Retail Orders with a time-in-force of Day that remove 
liquidity. ETP Holders that qualify for the proposed no fee would also 
continue to receive the standard credit of ($0.0032) per share for 
Retail Orders that add liquidity.\12\
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    \12\ See supra note 10.
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    To illustrate the application of the proposed fee reduction, assume 
an ETP Holder's activity of Retail Orders with a time-in-force of Day 
in the current month is equal to 0.08% of CADV, which is less than 
Retail Tier 4's requirement of 0.10% of CADV. Assume further that this 
ETP Holder has a Step-Up of Retail Orders with a time-in-force of Day 
from April 2018 of 0.02% of CADV, which is less than Retail Step-Up 
Tier's requirement of 0.075% of CADV. Based on this activity, the ETP 
Holder in this example would receive the standard credit of ($0.0032) 
per share for adding Retail liquidity and would pay the standard fee of 
$0.0030 per share for removing Retail liquidity, unless the ETP Holder 
qualifies for better rates under other pricing tiers.
    Assume further that the same ETP Holder's activity of Retail Orders 
with a time-in-force of Day in May 2022 was equal to 0.02% of CADV. 
Under the proposed rule change, this ETP Holder would qualify for the 
proposed no fee because it had an increase of Retail Orders with a 
time-in-force of Day that add and remove liquidity over May 2022 of 
0.06% (0.08% in the current month minus 0.02% in May 2022), which meets 
the proposed requirement that an ETP Holder's increase of Retail

[[Page 4049]]

Orders with a time-in-force of Day that add or remove must be at least 
0.05% of CADV over the ETP Holder's May 2022 CADV. Under the proposed 
rule change, this ETP Holder would continue to receive the standard 
credit of ($0.0032) per share for adding Retail liquidity and would not 
pay a fee for Retail Orders with a time-in-force of Day that remove 
liquidity.
    The purpose of the proposed rule change is to encourage greater 
participation from ETP Holders and promote additional liquidity in 
Retail Orders. The Exchange believes that the proposed rule change to 
adopt a lower volume requirement to qualify for the proposed fee 
reduction would incentivize ETP Holders to direct a greater number of 
Retail Orders to the Exchange that add and remove liquidity. As 
described above, ETP Holders have a choice of where to send their 
Retail Orders that add and remove liquidity. The Exchange believes that 
the proposed rule change to reduce fees paid by ETP Holders for Retail 
Orders could lead to more ETP Holders choosing to route such orders for 
execution to the Exchange rather than to a competing exchange.
    The Exchange does not know how much Retail Order flow ETP Holders 
choose to route to other exchanges or to off-exchange venues. Without 
having a view of ETP Holders' activity on other markets and off-
exchange venues, the Exchange has no way of knowing whether this 
proposed rule change would result in any ETP Holder sending more of its 
Retail Orders to the Exchange. The Exchange cannot predict with 
certainty how many ETP Holders would avail themselves of this 
opportunity, but additional liquidity of Retail Orders would benefit 
all market participants because it would provide greater execution 
opportunities on the Exchange.
    The proposed changes are not otherwise intended to address any 
other issues, and the Exchange is not aware of any significant problems 
that market participants would have in complying with the proposed 
changes.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\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 Fee Change Is Reasonable
    As discussed above, the Exchange operates in a highly fragmented 
and competitive market. The Commission has repeatedly expressed its 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. Specifically, 
in Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \15\
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    \15\ See supra note 3.
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    Given this competitive environment, the proposal represents a 
reasonable attempt to attract additional order flow to the Exchange.
    As noted above, the competition for Retail Order flow is stark 
given the amount of retail limit orders that are routed to non-exchange 
venues. 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. ETP Holders can 
choose from any one of the 16 currently operating registered exchanges, 
and numerous off-exchange venues, to route such order flow. 
Accordingly, competitive forces constrain exchange transaction fees, 
particularly as they relate to competing for retail orders. Stated 
otherwise, changes to exchange transaction fees can have a direct 
effect on the ability of an exchange to compete for order flow.
    In particular, the Exchange believes that the proposal to adopt 
lower volume requirement to qualify for the proposed fee reduction is 
reasonable because it is designed to encourage greater participation 
from ETP Holders and promote additional liquidity in Retail Orders. The 
Exchange believes it is reasonable to require ETP Holders to meet the 
applicable volume threshold to qualify for the proposed no fee for 
Retail Orders with a time-in-force of Day that remove liquidity, which 
the Exchange believes will encourage ETP Holders to direct more of 
their Retail Orders to the Exchange. Further, the proposed change is 
reasonable as it would allow ETP Holders that do not presently qualify 
for Retail Tiers 1, 2, 3 and Retail Step-Up Tier an additional 
opportunity to qualify and not pay a fee for Retail Orders with a time-
in-force of Day that remove liquidity.
    The Exchange believes that the proposal to adopt reduced fees for 
ETP Holders that meet the proposed volume requirement is a reasonable 
means to encourage additional liquidity on the Exchange because ETP 
Holders would benefit from the greater amounts of displayed liquidity 
present on a public exchange. The Exchange believes that the proposed 
lower volume requirement would incentivize additional liquidity to a 
public exchange to qualify for lower fees for Retail Orders with a 
time-in-force of Day that remove liquidity, thereby promoting price 
discovery and transparency and enhancing order execution opportunities 
for ETP Holders. The proposal is thus reasonable because all ETP 
Holders would benefit from such increased levels of liquidity. The 
Exchange notes that ETP Holders are free to shift their order flow to 
competing venues if they believe other markets offer more favorable 
fees and credits.
    On the backdrop of the competitive environment in which the 
Exchange currently operates, the proposed rule change is a reasonable 
attempt to increase liquidity on the Exchange and improve the 
Exchange's market share relative to its competitors.
The Proposed Fee Change Is an Equitable Allocation of Fees and Credits
    The Exchange believes that, for the reasons discussed above, the 
proposed rule change is an equitable allocation of its fees and 
credits. The proposed rule change is intended to provide ETP Holders an 
incentive to send a greater number of Retail Orders to the Exchange in 
order to qualify and not pay a fee for such orders when removing 
liquidity from the Exchange, thereby increasing the number of orders 
that are executed on the Exchange, promoting price discovery and 
transparency and enhancing order execution opportunities and improving 
overall liquidity on a public exchange. The Exchange also believes that 
the proposed change is equitable because it would apply to all 
similarly situated ETP Holders that remove liquidity. As previously 
noted, the Exchange operates in a competitive environment, particularly 
as it relates to attracting Retail Orders to the Exchange. The Exchange 
does not know how much order flow ETP Holders choose to route to other 
exchanges or to off-exchange venues. The Exchange believes that pricing 
is just one of the factors that ETP Holders consider when determining 
where to direct their order flow. Among

[[Page 4050]]

other things, factors such as execution quality, fill rates, and 
volatility, are important and deterministic to ETP Holders in deciding 
where to send their order flow. The Exchange believes that a number of 
ETP Holders could qualify for the proposed no fee based on their 
current trading profile on the Exchange if they choose to direct more 
of their order flow to the Exchange. However, without having a view of 
an ETP Holder's activity on other exchanges and off-exchange venues, 
the Exchange has no way of knowing whether this proposed rule change 
would result in any ETP Holder directing Retail Orders to the Exchange 
in order to qualify for the proposed no fee.
    The Exchange believes the proposed rule change would improve market 
quality for all market participants on the Exchange and, as a 
consequence, attract more Retail Orders to the Exchange, thereby 
improving market-wide quality and price discovery.
The Proposed Fee Change Is Not Unfairly Discriminatory
    The Exchange believes that the proposal to adopt a lower volume 
requirement to qualify for the proposed fee reduction is not unfairly 
discriminatory. In the prevailing competitive environment, ETP Holders 
are free to disfavor the Exchange's pricing if they believe that 
alternatives offer them better value. Moreover, the proposal neither 
targets nor will it have a disparate impact on any particular category 
of market participant. The Exchange believes that the proposed rule 
change will incentivize ETP Holders to direct a greater number of 
Retail Orders to a public exchange to qualify for the proposed reduced 
fee for removing liquidity, thereby promoting price discovery and 
transparency and enhancing order execution opportunities for ETP 
Holders. The proposal does not permit unfair discrimination because the 
proposed volume requirement for removing liquidity would be applied to 
all similarly situated ETP Holders, who would all be eligible to not 
pay a fee on an equal basis. Accordingly, no ETP Holder already 
operating on the Exchange would be disadvantaged by this allocation of 
fees. The Exchange believes it is not unfairly discriminatory to 
provide lower fees for removing liquidity as the proposed fee would be 
provided on an equal basis to all ETP Holders that remove liquidity by 
meeting the proposed volume requirement. Further, the Exchange believes 
the proposed reduced fee would provide an incentive for ETP Holders to 
execute more of their Retail Orders on the Exchange. The Exchange also 
believes that the proposed change is not unfairly discriminatory 
because it is reasonably related to the value to the Exchange's market 
quality associated with higher volume.
    In addition, the submission of orders to the Exchange is optional 
for ETP Holders in that they could choose whether to submit orders to 
the Exchange and, if they do, the extent of its activity in this 
regard.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

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

    In accordance with section 6(b)(8) of the Act,\16\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed changes would encourage the submission of additional 
liquidity to a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution opportunities 
for ETP Holders. As a result, the Exchange believes that the proposed 
change furthers the Commission's goal in adopting Regulation NMS of 
fostering integrated competition among orders, which promotes ``more 
efficient pricing of individual stocks for all types of orders, large 
and small.'' \17\
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    \16\ 15 U.S.C. 78f(b)(8).
    \17\ See supra note 3.
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    Intramarket Competition. The Exchange believes the proposed rule 
change does not impose any burden on intramarket competition that is 
not necessary or appropriate in furtherance of the purposes of the Act. 
The proposed change is designed to attract Retail Orders to the 
Exchange. The Exchange believes that the proposed change would 
incentivize market participants to direct retail order flow to the 
Exchange. Greater overall order flow, trading opportunities, and 
pricing transparency would benefit all market participants on the 
Exchange by enhancing market quality and would continue to encourage 
ETP Holders to send their orders to the Exchange, thereby contributing 
towards a robust and well-balanced market ecosystem. The proposed fee 
reduction would be available to all similarly situated market 
participants, and, as such, the proposed change would not impose a 
disparate burden on competition among market participants on the 
Exchange. Additionally, the proposed change would apply to all ETP 
Holders equally in that all ETP Holders would have a reasonable 
opportunity to meet the volume requirement to qualify for the proposed 
fee reduction and would not pay a fee for removing liquidity if such 
criteria is met.
    Intermarket Competition. The Exchange believes the proposed rule 
change does not impose any burden on intermarket competition that is 
not necessary or appropriate in furtherance of the purposes of the Act. 
The Exchange operates in a highly competitive market in which market 
participants can readily choose to send their orders to other exchanges 
and off-exchange venues if they deem fee levels at those other venues 
to be more favorable. As noted above, the Exchange's market share of 
intraday trading (i.e., excluding auctions) is currently less than 10%. 
In such an environment, the Exchange must continually adjust its fees 
and rebates to remain competitive with other exchanges and with off-
exchange venues. Because competitors are free to modify their own fees 
and credits in response, and because market participants may readily 
adjust their order routing practices, the Exchange does not believe 
this proposed fee change would impose any burden on intermarket 
competition.
    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar order types and comparable 
transaction pricing, by encouraging additional orders to be sent to the 
Exchange for execution.

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 has become effective upon filing pursuant 
to section 19(b)(3)(A) \18\ of the Act and paragraph (f) thereunder. At 
any time within 60 days of the filing of the proposed rule change, the 
Commission summarily may

[[Page 4051]]

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.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEARCA-2023-01 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEARCA-2023-01. 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 offices of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEARCA-2023-01, and should be 
submitted on or before February 13, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-01120 Filed 1-20-23; 8:45 am]
BILLING CODE 8011-01-P