[Federal Register Volume 89, Number 31 (Wednesday, February 14, 2024)]
[Notices]
[Pages 11323-11326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02978]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99495; File No. SR-NYSECHX-2024-04]


Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Harmonize 
Rules 10.9261 and 10.9830

    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 January 31, 2024, the NYSE Chicago, Inc. (``NYSE Chicago'' 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 harmonize Rules 10.9261 and 10.9830 to 
permit video conference hearings under specified conditions in 
conformity with recent changes by the Financial Industry Regulatory 
Authority, Inc. (``FINRA''). 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 harmonize Rules 10.9261 (Evidence and 
Procedure in Hearing) and 10.9830 (Hearing) to permit video conference 
hearings under specified conditions in conformity with recent changes 
by FINRA.
Background
    In 2022, NYSE Chicago adopted disciplinary rules that are, with 
certain exceptions, substantially the same as the disciplinary rules of 
its affiliate NYSE Arca, Inc., which are in turn substantially similar 
to the FINRA Rule 8000 Series and Rule 9000 Series, and which set forth 
rules for conducting investigations and enforcement actions.\4\
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    \4\ See Securities Exchange Act Release No. 95020 (June 1, 
2022), 87 FR 35034, (June 8, 2022) (SR-NYSECHX-2022-10) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Adopt 
Investigation, Disciplinary, Sanction, and Other Procedural Rules 
Modeled on the Rules of the Exchange's Affiliates).
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    In adopting disciplinary rules modeled on FINRA's rules, the 
Exchange adopted the hearing and

[[Page 11324]]

evidentiary processes set forth in Rule 10.9261 and in Rule 10.9830 for 
hearings in matters involving temporary and permanent cease and desist 
orders under the Rule 9800 Series. As adopted, the text of Rule 10.9261 
is identical to the counterpart FINRA rule. Rule 10.9830 is also 
identical to FINRA's counterpart rule, except for conforming and 
technical amendments.\5\
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    \5\ See id.
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    In 2020, given the spread of COVID-19 and its effect on FINRA's 
adjudicatory functions nationwide, FINRA filed a temporary rule change 
to grant FINRA's Office of Hearing Officers (``OHO'') and the National 
Adjudicatory Council (``NAC'') the authority to conduct certain 
hearings by video conference if warranted by the current COVID-19-
related public health risks posed by in-person hearings. Among the 
rules FINRA amended were FINRA Rules 9261 and 9830.\6\
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    \6\ See Securities Exchange Act Release No. 83289 (September 2, 
2020), 85 FR 55712 (September 9, 2020) (SR-FINRA-2020-027). Given 
that FINRA's OHO administers all aspects of Exchange adjudications, 
including assigning hearing officers to serve as NYSE Chicago 
hearing officers, pursuant to a regulatory services agreement 
(``RSA''), and that the public health concerns addressed by FINRA's 
amendments applied equally to the Exchange's disciplinary hearings, 
in 2022, the Exchange also temporarily amended its disciplinary 
rules to allow virtual hearings. See Securities Exchange Act Release 
No. 95477 (August 11, 2022), 87 FR 50680 (August 17, 2022) (SR-
NYSECHX-2022-19). The temporary relief was extended through April 
30, 2023, due to the continuing public health risks and logistical 
challenges related to COVID-19, including whether hearing 
participants could safely travel and abide by state or local 
quarantine requirements. See Securities Exchange Act Release No. 
96872 (February 9, 2023), 88 FR 9922 (February 15, 2023) (SR-
NYSECHX-2023-007) (extending the expiration date of the temporary 
rule amendments to, among other rules, FINRA Rules 9261 and 9830 
from January 31, 2023 to April 30, 2023). The temporary amendments 
expired on April 30, 2023 and, because the Exchange did not file 
another proposed rule change extending the temporary amendments 
beyond that date, the rules reverted back to their original state on 
April 30, 2023. See id. at 9924.
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    In its filing, FINRA represented that its protocol for conducting 
hearings by video conference would ensure that such hearings maintain a 
fair process for the parties by, among other things, FINRA's use of a 
high quality, secure and user-friendly video conferencing service and 
provision of thorough instructions, training and technical support to 
all hearing participants.\7\ According to FINRA, the changes were a 
reasonable interim solution to allow FINRA's critical adjudicatory 
processes to continue to function while protecting the health and 
safety of hearing participants.\8\
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    \7\ See 85 FR at 55713.
    \8\ See id.
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    Recently, the Commission approved FINRA's proposal to make the 
temporary amendments regarding video conference hearings permanent, 
with some modifications, to permit the use of video conferences for 
reasons beyond COVID-19.\9\ Specifically, FINRA amended, among other 
rules, FINRA Rules 9261 and 9830 to extend OHO's authority to order 
hearings by video conference to other similar situations in which 
proceeding in person could endanger the health or safety of the 
participant or alternatively would be impracticable (e.g., an uncommon 
situation or extraordinary circumstances such as a natural disaster or 
terrorist attack that caused travel to be cancelled for an extended 
period of time).\10\ As approved, OHO has discretion to determine 
whether the circumstances for a video hearing have been met and can act 
quickly if a future unexpected event impairs their ability to conduct 
in-person hearings safely.\11\ In addition, OHO has authority to order 
hearings to occur by video conference based on a motion, which was not 
permitted under the previous temporary amendments to FINRA Rules 9261 
and 9830.\12\
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    \9\ See Securities Exchange Act Release No. 98029 (August 4, 
2023), 88 FR 51879 (August 4, 2023) (SR-FINRA-2023-008) (Order 
Approving a Proposed Rule Change To Amend FINRA Rules 1015, 9261, 
9341, 9524, 9830 and Funding Portal Rule 900 (Code of Procedure) To 
Permit Hearings Under Those Rules To Be Conducted by Video 
Conference) (``FINRA Approval Order'').
    \10\ See FINRA Approval Order, 88 FR at 51880.
    \11\ See id.
    \12\ See id.
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    As the FINRA Approval Order noted, FINRA represented that it will 
utilize the same protocols for conducting video conference hearings as 
those employed under the temporary amendments, including using a high 
quality, secure, user-friendly video conferencing service and providing 
thorough instructions, training, and technical support to all hearing 
participants.\13\ In addition, the FINRA Approval Order noted that, 
according to FINRA, the parties could file a joint motion requesting 
the hearing to occur, in whole or in part, by video conference based on 
a showing of good cause. In-person hearings, however, would remain the 
default method for conducting hearings.\14\
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    \13\ See id.
    \14\ See id.
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    Further, as noted in the FINRA Approval Order, given the nature of 
evidentiary hearings,\15\ which often occur over multiple days and 
generally include numerous documents in evidence and witness testimony, 
motions for a hearing by video conference would need to be joined by 
all parties, and even joint motions could be denied if the adjudicator 
determines that good cause has not been shown.\16\ According to FINRA, 
OHO would have reasonable discretion based on a joint motion of the 
parties to exercise its authority to determine whether a hearing should 
occur by video conference under the proposed rule change.\17\ Moreover, 
in deciding whether to schedule a hearing by video conference, OHO 
could consider and balance a variety of factors including, for example 
and without limitation, a hearing participant's individual health 
concerns and access to the connectivity and technology necessary to 
participate in a video conference hearing. Additionally, as noted 
above, OHO may consider whether a situation is uncommon or there are 
extraordinary circumstances.\18\
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    \15\ As used herein, ``evidentiary hearings'' refers to hearings 
conducted before OHO under Rules 10.9261 and 10.9830. See id., 88 FR 
at 51880, n. 25.
    \16\ See id. at 51881.
    \17\ See id.
    \18\ See text accompanying note 10, supra.
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    Finally, the FINRA Approval Order noted that for approximately two 
and a half years, while the temporary amendments were in effect, OHO 
successfully conducted numerous hearings by video conference using 
Zoom, a system which was vetted by FINRA's information technology 
staff.\19\ FINRA stated that this use of video conference technology 
has been an effective and efficient alternative to in-person 
hearings.\20\
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    \19\ See FINRA Approval Order, 88 FR at 51880.
    \20\ See id.
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    As discussed below, the Exchange proposes to adopt rule text based 
on FINRA's recently approved amendments to its Rules 9261 and 9830 
permitting video conference hearings under specified conditions. Each 
of the Exchange's affiliates recently adopted the same amendments.\21\
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    \21\ See Securities Exchange Act Release No. 99120 (December 8, 
2023), 88 FR 86708 (December 14, 2023) (SR-NYSE-2023-47); Securities 
Exchange Act Release No. 99121 (December 8, 2023), 88 FR 86697 
(December 14, 2023) (SR-NYSEAMER-2023-62); Securities Exchange Act 
Release No. 99122 (December 8, 2023), 88 FR 86693 (December 14, 
2023) (SR-NYSEARCA-2023-82); and Securities Exchange Act Release No. 
99127 (December 8, 2023), 88 FR 86689 (December 14, 2023) (SR-
NYSENAT-2023-28).
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Proposed Rule Change
    NYSE Chicago Rule 10.9261(b) provides that if a disciplinary 
hearing is held, a party shall be entitled to be heard in-person, by 
counsel, or by the party's representative. Similarly, NYSE Chicago Rule 
10.9830 outlines the requirements for hearings for temporary and 
permanent cease and desist orders.

[[Page 11325]]

NYSE Chicago Rule 10.9830(a), however, does not specify that a party 
shall be entitled to be heard in-person, by counsel, or by the party's 
representative.
    The Exchange proposes to conform Rules 10.9261 and 10.9830 to FINRA 
Rules 9261 and 9830 as recently amended. The Exchange would add text to 
the rules permitting the Chief or Deputy Chief Hearing Officer to order 
the hearing to be conducted in whole or in part by video conference 
consistent with the FINRA Approval Order either based upon an 
assessment that proceeding in person may endanger the health or safety 
of the participants or would be impracticable or upon consideration of 
a joint motion of the parties for good cause shown. As noted, FINRA has 
adopted a detailed and thorough protocol to ensure that hearings 
conducted by video conference will maintain a fair process for the 
parties.\22\ Moreover, the proposed rule change would modernize 
existing procedures and allow parties who jointly prefer video 
conference to potentially save travel costs and time. As proposed, the 
use of video conferences would be limited and controlled, and in-person 
hearings would continue to be the default method for conducting 
hearings.\23\ Furthermore, the proposed rule includes procedural 
safeguards to ensure fairness, such as the requirement for evidentiary 
hearings that any motions be joined by all parties and show good 
cause.\24\ The Exchange believes that this is a reasonable procedure to 
follow in hearings under Rules 10.9261 and 10.9830 chaired by a FINRA 
employee.\25\
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    \22\ See text accompanying notes 7-8, supra.
    \23\ See FINRA Approval Order, 88 FR at 51882.
    \24\ See id.
    \25\ As noted, FINRA and OHO administer disciplinary hearings on 
the Exchange's behalf pursuant to an RSA. See note 6, supra. FINRA's 
OHO administers all aspects of Exchange adjudications, including 
assigning hearing officers to serve as NYSE Chicago hearing 
officers. A hearing officer from OHO will, among other things, 
preside over the disciplinary hearing, select and chair the hearing 
panel, and prepare and issue written decisions. The Chief or Deputy 
Hearing Officer for all Exchange disciplinary hearings are currently 
drawn from OHO and are all FINRA employees. The Exchange understands 
that OHO will utilize the same video conference protocol and 
processes for Exchange matters under the RSA as it proposes for 
FINRA matters.
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    To effectuate these changes, the Exchange proposes to add the 
following additions (italicized) to Rule 10.9261(b):

    If a hearing is held, a Party shall be entitled to be heard in 
person, by counsel, or by the Party's representative. Upon a 
determination that proceeding in person may endanger the health or 
safety of the participants or would be impracticable, or upon 
consideration of a joint motion of the Parties for good cause shown, 
the Chief Hearing Officer or Deputy Chief Hearing Officer may, in 
the exercise of reasonable discretion, order the hearing to be 
conducted, in whole or in part, by video conference.

    The proposed text is identical to the language adopted by 
FINRA.\26\
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    \26\ See Exchange Act Release No. 97403 (May 4, 2023), 88 FR 
28645 (May 4, 2023) (File No. SR-FINRA-2023-008) (Notice of Filing 
of a Proposed Rule Change To Amend FINRA Rules 1015, 9261, 9341, 
9524, 9830 and Funding Portal Rule 900 (Code of Procedure) To Permit 
Hearings Under Those Rules To Be Conducted by Video Conference).
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    Similarly, the Exchange proposes the following additions to Rule 
10.9830(a):

    The hearing shall be held not later than 15 days after service 
of the notice and filing initiating the temporary cease and desist 
proceeding, unless otherwise extended by the Chief Hearing Officer 
or Deputy Chief Hearing Officer for good cause shown. If a Hearing 
Officer or Hearing Panelist is recused or disqualified, the hearing 
shall be held not later than five days after a replacement Hearing 
Officer or Hearing Panelist is appointed. Upon a determination that 
proceeding in person may endanger the health or safety of the 
participants or would be impracticable, or upon consideration of a 
joint motion of the Parties for good cause shown, the Chief Hearing 
Officer or Deputy Chief Hearing Officer may, in the exercise of 
reasonable discretion, order the hearing to be conducted, in whole 
or in part, by video conference.

    Once again, the proposed language is identical to the language 
adopted by FINRA.\27\
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    \27\ See id.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\28\ in general, and furthers the objectives of Section 
6(b)(5),\29\ 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. Additionally, the Exchange believes 
the proposed rule change is designed to provide a fair procedure for 
the disciplining of members and persons associated with members, 
consistent with Sections 6(b)(7) and 6(d) of the Act.\30\
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    \28\ 15 U.S.C. 78f(b).
    \29\ 15 U.S.C. 78f(b)(5).
    \30\ 15 U.S.C. 78f(b)(7) & 78f(d).
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    The Exchange believes that the proposed rule changes support the 
objectives of the Act by harmonizing Exchange rules modeled on FINRA's 
rules, resulting in less burdensome and more efficient regulatory 
compliance. As previously noted, the text proposed for Rule 10.9261 and 
Rule 10.9830 is identical to the text in the counterpart FINRA rules. 
As such, the proposed rule change would facilitate rule harmonization 
among self-regulatory organizations with respect to the conduct of 
video conference hearings, thereby fostering cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and will remove impediments to and perfect the mechanism of 
a free and open market and a national market system.
    The Exchange believes that the proposed rule change protects 
investors and the public interest by permitting the use of broadly 
available technology to allow hearings to proceed by video conference 
under certain circumstances. The Exchange's disciplinary proceedings 
serve a critical role in providing investor protection and maintaining 
fair and orderly markets by, for example, sanctioning misconduct and 
preventing further customer harm by members and associated persons. The 
proposed rule change would encourage the prompt resolution of these 
cases while preserving fair process. The Exchange believes that this is 
especially important in matters where temporary and permanent cease and 
desist orders are sought because the proposed rule change would enable 
those hearings to proceed without delay, thereby enabling the Exchange 
to take immediate action to stop significant, ongoing customer harm, to 
the benefit of the investing public.
    The proposed rule change promotes efficiency by permitting hearings 
to occur by video conference in situations where the hearings would 
otherwise be postponed for an uncertain period of time. Moreover, as 
noted, FINRA will utilize the same protocols for conducting video 
conference hearings as those employed under the temporary amendments, 
including using a high quality, secure, user-friendly video 
conferencing service and providing thorough instructions, training, and 
technical support to all hearing participants.\31\ Moreover, the Chief 
or Deputy Chief Hearing Officer may take into consideration, among 
other things, a hearing participant's individual health concerns and 
access to the connectivity and technology necessary to participate in a 
video conference hearing.\32\
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    \31\ See FINRA Approval Order, 88 FR at 51880.
    \32\ See id. at 51881 & n. 36.

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[[Page 11326]]

    For the same reasons, the Exchange believes that the proposed 
changes are designed to provide a fair procedure for the disciplining 
of members and persons associated with members, consistent with 
Sections 6(b)(7) and 6(d) of the Act.\33\ The Exchange believes that 
the proposed rule change provides a fair procedure by allowing hearings 
to proceed by video conference not only due to public health or safety 
reasons, but also at a party or the parties' request for reasons 
particular to them. The Chief or Deputy Chief Hearing Officer could 
allow a hearing to proceed by video conference in the exercise of 
reasonable discretion and subject to procedural safeguards that ensure 
fairness, including the requirement that any motions be joined by all 
parties and show good cause. Overall, the proposed rule change 
represents a significant step toward modernizing disciplinary process 
procedures in a manner that preserves in-person hearings but allows for 
the use of video conference technology under certain circumstances.
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    \33\ 15 U.S.C. 78f(b)(7) and 78f(d).
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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 proposed rule change is 
not intended to address competitive issues but is rather intended 
solely to create permanent rules that would allow video conference 
hearings if OHO determines that proceeding in person may endanger the 
health or safety of the participants or would be impracticable, or 
where both parties prefer doing so and show good cause, thereby 
providing greater harmonization with approved FINRA rules.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \34\ and Rule 19b-4(f)(6) thereunder.\35\ 
Because the proposed rule change does not: (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \34\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \35\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \36\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\37\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \36\ 17 CFR 240.19b-4(f)(6).
    \37\ 17 CFR 240.19b-4(f)(6)(iii).
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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) \38\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \38\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSECHX-2024-04 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-NYSECHX-2024-04. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSECHX-2024-04 and should 
be submitted on or before March 6, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).

    Dated: February 8, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02978 Filed 2-13-24; 8:45 am]
BILLING CODE 8011-01-P