Notice2021-15103
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Partial Amendment No. 2 and Order Granting Accelerated Approval To Proposed Rule Change, as Modified by Partial Amendment No. 2, To Amend NYSE Rules 7.35 and 7.35A
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Published
July 16, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 134 (Friday, July 16, 2021)</title>
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[Federal Register Volume 86, Number 134 (Friday, July 16, 2021)]
[Notices]
[Pages 37779-37782]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15103]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 92373; File No. SR-NYSE-2020-93]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Partial Amendment No. 2 and Order Granting
Accelerated Approval To Proposed Rule Change, as Modified by Partial
Amendment No. 2, To Amend NYSE Rules 7.35 and 7.35A
July 12, 2021.
I. Introduction
On November 3, 2020, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend Rule 7.35 regarding
dissemination of Auction Imbalance Information if a security is an IPO
or Direct Listing and has not had its IPO Auction or Direct Listing
Auction, and Rule 7.35A regarding DMM consultations in connection with
an IPO or Direct Listing. The proposed rule change was published for
comment in the Federal Register on November 17, 2020.\3\ On December
18, 2020, the Commission extended to February 15, 2020, the time period
within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
approve or disapprove the proposed rule change.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 90387 (Nov. 10,
2020), 85 FR 73322 (Nov. 17, 2020) (``Notice'').
\4\ See Securities Exchange Act Release No. 90723 (Dec. 18,
2020), 85 FR 84446 (Dec. 28, 2020).
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On February 12, 2021, the Commission instituted proceedings under
Section 19(b)(2)(B) of the Act \5\ to determine whether to approve or
disapprove the proposal.\6\ On April 9, 2021, the Exchange filed
Amendment No. 1 to the proposed rule change. On May 7, 2021, the
Commission extended the time period for approving or disapproving the
proposal for an additional 60 days until July 15, 2021.\7\ On May 11,
2021, the Exchange withdrew Partial Amendment No. 1 and filed Partial
Amendment No. 2 to the proposal for inclusion in the public comment
file.\8\ The Commission has not received comments on the proposed rule
change, as modified by Partial Amendment No. 2.
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\5\ 15 U.S.C. 78s(b)(2)(B).
\6\ See Securities Exchange Act Release No. 91121, (Feb. 12,
2021), 86 FR 10386 (Feb. 19, 2021) (``Order Instituting
Proceedings'').
\7\ See Securities Exchange Act Release No. 91791 (May 7, 2021),
86 FR 26110 (May 12, 2021).
\8\ In Partial Amendment No. 2, the Exchange proposes to (1)
update NYSE Rule 7.35A(g)(1) in Exhibit 5 of the proposal to
incorporate the term ``Selling Shareholder Direct Floor Listing'' to
reflect the text of NYSE Rule 7.35A(g)(1) as recently amended, and
(2) provide additional background for the proposal in response to
the Commission's request for comment in the Order Instituting
Proceedings. See Letter from Martha Redding, Associate General
Counsel, NYSE LLC to Secretary, Commission (May 11, 2021). Partial
Amendment No. 2 is available at <a href="https://www.sec.gov/comments/sr-nyse-2020-93/srnyse202093-8785691-237727.pdf">https://www.sec.gov/comments/sr-nyse-2020-93/srnyse202093-8785691-237727.pdf</a>.
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The Commission is publishing this notice to solicit comment on
Partial Amendment No. 2 to the proposed rule change from interested
persons, and is approving the proposed rule change, as modified by
Partial Amendment No. 2, on an accelerated basis.
[[Page 37780]]
II. Description of the Proposal, As Modified by Partial Amendment No. 2
\9\ and Order Instituting Proceedings
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\9\ See Notice, supra note 3, for a complete description of the
proposal as originally filed.
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A. Description of the Proposal As Modified by Partial Amendment No. 2
The Exchange proposes to (1) amend NYSE Rule 7.35 to make permanent
that the Exchange would disseminate Auction Imbalance Information if a
security is an IPO or Direct Listing and has not had its IPO Auction or
Direct Listing Auction, and (2) amend NYSE Rule 7.35A regarding DMM
consultations in connection with an IPO Auction or Direct Listing
Auction.\10\
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\10\ In Partial Amendment No. 2, the Exchange also proposes to
update the text to NYSE Rule 7.35A(g)(1) in the Exhibit 5 to
correctly reflect the text of that rule as recently amended. See
supra note 8 and accompanying text.
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NYSE Rule 7.35--Auction Imbalance Information
The Exchange proposes to make permanent that the Exchange would
disseminate Auction Imbalance Information if a security is an IPO or
Direct Listing \11\ and has not had its IPO Auction or Direct Listing
Auction.\12\ The Exchange states that disseminating Auction Imbalance
Information in advance of an IPO Auction or Direct Listing Auction
would promote transparency in advance of these Auctions, which would
benefit investors and other market participants.\13\
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\11\ As used in Exchange Rules, the term ``Direct Listing''
means a security that is listed under Footnote (E) to Section
102.01B of the Listed Company Manual, which can be either a
``Selling Shareholder Direct Floor Listing'' or a ``Primary Direct
Floor Listing.'' See NYSE Rule 1.1(f).
\12\ See Notice, supra note 3, 85 FR at 73323. Commentaries .01
and .02 to Rule 7.35, currently in effect on a temporary basis
through August 31, 2021, provide for the dissemination of Auction
Imbalance Information if a security is an IPO or Direct Listing and
has not had its IPO Auction or Direct Listing Auction. See
Securities Exchange Act Release No. 91778 (May 5, 2021), 86 FR 25902
(May 11, 2021) (SR-NYSE-2021-29).
\13\ See Notice, supra note 3, 85 FR at 73323.
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As part of the proposed change, the Exchange proposes that the
Imbalance Reference Price for determining the Auction Imbalance
Information for either an IPO Auction or a Direct Listing Auction would
be determined in the same manner as currently provided for under the
temporary Commentaries .01 and .02 to NYSE Rule 7.35, respectively.\14\
Specifically, the Imbalance Reference Price for determining the Auction
Imbalance Information for a Core Open Auction under NYSE Rule
7.35A(e)(3) is the Consolidated Last Sale Price, bound by the bid and
offer of any published pre-opening indication.\15\ Because the
definition of Imbalance Reference Price does not currently specify what
the Consolidated Last Sale Price would be for an IPO Auction or Direct
Listing Auction (which does not exist because the security has not been
previously listed on an exchange), the Exchange proposes to amend the
definition of Consolidated Last Sale Price in NYSE Rule 7.35(a)(11)(A)
to provide that: (i) For an IPO that has not had its IPO Auction, the
Consolidated Last Sale Price would mean the security's offering price;
and (ii) for a Direct Listing that has not had its Direct Listing
Auction, the Consolidated Last Sale Price would mean the Indication
Reference Price for such security.\16\
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\14\ See id.
\15\ See Notice, supra note 3, 85 FR at 73323.
\16\ See id.
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NYSE Rule 7.35A--DMM Consultations
The Exchange proposes to amend NYSE Rule 7.35A(g)(1) to provide
that a DMM may consult with an underwriter or financial advisor for
initial listings or follow-on offerings for the issuer of such
security.\17\ The Exchange represents that the proposed rule text
reflects long-standing practice relating to the type of consultations
that a Designated Market Maker (``DMM'') may have with an underwriter
or financial advisor.\18\ The Exchange further proposes to specify that
any such consultations will be conducted by an underwriter or financial
advisor relaying information to the DMM via either a Floor broker or
Exchange staff.\19\ The Exchange represents that, as with current
practice, the only consultations that would be required in Exchange
rules would be in connection with a Selling Shareholder Direct Floor
Listing that has not had recent sustained history of trading in a
Private Placement Market prior to listing.\20\ The Exchange states that
it believes that this proposed rule would promote transparency and
clarity in Exchange rules by specifying the existing process whereby a
DMM may consult with an underwriter or financial advisor in connection
with a security having its initial listing on the Exchange or for a
follow-on offering.\21\
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\17\ See Notice, supra note 3, 85 FR at 73324.
\18\ See id.
\19\ See id.
\20\ See id.
\21\ See id.
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B. Order Instituting Proceedings
In the Order Instituting Proceedings, the Commission requested
comment on, among other things: (1) Whether the proposed rule should
specify what is a permitted consultation provided for in the proposed
amendments to NYSE Rule 7.35A; (2) whether there any types of
information that the underwriter or financial advisor should be
prohibited from conveying to the DMM in these consultations; (3)
whether a DMM should be permitted to communicate directly with the
underwriter or financial advisor with respect to these consultations,
rather than through a Floor broker or a member of the Exchange's staff;
and (4) whether the Exchange's rules should distinguish between DMM
consultations with underwriters or financial advisors with respect to
follow-on offerings for securities that have a market value reflected
in trading prices as opposed to initial offerings.\22\
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\22\ See Order Instituting Proceedings, supra note 6, 86 FR at
10387.
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In response to the questions raised in the Order Instituting
Proceedings, the Exchange states that there is a long-standing practice
on the Trading Floor for DMMs to communicate with underwriters via
Floor brokers in connection with IPO Auctions and Core Open Auctions
for follow-on offerings.\23\ According to the Exchange, this practice
is consistent with Exchange rules, which permit Floor brokers to use
cellular phones at the point of sale, including to relay market look
information off the Trading Floor.\24\ The Exchange states its belief
that this practice also promotes a fair and orderly and transparent
auction process because any information that is relayed from the
underwriter to the DMM or from the DMM to the underwriter is announced
on the Trading Floor, and is thereby available to anyone at the point
of sale.\25\ The Exchange also states that, to the extent the DMM
receives information that would affect the opening price, that
information would be incorporated into the pre-opening indication
published by the DMM, which is disseminated via both proprietary data
feeds and the Consolidated Tape. The Exchange states that when the
Exchange introduced Direct Listing Auctions, DMMs met their obligation
to consult with financial advisors using the same process.\26\
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\23\ See Partial Amendment No. 2, supra note 8, at 7.
\24\ See id.
\25\ See id.
\26\ See Partial Amendment No. 2, supra note 8, at 7-8.
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The Exchange states that the proposal would specify in Exchange
rules this long-standing practice with only one proposed difference--
specifically, that the Exchange proposes to provide an underwriter or
financial advisor the choice to use either a Floor broker or
[[Page 37781]]
Exchange staff to relay information to and from the DMM.\27\ The
Exchange states that it has been operating in this manner on a
temporary basis during the period when there have been reduced DMM and
Floor broker staff on the Trading Floor to reduce the spread of COVID-
19.\28\ The Exchange states its belief that if an underwriter or
financial advisor chooses to use Exchange staff to relay information,
it would still be an open and transparent process, because any
information that Exchange staff request of a DMM would be relayed to
anyone at the point of sale, and any information that an underwriter or
financial advisor provides to Exchange staff would be relayed to the
DMM at the point of sale, again, available to anyone else standing in
the crowd.\29\
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\27\ See Partial Amendment No. 2, supra note 8, at 8.
\28\ See id.
\29\ See id.
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The Exchange states its belief that it is not necessary for
Exchange rules to impose any restrictions on the type of information
that is relayed from an underwriter or financial advisor to the DMM and
vice versa because, in the Exchange's view, the manner of such
communications makes them available to all Floor brokers that choose to
be at the point of sale, and if the communications impact pricing, that
information would be incorporated into the pre-opening indication
published by the DMM and disseminated via both proprietary data feeds
and the Consolidated Tape.\30\ The Exchange also states its belief
that, because any such communications are available to any Floor
brokers at the point of sale, and could be shared with customers of
those Floor brokers, Exchange rules do not need to limit the
information an underwriter or financial advisor may ask to be relayed
to the DMM by a Floor broker or Exchange staff.\31\ The Exchange
further states that having a Floor-based intermediary between an
underwriter or financial advisor and the DMM ensures an open and
transparent process on the Trading Floor, and that, therefore, in the
Exchange's view, Exchange rules do not need to be modified at this time
to permit direct communications between the DMM and underwriter or
financial advisor.\32\ Finally, the Exchange states that, for similar
reasons, the Exchange does not believe that the permissible method of
communication needs to be distinguished among an IPO Auction, Direct
Listing Auction, or Core Open Auction in connection with a follow-on
offering.\33\
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\30\ See id.
\31\ See id.
\32\ See id.
\33\ See id.
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III. Discussion and Commission Findings
After careful review, the Commission is approving the proposed rule
change, as modified by Amendment No. 2, for the reasons discussed
below.\34\ The Commission finds that the proposed rule change, as
modified, is consistent with the requirements of the Act and the rules
and regulations thereunder applicable to a national securities
exchange, including Section 6(b)(5) of the Exchange Act,\35\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, 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; and are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\34\ In approving this proposed rule change, the Commission has
considered the proposed rule change's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\35\ 15 U.S.C. 78f(b)(5).
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The proposed change to make permanent that the Exchange would
disseminate Auction Imbalance Information if a security is an IPO or
Direct Listing and has not had its IPO Auction or Direct Listing
Auction is reasonably designed to promote fair and orderly IPO Auctions
and Direct Listing Auctions, because including this information in the
Auction Imbalance Information on the same terms that it is disseminated
for other Core Open Auctions would promote transparency in advance of
an IPO Auction or Direct Listing Auction. The Exchange initially
excluded IPOs and Direct Listings from Order Imbalance Information
because Exchange systems at the time did not have access to interest
represented in the crowd by Floor brokers.\36\ Since the Exchange
transitioned to its Pillar trading platform in August 2019, all Floor
broker interest intended for a Core Open Auction, IPO Auction, or
Direct Listing Auction must be entered electronically,\37\ and Exchange
systems will include such orders in the Auction Imbalance
Information.\38\ Because Floor broker interest is now entered
electronically and can be included in Auction Imbalance Information for
all Core Open Auctions, the original rationale for excluding such
information has become moot.
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\36\ See Securities Exchange Act Release Nos. 74837 (April 29,
2015), 80 FR 25741 (May 5, 2015) (SR-NYSE-2015-19) (Notice of filing
and immediate effectiveness of proposed rule change); and 82627
(Feb. 2, 2018), 83 FR 5650 (Feb. 8, 2018) (SR-NYSE-2017-30)
(Approval Order).
\37\ See Securities Exchange Act Release No. 85962 (May 29,
2019), 84 FR 26188, 26208 at n.73 (June 5, 2019) (SR-NYSE-2019-05)
(Approval Order). As part of the transition to Pillar, the Exchange
replaced the term ``Order Imbalance Information'' with ``Auction
Imbalance Information.''
\38\ See Notice, supra note 3, 85 FR at 73323.
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The Commission also finds that the proposal to make permanent the
ability of an underwriter or financial advisor to convey information to
the DMM in connection with initial listings and follow-on offerings via
either a Floor broker or Exchange staff is consistent with the Act.
Whether an underwriter or financial advisor relays information to the
DMM via Exchange staff or a Floor broker, the process would remain open
and transparent because all such communications would occur on the
Exchange floor in the presence of all persons present in the trading
crowd and because, if those communications impact the anticipated
pricing of the auction, that information would be incorporated into the
pre-opening indication published by the DMM and disseminated via both
proprietary data feeds and the Consolidated Tape, which provides
additional transparency.\39\ The Commission, however, reminds market
participants that the federal securities laws, including Regulation M
and other antifraud and anti-manipulation provisions, will continue to
apply and that the proposed amendments to NYSE Rule 7.35A(g)(1) do not
modify or provide any relief from--or create an exception to--these
provisions of the federal securities laws and regulations, including
Regulation M.\40\ Further, reliance on NYSE Rule 7.35A(g)(1) or any
amendments thereto would not create a safe harbor with respect to
violations of Regulation M.
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\39\ See id.
\40\ See, e.g., Securities Exchange Act Release No. 90758 (Dec.
22, 2020), 85 FR 85807, 85813 (Dec. 29, 2020) (SR-NYSE-2019-67)
(stating, in approving the Exchange's proposed modification to its
direct listing rules, that the Exchange had added language to its
rule proposal ``reminding financial advisers to an issuer and the
DMM that any consultations with the financial advisor must be
conducted in a manner consistent with the federal securities laws,
including Regulation M and other anti-manipulation requirements,''
and further stating that the Exchange had represented that it had
retained FINRA to monitor such compliance and that it planned to
issue regulatory guidance in this area).
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The proposed change to NYSE Rule 7.35A(g)(1) is reasonably designed
to protect investors and the public interest and provide greater
clarity and transparency in Exchange rules by
[[Page 37782]]
codifying the current practice for DMM consultations with the
underwriter or financial advisor of an issuer of a security in
connection with initial listings and follow-on offerings. The Exchange
represents that this proposed rule change would not result in any
changes to how a DMM would determine the Auction Price for Core Open
Auctions under NYSE Rule 7.35A(g).\41\
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\41\ See Notice, supra note 3, 85 FR at 73325.
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For the reasons discussed above, the Commission finds that the
proposed rule change, as modified by Amendment No. 2, is consistent
with the requirements of the Act and in particular Section 6(b)(5)
because it is reasonably 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, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and is not designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
IV. Solicitation of Comments on Partial Amendment No. 2 to the Proposed
Rule Change
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether Partial Amendment
No. 2 to the proposed rule change is consistent with the Act. Comments
may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#bac8cfd6df97d9d5d7d7dfd4cec9fac9dfd994ddd5cc"><span class="__cf_email__" data-cfemail="4634332a236b25292b2b232832350635232568212930">[email protected]</span></a>. Please include
File Number SR-NYSE-2020-93 on the subject line.
Paper Comments
<bullet> 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-2020-93. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 and on the
Exchange's website <a href="https://www.nyse.com/regulation/rule-filings?market=NYSE">https://www.nyse.com/regulation/rule-filings?market=NYSE</a>. 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-2020-93
and should be submitted on or before August 6, 2021.
V. Accelerated Approval of the Proposed Rule Change, as Modified as
Partial Amendment No. 2
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\42\ to approve the proposed rule change, as modified by
Partial Amendment No. 2, prior to the 30th day after the date of
publication of Partial Amendment No. 2 in the Federal Register. As
noted above, Partial Amendment No. 2 does not amend the substance of
the proposal as initially filed but instead corrects reference in the
rule text in the Exhibit 5 and provides additional background on the
proposal. Because Partial Amendment No. 2 does not materially alter the
substance of the proposed rule change or raise unique or novel
regulatory issues, the Commission finds that accelerated approval of
Partial Amendment No. 2 is consistent with the Act.
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\42\ 15 U.S.C. 78s(b)(2).
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For the reasons discussed above, the Commission finds that Partial
Amendment No. 2 is reasonably designed to protect investors and the
public interest, and consistent with the requirements of the Act.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Act,\43\ to approve the proposed rule change, as
modified by Partial Amendment No. 2, on an accelerated basis.
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\43\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\44\ that the proposed rule change (SR-NYSE-2020-93), as
modified by Partial Amendment No. 2, be, and it hereby is, approved on
an accelerated basis.
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\44\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15103 Filed 7-15-21; 8:45 am]
BILLING CODE 8011-01-P
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