Notice2021-18944
Self-Regulatory Organizations; Miami International Securities Exchange, LLC, MIAX Emerald, LLC, and MIAX PEARL, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Changes To Amend Fees for Purge Ports
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 2, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 168 (Thursday, September 2, 2021)</title>
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[Federal Register Volume 86, Number 168 (Thursday, September 2, 2021)]
[Notices]
[Pages 49384-49386]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18944]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92792; File Nos. SR-MIAX-2021-29, SR-EMERALD-2021-22,
SR-PEARL-2021-30]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC, MIAX Emerald, LLC, and MIAX PEARL, LLC; Suspension of
and Order Instituting Proceedings To Determine Whether To Approve or
Disapprove Proposed Rule Changes To Amend Fees for Purge Ports
August 27, 2021.
I. Introduction
On July 1, 2021, Miami International Securities Exchange, LLC
(``MIAX''), MIAX Emerald, LLC (``MIAX Emerald), and MIAX PEARL, LLC
(``MIAX Pearl'') (each an ``Exchange;'' collectively, the
``Exchanges'') each filed with the Securities and Exchange Commission
(``Commission'') pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to increase fees for purge ports. Each proposed
rule change was immediately effective upon filing with the Commission
pursuant to Section 19(b)(3)(A) of the Act.\3\ The proposed rule
changes were published for comment in the Federal Register on July 15,
2021.\4\ The Commission has received comment on the proposals.\5\
Pursuant to Section 19(b)(3)(C) of the Act,\6\ the Commission is
hereby: (1) Temporarily suspending File Nos. SR-MIAX-2021-29, SR-
EMERALD-2021-22, and SR-PEARL-2021-30; and (2) instituting proceedings
to determine whether to approve or disapprove File Nos. SR-MIAX-2021-
29, SR-EMERALD-2021-22, and SR-PEARL-2021-30.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take
effect upon filing with the Commission if it is designated by the
exchange as ``establishing or changing a due, fee, or other charge
imposed by the self-regulatory organization on any person, whether
or not the person is a member of the self-regulatory organization.''
15 U.S.C. 78s(b)(3)(A)(ii).
\4\ See Securities Exchange Act Release Nos. 92364 (July 9,
2021), 86 FR 37364 (July 15, 2021) (SR-MIAX-2021-29) (``MIAX
Notice''); 92360 (July 9, 2021), 86 FR 37373 (July 15, 2021) (SR-
EMERALD-2021-22) (``MIAX Emerald Notice''); 92363 (July 9, 2021), 86
FR 37376 (July 15, 2021) (SR-PEARL-2021-30) (``MIAX Pearl Notice'').
For ease of reference, citations to statements generally applicable
to all three notices are to the MIAX Notice.
\5\ Comment on the proposed rule changes can be found at:
<a href="https://www.sec.gov/comments/sr-miax-2021-29/srmiax202129.htm">https://www.sec.gov/comments/sr-miax-2021-29/srmiax202129.htm</a>;
<a href="https://www.sec.gov/comments/sr-emerald-2021-22/sremerald202122.htm">https://www.sec.gov/comments/sr-emerald-2021-22/sremerald202122.htm</a>;
<a href="https://www.sec.gov/comments/sr-pearl-2021-30/srpearl202130.htm">https://www.sec.gov/comments/sr-pearl-2021-30/srpearl202130.htm</a>.
\6\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Changes
Each Exchange currently provides certain of its members the option
to purchase purge ports to assist in their quoting activity.\7\ Purge
ports provide the ability to send quote purge messages to an Exchange's
system.\8\ Each Exchange offers purge ports as a package; a member has
the option to receive up to two purge ports per matching engine to
which it connects.\9\ MIAX has 24 matching engines, and thus a member
may receive up to 48 purge ports on MIAX.\10\ MIAX Emerald and MIAX
Pearl each have 12 matching engines, and thus a member may receive up
to 24 purge ports on these Exchanges.\11\
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\7\ See, e.g., MIAX Notice, supra note 4, at 37365.
\8\ See MIAX Options Fee Schedule, Section (5)(d)(ii), footnote
30; MIAX Emerald Options Fee Schedule, Section (5)(d)(ii); MIAX
Pearl Options Fee Schedule, Definitions Section.
\9\ See, e.g., MIAX Notice, supra note 4, at 37365.
\10\ See MIAX Notice, supra note 4, at 37365.
\11\ See MIAX Emerald Notice, supra note 4, at 37374; MIAX Pearl
Notice, supra note 4, at 37377.
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MIAX and MIAX Emerald previously charged a flat fee of $1,500 per
month for purge ports, and MIAX Pearl previously charged a flat fee of
$750 per month for purge ports, regardless of the number of matching
engines to which a member connected and consequently regardless of the
number of purge ports allocated to the member. Each Exchange proposes
to increase the flat monthly fee to $7,500.
III. Suspension of the Proposed Rule Changes
Pursuant to Section 19(b)(3)(C) of the Act,\12\ at any time within
60 days of the date of filing of an immediately effective proposed rule
change pursuant to Section 19(b)(1) of the Act,\13\ the Commission
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. As described below, the Commission believes a temporary
suspension of the proposed rule changes is necessary and appropriate to
allow for additional analysis of the proposed rule changes' consistency
with the Act and the rules thereunder.
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\12\ 15 U.S.C. 78s(b)(3)(C).
\13\ 15 U.S.C. 78s(b)(1).
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When an exchange files a proposed rule change with the Commission,
including fee filings, it is required to provide a statement supporting
the proposal's basis under the Act and the rules and regulations
thereunder applicable to the exchange.\14\ The instructions to Form
19b-4, on which exchanges file their proposed rule changes, specify
that such statement ``should be sufficiently detailed and specific to
support a finding that the proposed rule change is consistent with
[those] requirements.'' \15\
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\14\ See 17 CFR 240.19b-4 (General Instructions for Form 19b-4--
Information to be Included in the Complete Form--Item 3 entitled
``Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change'').
\15\ See id.
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Section 6 of the Act, including Sections 6(b)(4), (5), and (8),
requires, among other things, that the rules of an exchange: (1)
Provide for the equitable allocation of reasonable fees among members,
issuers, and other persons using the exchange's facilities; \16\ (2) be
designed to perfect the mechanism of a free and open market and a
national market system and to protect investors and the public
interest, and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers; \17\ and (3) not impose any
burden on competition
[[Page 49385]]
not necessary or appropriate in furtherance of the purposes of the
Act.\18\
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\16\ 15 U.S.C. 78f(b)(4).
\17\ 15 U.S.C. 78f(b)(5).
\18\ 15 U.S.C. 78f(b)(8).
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In support of their proposals, the Exchanges state that the use of
purge ports is completely optional, and no options market participant
is required by rule, regulation, or competitive forces to use them.\19\
The Exchanges explain that members can use other protocols to purge or
cancel messages, and that purge ports were designed as an optional
service to enable firms to manage their quoting risk and meet their
heightened quoting obligations.\20\ The Exchanges state that they are
not aware of any reason why a market participant could not simply drop
its purge ports if the Exchanges were to establish unreasonable prices
for purge ports that, in the determination of such market participant,
did not make business or economic sense for such participant.\21\
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\19\ See, e.g., MIAX Notice, supra note 4, at 37365-66.
\20\ See id. at 37366.
\21\ See id.
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The Exchanges also state that they operate in a highly competitive
environment, and if an exchange sets non-transaction fees that are too
high for its relevant marketplace, market participants can choose to no
longer access that particular exchange.\22\
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\22\ See id. at 37365-66.
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The Exchanges further state that the increased monthly flat fee for
purge ports is competitive with fees charged by other exchanges that
offer comparable purge port services.\23\ The Exchanges state that they
have historically undercharged for purge ports as compared to other
exchanges, and that the proposed monthly fee increase would bring the
Exchanges' fees more in line with that of other options exchanges.\24\
The Exchanges argue that, when calculated on a per purge port basis,
other exchanges charge higher monthly fees. MIAX states that, assuming
a member receives 48 purge ports (two per each of its 24 matching
engines), this results in a cost of $156.25 per purge port ($7,500
divided by 48).\25\ MIAX Emerald and MIAX Pearl state that, assuming a
member receives 24 purge ports (two per each of their 12 matching
engines), this results in a cost of $312.50 per purge port ($7,500
divided by 24).\26\ The Exchanges state that Cboe BZX Exchange, Inc.
(``BZX''), Cboe EDGX Exchange, Inc. (``EDGX''), Cboe Exchange, Inc.
(``Cboe''), and Nasdaq GEMX, LLC (``GEMX'') charge higher monthly per
purge port fees of $750, $750, $850, and $1,250, respectively.\27\
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\23\ See id. at 37365.
\24\ See id.
\25\ See MIAX Notice, supra note 4, at 37365.
\26\ See MIAX Emerald Notice, supra note 4, at 37374; MIAX Pearl
Notice, supra note 4, at 37377.
\27\ See, e.g., MIAX Notice, supra note 4, at 37365.
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The one comment letter received to date challenges several of the
Exchanges' assertions.\28\ The commenter states that the Exchanges'
argument that the proposed $7,500 monthly fee is lower on a per purge
port basis than the fees assessed by other exchanges (BZX, EDGX, Cboe,
GEMX) is disingenuous, because each of these other exchanges has one
matching engine, and thus market participants require only two purge
ports on each of these exchanges, resulting in significantly lower fees
when calculated on a monthly basis.\29\ The commenter also states that
the Exchanges' argument that purge ports are optional functionality,
which members are free to drop if priced too high, is without
merit.\30\ The commenter asserts that the Exchanges know that market
makers have no choice but to absorb these fees so as not to imperil
their business with stale quotes.\31\ The commenter further states that
the Exchanges did not provide any justification for the fee increase
itself; and that the Exchanges likely cannot assert that the cost of
maintaining purge ports has increased at all, let alone five-fold.\32\
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\28\ See letter from Brian Sopinsky, General Counsel,
Susquehanna International Group, LLP, dated August 5, 2021 (``SIG
Letter'').
\29\ See SIG Letter, supra note 28, at 2.
\30\ See id.
\31\ See id.
\32\ See id.
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In temporarily suspending the Exchanges' proposed rule changes, the
Commission intends to further consider whether the proposed purge port
fees are consistent with the statutory requirements applicable to a
national securities exchange under the Act. In particular, the
Commission will consider whether the proposed rule changes satisfy the
standards under the Act and the rules thereunder requiring, among other
things, that an exchange's rules provide for the equitable allocation
of reasonable fees among members, issuers, and other persons using its
facilities; are designed to perfect the mechanism of a free and open
market and a national market system and to protect investors and the
public interest, and are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers; and do not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.\33\
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\33\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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Therefore, the Commission finds that it is appropriate in the
public interest, for the protection of investors, and otherwise in
furtherance of the purposes of the Act, to temporarily suspend the
proposed rule changes.\34\
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\34\ For purposes of temporarily suspending the proposed rule
changes, the Commission has considered the proposed rules' impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Changes
In addition to temporarily suspending the proposal, the Commission
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C)
\35\ and 19(b)(2)(B) of the Act \36\ to determine whether the
Exchanges' proposed rule changes should be approved or disapproved.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, the Commission seeks and encourages interested persons to
provide additional comment on the proposed rule changes to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule changes.
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\35\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
\36\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\37\ the Commission is
providing notice of the grounds for possible disapproval under
consideration:
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\37\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
See id. The time for conclusion of the proceedings may be extended
for up to 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding, or if the
exchange consents to the longer period. See id.
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<bullet> Whether the Exchanges have demonstrated how the proposed
fees are consistent with Section 6(b)(4) of the Act, which requires
that the rules of a national securities exchange ``provide for the
equitable allocation of reasonable dues, fees, and other charges among
its members and issuers and other persons using its facilities''; \38\
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\38\ 15 U.S.C. 78f(b)(4).
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<bullet> Whether the Exchanges have demonstrated how the proposed
fees are consistent with Section 6(b)(5) of the Act, which requires,
among other things, that the rules of a national securities exchange be
designed to ``perfect the mechanism of a free and open market and a
national market
[[Page 49386]]
system'' and ``protect investors and the public interest,'' and not be
``designed to permit unfair discrimination between customers, issuers,
brokers, or dealers''; \39\ and
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\39\ 15 U.S.C. 78f(b)(5).
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<bullet> Whether the Exchanges have demonstrated how the proposed
fees are consistent with Section 6(b)(8) of the Act, which requires
that the rules of a national securities exchange ``not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of [the Act].'' \40\
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\40\ 15 U.S.C. 78f(b)(8).
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As discussed in Section III above, the Exchanges made various
arguments in support of the proposal, and the Commission received
comment disputing the Exchanges' arguments and expressing concerns
regarding the proposal.\41\ In particular, the commenter argues that
the Exchanges did not provide sufficient information to establish that
the proposed fees are consistent with the Act and the rules
thereunder.\42\
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\41\ See SIG Letter, supra note 28.
\42\ See id. at 2.
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the [SRO]
that proposed the rule change.'' \43\ The description of a proposed
rule change, its purpose and operation, its effect, and a legal
analysis of its consistency with applicable requirements must all be
sufficiently detailed and specific to support an affirmative Commission
finding,\44\ and any failure of an SRO to provide this information may
result in the Commission not having a sufficient basis to make an
affirmative finding that a proposed rule change is consistent with the
Act and the applicable rules and regulations.\45\
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\43\ 17 CFR 201.700(b)(3).
\44\ See id.
\45\ See id.
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The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposal is consistent with the Act, and specifically, with
its requirements that the rules of a national securities exchange
provide for the equitable allocation of reasonable dues, fees, and
other charges among its members, issuers, and other persons using its
facilities; are designed to perfect the mechanism of a free and open
market and a national market system, and to protect investors and the
public interest; are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers; and do not impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act; \46\ as well as any other provision of the
Act, or the rules and regulations thereunder.
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\46\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments
The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by September 23, 2021.
Rebuttal comments should be submitted by October 7, 2021. Although
there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of views,
data, and arguments, the Commission will consider, pursuant to Rule
19b-4, any request for an opportunity to make an oral presentation.\47\
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\47\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency and
merit of the Exchanges' statements in support of the proposals, in
addition to any other comments they may wish to submit about the
proposed rule changes.
Interested persons are invited to submit written data, views, and
arguments concerning the proposed rule changes, including whether the
proposed rule changes are 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#93e1e6fff6bef0fcfefef6fde7e0d3e0f6f0bdf4fce5"><span class="__cf_email__" data-cfemail="d5a7a0b9b0f8b6bab8b8b0bba1a695a6b0b6fbb2baa3">[email protected]</span></a>. Please include
File Nos. SR-MIAX-2021-29, SR-EMERALD-2021-22, and SR-PEARL-2021-30 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 Nos. SR-MIAX-2021-29, SR-EMERALD-
2021-22, and SR-PEARL-2021-30. These file numbers 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 changes that are filed with the Commission, and all
written communications relating to the proposed rule changes 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 Exchanges. 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 Nos. SR-MIAX-
2021-29, SR-EMERALD-2021-22, and SR-PEARL-2021-30 and should be
submitted on or before September 23, 2021. Rebuttal comments should be
submitted by October 7, 2021.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\48\ that File Nos. SR-MIAX-2021-29, SR-EMERALD-2021-22, and SR-
PEARL-2021-30 be, and hereby are, temporarily suspended. In addition,
the Commission is instituting proceedings to determine whether the
proposed rule changes should be approved or disapproved.
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\48\ 15 U.S.C. 78s(b)(3)(C).
\49\ 17 CFR 200.30-3(a)(57) and (58).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-18944 Filed 9-1-21; 8:45 am]
BILLING CODE 8011-01-P
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