Notice2021-27419
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
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Published
December 20, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 241 (Monday, December 20, 2021)</title>
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[Federal Register Volume 86, Number 241 (Monday, December 20, 2021)]
[Notices]
[Pages 72012-72016]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-27419]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34-93770; File No. SR-NYSEArca-2021-103]
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
December 14, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on December 1, 2021, NYSE Arca, Inc. (``NYSE Arca'' 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 amend the NYSE Arca Equities Fees and
Charges (``Fee Schedule'') to amend the criteria to qualify for the
MPID Adding Tier pricing tier and adopt a per share credit for orders
that provide liquidity in Tape B securities under the MPID Adding Tier.
The Exchange proposes to implement the fee changes effective December
1, 2021.The proposed rule change is available on the Exchange's website
at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to amend the
criteria to qualify for the MPID Adding Tier pricing tier and adopt a
per share credit for orders that provide liquidity in Tape B securities
under the MPID Adding Tier.
The Exchange proposes to implement the fee changes effective
December 1, 2021.
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 18%
[[Page 72013]]
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 12% 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
<a href="https://markets.cboe.com/us/equities/market_share">https://markets.cboe.com/us/equities/market_share</a>. See generally
<a href="https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html">https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html</a>.
\7\ See FINRA ATS Transparency Data, available at <a href="https://otctransparency.finra.org/otctransparency/AtsIssueData">https://otctransparency.finra.org/otctransparency/AtsIssueData</a>. A list of
alternative trading systems registered with the Commission is
available at <a href="https://www.sec.gov/foia/docs/atslist.htm">https://www.sec.gov/foia/docs/atslist.htm</a>.
\8\ See Cboe Global Markets U.S. Equities Market Volume Summary,
available at <a href="http://markets.cboe.com/us/equities/market_share/">http://markets.cboe.com/us/equities/market_share/</a>.
\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. With respect to non-marketable order
flow that would provide liquidity on an Exchange against which market
makers can quote, ETP Holders can choose from any one of the 16
currently operating registered exchanges to route such order flow.
Accordingly, competitive forces constrain exchange transaction fees
that relate to orders that would provide liquidity on an exchange.
Proposed Rule Change
Pursuant to the MPID Adding Tier pricing tier, the Exchange
currently provides a per share credit for orders that provide liquidity
in Tape A and Tape C securities. Specifically, to qualify for the
pricing tier, an MPID is required to execute providing ADV in all
securities that is at least 2 times more than its providing ADV in 2Q
2021, as a percentage of CADV. A qualifying MPID receives a credit for
providing liquidity in Tape A and Tape C securities of $0.0028 per
share if the MPID has at least 4 million shares of providing ADV during
the billing month, or $0.0029 per share if the MPID has at least 9
million shares of providing ADV during the billing month. The Exchange
currently does not provide any credit under the MPID Adding Tier for
orders that provide liquidity in Tape B securities.
With this proposed rule change, the Exchange proposes to adopt a
per share credit for orders that provide liquidity in Tape B securities
when an MPID executes providing ADV in all securities that is at least
2 times more than its providing ADV in 2Q 2021, as a percentage of
CADV. As proposed, a qualifying MPID would receive a credit for
providing liquidity in Tape B securities of $0.0022 per share if the
MPID has at least 4 million shares of providing ADV during the billing
month. An MPID that has at least 9 million shares of providing ADV
during the billing month would also receive a similar credit of $0.0022
per share for providing liquidity in Tape B securities.
Additionally, the Exchange proposes to rename the current MPID
Adding Tier that offers a credit of $0.0028 per share in Tape A and
Tape C securities and $0.0022 per share in Tape B securities as MPID
Adding Tier 2, and proposes to rename the current MPID Adding Tier that
offers a credit of $0.0029 per share in Tape A and Tape C securities
and $0.0022 per share in Tape B securities as MPID Adding Tier 1.
Finally, the Exchange proposes to adopt an alternative method to
qualify for the renamed MPID Adding Tier 2. As proposed, to qualify for
the renamed MPID Adding Tier 2 credit of $0.0028 per share for
providing liquidity in Tape A and Tape C securities and $0.0022 per
share for providing liquidity in Tape B securities, an MPID would be
required to execute providing ADV in all securities that is at least 2
times more than its providing ADV in 2Q 2021, as a percentage of CADV,
and have at least 4 million shares of providing ADV during the billing
month, or 2 million shares of providing ADV during the billing month in
Tape B securities.
The proposed rule change to adopt a new credit and an alternative
method to qualify for the existing credits is designed to incentivize
ETP Holders to increase liquidity-providing orders in Tape B securities
they send to the Exchange, which would support the quality of price
discovery on the Exchange and provide additional liquidity for incoming
orders.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\10\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\11\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
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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.'' \12\
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\12\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
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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
shift order flow, or discontinue to reduce use of certain categories of
products, in response to fee changes. With respect to non-marketable
orders which provide liquidity on an Exchange, ETP Holders can choose
from any one of the 16 currently operating registered exchanges to
route such order flow. Accordingly, competitive forces reasonably
constrain exchange transaction fees that relate to orders that would
provide displayed liquidity on an exchange. 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 the proposed rule change is
reasonable because it provides an additional opportunity and amends an
existing opportunity for ETP Holders to receive an enhanced rebate on
qualifying orders in a manner that incentivizes increased order flow on
the Exchange's equities platform. The Exchange believes the proposed
new credit of $0.0022 per share for orders that provide liquidity in
Tape B securities under the MPID Adding Tier pricing tier is a
reasonable means to encourage ETP Holders to increase their liquidity
providing orders in Tape B securities each month over a predetermined
baseline by offering liquidity providers an opportunity to receive an
enhanced rebate. The Exchange believes the proposed change to adopt an
alternative method to qualify for the renamed MPID Adding Tier 2 is
reasonable because it provides ETP Holders with an additional way to
qualify for the pricing tier's credits by providing liquidity in Tape B
securities. The Exchange believes that the proposed alternative to
qualify for the pricing tier utilizing a lower volume requirement of
liquidity providing orders in Tape B securities is reasonable because
the proposal provides firms with greater flexibility to reach the
proposed volume tier across all Tape A, Tape B and Tape C securities,
thereby creating an added incentive for
[[Page 72014]]
additional ETP Holders to bring increased order flow to a public
exchange.
The Exchange believes it is reasonable to provide the proposed
credit to a qualifying MPID if it meets the tier's criteria because
this would encourage individual MPIDs to send orders that provide
liquidity to the Exchange, thereby contributing to robust levels of
liquidity, which would benefit all market participants, and would
promote price discovery and transparency. The Exchange believes the
proposed change to adopt a new credit and an alternative method to
qualify for existing credits is reasonable as these changes would
provide an incentive for an ETP Holder's MPID to direct its order flow
to the Exchange and provide meaningful added levels of liquidity in
order to qualify for the new and existing credits, thereby contributing
to depth and market quality on the Exchange.
As noted above, the Exchange operates in a highly competitive
environment, particularly for attracting order flow that provides
displayed liquidity on an exchange. More specifically, the Exchange
notes that greater add volume order flow may provide for deeper, more
liquid markets and execution opportunities at improved prices, which
the Exchange believes would incentivize liquidity providers to submit
additional liquidity and enhance execution opportunities. The Exchange
notes that other markets with which the Exchange competes currently
offer its members an opportunity to earn rebates based on the activity
of the member's MPID.\13\ The Exchange believes the proposed changes to
the MPID Adding Tier continues to be a reasonable means to encourage
ETP Holders to increase their liquidity on the Exchange.
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\13\ See BZX Fee Schedule, Footnote 2, Step Up Tiers, and
Footnote 4, Single Investor MPID Tiers, at <a href="https://www.cboe.com/us/equities/membership/fee_schedule/bzx/">https://www.cboe.com/us/equities/membership/fee_schedule/bzx/</a>.
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The Exchange notes that volume-based incentives and discounts have
been widely adopted by exchanges, including the Exchange, and are
reasonable, equitable and not unfairly discriminatory because they are
available to all ETP Holders on an equal basis. They also provide
additional benefits or discounts that are reasonably related to the
value of the Exchange's market quality and associated higher levels of
market activity, such as higher levels of liquidity provision and/or
growth patterns. Additionally, the Exchange is one of many venues and
off-exchange venues to which market participants may direct their order
flow, and it represents a small percentage of the overall market.
Competing exchanges offer similar tiered pricing structures to that of
the Exchange, including schedules of rebates and fees that apply based
on members achieving certain volume thresholds.
The Exchange believes its proposal equitably allocates its fees
among its market participants.
The Exchange believes that the proposal represents an equitable
allocation of fees and is not unfairly discriminatory because it would
apply uniformly to all ETP Holders, in that all ETP Holders will be
eligible for the proposed new credit and have the opportunity to meet
the tier's criteria and receive the applicable rebate if such criteria
is met. The enhanced rebate (proposed and existing) would apply
automatically and uniformly to all ETP Holders that achieve the
corresponding criteria. The proposed change is designed as an incentive
to any and all liquidity providers interested in meeting the tier
criteria to submit additional order flow to the Exchange and each will
receive the associated rebate if the tier criteria is met. While the
Exchange has no way of knowing whether this proposed rule change would
definitively result in any particular ETP Holder qualifying for the
proposed new credit, the Exchange anticipates a number of ETP Holders
would be able to meet, or will reasonably be able to meet, the proposed
criteria. However, without having a view of 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 meeting the
alternative method and/or qualifying for the proposed rebate. As
stated, the proposed new credit and the proposed alternative method to
qualify for existing credits are designed to provide an incentive for
ETP Holders to submit additional liquidity across all Tapes to qualify
for the corresponding rebates.
The Exchange believes that the proposal is not unfairly
discriminatory. The Exchange believes it is not unfairly discriminatory
to provide the proposed credit as the credit would be provided on an
equal basis to all ETP Holders that add liquidity in Tape B securities
and meet the MPID Adding Tier's requirements. The Exchange also
believes that the proposed rule change is not unfairly discriminatory
because it is reasonably related to the value to the Exchange's market
quality associated with higher volume. The proposed changes to the MPID
Adding Tier are designed as an incentive to any and all ETP Holders
interested in meeting the tier criteria to submit additional order flow
to the Exchange and each will receive the corresponding new and
existing rebate if the tier criteria are met. The Exchange also notes
that the proposed rule change will not adversely impact any ETP
Holder's pricing or their ability to qualify for other tiers. Rather,
should an ETP Holder not meet the criteria of the MPID Adding Tier
pricing tier, the ETP Holder will merely not receive the corresponding
rebate.
The Exchange believes it is not unfairly discriminatory to provide
an alternative way to qualify for the per share credit under the MPID
Adding Tier pricing tier, as the credit would be provided on an equal
basis to all ETP Holders that meet the proposed alternative requirement
under the renamed MPID Adding Tier 2. Further, the Exchange believes
the proposed alternative requirement would incentivize ETP Holders to
send their liquidity providing orders in Tape B securities to the
Exchange to qualify for the enhanced rebate.
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, this proposed rule change neither targets
nor will it have a disparate impact on any particular category of
market participant. The Exchange believes that this proposal does not
permit unfair discrimination because the changes described in this
proposal would be applied to all similarly situated ETP Holders and all
ETP Holders would be subject to the same requirements. Accordingly, no
ETP Holder already operating on the Exchange would be disadvantaged by
the proposed allocation of fees. The Exchange further believes that the
proposed changes would not permit unfair discrimination among ETP
Holders because the MPID Adding Tier credits would be available equally
to all ETP Holders.
Finally, 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.
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.
[[Page 72015]]
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\14\ 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.'' \15\
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\14\ 15 U.S.C. 78f(b)(8).
\15\ See Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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Intramarket Competition. The Exchange believes the proposed
amendments to its Fee Schedule would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The Exchange does not believe that the proposed
changes represent a significant departure from previous pricing offered
by the Exchange or its competitors. The proposed changes are designed
to attract additional order flow to the Exchange, in particular with
respect to Tape B securities. The Exchange believes that the proposed
adoption of a new credit and the amendment to the volume requirement to
qualify for an established tier under the MPID Adding Tier pricing tier
would incentivize market participants to direct liquidity adding order
flow to the Exchange, bringing with it additional execution
opportunities for market participants and improved price transparency.
Greater overall order flow, trading opportunities, and pricing
transparency benefits all market participants on the Exchange by
enhancing market quality and continuing to encourage ETP Holders to
send orders to the Exchange, thereby contributing towards a robust and
well-balanced market ecosystem.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily choose to
send their orders to other exchange 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 12%. 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 its proposed fee change can
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 is effective upon filing pursuant to
Section 19(b)(3)(A) \16\ of the Act and subparagraph (f)(2) of Rule
19b-4 \17\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(2).
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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) \18\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\18\ 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
<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#5022253c357d333f3d3d353e2423102335337e373f26"><span class="__cf_email__" data-cfemail="1a686f767f37797577777f746e695a697f79347d756c">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2021-103 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-NYSEArca-2021-103. 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. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. 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-2021-103 and should
be submitted on or before January 10, 2022.
[[Page 72016]]
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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27419 Filed 12-17-21; 8:45 am]
BILLING CODE 8011-01-P
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