Notice2023-03249
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE Arca Options Fee Schedule
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Published
February 16, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 32 (Thursday, February 16, 2023)</title>
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[Federal Register Volume 88, Number 32 (Thursday, February 16, 2023)]
[Notices]
[Pages 10156-10159]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03249]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96878; File No. SR-NYSEARCA-2023-14]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
February 10, 2023.
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 February 9, 2023, 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 and II
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 modify the NYSE Arca Options Fee Schedule
(``Fee Schedule'') regarding the Firm and Broker Dealer Monthly Fee Cap
and the Ratio Threshold Fee. The Exchange proposes to implement the fee
change effective February 9, 2023.\4\ 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.
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\4\ The Exchange previously filed to amend the Fee Schedule on
January 31, 2023 (SR-NYSEARCA-2023-11) and withdrew such filing on
February 9, 2023.
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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 purpose of this filing is to (1) modify the Firm and Broker
Dealer Monthly Fee Cap (the ``Monthly Fee Cap'') and (2) extend the
waiver of the Ratio Threshold Fee. The Exchange proposes to implement
the rule change on February 9, 2023.
Firm and Broker Dealer Monthly Fee Cap
The Exchange proposes to modify the Monthly Fee Cap, which
currently provides that combined Firm proprietary fees and Broker
Dealer fees for transactions in standard option contracts cleared in
the customer range for Manual executions and QCC transactions are
capped at $150,000 per month.\5\
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\5\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES
FOR STANDARD OPTIONS, FIRM AND BROKER DEALER MONTHLY FEE CAP.
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The Exchange proposes to raise the Monthly Fee Cap to $200,000 per
month. Accordingly, the Exchange proposes to modify the Fee Schedule to
replace $150,000 with $200,000 in the description of the Monthly Fee
Cap. Strategy executions, royalty fees, and firm trades executed via a
Joint Back Office agreement will continue to be excluded from fees to
which the Monthly Fee Cap would apply. Once a Firm or Broker Dealer has
reached the Monthly Fee Cap, an incremental service fee of $0.01 per
contract for Firm or Broker Dealer Manual transactions will continue to
apply, except for the execution of a QCC order.
The Exchange believes that the proposed change, despite increasing
the amount of the Monthly Fee Cap, would continue to incent Firms and
Broker Dealers to direct order flow to the Exchange to receive the
benefits of a fee cap on Manual and QCC transactions.
Ratio Threshold Fee
The Exchange proposes to further extend the waiver of the Ratio
Threshold Fee that was originally implemented in connection with the
Exchange's migration to the Pillar platform.\6\
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\6\ See Securities Exchange Act Release No. 94095 (January 28,
2022), 87 FR 6216 (February 3, 2022) (SR-NYSEArca-2022-04) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the NYSE Arca Options Fee Schedule).
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The Ratio Threshold Fee is based on the number of orders entered as
compared to the number of executions received in a calendar month and
is
[[Page 10157]]
intended to deter OTP Holders from submitting an excessive number of
orders that are not executed.\7\ Because order to execution ratios of
10,000 to 1 or greater have the potential residual effect of exhausting
system resources, bandwidth, and capacity, such ratios may create
latency and impact other OTP Holders' ability to receive timely
executions.\8\ In connection with the Exchange's migration to the
Pillar platform, the Exchange implemented a waiver of the Ratio
Threshold Fee (the ``Waiver'') that took effect beginning in the month
in which the Exchange began its migration to the Pillar platform and
would remain in effect for the three months following the month during
which the Exchange completed its migration to the Pillar platform. As
the Exchange completed the migration in July 2022, the Waiver was
originally due to expire on October 31, 2022. The Exchange previously
filed to extend the Waiver until January 31, 2023,\9\ and now proposes
to extend the Waiver for an additional three months, until April 30,
2023.
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\7\ See Fee Schedule, RATIO THRESHOLD FEE; see also Securities
Exchange Act Release No. 60102 (June 11, 2009), 74 FR 29251 (June
19, 2009) (SR-NYSEArca-2009-50).
\8\ See id.
\9\ See Securities Exchange Act Release No. 96252 (November 7,
2022), 87 FR 68210 (November 14, 2022) (SR-NYSEARCA-2022-74) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify the NYSE Arca Options Fee Schedule).
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The Exchange believes that extending the Waiver would allow the
Exchange additional time to continue to work with OTP Holders to
monitor traffic rates and order to execution ratios, without imposing a
financial burden on OTP Holders based on their order to execution
ratios. The extension of the Waiver would also allow the Exchange to
continue to evaluate system performance as OTP Holders continue to
adapt to trading on the Pillar platform. The Exchange thus proposes to
modify the Fee Schedule to provide that the Waiver would extend through
April 30, 2023.\10\
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\10\ See proposed Fee Schedule, RATIO THRESHOLD FEE.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\11\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\12\ 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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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
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.'' \13\
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\13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
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There are currently 16 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\14\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity and ETF options order flow.
More specifically, in December 2022, the Exchange had less than 13%
market share of executed volume of multiply-listed equity and ETF
options trades.\15\
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\14\ The OCC publishes options and futures volume in a variety
of formats, including daily and monthly volume by exchange,
available here: <a href="https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics">https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics</a>.
\15\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of equity-based ETF options,
see id., the Exchange's market share in equity-based options
decreased from 13.30% for the month of December 2021 to 12.42% for
the month of December 2022.
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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 or reduce use of certain categories of
products, in response to fee changes. Accordingly, competitive forces
constrain options exchange transaction fees. Stated otherwise,
modifications to exchange transaction fees can have a direct effect on
the ability of an exchange to compete for order flow.
The proposed increase to the Monthly Fee Cap is reasonable because
the Exchange believes the fee cap, although higher, would continue to
incent Firms and Broker Dealers to direct order flow to the Exchange to
receive the benefits of capped fees. The Exchange also believes the
proposed change is reasonable because the proposed fee cap amount would
be applicable to all Firms and Broker Dealers. In addition, although
the proposed change would raise the amount of the Monthly Fee Cap, it
would continue to offer Firms and Broker Dealers the opportunity to
qualify for capped fees on Manual and QCC transactions, which the
Exchange believes provides Firms and Broker Dealers with a benefit not
offered by at least one other options exchange.\16\
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\16\ See, e.g., BOX Options Fee Schedule, available at: <a href="https://boxoptions.com/fee-schedule/">https://boxoptions.com/fee-schedule/</a> (no cap on Firm and Broker Dealer
manual or QCC transaction fees).
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The Exchange believes that the proposed extension of the Waiver is
reasonable because it is designed to lessen the impact of the migration
on OTP Holders and would allow OTP Holders to continue to adjust to
trading on the Pillar platform without incurring excess Ratio Threshold
Fees while the Exchange continues to evaluate Pillar system
performance. To the extent the proposed rule change encourages OTP
Holders to maintain their trading activity on the Exchange, the
Exchange believes the proposed change would sustain the Exchange's
overall competitiveness and its market quality for all market
participants. In the backdrop of the competitive environment in which
the Exchange operates, the proposed rule change is a reasonable attempt
by the Exchange to mitigate the impacts of the Pillar migration without
affecting its competitiveness.
Finally, to the extent the proposed changes continue to attract
greater volume and liquidity, the Exchange believes the proposed
changes would improve the Exchange's overall competitiveness and
strengthen its market quality for all market participants. In the
backdrop of the competitive environment in which the Exchange operates,
the proposed rule change is a reasonable attempt by the Exchange to
increase the depth of its market and improve its market share relative
to its competitors. The Exchange's fees are constrained by intermarket
competition, as OTP Holders may direct their order flow to any of the
16 options exchanges. Thus, OTP Holders have a choice of where they
direct their order flow, including their Manual and QCC transactions.
The proposed rule changes are designed to continue to incent OTP
Holders to direct liquidity and, in particular, Firm and Broker Dealer
transactions to the
[[Page 10158]]
Exchange. In addition, to the extent OTP Holders are incentivized to
aggregate their trading activity at the Exchange, that increased
liquidity could promote market depth, price discovery and improvement,
and enhanced order execution opportunities for market participants.
The Proposed Rule Change Is an Equitable Allocation of Credits and Fees
The Exchange believes the proposed rule change is an equitable
allocation of its fees and credits because the proposal is based on the
amount and type of business transacted on the Exchange. The Exchange
believes that the proposed modification of the Monthly Fee Cap is
equitable because it would apply to all Firms and Broker Dealers
equally and would continue to provide for the same fee cap amount for
all Firms and Broker Dealers. The Exchange also believes that the
proposed rule change is equitable with respect to non-Firm and Broker
Dealer market participants because the Monthly Fee Cap would not be
meaningful for Customers or Professional Customers (neither of whom pay
transaction charges for Manual transactions or QCC transactions) and
because Market Makers are offered other incentives to reduce
transaction fees.\17\ To the extent the proposed change does not
discourage Firms and Broker Dealers from continuing to direct order
flow to the Exchange to achieve the benefits of capped fees and instead
continues to encourage increased liquidity to the Exchange, all market
participants would benefit from enhanced opportunities for price
improvement and order execution.
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\17\ See generally Fee Schedule (various incentives available to
Market Makers for posted monthly volume, including on executions in
penny issues, non-penny issues, and SPY).
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The proposed extension of the Waiver is an equitable allocation of
fees and credits because the Waiver would continue to apply to all OTP
Holders. All OTP Holders would have the opportunity to continue
adjusting to the Pillar platform without incurring Ratio Threshold
Fees, while the Exchange continues to evaluate post-migration system
performance. Thus, the Exchange believes the proposed rule change would
continue to mitigate the impact of the migration process for all market
participants on the Exchange, thereby sustaining market-wide quality.
The Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes that the proposed change to the Monthly Fee
Cap is not unfairly discriminatory because the fee cap, as proposed,
would continue to be available to all similarly situated Firms and
Broker Dealers, any of which could continue to be incented to direct
order flow to the Exchange to qualify for the fee cap. Moreover, the
proposed change to the Monthly Fee Cap is not unfairly discriminatory
because it would continue to apply the same fee cap amount to all Firms
and Broker Dealers. The Exchange notes that offering the Monthly Fee
Cap to Firms and Broker Dealers but not other market participants is
not unfairly discriminatory because the Firm Fee Cap would not be
meaningful for Customers or Professional Customers because neither
Customers nor Professional Customers pay transaction charges for Manual
transactions or QCC transactions and is not unfairly discriminatory
towards Market Makers, as Market Makers have alternative avenues to
reduce transaction fees.\18\
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\18\ See id.
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The Exchange believes the proposed extension of the Waiver is not
unfairly discriminatory because it would apply to all OTP Holders on an
equal and non-discriminatory basis. The Waiver, as proposed, would
permit all OTP Holders to continue adapting to the Pillar platform,
without incurring additional fees based on their monthly order to
execution ratios, while the Exchange continues to evaluate post-
migration system performance. The Exchange thus believes that the
proposed change would support continued trading opportunities for all
market participants, thereby promoting just and equitable principles of
trade, removing impediments to and perfecting the mechanism of a free
and open market and a national market system and, in general,
protecting investors and the public interest.
To the extent that the proposed change continues to attract Manual
and QCC transactions to the Exchange, this increased order flow would
continue to make the Exchange a more competitive venue for order
execution. Thus, the Exchange believes the proposed rule change would
improve market quality for all market participants on the Exchange and,
as a consequence, attract more order flow to the Exchange, thereby
improving market-wide quality and price discovery. The resulting
increased volume and liquidity would provide more trading opportunities
and tighter spreads to all market participants and thus would promote
just and equitable principles of trade, remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, protect investors and the public interest.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act, the Exchange does
not believe that the proposed rule change would 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 change 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 all market participants. 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.'' \19\
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\19\ See Reg NMS Adopting Release, supra note 13, at 37499.
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Intramarket Competition. With respect to the modification of the
Monthly Fee Cap, the Exchange believes that the proposed change (even
though it would raise the amount of the fee cap) would not impose any
burden on competition that is not necessary or appropriate because it
is intended to continue to incentivize Firms and Broker Dealers to
direct order flow to the Exchange to be eligible for the benefits of
capped fees on Manual and QCC transactions, thereby promoting liquidity
on the Exchange to the benefit of all market participants.
The Exchange does not believe the proposed extension of the Waiver
would impose any burden on intramarket competition that is not
necessary or appropriate because it would apply equally to all OTP
Holders. All OTP Holders would continue to be eligible for the Waiver
for an additional three months while the Exchange continues to assess
system performance following the migration to Pillar.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily favor one
of the 16 competing option exchanges if they deem fee levels at a
particular venue to be excessive. In such an environment, the Exchange
must continually adjust its
[[Page 10159]]
fees to remain competitive with other exchanges and to attract order
flow to the Exchange. Based on publicly-available information, and
excluding index-based options, no single exchange has more than 16% of
the market share of executed volume of multiply-listed equity and ETF
options trades.\20\ Therefore, currently no exchange possesses
significant pricing power in the execution of multiply-listed equity
and ETF options order flow. More specifically, in December 2022, the
Exchange had less than 13% market share of executed volume of multiply-
listed equity and ETF options trades.\21\
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\20\ The OCC publishes options and futures volume in a variety
of formats, including daily and monthly volume by exchange,
available here: <a href="https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics">https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics</a>.
\21\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of equity-based ETF options,
see id., the Exchange's market share in equity-based options
decreased from 13.30% for the month of December 2021 to 12.42% for
the month of December 2022.
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The Exchange believes that the proposed changes reflect this
competitive environment because they modify the Exchange's fees and
rebates in a manner designed to continue to incent OTP Holders to
direct trading interest (particularly Firm and Broker Dealer Manual and
QCC transactions) to the Exchange, to provide liquidity and to attract
order flow. To the extent that this purpose is achieved, all the
Exchange's market participants should benefit from the improved market
quality and increased trading opportunities.
The Exchange further believes that the proposed change could
promote competition between the Exchange and other execution venues,
including those that do not offer a cap on Firm and Broker Dealer
fees,\22\ by encouraging additional orders to be sent to the Exchange
for execution.
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\22\ See note 16, supra.
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The Exchange does not believe the proposed extension of the Waiver
would impose any burden on intramarket competition that is not
necessary or appropriate because it would apply equally to all OTP
Holders. All OTP Holders would continue to be eligible for the Waiver
for an additional three months while the Exchange continues to assess
system performance following the migration to Pillar.
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) \23\ of the Act and subparagraph (f)(2) of Rule
19b-4 \24\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 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) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 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#097b7c656c246a6664646c677d7a497a6c6a276e667f"><span class="__cf_email__" data-cfemail="e99b9c858cc48a8684848c879d9aa99a8c8ac78e869f">[email protected]</span></a>. Please include
File Number SR-NYSEARCA-2023-14 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-2023-14. 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEARCA-2023-14, and should be
submitted on or before March 9, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03249 Filed 2-15-23; 8:45 am]
BILLING CODE 8011-01-P
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