Notice2024-05943
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7.31
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Published
March 21, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 56 (Thursday, March 21, 2024)</title>
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[Federal Register Volume 89, Number 56 (Thursday, March 21, 2024)]
[Notices]
[Pages 20264-20267]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-05943]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99742; File No. SR-NYSECHX-2024-10]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Rule 7.31
March 15, 2024.
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 March 6, 2024, NYSE Chicago, Inc. (``NYSE Chicago'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I 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 amend Rule 7.31 to provide for the use of
Day ISO Reserve Orders and make other conforming changes. 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 Rule 7.31 to provide for the use of
Day ISO Reserve Orders and make conforming changes in Rule 7.11 (Limit
Up-Limit Down Plan and Trading Pauses in Individual Securities Due to
Extraordinary Market Volatility) and Rule 7.37 (Order Execution and
Routing).
Day ISO Orders
Rule 7.31(e)(3) defines an Intermarket Sweep Order (``ISO'') as a
Limit Order that does not route and meets the requirements of Rule
600(b)(38) of Regulation NMS. As described in Rules 7.31(e)(3)(A) and
subparagraphs (i) and (ii) thereunder, an ISO may trade through a
protected bid or offer and will not be rejected or cancelled if it
would lock, cross, or be marketable against an Away Market, provided
that (1) it is identified as an ISO and (2) simultaneously with its
routing to the Exchange, the Participant that submits the ISO also
routes one or more additional Limit Orders, as necessary, to trade
against the full displayed size of any protected bids (for sell orders)
or protected offers (for buy orders) on Away Markets.
Rule 7.31(e)(3)(C) provides that an ISO designated Day (``Day
ISO''), if marketable on arrival, will immediately trade with contra-
side interest on the Exchange Book up to its full size and limit price.
Any untraded quantity of a Day ISO will be displayed at its limit price
and may lock or cross a protected quotation that was displayed at the
time the order arrived.
Reserve Orders
Rule 7.31(d)(1) provides for Reserve Orders, which are Limit or
Inside Limit Orders with a quantity of the size displayed and with a
reserve quantity (``reserve interest'') of the size that is not
displayed. The displayed quantity of a Reserve Order is ranked Priority
2--Display Orders, and the reserve interest is ranked Priority 3--Non-
Display Orders. Both the display quantity and the reserve interest of
an arriving marketable Reserve Order are eligible to trade with resting
interest in the Exchange Book or to route to Away Markets. The working
price of the reserve interest of a resting Reserve Order will be
adjusted in the same manner as a Non-Displayed Limit Order, as provided
for in Rule 7.31(d)(2)(A).
As described in Rule 7.31(d)(1)(A), the display quantity of a
Reserve Order must be entered in round lots, and the displayed portion
of a Reserve Order will be replenished when the display quantity is
decremented to below a round lot. The replenish quantity will be the
minimum display size of the order or the remaining quantity of the
[[Page 20265]]
reserve interest if it is less than the minimum display quantity.
Rule 7.31(d)(1)(B) provides that each time the display quantity of
a Reserve Order is replenished from reserve interest, a new working
time is assigned to the replenished quantity (each display quantity
with a different working time is referred to as a ``child'' order),
while the reserve interest retains the working time of the original
order entry. In addition, when a Reserve Order is replenished from
reserve interest and already has two child orders that equal less than
a round lot, the child order with the later working time will rejoin
the reserve interest and be assigned the new working time assigned to
the next replenished quantity. If a Reserve Order is not routable, the
replenish quantity will be assigned a display and working price
consistent with the instructions for the order.
Rule 7.31(d)(1)(C) provides that a Reserve Order must be designated
Day and may only be combined with a Non-Routable Limit Order or Primary
Pegged Order.
Rule 7.31(d)(1)(D) provides that routable Reserve Orders will be
evaluated for routing both on arrival and each time their display
quantity is replenished.
Rule 7.31(d)(1)(E) provides that a request to reduce the size of a
Reserve Order will cancel the reserve interest before cancelling the
display quantity, and, if the Reserve Order has more than one child
order, the child order with the latest working time will be cancelled
first.
Rule 7.31(d)(1)(F) provides that, if the PBBO is crossed and the
display quantity of a Reserve Order to buy (sell) that is a Non-
Routable Limit Order is decremented to less than a round lot, the
display price and working price of such Reserve Order will not change
and the reserve interest that replenishes the display quantity will be
assigned a display price one MPV below (above) the PBO (PBB) and a
working price equal to the PBO (PBB). Rule 7.31(d)(1)(F) further
provides that, when the PBBO uncrosses, the display price and working
price will be adjusted as provided for under Rule 7.31(e)(1) relating
to Non-Routable Limit Orders or, for an ALO Order designated as
Reserve, as provided for under Rule 7.31(e)(2)(E).
Day ISO Reserve Orders
The Exchange proposes to amend Rule 7.31 to provide for the use of
Day ISO Reserve Orders. The proposed change is not intended to modify
any current functionality, but would instead facilitate the combination
of two order types currently offered by the Exchange to offer increased
efficiency to Participants. As proposed, Day ISO Reserve Orders would,
except as otherwise noted, operate consistent with current Rule
7.31(d)(1) regarding Reserve Orders and current Rule 7.31(e)(3)(C)
regarding Day ISO Orders. To allow for the use of Day ISO Reserve
Orders, the Exchange first proposes to amend Rule 7.31(d)(1)(C) to
include Day ISO Orders among the order types that may be designated as
Reserve Orders.
The proposed change is intended to allow Day ISO Orders, as
described in Rule 7.31(e)(3)(C),\4\ to have a displayed quantity, along
with non-displayed reserve interest, as described in Rule 7.31(d)(1).
The display quantity of a Day ISO Reserve Order would be replenished as
provided in Rules 7.31(d)(1)(A) and (B), except that the Exchange
proposes to add new rule text to Rule 7.31(d)(1)(B)(ii), which
currently provides that the replenish quantity of a non-routable
Reserve Order will be assigned a display and working price consistent
with the instructions for the order. Because Day ISO Reserve Orders
would be non-routable but could not be replenished at their limit price
given the specific requirements for ISOs (as described above),\5\ the
Exchange proposes to amend Rule 7.31(d)(1)(B)(ii) to specify that the
replenish quantity of a Day ISO Reserve Order would be assigned a
display price and working price in the same manner as a Non-Routable
Limit Order, as provided for under paragraph (e)(1) of this Rule.
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\4\ The Exchange does not currently propose to allow Day ISO ALO
Orders (as defined in Rule 7.31(e)(3)(D)) to be designated as
Reserve Orders. Accordingly, the Exchange proposes to amend Rule
7.31(e)(3)(D) to specify that Day ISO ALOs may not be so designated.
\5\ Consistent with the requirements for ISOs and the Exchange's
existing rules governing Day ISOs, a Day ISO Reserve Order, as
proposed, would only behave as an ISO upon arrival and would not
otherwise be permitted to trade through a protected bid or offer or
lock or cross an Away Market.
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As currently described in Rule 7.31(e)(3)(C), a Day ISO Reserve
Order, if marketable on arrival, would immediately trade with contra-
side interest on the Exchange Book up to its full size and limit price.
Currently, Rule 7.31(e)(3)(C) further provides that any untraded
quantity of a Day ISO will be displayed at its limit price and may lock
or cross a protected quotation that was displayed at the time of
arrival of the Day ISO. The Exchange proposes two changes to Rule
7.31(e)(3)(C) to reflect the operation of Day ISO Reserve Orders:
<bullet> The Exchange proposes to amend the second sentence of Rule
7.31(e)(3)(C) to specify that reserve interest of a Day ISO Reserve
Order would not be displayed at its limit price because reserve
interest is, by definition, non-displayed and would instead rest non-
displayed on the Exchange Book at the order's limit price.
<bullet> The Exchange proposes to add new subparagraph (i) under
Rule 7.31(e)(3)(C) to offer Participants the ability to designate a Day
ISO Reserve Order to be cancelled if, upon replenishment, it would be
displayed at a price other than its limit price for any reason. The
Exchange notes that it does not offer this option for Day ISOs not
designated as Reserve Orders because such orders would never be
displayed at a price other than their limit price. By contrast, a Day
ISO Reserve Order could be repriced upon replenishment as described in
Rule 7.31(d)(1)(B)(ii) (as modified by this filing to include Day ISOs
designated as Reserve Orders, discussed below).
This proposed change would provide Participants with increased
flexibility with respect to order handling and the ability to have
greater determinism regarding order processing when Day ISO Reserve
Orders would be repriced to display at a price other than their limit
price upon replenishment. This designation would be optional, and if
not designated to cancel, Day ISO Reserve Orders would function as
otherwise described in this filing. The Exchange notes that it already
makes this option available for other order types and believes that
offering it to Day ISO Reserve Orders would promote consistency in
Exchange rules.\6\
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\6\ See, e.g., Rules 7.31(e)(1), 7.31(e)(2), and 7.31(e)(3)(D)
(permitting Non-Routable Limit Orders, displayed ALO Orders, and Day
ISO ALO Orders, respectively, to be designated to cancel if they
would be displayed at a price other than their limit price for any
reason).
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The working price of the reserve interest of a resting Day ISO
Reserve Order would be adjusted as provided for in Rule 7.31(d)(1).
Rule 7.31(d)(1)(E) would also apply to requests to reduce the size of
Day ISO Reserve Orders.
Rule 7.31(d)(1)(F) provides that, if the PBBO is crossed and the
display quantity of a Reserve Order to buy (sell) that is a Non-
Routable Limit Order is decremented to less than a round lot, the
display price and working price of the order would not change, but the
reserve interest that replenishes the display quantity would be
assigned a display price one MPV below (above) the PBO (PBB) and a
working price equal to the PBO (PBB). When the PBBO uncrosses, the
display price and working price of a Reserve Order will be adjusted as
provided for under
[[Page 20266]]
paragraph (e)(1) of this Rule relating to Non-Routable Limit Orders.
The Exchange proposes to amend Rule 7.31(d)(1)(F) to provide that the
rule would likewise apply to a Reserve Order that is a Day ISO. The
Exchange further notes that this proposed change is consistent with the
proposed change to Rule 7.31(d)(1)(B)(ii), which similarly provides
that the replenish quantity of a Day ISO Reserve Order would be
assigned a display price and working price in the same manner as a Non-
Routable Limit Order.
Finally, the Exchange proposes conforming changes to Rule
7.11(a)(5) and Rule 7.37(g)(2) to reflect the operation of Day ISO
Reserve Orders.
Rule 7.11(a)(5) sets forth rules governing how Exchange systems
will reprice or cancel buy (sell) orders that are priced or could be
traded above (below) the Upper (Lower) Price Bands consistent with the
Limit Up-Limit Down Plan. Rule 7.11(a)(5)(ii) currently provides that
if the Price Bands move and the working price of a resting Market Order
or Day ISO to buy (sell) is above (below) the updated Upper (Lower)
Price Band, such orders will be cancelled. The Exchange proposes to
amend Rule 7.11(a)(5)(ii) to clarify its applicability to any portion
of a resting Day ISO that is designated Reserve. Thus, if the Price
Bands move and the working price of any portion of a resting Day ISO
Reserve Order to buy (sell) is above (below) the updated Upper (Lower)
Price Band, the entirety of the Day ISO Reserve Order would be
cancelled.
Rule 7.37(f)(2) describes the ISO exception to the Order Protection
Rule. Rule 7.37(f)(2)(A) provides that the Exchange will accept ISOs to
be executed in the Exchange Book against orders at the Exchange's best
bid or best offer without regard to whether the execution would trade
through another market's Protected Quotation. Rule 7.37(f)(2)(B)
provides that, if an ISO is marked as ``Immediate-or-Cancel,'' any
portion of the order not executed upon arrival will be automatically
cancelled; if an ISO is not marked as ``Immediate-or-Cancel,'' any
balance of the order will be displayed without regard to whether that
display would lock or cross another market center, so long as the order
complies with Rule 7.37(e)(3)(C).\7\ The Exchange proposes to amend
Rule 7.37(f)(2)(B) to specify that, for an ISO not marked as
``Immediate-or-Cancel,'' any displayed portion of such order would be
displayed, and any non-displayed portion would remain on the Exchange
Book. This proposed change is intended to clarify that the reserve
interest of a Day ISO Reserve Order would not be displayed, but could,
on arrival only, rest non-displayed at a price that would lock or cross
another market center if the member organization has complied with Rule
7.37(e)(3)(C).
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\7\ Rule 7.37(e)(3)(C) provides that the prohibition against
Locking and Crossing Quotations described in Rule 7.37(e)(2) does
not apply when the Locking or Crossing Quotation was an Automated
Quotation, and the Participant displaying such Automated Quotation
simultaneously routed an ISO to execute against the full displayed
size of any locked or crossed Protected Quotation.
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The proposed change is intended to facilitate the combined use of
two existing order types available on the Exchange, thereby providing
Participants with enhanced flexibility, optionality, and efficiency
when trading on the Exchange. The proposed change could also promote
increased liquidity and trading opportunities on the Exchange, to the
benefit of all market participants. The Exchange also believes the
proposed change would permit the Exchange to offer functionality
similar to that available on at least one other equities exchange,
thereby promoting competition among equities exchanges.\8\
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\8\ See, e.g., Nasdaq Stock Market LLC Rule 4702(b)(1)(C)
(describing Price to Comply Order, which may be designated with both
reserve size and as an ISO).
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Because of the technology changes associated with this proposed
rule change, the Exchange will announce the implementation date by
Trader Update, which, subject to effectiveness of this proposed rule
change, will be no later than in the second quarter of 2024.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\9\ in general, and furthers the objectives of Section 6(b)(5),\10\
in particular, because it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system and, in general, to protect investors and
the public interest.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
remove impediments to and perfect the mechanism of a free and open
market because it would allow for the combined use of two existing
order types available on the Exchange and permit the Exchange to offer
functionality similar to that already available on at least one other
equities exchange.\11\ Participants would be free to choose to use the
proposed Day ISO Reserve Order type or not, and the proposed change
would not otherwise impact the operation of the Reserve Order or Day
ISO Order as described in current Exchange rules. The Exchange also
believes that the proposed rule change would remove impediments to and
perfect the mechanism of a free and open market, as well as protect
investors and the public interest, by expanding the options available
to Participants when trading on the Exchange and promoting increased
liquidity and additional trading opportunities for all market
participants.
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\11\ See note 8, supra.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. In addition, as noted above,
Exchange believes the proposed rule change would allow the Exchange to
offer functionality already available on at least one other equities
exchange \12\ and thus would promote competition among equities
exchanges. The Exchange also believes that, to the extent the proposed
change increases opportunities for order execution, the proposed change
would promote competition by making the Exchange a more attractive
venue for order flow and enhancing market quality for all market
participants.
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\12\ See id.
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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
Because the proposed rule change does not: (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section
[[Page 20267]]
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) thereunder. \14\
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\16\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing.
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\15\ 17 CFR 240.19b-4(f)(6).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission finds that it is consistent with the protection of
investors and the public interest to waive the 30-day operative delay.
The proposal would allow the Exchange to offer functionality similar to
that already available on at least one other equities exchange.\17\
Member organizations would have the option to use the proposed Day ISO
Reserve Order type, and the proposed change would not otherwise impact
the operation of the Reserve Order or Day ISO Order as described in
current Exchange rules. Waiver of the operative delay would allow the
Exchange to more expeditiously offer increased flexibility to member
organizations and promote additional trading opportunities for all
market participants. Therefore, the Commission waives the 30-day
operative delay and designates the proposal operative upon filing.\18\
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\17\ See note 8, supra.
\18\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the 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) \19\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\19\ 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3341465f561e505c5e5e565d4740734056501d545c45"><span class="__cf_email__" data-cfemail="b0c2c5dcd59dd3dfddddd5dec4c3f0c3d5d39ed7dfc6">[email protected]</span></a>. Please include
file number SR-NYSECHX-2024-10 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-NYSECHX-2024-10. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSECHX-2024-10 and should
be submitted on or before April 11, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-05943 Filed 3-20-24; 8:45 am]
BILLING CODE 8011-01-P
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