Notice2024-28253
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
December 3, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 232 (Tuesday, December 3, 2024)</title>
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[Federal Register Volume 89, Number 232 (Tuesday, December 3, 2024)]
[Notices]
[Pages 95867-95870]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-28253]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101758; File No. SR-NYSEARCA-2024-102]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
November 26, 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 November 21, 2024, 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 incentives available to Market Makers. The
Exchange proposes to implement the fee change effective November 21,
2024.\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\ On November 1, 2024, the Exchange filed to amend the Fee
Schedule (NYSEARCA-2024-93) and withdrew such filing on November 15,
2024 (NYSEARCA-2024-99), which latter filing the Exchange withdrew
on November 21, 2024.
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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 amend the Fee Schedule to modify
certain incentives intended to encourage Market Maker posted volume.
The Exchange proposes to implement the fee change on November 21, 2024.
Currently, the Fee Schedule provides a variety of incentives to
encourage greater participation by Market Makers and Market Maker
affiliates, including more favorable rates for higher volumes from
posted interest (e.g., the Market Maker Incentive For Non-Penny
Interval Issues and the Market Maker Incentives for SPY). The Exchange
also offers incentives that reward higher volume from posted interest
in conjunction with activity in the NYSE Arca Equity Market (for
purposes of this filing, activity in the NYSE Arca Equity Market is
referred to as ``cross asset activity'').
The Exchange proposes to modify the Market Maker Penny and SPY
Posting Credit Tiers (the ``Market Maker Penny Tiers'') \5\ by creating
two new tiers (described below) that would replace the current
``Additional Credit'' per contract credit of ($0.03) on Market Maker
posted interest that is available to OTP Holder or OTP Firm
(collectively, ``OTP Holders'') that qualify for either Super Tier.
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\5\ See Fee Schedule, MARKET MAKER PENNY AND SPY POSTING CREDIT
TIERS.
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Pursuant to the Fee Schedule, to qualify for the Additional Credit,
eligible OTP Holders must achieve (i) at least 0.55% of total combined
IWM, QQQ, and SPY industry ADV from Market Maker posted interest in
IWM, QQQ, and SPY,\6\ and (ii) ETP Holder and Market Maker posted
volume in Tape B Adding ADV that is equal to at least 1.50% of US Tape
B CADV executed on NYSE Arca Equity Market for the billing month.\7\ As
a result, OTP Holders that qualify for the Super Tier and the
Additional Credit will receive a per contract credit of ($0.40) on all
Penny Issues other than SPY and a per contract credit of ($0.42) per
contract for executions in SPY.\8\ Similarly, OTP
[[Page 95868]]
Holders that qualify for Super Tier II and the Additional Credit will
receive a per contract credit of ($0.45) on all Penny Issues, including
SPY.\9\
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\6\ IWM is the iShares Russell 2000 ETF. QQQ is the Invesco QQQ
Trust. SPY is the SPDR S&P 500 ETF Trust.
\7\ See Fee Schedule, MARKET MAKER PENNY AND SPY POSTING CREDIT
TIERS. The Additional Credit does not apply to executions of issues
in a Lead Market Maker's appointment. See id.
\8\ Id. The total potential Super Tier credits combines the
($0.37) standard per contract credit (for Penny Issues other than
SPY) with the ($0.03) Additional Credit to equal a per contract
credit of ($0.40); or combines the ($0.39) standard per contract
credit for SPY with ($0.03) Additional Credit to equal a per
contract credit of ($0.42).
\9\ Id. The total Super Tier II credit combines the ($0.42)
standard per contract credit for all Penny Issues (including SPY)
with the ($0.03) Additional Credit to equal a per contract credit of
($0.45).
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The Exchange proposes to eliminate completely the ``Additional
Credit'' and to instead add two tiers--named the Super Select Tier and
Super Select Tier II (collectively, the ``proposed Tiers'').\10\ As
with the existing Market Maker Penny Tiers, the proposed Tiers will
apply to electronic executions of Market Maker posted interest in Penny
Issues and will include a cross-asset component.
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\10\ See proposed Fee Schedule, MARKET MAKER PENNY AND SPY
POSTING CREDIT TIERS (adding the proposed Tiers and removing the
language regarding the Additional Credit as well as the asterisks
signaling this credit that appears in the title of Super Tier and
Super Tier II). While the Additional Credit is being eliminated, the
Exchange is not proposing to modify the qualification bases or
associated credits for the Super Tier or Super Tier II.
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To qualify for the proposed Super Select Tier and associated
($0.40) per contract on all Penny Issues (including SPY), an OTP Holder
must achieve:
(i) at least 0.25% of total combined IWM, QQQ, and SPY industry ADV
from Market Maker posted interest in IWM, QQQ, and SPY; plus
(ii) ETP Holder and Market Maker posted volume in Tape B Adding ADV
equal to at least 1.55% of US Tape B CADV for the billing month
executed on NYSE Arca Equity Market.
In addition, to qualify for the proposed Super Select Tier II and
associated ($0.41) per contract credit, an OTP Holder must achieve:
(i) at least 0.35% of total combined IWM, QQQ, and SPY industry ADV
from Market Maker posted interest in IWM, QQQ, and SPY; plus
(ii) ETP Holder and Market Maker posted volume in Tape B Adding ADV
equal to at least 1.65% of US Tape B CADV for the billing month
executed on NYSE Arca Equity Market.
The proposed Tiers, like the Additional Credit, require that an OTP
Holder execute a minimum of posted volume in IWM/QQQ/SPY, plus satisfy
the cross-asset component. The Exchange notes that each of the proposed
Tiers, as compared to the Additional Credit, have a lower IWM/QQQ/SPY
volume requirement (i.e., 0.25% or 0.35% as compared to 0.55%), which
is offset by a slightly higher volume requirement for the cross-asset
component (i.e., 1.55% or 1.65% as compared to 1.50%). The Exchange
believes that the proposed (lower) posted volume requirements for IWM/
QQQ/SPY on balance should make the proposed Tiers more achievable. As
such, the Exchange believes the proposed Tiers will (continue to)
encourage more Market Maker posted interest in certain very high-volume
products, in combination with cross asset activity. Increased posted
volume order flow, particularly by liquidity providers, contributes to
a deeper, more liquid market, which, in turn, provides for increased
execution opportunities and thus overall enhanced price discovery and
price improvement opportunities on the Exchange.
While the Exchange cannot predict with certainty whether any OTP
Holders would seek to qualify for the proposed Tiers, the Exchange
believes the proposed modifications, which are designed to encourage
increased posted interest from Market Makers in certain high-volume
issues as well as cross market activity, would continue to incentivize
OTP Holders to submit these types of orders to the Exchange, which
brings increased liquidity and order flow for the benefit of all market
participants.
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 change to the Fee Schedule are reasonable, equitable,
and not unfairly discriminatory. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for options
securities transaction services that constrain its pricing
determinations in that 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 18 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, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in September of 2024, the Exchange had
14.05% market share of executed volume of multiply-listed equity & ETF
options trades.\15\ In such a low-concentrated and highly competitive
market, no single options exchange possesses significant pricing power
in the execution of option order flow. Within this environment, market
participants can freely and often do shift their order flow among the
Exchange and competing venues in response to changes in their
respective pricing schedules.
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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 Exchanges market share in equity-based options
increased from 11.48% for the month of September 2023 to 14.05% for
the month of September 2024.
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The Exchange believes that the proposed modifications to add the
proposed Tiers are reasonably designed to incent OTP Holders to
increase the number and variety of orders sent to the Exchange for
execution. Specifically, to the extent that the proposed change
attracts more Market Maker posted interest in certain high-volume
issues and cross asset activity, this increased order flow would
continue to make the Exchange a more competitive venue for order
execution, which, in turn, promotes just and equitable principles of
trade and removes impediments to and perfects the mechanism of a free
and open market and a national market system. Although the Exchange
proposes to eliminate the Additional Credit, the Exchange believes that
the proposed Tiers will continue to incentivize participation in
greater volume from posted interest, as well as cross asset activity.
The Exchange believes the proposed rule change is an equitable
allocation of its fees and credits and is not unfairly
[[Page 95869]]
discriminatory as it available equally to all similarly-situated market
participants on an equal and non-discriminatory basis.
The proposal is based on the amount and type of business transacted
on the Exchange, and OTP Holders are not obligated to try to achieve
the qualifications for any of the tiers or execute either Market Maker
posted interest or cross asset activity. Rather, the proposal is
designed to continue to encourage OTP Holders to utilize the Exchange
as a primary trading venue for Market Maker posted interest (if they
have not done so previously) and to increase volume sent to the
Exchange.
To the extent the proposed change continues to attract greater
volume and liquidity, the Exchange believes the proposed change 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
17 competing options exchanges, including those that also offer
incentives based on Market Maker posted volume in IWM, QQQ, and
SPY.\16\ Thus, OTP Holders have a choice of where they direct their
order flow, including their Market Maker posted interest and cross
asset activity. The proposed rule change is designed to incent OTP
Holders to direct liquidity to the Exchange, and in particular, Market
Maker posted interest in highly liquid issues and cross asset activity,
thereby promoting market depth, price discovery and improvement, and
enhanced order execution opportunities for market participants.
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\16\ See MIAX Pearl Options Exchange Fee Schedule, available at
MIAX_Pearl_Options_Fee_Schedule_100721.pdf (<a href="http://miaxglobal.com">miaxglobal.com</a>)
(offering tiered incentives based on Market Maker volume in IWM,
QQQ, and SPY); Cboe BZX Options Fee Schedule, available at <a href="https://www.cboe.com/us/options/membership/fee_schedule/bzx/a">https://www.cboe.com/us/options/membership/fee_schedule/bzx/a</a> (offering
favorable credits as an alternative for Market Maker posting volume
in IWM, QQQ, and SPY).
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At present, whether an OTP Holder qualifies for the various monthly
incentives set forth in the Market Maker Penny Tiers is dependent on
market activity and an OTP Holder's mix of order flow. Thus, while the
Exchange cannot predict with certainty whether any OTP Holders will
seek to qualify for the proposed Tiers, which apply to Market Maker
posted interest in certain high-volume issues and cross asset activity,
would provide an incentive for OTP Holders to continue to submit these
types of orders to the Exchange, which brings increased liquidity and
order flow for the benefit of all market participants.
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 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 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.'' \17\
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\17\ See Reg NMS Adopting Release, supra note 13, at 37499.
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Intramarket Competition. The proposed change is designed to attract
additional order flow (particularly Market Maker posted interest in
certain high-volume issues) to the Exchange. The Exchange believes that
the proposed Tiers would continue to encourage market participants to
direct their Market Maker posted interest volume to the Exchange,
particularly in certain high-volume issues, as well as encourage cross
asset activity. Greater liquidity benefits all market participants on
the Exchange, and increased Market Maker posted interest would increase
opportunities for execution of other trading interest. The proposed
modifications would apply and be available equally to all similarly-
situated market participants that handle Market Maker posted interest
and cross asset activity, and, accordingly, the proposed change would
not impose a disparate burden on competition among market participants
on the Exchange.
Intermarket Competition. The Exchange operates in a highly
competitive market in which market participants can readily favor one
of the 17 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 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.\18\ Therefore, currently
no exchange possesses significant pricing power in the execution of
multiply-listed equity & ETF options order flow. More specifically, in
September 2024, the Exchange had just over 14% market share of executed
volume of multiply-listed equity & ETF options trades.\19\
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\18\ 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>.
\19\ Based on OCC data for monthly volume of equity-based
options and monthly volume of ETF-based options, see id., the
Exchanges market share in equity-based options increased from 11.48%
for the month of September 2023 to 14.05% for the month of September
2024.
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The Exchange believes that the proposed rule change reflects this
competitive environment because it modifies the Exchange's fees in a
manner designed to encourage OTP Holders to direct trading interest
(particularly Market Maker posted interest and cross asset activity) 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 opportunities for price improvement.
The Exchange believes that the proposed change could promote
competition between the Exchange and other execution venues, including
those that also currently offer incentives based on Market Maker posted
volume in IWM, QQQ, and SPY,\20\ by encouraging additional orders to be
sent to the Exchange for execution.
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\20\ See MIAX Pearl Options Exchange Fee Schedule, available at
MIAX_Pearl_Options_Fee_Schedule_100721.pdf (<a href="http://miaxglobal.com">miaxglobal.com</a>)
(offering tiered incentives based on Market Maker volume in IWM,
QQQ, and SPY); Cboe BZX Options Fee Schedule, available at <a href="https://www.cboe.com/us/options/membership/fee_schedule/bzx/a">https://www.cboe.com/us/options/membership/fee_schedule/bzx/a</a> (offering
favorable credits as an alternative for Market Maker posting volume
in IWM, QQQ, and SPY).
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[[Page 95870]]
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) \21\ of the Act and subparagraph (f)(2) of Rule
19b-4 \22\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 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) \23\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\23\ 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#1b696e777e36787476767e756f685b687e78357c746d"><span class="__cf_email__" data-cfemail="245651484109474b4949414a5057645741470a434b52">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2024-102 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-2024-102. 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-NYSEARCA-2024-102 and should
be submitted on or before December 24, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-28253 Filed 12-2-24; 8:45 am]
BILLING CODE 8011-01-P
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