Document ID: SEC-2016-0920-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2016-05-31T04:00Z

[Federal Register Volume 81, Number 104 (Tuesday, May 31, 2016)]
[Notices]
[Pages 34404-34407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12672]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77898; File No. SR-NYSEArca-2016-11]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving 
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Amending 
Section 4.01(a) of the NYSE Arca's Bylaws and NYSE Arca Rule 3.3 to 
Establish a Committee for Review as a Sub-Committee of the ROC and 
Making Conforming Changes to NYSE Arca Rules

May 24, 2016.

I. Introduction

    On March 24, 2016, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(``Act''),\2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to 
amend Section 4.01(a) of the Bylaws of the Exchange and to amend 
various rules of the Exchange, as described below. On April 4, 2016, 
the Exchange filed Amendment No. 1 to its proposal.\4\ The proposed 
rule change, as modified by the amendment thereto, was published for 
comment in the Federal Register on April 12, 2016.\5\ The Commission 
received no comment letters on the proposed rule change. This order 
approves the proposed rule change, as modified by the amendment 
thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment No. 1 amended and replaced the original filing in 
its entirety. In Amendment No. 1, the Exchange, among other things, 
deleted language in the description of the proposed rule change that 
was not relevant to the proposed rule change.
    \5\ See Securities Exchange Act Release No. 77535 (April 6, 
2016), 81 FR 21615 (``Notice'').
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II. Description of the Proposal

    As part of a regulatory restructuring, NYSE Arca proposes to: (i) 
Amend Section 4.01(a) of the NYSE Arca's Bylaws and NYSE Arca Rule 3.3 
to establish a Committee for Review as a subcommittee of the Regulatory 
Oversight Committee (``ROC'') \6\ and

[[Page 34405]]

delete NYSE Arca Rule 3.2(b)(3) governing the OTP Advisory Committee 
and NYSE Arca Equities, Inc.\7\ (``NYSE Arca Equities'') Rule 3.2(b)(3) 
governing the Member Advisory Committee, both of whose functions would 
be assumed by the Committee for Review, and make conforming changes to 
NYSE Arca Rules 2.4, 10.3, 10.6, 10.8, 10.11, 10.12, 10.14 and NYSE 
Arca Equities Rules 2.3, 3.3, 5.5, 10.3, 10.6, 10.8, 10.11, 10.12, and 
10.13; (ii) delete references to ``NYSE Regulation, Inc.'' and ``NYSE 
Regulation'' \8\ in NYSE Arca Rule 0 and NYSE Arca Equities Rule 0 and 
NYSE Arca Equities Rule 5.3(i)(1); (iii) replace a reference to the 
``NYSE Regulation, Inc. Chief Executive Officer'' in NYSE Arca Equities 
Rule 2.100; and (iv) make certain technical and non-substantive 
changes.
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    \6\ The Commission recently approved the Exchange's proposal to 
establish the ROC as a committee of the Exchange's Board of 
Directors (``NYSE Arca Board'') to be composed solely of public 
directors who satisfy the Exchange's Public Director requirements, 
as set forth in the Exchange's Bylaws. See Securities Exchange Act 
Release No. 75155 (June 11, 2015), 80 FR 34744 (June 17, 2015).
    \7\ NYSE Arca, a registered securities exchange, operates a 
marketplace for trading options and, through its wholly-owned 
subsidiary NYSE Arca Equities, a marketplace for trading equities. 
See Notice, supra note 5, at 21615.
    \8\ NYSE Regulation, Inc. (``NYSE Regulation''), a not-for-
profit subsidiary of the Exchange's affiliate New York Stock 
Exchange LLC (``NYSE''), performed regulatory functions for the 
Exchange pursuant to an intercompany Regulatory Services Agreement 
(``RSA'') that gave the Exchange the contractual right to review 
NYSE Regulation's performance. The RSA terminated on February 16, 
2016. See id. at 21615 n.5.
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    The Exchange proposes that these rule revisions would be operative 
no later than June 30, 2016, on a date to be determined by the NYSE 
Arca Board.\9\
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    \9\ See id. at 21615 n.6.
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A. Establishing a Committee for Review and Conforming Exchange Rules

    The Exchange proposes to establish a Committee for Review (``CFR'') 
as a subcommittee of the ROC by amending Section 4.01(a) (Committees of 
the Board) of the NYSE Arca's Bylaws and NYSE Arca Rule 3.3 (Board 
Committees), deleting NYSE Arca Rule 3.2(b)(3) (Options Committees) and 
NYSE Arca Equities Rule 3.2(b)(3) (Equity Committees), and making 
conforming changes to NYSE Arca Rules 2.4, 10.3, 10.6, 10.8, 10.11, 
10.12, 10.14 and NYSE Arca Equities Rules 2.3, 3.3, 5.5, 10.3, 10.6, 
10.8, 10.11, 10.12, and 10.13.\10\ The proposed CFR would be the 
successor to the current NYSE Arca Board Appeals Committee (``NYSE Arca 
BAC'') and the NYSE Arca Equities Board Appeals Committee (``NYSE Arca 
Equities BAC''), which are committees of the NYSE Arca Board and NYSE 
Arca Equities Board of Directors, respectively, that review appeals of 
Exchange disciplinary actions regarding options and equities matters, 
respectively.\11\ The Exchange represents that by creating a single 
CFR, the Exchange's appellate process would be consistent with the 
processes of its affiliates, the NYSE and NYSE MKT LLC (``NYSE MKT''), 
both of which recently established a CFR as a subcommittee of their 
respective ROCs.\12\
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    \10\ See id. at 21616.
    \11\ See id.
    \12\ See Securities Exchange Act Release No. 75991 (September 
28, 2015), 80 FR 59837 (October 2, 2015) (NYSE-2015-27); Securities 
Exchange Act Release No. 77008 (February 1, 2016), 81 FR 6311 
(February 5, 2016) (NYSEMKT 2015-106).
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    NYSE Arca Rule 3.3(a)(2)(A) would provide that the NYSE Arca Board 
shall annually appoint a CFR as a subcommittee of the ROC. The Exchange 
notes that proposed Rule 3.3(a)(2) incorporates member organization 
association requirements of the current NYSE Arca BAC.\13\
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    \13\ See Notice, supra note 5, at 21616-17.
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    The proposed CFR would be comprised of the OTP Director(s),\14\ the 
ETP Director(s) \15\ and the Public Directors \16\ of both NYSE Arca 
and NYSE Arca Equities.\17\
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    \14\ The Exchange notes that an ``OTP Director'' is a director 
nominated by the Options Trading Permit (``OTP'') Holders of the 
Exchange. See id. at 21616 n.13; see also Article III, Section 3.02 
of the Exchange Bylaws.
    \15\ The Exchange notes that an ``ETP Director'' is a director 
nominated by the Equities Trading Permit (``ETP'') Holders of NYSE 
Arca Equities, Inc. See id. at 21616 n.13; see also Article III, 
Section 3.02 of the Exchange Bylaws.
    \16\ Under the Bylaws of the Exchange, ``Public Directors'' of 
the Exchange are directors that are ``persons from the public and 
will not be, or be affiliated with, a broker-dealer in securities or 
employed by, or involved in any material business relationship with, 
the Exchange or its affiliates.'' See Section 3.02 of the Exchange 
Bylaws.
    \17\ See Notice, supra note 5, at 21616-17.
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    The proposed CFR would be responsible for reviewing the 
disciplinary decisions on behalf of the NYSE Arca Board and reviewing 
determinations to limit or prohibit the continued listing of an 
issuer's securities on NYSE Arca Equities.\18\ In addition, the 
Exchange proposes to incorporate the roles of the OTP Advisory 
Committee of NYSE Arca and the Member Advisory Committee of NYSE Arca 
Equities into the proposed CFR.\19\ As a result, the proposed CFR also 
would be charged with acting in an advisory capacity to the NYSE Arca 
Board with respect to disciplinary matters, the listing and delisting 
of securities, regulatory programs, rulemaking and regulatory rules, 
including trading rules. The Exchange states that the proposed CFR 
would therefore serve in the same advisory capacity as the current OTP 
Advisory and Member Advisory Committees.\20\
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    \18\ The Exchange notes that the NYSE Arca Equities BAC 
currently has the same mandate to review determinations to limit or 
prohibit the continued listing of an issuer's securities, but that 
the NYSE Arca BAC's mandate does not include reviews of delisting 
determinations. See id. at 21616 n.23.
    \19\ See id. at 21618. The Exchange notes that the same profile 
of members who historically have served on these advisory committees 
would be represented on the proposed CFR and that the Exchange's 
affiliates NYSE and NYSE MKT have similar structures in place with 
respect to their respective CFRs. See id.
    \20\ The Exchange also notes that this proposal is consistent 
with the structure recently approved for its affiliate, NYSE, which 
abolished its advisory committees and transferred the functions of 
to its newly created NYSE CFR, whose mandate includes acting in an 
advisory capacity to the NYSE board of directors with respect to 
disciplinary matters, the listing and delisting of securities, 
regulatory programs, rulemaking and regulatory rules, including 
trading rules. See id.
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    According to the Exchange, member participation on the proposed CFR 
would be sufficient to provide for the fair representation of members 
in the administration of the affairs of the Exchange, including 
rulemaking and the disciplinary process, consistent with Section 
6(b)(3) of the Act.\21\
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    \21\ See id. and 15 U.S.C. 78f(b)(3).
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    The Exchange further proposes to amend NYSE Arca Rule 3.3(a)(2)(B) 
and NYSE Arca Equities Rule 3.3(a)(1)(A) to provide that the CFR may, 
but would not be required to, appoint an appeals panel (``CFR Appeals 
Panel'') to conduct a review thereunder and make a decision regarding 
the disposition of the appeal.\22\ Similar to current appeals panels 
that can be appointed by the NYSE Arca BAC, a CFR Appeals Panel would 
consist of at least three and no more than five individuals.\23\ The 
Exchange represents that any CFR Appeals Panel appointed by the CFR for 
matters related to the equities market would be composed of at least 
one Public Director and at least one director that is an ETP Holder or 
Allied Person or Associated Person of an ETP Holder.\24\ The Exchange 
further

[[Page 34406]]

represents that any CFR Appeals Panel appointed by the CFR for matters 
related to the options market would be composed of at least one Public 
Director and at least one Director that is an OTP Holder or Allied 
Person or Associated Person of an OTP Firm.\25\ According to the 
Exchange, participation on the proposed CFR Appeals Panels of permit 
holders and persons allied or associated with permit holders would be 
sufficient to provide for the fair representation of members in the 
administration of the affairs of the Exchange, including rulemaking and 
the disciplinary process, consistent with Section 6(b)(3) of the 
Act.\26\
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    \22\ The Exchange notes that under current NYSE Arca and NYSE 
Arca Equities Rules, any decisions by an appeals panel appointed by 
the NYSE Arca BAC or NYSE Arca Equities BAC are final unless 
appealed to the NYSE Arca Board or called for review by the NYSE 
Arca Board. See id. at 21617 n.25 and accompanying text. The 
Exchange proposes that CFR Appeals Panels retain this ability to 
resolve appeals and therefore does not propose that a CFR Appeals 
Panel would make recommendations to the CFR, as is the case with 
appellate panels for the Exchange's affiliate NYSE MKT, which it 
notes did not previously have appellate panels. See id.
    \23\ See id. at 21617. The Exchange notes that NYSE Arca 
Equities Rule 3.3(a)(1) currently provides that the NYSE Arca 
Equities Board determines the size of any ``Appeals Committee'' it 
creates. See id. at 21617 n.29.
    \24\ See id. at 21617.
    \25\ See id.
    \26\ See id. at 21619.
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    The Exchange proposes to make conforming amendments to Article IV, 
Section 4.01(a) of its Bylaws governing board committees by replacing 
references to the ``Board Appeals Committee'' with references to the 
``Committee for Review as a subcommittee of the Regulatory Oversight 
Committee'' and ``its subcommittee, the CFR.'' The Exchange also 
proposes to make conforming amendments to NYSE Arca Rules 2.4, 10.3, 
10.6, 10.8, 10.11, 10.12, 10.14 and NYSE Arca Equities Rules 2.3, 5.5, 
10.3, 10.6, 10.8, 10.11, 10.12, and 10.13 by generally replacing 
references to the current NYSE Arca BAC and NYSE Arca Equities BAC with 
references to the ``Committee for Review'' or ``CFR'' and to replace 
references to the ``Appeals Panel'' with the ``CFR Appeals Panel.'' 
\27\
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    \27\ With respect to the replacement of references to ``Appeals 
Panel,'' the Exchange notes that NYSE Arca Rule 10.11(e)(1) 
currently provides that appellate review of Floor citations and 
minor rule plan sanctions are referred directly to an appropriate 
Board Appeals Committee Panel (defined as an ``Appeals Panel'') 
appointed by the NYSE Arca Board, and current NYSE Arca Rule 
10.11(e)(2) governs decisions by such Appeals Panels. The Exchange 
proposes to replace ``an appropriate Board Appeals Committee Panel 
(`Appeals Panel') appointed by the Board'' in NYSE Arca Rule 
10.11(e)(1) with ``CFR'' because it believes that it would be more 
appropriate for such matters to be directly referred to the CFR, 
which can then determine whether to appoint a CFR Appeals Panel as 
is currently proposed for disciplinary appeals under NYSE Arca Rule 
10.8(b). See id. at 21617 n.28 and accompanying text. Accordingly, 
the Exchange also proposes to add text to NYSE Arca Rule 10.11(e)(2) 
to provide that the CFR may appoint a CFR Appeals Panel to conduct 
reviews under this subsection or may decide to conduct review 
proceedings on its own. See id.
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B. Modifying Exchange Rules To Delete References to NYSE Regulation

    The Exchange proposes in connection with the its termination of the 
intercompany RSA pursuant to which NYSE Regulation provided regulatory 
services to the Exchange, to amend NYSE Arca Rule 0 (Regulation of the 
Exchange, OTP Holders and OTP Firms) and NYSE Arca Equities Rule 0 
(Regulation of the Exchange and Exchange Trading Permit Holders) to 
delete references to ``NYSE Regulation, Inc.'' and ``NYSE Regulation 
staff or departments,'' and NYSE Arca Equities Rule 5.3(i)(1) 
(Financial Reports and Related Notices) to delete the reference to 
``NYSE Regulation'' and to replace such reference with ``regulatory 
staff.'' \28\
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    \28\ See id. at 21618.
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C. Modifying Exchange Rules To Reference the Exchange's Chief 
Regulatory Officer

    The Exchange proposes to amend NYSE Arca Equities Rule 2.100 
(Emergency Powers) to replace a reference to ``NYSE Regulation, Inc. 
Chief Executive Officer'' with ``Chief Regulatory Officer.''

D. Certain Technical and Non-Substantive Changes

    The Exchange proposes to make certain technical and non-substantive 
changes to amend NYSE Arca Rules 0 and 10.8, and NYSE Arca Equities 
Rules 10.3, 10.12, and 10.13.
    The Exchange proposes to delete the semi-colon at the end of the 
heading of NYSE Arca Rule 0; to make grammatical corrections to NYSE 
Arca Rule 10.8; to replace outdated references to the NYSE Arca Board 
of Governors in NYSE Arca Equities Rules 10.3, 10.12 and 10.13 with 
references to the ``NYSE Arca Board of Directors''; and to amend the 
heading of NYSE Arca Equities Rule 10.13 to delete the reference to 
``the Corporation.'' \29\
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    \29\ See id. at 21618. With respect to the deletion of the 
reference to ``the Corporation,'' which the Exchange explains refers 
to NYSE Arca Equities, the Exchange notes that the hearings and 
review of decisions referred to in the rule would be conducted by 
the CFR, a subcommittee of the NYSE Arca Board.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\30\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(1) of the Act, which 
requires an exchange to be so organized and have the capacity to carry 
out the purposes of the Act and to comply, and to enforce compliance by 
its members and persons associated with its members, with the Act, the 
rules and regulations thereunder, and the rules of the exchange.\31\ 
The Commission finds that the proposal also is consistent with the 
requirements of Section 6(b)(3) of the Act, which provides that the 
rules of an exchange must assure a fair representation of its members 
in the selection of its directors and administration of its affairs and 
provide that one or more directors shall be representative of issuers 
and investors and not be associated with a member of the exchange, 
broker, or dealer.\32\ In addition, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act, which requires 
that the rules of the exchange be designed, among other things, to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, 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.\33\ 
Finally, the Commission finds that the proposal is consistent with 
Section 6(b)(7) of the Act, which requires that the rules of the 
exchange provide a fair procedure for the disciplining of its members 
and persons associated with members, the denial of membership to any 
person seeking membership therein, the barring of any person from 
becoming associated with a member thereof, and the prohibition or 
limitation by the exchange with respect to access to services offered 
by the exchange or a member thereof.\34\
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    \30\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \31\ 15 U.S.C. 78f(b)(1).
    \32\ 15 U.S.C. 78f(b)(3).
    \33\ 15 U.S.C. 78f(b)(5).
    \34\ 15 U.S.C. 78f(b)(7).
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    The Exchange represents that the proposed single CFR would be a 
successor to both the current NYSE Arca BAC and NYSE Arca Equities BAC, 
which are committees of the NYSE Arca Board and NYSE Arca Equities 
Board of Directors, respectively, that review appeals of Exchange 
disciplinary actions in their respective markets.\35\ The Exchange also 
proposes to incorporate the responsibilities of the OTP Advisory 
Committee of NYSE Arca and the Member Advisory Committee of NYSE Arca 
Equities into the proposed CFR.\36\ The CFR's responsibilities 
therefore would be expanded to include acting in an advisory capacity 
to the

[[Page 34407]]

NYSE Arca Board with respect to disciplinary matters, the listing and 
delisting of securities, regulatory programs, rulemaking and regulatory 
rules, including trading rules.\37\ The Commission notes that the 
proposed CFR incorporates the salient features of the current NYSE Arca 
BAC and NYSE Arca Equities BAC, including by incorporating the 
requirement that the CFR be comprised of the Public Directors, the OTP 
Directors and ETP Directors.\38\ As such, the Commission finds that the 
Exchange's proposed revisions to its appellate procedure for 
disciplinary matters and for determinations to limit or prohibit the 
continued listing of an issuer's securities on NYSE Arca Equities 
ensures sufficient independence of the appellate function of the 
Exchange, and therefore helps to ensure that the Exchange is organized 
and has the capacity to carry out the purposes of the Act, as required 
by Section 6(b)(1) of the Act.\39\
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    \35\ See Notice, supra note 5, at 21616.
    \36\ See id. at 21618. The Exchange notes that the same 
categories of permit holders that were represented on the OTP 
Advisory Committee and the Member Advisory Committee would be 
represented on the proposed CFR. See id.
    \37\ See id.
    \38\ See id. at 21616.
    \39\ 15 U.S.C. 78f(b)(1).
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    The Commission also finds that the composition of the proposed CFR 
ensures the fair representation of members in the administration of the 
Exchange's affairs.\40\ Proposed NYSE Arca Rule 3.3(a)(2)(A) provides 
that the CFR would be composed of the OTP Director(s), the ETP 
Director(s) and the Public Directors of both NYSE Arca and NYSE Arca 
Equities.\41\ Because NYSE Arca and NYSE Arca Equities members would 
serve on the proposed CFR, which would be charged with acting in an 
advisory capacity to the NYSE Arca Board with respect to disciplinary 
matters, the listing and delisting of securities, regulatory programs, 
rulemaking and regulatory rules, including trading rules, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(3) of the Act.\42\
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    \40\ 15 U.S.C. 78f(b)(3).
    \41\ See Notice, supra note 5, at 21616.
    \42\ 15 U.S.C. 78f(b)(3).
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    The Exchange also proposes to amend NYSE Arca Rule 3.3(a)(2)(B) and 
NYSE Arca Equities Rule 3.3(a)(1)(A) to permit the CFR to appoint a CFR 
Appeals Panel, consisting of at least three and no more than five 
individuals.\43\ The CFR would either appoint a CFR Appeals Panel to 
conduct reviews of disciplinary proceedings or elect to conduct review 
proceedings on its own.\44\ According to the Exchange, a CFR Appeals 
Panel appointed to hear an equities matter would be composed of at 
least one Public Director and one member or individual associated with 
an equities member organization, and an appeals panel appointed to hear 
an options matter would be composed of at least one Public Director and 
one member or individual associated with an options member 
organization.\45\ The Commission finds that the Exchange's proposal 
with respect to the proposed composition and the role of a CFR Appeals 
Panel is consistent with Sections 6(b)(3) and 6(b)(7) of the Act.\46\
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    \43\ See Notice, supra note 5, at 21617.
    \44\ See id.
    \45\ See id.
    \46\ 15 U.S.C. 78f(b)(3) and 15 U.S.C. 78f(b)(7).
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    Finally, the Commission finds that it is consistent with Section 
6(b)(5) of the Act for the Exchange to make various technical and 
conforming revisions to its Rules.\47\
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    \47\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NYSEArca-2016-11), as modified by the 
amendment thereto, is approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-12672 Filed 5-27-16; 8:45 am]
 BILLING CODE 8011-01-P