Document ID: SEC-2019-1034-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American, LLC
Posted Date: 2019-07-22T04:00Z

[Federal Register Volume 84, Number 140 (Monday, July 22, 2019)]
[Notices]
[Pages 35165-35168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15470]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86391; File No. SR-NYSEAMER-2019-27]

Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the NYSE American Options Fee Schedule by Revising the Options 
Regulatory Fee

July 16, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 2, 2019, NYSE American LLC (``NYSE American'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE American Options Fee 
Schedule (``Fee Schedule'') by revising the Options Regulatory Fee 
(``ORF''), effective August 1, 2019. The proposed change is available 
on the Exchange's website at www.nyse.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to revise the 
amount of the ORF, effective August 1, 2019. Specifically, to respond 
to increased options transaction volumes in 2018, which reverted (in 
part) in the first half of 2019, the Exchange proposes to lower the ORF 
to $0.0054 (from $0.0055) per contract side for the remainder of 2019.
Background
    As a general matter, the Exchange may only use regulatory funds 
such as ORF ``to fund the legal, regulatory, and surveillance 
operations'' of the Exchange.\4\ More specifically, the ORF is designed 
to recover a material portion, but not all, of the Exchange's 
regulatory costs for the supervision and regulation of ATP Holders (the 
``ATP Regulatory Costs''). The majority of the ATP Regulatory Costs are 
direct expenses, such as the costs related to in-house staff, third-
party service providers, and technology. The direct expenses support 
the day-to-day regulatory work relating to the ATP Holders, including 
surveillance, investigation, examinations and

[[Page 35166]]

enforcement. Such direct expenses represent approximately 91% of the 
Exchange's total ATP Regulatory Costs. The indirect expenses include 
human resources and other administrative costs.
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    \4\ The Exchange considers surveillance operations part of 
regulatory operations. The limitation on the use of regulatory funds 
also provides that they shall not be distributed. See Twelfth 
Amended and Restated Operating Agreement of NYSE American LLC, 
Article IV, Section 4.05 and Securities Exchange Act Release No. 
79114 (October 18, 2016), 81 FR 73117 (October 24, 2016) (SR-
NYSEMKT-2013-93).
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    The ORF is assessed on ATP Holders for options transactions that 
are cleared by the ATP Holder through the Options Clearing Corporation 
(``OCC'') in the Customer range regardless of the exchange on which the 
transaction occurs.\5\ All options transactions must clear via a 
clearing firm and such clearing firms can then choose to pass through 
all, a portion, or none of the cost of the ORF to its customers, i.e., 
the entering firms. Because the ORF is collected from ATP Holder 
clearing firms by the OCC on behalf of NYSE American,\6\ the Exchange 
believes that using options transactions in the Customer range serves 
as a proxy for how to apportion regulatory costs among such ATP 
Holders. In addition, the Exchange notes that the regulatory costs 
relating to monitoring ATP Holders with respect to Customer trading 
activity are generally higher than the regulatory costs associated with 
ATP Holders that do not engage in Customer trading activity, which 
tends to be more automated and less labor-intensive. By contrast, 
regulating ATP Holders that engage in Customer trading activity is 
generally more labor intensive and requires a greater expenditure of 
human and technical resources as the Exchange needs to review not only 
the trading activity on behalf of Customers, but also the ATP Holder's 
relationship with its Customers via more labor-intensive exam-based 
programs.\7\ As a result, the costs associated with administering the 
customer component of the Exchange's overall regulatory program are 
materially higher than the costs associated with administering the non-
customer component (e.g., ATP Holder proprietary transactions) of its 
regulatory program.
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    \5\ See Fee Schedule, Section VII, Regulatory Fees, Options 
Regulatory Fee (``ORF''), available here, https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf.
    \6\ See id. The Exchange uses reports from OCC when assessing 
and collecting the ORF. The ORF is not assessed on outbound linkage 
trades. An ATP Holder is not assessed the fee until it has satisfied 
applicable technological requirements necessary to commence 
operations on NYSE American. See id.
    \7\ The Exchange notes that many of the Exchange's market 
surveillance programs require the Exchange to look at and evaluate 
activity across all options markets, such as surveillance for 
position limit violations, manipulation, front-running and contrary 
exercise advice violations/expiring exercise declarations. The 
Exchange and other options SROs are parties to a 17d-2 agreement 
allocating among the SROs regulatory responsibilities relating to 
compliance by the common members with rules for expiring exercise 
declarations, position limits, OCC trade adjustments, and Large 
Option Position Report reviews. See, e.g., Securities Exchange Act 
Release No. 61588 (February 25, 2010).
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ORF Revenue and Monitoring of ORF
    Exchange rules establish that the Exchange may only increase or 
decrease the ORF semi-annually, that any such fee change will be 
effective on the first business day of February or August, and that 
market participants must be notified of any such change via Trader 
Update at least 30 calendar days prior to the effective date of the 
change.\8\
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    \8\ See Fee Schedule, supra note 5.
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    Because the ORF is based on options transactions volume, ORF 
revenue to the Exchange is variable. For example, if options 
transactions reported to OCC in a given month increase, the ORF 
collected from ATP Holders will increase as well. Similarly, if options 
transactions reported to OCC in a given month decrease, the ORF 
collected from ATP Holders will decrease as well. Accordingly, the 
Exchange monitors the amount of revenue collected from the ORF to 
ensure that this revenue does not exceed regulatory costs. If the 
Exchange determines regulatory revenues exceed regulatory costs, the 
Exchange will adjust the ORF by submitting a fee change filing to the 
Securities and Exchange Commission (the ``Commission'').
    In addition, because Exchange rules establish that ORF may be 
adjusted only every six months, the Exchange does not believe it is 
appropriate to adjust ORF based on short-term changes in options 
transaction volume.\9\ For example, if options volume materially 
increases or decreases during a six-month period, the Exchange believes 
it is appropriate to wait an additional six-month period to assess 
whether such increase or decrease in options volume either continues, 
is sustained at that level, or reverses in such a way that the average 
reported options transaction volume in fact has remained stable year 
over year.
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    \9\ In 2013, in response to feedback from participants 
requesting greater certainty as to when ORF changes may occur, the 
Exchange modified its Fee Schedule to specify that it may only 
increase or decrease the ORF semi-annually. See Securities Exchange 
Act Release No. 70499 (September 25, 2013), 78 FR 60361 (October 1, 
2013) (SR-NYSEMKT-2013-76).
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Proposal
    The Exchange is proposing to decrease the amount of ORF that will 
be collected by the Exchange from $0.0055 per contract side to $0.0054 
per contract side. The Exchange proposes this change because from 2017 
to 2018, options transaction volume increased to a level that if the 
ORF is not adjusted, the ORF revenue to the Exchange year-over-year 
could exceed a material portion of the Exchange's regulatory costs.
    The last time the Exchange changed the ORF fee was February 
2014.\10\ Over that time, options transaction volumes fluctuated with a 
slight increase beginning in 2017. But prior to the 2018 increases in 
options transaction volume, any prior options transaction volume 
increases did not result in the ORF revenue to the Exchange increasing 
to levels such that the Exchange recovered via the ORF more than a 
material portion of the Exchange's regulatory costs. The Exchange 
believes that 2018 was a unique year because, from 2017 to 2018, there 
was a 23.95% year-over-year increase in Total Industry Customer equity 
and ETF option average daily volume (``TCADV'').\11\ By contrast, the 
year-over-year TCADV in prior years was down between 2014 and 2016. For 
example, TCADV decreased 3.1% from 2014 to 2015 and 2.3% from 2015 to 
2016. The year-over-year options volume experienced a slight uptick 
from 2016 to 2017, when TCADV increased 2.0%, which was followed in 
2018 by the 23.95% spike in volume. In 2019, options volume has 
declined year-over-year by 4.5%--which is the largest drop in year-
over-year options volume since 2011 to 2012. Thus, options volumes for 
the first five months of 2019 have not sustained the 2018 volume level 
and have in fact declined from that level.
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    \10\ See Securities Exchange Act Release No. 71410 (January 24, 
2014), 79 FR 5506 (January 31, 2014) (SR-NYSEMKT-2014-09).
    \11\ TCADV includes OCC calculated Customer volume of all types, 
including Complex Order transactions and QCC transactions, in equity 
and ETF options. The Exchange believes that TCADV is a proxy for how 
to measure trends in options transaction volume. See supra note 5, 
Fee Schedule, Key Terms and Definitions.
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    To determine whether ORF fees should be adjusted, the Exchange has 
reviewed not only the increase in options transaction volume in 2018, 
but also options transaction volume in the first five months of 2019. 
Based on 2019 transaction volumes, which are down by 4.5%, the Exchange 
projects that for the remainder of 2019, options transaction volume 
likely will continue to decline from the 2018 high.
    The Exchange believes that is has sufficient information based both 
on the 2018 options transaction volume and the trend in options 
transaction volume in 2019 to determine how to adjust the ORF for the 
second half of 2019. Taking into consideration both the increase in

[[Page 35167]]

options transaction volume in 2018--which translated to increased ORF 
revenue to the Exchange--and the reduced options transaction volume in 
2019, which results in reduced ORF revenue to the Exchange, the 
Exchange proposes to decrease the ORF from $0.0055 to $0.0054 per 
contract side, effective August 1, 2019.\12\ The proposed decrease is 
based on the Exchange's estimated projections for its regulatory costs, 
balanced with the recent increase in options volumes. The Exchange 
cannot predict whether options volume will remain at the 2018 level 
going forward and projections for future regulatory costs are 
estimated, preliminary and may change. However, the Exchange believes 
that revenue generated from the ORF (as modified) will continue to 
cover a material portion, but not all, of the Exchange's regulatory 
costs.
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    \12\ See proposed Fee Schedule, Section VII, Regulatory Fees, 
ORF. The Exchange proposes to make clear that the current fee would 
be in effect until the end of July. See id.
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    Consistent with the Fee Schedule, the Exchange has notified ATP 
Holders of the proposed change to the ORF via Trader Update at least of 
the thirty (30) calendar days prior to the proposed operative date, 
August 1, 2019.\13\ The Exchange believes that this will ensure that 
market participants are prepared to configure their systems to account 
properly for the revised ORF.
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    \13\ See current (and proposed) Fee Schedule, Section VII, 
Regulatory Fees, ORF. See also Trader Update, dated June 25, 2018, 
NYSE Options--Options Regulatory Fee (ORF) Modifications, available 
here: https://www.nyse.com/trader-update/history#110000139057.
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    Finally, The Exchange proposes to delete obsolete language in the 
ORF rule text, regarding Mini Options, which was inadvertently not 
eliminated when the Exchange filed a ``clean up'' fee filing to remove 
all such references.\14\
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    \14\ See id. See also Securities Exchange Act Release No. 84603 
(November 14, 2018), 83 FR 58795 (November 21, 2018) (NYSEAmer-2018-
48) (filing to eliminate obsolete charges, including removing 
obsolete references to fees for Mini Options).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) \15\ of the Act, in general, and 
Section 6(b)(4) and (5) \16\ of the Act, in particular, in that it is 
designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges among its members and other persons using its 
facilities and does not unfairly discriminate between customers, 
issuers, brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
    The Exchange believes the proposed fee change is reasonable because 
it would help ensure that revenue collected from the ORF does not 
exceed a material portion of the Exchange's regulatory costs. The 
Exchange has designed the ORF to generate revenues that would be less 
than or equal to the Exchange's regulatory costs, which is consistent 
with the view of the Commission that regulatory fees be used for 
regulatory purposes and not to support the Exchange's business side. As 
noted above, the Exchange may only use regulatory funds such as ORF 
``to fund the legal, regulatory, and surveillance operations'' of the 
Exchange.\17\ In this regard, the ORF is designed to recover a material 
portion, but not all, of the Exchange's regulatory costs for the 
supervision and regulation of ATP Regulatory Costs.
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    \17\ See supra note 4.
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    To determine whether ORF fees should be adjusted, the Exchange 
considered not only the increase in options transaction volume in 2018, 
but also options transaction volume in the first five months of 2019, 
which is down. Based on 2019 options transaction volume (to date), 
which is down by 4.5%, and the Exchange's projection that such volumes 
will remain stable at best and continue to decline at worse, the 
Exchange believes it is reasonable to decrease the amount of ORF 
collected by the Exchange from $0.0055 per contract side to $0.0054 per 
contract side.
    The Exchange believes that the proposal deleting outdated reference 
to products no longer traded (i.e., Mini Options) is reasonable as it 
would streamline the Fee Schedule by removing superfluous language 
thereby making the Fee Schedule easier for market participants to 
navigate.\18\
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    \18\ See supra note 14.
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The Proposal Is an Equitable Allocation of Fees
    The Exchange believes its proposal is an equitable allocation of 
fees among its market participants. The Exchange believes that the 
proposed ORF would not place certain market participants at an unfair 
disadvantage because all options transactions must clear via a clearing 
firm. Such clearing firms can then choose to pass through all, a 
portion, or none of the cost of the ORF to its customers, i.e., the 
entering firms. Because the ORF is collected from ATP Holder clearing 
firms by the OCC on behalf of NYSE American, the Exchange believes that 
using options transactions in the Customer range serves as a proxy for 
how to apportion regulatory costs among such ATP Holders. In addition, 
the Exchange notes that the regulatory costs relating to monitoring ATP 
Holders with respect to Customer trading activity are generally higher 
than the regulatory costs associated with ATP Holders that do not 
engage in Customer trading activity, which tends to be more automated 
and less labor-intensive. By contrast, regulating ATP Holders that 
engage in Customer trading activity is generally more labor intensive 
and requires a greater expenditure of human and technical resources as 
the Exchange needs to review not only the trading activity on behalf of 
Customers, but also the ATP Holder's relationship with its Customers 
via more labor-intensive exam-based programs. As a result, the costs 
associated with administering the customer component of the Exchange's 
overall regulatory program are materially higher than the costs 
associated with administering the non-customer component (e.g., ATP 
Holder proprietary transactions) of its regulatory program. Thus, the 
Exchange believes the modified ORF would be equitably allocated in that 
it is charged to all ATP Holders on all their transactions that clear 
in the Customer range at the OCC.
The Proposed Fee Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. The Exchange believes that the proposed ORF would not 
place certain market participants at an unfair disadvantage because all 
options transactions must clear via a clearing firm. Such clearing 
firms can then choose to pass through all, a portion, or none of the 
cost of the ORF to its customers, i.e., the entering firms. Because the 
ORF is collected from ATP Holder clearing firms by the OCC on behalf of 
NYSE American, the Exchange believes that using options transactions in 
the Customer range serves as a proxy for how to apportion regulatory 
costs among such ATP Holders. In addition, the Exchange notes that the 
regulatory costs relating to monitoring ATP Holders with respect to 
Customer trading activity are generally higher than the regulatory 
costs associated with ATP Holders that do not engage in Customer 
trading activity, which tends to be more automated and less labor-
intensive. By contrast, regulating ATP Holders that engage in Customer 
trading activity is generally more labor intensive and requires a 
greater expenditure of human and technical resources as the Exchange 
needs to

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review not only the trading activity on behalf of Customers, but also 
the ATP Holder's relationship with its Customers via more labor-
intensive exam-based programs. As a result, the costs associated with 
administering the customer component of the Exchange's overall 
regulatory program are materially higher than the costs associated with 
administering the non-customer component (e.g., ATP Holder proprietary 
transactions) of its regulatory program. Thus, the Exchange believes 
the modified ORF is not unfairly discriminatory because it is charged 
to all ATP Holders on all their transactions that clear in the Customer 
range at the OCC.

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. 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.
    Intramarket Competition. The Exchange believes the proposed fee 
change would not impose an undue burden on competition as it is charged 
to all ATP Holders on all their transactions that clear in the Customer 
range at the OCC; thus, the amount of ORF imposed is based on the 
amount of Customer volume transacted. The Exchange believes that the 
proposed ORF would not place certain market participants at an unfair 
disadvantage because all options transactions must clear via a clearing 
firm. Such clearing firms can then choose to pass through all, a 
portion, or none of the cost of the ORF to its customers, i.e., the 
entering firms. In addition, because the ORF is collected from ATP 
Holder clearing firms by the OCC on behalf of NYSE American, the 
Exchange believes that using options transactions in the Customer range 
serves as a proxy for how to apportion regulatory costs among such ATP 
Holders.
    Intermarket Competition. The proposed fee change is not designed to 
address any competitive issues. Rather, the proposed change is designed 
to help the Exchange adequately fund its regulatory activities while 
seeking to ensure that total regulatory revenues do not exceed total 
regulatory costs.
    Finally, the Exchange does not believe that the proposed deletion 
of obsolete references to Mini Options would impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act as these changes are not intended to address any 
competitive issues and would instead add more specificity, clarity and 
transparency regarding this functionality.

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) \19\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \20\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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) \21\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \21\ 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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-NYSEAMER-2019-27 on the subject line.

Paper Comments

     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 No. SR-NYSEAMER-2019-27. 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 (http://www.sec.gov/rules/sro.shtml). 
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 No. SR-NYSEAMER-2019-27, and should be submitted 
on or before August 12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15470 Filed 7-19-19; 8:45 am]
 BILLING CODE 8011-01-P