Document ID: SEC-2019-1324-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American, LLC
Posted Date: 2019-09-16T04:00Z

[Federal Register Volume 84, Number 179 (Monday, September 16, 2019)]
[Notices]
[Pages 48672-48676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19905]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86917; File No. SR-NYSEAMER-2019-36]

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

September 10, 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 September 3, 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''). The Exchange proposes to implement the fee 
change effective September 3, 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 purpose of this filing is to amend the Fee Schedule to modify 
the Strategy Execution Fee Cap (``Strategy Cap''), as set forth below.
    Currently, Section I.J. of the Fee Schedule provides that 
transaction fees for ATP Holders are limited or capped at $750 for 
certain options strategy executions ``on the same trading day in the 
same option class'' and such fees are further capped at $25,000 per 
month per initiating firm.\4\ Strategy executions that qualify for the 
Strategy Cap are (a) reversals and conversions, (b) box spreads, (c) 
short stock interest spreads, (d) merger spreads, and (e) jelly rolls, 
which are described in detail in the Fee Schedule (the ``Strategy 
Executions'').\5\
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    \4\ See Fee Schedule, Section I. J. (Strategy Execution Fee 
Cap), available here: https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf.
    \5\ See id. Any qualifying Strategy Execution executed as a QCC 
order will not be eligible for this fee cap. See id.
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    The Exchange proposes to increase the daily Strategy Cap from $750 
to $1,000 and to include in the Cap all Strategy Executions traded in 
the same day (i.e., to eliminate the Cap requirement that strategies be 
in the

[[Page 48673]]

same option class). In connection with this change, the Exchange 
proposes to eliminate the $25,000 monthly Strategy Cap. The Exchange 
believes that the proposed Strategy Cap would encourage ATP Holders to 
execute more Strategy Executions, particularly those that would not 
individually qualify for inclusion in the Cap because of the current 
per-symbol limitation, as such strategies would become more 
economically feasible (and thus more attractive), when combined under 
the proposed Cap with all of an ATP Holder's Strategy Executions on the 
same trading day.
    The Exchange proposes to implement the rule change on September 3, 
2019.
Background
    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.'' \6\
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    \6\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS 
Adopting Release'').
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    There are currently 16 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than 16% of the market 
share of executed volume of multiply-listed equity and ETF options 
trades.\7\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity & ETF options order flow. 
More specifically, in the first quarter of 2019, the Exchange had less 
than 10% market share of executed volume of multiply-listed equity & 
ETF options trades.\8\
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    \7\ The OCC publishes options and futures volume in a variety of 
formats, including daily and monthly volume by exchange, available 
here: https://www.theocc.com/market-data/volume/default.jsp.
    \8\ Based on OCC data, see id., the Exchange's market share in 
equity-based options declined from 9.82% for the month of January to 
8.84% for the month of April.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow, or discontinue or reduce use of certain categories of 
products, in response to fee changes. Accordingly, competitive forces 
constrain options exchange transaction fees.
    In response to this competitive environment, the Exchange has 
established incentives, such as the Strategy Cap, to encourage ATP 
Holders to participate in certain large volume options strategies that 
capture potentially small profits by capping the fees paid for such 
transactions.
    As noted above, the current Strategy Cap limits or caps at $750 
transaction fees for options Strategy Executions ``on the same trading 
day in the same option class'' and further caps such fees at $25,000 
per month.\9\
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    \9\ See Fee Schedule, Section I. J. (Strategy Execution Fee 
Cap), supra note 4.
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Proposed Rule Change
    The Exchange proposes to modify the Strategy Cap by eliminating the 
requirement that Strategy Executions on the same trading day all be in 
the same symbol for inclusion in the Cap. Specifically, as proposed, 
the daily Strategy Cap on transaction fees for options Strategy 
Executions would be changed from $750 to $1,000 and would apply to all 
Strategy Executions by an ATP Holder on the same trading day 
(regardless of option class/symbol). In addition, given the proposal to 
cap an ATP Holder's fee for all Strategy Executions in a given trading 
day at $1,000, the Exchange proposed to eliminate the $25,000 per month 
Strategy Cap as unnecessary.
    For example, per the current Fee Schedule, an ATP Holder that 
executes the following Strategy Executions on the same trading day 
would be charged as follows:
     A Jelly Roll in ABC for $800 in fees, capped at $750;
     A Reversal Conversion in DEF for $500 in fees; and
     A Merger Spread in XYZ for $600.
    The total fees for these Strategy Executions under the current Fee 
Schedule would be $1,850. Under the proposed Strategy Cap, the same 
trades would be billed as follows:
     A Jelly Roll in ABC for $800 in fees;
     A Reversal Conversion in DEF for $500 in fees; and
     A Merger Spread in XYZ for $600.
    The total fees for these Strategy Executions under the proposed Fee 
Schedule would be $1,000. Thus, although the amount of the Cap would be 
increased, the number of eligible Strategy Executions would also be 
increased, making it easier to meet the Strategy Cap.
    The Exchange's fees are constrained by intermarket competition, as 
ATP Holders may direct their order flow to any of the 16 options 
exchanges, including those with similar Strategy Fee Caps.\10\ Thus, 
ATP Holders have a choice of where they direct their order flow. This 
proposed change is designed to incent ATP Holders to increase their 
Strategy Execution volumes by executing (often smaller) strategies that 
are not necessarily economically viable on a per symbol basis, but 
which may be profitable when fees on Strategy Executions--regardless of 
symbol--are capped for the trading day. The Exchange notes that all 
market participants stand to benefit from increased volume, which 
promotes market depth, facilitates tighter spreads and enhances price 
discovery, and may lead to a corresponding increase in order flow from 
other market participants.
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    \10\ See e.g., BOX Options Market LLC (``BOX'') fee schedule, 
Section II.D (Strategy QOO Order Fee Cap and Rebate). BOX caps fees 
for each participants at $1,000 for the following strategies 
executed on the same trading day: short stock interest, [sic], 
reversal, conversion, jelly roll, and box spread strategies. BOX 
also caps participant fees at $1,000 for all dividend strategies 
executed on the same trading day in the same options class. BOX also 
offers a $500 rebate to floor brokers for presenting certain 
Strategy QOO Orders on the BOX trading floor, which is applied 
``once the $1,000 fee cap for all dividend, short stock interest, 
merger, reversal, conversion, jelly roll, and box spread strategies 
is met.'' See id. The Exchange does not include dividend strategies 
in the Strategy Cap, nor does the Exchange does not offer a similar 
rebate.
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    The Exchange cannot predict with certainty whether any ATP Holders 
would avail themselves of this proposed fee change. At present, whether 
or when an ATP Holder qualifies for the current daily Strategy Cap (of 
$750) varies day-to-day in a given month. Thus, the Exchange cannot 
predict with any certainty the number of ATP Holders that may qualify 
for the modified Strategy Cap, but believes that ATP Holders would be 
encourage to take advantage of the modified Cap. The Exchange believes 
the proposed Strategy Cap, which applies to all qualifying strategies 
executed on the same trading day, regardless of symbol, would provide 
an incentive for ATP Holders to submit these types of strategy orders 
to the Exchange Trading Floor, 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

[[Page 48674]]

allocation of reasonable dues, fees, and other charges among its 
members, issuers and other persons using its facilities and does not 
unfairly discriminate between customers, issuers, brokers or dealers.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
    The Exchange operates in a highly competitive market. The 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. In Regulation NMS, the Commission 
highlighted the importance of market forces in determining prices and 
SRO revenues and, also, recognized that current regulation of the 
market system ``has been remarkably successful in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.'' \13\
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    \13\ See Reg NMS Adopting Release, supra note 6, at 37499.
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    There are currently 16 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than 16% of the market 
share of executed volume of multiply-listed equity and ETF options 
trades.\14\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity & ETF options order flow. 
More specifically, in the first quarter of 2019, the Exchange had less 
than 10% market share of executed volume of multiply-listed equity & 
ETF options trades.\15\
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    \14\ See supra note 7.
    \15\ Based on OCC data, see supra note 8, in 2019, the 
Exchange's market share in equity-based options declined from 9.82% 
for the month of January to 8.84% for the month of April.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow, or discontinue or reduce use of certain categories of 
products, in response to fee changes. Accordingly, competitive forces 
constrain options exchange transaction fees. Stated otherwise, changes 
to exchange transaction fees can have a direct effect on the ability of 
an exchange to compete for order flow.
    The Exchange believes that the proposed modification to the 
Strategy Cap is designed to incent ATP Holders to increase the number 
and type of Strategy Executions sent to the Exchange. In addition, the 
proposal caps fees on all similar transactions, regardless of size and 
similarly-situated ATP Holders can opt to try to achieve the modified 
Strategy Cap. The proposal is designed to encourage ATP Holders to send 
all Strategy Executions to the Exchange regardless of size or type. To 
the extent that the proposed change attracts more Strategy Executions 
to the Exchange Trading Floor, this increased order flow would continue 
to make the Exchange a more competitive venue for, among other things, 
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.
    Finally, to the extent the proposed change continues to attract 
greater volume and liquidity (to the Floor or otherwise), 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 ATP Holders may direct their 
order flow to any of the 16 options exchanges, including those with 
similar Strategy Fee Caps.\16\ Thus, ATP Holders have a choice of where 
they direct their order flow--including their Strategy Executions. The 
proposed rule change is designed to incent ATP Holders to direct 
liquidity to the Exchange--in particular Strategy Executions, thereby 
promoting market depth, price discovery and improvement and enhancing 
order execution opportunities for market participants.
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    \16\ See supra note 10 (regarding BOX Strategy Cap).
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    The Exchange cannot predict with certainty whether any ATP Holders 
would avail themselves of this proposed fee change. At present, whether 
or when an ATP Holder qualifies for the current daily Strategy Cap (of 
$750) varies day-to-day in a given month. Thus, the Exchange cannot 
predict with any certainty the number of ATP Holders that may qualify 
for the modified Strategy Cap, but believes that ATP Holders would be 
encourage to take advantage of the modified Cap. The Exchange believes 
the proposed Strategy Cap, which applies to all qualifying strategies 
executed on the same trading day, regardless of symbol, would provide 
an incentive for ATP Holders to submit these types of strategy orders 
to the Exchange Trading Floor, which brings increased liquidity and 
order flow for the benefit of all market participants.
The Proposed Rule Change Is an Equitable Allocation of Credits and Fees
    The Exchange believes the proposed rule change is an equitable 
allocation of its fees and credits. The proposal is based on the amount 
and type of business transacted on the Exchange and ATP Holders can opt 
to avail themselves of the Strategy Cap or not. Moreover, the proposal 
is designed to encourage ATP Holders to aggregate all Strategy 
Executions at the Exchange as a primary execution venue. To the extent 
that the proposed change attracts more Strategy Executions to the 
Exchange, this increased order flow would continue to make the Exchange 
a more competitive venue for, among other things, order execution. 
Thus, the Exchange believes the proposed rule change would improve 
market quality for all market participants on the Exchange and, as a 
consequence, attract more order flow to the Exchange thereby improving 
market-wide quality and price discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes it is not unfairly discriminatory to modify 
the Strategy Cap because the proposed modification would be available 
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 ATP Holders are not obligated to try to achieve the 
Strategy Cap. Rather, the proposal is designed encourage ATP Holders to 
utilize the Exchange as a primary trading venue for Strategy Executions 
(if they have not done so previously) or increase volume sent to the 
Exchange. To the extent that the proposed change attracts more Strategy 
Executions to the Exchange, this increased order flow would continue to 
make the Exchange a more competitive venue for, among other things, 
order execution. Thus, the Exchange believes the proposed rule change 
would improve market quality for all market participants on the 
Exchange and, as a consequence, attract more order flow to the Exchange 
thereby improving market-wide quality and price discovery. The 
resulting increased volume and liquidity would provide more trading 
opportunities and tighter spreads to all market participants and thus 
would promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market

[[Page 48675]]

and a national market system and, in general, to protect investors and 
the public interest.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

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 6, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow (particularly Strategy Executions) to the 
Exchange. The Exchange believes that the proposed Strategy Cap would 
incent market participants to direct their Strategy Execution volume to 
the Exchange. Greater liquidity benefits all market participants on the 
Exchange and increased Strategy Executions would increase opportunities 
for execution of other trading interest. The proposed Strategy Cap 
would be available to all similarly-situated market participants that 
incur transaction fees on Strategy Executions, and, as such, 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 16 competing option exchanges if they deem fee levels at a 
particular venue to be excessive. In such an environment, the Exchange 
must continually adjust its 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, no 
exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
the first quarter of 2019, the Exchange had less than 10% market share 
of executed volume of multiply-listed equity & ETF options trades.\19\
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    \18\ See supra note 7.
    \19\ Based on OCC data, supra note 8, the Exchange's market 
share in equity-based options declined from 9.82% for the month of 
January to 8.84% for the month of April.
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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 ATP Holders to direct trading interest 
(particularly Strategy Executions) 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 currently offer similar Strategy Caps, by encouraging 
additional orders to be sent to the Exchange for execution. The 
Exchange also believes that the proposed change is designed to provide 
the public and investors with a Fee Schedule that is clear and 
consistent, thereby reducing burdens on the marketplace and 
facilitating investor protection.

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) \20\ of the Act and subparagraph (f)(2) of Rule 
19b-4\21\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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) \22\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \22\ 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-2019-36 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-2019-36. 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

[[Page 48676]]

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-2019-36, and should be 
submitted on or before October 7, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19905 Filed 9-13-19; 8:45 am]
 BILLING CODE 8011-01-P