Document ID: SEC-2020-0570-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American, LLC
Posted Date: 2020-04-14T04:00Z

[Federal Register Volume 85, Number 72 (Tuesday, April 14, 2020)]
[Notices]
[Pages 20799-20803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07773]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88594; File No. SR-NYSEAMER-2020-26]

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

April 8, 2020.
    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 April 1, 2020, 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'') to raise the existing cap on the available 
credit for certain Qualified Contingent Cross (``QCC'') transactions. 
The Exchange proposes to implement the fee change effective April 1, 
2020. 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

[[Page 20800]]

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to modify the existing cap on the 
available credit to Floor Brokers that execute a specified number of 
Qualified Contingent Cross (``QCC'') transactions.
    Since March 9, 2020, markets worldwide have been experiencing 
unprecedented market-wide declines and volatility that has resulted 
from the ongoing spread of the novel COVID-19 virus. In addition, 
beginning March 16, 2020, to slow the spread of COVID-19 through 
social-distancing measures, significant limitations have been placed on 
large gatherings throughout the country.\4\ Shortly thereafter, U.S. 
options exchanges that operate physical trading floors, such as Cboe, 
Inc. and NASDAQ PHLX, announced the temporarily closure of such floors 
as a precautionary measure to prevent the potential spread of COVID-19. 
The Exchange likewise announced the temporarily closure of the Trading 
Floor, effective March 23, 2020, which meant that Exchange Floor 
Brokers could not engage in open outcry trading. Following the floor 
closures, including the Exchange's Trading Floor, the Exchange has 
experienced an increase in QCC volume.
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    \4\ For example, in New York City, which is where the NYSE 
Trading Floor is located, public and private schools, universities, 
churches, restaurants, bars, movie theaters, and other commercial 
establishments where large crowds can gather have been closed.
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    Currently, Floor Brokers earn a credit for executed QCC orders of 
$0.07 per contact up to 300,000 contracts or $0.10 per contract above 
300,000.\5\ The Exchange currently limits the maximum Floor Broker 
credit to $425,000 per month per Floor Broker firm (the ``Cap'').\6\
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    \5\ See Fee Schedule, Section I.F., QCC Fees & Credits, n. 1, 
available here, https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf. QCC 
executions in which a Customer or Professional Customer is on both 
sides of the QCC trade are not eligible for the Floor Broker credit.
    \6\ See id. (providing that ``[t]he maximum Floor Broker credit 
paid shall not exceed $425,000 per month per Floor Broker firm'').
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    Given the unanticipated surge in QCC volume that has resulted from 
the unprecedented temporary closure of the Trading Floor, the Exchange 
proposes to increase the Cap solely for the month of April 2020. 
Specifically, the Exchange proposes that the Cap would remain at 
$425,000, except that for the month of April 2020, the Cap would be 
$625,000 per Floor Broker firm.\7\ The Exchange believes that this 
change would allow Exchange incentives to operate as intended--to 
encourage Floor Brokers to execute volume on the Exchange, and for the 
period when open outcry is unavailable, to execute all QCC transactions 
on Exchange and, for the month of April, to continue to increase the 
number of such QCC transactions. The Exchange also believes the 
proposed change would also facilitate fair and orderly markets by 
attempting to avoid an unintended increase in the cost of Floor 
Brokers' QCC trading on the Exchange.
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    \7\ See proposed Fee Schedule, Section I.F., QCC Fees & Credits, 
n. 1 (providing that ``[t]he maximum Floor Broker credit paid shall 
not exceed $425,000 per month per Floor Broker firm (the ``Cap''), 
except that for the month of April 2020, the Cap will be $625,000 
per Floor Broker firm''). The Exchange will re-evaluate the time 
limitations on this change (i.e., whether it will need to apply to 
May) depending upon how long the Trading Floor remains temporarily 
closed and would file a separate proposed rule change if an 
extension is warranted.
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    Absent the proposed change, participating Floor Brokers could 
experience an unintended increase in the cost of trading on the 
Exchange, a result that is unintended and undesirable to the Exchange 
and its Floor Brokers trading QCCs. The Exchange believes that 
increasing the Cap for the month of April when the Trading Floor may 
continue to be unavailable would provide Floor Brokers with greater 
certainty as to their monthly costs and diminish the likelihood of an 
effective increase in the cost of trading.
    Moreover, the Exchange's fees are constrained by intermarket 
competition, as Floor Brokers may direct their order flow to any of the 
16 options exchanges, including those with similar QCC rebate programs 
and associated caps on same.\8\ Thus, Floor Brokers have a choice of 
where they direct their order flow. This proposed change--which 
increases the maximum available credit for the month of April 2020--is 
designed to incent Floor Brokers to increase their QCC volumes on the 
Exchange. 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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    \8\ See, e.g., NASDAQ PHLX, Options 7 Pricing Schedule, Section 
4. Multiply Listed Options Fees, QCC Rebate Schedule, available 
here, http://nasdaqphlx.cchwallstreet.com/NASDAQPHLXTools/PlatformViewer.asp?selectednode=chp%5F1%5F1%5F3%5F1&manual=%2Fnasdaqomxphlx%2Fphlx%2Fphlx%2Dllcrules%2F (providing that ``[t]he maximum 
QCC Rebate to be paid in a given month will not exceed $550,000''); 
NASDAQ ISE, Options 7 Pricing Schedule, Section 6. Other Options 
Fees and Rebates, A. QCC and Solicitation Rebate, available here, 
http://ise.cchwallstreet.com/tools/PlatformViewer.asp?selectednode=chp_1_1_22&manual=/contents/ise/ise-rules/ (providing no cap on the maximum on the amount of QCC rebate 
to be paid in a given month).
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    The Exchange cannot predict with certainty whether any Floor 
Brokers would benefit from this proposed fee change. However, without 
this proposed change during a time when Floor Brokers have increasingly 
turned to QCCs because the temporary Trading Floor closure prevents 
open outcry trading, the Exchange believes the proposed change is 
necessary to prevent Floor Brokers from diverting QCC order flow from 
the Exchange if and when they hit the Cap.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 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.'' \11\
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    \11\ 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

[[Page 20801]]

options, no single exchange currently has more than 16% of the market 
share of executed volume of multiply-listed equity and ETF options 
trades.\12\ Therefore, no exchange currently possesses significant 
pricing power in the execution of multiply-listed equity & ETF options 
order flow. More specifically, the Exchange had less than 10% market 
share of executed volume of multiply-listed equity & ETF options trades 
in January 2020.\13\
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    \12\ 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.
    \13\ Based on OCC data, see id., in 2019, the Exchange's market 
share in equity-based options was 9.82% for the month of January 
2019 and 8.08% for the month of January 2020.
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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 and credits can have a direct effect on 
the ability of an exchange to compete for order flow. 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 
Floor Brokers may direct their order flow to any of the 16 options 
exchanges, including those with similar QCC credit programs and 
associated caps on same.\14\
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    \14\ See supra note 7 [sic] (regarding NASDAQ PHLX's $550,000 
monthly cap on QCC rebate and NASDAQ ISE's lack of any such monthly 
cap of QCC rebate).
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    Given the recent uptick in QCC transactions on the Exchange 
following the temporary closures of options trading floors--including 
the Exchange's Trading Floor, the Exchange believes the proposed 
increase to the Cap for the month of April would allow Exchange 
incentives to operate as intended and would also facilitate fair and 
orderly markets by attempting to avoid an unintended increase in the 
cost of Floor Brokers' QCC trading on the Exchange. Absent the proposed 
change, participating Floor Brokers could experience an unintended 
increase in the cost of trading on the Exchange, a result that is 
unintended and undesirable to the Exchange and its Floor Brokers 
trading QCCs. The Exchange believes that increasing the Cap for the 
month of April when the Trading Floor may continue to be unavailable 
would provide Floor Brokers with greater certainty as to their monthly 
costs and diminish the likelihood of an effective increase in the cost 
of trading.
    Furthermore, as a general matter, the proposal is designed to 
encourage Floor Brokers to execute all QCC transactions on Exchange 
and, for the month of April, to continue to increase the number of such 
QCC transactions. The proposal caps fees on all similar (QCC) 
transactions, regardless of size and similarly-situated Floor Brokers 
can opt to try to achieve the modified (and increased) credit during 
the month of April. To the extent that the proposed change attracts 
more QCC trades to the Exchange, 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.
    The Exchange cannot predict with certainty whether any Floor 
Brokers would benefit from this proposed fee change. However, without 
this proposed change during a time when Floor Brokers have increasingly 
turned to QCCs because the temporary Trading Floor closure prevents 
open outcry trading, the Exchange believes the proposed change is 
necessary to prevent Floor Brokers from diverting QCC order flow from 
the Exchange if and when they hit the Cap.
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 during the month of 
April and Floor Brokers can opt to avail themselves of the modified Cap 
(i.e., by executing more QCC transactions) or not. The proposed change 
would incent Floor Brokers to attract increased QCC order flow to the 
Exchange that might otherwise go to other options exchanges (e.g., 
NASDAQ ISE has no cap on its rebate).\15\ As the proposal is designed 
to encourage Floor Brokers to execute QCC transactions on the Exchange, 
any resulting increase in order flow would continue to make the 
Exchange a more competitive venue for 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.
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    \15\ See supra note 7 [sic] (regarding NASDAQ ISE's lack of any 
monthly cap of QCC rebate).
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The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes it is not unfairly discriminatory to modify 
the maximum allowable credit on QCC transactions to Floor Brokers 
because the proposed modification would be available to all similarly-
situated market participants (i.e., Floor Brokers) on an equal and non-
discriminatory basis.
    The proposal is based on the amount and type of business transacted 
on the Exchange during April 2020 and Floor Brokers are not obligated 
to try to achieve the modified Cap. The proposed change would incent 
Floor Brokers to attract increased QCC order flow to the Exchange that 
might otherwise go to other options exchanges (e.g., NASDAQ ISE has no 
cap on its rebate).\16\ As such, the proposal is designed encourage 
Floor Brokers to utilize the Exchange as a primary trading venue for 
QCC transactions (if they have not done so previously) or increase 
volume sent to the Exchange. To the extent that the proposed change 
attracts more QCC transactions to the Exchange, this increased order 
flow would continue to make the Exchange a more competitive venue for 
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 and 
a national market system and, in general, to protect investors and the 
public interest.
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    \16\ See id.
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    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.

[[Page 20802]]

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 10 [sic], at 
37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow (particularly QCC trades) to the Exchange. The 
Exchange believes that the proposed increased QCC Floor Broker credit 
would incent Floor Brokers to attract increased QCC order flow to the 
Exchange that might otherwise go to other options exchanges (e.g., 
NASDAQ ISE has no cap on its rebate).\18\. [sic] Greater liquidity 
benefits all market participants on the Exchange and increased QCC 
transactions would increase opportunities for execution of other 
trading interest. The proposed increased cap would be available to all 
similarly-situated market participants that execute QCC transactions, 
and, as such, the proposed change would not impose a disparate burden 
on competition among market participants on the Exchange.
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    \18\ See id. [sic]
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    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 currently has more than 16% of the market share of executed 
volume of multiply-listed equity and ETF options trades.\19\ Therefore, 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity & ETF options order flow. More specifically, in 
the fourth quarter of 2019, the Exchange had less than 10% market share 
of executed volume of multiply-listed equity & ETF options trades.\20\
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    \19\ See supra note 11 [sic].
    \20\ Based on OCC data, supra note 12, the Exchange's market 
share in equity-based options was 9.82% for the month of January 
2019 and 8.08% for the month of January, 2020.
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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 incent Floor Brokers to attract increased QCC order 
flow to the Exchange that might otherwise go to other options exchanges 
(e.g., NASDAQ ISE has no cap on its rebate).\21\ To the extent that 
Floor Brokers are encouraged to direct trading interest (particularly 
QCC transactions) to the Exchange. 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.
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    \21\ See supra note 7 [sic] (regarding NASDAQ ISE's lack of any 
monthly cap of QCC rebate).
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    The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar QCC credits (and caps thereon), by 
encouraging additional orders to be sent to the Exchange for 
execution.\22\
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    \22\ See id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \23\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \24\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 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) \25\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \25\ 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 Number SR-NYSEAMER-2020-26 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 Number SR-NYSEAMER-2020-26. 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 Number SR-NYSEAMER-2020-26 and should be submitted 
on or before May 5, 2020.

[[Page 20803]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07773 Filed 4-13-20; 8:45 am]
 BILLING CODE 8011-01-P