Document ID: SEC-2015-0752-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2015-05-04T04:00Z

[Federal Register Volume 80, Number 85 (Monday, May 4, 2015)]
[Notices]
[Pages 25341-25344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10312]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74825; File No. SR-NYSEMKT-2015-27]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change To Amend the Sixth Amended and Restated Operating 
Agreement of the Exchange

April 28, 2015.
    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 17, 2015, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') 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 Sixth Amended and Restated 
Operating Agreement of the Exchange (``Operating Agreement'') to (1) 
establish a Regulatory Oversight Committee (``ROC'') as a committee of 
the board of directors of the Exchange (the ``Board''), and (2) remove 
the requirement that the independent directors that make up the 
majority of the Board also be directors of Intercontinental Exchange, 
Inc., the Exchange's parent company. The text of the proposed rule 
change is available on the Exchange's Web site 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.

[[Page 25342]]

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 Operating Agreement to (a) 
establish a ROC as a committee of the Board, and (b) remove the 
requirement that the independent directors that make up the majority of 
the Board also be directors of Intercontinental Exchange, Inc. 
(``ICE''), the Exchange's parent company.
Creation of a ROC
    The proposed ROC would have the responsibility to independently 
monitor the Exchange's regulatory operations.\4\ To effectuate this 
change, the Exchange proposes to amend Section 2.03(h) of the Operating 
Agreement to add a subsection (ii) providing for a ROC and delineating 
its composition and functions. The proposed new Section 2.03(h)(ii) of 
the Operating Agreement would be substantially similar to Article III, 
Section 5(c) of the By-Laws of the NASDAQ Stock Market LLC 
(``Committees Composed Solely of Directors'').\5\
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    \4\ NYSE Regulation, Inc. (``NYSE Regulation''), a not-for-
profit subsidiary of the Exchange's affiliate New York Stock 
Exchange LLC (``NYSE''), performs all of the Exchange's regulatory 
functions pursuant to an intercompany Regulatory Services Agreement 
(``RSA'') that gives the Exchange the contractual right to review 
NYSE Regulation's performance. NYSE Regulation performs regulatory 
functions for the Exchange's affiliate NYSE Arca, Inc. (``NYSE 
Arca'') pursuant to a similar intercompany RSA. NYSE Arca has 
submitted a similar proposal to establish a ROC with primary 
responsibility for overseeing regulatory operations. See SR-
NYSEArca-2015-29.
    \5\ See Securities Exchange Act Release No. 34-53128 (January 
13, 2006), 71 FR 3550 (January 23, 2006) (File No. 10-131) 
(``Release No. 34-53128'') (order granting application of NASDAQ 
Stock Market LLC (``NASDAQ'') for registration as a national 
securities exchange). As noted below, members of the NASDAQ ROC must 
satisfy NASDAQ's public director requirements in addition to its 
independent director requirements. NASDAQ defines a public director 
as ``a Director who has no material business relationship with a 
broker or dealer, the Company or its affiliates, or FINRA.'' NASDAQ 
Bylaws, Article I(y). The Exchange does not have separate public 
director requirements and does not distinguish between public and 
independent directors but notes that, like the NASDAQ public 
director requirement, in order to meet the Exchange's independence 
requirements, a director must ``not have any material 
relationships'' with ICE and its subsidiaries. In addition, among 
other limitations, in order to be found independent, a director may 
not be a member, allied member, or employed by a member organization 
of the Exchange. See Independence Policy of Board of Directors of 
NYSE MKT LLC, available at http://wallstreet.cch.com/MKT/pdf/independence_policy.pdf. See also Securities Exchange Act Release 
No. 67564 (August 1, 2012), 77 FR 47161 (August 7, 2012) (SR-NYSE-
2012-17; SR-NYSEArca-2012-59; SR-NYSEMKT-2012-07) (approving NYSE 
MKT's director independence policy).
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    In particular, Section 2.03(h)(ii) would provide that the Board 
shall appoint a ROC on an annual basis. Proposed Section 2.03(h)(ii) 
would describe the composition of the ROC. Proposed Section 2.03(h)(ii) 
would also describe the functions and authority of the ROC. The 
proposed ROC's responsibilities would be to:
     Oversee the Exchange's regulatory and self-regulatory 
organization responsibilities and evaluate the adequacy and 
effectiveness of the Exchange's regulatory and self-regulatory 
organization responsibilities;
     Assess the Exchange's regulatory performance; and
     Advise and make recommendations to the Board or other 
committees of the Board about the Exchange's regulatory compliance, 
effectiveness and plans.\6\
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    \6\ These three core responsibilities of the proposed ROC would 
be substantially similar to those of other SROs' ROCs. See, e.g., 
NASDAQ Bylaws, Article III, Section 5 (``NASDAQ Bylaws''); 
Securities Exchange Act Release No. 34-58375 (August 18, 2008), 73 
FR 49498, 49502 (August 21, 2008) (File No. 10-182) (``Release No. 
34-58375'') (approving application of BATS Exchange, Inc. (``BATS'') 
seeking registration as a national securities exchange); Securities 
Exchange Act Release No. 34-61698 (March 10, 2010), 75 FR 13151, 
13161 (March 12, 2010) (``Release No. 34-61698'') (approving 
application of EDGX Exchange, Inc. and EDGA Exchange, Inc., seeking 
registration as a national securities exchange); and Amended and 
Restated By-Laws of Miami International Securities Exchange, LLC, 
Article IV, Section 4.5(c).
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    In furtherance of these functions, the proposed new subsection of 
the Operating Agreement would provide the ROC with the authority and 
obligation to review the regulatory budget of the Exchange and 
specifically inquire into the adequacy of resources available in the 
budget for regulatory activities. Under the proposed amendment, the ROC 
would be charged with meeting regularly with the Chief Regulatory 
Officer (``CRO'') in executive session and, in consultation with the 
Exchange's Chief Executive Officer, establishing the goals, assessing 
the performance, and recommending the CRO's compensation. Finally, 
under the proposed rule, the ROC would be responsible for keeping the 
Board informed with respect to the foregoing matters.\7\
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    \7\ The obligations of the proposed ROC would be substantially 
similar to those of other SROs' ROCs. See, e.g., NASDAQ Bylaws, 
Article III, Section 5; Bylaws of NASDAQ OMX PHLX LLC, Article V, 
Section 5-2; Third Amended and Restated Bylaws of BATS Exchange, 
Inc., Article V, Section 6(c).
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    The Exchange proposes that the ROC would consist of at least three 
members, each of whom would be a director of either the Exchange or of 
NYSE Regulation and who satisfies the independence requirements of the 
Exchange.\8\ The Exchange believes that a ROC comprised of at least 
three independent members is appropriate. The size and composition of 
the proposed ROC would be largely the same as that of the ROCs of other 
self-regulatory organizations (``SROs''), with the exception of the 
possibility to include independent directors of NYSE Regulation on the 
ROC.\9\ A ROC with at least three independent directors has been 
recognized as one of several measures that can help ensure the 
independence of the regulatory function from the market operations and 
commercial interests of a national securities exchange.\10\
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    \8\ The Exchange's independence requirements are set forth in 
the Independence Policy of the Board of Directors of the Exchange. 
See supra, note 5.
    \9\ See e.g., NASDAQ By-laws, Article III, Section 5(c) 
(specifying a ROC comprising three directors who must satisfy both 
NASDAQ's public director and independent director requirements); 
Third Amended and Restated Bylaws of BATS Exchange, Inc., Article V, 
Section 6(c) (``BATS Bylaws'') (specifying a ROC comprising three 
non-industry (i.e., public) directors); and Chicago Board Options 
Exchange, Incorporated (``CBOE'') Bylaws, Article IV, Section 4.5 
(specifying a ROC of at least three directors all of whom shall be 
``non-industry'' directors).
    \10\ See, e.g., Release No. 34-53128, 71 FR at 3555 (NASDAQ); 
Release No. 34-58375, 73 FR at 49502 (BATS); Securities Exchange Act 
Release No. 34-61152 (December 10, 2009), 74 FR 66699, 66704-705 
(December 16, 2009) (File No. 10-191) (approving application of C2 
Options Exchange, Incorporated, seeking registration as a national 
securities exchange); and Release No. 34-61698, 75 FR at 13161.
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    Further, proposed Section 2.03(h)(ii) would provide that the Board 
may, on affirmative vote of a majority of directors, at any time remove 
a member of the ROC for cause. Proposed Section 2.03(h)(ii) would also 
provide that a failure of the member to qualify as independent under 
the independence policy would constitute a basis to remove a member of 
the ROC for cause. Similar authority is found in the bylaws governing 
the ROCs of other SROs.\11\ In addition, proposed Section 2.03(h)(ii) 
would provide that, if the term of office of a ROC committee member 
terminates under this section, and the remaining term of office of such 
committee member at the time of termination is not more than three 
months, during the period of vacancy the ROC would not be deemed to be 
in violation of its compositional requirements by virtue of the 
vacancy. Once again, this is consistent with the rules and bylaws of

[[Page 25343]]

other SROs.\12\ Finally, the Exchange proposes to add text to Section 
2.03(h) providing that vacancies in the membership of any board 
committee would be filled by the Exchange Board.\13\
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    \11\ See e.g., BATS Bylaws, Article V, Section 2(a) (``the 
Chairman may, at any time, with or without cause, remove any member 
of a committee so appointed, with the approval of the Board.''); 
Second Amended and Restated By-laws of National Stock Exchange, 
Inc., Article V, Section 5.2 (same).
    \12\ See e.g., NASDAQ Bylaws, Article III, Section 2(b).
    \13\ NASDAQ has the same provision. See Second Amended Limited 
Liability Co. Agreement of the NASDAQ Stock Market LLC, Section 
9(g).
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    The Exchange proposes that members of the ROC could be independent 
directors of either the Exchange Board or the NYSE Regulation board. 
The proposed eligibility of independent directors of the NYSE 
Regulation board for the ROC would allow individuals to be members of 
the ROC who have direct experience in overseeing the adequacy and 
effectiveness of the Exchange's and its affiliates' regulatory 
programs.
    The Exchange believes that the proposed rule change creating an 
independent board committee to oversee the adequacy and effectiveness 
of the performance of its self-regulatory responsibilities is 
consistent with previously approved rule changes for other self-
regulatory organizations and would enable the Exchange to harmonize its 
corporate governance with that of its industry peers.\14\ Moreover, the 
Exchange believes that the proposed adoption of a ROC would ensure the 
continued independence of the regulatory process.\15\ The fundamental 
hallmarks of regulatory independence--determinations regarding the 
Exchange's regulatory plan, programs, budget and staffing made by 
individuals independent of Exchange management and a CRO having general 
supervision of the regulatory operations of the Exchange and reporting 
to a ROC--are integral to the proposal.\16\
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    \14\ See NASDAQ Bylaws, Article III, Section 5(c); BATS Bylaws, 
Article V, Section 6(c).
    \15\ See, e.g., Securities Exchange Act Release No. 34-48946 
(December 17, 2003), 68 FR 74678, 74687 (August 21, 2008) (SR-NYSE-
2003-34).
    \16\ See, e.g., Release No. 34-53128, 71 FR at 3555. In 
connection with its acquisition by the NYSE in 2008, the Exchange's 
ROC was eliminated and the Exchange contracted with NYSE Regulation 
to perform all of its regulatory functions. See note 4, supra. The 
approval order noted that ``the governance of NYSE Regulation will 
provide a comparable level of independence that a ROC would 
provide.'' See Securities Exchange Act Release No. 34-58673 
(September 29, 2008), 73 FR 57707 (October 3, 2008) (SR-Amex-2008-
62, SR-NYSE-2008-60) (``Amex Approval Order'').
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Exchange Independent Directors
    Section 2.03(a)(i) of the Operating Agreement, which governs Board 
composition, provides that a majority of the Exchange's directors shall 
be U.S. Persons \17\ who are members of the board of directors of ICE 
that satisfy the Exchange's independence requirements.\18\ Such 
directors are defined as ``ICE Independent Directors'' in the Operating 
Agreement. The Exchange proposes to amend Section 2.03(a)(i) of the 
Operating Agreement to remove the requirement that the independent 
directors that make up the majority of the Board also be directors of 
ICE, to redefine ``ICE Independent Directors'' to remove the reference 
to ICE, and to make conforming changes in both Section 2.03(a)(i) and 
Section 2.03(a)(ii). The majority of directors of the Exchange Board 
would continue to satisfy the company independence policy.
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    \17\ Pursuant to Section 2.03(a)(1) [sic] of the Operating 
Agreement, a director is a ``U.S. Person'' if, as of the date of his 
or her most recent election or appointment to the Board, his or her 
domicile is, and for the immediately preceding 24 months has been, 
the United States. The Exchange does not propose to amend this 
requirement.
    \18\ See note 5, supra.
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    The Exchange believes that eliminating the requirement that the 
independent directors of the Exchange also be directors of ICE would 
allow the Exchange to broaden the pool of potential Board members, 
resulting in a more diversified Board membership, while still ensuring 
the directors' independence. Eliminating the requirement that the 
independent directors of the Exchange also be directors of ICE would 
also make the Exchange's Board requirements more consistent with those 
of its affiliate NYSE Arca, which do not require any of its directors 
to be directors of ICE.\19\
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    \19\ See Amended and Restated NYSE Arca Bylaws, Article III, 
Section 3.02. The Exchange notes that its affiliate NYSE has also 
submitted a proposal to amend its Operating Agreement to remove the 
requirement that the independent directors that make up the majority 
of the Exchange Board also be directors of ICE, and to redefine 
``ICE Independent Directors'' to remove the reference to ICE. See 
SR-NYSE-2015-16.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act \20\ in general, and with Section 
6(b)(1) \21\ in particular, in that it enables the Exchange to be so 
organized as to have the capacity to be able to carry out the purposes 
of the Exchange Act and to comply, and to enforce compliance by its 
exchange members and persons associated with its exchange members, with 
the provisions of the Exchange Act, the rules and regulations 
thereunder, and the rules of the Exchange.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(1).
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    The proposed change would create an independent board committee to 
oversee the adequacy and effectiveness of the performance of the 
Exchange's self-regulatory responsibilities. The proposed ROC, similar 
in composition and functions to the approved ROCs of other SROs, would 
be designed to oversee the Exchange's regulatory and self-regulatory 
organization responsibilities and evaluate the adequacy and 
effectiveness of the Exchange's regulatory and self-regulatory 
organization responsibilities; assess the Exchange's regulatory 
performance; and advise and make recommendations to the Board or other 
committees of the Board about the Exchange's regulatory compliance 
effectiveness and plans.
    As noted, the Exchange proposes that members of the ROC could be 
independent directors of either the Exchange Board or the NYSE 
Regulation board. The Exchange believes that proposing to allow 
independent directors of the NYSE Regulation board to be eligible for 
the ROC would provide the choice to include these individuals whose 
have direct experience in overseeing the adequacy and effectiveness of 
the Exchange's and its affiliates' regulatory programs. Accordingly, 
the Exchange believes that the proposed rule change would contribute to 
the orderly operation of the Exchange and would enable the Exchange to 
be so organized as to have the capacity to carry out the purposes of 
the Exchange Act and comply and enforce compliance by its members and 
persons associated with its members, with the provisions of the 
Exchange Act. The Exchange therefore believes that approval of the 
amendment to the Bylaws [sic] is consistent with Section 6(b)(1) of the 
Exchange Act.
    Further, the Exchange believes its proposed change to remove the 
requirement that the independent directors that make up the majority of 
the Exchange Board also be ICE directors and redefine ``ICE Independent 
Directors'' to remove the reference to ICE is consistent with the 
Exchange Act. As noted above, this change would allow the Exchange to 
consider including individuals on its Board that are not already 
members of the ICE board. The Exchange believes that a more diversified 
pool of Board members would allow it to include individuals on its 
Board that could focus on the unique responsibilities of an SRO. This 
change would also make the Exchange's Board requirements more 
consistent with those of its affiliate NYSE Arca, which does not 
require its directors to be ICE directors. For these reasons, the

[[Page 25344]]

Exchange believes that the proposed rule change would contribute to the 
orderly operation of the Exchange and would enable the Exchange to be 
so organized as to have the capacity to carry out the purposes of the 
Exchange Act and comply and enforce compliance with the provisions of 
the Exchange Act by its members and persons associated with its 
members. The Exchange therefore believes that approval of the proposed 
is consistent with Section 6(b)(1) of the Exchange Act.
    The Exchange also believes that this filing furthers the objectives 
of Section 6(b)(5) of the Exchange Act \22\ because the proposed rule 
change would be consistent with and facilitate a governance and 
regulatory structure that is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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.
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    \22\ 15 U.S.C. 78f(b)(5).
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    As discussed above, the Exchange believes that the proposed 
creation of a ROC composed of independent directors would align the 
Exchange's corporate governance practices with other SROs that have 
adopted a ROC to monitor the adequacy and effectiveness of the 
regulatory program, assess regulatory performance, and assist the Board 
in reviewing the regulatory plan and the overall effectiveness of the 
regulatory function. Moreover, the Exchange believes that the proposed 
ROC structure would also sufficiently ``insulate'' the regulatory 
functions from the Exchange's ``market and other commercial interests'' 
in order for the Exchange to carry out its regulatory obligations.\23\ 
The Exchange believes that eliminating the requirement that the 
independent directors of the Exchange also be directors of ICE would 
allow the Exchange to include individuals on its Board that have 
expertise it believes is necessary for its unique role as an SRO, 
because not all of the independent directors would have to be directors 
of ICE. The Exchange believes that the proposed rule change is 
therefore consistent with and facilitates a governance and regulatory 
structure that furthers the objectives of Section 6(b)(5) of the 
Exchange Act. The independent oversight of the Exchange's regulatory 
functions by the proposed ROC is also designed to protect investors as 
well as the public interest.
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    \23\ Release No. 34-53128, 71 FR at 3556.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    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 Exchange Act. The proposed rule 
change is not intended to address competitive issues but rather is 
concerned solely with the administration and functioning of the 
Exchange's Board.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-NYSEMKT-2015-27 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSEMKT-2015-27. 
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 Web site (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 Web site 
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 will also be 
available for inspection and copying at the NYSE's principal office and 
on its Internet Web site at www.nyse.com. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEMKT-2015-27and should be submitted 
on or before May 26, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-10312 Filed 5-1-15; 8:45 am]
BILLING CODE 8011-01-P