Document ID: SEC-2020-2123-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2020-12-30T05:00Z

[Federal Register Volume 85, Number 250 (Wednesday, December 30, 2020)]
[Notices]
[Pages 86584-86590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28804]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90775; File No. SR-NYSE-2020-86]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change for a New Rule 5.2(j)(8)

December 22, 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 December 18, 2020, New York Stock Exchange LLC (``NYSE'' 
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 (1) a new Rule 5.2(j)(8) establishing 
``generic'' listing standards for Exchange-Traded Products that are 
permitted to operate in reliance on Rule 6c-11 under the Investment 
Company Act of 1940, and (2) a new Rule 7.18(d)(2) that would govern 
trading halts for listed Exchange-Traded Products. The proposed rule 
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 a new Rule 5.2(j)(8) establishing ``generic'' 
listing standards for Exchange-Traded Products (``ETPs'') \4\ that are 
permitted to operate in reliance on Rule 6c-11 under the Investment 
Company Act of 1940 (the ``1940 Act''). The Exchange also proposes a 
new Rule 7.18(d)(2) that would govern trading halts for listed ETPs.
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    \4\ Rule 1.1(k) defines ``Exchange Traded Product'' as a 
security that meets the definition of ``derivative securities 
product'' in Rule 19b-4(e) under the Act. ETPs include, for example, 
securities listed and traded on the Exchange pursuant to the 
following Exchange rules: Rule 5.2(j)(3) (Investment Company Units); 
Rule 5.2(j)(5) (Equity Gold Shares); Rule 5.2(j)(6) (Index-Linked 
Securities); Rule 8.100 (Portfolio Depositary Receipts); Rule 8.200 
(Trust Issued Receipts); Rule 8.201 (Commodity-Based Trust Shares); 
Rule 8.202 (Currency Trust Shares); Rule 8.203 (Commodity Index 
Trust Shares); Rule 8.204 (Commodity Futures Trust Shares); Rule 
8.600 (Managed Fund Shares); and Rule 8.700 (Managed Trust 
Securities).
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Background
    Currently, the Exchange trades securities, including ETPs, on its 
Pillar trading platform on an unlisted trading privileges (``UTP'') 
basis, subject to Pillar Platform Rules 1P-13P.\5\ ETPs traded on a UTP 
basis on the Exchange are not assigned to a Designated Market Maker 
(``DMM'') but are available for Floor brokers to trade in Floor-based 
crossing transactions.\6\
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    \5\ ``UTP Security'' is defined as a security that is listed on 
a national securities exchange other than the Exchange and that 
trades on the Exchange pursuant to unlisted trading privileges. See 
Rule 1.1.
    \6\ See Securities Exchange Act Release No. 82945 (March 26, 
2018), 83 FR 13553, 13568 (March 29, 2018) (SR-NYSE-2017-36) 
(approving Exchange rules to trade securities on a UTP basis on the 
Pillar trading platform).
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    The Exchange's rules permit it to list ETPs under Rules 5P and 8P. 
Specifically, Rules 5P (Securities Traded) and 8P (Trading of Certain 
Exchange-Traded Products) provide for the listing of certain ETPs on 
the Exchange that (1) meet the applicable requirements set forth in 
those rules, and (2) do not have any component NMS Stock that is listed 
on the Exchange or is based on, or represents an interest in, an 
underlying index or reference asset that includes an NMS Stock listed 
on the Exchange. ETPs listed under Rules 5P and 8P would be ``Tape A'' 
listings and traded pursuant to the rules applicable to NYSE-listed 
securities. Accordingly, once an ETP is listed, it would be assigned to 
a DMM pursuant to Rule 103B and the assigned

[[Page 86585]]

DMM would have obligations vis-[agrave]-vis such securities as 
specified in Rule 104, including facilitating the opening, reopening, 
and closing of such securities.\7\
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    \7\ See Securities Exchange Act Release No. 87056 (September 23, 
2019), 84 FR 51205 (September 27, 2019) (SR-NYSE-2019-34) (order 
approving amendments to Rule 104 to specify DMM requirements for 
ETPs listed on the Exchange pursuant to Rules 5P and 8P).
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    The Commission recently adopted Rule 6c-11 under the 1940 Act to 
permit ETPs that are exchange traded funds (``ETF'') shares 
(``Exchange-Traded Fund Shares'') and that satisfy certain conditions 
to operate without obtaining an exemptive order from the Commission 
under the 1940 Act.\8\ The regulatory framework provided in Rule 6c-11 
streamlines procedures and reduces the costs and time frames associated 
with bringing ETFs to market, thereby enhancing competition among ETF 
issuers and reducing costs for investors.\9\
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    \8\ See Release Nos. 33-10695; IC-33646; File No. S7-15-18 
(ETFs) (September 25, 2019), 84 FR 57162 (October 24, 2019) (the 
``Rule 6c-11 Release'').
    \9\ The Commission observed that the ``rule will modernize the 
regulatory framework for ETFs to reflect our more than two decades 
of experience with these investment products. The rule is designed 
to further important Commission objectives, including establishing a 
consistent, transparent, and efficient regulatory framework for ETFs 
and facilitating greater competition and innovation among ETFs.'' 
See Rule 6c-11 Release, at 57163. The Commission also stated the 
following regarding the rule's impact: ``We believe rule 6c-11 will 
establish a regulatory framework that: (1) Reduces the expense and 
delay currently associated with forming and operating certain ETFs 
unable to rely on existing orders; and (2) creates a level playing 
field for ETFs that can rely on the rule. As such, the rule will 
enable increased product competition among certain ETF providers, 
which can lead to lower fees for investors, encourage financial 
innovation, and increase investor choice in the ETF market.'' Id. at 
57204.
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    The Exchange proposes new Rule 5.2(j)(8) to establish generic 
listing standards allowing the Exchange to list and trade Exchange-
Traded Fund Shares in a manner consistent with Rule 6c-11. Proposed 
Rule 5.2(j)(8) is based on NYSE Arca, Inc. (``NYSE Arca'') Rule 5.2-
E(j)(8).\10\ In addition, the Exchange proposes a new Rule 7.18(d)(2) 
based on NYSE Arca Rule 7.18-E(d)(2) that would govern trading halts 
for listed ETPs.
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    \10\ See Securities Exchange Act Release No. 88625 (April 13, 
2020), 85 FR 21479 (April 17, 2020) (SR-NYSEArca-2019-81) (Notice of 
filing of Amendment No. 2 and Order granting accelerated approval of 
proposed rule change, as modified by Amendment No. 2, to adopt NYSE 
Arca Rule 5.2-E(j)(8) establishing generic listing standards for 
Exchange-Traded Fund Shares).
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Proposed Rule Change
    The Exchange proposes standards that would pertain to Exchange-
Traded Fund Shares to qualify for listing and trading pursuant to Rule 
19b-4(e), as follows.
    Proposed Rule 5.2(j)(8)(a) would provide that the Exchange would 
consider for trading, whether by listing or on a UTP basis, Exchange-
Traded Fund Shares that meet the criteria of proposed Rule 5.2(j)(8). 
Proposed Rule 5.2(j)(8)(a) is based on NYSE Arca Rule 5.2-E(j)(8)(a) 
without any differences.
    Proposed Rule 5.2(j)(8)(b) would specify applicability of proposed 
Rule 5.2(j)(8) and would provide that it is applicable only to 
Exchange-Traded Fund Shares. Proposed Rule 5.2(j)(8)(b) would further 
provide that, except to the extent inconsistent with proposed Rule 
5.2(j)(8) or unless the context otherwise requires, Exchange rules 
would be applicable to the trading on the Exchange of such securities 
and that Exchange-Traded Fund Shares would be included within the 
definition of NMS Stock as defined in Rule 1.1. Proposed Rule 
5.2(j)(8)(b) is based on NYSE Arca Rule 5.2-E(j)(8)(b) without any 
differences.
    Proposed Rule 5.2(j)(8)(c) would set forth the proposed rule's 
applicable definitions, which are based on NYSE Arca Rule 5.2-
E(j)(8)(c) without any differences, as follows:
     Proposed Rule 5.2(j)(8)(c)(1) would define the term ``1940 
Act'' to mean the Investment Company Act of 1940, as amended.
     Proposed Rule 5.2(j)(8)(c)(2) would define the term 
``Exchange-Traded Fund'' as having the same meaning as the term 
``exchange-traded fund'' as defined in Rule 6c-11(a)(1) under the 1940 
Act.\11\
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    \11\ Rule 6c-11(a)(1) defines ``exchange-traded fund'' as a 
registered open-end management company: (i) That issues (and 
redeems) creation units to (and from) authorized participants in 
exchange for a basket and a cash balancing amount if any; and (ii) 
Whose shares are listed on a national securities exchange and traded 
at market-determined prices. The terms ``authorized participant,'' 
``basket'' and ``creation unit'' are defined in Rule 6c-11(a).
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     Proposed Rule 5.2(j)(8)(c)(3) would define the term 
``Exchange-Traded Fund Share'' to mean a share of stock issued by an 
Exchange-Traded Fund.\12\
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    \12\ The definition of Exchange-Traded Fund Shares is the same 
as the definition of ``exchange-traded fund shares'' in Rule 6c-
11(a) under the 1940 Act.
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     Proposed Rule 5.2(j)(8)(c)(4) would define the term 
``Reporting Authority'' to mean with respect to a particular series of 
Exchange-Traded Fund Shares, the Exchange, an institution, or a 
reporting service designated by the Exchange or by the exchange that 
lists a particular series of Exchange-Traded Fund Shares (if the 
Exchange is trading such series pursuant to unlisted trading 
privileges) as the official source for calculating and reporting 
information relating to such series, including, but not limited to, any 
current index or portfolio value, the current value of the portfolio of 
any securities required to be deposited in connection with issuance of 
Exchange-Traded Fund Shares, the amount of any dividend equivalent 
payment or cash distribution to holders of Exchange-Traded Fund Shares, 
net asset value, or other information relating to the issuance, 
redemption or trading of Exchange-Traded Fund Shares. A series of 
Exchange-Traded Fund Shares may have more than one Reporting Authority, 
each having different functions.
    Proposed Rule 5.2(j)(8)(d) would specify the limitations on 
Exchange liability and relates to limitations of the Exchange, the 
Reporting Authority, or any agent of the Exchange as a result of 
specified events and conditions. Specifying such limitations of 
liability is standard in the Exchange's rules governing the listing of 
Exchange-Traded Products and the proposed rule text is substantively 
identical to Rules 5.2(j)(3)(D), 8.100(f), 8.201(f), 8.200(f), 
8.202(f), 8.203(f), 8.204(g), 8.300(f), 8.400(f), 8.500(e), 8.600(e), 
and 8.700(g). Proposed Rule 5.2(j)(8)(d) is based on NYSE Arca Rule 
5.2-E(j)(8)(d) without any differences.
    Proposed Rule 5.2(j)(8)(e) would provide that the Exchange may 
approve Exchange-Traded Fund Shares for listing and/or trading 
(including on a UTP basis) pursuant to Rule 19b-4(e) under the Exchange 
Act provided that each series of Exchange-Traded Fund Shares must be 
eligible to operate in reliance on Rule 6c-11 under the 1940 Act and 
must satisfy the requirements of proposed Rule 5.2(j)(8)(as described 
below) upon initial listing and, except for subparagraph (1)(A) of 
proposed Rule 5.2(j)(8)(e), on a continuing basis. As further proposed, 
an issuer of such securities must notify the Exchange of any failure to 
comply with such requirements. Proposed Rule 5.2(j)(8)(e) is based on 
NYSE Arca Rule 5.2-E(j)(8)(e) without any differences.
    Proposed Rule 5.2(j)(8)(e)(1) sets forth the initial and continued 
listing standards for Exchange-Traded Fund Shares to be listed on the 
NYSE and would provide that Exchange-Traded Fund Shares will be listed 
and traded on the Exchange subject to the requirement that the 
investment company issuing a series of Exchange-Traded Fund Shares is 
eligible to operate in reliance on the requirements of Rule 6c-11(c) on 
an initial and continued listing basis. Proposed Rule 5.2(j)(8)(e)(1) 
is based on NYSE Arca

[[Page 86586]]

Rule 5.2-E(j)(8)(e)(1) without any differences.
    Proposed Rule 5.2(j)(8)(e)(1)(A) provides that, for each series of 
Exchange-Traded Fund Shares, the Exchange will establish a minimum 
number of Exchange-Traded Fund Shares required to be outstanding at the 
time of commencement of trading on the Exchange. Proposed Rule 
5.2(j)(8)(e)(1)(A) is based on NYSE Arca Rule 5.2-E(j)(8)(e)(1)(A) 
without any differences.
    Proposed Rule 5.2(j)(8)(e)(2) would set forth the standards for 
suspension of trading or removal of Exchange-Traded Fund Shares from 
listing on the Exchange and would provide that the Exchange will 
consider the suspension of trading in, and will commence delisting 
proceedings under Rule 5.5(m) of, a series of Exchange-Traded Fund 
Shares under any of the following circumstances:
    (A) If the Exchange becomes aware that the investment company is no 
longer eligible to operate in reliance on Rule 6c-11;
    (B) if the investment company no longer complies with the 
requirements set forth in Rule 5.2(j)(8);
    (C) if, following the initial twelve-month period after 
commencement of trading on the Exchange of a series of Exchange-Traded 
Fund Shares, there are fewer than 50 beneficial holders of such series 
of Exchange-Traded Fund Shares; or
    (D) if such other event shall occur or condition exists which, in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable (see proposed Rule 5.2(j)(8)(e)(2)(D)).
    Proposed Rule 5.2(j)(8)(e)(2) is based on NYSE Arca Rule 5.2-
E(j)(8)(e)(2) without any differences.
    Proposed Rule 5.2(j)(8)(f) would provide that transactions in 
Exchange-Traded Fund Shares would occur during the trading hours 
specified in Rule 7.34(a) for Exchange-listed securities. Proposed Rule 
5.2(j)(8)(f) is based on NYSE Arca Rule 5.2-E(j)(8)(f) with a 
difference to cross reference the Exchange's rule governing the hours 
of trading. In addition, unlike NYSE Arca, Exchange-listed securities 
trade on the Exchange only during Core Trading Hours.
    Proposed Rule 5.2(j)(8)(g) would provide that the Exchange would 
implement and maintain written surveillance procedures for Exchange-
Traded Fund Shares. This proposed rule is based, for example, on 
Commentary .01(f) to Rule 5.2(j)(3) (for Investment Company Units); 
Commentary .03 to Rule 8.600 (for Managed Fund Shares); and Commentary 
.04 to Rule 8.700 (for Managed Trust Securities). Proposed Rule 
5.2(j)(8)(g) is based on NYSE Arca Rule 5.2-E(j)(8)(g) without any 
differences.
    Proposed Rule 5.2(j)(8)(h) would provide that, upon termination of 
an investment company issuing Exchange-Traded Fund Shares, the Exchange 
would require that Exchange-Traded Fund Shares issued in connection 
with such entity be removed from Exchange listing. Proposed Rule 
5.2(j)(8)(h) is based on NYSE Arca Rule 5.2-E(j)(8)(h) without any 
differences.
    Proposed Commentary .01 to Rule 5.2(j)(8) would provide that a 
security that has previously been approved for listing on the Exchange 
pursuant to the generic listing requirements specified in Rule 
5.2(j)(3) or Commentary .01 to Rule 8.600, or pursuant to a proposed 
rule change approved or subject to a notice of effectiveness by the 
Commission, may be considered approved for listing solely under Rule 
5.2(j)(8) if such security is eligible to operate in reliance on Rule 
6c-11 under the 1940 Act. Once so approved for listing, the continued 
listing requirements applicable to such previously-listed security will 
be those specified in paragraph (e) of Rule 5.2(j)(8). Any requirements 
for listing as specified in Rule 5.2(j)(3) or Commentary .01 to Rule 
8.600, or an approval order or notice of effectiveness of a separate 
proposed rule change that differ from the requirements of Rule 
5.2(j)(8) will no longer be applicable to such security. Commentary .01 
to proposed Rule 5.2(j)(8) is based on Commentary .01 to NYSE Arca Rule 
5.2-E(j)(8) without any differences.\13\
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    \13\ There are currently no securities listed on the Exchange 
that would be eligible for approval under proposed Commentary .01 to 
Rule 5.2(j)(8).
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    The Exchange believes that proposed Commentary .01 to Rule 
5.2(j)(8) harmonizes the Exchange's listing standards for all ETFs that 
will be listed on the Exchange, even if they were previously listed 
pursuant to different continued listing requirements. Specifically, as 
noted in the Rule 6c-11 Release, one year following the effective date 
of Rule 6c-11, the Commission will be rescinding those portions of its 
prior ETF exemptive orders under the 1940 Act that grant relief related 
to the formation and operation of certain ETFs. The Exchange believes 
that once this occurs, all ETFs will be subject to the same 
requirements under Rule 6c-11 and will no longer be subject to any 
differing requirements that may have been set forth in the exemptive 
orders issued before the effective date of Rule 6c-11.
    Proposed Commentary .02 to Rule 5.2(j)(8) is based on Commentary 
.02 to NYSE Arca Rule 5.2-E(j)(8)(a) without any differences, and would 
establish the following requirements that each series of Exchange-
Traded Fund Shares based on an index would be required to meet on an 
initial and continued listing basis:
    (1) If the underlying index is maintained by a broker-dealer or 
fund adviser, the broker-dealer or fund adviser will erect and maintain 
a ``fire wall'' around the personnel who have access to information 
concerning changes and adjustments to the index and the index will be 
calculated by a third party who is not a broker-dealer or fund adviser, 
and
    (2) Any advisory committee, supervisory board, or similar entity 
that advises a Reporting Authority or that makes decisions on the index 
composition, methodology and related matters, must implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the 
applicable index.\14\
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    \14\ See proposed Commentary .02(a) to Rule 5.2(j)(8)). Proposed 
Commentary .02(a) is based on Commentary .01(b)(1) to Rule 5.2(j)(3) 
and Commentary .02(b)(1) and (b)(3) to Rule 5.2(j)(3).
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    In addition, with respect to series of Exchange-Traded Fund Shares 
that are actively managed, if the investment adviser to the investment 
company issuing Exchange-Traded Fund Shares is affiliated with a 
broker-dealer, such investment adviser will erect and maintain a ``fire 
wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such portfolio. Personnel who make decisions on the 
portfolio composition must be subject to procedures designed to prevent 
the use and dissemination of material nonpublic information regarding 
the applicable portfolio. The Reporting Authority that provides 
information relating to the portfolio of a series of Exchange-Traded 
Fund Shares must implement and maintain, or be subject to, procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the actual components of such portfolio.\15\
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    \15\ See proposed Commentary .02(b) to Rule 5.2(j)(8)). Proposed 
Commentary .02(b) is based in part on Commentary .06 to Rule 8.600.
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    The Exchange notes that Exchange-Traded Fund Shares will be subject 
to all Exchange rules applicable to equities trading. With respect to 
Exchange-Traded Fund Shares, all obligations relating to product 
description and prospectus delivery requirements will continue to apply 
in accordance with

[[Page 86587]]

Exchange rules and federal securities laws, and the Exchange and the 
Financial Industry Regulatory Authority, Inc. (``FINRA'') will continue 
to monitor Exchange members for compliance with such requirements, 
which are not changing as a result of Rule 6c-11 under the 1940 Act.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in a series of Exchange-Traded Fund Shares.\16\ Trading in 
Exchange-Traded Fund Shares will be halted if the circuit breaker 
parameters in Rule 7.12 have been reached. Trading also may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in Exchange-Traded Fund Shares inadvisable. 
These may include: (1) The extent to which certain information about 
the Exchange-Traded Fund Shares that is required to be disclosed under 
Rule 6c-11(c) of the 1940 Act is not being made available, or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.
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    \16\ See NYSE Rule 7.12.
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    The Exchange proposes a new Rule 7.18(d)(2) modeled on NYSE Arca 
Rule 7.18-E(d)(2) that would govern trading halts for listed ETPs 
(which would include Exchange-Traded Fund Shares). Proposed Rule 
7.18(d)(2) would provide that, with respect to an ETP listed on the 
Exchange for which a Net Asset Value (``NAV'') (and in the case of 
Managed Fund Shares under NYSE Rule 8.600 and Managed Trust Securities 
under NYSE Rule 8.700, a Disclosed Portfolio) is disseminated, if the 
Exchange becomes aware that the NAV (or in the case of Managed Fund 
Shares or Managed Trust Securities, the Disclosed Portfolio) is not 
being disseminated to all market participants at the same time, it will 
halt trading in the affected Exchange Traded Product on the NYSE until 
such time as the NAV (or in the case of Managed Fund Shares or Managed 
Trust Securities, the Disclosed Portfolio, as applicable) is available 
to all market participants.
    In addition, the Exchange may halt trading in ETPs if there is an 
interruption or disruption in the dissemination of an underlying index 
value, if applicable, if there are major interruptions in securities 
trading in U.S. or global markets, or in the presence of other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market.
Minimum Price Variation
    As provided in NYSE Rule 7.6, the minimum price variation (``MPV'') 
for quoting and entry of orders in equity securities traded on the NYSE 
is $0.01, with the exception of securities that are priced less than 
$1.00 for which the MPV for order entry is $0.0001.
Surveillance
    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Exchange-Traded Fund 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules. Specifically, the Exchange will implement and maintain 
written surveillance procedures to monitor trading in Exchange-Traded 
Fund Shares on the NYSE.\17\ The Exchange or FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in Exchange-
Traded Fund Shares and certain of their applicable underlying 
components with other markets that are members of the Intermarket 
Surveillance Group (``ISG'') or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. In addition, the Exchange 
may obtain information regarding trading in Exchange-Traded Fund Shares 
and certain of their applicable underlying components from markets and 
other entities that are members of ISG or with which the Exchange has 
in place a comprehensive surveillance sharing agreement. Additionally, 
FINRA, on behalf of the Exchange, is able to access, as needed, trade 
information for certain fixed income securities that may be held by a 
series of Exchange-Traded Fund Shares reported to FINRA's TRACE. FINRA 
also can access data obtained from the Municipal Securities Rulemaking 
Board's Electronic Municipal Market Access (``EMMA'') system relating 
to municipal bond trading activity for surveillance purposes in 
connection with trading in a series of Exchange-Traded Fund Shares, to 
the extent that a series of Exchange-Traded Fund Shares holds municipal 
securities. As noted below, the issuer of a series of Exchange-Traded 
Fund Shares will be required to comply with Rule 10A-3 under the Act 
for the initial and continued listing of Exchange-Traded Fund Shares, 
as provided under Rule 5.2.
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    \17\ The Exchange notes that the surveillance procedures 
applicable to Exchange-Traded Fund Shares on the NYSE would be 
substantially similar to those in place for Investment Company 
Units, Exchange-Traded Fund Shares, and Managed Fund Shares, among 
other product types, on NYSE Arca.
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    Pursuant to its obligations under Section 19(g)(1) of the Act, the 
Exchange will monitor for compliance with the continued listing 
requirements. As provided for under proposed Rule 5.2(j)(8)(e)(2), if 
the investment company or series of Exchange-Traded Fund Shares is not 
in compliance with the applicable listing requirements, the Exchange 
will commence delisting procedures under Rule 5.5(m).
    The Exchange will implement and maintain written surveillance 
procedures to monitor issuer compliance with the requirements of 
proposed Rule 5.2(j)(8) for Exchange-Traded Funds on the NYSE. For 
example, the Exchange will use intraday alerts that will notify 
Exchange personnel of trading activity throughout the day that may 
indicate that certain disclosures are not being made accurately or that 
other unusual conditions or circumstances are present that could be 
detrimental to the maintenance of a fair and orderly market. The 
Exchange will require periodic certification from the issuer of a 
series of Exchange-Traded Fund Shares that it is in compliance with 
Rule 6c-11 and the requirements of Rule 5.2(j)(8).
    Proposed Rule 5.2(j)(8)(e)(2)(i) provides that the Exchange will 
consider the suspension of trading in, and will commence delisting 
proceedings under Rule 5.5(m) of, a series of Exchange-Traded Fund 
Shares if the Exchange becomes aware that the investment company is no 
longer eligible to operate in reliance on Rule 6c-11. The Exchange's 
awareness for purposes of determining whether to suspend trading or 
delist a series of Exchange-Traded Fund Shares may result from 
notification by the investment company or by the Exchange learning, 
through its own efforts, of non-compliance with Rule 5.2(j)(8).\18\ In 
addition, the Exchange will periodically review issuer websites to 
monitor whether disclosures are being made for a series of Exchange-
Traded Fund Shares as required by Rule 6c-11(c)(1). The Exchange also 
notes that proposed Rule 5.2(j)(8)(e) would require an issuer of 
Exchange-Traded Fund Shares to notify the Exchange that it is no longer 
eligible to operate in reliance on Rule 6c-11 or that it does not 
comply with the requirements of proposed Rule 5.2(j)(8). The Exchange 
will rely on the

[[Page 86588]]

foregoing procedures to become aware of any non-compliance with the 
requirements of Rule 5.2(j)(8). Proposed Rule 5.2(j)(8)(e)(2)(i) is 
based on NYSE Arca Rule 5.2-E(j)(8)(e)(2)(i) without any differences.
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    \18\ As proposed, Rule 5.2(j)(8) does not impose index 
dissemination requirements, the Exchange does not plan to conduct a 
specific index dissemination surveillance for securities listed 
pursuant to such rule.
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Firewalls
    Commentary .01(b)(1) and Commentary .02(b) to NYSE Rule 5.2(j)(3) 
(applicable to Investment Company Units) and Commentary .06 to NYSE 
Rule 8.600 (applicable to Managed Fund Shares) require the 
establishment and maintenance of a ``firewall'' around personnel who 
have access to information concerning changes to an index or the 
composition and/or changes to a fund's portfolio; and that specified 
persons or entities be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding the 
applicable index or portfolio.
    In the Rule 6c-11 Release, the Commission, in the context of index-
based ETFs with affiliated index providers (``self-indexed ETFs''), 
noted the federal securities law provisions that currently relate to 
implementation by funds of appropriate measures to deal with misuse of 
non-public information.\19\ The Exchange notes that these federal 
securities law requirements will continue to apply to issues of index 
and actively-managed ETFs and the proposed generic listing rules for 
Exchange-Traded Fund Shares are consistent with such requirements.
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    \19\ See Rule 6c-11 Release at 57168-57169. See also 17 CFR 
270.38a-1 (Rule 38a-1 under the 1940 Act) (requiring funds to adopt 
policies and procedures reasonably designed to prevent violation of 
federal securities laws); 17 CFR 270.17j-1(c)(1) (Rule 17j-1(c)(1) 
under the Investment Company Act) (requiring funds to adopt a code 
of ethics containing provisions designed to prevent certain fund 
personnel (``access persons'') from misusing information regarding 
fund transactions); section 204A of the Investment Advisers Act of 
1940 (``Advisers Act'') (15 U.S.C. 80b-204A) (requiring an adviser 
to adopt policies and procedures that are reasonably designed, 
taking into account the nature of its business, to prevent the 
misuse of material, non-public information by the adviser or any 
associated person, in violation of the Advisers Act or the Exchange 
Act, or the rules or regulations thereunder); section 15(g) of the 
Exchange Act (15 U.S.C. 78o(f)) (requiring a registered broker or 
dealer to adopt policies and procedures reasonably designed, taking 
into account the nature of the broker's or dealer's business, to 
prevent the misuse of material, nonpublic information by the broker 
or dealer or any person associated with the broker or dealer, in 
violation of the Exchange Act or the rules or regulations 
thereunder).
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    The Exchange notes that proposed Commentary .02(a) to Rule 
5.2(j)(8) provides that, with respect to series of Exchange-Traded Fund 
Shares that are based on an index, if the underlying index is 
maintained by a broker-dealer or fund adviser, the broker-dealer or 
fund adviser will erect and maintain a ``fire wall'' around the 
personnel who have access to information concerning changes and 
adjustments to the index and the index shall be calculated by a third 
party who is not a broker-dealer or fund advisor. In addition, proposed 
Commentary .02(b) to Rule 5.2(j)(8) provides that, with respect to 
series of Exchange-Traded Fund Shares that are actively managed if, the 
investment adviser to the Exchange-Traded Fund issuing Exchange-Traded 
Fund Shares is affiliated with a broker-dealer, such investment adviser 
will erect and maintain a ``fire wall'' between the investment adviser 
and the broker-dealer with respect to access to information concerning 
the composition and/or changes to such Exchange-Traded Fund portfolio. 
Personnel who make decisions on the applicable Exchange-Traded Fund's 
portfolio composition must be subject to procedures designed to prevent 
the use and dissemination of material nonpublic information regarding 
the applicable Exchange-Traded Fund portfolio. Proposed Commentary 
.02(a) to Rule 5.2(j)(8)(k) is based on Commentary .02(a) to NYSE Arca 
Rule 5.2-E(j)(8) without any differences.
    As noted, proposed Rule is based on recently adopted NYSE Arca Rule 
5.2-E(j)(8).\20\ The Exchange believes that adopting the same generic 
standards for Exchange-Traded Fund Shares would facilitate efficient 
procedures for ETFs that are permitted to operate in reliance on Rule 
6c-11. The Exchange further believes that the proposed rule is, like 
its NYSE Arca counterpart, fully consistent with, and will further, the 
Commission's goals in adopting Rule 6c-11.
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    \20\ See note 10, supra.
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    For all of the reasons stated above, the proposal is therefore 
consistent with the requirements of the Act.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\21\ in general, and furthers the objectives of 
Sections 6(b)(5) of the Act,\22\ in particular, because it 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 mechanisms of, 
a free and open market and a national market system and, in general, to 
protect investors and the public interest and because it is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
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    By facilitating efficient procedures for listing Exchange-Traded 
Fund Shares that are permitted to operate in reliance on Rule 6c-11, 
the generic listing rules in proposed Rule 5.2(j)(8) described above 
based on NYSE Arca Rule 5.2-E(j)(8) recently approved by the Commission 
are consistent with, and will further, the Commission's goals in 
adopting Rule 6c-11. In addition, by allowing Exchange-Traded Fund 
Shares to be listed and traded on the Exchange without a prior 
Commission approval order or notice of effectiveness pursuant to 
Section 19(b) of the Act, proposed Rule 5.2(j)(8) will significantly 
reduce the time frame and costs associated with bringing these 
securities to market, thereby promoting market competition among 
issuers of Exchange-Traded Fund Shares, to the benefit of the investing 
public. In addition, the proposed rule change would fulfill the 
intended objective of Rule 19b-4(e) under the Act by permitting 
Exchange-Traded Fund Shares that satisfy the proposed listing standards 
to be listed and traded without separate Commission approval.
    Proposed Rule 5.2(j)(8)(d) would specify the limitations on 
Exchange liability and relates to limitation of the Exchange, the 
Reporting Authority, or any agent of the Exchange as a result of 
specified events and conditions. As provided in proposed Rule 
5.2(j)(8)(e), the Exchange may approve Exchange-Traded Fund Shares for 
listing and trading on the Exchange subject to the requirement that the 
investment company issuing a series of Exchange-Traded Fund Shares is 
eligible to operate in reliance on Rule 6c-11 \23\ under the 1940 Act 
and must satisfy the requirements of Rule 5.2(j)(8) on an initial 
listing and, except for subparagraph (1)(A) of Rule 5.2(j)(8)(e), a 
continuing basis. An issuer of such securities must notify the Exchange 
of any failure to comply with such requirements. These requirements 
will ensure that Exchange-listed Exchange-Traded Fund Shares continue 
to operate in a manner that fully complies with the portfolio 
transparency requirements of Rule 6c-11(c). As provided in proposed 
Rule 5.2(j)(8)(e)(1), Exchange-Traded

[[Page 86589]]

Fund Shares will be listed and traded on the Exchange subject to the 
requirement that the investment company issuing a series of Exchange-
Traded Fund Shares is eligible to operate in reliance on the 
requirements of Rule 6c-11(c) under the 1940 Act on an initial and 
continued listing basis. As provided in proposed Rule 5.2(j)(8)(e)(2) 
(Suspension of trading or removal), the Exchange will consider the 
suspension of trading in, and will commence delisting proceedings under 
Rule 5.5(m) of, a series of Exchange-Traded Fund Shares if the Exchange 
becomes aware that it is no longer eligible to operate in reliance on 
Rule 6c-11 or does not comply with the requirements set forth in Rule 
5.2(j)(8); if, following the initial twelve-month period after 
commencement of trading on the Exchange of a series of Exchange-Traded 
Fund Shares, there are fewer than 50 beneficial holders of such series 
of Exchange-Traded Fund Shares; or if such other event shall occur or 
condition exists which, in the opinion of the Exchange, makes further 
dealings on the Exchange inadvisable.
---------------------------------------------------------------------------

    \23\ Rule 6c-11(c) sets forth certain conditions applicable to 
exchange-traded funds, including information required to be 
disclosed on the fund's website.
---------------------------------------------------------------------------

    As provided in proposed Rule 5.2(j)(8)(g), the Exchange will 
implement and maintain written surveillance procedures for Exchange-
Traded Fund Shares on the NYSE. The Exchange represents that its 
surveillance procedures are adequate to properly monitor the trading of 
the Exchange-Traded Fund Shares in all trading sessions and to deter 
and detect violations of Exchange rules. Proposed Rule 5.2(j)(8)(h) 
provides that, upon termination of an investment company issuing 
Exchange-Traded Fund Shares, the Exchange requires that Exchange-Traded 
Fund Shares issued in connection with such entity be removed from 
Exchange listing.
    Proposed Commentary .01 to Rule 5.2(j)(8) provides that a security 
that has previously been approved for listing on the Exchange pursuant 
to the generic listing requirements specified in Rule 5.2(j)(3) or 
Commentary .01 to Rule 8.600, or pursuant to a proposed rule change 
approved or subject to a notice of effectiveness by the Commission, may 
be considered approved for listing solely under Rule 5.2(j)(8) if such 
security is eligible to operate in reliance on Rule 6c-11 under the 
1940 Act. Once so approved for listing, the continued listing 
requirements applicable to such previously-listed security will be 
those specified in paragraph (e) of Rule 5.2(j)(8). Any requirements 
for listing as specified in Rule 5.2(j)(3) or Commentary .01 to Rule 
8.600, or an approval order or notice of effectiveness of a separate 
proposed rule change that differ from the requirements of Rule 
5.2(j)(8) will no longer be applicable to such security. The Exchange 
believes proposed Commentary .01 to Rule 5.2(j)(8) will streamline the 
listing process for such securities, consistent with the regulatory 
framework adopted in Rule 6c-11 under the 1940 Act.
    Proposed Commentary .02 to Rule 5.2(j)(8) would provide 
requirements to be met on an initial and continued listing basis by 
series of Exchange-Traded Fund Shares that are based on an index or are 
actively managed regarding the erection and maintenance of a ``fire 
wall'' as well as implementation and maintenance of procedures designed 
to prevent the use and dissemination of material non-public information 
regarding the applicable index or portfolio. The Exchange believes the 
provisions of the proposed rule will address possible concerns 
regarding misuse of material non-public information regarding an index 
underlying a series of Exchange-Traded Fund Shares or the portfolio for 
a series of Exchange-Traded Fund Shares, as applicable.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices and is 
consistent with the protection of investors and the public interest 
because the Exchange will have in place surveillance procedures that 
are adequate to properly monitor trading in the Exchange-Traded Fund 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules and applicable federal securities laws. FINRA, on behalf 
of the Exchange, will communicate as needed regarding trading in 
Exchange-Traded Fund Shares and certain of their applicable underlying 
components with other markets that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
In addition, the Exchange may obtain information regarding trading in 
Exchange-Traded Fund Shares and certain of their applicable underlying 
components from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement. Additionally, FINRA, on behalf of the Exchange, is 
able to access, as needed, trade information for certain fixed income 
securities that may be held by a series of Exchange-Traded Fund Shares 
reported to FINRA's TRACE. FINRA also can access data obtained from the 
Municipal Securities Rulemaking Board's EMMA system relating to 
municipal bond trading activity for surveillance purposes in connection 
with trading in a series of Exchange-Traded Fund Shares, to the extent 
that a series of Exchange-Traded Fund Shares holds municipal 
securities. As noted above, the issuer of a series of Exchange-Traded 
Fund Shares will be required to comply with Rule 10A-3 under the Act 
for the initial and continued listing of Exchange-Traded Fund Shares, 
as provided under Rule 5.2.
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in a series of Exchange-Traded Fund Shares.\24\ Trading in 
Exchange-Traded Fund Shares will be halted if the circuit breaker 
parameters in NYSE Rule 7.12 have been reached. Trading also may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in Exchange-Traded Fund Shares inadvisable. 
Proposed NYSE Rule 7.18(d)(2), which is based on NYSE Arca Rule 7.18-
E(d)(2) without any differences, would permit the Exchange to halt 
trading in listed ETPs (which would include Exchange-Traded Fund 
Shares) for which an NAV (and in the case of Managed Fund Shares under 
NYSE Rule 8.600 and Managed Trust Securities under NYSE Rule 8.700, a 
Disclosed Portfolio) is disseminated when the Exchange becomes aware 
that the NAV (or in the case of Managed Fund Shares or Managed Trust 
Securities, the Disclosed Portfolio) is not being disseminated to all 
market participants at the same time until such time as the NAV (or in 
the case of Managed Fund Shares or Managed Trust Securities, the 
Disclosed Portfolio, as applicable) is available to all market 
participants.
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    \24\ See NYSE Rule 7.12.
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    The Exchange will obtain a representation from the issuer of a 
series of Exchange-Traded Fund Shares that the NAV per share of such 
series will be calculated daily and will be made available to all 
market participants at the same time. The Exchange will monitor for 
compliance with the continued listing requirements. If the Exchange-
Traded Fund is not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under 
Rule 5.5(m). The Exchange will utilize existing procedures to monitor 
issuer compliance with the requirements of proposed Rule 5.2(j)(8). For 
example, the Exchange will continue to use intraday alerts that will 
notify Exchange personnel of trading activity throughout the day that 
may indicate that certain disclosures are not being made

[[Page 86590]]

accurately or that other unusual conditions or circumstances are 
present that could be detrimental to the maintenance of a fair and 
orderly market. The Exchange will require periodic certification from 
the issuer of a series of Exchange-Traded Fund Shares that it is in 
compliance with Rule 6c-11 and the requirements of Rule 5.2(j)(8). In 
addition, the Exchange, on a periodic basis will review issues of 
Exchange-Traded Fund Shares listed on the Exchange for compliance with 
the requirements of Rule 6c-11(c)(1). Proposed Rule 5.2(j)(8)(e) would 
require an issuer of Exchange-Traded Fund Shares to notify the Exchange 
if it is no longer eligible to operate in reliance on Rule 6c-11 or 
that it does not comply with the requirements of proposed Rule 
5.2(j)(8) (except for subparagraph (1)(A) of Rule 5.2(j)(8)(e)).
    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,\25\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, the Exchange believes that the proposed 
rule change would facilitate the listing and trading of Exchange-Traded 
Fund Shares and result in an efficient process surrounding the listing 
and trading of Exchange-Traded Fund Shares, which will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. The Exchange also believes that the proposed change 
will reduce the time frame for bringing Exchange-Traded Fund Shares to 
market, thereby reducing the burdens on issuers and other market 
participants and promoting competition. In turn, the Exchange believes 
that the proposed change would make the process for listing Exchange-
Traded Fund Shares more competitive by applying uniform listing 
standards to Exchange-Traded Fund Shares.
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    \25\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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-NYSE-2020-86 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-NYSE-2020-86. 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-NYSE-2020-86, and should be submitted on 
or before January 21, 2021.

    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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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2020-28804 Filed 12-29-20; 8:45 am]
BILLING CODE 8011-01-P