Document ID: SEC-2020-2002-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American LLC
Posted Date: 2020-12-17T05:00Z

[Federal Register Volume 85, Number 243 (Thursday, December 17, 2020)]
[Notices]
[Pages 81999-82002]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27729]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90650; File No. SR-NYSEAMER-2020-84]

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

December 11, 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 7, 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'') regarding credits and incentives relating 
to Complex Customer Best Execution Auctions. The Exchange proposes to 
implement the fee changes effective December 7, 2020.\4\ 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.
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    \4\ The Exchange originally filed to amend the Fee Schedule on 
December 1, 2020 (SR-NYSEAMER-2020-82) and withdrew such filing on 
December 7, 2020.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
    The purpose of this filing is to modify the Fee Schedule to (1) 
amend the criteria to qualify for a credit available to Initiating 
Participants in a Complex Customer Best Execution (``CUBE'') 
Auction,\5\ and (2) eliminate an unused incentive that had been 
designed to encourage the use of Complex CUBE Auctions. The Exchange 
proposes to implement the rule changes on December 7, 2020.
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    \5\ See generally Rule 971.2NY (regarding Complex CUBE 
Auctions). Unless otherwise specified, capitalized terms have the 
same meaning as the defined terms in Rule 971.2NY.
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Proposed Modifications to the Fee Schedule
Volume Qualification for Alternative Initiating Participant Rebate
    Section I.G. of the Fee Schedule sets forth the rates for per 
contract fees and credits for executions associated with Single-Leg and 
Complex CUBE Auctions.\6\ To encourage participants to utilize Complex 
CUBE Auctions, the Exchange offers rebates and credits on certain 
initiating Complex CUBE volume. Currently, the Exchange offers 
Initiating Participant Rebates for the first 1,000 contracts per leg of 
a Complex CUBE Order executed in a Complex CUBE Auction.\7\ The 
Exchange offers an ACE Initiating Participant Rebate to ATP Holders 
that qualify for the American Customer Engagement

[[Page 82000]]

(``ACE'') Program \8\ and an Alternative Initiating Participant Rebate 
(the ``Rebate'') for ATP Holders that execute a minimum of 5,000 
contracts ADV in the Professional range, as defined in Section I.H., 
and also increase their Initiating CUBE Orders in Single-Leg CUBE 
Auctions by the greater of 40% over their August 2019 volume or 15,000 
contracts ADV.\9\
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    \6\ See Fee Schedule, Section I.G., CUBE Auction Fees & Credits.
    \7\ See id., Complex CUBE Auction, note 2 (setting forth both 
the ACE Initiating Participant Rebate and the Alternative Initiating 
Participant Rebate).
    \8\ See Fee Schedule, Section I.E., American Customer Engagement 
(``ACE'') Program.
    \9\ See Fee Schedule, Section I.G., Complex CUBE Auction, note 
2.
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    The Exchange proposes to modify the Fee Schedule to amend the 
criteria for ATP Holders to qualify for the Rebate. Specifically, the 
Exchange proposes to require that ATP Holders execute both 5,000 
contracts ADV in the Professional range, as defined in Section I.H., 
and a minimum of 15,000 contracts ADV from Initiating CUBE Orders in 
Single-Leg and/or Complex CUBE Auctions.\10\ Because volume executed in 
Electronic auction mechanisms, such as the Complex CUBE, has increased 
across the industry, the Exchange believes that, with the proposed 
modification, the Rebate would encourage more ATP Holders to try to 
achieve this Rebate by directing more auction-eligible Single-Leg and 
Complex CUBE order flow to the Exchange.\11\
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    \10\ See proposed Fee Schedule, Section I.G., CUBE Auction Fees 
& Credits, Complex CUBE Auction, note 2.
    \11\ A daily analysis of OPRA trade codes indicates that auction 
volume has increased from 19.2% of all options industry volume at 
the end of 2019 to 23.4% at the end of June 2020. See, e.g., https://www.nyse.com/data-insights/q2-2020-options-review.
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Elimination of the Complex CUBE Cap Incentive
    Currently, the Exchange offers an incentive for ATP Holders that 
achieve an increase over their January 2019 Initiating Complex CUBE 
Volume of at least 0.15% of TCADV (the ``Incentive''). Specifically, 
Firms that meet that volume level may include Broker Dealer Manual 
transactions and Broker Dealer QCC transactions under the Firm Fee 
Monthly Cap.\12\
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    \12\ See Fee Schedule, Section I.I., Firm Monthly Fee Cap.
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    The Exchange adopted the Incentive as a voluntary program to 
encourage ATP Holders to use Complex CUBE Auctions. However, because 
the Incentive program is underutilized (and therefore did not achieve 
its intended effect), the Exchange proposes to eliminate the Incentive 
from the Fee Schedule. The Exchange also proposes to delete text in the 
Fee Schedule describing incremental service fees applicable to firms 
that qualify for the Incentive, as such fees would no longer be 
applicable following the elimination of the Incentive.
    The Exchange believes that the elimination of the Incentive would 
impact some firms that occasionally qualified for the Incentive and 
would no longer receive this benefit; however, given that the Incentive 
was underutilized, the Exchange believes that most ATP Holders would 
not be impacted by its removal.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\13\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 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.'' \15\
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    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS 
Adopting Release'').
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    There are currently 16 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than 16% of the market 
share of executed volume of multiply-listed equity and ETF options 
trades.\16\ Therefore, no exchange currently possesses significant 
pricing power in the execution of multiply-listed equity and ETF 
options order flow. More specifically, in August 2020, the Exchange had 
less than 10% market share of executed volume of multiply-listed equity 
and ETF options trades.\17\
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    \16\ The OCC publishes options and futures volume in a variety 
of formats, including daily and monthly volume by exchange, 
available at: https://www.theocc.com/market-data/volume/default.jsp.
    \17\ Based on OCC data, the Exchange's market share in equity 
and ETF-based options increased from 7.73% for the month of August 
2019 to 8.18% for the month of August 2020. See id.
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    The Exchange's fees are constrained by intermarket competition, as 
ATP Holders may direct their order flow to any of the 16 options 
exchanges, including those with similarly structured incentive programs 
for auction participants.\18\ Thus, ATP Holders have a choice of where 
they direct their order flow, including auction volume which, as noted 
above, has increased in the last year. 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 rebates can have a direct effect on the 
ability of an exchange to compete for order flow including auction 
volume which, as noted above, has increased in the last year.
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    \18\ See e.g., Cboe Exchange Inc. (``Cboe''), Fee Schedule, 
Volume Incentive Program, available at: https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (providing per contract 
credits on orders executed electronically in AIM based on qualifying 
volume from simple and complex auctions).
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    The proposed rule change to modify the qualifying criteria for the 
Rebate is designed to continue to incent ATP Holders to direct 
liquidity to the Exchange in Electronic executions, similar to other 
exchange programs with competitive pricing programs, thereby promoting 
market depth, price discovery and improvement, and enhancing order 
execution opportunities for market participants. In particular, the 
Exchange believes it is reasonable to adjust the qualification criteria 
for the Rebate for Complex CUBE orders, as the incentive structure 
underlying the Rebate remains similar to credits and rebates offered by 
competing options exchanges for initiating auction participants and 
account for the increase in auction volume since late 2019.\19\
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    \19\ See, e.g., supra notes 10 [sic] and 17 [sic] (regarding 
increase in industry-wide auction volumes and Cboe's Volume 
Incentive Program, respectively).
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    The proposed change is also reasonably designed to continue to 
encourage ATP Holders to participate in Complex CUBE Auctions and to 
continue to incent their Professional volume and their initiating 
Single-Leg

[[Page 82001]]

and Complex CUBE Orders to qualify for the Rebate. The Exchange 
believes that modifying the qualification bases to achieve the Rebate 
will continue to encourage greater use of CUBE Auctions by all ATP 
Holders, which may lead to greater opportunities to trade--and for 
price improvement--for all participants. In addition, because ATP 
Holders would be required to execute a minimum volume of 5,000 
contracts ADV in the Professional range and also 15,000 contracts from 
Initiating CUBE Orders in Single-Leg and/or Complex CUBE Auctions to 
qualify for the proposed Rebate, the Exchange believes the proposed 
change would continue to incent providers of order flow to direct that 
order flow to the Exchange to receive the Rebate, thereby enabling the 
Exchange to improve its overall competitiveness and strengthen its 
market quality for all market participants. To the extent that the 
proposed modification continues to encourage the submission of Complex 
CUBE Orders, all market participants stand to benefit from increased 
liquidity, opportunities for price improvement, and increased order 
flow, which promotes market depth, facilitates tighter spreads, and 
enhances price discovery.
    The Exchange believes that the proposed rule change to eliminate 
the Incentive is reasonable because this program is underutilized and 
has generally not served to encourage ATP Holders to bring liquidity or 
increase Broker-Dealer Manual and QCC order executions on the Exchange.
    Against the backdrop of the competitive environment in which the 
Exchange operates, the Exchange believes that the proposed rule changes 
are a reasonable attempt by the Exchange to maintain its market share 
relative to its competitors.
The Proposed Rule Change Is an Equitable Allocation of Fees and Rebates
    The Exchange believes the proposed rule change is an equitable 
allocation of its fees and credits. The proposed modification of the 
requirements to qualify for the Rebate is based on the amount and type 
of business transacted on the Exchange, and ATP Holders can opt to 
avail themselves of these incentives or not. Moreover, the proposal is 
designed to encourage ATP Holders to aggregate their executions at the 
Exchange as a primary execution venue. To the extent that the proposed 
change continues to attract more Complex CUBE (and Professional) volume 
to the Exchange, this increased order flow would continue to make the 
Exchange a more competitive venue for order execution. The proposed 
elimination of the Incentive is based on the underutilization of the 
Incentive to date. Accordingly, the Exchange believes that most ATP 
Holders would not be impacted, and the elimination of the Incentive 
program would make it unavailable to all ATP Holders alike. Thus, the 
Exchange believes the proposed rule change would improve market quality 
for all market participants on the Exchange and, as a consequence, 
continue to attract more order flow to the Exchange, thereby improving 
market-wide quality and price discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory because the proposed modifications would be available to 
and impact all similarly situated market participants on an equal and 
non-discriminatory basis.
    The Exchange's proposed modification to the Rebate is designed to 
continue to encourage greater use of the Complex CUBE Auctions, which 
may lead to greater opportunities to trade--and for price improvement--
for all participants. The Exchange believes that the proposal is not 
unfairly discriminatory because it is based on the amount and type of 
business transacted by ATP Holders on the Exchange, and all ATP Holders 
are eligible for the Rebate if they meet the qualifying criteria but 
are under no obligation to achieve the Rebate. Rather, the proposal is 
designed to continue to encourage participants to utilize the Exchange 
as a primary trading venue (if they have not done so previously) or 
increase Electronic volume sent to the Exchange. To the extent that the 
proposed change continues to attract more executions 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 continue to 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 volume and liquidity would continue to 
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, protect 
investors and the public interest.
    The Exchange also believes that eliminating the Incentive program 
from the Fee Schedule is equitable and not unfairly discriminatory 
because the program would be eliminated in its entirety and would no 
longer be available to any ATP Holders.
    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. Instead, as discussed above, the Exchange believes 
that the proposed changes would continue to 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 changes further 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.'' \20\
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    \20\ See Reg NMS Adopting Release, supra note 14 [sic], at 
37499.
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    Intramarket Competition. The proposed change to modify the criteria 
to qualify for the Rebate is designed to continue to attract order flow 
to the Exchange by offering competitive rates and credits based on 
increased volumes on the Exchange, which would enhance the quality of 
quoting and may increase the volumes of contracts traded on the 
Exchange. To the extent that this purpose is achieved, all of the 
Exchange's market participants should benefit from the continued market 
liquidity. Enhanced market quality and increased transaction volume 
that results from the increase in order flow directed to the Exchange 
will benefit all market participants and improve competition on the 
Exchange.
    The Exchange believes that the proposed change to eliminate the 
Incentive would not affect intramarket competition because it has been 
underutilized, and thus most ATP Holders would not be impacted by its 
removal. Moreover, because only Firms that achieved a certain volume 
increase

[[Page 82002]]

were eligible for the Incentive, the proposed elimination of the 
Incentive would remove a potential burden on competition in that it 
would level the playing field for all Firms operating on the Exchange.
    Intermarket Competition. The Exchange operates in a highly 
competitive market in which market participants can readily favor one 
of the 16 competing option exchanges if they deem fee levels at a 
particular venue to be excessive. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges and to attract order flow to the Exchange. Based on publicly-
available information, and excluding index-based options, no single 
exchange currently has more than 16% of the market share of executed 
volume of multiply-listed equity and ETF options trades.\21\ Therefore, 
no exchange currently possesses significant pricing power in the 
execution of multiply-listed equity and ETF options order flow. More 
specifically, in August 2020, the Exchange had less than 10% market 
share of executed volume of multiply-listed equity and ETF options 
trades.\22\
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    \21\ See supra note 15 [sic].
    \22\ Based on OCC data, the Exchange's market share in equity-
based options increased from 7.73% for the month of August 2019 to 
8.18% for the month of August 2020. See supra note 16 [sic].
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    The Exchange believes that the proposed rule change reflects this 
competitive environment because it modifies the Exchange's fees and 
rebates in a manner designed to encourage ATP Holders to direct trading 
interest to the Exchange, to provide liquidity and to attract order 
flow. To the extent that this purpose is achieved, all the Exchange's 
market participants should benefit from the improved market quality and 
increased opportunities for price improvement. The Exchange also 
believes that the proposed rule change reflects this competitive 
environment because it removes an underutilized Incentive that did not 
achieve its intended purpose of attracting order flow.
    The Exchange believes that the proposed changes could promote 
competition between the Exchange and other execution venues, including 
those that currently offer similar pricing incentives, by encouraging 
additional orders to be sent to the Exchange for execution.\23\
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    \23\ See, e.g., supra note 17 [sic].
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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) \24\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \25\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 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) \26\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \26\ 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-2020-84 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-2020-84. 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-2020-84, and should be 
submitted on or before January 7, 2021.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27729 Filed 12-16-20; 8:45 am]
BILLING CODE 8011-01-P