Document ID: SEC-2020-1385-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2020-08-31T04:00Z

[Federal Register Volume 85, Number 169 (Monday, August 31, 2020)]
[Notices]
[Pages 53868-53871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19051]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89663; File No. SR-NYSEArca-2020-48]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade 
Shares of Gabelli ETFs Under Rule 8.900-E, Managed Portfolio Shares

August 25, 2020.

I. Introduction

    On May 15, 2020, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) \1\ of the Securities

[[Page 53869]]

Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to list and trade shares (``Shares'') of the 
following funds under Rule 8.900-E (Managed Portfolio Shares): Gabelli 
Growth Innovators ETF, Gabelli Financial Services ETF, Gabelli Small 
Cap Growth ETF, Gabelli Small & Mid Cap ETF, Gabelli Micro Cap ETF, 
Gabelli ESG ETF, Gabelli Asset ETF, Gabelli Equity Income ETF, and 
Gabelli Green Energy ETF (each a ``Fund'' and, collectively, the 
``Funds''). The proposed rule change was published for comment in the 
Federal Register on June 3, 2020.\4\ On July 9, 2020, the Commission 
extended the time period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to approve or disapprove the proposed rule change 
to September 1, 2020.\5\ On August 6, 2020, the Exchange filed 
Amendment No. 1 to the proposed rule change, which replaced and 
superseded the proposed rule change as originally filed.\6\ The 
Commission has received no comment letters on the proposal. This order 
approves the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 88970 (May 28, 
2020), 85 FR 34262.
    \5\ See Securities Exchange Act Release No. 89279, 85 FR 42925 
(July 15, 2020).
    \6\ Because Amendment No. 1 does not materially alter the 
substance of the proposed rule change, Amendment No. 1 is not 
subject to notice and comment. Amendment No. 1 is available on the 
Commission's website at: https://www.sec.gov/comments/sr-nysearca-2020-48/srnysearca202048-7529145-222118.pdf.
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II. The Exchange's Description of the Proposal \7\
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    \7\ Additional information regarding the Fund, the Trust 
(defined infra), and the Shares can be found in Amendment No. 1, 
supra note 6, and the Registration Statement, infra note 8.
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    NYSE Arca Rule 8.900-E(b)(1) requires the Exchange to file separate 
proposals under Section 19(b) of the Act before listing and trading any 
series of Managed Portfolio Shares on the Exchange; thus, the Exchange 
submitted this proposal to list and trade Managed Portfolio Shares of 
the Funds. The Shares will be issued by the Gabelli ETFs Trust 
(``Trust''), a statutory trust organized under the laws of the State of 
Delaware and registered with the Commission as an open-end management 
investment company.\8\ The investment adviser to each Fund will be 
Gabelli Funds, LLC (``Adviser''). G.distributors, LLC will serve as the 
distributor of each of the Funds' Shares.
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    \8\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act''). On May 8, 2020, the Trust 
filed a registration statement on Form N-1A under the Securities Act 
of 1933 and the 1940 Act for the Funds (File No. 812-15036) 
(``Registration Statement''). The Commission issued an order 
granting exemptive relief to the Trust (``Exemptive Order'') under 
the 1940 Act on December 3, 2019 (Investment Company Act Release No. 
33708). The Exemptive Order was granted in response to the Trust's 
application for exemptive relief (``Exemptive Application'') (File 
No. 812-15036).
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A. Description of the Funds

    Each Fund's holdings will conform to the permissible investments as 
set forth in the Exemptive Application and Exemptive Order, and the 
holdings will be consistent with all requirements in the Exemptive 
Application and Exemptive Order.\9\
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    \9\ Pursuant to the Exemptive Order, the only permissible 
investments for a Fund are the following that trade on a U.S. 
exchange contemporaneously with the Funds' Shares: Exchange-traded 
funds (``ETFs''), exchange-traded notes, exchange-listed common 
stocks, exchange-traded American Depositary Receipts, exchange-
traded real estate investment trusts, exchange-traded commodity 
pools, exchange-traded metals trusts, exchange-traded currency 
trusts and exchange-traded futures, as well as cash and cash 
equivalents (short-term U.S. Treasury securities, government money 
market funds, and repurchase agreements).
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    Gabelli Growth Innovators ETF. The Fund's primary objective is to 
seek to provide capital appreciation. The Fund will primarily invest in 
common stocks of companies that the Adviser believes are relevant to 
the Fund's investment theme of innovation, with assets invested 
primarily in a broad range of readily marketable equity securities 
consisting of U.S. exchange-listed common stock and preferred stock.
    Gabelli Financial Services ETF. The Fund seeks to provide capital 
appreciation. The Fund intends to invest in the securities, including 
U.S. exchange-listed common stock and preferred stock, of companies 
principally engaged in the group of industries comprising the financial 
services sector.
    Gabelli Small Cap Growth ETF. The Fund seeks to provide a high 
level of capital appreciation. The Fund intends to invest primarily in 
the U.S. exchange-listed common stocks of companies which the Adviser 
believes are likely to have rapid growth in revenues and above average 
rates of earnings growth.
    Gabelli Small & Mid Cap ETF. The Fund seeks long term capital 
growth. The Fund intends to invest primarily in equity securities (such 
as U.S. exchange-listed common stock and preferred stock) of companies 
with small or medium sized market capitalizations.
    Gabelli Micro Cap ETF. The Fund primarily seeks to provide 
investors with long term capital appreciation. The Fund intends to 
invest primarily in equity securities of micro-cap companies (as 
defined by the Fund). The Fund seeks to invest in equity securities 
including U.S. exchange-listed common stocks (including indirect 
holdings of common stock through American Depositary Receipts) and 
preferred stocks.
    Gabelli ESG ETF. The Fund's investment objective is capital 
appreciation. The Fund seeks to invest primarily in companies that the 
Adviser believes meet the Fund's guidelines for social responsibility. 
The Fund intends to invest in common and preferred stocks that are 
listed on a national securities exchange.
    Gabelli Asset ETF. The Fund primarily seeks to provide growth of 
capital. The Fund intends to invest primarily in U.S. exchange-listed 
common stocks and preferred stocks and may also invest in foreign 
securities by investing in American Depositary Receipts.
    Gabelli Equity Income ETF. The Fund seeks a high level of total 
return on its assets with an emphasis on income. The Fund intends to 
invest in income producing equity securities including U.S. exchange-
listed common stock and preferred stock.
    Gabelli Green Energy ETF. The Fund seeks total return through 
current income and capital appreciation. The Fund intends to invest 
primarily in U.S. equity securities and American Depositary Receipts 
issued by clean energy companies.

B. The Funds' Investment Restrictions

    Each Fund's holdings will be consistent with all requirements 
described in the Exemptive Application and Exemptive Order.\10\ Each 
Fund's investments, including derivatives, will be consistent with its 
investment objective and will not be used to enhance leverage (although 
certain derivatives and other investments may result in leverage). That 
is, for each Fund, the Fund's investments will not be used to seek 
performance that is the multiple or inverse multiple (e.g., 2X or -3X) 
of the Fund's primary broad-based securities benchmark index (as 
defined in Form N-1A).\11\
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    \10\ See id. and supra note 8.
    \11\ Each Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following that Fund's first full calendar year of performance.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, to list and trade the Shares is 
consistent with

[[Page 53870]]

the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\12\ In particular, the Commission finds 
that the proposed rule change, as modified by Amendment No. 1, is 
consistent with Section 6(b)(5) of the Act,\13\ which requires, among 
other things, that the Exchange's rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, 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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    \12\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
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    For each series, the Exchange will establish a minimum number of 
shares required to be outstanding at the time of commencement of 
trading on the Exchange.\14\
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    \14\ See NYSE Arca Rule 8.900-E(d)(1)(A).
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    The Adviser is not registered as a broker-dealer but is affiliated 
with a broker-dealer.\15\ The Adviser has implemented and will maintain 
a ``fire wall'' with respect to its broker-dealer affiliate regarding 
access to information concerning the composition and/or changes to a 
Fund's portfolio and Creation Basket.\16\ Any person related to the 
Adviser or the Trust who makes decisions pertaining to a Fund's 
portfolio composition or that has access to information regarding a 
Fund's portfolio or changes thereto or the Creation Basket will be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding such portfolio or changes 
thereto and the Creation Basket.\17\ Further, any person or entity, 
including an AP Representative,\18\ custodian, Reporting Authority, 
distributor, or administrator, who has access to information regarding 
the Fund's portfolio composition or changes thereto or its Creation 
Basket, must be subject to procedures designed to prevent the use and 
dissemination of material nonpublic information regarding the 
applicable Fund portfolio or changes thereto or the Creation 
Basket.\19\ Moreover, if any such person or entity is registered as a 
broker-dealer or affiliated with a broker-dealer, such person or entity 
must erect and maintain a ``fire wall'' between the person or entity 
and the broker-dealer with respect to access to information concerning 
the composition of and/or changes to such Fund's portfolio or Creation 
Basket.\20\
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    \15\ See Amendment No. 1, supra note 6, at 6.
    \16\ See id. See also NYSE Arca Rule 8.900-E(c)(5) (defining 
``Creation Basket'').
    \17\ See Amendment No. 1, supra note 6, at 6. Furthermore, the 
Exchange represents that in the event that (a) the Adviser becomes 
registered as a broker-dealer or becomes newly affiliated with a 
broker-dealer, or (b) any new adviser or sub-adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, the 
Adviser will implement and maintain a fire wall with respect to 
personnel of the broker-dealer or broker-dealer affiliate regarding 
access to information concerning the composition and/or changes to 
the portfolio and/or Creation Basket. See id. at 18.
    \18\ See NYSE Arca Rule 8.900-E(c)(5) (defining ``AP 
Representative'').
    \19\ See NYSE Arca Rule 8.900-E(b)(5).
    \20\ See id.
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    The Exchange states that trading in the Shares will be subject to 
the Exchange's surveillance procedures for derivative products, and 
that its surveillance procedures are adequate to properly monitor the 
trading of the Shares on the Exchange during all trading sessions and 
to deter and detect violations of Exchange rules and the applicable 
federal securities laws.\21\ NYSE Arca Rule 8.900-E(b)(3) requires each 
Fund's investment adviser to, upon request by the Exchange, or the 
Financial Industry Regulatory Authority (``FINRA'') on behalf of the 
Exchange, to make available to the daily portfolio holdings of each 
series of Managed Portfolio Shares. The Exchange states that it has a 
general policy prohibiting the distribution of material, non-public 
information by its employees.\22\ The Commission notes that, similarly, 
FINRA Rule 9910(d) generally prohibits FINRA employees from 
disseminating or disclosing, for a purpose unnecessary to the 
performance of FINRA job responsibilities any nonpublic information 
obtained in the course of his or her employment.
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    \21\ See Amendment No. 1, supra note 6, at 16.
    \22\ See id.
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    The Commission also finds that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Act,\23\ which sets forth Congress's 
finding that it is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly markets 
to assure the availability to brokers, dealers, and investors of 
information with respect to quotations for, and transactions in, 
securities. The Commission believes that the proposal is reasonably 
designed to promote fair disclosure of information that may be 
necessary to price the Shares appropriately and to prevent trading in 
the Shares when a reasonable degree of certain pricing transparency 
cannot be assured. As such, the Commission believes the proposal is 
reasonably designed to maintain a fair and orderly market for trading 
the Shares.
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    \23\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Specifically, as required by NYSE Arca Rule 8.900-E(d)(1)(B), the 
Exchange will obtain a representation from the issuer that the net 
asset value (``NAV'') per Share of each Fund will be calculated daily 
and will be made available to all market participants at the same 
time.\24\ Information regarding market price and trading volume of the 
Shares will be continually available on a real-time basis throughout 
the day on brokers' computer screens and other electronic services.\25\ 
Quotation and last-sale information for the Shares will be available 
via the Consolidated Tape Association high-speed line.\26\ In addition, 
the Verified Intraday Indicative Value (``VIIV''), as defined in Rule 
8.900-E(c)(2),\27\ will be widely disseminated by the Reporting 
Authority and/or one or more major market data vendors in one second 
intervals during the Exchange's Core Trading Session and will be 
disseminated to all market participants at the same time.\28\ Moreover, 
the Funds' website, www.Gabelli.com, will include a form of the 
prospectus for each Fund that may be downloaded. The Funds' website 
will include additional quantitative information updated on a daily 
basis, including, for each Fund, the prior Business Day's NAV, market 
closing price or mid-point of the bid/ask spread at the time of 
calculation of such NAV (``Bid/Ask Price''),\29\ and a calculation of 
the

[[Page 53871]]

premium and discount of the market closing price or Bid/Ask Price 
against the NAV. The website and information will be publicly available 
at no charge.\30\
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    \24\ See Amendment No. 1, supra note 6, at 15-16.
    \25\ See id. at 13.
    \26\ See id.
    \27\ NYSE Arca Rule 8.900-E(c)(2) defines the term ``Verified 
Intraday Indicative Value'' as the indicative value of a Managed 
Portfolio Share based on all of the holdings of a series of Managed 
Portfolio Shares as of the close of business on the prior business 
day and, for corporate actions, based on the applicable holdings as 
of the opening of business on the current business day, priced and 
disseminated in one second intervals during the Core Trading Session 
by the Reporting Authority. NYSE Arca Rule 8.900-E(c)(8) defines the 
term ``Reporting Authority'' with respect to a particular series of 
Managed Portfolio Shares as the Exchange, an institution, or a 
reporting service designated by the Exchange or by the exchange that 
lists a particular series of Managed Portfolio 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, 
the NAV, the VIIV, or other information relating to the issuance, 
redemption, or trading of Managed Portfolio Shares. A series of 
Managed Portfolio Shares may have more than one Reporting Authority, 
each having different functions.
    \28\ See NYSE Arca Rule 8.900-E(d)(2)(A). See Amendment No. 1, 
supra note 6, at 13.
    \29\ The Bid/Ask Price of a Fund's Shares will be the mid-point 
between the current national best bid and offer at the time of 
calculation of such Fund's NAV. The records relating to Bid/Ask 
Prices will be retained by the Funds or their service providers. See 
Amendment No. 1, supra note 6, at 13.
    \30\ See id.
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    The Commission also notes that the Exchange's rules regarding 
trading halts help to ensure the maintenance of fair and orderly 
markets for the Shares. Specifically, the Exchange may consider all 
relevant factors in exercising its discretion to halt trading in the 
Shares, and will halt trading in the Shares under the conditions 
specified in NYSE Arca Rule 7.12-E. Trading in the Shares will be 
subject to Rule 8.900-E(d)(2)(C), which sets forth circumstances under 
which trading in the Shares will be halted. Specifically, Rule 8.900-
E(d)(2)(C)(i) provides that the Exchange may consider all relevant 
factors in exercising its discretion to halt trading in a series of 
Managed Portfolio Shares. Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the series of Managed Portfolio Shares inadvisable. These 
may include: (a) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the portfolio; or 
(b) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present.\31\ Rule 
8.900-E(d)(2)(C)(ii) provides that, if the Exchange becomes aware that: 
(i) The VIIV of a series of Managed Portfolio Shares is not being 
calculated or disseminated in one second intervals, as required; (ii) 
the NAV with respect to a series of Managed Portfolio Shares is not 
disseminated to all market participants at the same time; (iii) the 
holdings of a series of Managed Portfolio Shares are not made available 
on at least a quarterly basis as required under the 1940 Act; or (iv) 
such holdings are not made available to all market participants at the 
same time (except as otherwise permitted under the applicable Exemptive 
Order or no-action relief granted by the Commission or Commission staff 
to the Investment Company with respect to the series of Managed 
Portfolio Shares), it will halt trading in such series until such time 
as the VIIV, the NAV, or the holdings are available, as required.
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    \31\ The Exemptive Application provides that the Investment 
Company or their agent will request that the Exchange halt trading 
in the applicable series of Managed Portfolio Shares where: (i) The 
intraday indicative values calculated by the calculation engines 
differ by more than 25 basis points for 60 seconds in connection 
with pricing of the VIIV; or (ii) holdings representing 10% or more 
of a series of Managed Portfolio Shares' portfolio have become 
subject to a trading halt or otherwise do not have readily available 
market quotations. Any such requests will be one of many factors 
considered in order to determine whether to halt trading in a series 
of Managed Portfolio Shares, and the Exchange retains sole 
discretion in determining whether trading should be halted. As 
provided in the Exemptive Application, each series of Managed 
Portfolio Shares would employ a pricing verification agent to 
continuously compare two intraday indicative values during regular 
trading hours in order to ensure the accuracy of the VIIV. See id. 
at 15, n.21.
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    In support of this proposal, the Exchange has also made the 
following representations:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.900-E.
    (2) The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities.\32\
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    \32\ See id. at 15.
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    (3) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Bulletin (``Bulletin'') of the special 
characteristics and risks associated with trading the Shares.\33\
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    \33\ The Bulletin will discuss the following: (1) The procedures 
for purchases and redemptions of Shares; (2) Rule 9.2-E(a), which 
imposes a duty of due diligence on its ETP Holders to learn the 
essential facts relating to every customer prior to trading the 
Shares; (3) how information regarding the VIIV is disseminated; (4) 
the requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; (5) trading information; and (6) that 
the portfolio holdings of the Shares are not disclosed on a daily 
basis. See id. at 16-17.
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    (4) FINRA, on behalf of the Exchange, or the regulatory staff of 
the Exchange, or both, will communicate as needed regarding trading in 
the Shares and certain exchange-traded instruments with other markets 
and other entities that are members of the Intermarket Surveillance 
Group (``ISG''), and FINRA, on behalf of the Exchange, or the 
regulatory staff of the Exchange, or both, may obtain trading 
information regarding trading such securities from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and certain exchange-traded instruments 
from markets and other entities that are members of ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement.
    (5) The Exchange represents that, for initial and/or continued 
listing, each Fund will be in compliance with Rule 10A-3 under the 
Act.\34\
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    \34\ See id. at 7.
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    This approval order is based on all of the Exchange's statements 
and representations set forth above and in Amendment No. 1. 
Additionally, the Exchange states that all statements and 
representations made in its proposal regarding (a) the description of 
the portfolio or reference assets, (b) limitations on portfolio 
holdings or reference assets, or (c) the applicability of Exchange 
rules shall constitute continued listing requirements for listing the 
Shares on the Exchange, as provided under Rule 8.900-E(b)(1). The 
issuer of the Shares will be required to represent to the Exchange that 
it will advise the Exchange of any failure by a Fund to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Act, the Exchange will surveil for compliance 
with the continued listing requirements. If a Fund is not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under Exchange Rule 5.5-E(m).\35\
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    \35\ See id. at 16.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act \36\ and Section 11A(a)(1)(C)(iii) of the Act \37\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.
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    \36\ 15 U.S.C. 78f(b)(5).
    \37\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\38\ that the proposed rule change (SR-NYSEArca-2020-48), as 
modified by Amendment No. 1, be, and it hereby is, approved.
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    \38\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-19051 Filed 8-28-20; 8:45 am]
BILLING CODE 8011-01-P