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It will be good if a "Extract" sequence option present: When we select more than one steps in a sequence, show this option. Once you select extract option, new sequence should be created within the .seq file, and automatically insert a step "Sequence Call" which calls the new sequence.
EDIT: Just went looking in TestStand 2016 and there is a "New Subsequence from Steps" right-click option in there.
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As crossrulz pointed out, this feature is present in TestStand 2016 and later:
Creating a Subsequence from Selected Steps
-Trent