Notice2021-12250
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE Arca Options Fee Schedule
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Published
June 11, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 111 (Friday, June 11, 2021)</title>
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[Federal Register Volume 86, Number 111 (Friday, June 11, 2021)]
[Notices]
[Pages 31363-31366]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-12250]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92123; No. SR-NYSEArca-2021-50]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify the NYSE
Arca Options Fee Schedule
June 7, 2021.
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 June 2, 2021, NYSE Arca, Inc. (``NYSE Arca'' 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 modify the NYSE Arca Options Fee Schedule
(``Fee Schedule'') regarding the charges applicable to Manual
transactions by NYSE Arca Market Makers and Lead Market Makers. The
Exchange proposes to implement the fee change effective June 2,
2021.\4\ The proposed rule change is available on the Exchange's
website at <a href="http://www.nyse.com">www.nyse.com</a>, 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
May 3, 2021 (SR-NYSEArca-2021-34), then withdrew and refiled on May
12, 2021 (SR-NYSEArca-2021-42) and May 21, 2021 (SR-NYSEArca-2021-
45), which latter filing the Exchange withdrew on June 2, 2021.
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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 regarding
the charges for Manual executions by NYSE Arca Market Makers (``Market
Makers'') and Lead Market Makers (``LMMs''). Currently, Market Makers
are charged $0.25 per contract for Manual executions, and LMMs are
charged $0.18 per contract for Manual executions.\5\
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\5\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES
FOR STANDARD OPTIONS, TRANSACTION FEE FOR MANUAL EXECUTIONS--PER
CONTRACT.
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The Exchange proposes to modify the rates charged for Manual
executions to $0.35 per contract for Market Makers and $0.30 per
contract for LMMs. The proposed rate for Market Makers is competitive
and intended to align the Exchange's fees for Manual transactions by
Market Makers with those charged by other markets.\6\ The proposed rate
for LMMs would reduce the existing disparity between rates charged to
LMMs and Market Makers from seven cents ($0.07) to five ($0.05), which
disparity the Exchange believes continues to be justified given the
heightened obligations and additional fees imposed on LMMs.\7\
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\6\ See, e.g., Nasdaq PHLX LLC (``Phlx'') Pricing Schedule,
available at: <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207">https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207</a> (providing $0.35 per contract rate for manual
transactions by market makers); Cboe Exchange, Inc. (``Cboe'') Fee
Schedule, available at: <a href="https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf">https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf</a> (providing $0.35 per contract rate for manual
transactions by market makers).
\7\ See Rules 6.37A-O(b) (setting forth the continuous quoting
obligations of LMMs to provide two-sided quotations in its appointed
issues for 90% of the time the Exchange is open for trading in each
issue) and 6.82-O(c) (regarding additional obligations specific to
LMMs, including that LMMs that operate on the Trading Floor are
required to be present every day). See Fee Schedule, NYSE Arca
General Options and Trading Permit (OTP) Fee, Lead Market Maker
Rights (setting forth the Rights Fee assessed on each issue in an
LMM's allocation, with rates based on the Average National Daily
Customer Contracts).
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[[Page 31364]]
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\8\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\9\ 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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\8\ 15 U.S.C. 78f(b).
\9\ 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.'' \10\
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\10\ 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.\11\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in March 2021, the Exchange had less
than 11% market share of executed volume of multiply-listed equity and
ETF options trades.\12\
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\11\ The OCC publishes options and futures volume in a variety
of formats, including daily and monthly volume by exchange,
available here: <a href="https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics">https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics</a>.
\12\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of ETF-based options, see
id., the Exchange's market share in multiply-listed equity and ETF
options decreased slightly from 11.10% for the month of March 2020
to 10.16% for the month of March 2021.
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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.
The proposed rule change is designed to bring the Exchange's fees
for Market Maker Manual executions into alignment with those charged on
other markets with Trading Floors. The Exchange believes it is
reasonable to increase certain fees, similar to fees assessed by
competing options exchanges for similar transactions, and notes that
LMMs will continue to be charged lower fees than those assessed by
competing options exchanges for similar transactions.\13\ The Exchange
also believes that it is reasonable to continue to offer LMMs lower
fees than Market Makers for Manual transactions given that LMMs are
subject to heightened obligations and additional monthly Rights
Fees.\14\
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\13\ See supra note 6.
\14\ See supra note 7.
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The Exchange believes that the proposed increased charge for Manual
executions by Market Makers and LMMs but not for other market
participants is reasonable because the resulting disparity would align
the Exchange's fees for Manual executions with the fees charged on
other exchanges.\15\ In addition, the Exchange believes that other
pricing incentives offered by the Exchange would continue to encourage
Market Makers and LMMs to conduct Manual transactions on the
Exchange.\16\ The Exchange thus believes the proposed changes, even
though they are increased fees, would not discourage Market Makers and
LMMs from continuing to conduct Manual executions on the Exchange and
would continue to attract volume and liquidity to the Exchange
generally and would therefore benefit all market participants
(including those that do not participate in Manual executions) through
increased opportunities to trade.
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\15\ The Exchange does not impose any fee on Manual transactions
by Customers but does charge $0.25 per contract for Manual
transactions by Firms, Broker-Dealers and Professional Customers,
which rates are consistent with fees charged these market
participants on other exchanges. See, e.g., supra note 6, PHLX
Pricing Schedule and Cboe Fee Schedule (both exchanges imposing no
charge for manual transactions by customers and imposing a $0.25 per
contract rate for manual transactions by firms, broker-dealers and
professional customers).
\16\ See e.g., Notice of Filing and Immediate Effectiveness of
Proposed Rule Change to Modify the NYSE Arca Options Fee Schedule
Regarding the Limits on Fees for Options Strategy Executions,
Securities Exchange Act Release No. 90949 (January 19, 2021), 86 FR
7152 (January 26, 2021) (SR-NYSEArca-2021-06) (reducing the cap on
strategy executions from $1,000 to $200 for OTP Holders that execute
at least 25,000 monthly billable contract sides in Strategy
Executions) and Fee Schedule, Limit of Fees on Options Strategy
Executions. While the reduction to the cap on Strategy Executions is
available to all OTP Holders, the Exchange notes that Maker Makers
and LMMs have a time and place advantage by virtue of their presence
on the Trading Floor to participate in such executions and therefore
benefit from the reduced cap.
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Finally, to the extent the proposed fees do not discourage Market
Makers and LMMs from continuing to conduct Manual executions on the
Exchange, the Exchange believes the proposed changes would continue to
improve the Exchange's overall competitiveness and strengthen its
market quality for all market participants. In the backdrop of the
competitive environment in which the Exchange operates, the proposed
rule change is 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 proposal is based on the type
of business transacted on the Exchange, and Market Makers and LMMs can
opt to participate in Manual executions or not. The Exchange notes that
the increased fees for Manual executions by Market Makers and LMMs, but
not for other market participants, represents an equitable allocation
of fees given that the proposed fees (and resulting disparity) are
consistent with fees charged for Manual executions by market makers on
other exchanges.\17\ The Exchange also believes that continuing to
offer LMMs lower fees than Market Makers is an equitable allocation of
fees given that LMMs are subject to heightened obligations and
additional fees set forth in the Exchange's Fee Schedule.\18\
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\17\ See supra notes 6 and 15.
\18\ See supra note 7.
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Moreover, even though the proposed changes increase the fees
applicable to Manual executions by Market Makers and LMMs, the Exchange
does not believe they will discourage such executions on the Exchange
or the aggregation of such executions at the Exchange as a primary
execution venue, including because of other pricing incentives
available to such participants
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on the Exchange.\19\ To the extent that the proposed changes continue
to attract Manual executions to the Exchange, this order flow would
continue to make the Exchange a more competitive venue for, among other
things, 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, continue to attract
more order flow to the Exchange, thereby improving market-wide quality
and price discovery.
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\19\ See supra note 16.
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The Proposed Rule Change Is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory because the proposed modifications would apply to all
Market Makers and LMMs conduct Manual executions on the Exchange on an
equal and non-discriminatory basis.
The proposal is based on the amount and type of business transacted
on the Exchange, and Market Makers and LMMs are not obligated to
participate in Manual executions on the Exchange. Rather, the proposal
is designed to continue to encourage the use of the Exchange as a
primary trading venue (if they have not done so previously) by
maintaining the Trading Floor for Manual executions.
The Exchange also believes that increasing fees for Manual
executions by Market Makers, but not other market participants, is not
unfairly discriminatory given that the proposed rates (and resulting
disparity) are a competitive response to rates charged on competing
options exchanges for manual executions by market makers and because
these participants may available themselves of other reduced fees and
incentives offered by the Exchange.\20\ The Exchange also believes that
it is not unfairly discriminatory to continue to offer LMMs lower fees
than Market Makers given that LMMs are subject to heightened
obligations and additional fees set forth in the Exchange's Fee
Schedule.\21\
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\20\ See supra notes 6, 15 and 16.
\21\ See supra note 7.
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To the extent that the proposed change assists the Exchange in
continuing to attract Manual executions to the Trading Floor, this
order flow would continue to make the Exchange a more competitive venue
for order execution. Thus, the Exchange believes the proposed rule
change would contribute to 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.
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 be consistent with charges for similar
business at other markets. 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.'' \22\
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\22\ See Reg NMS Adopting Release, supra note 10, at 37499.
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Intramarket Competition. The proposed change is designed to
continue to promote the use of the Exchange as a primary trading venue
by maintaining the Trading Floor for Manual executions, which would
enhance the quality of quoting and may increase the volumes of
contracts traded on the Exchange. The Exchange believes that the
proposed increased fees for Manual executions by Market Makers and LMMs
but not for other market participants would not impose any burden on
intermarket competition that is not necessary or appropriate because
the proposed fees (and resulting disparity) are consistent with fees
charged for Manual executions by market makers on other exchanges and
because these participants may available themselves of other reduced
fees and incentives offered by the Exchange.\23\ The Exchange believes
that the proposed modifications to the rates applicable to Manual
executions by Market Makers and LMMs will not discourage those market
participants from continuing to conduct Manual executions on the
Exchange (including because LMMs will continue to receive lower fees
than those assessed by competing options exchanges for similar
transactions). 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.
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\23\ See supra notes 6, 15 and 16.
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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 mechanisms and 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.\24\
Therefore, no exchange currently possesses significant pricing power in
the execution of multiply-listed equity & ETF options order flow. More
specifically, in March 2021, the Exchange had less than 11% market
share of executed volume of multiply-listed equity and ETF options
trades.\25\
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\24\ See supra note 11.
\25\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of ETF-based options, see
id., the Exchange's market share in multiply-listed equity and ETF
options decreased slightly from 11.10% for the month of March 2020
to 10.16% for the month of March 2021.
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The Exchange believes that the proposed rule change reflects this
competitive environment because it modifies the Exchange's fees to be
more closely aligned with fees charged by other markets with Trading
Floors for similar transactions.\26\ The Exchange also believes that
the proposed changes would continue to promote competition between the
Exchange and other execution venues by encouraging orders to be sent to
the Exchange for execution. 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.
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\26\ See supra notes 6 and 15.
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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) \27\ of the Act and subparagraph (f)(2) of Rule
19b-4 \28\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\27\ 15 U.S.C. 78s(b)(3)(A).
\28\ 17 CFR 240.19 b-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) \29\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\29\ 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6b191e070e46080406060e051f182b180e08450c041d"><span class="__cf_email__" data-cfemail="691b1c050c440a0604040c071d1a291a0c0a470e061f">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2021-50 on the subject line.
Paper Comments
<bullet> 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-NYSEArca-2021-50. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-NYSEArca-2021-50, and should be
submitted on or before July 2, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12250 Filed 6-10-21; 8:45 am]
BILLING CODE 8011-01-P
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