Notice2022-24766
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Amendments to the Clearing Rules, Collateral and Haircut Procedures, Collateral and Haircut Policy and Finance Procedures
Primary source
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Published
November 15, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 219 (Tuesday, November 15, 2022)</title>
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[Federal Register Volume 87, Number 219 (Tuesday, November 15, 2022)]
[Notices]
[Pages 68525-68529]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-24766]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96270; File No. SR-ICEEU-2022-020]
Self-Regulatory Organizations; ICE Clear Europe Limited; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change Relating
to Amendments to the Clearing Rules, Collateral and Haircut Procedures,
Collateral and Haircut Policy and Finance Procedures
November 8, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 31, 2022, ICE Clear Europe Limited (``ICE Clear Europe'' or
the ``Clearing House'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule changes described in
Items I, II and III below, which Items have been primarily prepared by
ICE Clear Europe. ICE Clear Europe filed the proposed rule change
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(1) and
(f)(4) \4\ thereunder, such that the proposed rule change was
immediately effective upon filing with the Commission. 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\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(1), (f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
ICE Clear Europe Limited (``ICE Clear Europe'' or the ``Clearing
House'') proposes to amend its Clearing Rules (``Rules''), Collateral
and Haircut Procedures (``Collateral and Haircut Procedures''),
Collateral and Haircut Policy (``Collateral and Haircut Policy'') and
Finance Procedures (``Finance Procedures'') (each of the foregoing a
``Document'' and together the ``Documents'') to provide for the
acceptance by the Clearing House of certain emission allowances
provided by Clearing Members in respect of original margin requirements
for F&O Contracts for which they are the underlier.
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, ICE Clear Europe 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 these statements may be examined at the places
specified in Item IV below. ICE Clear Europe has prepared summaries,
set forth in sections (A), (B), and (C) below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(a) Purpose
ICE Clear Europe is proposing to update the Documents as described
below to provide for the acceptance by ICE Clear Europe of certain
emission allowances provided by Clearing Members as Permitted Cover in
respect of original margin requirements for F&O Contracts for which the
allowance is the relevant deliverable asset. The amendments make
certain other clarifications to accommodate such collateral and similar
collateral that ICE Clear Europe may determine to accept in the future.
The amendments related to acceptance of emissions allowances are
principally set forth in the Finance Procedures, with certain related
and conforming changes being made in the Rules and the Collateral and
Haircut Policy and Procedures.
Finance Procedures
The Finance Procedures would include a new paragraph 9 providing
for the acceptance of Eligible Emission Allowances as Permitted Cover.
Paragraph 9.1 would provide that such paragraph does not apply to FCM/
BD Clearing Members (and accordingly such Clearing Members would not be
permitted to provide Eligible Emission Allowances as Permitted Cover).
Such paragraph would apply to each Sponsored Principal (or Sponsor
appointed to make and receive transfers in respect of Eligible Emission
Allowances as Original Margin on an Individually Segregated Sponsored
Account) in the same way it would apply to a Clearing Member. Paragraph
9.2 would set out key definitions, specifically ``Eligible Emission
Allowances'' (allowances that ICE Clear Europe has determined to accept
in respect of Original Margin) and ``Emissions Margin Account'' (the
Clearing House's account at a relevant emissions registry for receipt
of Eligible Emission Allowances as margin). Eligible Emissions
Allowances would not include allowances delivered to the Clearing House
to physically settle a Contract.
[[Page 68526]]
Paragraph 9.3 would describe the circumstances under which Clearing
Members would be permitted to use Eligible Emission Allowances as
Original Margin. Specifically, Clearing Members would be able to use
Eligible Emission Allowances only to satisfy Original Margin
requirements for F&O Contracts in respect of which the Emission
Allowances are the Deliverable. The Clearing House would be able to
impose limits on the amount or value of Eligible Emission Allowances
which would be provided as Original Margin and would communicate such
limits to Clearing Members from time to time. Eligible Emission
Allowances would be required to conform to eligibility criteria as set
out by the Clearing House from time to time. Pursuant to paragraph 9.4,
Clearing Members transferring Emission Allowances as Original Margin to
the Clearing House would be required to have executed and delivered the
Emission Allowances Supplement. The Emission Allowances Supplement is
set forth as Exhibit 3. Paragraph 9.5 provides that Eligible Emission
Allowances would have to be transferred to ICE Clear Europe's Emissions
Margin Account in order to be accepted as Original Margin and all
transfers to and from such account are to be in accordance with the
terms, conditions and applicable procedures of the relevant Emissions
Registry and Registry Regulations (as defined in the Clearing House's
Delivery Procedures). Under paragraph 9.6, receipt and release of
Eligible Emission Allowances as Original Margin would only be available
on business days and working days (as applicable) as provided by the
relevant Emission Registry, and the Clearing House is unable to receive
transfers of or release such allowances on non-Clearing House business
days. Eligible Emission Allowances would be valued for margin purposes
at an exchange rate to be determined by the Clearing House in its
discretion from time to time, pursuant to paragraph 9.7. The Clearing
House is also entitled to modify the list of Permitted Cover as related
to Eligible Emission Allowances, including by way of addition or
removal of any class of Eligible Emission Allowances, not crediting
previously transferred Eligible Emission Allowances or varying haircuts
on Eligible Emission Allowances at any time, pursuant to paragraph 9.8.
Paragraphs 9.9-9.13 would establish procedures for transferring
Eligible Emission Allowances to ICE Clear Europe as Original Margin.
Prior to effecting such transfer, the Clearing Member would be required
to provide details of an Emissions Registry Account from which it would
make the transfer as well as the contact details of the person
authorized to instruct the transfer on behalf of such Clearing Member.
The Clearing Member would also have to submit a transfer request to the
Clearing House via ECS. Transfer of Eligible Emission Allowances would
be made through the Emission Registry's electronic system to the
Emissions Margin Account. The Clearing House would have the right to
not treat such Eligible Emission Allowances as Original Margin under
specified circumstances, including if required information has not been
provided to the Clearing House; any relevant limits set by the Clearing
House are exceeded; or for any other reason that places or risks
placing the Clearing House under additional risk or liability. The
amendments would also specify the times by which Eligible Emissions
Allowances must be received by the Clearing House in order to be
credited, and state that the relevant record in the ECS would be
adjusted after the Clearing House's confirmation of completion of the
relevant transfer in the Emission Margin Account.
Paragraphs 9.14-9.17 would similarly establish procedures for
release and return of Eligible Emission Allowances by the Clearing
House. These provisions apply where a Clearing Member has surplus
collateral with the Clearing House which it wishes to reduce via a
return to it of Eligible Emission Allowances. To affect such return,
such Clearing Member would be required to provide a release request to
the Clearing House using the form specified by the Clearing House and
submit release instructions to the Clearing House via ECS. Release
instructions submitted through ECS would be required to be accepted by
the Clearing House before the Eligible Emissions Allowances are
released to the Clearing Member. The Clearing House would have the
right to reject release instructions in specified circumstances,
including if: required information has not been provided to the
Clearing House; any relevant limits set by the Clearing House are
exceeded; the transfer would result or risks resulting in an uncovered
liability towards the Clearing House; or for any other reason that
places or risks placing the Clearing House under additional risk or
liability. The subsection would also specify the timing for update of
the Clearing House's records in ECS upon an accepted request for
release and for the instruction of the relevant Emissions Registry to
release the Eligible Emission Allowances. In paragraph 11 of the
Finance Procedures, certain non-substantive updates would be made to
distinguish Emission Allowances from other non-cash collateral.
Rules
The definition of ``Clearing Membership Agreement'' would be
updated to include in such definition Emission Allowances Supplement
referenced above. The amendments would also add a definition of the
foregoing and provide that ``Emission Allowances Supplement'' means an
addendum to a Clearing Membership Agreement concerning the transfer of
Emission Allowances to and from the Clearing House as Permitted Cover.
An unrelated clarifying amendment would also be made to add the term
``Gold Addendum'', which would reference the addendum to a Clearing
Membership Agreement that is currently used by the Clearing House and
Clearing Members concerning the transfer of gold to and from the
Clearing House as Permitted Cover in accordance with the existing
Finance Procedures, and to add appropriate references to the Gold
Addendum in the term Clearing Membership Agreement and other relevant
terms.
A clarifying amendment would be made to Rule 502 (Margin) to state
that Permitted Cover is required to be transferred in accordance with
the Finance Procedures and would only be recognized by the Clearing
House at or after the times stated in the Finance Procedures (in order
to ensure the Rules are consistent with the Finance Procedures). A
conforming amendment would be made to Rule 503(k) (Margin Calls and
Return of Surplus Collateral) to provide that each Permitted Cover
report would include details of other asset classes (in addition to
securities) provided as margin. As amended, the report would thus
reflect Emissions Allowances transferred as margin.
The settlement finality provisions in Part 12 of the Rules would be
amended to address various matters relating to Emissions Allowances as
Permitted Cover. In Rule 1201, definitions of ``Emission Allowance
Collateral'' (defined as Permitted Cover in the form of an Emission
Allowance) and a reference to Emission Allowance Collateral Transfer
Order would be added. Rule 1202(b) (Transfer Orders Arising) would be
updated to add a concept of Emission Allowance Collateral Transfer
Order, which would arise from a request accepted by the Clearing House
to transfer Emission Allowance Collateral to or from the Clearing
House. The amendments also
[[Page 68527]]
specify in Rule 1202(g) that each Emission Allowance Collateral
Transfer Order is to apply and have effect in respect of the Emission
Allowance to be transferred to (or to the order of) the Clearing House
or Clearing Member, in a manner similar to the treatment of Collateral
Transfer Orders for other types of non-cash Permitted Cover.
Rule 1202(m) is similarly being amended to add a new clause (vii)
to address the parties as to which an Emissions Allowance Collateral
Transfer Order would have effect, including the relevant Clearing
Member, the Clearing House, the Emissions Registry and any relevant SFD
Custodian. Subsequent clauses of Rule 1202(m) would be renumbered. In
Rule 1202(m)(vi)(A), a clarification would be made to state that for a
Collateral Transfer Order, the relevant parties would include a
Clearing Member that is the transferee of the relevant Non-Cash
Collateral. This change does not represent a change in current
practice.
Rule 1203(f) (Transfer Orders Becoming Irrevocable) would be
updated to clarify that the time at which a Collateral Transfer Order
to a Clearing Member becomes irrevocable (which was previously
omitted). The change does not represent a change in current practice.
Rule 1203(g) would be amended to state when an Emission Allowance
Collateral Transfer Order for transfer to each of the Clearing House
and the Clearing Member would become irrevocable. In respect of an
Emission Allowance Collateral Transfer Order for transfer to the
Clearing House, such order would become irrevocable at the earlier of
the time when: (i) the Clearing House accepts in accordance with the
Finance Procedures the relevant transfer request submitted by the
Clearing Member; (ii) the Clearing House receives the Emission
Allowance into its account at the Emissions Registry; (iii) any related
order becomes irrevocable within that other designated system or
Emissions Registry; or (iv) the record of the Emissions Registry
becomes conclusive evidence of the Clearing House's title to the
relevant Emission Allowance under applicable law. In respect of an
Emission Allowance Collateral Transfer Order for transfer to the
Clearing Member, such order would become irrevocable when the Clearing
Member receives the Emission Allowance in circumstances in which the
record of the Emissions Registry becomes conclusive evidence of the
Clearing Member's title to that Emission Allowance under applicable
law.
Amendments to Rule 1203(l) would clarify that Emission Allowance
Delivery Orders (which relate to transfer of Emission Allowances for
settlement, rather than as Permitted Cover) for transfer to the
Clearing House become irrevocable when the record of the Emissions
Registry becomes conclusive evidence of the Clearing House's title to
the relevant Emission Allowance under applicable law. Emission
Allowance Delivery Orders for transfer to the Clearing Member would
become irrevocable when the Clearing Member receives the Emission
Allowance in circumstances in which the record of the Emissions
Registry becomes conclusive evidence of the Clearing Member's title to
that Emission Allowance under applicable law.
The amendments would include an update to Rule 1204(i) (Variations
to or Cancellation of Transfer Orders) to provide that in addition to
Emission Allowance Delivery Orders, Emission Allowance Collateral
Transfer Orders would be cancelled immediately and automatically if,
prior to become irrevocable, an Emissions Registry that is used by the
Clearing House or Clearing Member becomes subject to Insolvency or
otherwise permanently ceases operations. Rule 1205(c) (Termination of
Transfer Orders) would be amended to provide that Emission Allowance
Collateral Transfer Orders made to the Clearing House would be
satisfied in the same manner as Collateral Transfer Orders. The
amendments would also add a clarification to address satisfaction of
Collateral Transfer Orders made to the Clearing Member (which was
previously omitted and would not result in a change in practice). The
amendments would also provide that Emission Allowance Collateral
Transfer Orders to Clearing Members would be satisfied in the same
manner. Non-substantive updates would be made to the numbering and
section references in the Rules to account for the inclusion of the
amendments.
Collateral and Haircut Policy
Related amendments would be made to the Collateral and Haircut
Policy to provide that ICE Clear Europe may accept the underlier of a
given futures or options contract as Permitted Cover to cover the
margin requirement for positions in that contract. The amendment thus
address acceptance of Emission Allowances as cover for margin
requirements for related F&O Contracts. Eligibility criteria for the
underlier, its haircuts and limits would take into account the credit
market and liquidity risk of the underlying asset. Clarifications would
be made to headings and section references to distinguish such margin
cover from other types of Permitted Cover.
Collateral and Haircut Procedures
Corresponding changes relating to the use of the underlier as
margin cover would be made to the Collateral and Haircut Procedures.
The updates in the Collateral and Haircut Procedures would further
provide the eligibility criteria that margin cover assets must meet as
follows: (i) such assets are sufficiently liquid, (ii) the market for
such assets must have sufficient price history to permit the Clearing
House to analyze the statistical returns of the assets, (iii) the
assets must be capable of daily revaluation, (iv) the Clearing House
must be capable of managing the assets operationally, and (v) the
assets must be an Eligible Currency (as set out in the Rules).
The amendments would provide that the Clearing House would
typically use market pricing convention to determine the margin cover
value calculation as follows: Cover Value = Nominal * Price * (1-
Haircut). The amendments would also provide that relative limits for
the use of margin cover would be established to provide that the
Clearing Member has a balance between the margin cover and other
acceptable collateral based on a qualitative assessment of the
different types of margin cover and collateral.
(b) Statutory Basis
ICE Clear Europe believes that proposed amendments are consistent
with the requirements of Section 17A of the Act \5\ and the regulations
thereunder applicable to it. In particular, Section 17A(b)(3)(F) of the
Act \6\ requires, among other things, that the rules of a clearing
agency be designed to promote the prompt and accurate clearance and
settlement of securities transactions and, to the extent applicable,
derivative agreements, contracts, and transactions, the safeguarding of
securities and funds in the custody or control of the clearing agency
or for which it is responsible, and the protection of investors and the
public interest.
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\5\ 15 U.S.C. 78q-1.
\6\ 15 U.S.C. 78q-1(b)(3)(F).
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The amendments to the Documents are intended to permit the Clearing
House to accept Emissions Allowances as Permitted Cover for F&O
Contracts for which they are the underlier. The amendments set out the
procedures for accepting such Permitted Cover and for the transfer of
such assets to and from the Clearing House using the facilities of the
relevant Emissions Register. The amendments also establish parameters,
[[Page 68528]]
eligibility criteria, rules and requirements (as applicable) applicable
to the acceptance of such assets by the Clearing House as Permitted
Cover. ICE Clear Europe believes Emissions Allowances are an
appropriate form of Permitted Cover with respect to meeting the margin
obligations for these related F&O Contracts and would thereby
facilitate its ability to meet its obligations to Clearing Members in
the event of a default by a Clearing Member. In ICE Clear Europe's
view, the amendments hereby promote the efficient operation and
stability of the Clearing House and the prompt and accurate clearance
and settlement of cleared contracts. Such enhanced risk management is
also generally consistent with the protection of investors and the
public interest in the safe operation of the Clearing House. (ICE Clear
Europe would not expect the adoption of the amendments to affect
materially the safeguarding of securities and funds in ICE Clear
Europe's custody or control or for which it is responsible.)
Accordingly, the amendments to the Documents satisfy the requirements
of Section 17A(b)(3)(F).\7\
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\7\ 15 U.S.C. 78q-1(b)(3)(F).
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The proposed amendments to each Document is also consistent with
relevant provisions of Rule 17Ad-22. \8\ Rule 17Ad-22(e)(3)(i) provides
that ``[e]ach covered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonable
designed to, as applicable [. . .] identify, measure, monitor and
manage the range of risks that arise in or are borne by the covered
clearing agency''.\9\ For similar reasons, the amendments are intended
to enhance the Clearing House's overall risk management through margin
requirements for emissions F&O Contracts. ICE Clear Europe believes
that acceptance of Emission Allowances as Permitted Cover is
appropriate for these specific F&O Contracts for which the Emission
Allowance is the underlier, in light of the specific characteristics
and risks of these assets. In the context of these contracts,
acceptance of the underlying allowances to cover margin would serve to
reduce the risk to the Clearing House of a default by a Clearing Member
with respect to such contracts. The amendments provide appropriate
mechanisms for transfer of such assets to the account of the Clearing
House as cover for margin, and provide for appropriate eligibility
criteria, parameters and limits to provide further protection to the
Clearing House. The amendments will not otherwise change the margin
model for the relevant contracts or the amount of initial margin that
is required. In ICE Clear Europe's view, as set out above, the
amendments would thus facilitate overall risk management with respect
to the expansion of assets eligible to accepted as Permitted Cover,
consistent with the requirements of Rule 17Ad-22(e)(3)(i).\10\
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\8\ 17 CFR 240.17 Ad-22.
\9\ 17 CFR 240.17 Ad-22(e)(3)(i).
\10\ 17 CFR 240.17 Ad-22(e)(3)(i).
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(B) Clearing Agency's Statement on Burden on Competition
ICE Clear Europe does not believe the proposed amendments would
have any impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The amendments
are intended to permit the Clearing House to accept Emissions
Allowances as Permitted Cover for F&O Contracts for which they are the
underlier. The amendments set out the procedures for accepting such
Permitted Cover and for the transfer of such assets to and from the
Clearing House using the facilities of the relevant Emissions Register,
as well as the parameters, eligibility criteria, rules and requirements
(as applicable) applicable to the acceptance of such assets by the
Clearing House as Permitted Cover. ICE Clear Europe does not believe
that proposed amendments would adversely affect competition among
Clearing Members, materially affect the costs of clearing, adversely
the ability of market participants to access clearing or the market for
clearing services generally, or otherwise adversely affect competition
in clearing services. Therefore, ICE Clear Europe does not believe the
proposed rule change imposes any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed amendment has not been
solicited or received by ICE Clear Europe. ICE Clear Europe will notify
the Commission of any comments 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 has become effective pursuant to Section
19(b)(3)(A) of the Act \11\ and paragraph (f) of Rule 19b-4 \12\
thereunder. At any time within 60 days of the filing of the 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.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f).
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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#6e1c1b020b430d0103030b001a1d2e1d0b0d40090118"><span class="__cf_email__" data-cfemail="7d0f081118501e1210101813090e3d0e181e531a120b">[email protected]</span></a>. Please include
File Number SR-ICEEU-2022-020 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-ICEEU-2022-020. 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 such filings will also be available for inspection
and copying at the principal office of ICE Clear Europe and on ICE
Clear Europe's website at <a href="https://www.theice.com/clear-europe/regulation">https://www.theice.com/clear-europe/regulation</a>. All comments received will
[[Page 68529]]
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-ICEEU-2022-020 and should be submitted on or before December 6,
2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-24766 Filed 11-14-22; 8:45 am]
BILLING CODE 8011-01-P
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