Notice2023-18895
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 8 Rules
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Published
September 1, 2023
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 88 Issue 169 (Friday, September 1, 2023)</title>
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[Federal Register Volume 88, Number 169 (Friday, September 1, 2023)]
[Notices]
[Pages 60521-60525]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-18895]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98228; File No. SR-Phlx-2023-38]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 8
Rules
August 28, 2023.
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 August 14, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. 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.
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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 its Rules at Options 8 concerning
Floor Trading.
The text of the proposed rule change is available on the Exchange's
website at
[[Page 60522]]
<a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules">https://listingcenter.nasdaq.com/rulebook/phlx/rules</a>, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
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 Exchange 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. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Phlx proposes to amend Options 8, Section 11, Floor Market Maker
and Lead Market Maker Appointment, and reserve current Options 8,
Section 16, Trading for Joint Account. Each change will be described
below.
Options 8, Section 11
The Exchange is proposing to amend Options 8, Section 11, Floor
Market Maker and Lead Market Maker Appointment. Specifically, the
Exchange proposes to remove the current burdensome process within
Options 8, Section 11(b) regarding Floor Market Maker \3\ options
assignments.
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\3\ The term ``Floor Market Maker'' is a Market Maker who is
neither an SQT or an RSQT. A Floor Market Maker may provide a quote
in open outcry. See Phlx Options 8, Section 1(a)(4).
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Today, pursuant to Options 8, Section 11(b), a Floor Market Maker
shall notify the Exchange of each option, on an issue-by-issue basis,
in which such Floor Market Maker intends to be assigned to make
markets. Exchange options transactions initiated by such Market Maker
on the Trading Floor for any account in which he had an interest shall
to the extent prescribed by the Exchange be in such assigned classes.
Such notification shall be in writing on a form prescribed by the
Exchange (``Floor Market Maker Assignment Form''). Any change to such
Floor Market Maker Assignment Form shall be made in writing by the
Floor Market Maker prior to the end of the next business day in which
such change is to take place. Receipt of the properly completed Floor
Market Maker Assignment Form by a duly qualified Floor Market Maker
applicant constitutes acceptance by the Exchange of such Floor Market
Maker's assignment in, or termination of assignment in (as indicated on
the Floor Market Maker Assignment Form), the options listed on such
Floor Market Maker Assignment Form. All such assignments shall not be
effective, and shall be terminated, in the event that such Floor Market
Maker applicant fails to qualify as a Floor Market Maker on the
Exchange.
The Exchange is proposing to remove the rule text related to
notifying the Exchange of each options class in which such Floor Market
Maker intends to be assigned and, instead, provide that a Floor Market
Maker has an assignment to trade open outcry in all options classes
traded on the Exchange.\4\ This proposed rule text is similar to Cboe
Exchange, Inc. (``Cboe'') Rule 5.50(e).\5\
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\4\ The Exchange also proposes to remove the rule text
prescribing that such notification should be in writing, how to make
changes to the Floor Market Maker Assignment Form, and acceptance of
the form by the Exchange.
\5\ Cboe Rule 5.50(e) provide that, ``During Regular Trading
Hours, a Market-Maker has an appointment to trade open outcry in all
classes traded on the Exchange. A TPH organization that is
registered as a Market-Maker may only trade in open outcry through
one of its nominees. A Market-Maker must be physically present in
the trading crowd to trade in open outcry.''
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Today, a Floor Market Maker may only quote in open outcry on the
Exchange's Trading Floor and may not enter electronic quotations into
the electronic System.\6\ Today, Floor Market Makers may be called upon
by an Options Exchange Official to make a market in a trading crowd.\7\
Further, Phlx requires that at least one Floor Market Maker is present
at the trading post prior to representing an order for execution.\8\ By
assigning a Floor Marker Maker in all options classes traded on the
Exchange, similar to Cboe, Phlx believes it will attract additional
liquidity to its trading floor by allowing Floor Market Makers to quote
in all options classes traded on Phlx without an administrative
barrier.\9\ An approved Floor Market Maker is permitted to quote \10\
in all options classes provided the Floor Market Maker is properly
registered \11\ and remains in good standing.\12\ The process described
in Options 8, Section 11(b) is a notification process, not an approval
process. This proposed method of assignment will remove the burdensome
manual process of completing a Floor Market Maker Assignment Form for
the benefit of both Phlx members who must file the form and Exchange
staff who must track assignments.
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\6\ The Options 8 rules govern trading on Phlx's trading floor.
A Floor Market Maker may not stream quotes. See supra note 3.
\7\ See Options 8, Section 27(c) and (d).
\8\ See Options 8, Section 28(a).
\9\ Today, a Floor Market Maker that fails to notify the
Exchange in a timely manner would not be permitted to quote in
certain options in which they have not been assigned.
\10\ Floor Market Makers are not subject to continuous quoting
requirements pursuant to Options 8, Section 27(a). Further, Floor
Market Makers are required to trade either (a) 1,000 contracts and
300 transactions, or (b) 10,000 contracts and 100 transactions, on
the Exchange each quarter. Transactions executed in the trading
crowd where the contra-side is an ROT are not included. See Options
8, Section 27(f). In meeting the trading requirements, Floor Market
Makers are not required to quote in all assigned options series.
\11\ See Options 8, Section 8.
\12\ Pursuant to Options 8, Section 11(b), ``All such
assignments shall not be effective, and shall be terminated, in the
event that such Floor Market Maker applicant fails to qualify as a
Floor Market Maker on the Exchange.'' Of note, the Exchange is not
amending the process of assignment and approval to become the Floor
Lead Market Maker. The term ``Floor Lead Market Maker'' is a member
who is registered as an options Lead Market Maker pursuant to
Options 2, Section 12(a) and has a physical presence on the
Exchange's trading floor. See Options 8, Section 1(a)(3).
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As provided in Options 8, Section 11(a), the Exchange, in its
discretion, may require a unit to obtain additional staff depending
upon the number of assigned options classes and associated order flow.
The Exchange proposes to amend Options 3, Section 11(a) to specify that
``The Exchange, in its discretion, may require a unit to obtain
additional staff depending upon the number of assigned options classes
that is being quoted and associated order flow.'' This change is being
made as a Floor Market Maker will be assigned in all options classes
pursuant to this proposal and the Exchange would monitor the amount of
quoting activity in utilizing its discretion.
Options 8, Section 16
The Exchange proposes to reserve Options 8, Section 16, Trading for
a Joint Account, which requires the disclosure of accounts held jointly
with other members. This rule was put in place to address conflicts of
interest among members. Options 8, Section 16 is unnecessary because,
today, there is no trading conducted in joint accounts on the trading
floor. Also, Options 8, Section 16 is unnecessary because General 9,
Section 67, Participation in Joint Accounts, requires, among other
information, disclosure of other ownership and financial
information.\13\
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\13\ General 9, Section 67 requires a joint account to be
reported to the Exchange by any member, member organization, or
partner or stockholder therein, participating in such joint account
before any transactions are effected on the Exchange for such joint
account and shall include in substance the following: (1) Names of
persons participating in such account and their respective interest
therein; (2) Purpose of such account; (3) Amount of commitments in
such account; and (4) A copy of any written agreement or instrument
in writing relating to such account. See General 9, Section 67(b).
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[[Page 60523]]
Today, all members (electronic and floor) are currently subject to
General 9, Section 67, Participation in Joint Accounts, however only
Phlx floor members are also subject to Options 8, Section 16. While
Options 8, Section 16 requires prior approval of a joint account \14\
to initiate the purchase or sale on the Exchange of any security for
any account in which he, his member organization or a participant
therein, is directly or indirectly interested with any person other
than such member organization or participant therein, General 9,
Section 67, requires the reporting of joint accounts and permits Phlx
staff to disapprove any joint account. Further, General 9, Section 67
requires a Phlx member to report participation in such joint account
before any transactions are effected on the Exchange for such joint
account.
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\14\ The Exchange notes that the approval is not on a
transaction basis, rather it is on an account basis.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\15\ in general, and furthers the objectives of section
6(b)(5) of the Act,\16\ in particular, in that it is designed 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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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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Options 8, Section 11
The Exchange's proposal to amend Options 8, Section 11, Floor
Market Maker and Lead Market Maker Appointment, is consistent with the
Act and the protection of investors and the general public because
assigning a Floor Marker Maker in all options classes traded on the
Exchange will enable Phlx to attract additional liquidity to its
trading floor by allowing Floor Market Makers to quote in all options
classes traded on Phlx without any burdensome administrative barriers.
Furthermore, the proposal will remove impediments to and perfect the
mechanism of a free and open market by removing the manual process of
completing a Floor Market Maker Assignment Form for the benefit of both
Phlx members who must file the form and Exchange staff who must track
assignments.
With respect to protecting investors and the general public, Phlx
continues to have rules in place to maintain orderly markets on its
trading floor. Today, a Floor Market Maker may only quote in open
outcry on the Exchange's Trading Floor and may not enter electronic
quotations into the electronic System. Floor Market Makers may be
called upon by an Options Exchange Official to make a market in a
trading crowd.\17\ Further, Phlx requires that at least one Floor
Market Maker is present at the trading post prior to representing an
order for execution.\18\ An assigned Floor Market Maker is permitted to
quote \19\ in all options classes provided the Floor Market Maker is
properly registered \20\ and remains in good standing.\21\ This
proposed rule text is similar to Cboe Rule 5.50(e).\22\
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\17\ See Options 8, Section 27(c) and (d).
\18\ See Options 8, Section 28(a).
\19\ Floor Market Makers are not subject to continuous quoting
requirements pursuant to Options 8, Section 27(a). Further, Floor
Market Makers are required to trade either (a) 1,000 contracts and
300 transactions, or (b) 10,000 contracts and 100 transactions, on
the Exchange each quarter. Transactions executed in the trading
crowd where the contra-side is an ROT are not included. See Options
8, Section 27(f). In meeting the trading requirements, Floor Market
Makers are not required to quote in all assigned options series.
\20\ See Options 8, Section 8.
\21\ Pursuant to Options 8, Section 11(b), ``All such
assignments shall not be effective, and shall be terminated, in the
event that such Floor Market Maker applicant fails to qualify as a
Floor Market Maker on the Exchange.'' Of note, the Exchange is not
amending the process of assignment and approval to become the Floor
Lead Market Maker. The term ``Floor Lead Market Maker'' is a member
who is registered as an options Lead Market Maker pursuant to
Options 2, Section 12(a) and has a physical presence on the
Exchange's trading floor. See Options 8, Section 1(a)(3).
\22\ Cboe Rule 5.50(e) provide that, ``During Regular Trading
Hours, a Market-Maker has an appointment to trade open outcry in all
classes traded on the Exchange. A TPH organization that is
registered as a Market-Maker may only trade in open outcry through
one of its nominees. A Market-Maker must be physically present in
the trading crowd to trade in open outcry.''
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Amending Options 3, Section 11(a) to specify that ``The Exchange,
in its discretion, may require a unit to obtain additional staff
depending upon the number of assigned options classes that is being
quoted and associated order flow'' is consistent with the Act and the
protection of investors because the Exchange would monitor the amount
of quoting activity in utilizing its discretion going forward.
Options 8, Section 16
The Exchange's proposal to reserve Options 8, Section 16, Trading
for a Joint Account, is consistent with the Act and the protection of
investors and the general public because the rule is unnecessary.
Today, there is no trading conducted in joint accounts on the trading
floor. Also, Options 8, Section 16 is unnecessary because General 9,
Section 67, Participation in Joint Accounts, requires, among other
information, disclosure of other ownership and financial
information.\23\ While Options 8, Section 16 requires prior approval of
a joint account \24\ to initiate the purchase or sale on the Exchange
of any security for any account in which he, his member organization or
a participant therein, is directly or indirectly interested with any
person other than such member organization or participant therein,
General 9, Section 67, requires the reporting of joint accounts and
permits Phlx staff to disapprove any joint account. Further, General 9,
Section 67 requires a Phlx member to report participation in such joint
account before any transactions are effected on the Exchange for such
joint account.
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\23\ General 9, Section 67 requires a joint account to be
reported to the Exchange by any member, member organization, or
partner or stockholder therein, participating in such joint account
before any transactions are effected on the Exchange for such joint
account and shall include in substance the following: (1) Names of
persons participating in such account and their respective interest
therein; (2) Purpose of such account; (3) Amount of commitments in
such account; and (4) A copy of any written agreement or instrument
in writing relating to such account. See General 9, Section 67(b).
\24\ The Exchange notes that the approval is not on a
transaction basis, rather it is on an account basis.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Options 8, Section 11
The Exchange's proposal to amend Options 8, Section 11, Floor
Market Maker and Lead Market Maker Appointment, does not impose an
intra-market burden on competition because all Floor Marker Makers will
be assigned in all options classes traded on the Exchange, provided the
Floor Market Maker continues to qualify as a Floor Market Maker on the
Exchange. The proposal will not require Floor Market Makers to quote in
additional options series to meet their trading requirements \25\
unless they elect to do so.
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\25\ Floor Market Makers are not subject to continuous quoting
requirements pursuant to Options 8, Section 27(a). Further, Floor
Market Makers are required to trade either (a) 1,000 contracts and
300 transactions, or (b) 10,000 contracts and 100 transactions, on
the Exchange each quarter. Transactions executed in the trading
crowd where the contra-side is an ROT are not included. See Options
8, Section 27(f). In meeting the trading requirements, Floor Market
Makers are not required to quote in all assigned options series.
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[[Page 60524]]
The Exchange's proposal to amend Options 8, Section 11, Floor
Market Maker and Lead Market Maker Appointment, does not impose an
inter-market burden on competition because Cboe \26\ also appoints its
Market-Maker to trade open outcry in all classes traded on Cboe.
Additionally, other options trading floors may elect to adopt a similar
rule.
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\26\ See Cboe Rule 5.50(e).
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Amending Options 3, Section 11(a) to specify that ``The Exchange,
in its discretion, may require a unit to obtain additional staff
depending upon the number of assigned options classes that is being
quoted and associated order flow'' does not impose an undue burden on
intra-market competition because the Exchange would continue to apply
this discretion in a fair manner by treating all similarly-situated
Floor Market Makers in the same manner.
Amending Options 3, Section 11(a) to specify that ``The Exchange,
in its discretion, may require a unit to obtain additional staff
depending upon the number of assigned options classes that is being
quoted and associated order flow'' does not impose an undue burden on
inter-market competition because other options trading floors markets
may adopt a similar discretion.
Options 8, Section 16
The Exchange's proposal to reserve Options 8, Section 16, Trading
for a Joint Account, does not impose an intra-market burden on
competition as no Phlx member on the trading floor would be subject to
the rule. Additionally, all Phlx members and member organizations would
be required to comply with General 9, Section 67.
The Exchange's proposal to reserve Options 8, Section 16, Trading
for a Joint Account, does not impose an inter-market burden on
competition because other options trading floors may adopt similar
rules.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to section 19(b)(3)(A) of the Act \27\ and Rule 19b-
4(f)(6) thereunder.\28\
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\27\ 15 U.S.C. 78s(b)(3)(A).
\28\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \29\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \30\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the Exchange
may implement the proposed change and alleviate an administrative
burden. The Exchange states that assigning Floor Market Makers in all
options classes traded on the Exchange will enable Phlx to attract
additional liquidity to its trading floor allowing Floor Market Makers
to quote in all options classes traded on Phlx, without any burdensome
administrative barrier, and that the proposal will also remove the
manual process of completing a Floor Market Maker Assignment Form for
the benefit of both Phlx members and Exchange staff. The Commission
believes that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest because the
proposed rule change does not raise any new or novel issues.
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposed rule change as operative upon filing.\31\
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\29\ 17 CFR 240.19b-4(f)(6).
\30\ 17 CFR 240.19b-4(f)(6)(iii).
\31\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#453730292068262a2828202b3136053620266b222a33"><span class="__cf_email__" data-cfemail="7301061f165e101c1e1e161d0700330016105d141c05">[email protected]</span></a>. Please include
file number SR-Phlx-2023-38 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-Phlx-2023-38. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-Phlx-2023-38 and
should be submitted on or before September 22, 2023.
[[Page 60525]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-18895 Filed 8-31-23; 8:45 am]
BILLING CODE 8011-01-P
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