Notice2023-21135
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Declaration of Effectiveness of the Fingerprint Plan of the Financial Industry Regulatory Authority, Inc.
Primary source
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Published
September 28, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 187 (Thursday, September 28, 2023)</title>
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[Federal Register Volume 88, Number 187 (Thursday, September 28, 2023)]
[Notices]
[Pages 66916-66918]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-21135]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98488]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Declaration of Effectiveness of the Fingerprint Plan
of the Financial Industry Regulatory Authority, Inc.
September 22, 2023.
On September 22, 2023, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') a new fingerprint plan (``Plan'') \1\
pursuant to Rule 17f-2(c) \2\ under the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act'').\3\ The Plan supersedes and replaces
FINRA's current fingerprint plan, which was declared effective for the
Commission by the Division of Trading and Markets, pursuant to
delegated authority, on November 2, 2021 (``2021 Fingerprint
Plan'').\4\
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\1\ Attached hereto as Exhibit A. See also Letter from Richard
Pullano, Vice President and Associate General Counsel, FINRA, to
Devin Ryan, Assistant Director, Office of Chief Counsel and Moshe
Rothman, Assistant Director, Office of Clearance and Settlement,
Division of Trading and Markets, dated September 22, 2023 (``FINRA
Letter'').
\2\ 17 CFR 240.17f-2(c).
\3\ 15 U.S.C. 78a et seq.
\4\ See Exchange Act Release No. 93511 (November 2, 2021), 86 FR
61801 (November 8, 2021), <a href="https://www.sec.gov/files/rules/other/2021/34-93511.pdf">https://www.sec.gov/files/rules/other/2021/34-93511.pdf</a> (Declaration of Effectiveness of the Fingerprint
Plan of the Financial Industry Regulatory Authority, Inc. (``2021
Declaration'')). See also Letter from Richard E. Pullano, Vice
President and Associate General Counsel, FINRA, to Devin Ryan,
Assistant Director, Office of Chief Counsel, Division of Trading and
Markets, Commission, dated October 28, 2021, <a href="https://www.sec.gov/files/rules/other/2021/finra-incoming-fingerprint-plan-cover-letter.pdf">https://www.sec.gov/files/rules/other/2021/finra-incoming-fingerprint-plan-cover-letter.pdf</a> (``FINRA October 2021 Letter'').
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As discussed in the FINRA Letter, historically FINRA has processed
fingerprints submitted from registered transfer agent and registered
clearing agency (hereinafter referred to as ``transfer agents'' and
``clearing agencies'') personnel who are required to be fingerprinted
using FINRA's fingerprint processing platform.\5\ FINRA states that the
new Plan is necessary because FINRA must retire its fingerprint
processing platform, due to the termination of support of essential
software used by the platform.\6\ Because its fingerprint processing
platform will no longer be supported, FINRA states that there is an
exigent need to provide an option for transfer agents and clearing
agencies that are currently using FINRA to meet the Exchange Act
fingerprinting requirement.\7\ Accordingly, FINRA is adopting a new
Plan to reflect that it has arranged for its FBI-approved channeler
(``FBI-Approved Channel Partner'') \8\ to serve, on an interim basis,
as a fingerprinting option for transfer agents and clearing agencies
that elect to use it.\9\ FINRA states that it will continue to work
with SEC and FBI staff to find a more permanent solution that does not
involve FINRA acting in a channeler role for transfer agents and
clearing agencies.\10\ Importantly, FINRA explains that the new Plan
will continue, without any changes, the processes established under the
2021 Fingerprint Plan for broker-dealer personnel,\11\ as well as
FINRA's officers, directors, employees and contractors, and will extend
such processes to personnel of transfer agents and clearing agencies
with respect to the use of its FBI-Approved Channel Partner.\12\
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\5\ See FINRA Letter at 1. See id. at 3, n.8. See also 2021
Declaration at 5-6, 12 (describing fingerprinting processing for
transfer agent and clearing agency personnel). As FINRA notes, as a
result of the 2021 Fingerprint Plan transition, the percentage of
fingerprints processed through FINRA's fingerprint platform
decreased by 97 percent. See FINRA Letter at 1, n.3.
\6\ See FINRA Letter at 1. FINRA states that, for over 20 years,
it directly channeled fingerprints of transfer agent and clearing
agency personnel to the Federal Bureau of Investigation (``FBI'')
using a proprietary platform that used vendor-provided software and
specialized communications equipment. Although FINRA continues to
process fingerprints submitted by transfer agents and clearing
agencies, it soon will no longer have the ability to directly
channel fingerprints to the FBI as its fingerprint processing
platform must be retired. Specifically, in addition to the vendor
discontinuing the software used for the platform and ceasing to
support the software, FINRA learned in late 2022 that other software
(an unrelated server product) that is integral to the platform's
operation will no longer be supported after October 10, 2023. See
id. at 1-2.
\7\ See id. at 1-4. FINRA states that it will continue to
channel fingerprints for these personnel consistent with the 2021
Fingerprint Plan until the Plan is declared effective or September
29, 2023, whichever is earlier. See Exhibit A, at 1, n.1.
\8\ See Exhibit A at 1, n.3. See also 2021 Declaration at 2, n.6
(discussing the FBI's conditional approval of FINRA using a
specified FBI-Approved Channel Partner).
\9\ See FINRA Letter at 3-4.
\10\ See id. at 3. FINRA states that no additional action is
needed by the FBI to implement this interim measure because the
FBI's 2021 approval of FINRA's outsourcing of its fingerprint
channeling responsibilities extends to all entities identified in
Exchange Act section 17(f)(2), including transfer agents and
clearing agencies. See FINRA Letter at 3, n. 10 (citing letter from
Chasity S. Anderson, FBI Compact Officer, National Crime Prevention
and Privacy Compact Council Office, FBI, to Derek W. Linden,
Executive Vice President, FINRA, dated September 28, 2021), <a href="https://www.sec.gov/files/rules/other/2021/fbi-compact-officer-approval-letter.pdf">https://www.sec.gov/files/rules/other/2021/fbi-compact-officer-approval-letter.pdf</a>.
\11\ See id. at 1, 4. For purposes of the Plan, broker-dealer
personnel includes personnel of FINRA members and other broker-
dealers required to be fingerprinted pursuant to Exchange Act
section 17(f)(2) and Rule 17f-2 thereunder. The term ``members,'' as
used in the Plan, includes Capital Acquisition Brokers, Funding
Portals and applicants for FINRA membership. See Exhibit A at 1-2,
n.2.
\12\ See id. at 1, 4. FINRA's 2021 transition to the FBI-
Approved Channel Partner provides broker-dealers an efficient option
to comply with the fingerprinting requirements in section 17(f)(2)
and enables FINRA to fulfill its critical regulatory
responsibilities for those entities. The 2021 transition similarly
enables FINRA to efficiently fingerprint its officers, directors,
employees and contractors consistent with New York General Business
Law Section 359-e and Exchange Act section 17(f)(2) and thereby
safeguard against potential threats to FINRA personnel, facilities
and records. As a result of the 2021 transition, the percentage of
fingerprints processed through FINRA's fingerprint platform
decreased by 97 percent. See id. at 1, n.3. See also 2021
Declaration at 4-6, 11-13.
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For the reasons discussed below, the Commission finds that,
pursuant to Rule 17f-2(c) of the Exchange Act, the Plan is not
inconsistent with the public interest and the protection of investors
and, therefore, declares the Plan to be effective.
1. Applicable Standard
Section 17(f)(2) of the Act provides, in pertinent part, that
``every member of a national securities exchange, broker, dealer,
registered transfer agent and registered clearing agency . . . and
national securities association shall require that each of its
partners, directors, officers, and employees be fingerprinted and shall
submit such fingerprints, or cause the same to be submitted, to the
Attorney General of the United States for identification and
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appropriate processing.'' \13\ However, in accordance with Exchange Act
Rule 17f-2(c), the fingerprinting requirement of section 17(f)(2) may
be satisfied by submitting appropriate and complete fingerprint cards
to, among others, a registered national securities association (such as
FINRA) which, pursuant to a plan filed with and declared effective by
the Commission, forwards such fingerprint cards to the Attorney General
or its designee for identification and appropriate processing.\14\
Under Rule 17f-2(c), such a fingerprinting plan--like FINRA's 2021
Fingerprint Plan and this Plan--shall not become effective unless it is
declared effective by the Commission, which requires the Commission to
find that the plan is ``not inconsistent with the public interest or
the protection of investors.'' \15\
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\13\ 15 U.S.C. 78q(f)(2). Hereinafter, ``Attorney General of the
United States'' referred to as ``Attorney General.''
\14\ 17 CFR 240.17f-2(c).
\15\ See id. The Commission may also impose any terms and
conditions relating to the provisions of the plan and the period of
its effectiveness as it may deem necessary or appropriate in the
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of the Act. See id.
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FINRA states that the purpose of the Plan is to facilitate
compliance with section 17(f)(2) of the Exchange Act and Rule 17f-2
thereunder by providing a program for, among others, transfer agents
and clearing agencies, to have the fingerprints of their partners,
directors, officers, and employees processed by the Attorney
General.\16\ FINRA also states it is providing, on an interim basis,
transfer agents and clearing agencies an option to use an FBI-Approved
Channel Partner with which FINRA has contracted to enable them to
satisfy their fingerprinting requirements.\17\ The Plan will continue,
without any changes, the processes established under the 2021
Fingerprint Plan for broker-dealer personnel, as well as FINRA's
officers, directors, employees and contractors, and will extend such
processes to personnel of transfer agents and clearing agencies with
respect to the use of its FBI-Approved Channel Partner.\18\
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\16\ See Exhibit A at 1.
\17\ See FINRA Letter at 3-4. See also id. at 3, n.10 and
accompanying text.
\18\ See id. at 1, 4. See also 2021 Declaration at 4-6, 11-13.
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2. Transfer Agents and Clearing Agencies
Under the Plan, the FBI-Approved Channel Partner will be the
central point of intake for fingerprints from those transfer agents and
clearing agencies that elect to use it for their personnel who are
required to be fingerprinted under section 17(f)(2).\19\ The FBI-
Approved Channel Partner will offer state-of-the-art collection
services for those fingerprints at locations nationwide.\20\ After
either collecting fingerprints directly or receiving them from transfer
agents or clearing agencies (or their authorized agents), the FBI-
Approved Channel Partner will transmit the fingerprints to the FBI for
processing, track their status, and securely make both the statuses and
results available to FINRA, which, in turn, will securely make the
fingerprint statuses and results available to the transfer agent or
clearing agency.\21\
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\19\ See FINRA Letter at 3.
\20\ See id. at 3-4. FINRA also states that under the Plan,
``Fingerprints will be collected electronically at those locations
in the domestic United States. Fingerprints collected outside of the
domestic United States must be captured and transmitted for
processing consistent with protocols established by the FBI.'' See
id. at 4 n.11.
\21\ See id. at 4. FINRA has also states it ``intends to make
the statuses and results available electronically through a secure
method that meets FBI requirements; however, FINRA may deliver the
fingerprint results in hard copy in the unlikely event secure
electronic delivery is unavailable.'' See id. at 4 n.12.
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3. Commission's Declaration of Effectiveness of the Plan
In accordance with Rule 17f-2(c) of the Act, the Commission has
reviewed the procedures detailed in the Plan and declares the Plan to
be effective, finding that it is not inconsistent with the public
interest and the protection of investors.
The Commission observes that most of FINRA's 2021 Fingerprint Plan,
which the Commission found previously to be not inconsistent with the
public interest and the protection of investors,\22\ will remain
largely unchanged.\23\ As a result, the Commission has no reason to
revisit its prior finding with respect to those unchanged provisions.
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\22\ See 2021 Declaration at 2-3, 6-7, 9.
\23\ As discussed in Section 2, supra, the Plan will continue,
without any changes, the processes established under the 2021
Fingerprint Plan for broker-dealer personnel, as well as FINRA's
officers, directors, employees and contractors.
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With respect to FINRA's decision to arrange for its FBI-Approved
Channel Partner to serve, on an interim basis, as a fingerprinting
option for transfer agents and clearing agencies, the Commission
observes the following representations made by FINRA. FINRA states that
the 2021 Fingerprint Plan's transition to the FBI-Approved Channel
Partner provides broker-dealers an efficient option to comply with the
fingerprinting requirements in section 17(f)(2) and enables FINRA to
fulfill its critical regulatory responsibilities for those
entities.\24\ The 2021 Fingerprint Plan similarly enables FINRA to
efficiently fingerprint its officers, directors, employees and
contractors consistent with New York state law and Exchange Act section
17(f)(2) and thereby safeguard against potential threats to FINRA
personnel, facilities and records.\25\ FINRA further states that making
the services of FINRA's FBI-Approved Channel Partner available to
transfer agents and clearing agencies as an interim measure will
provide those entities the ability to continue satisfy their Exchange
Act requirement to fingerprint their personnel following the retirement
of FINRA's fingerprint processing platform, while FINRA works with all
appropriate parties to find a permanent solution.\26\
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\24\ See FINRA Letter at 1, n.3.
\25\ See id.
\26\ See FINRA Letter at 3-4.
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The Commission agrees with FINRA's observation that these
statutorily-mandated fingerprint-based background checks--whether
performed by FINRA itself for transfer agents and clearing agencies
under the 2021 Fingerprint Plan or FINRA's prior plan \27\ or by an
FBI-Approved Channel Partner under this Plan--will continue to help
protect investors and serve the public interest.
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\27\ See Exchange Act Release No. 53751 (May 2, 2006), 71 FR
27299 (May 10, 2006), <a href="https://www.sec.gov/files/rules/other/2006/34-53751.pdf">https://www.sec.gov/files/rules/other/2006/34-53751.pdf</a> (Declaration of Effectiveness of the Fingerprint Plan of
the National Association of Securities Dealers, Inc.).
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Based on the foregoing, the Commission finds that, pursuant to Rule
17f-2(c) of the Exchange Act, the Plan is not inconsistent with the
public interest and the protection of investors and, therefore,
declares the Plan to be effective.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(17)(iii).
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Sherry R. Haywood,
Assistant Secretary.
Exhibit A
Financial Industry Regulatory Authority; Fingerprint Plan
The Financial Industry Regulatory Authority, Inc. (``FINRA'')
submits this fingerprint plan (``Plan'') pursuant to Rule 17f-2(c)
under the Securities Exchange Act of 1934 (``Exchange Act''). This
Plan supersedes and replaces FINRA's current fingerprint plan, which
was declared effective by the Securities and Exchange Commission
(``Commission'') on November 2, 2021 (the ``2021 Fingerprint
Plan'').\1\
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\1\ Securities Exchange Act Release No. 93511 (November 2,
2021), 86 FR 61801 (November 8, 2021) (Declaration of Effectiveness
of the Fingerprint Plan of the Financial Industry Regulatory
Authority, Inc.). Pursuant to the 2021 Fingerprint Plan, FINRA
channels fingerprints for transfer agents and clearing agencies.
FINRA will continue to channel fingerprints for these personnel
consistent with the 2021 Fingerprint Plan until the Plan is declared
effective or September 29, 2023, whichever is earlier. The Plan will
continue without changes the processes established under the 2021
Fingerprint Plan for broker-dealer personnel, as well as FINRA's
officers, directors, employees and contractors.
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The purpose of this Plan is to facilitate compliance with
section 17(f)(2) of the Exchange Act by providing a program for
FINRA members,\2\ other broker-dealers, transfer agents, clearing
agencies, and FINRA to have the fingerprints of their partners,
directors, officers, and employees processed by the Attorney General
of the United States or its designee (hereinafter ``Attorney
General'').
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\2\ For purposes of the Plan, the term ``members'' includes
Capital Acquisition Brokers, Funding Portals and applicants for
FINRA membership.
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1. Members and Other Broker-Dealers
FINRA partners with an FBI-approved private channeler (``FBI-
Approved Channel Partner'') \3\ to process fingerprints and
identifying information from personnel of members and other broker-
dealers required to be fingerprinted pursuant to Exchange Act
section 17(f)(2) and Rule 17f-2 thereunder. The FBI-Approved Channel
Partner fingerprints such personnel or accepts fingerprints of such
personnel (either in electronic or hard copy format) and submits
such fingerprints to the Attorney General for processing consistent
with protocols and requirements established by the Attorney
General.\4\
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\3\ The FBI-Approved Channel Partner is one of a limited number
of entities approved by the FBI to submit fingerprints to the FBI
and receive the results on behalf of an organization using that
information for authorized non-criminal justice purposes (e.g.,
employment suitability, licensing determinations, etc.). The FBI
reviews and approves all outsourced channeling relationships
consistent with its outsourcing standards and protocols. As outlined
in the September 28, 2021 letter from the FBI's National Crime
Prevention and Privacy Compact Council Office (``CCO Letter''), the
FBI has reviewed and conditionally granted permission to FINRA to
use a specified FBI-Approved Channel Partner contingent upon FINRA
filing a fingerprint plan with the Commission and the Commission
declaring that fingerprint plan effective. See CCO Letter, available
at <a href="https://www.finra.org/registration-exams-ce/classic-crd/fingerprints">https://www.finra.org/registration-exams-ce/classic-crd/fingerprints</a>. The terms of the CCO Letter are incorporated by
reference in the Plan.
\4\ On its website, FINRA informs its members and other broker-
dealers of the availability of fingerprint services and any fees
charged by FINRA in connection with those services and the
processing of fingerprints pursuant to this Plan. See <a href="https://www.finra.org/registration-exams-ce/classic-crd/fingerprints">https://www.finra.org/registration-exams-ce/classic-crd/fingerprints</a>.
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FINRA receives results from the FBI-Approved Channel Partner
after the fingerprints have been processed by the Attorney General
and makes those results available to authorized recipients (i.e., to
a member or other broker-dealer that submitted the fingerprints and
to regulators, as appropriate, for licensing, registration and other
regulatory purposes), consistent with protocols and requirements
established by the Attorney General. With respect to members and
other broker-dealers, FINRA also reviews any Criminal History Record
Information returned by the Attorney General to identify persons who
may be subject to statutory disqualification under the Exchange Act
and to take action, as appropriate, with respect to such persons.
FINRA maintains copies of fingerprint processing results
received from the Attorney General with respect to fingerprints
submitted by the FBI-Approved Channel Partner pursuant to this Plan
in accordance with FINRA's records policy.\5\ Any maintenance of
fingerprint records by FINRA shall be for FINRA's own administrative
purposes; FINRA is not undertaking to maintain fingerprint records
on behalf of FINRA members pursuant to Exchange Act Rule 17f-
2(d)(2). FINRA records in FINRA systems the status of fingerprints
of personnel of members and other broker-dealers submitted to the
Attorney General.\6\ Through these systems, FINRA makes available to
a member or other broker-dealer that has submitted fingerprints the
status and results of such fingerprints after submission to the
Attorney General.
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\5\ FINRA's records policy is to maintain all records for at
least five years.
\6\ These systems include the Central Registration Depository
(CRD[supreg]) and the Funding Portal Registration Depository
(FPRD[supreg]).
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2. Transfer Agents and Clearing Agencies
FINRA is partnering with an FBI-Approved Channel Partner to
provide transfer agents and clearing agencies the option to process
fingerprints and identifying information for their personnel who are
required to be fingerprinted pursuant to Exchange Act section
17(f)(2) and Rule 17f-2 thereunder. The FBI-Approved Channel Partner
fingerprints such personnel or accepts fingerprints of such
personnel (either in electronic or hard copy format) \7\ from a
transfer agent or clearing agency that elects to use it and submits
such fingerprints to the Attorney General for processing consistent
with protocols and requirements established by the Attorney General.
After receiving the processed results, FINRA makes them available to
the submitting transfer agent or clearing agency (i.e., an
authorized recipient of the results) consistent with protocols and
requirements established by the Attorney General.
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\7\ See supra note 4.
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3. FINRA Personnel
FINRA partners with the FBI-Approved Channel Partner to obtain
fingerprints and identifying information from FINRA personnel who
are required to be fingerprinted under Exchange Act section 17(f)(2)
and consistent with its Policy to Conduct Fingerprint-Based
Background Checks (``Fingerprint Policy'').\8\ The FBI-Approved
Channel Partner transmits fingerprints to the Attorney General for
identification and processing consistent with protocols and
requirements established by the Attorney General and securely makes
the results available to FINRA after the fingerprints have been
processed. FINRA evaluates the fingerprint results and takes any
appropriate action in accordance with the terms of the Fingerprint
Policy.
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\8\ Securities Exchange Act Release No. 50157 (August 5, 2004),
69 FR 49924 (August 12, 2004) (Notice of Filing and Immediate
Effectiveness of File No. SR-NASD-2004-095).
[FR Doc. 2023-21135 Filed 9-27-23; 8:45 am]
BILLING CODE 8011-01-P
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