Notice2023-25657
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Pricing Schedule at Options 7, Sections 4 and 7 Regarding Multiply Listed Options Fees and Routing Fees
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Published
November 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 223 (Tuesday, November 21, 2023)</title>
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[Federal Register Volume 88, Number 223 (Tuesday, November 21, 2023)]
[Notices]
[Pages 81150-81154]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-25657]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98941; File No. SR-Phlx-2023-47]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Its
Pricing Schedule at Options 7, Sections 4 and 7 Regarding Multiply
Listed Options Fees and Routing Fees
November 15, 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 November 1, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III, 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 Phlx's Pricing Schedule at Options
7, Section 4, Multiply Listed Options Fees, and Options 7, Section 7,
Routing Fees.
The text of the proposed rule change is available on the Exchange's
website at <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.
[[Page 81151]]
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 its Pricing Schedule at Options 7, Section
4, Multiply Listed Options Fees, and Options 7, Section 7, Routing
Fees. Each pricing change will be described below.
Options 7, Section 4
Phlx proposes to amend its Pricing Schedule at Options 7, Section
4, ``Multiply Listed Options Fees (Includes options overlying equities,
ETFs, ETNs and indexes which are Multiply Listed) (Excludes SPY and
broad-based index options symbols listed within Options 7, Section
5.A).'' Specifically, Phlx proposes to amend its Qualified Contingent
Cross (``QCC'') Rebates.
Today, the Exchange assesses a $.20 per contract QCC Transaction
Fee for a Lead Market Maker,\3\ Market Maker,\4\ Firm \5\ and Broker-
Dealer.\6\ Customers \7\ and Professionals \8\ are not assessed a QCC
Transaction Fee. QCC Transaction Fees apply to electronic QCC Orders
\9\ and Floor QCC Orders.\10\ Additionally, today, Phlx pays QCC
rebates. Specifically, Phlx pays a QCC Rebate of $0.12 per contract on
electronic QCC Orders, as defined in Options 3, Section 12, and Floor
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is
comprised of a Customer or Professional order on one side and a Lead
Market Maker, Market Maker, Broker-Dealer, or Firm order on the other
side. This rebate is $0.17 per contract in the event that a member or
member organization executes greater than 1,000,000 qualifying QCC
contracts in a given month. Further, this rebate is $0.22 per contract
in the event that a member or member organization executes: (1) greater
than 1,000,000 qualifying QCC contracts in a given month, (2) Floor
Originated Strategy Executions in excess of 3,500,000 contracts in a
given month, and (3) at least 40% of the member or member
organization's QCC executed contracts in that month are comprised of a
Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one
side and Lead Market Maker, Market Maker, Broker-Dealer, or Firm order
on the other side.
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\3\ The term ``Lead Market Maker'' applies to transactions for
the account of a Lead Market Maker (as defined in Options 2, Section
12(a)). A Lead Market Maker is an Exchange member who is registered
as an options Lead Market Maker pursuant to Options 2, Section
12(a). An options Lead Market Maker includes a Remote Lead Market
Maker which is defined as an options Lead Market Maker in one or
more classes that does not have a physical presence on an Exchange
floor and is approved by the Exchange pursuant to Options 2, Section
11. See Options 7, Section 1(c). 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
2(a)(3).
\4\ The term ``Market Maker'' is defined in Options 1, Section
1(b)(28) as a member of the Exchange who is registered as an options
Market Maker pursuant to Options 2, Section 12(a). A Market Maker
includes SQTs and RSQTs as well as Floor Market Makers. See Options
7, Section 1(c). 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 Options 8, Section 2(a)(4).
\5\ The term ``Firm'' applies to any transaction that is
identified by a member or member organization for clearing in the
Firm range at The Options Clearing Corporation. See Options 7,
Section 1(c).
\6\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category. See Options 7, Section 1(c).
\7\ The term ``Customer'' applies to any transaction that is
identified by a member or member organization for clearing in the
Customer range at The Options Clearing Corporation (``OCC'') which
is not for the account of a broker or dealer or for the account of a
``Professional'' (as that term is defined in Options 1, Section
1(b)(45)). See Options 7, Section 1(c).
\8\ The term ``Professional'' applies to transactions for the
accounts of Professionals, as defined in Options 1, Section 1(b)(45)
means any person or entity that (i) is not a broker or dealer in
securities, and (ii) places more than 390 orders in listed options
per day on average during a calendar month for its own beneficial
account(s). See Options 7, Section 1(c).
\9\ Electronic QCC Orders are described in Options 3, Section
12.
\10\ Floor QCC Orders are described in Options 8, Section 30(e).
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Also, the Exchange pays a QCC Rebate of $0.14 per contract on
electronic QCC Orders, as defined in Options 3, Section 12, and Floor
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm
order on one side and a Lead Market Maker, Market Maker, Broker-Dealer,
or Firm order on the other side. This rebate is $0.19 per contract in
the event that a member or member organization executes greater than
1,000,000 qualifying QCC contracts in a given month. Further, this
rebate is $0.27 per contract in the event that a member or member
organization executes: (1) greater than 1,000,000 qualifying QCC
contracts in a given month, (2) Floor Originated Strategy Executions in
excess of 3,500,000 contracts in a given month, and (3) at least 40% of
the member or member organization's QCC executed contracts in that
month are comprised of a Lead Market Maker, Market Maker, Broker-
Dealer, or Firm order on one side and Lead Market Maker, Market Maker,
Broker-Dealer, or Firm order on the other side.
At this time, the Exchange proposes to amend the number of
qualifying QCC contracts that must be executed in a given month with
respect to these aforementioned rebates. The Exchange proposes to amend
the current 1,000,000 qualifying QCC contracts to 750,000 qualifying
QCC contracts in. With this proposed changed, the rule text would
provide:
<bullet> A QCC Rebate of $0.12 per contract will be paid on
electronic QCC Orders, as defined in Options 3, Section 12, and Floor
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is
comprised of a Customer or Professional order on one side and a Lead
Market Maker, Market Maker, Broker-Dealer, or Firm order on the other
side. This rebate will be $0.17 per contract in the event that a member
or member organization executes greater than 750,000 qualifying QCC
contracts in a given month. This rebate will be $0.22 per contract in
the event that a member or member organization executes: (1) greater
than 750,000 qualifying QCC contracts in a given month, (2) Floor
Originated Strategy Executions in excess of 3,500,000 contracts in a
given month, and (3) at least 40% of the member or member
organization's QCC executed contracts in that month are comprised of a
Lead Market Maker, Market Maker, Broker-Dealer, or Firm order on one
side and Lead Market Maker, Market Maker, Broker-Dealer, or Firm order
on the other side.
<bullet> A QCC Rebate of $0.14 per contract will be paid on
electronic QCC Orders, as defined in Options 3, Section 12, and Floor
QCC Orders, as defined in Options 8, Section 30(e), when a QCC Order is
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm
order on one side and a Lead Market Maker, Market Maker, Broker-Dealer,
or Firm order on the other side. This rebate will be $0.19 per contract
in the event
[[Page 81152]]
that a member or member organization executes greater than 750,000
qualifying QCC contracts in a given month. This rebate will be $0.27
per contract in the event that a member or member organization
executes: (1) greater than 750,000 qualifying QCC contracts in a given
month, (2) Floor Originated Strategy Executions in excess of 3,500,000
contracts in a given month, and (3) at least 40% of the member or
member organization's QCC executed contracts in that month are
comprised of a Lead Market Maker, Market Maker, Broker-Dealer, or Firm
order on one side and Lead Market Maker, Market Maker, Broker-Dealer,
or Firm order on the other side.
The Exchange believes that lowering the number of qualifying QCC
contracts for purpose of qualifying for these QCC Rebates from
1,000,000 to 750,000 qualifying QCC contracts will incentivize Phlx
members and member organizations to transact a greater amount of QCC
Orders on Phlx.
Options 7, Section 7
Currently, Phlx assesses a Non-Customer routing fee of $0.99 per
contract and a Customer routing fee of $0.23 per contract, in addition
to the actual transaction fee assessed by the away market, for routing
contracts to markets other than The Nasdaq Options Market LLC (``NOM'')
and Nasdaq BX, Inc. (``BX''). Currently, if the away market pays a
rebate, the Exchange assesses a Customer a Routing Fee of $0.13 per
contract for markets other than NOM and BX. Currently, Phlx assesses a
Customer a $0.13 per contract Fixed Fee in addition to the actual
transaction fee assessed when routing to NOM and BX.
At this time, the Exchange proposes to assess a Non-Customer an
increased routing fee to route to any options exchange of $1.20 per
contract. The Exchange also proposes to assess a Customer a Fixed Fee
of $0.23 per contract, in addition to the actual transaction fee
assessed by the away market, for routing contracts to any options
exchange. The Exchange would no longer assess the lower routing of
$0.13 per contract, in addition to the actual transaction fee assessed,
when routing to NOM and BX. The Exchange will continue to assess a
$0.13 per contract routing fee if the away market pays a rebate,
including NOM and BX. The purpose of the proposed routing fees is to
recoup costs incurred by the Exchange when routing orders to other
options exchanges on behalf of options members and member
organizations. In determining its proposed routing fees, the Exchange
took into account transaction fees assessed by other options exchanges,
the Exchange's projected clearing costs, and the projected
administrative, regulatory, and technical costs associated with routing
orders to other options exchanges. The Exchange will continue to use
its affiliated broker-dealer, Nasdaq Execution Services, to route
orders to other options exchanges. Routing services offered by the
Exchange are completely optional and market participants can readily
select between various providers of routing services, including other
exchanges and broker-dealers. Also, the Exchange notes that market
participants may elect to mark their orders as ``Do Not Route'' to
avoid any routing fees.\11\ The Exchange believes that the proposed
Routing Fees would enable the Exchange to recover the costs it incurs
to route orders to away markets after taking into account the other
costs associated with routing orders to other options exchanges. Also,
the Exchange's proposal would uniformly assess the same Customer
routing fees, regardless of the away venue, of $0.23 per contract, in
addition to the actual transaction fee assessed, or $0.13 per contract
if the away market pays a rebate.
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\11\ See Phlx Options 3, Section 7(d).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\12\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees, and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4) and (5).
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The proposed changes to its Pricing Schedule are reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for options transaction
services that constrain its pricing determinations in that market. The
fact that this market is competitive has long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission \14\
(``NetCoalition''), the D.C. Circuit stated, ``[n]o one disputes that
competition for order flow is `fierce.' . . . As the SEC explained,
`[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers' . . . .'' \15\
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\14\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\15\ Id. at 539 (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008)
(SR-NYSEArca-2006-21)).
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options transaction services. The Exchange is only one of seventeen
options exchanges to which market participants may direct their order
flow. Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules. Within the
foregoing context, the proposal represents a reasonable attempt by the
Exchange to attract additional order flow to the Exchange and increase
its market share relative to its competitors.
Options 7, Section 4
The Exchange's proposal to amend a qualifier for several QCC
Rebates to lower the number of qualifying QCC contracts that must be
executed in a given month from 1,000,000 to 750,000 qualifying QCC
contracts is reasonable because lowering the number of qualifying QCC
contracts for purpose of these QCC Rebates from 1,000,000 to 750,000
qualifying QCC contracts will incentivize Phlx members and member
organizations to transact a greater number of QCC Orders on Phlx.
The Exchange's proposal to amend a qualifier for several QCC
Rebates to lower the number of qualifying QCC contracts that must be
executed in a given month from 1,000,000 qualifying QCC contracts to
750,000 qualifying QCC contracts is equitable and not unfairly
discriminatory because all members and member organizations may qualify
for QCC Rebates, provided they transact the requisite volume.
Options 7, Section 7
The Exchange's proposal to assess a Non-Customer an increased
routing fee of $1.20 to route to another options exchange and a
Customer a Fixed Fee of $0.23 per contract, in addition to the actual
transaction fee assessed by the away market, for routing contracts to
any options exchange \16\ is reasonable
[[Page 81153]]
because the proposed Routing Fees would enable the Exchange to recover
the costs it incurs to route orders to away markets after taking into
account the other costs associated with routing orders to other options
exchanges. In determining its proposed routing fees, the Exchange took
into account transaction fees assessed by other options exchanges, the
Exchange's projected clearing costs, and the projected administrative,
regulatory, and technical costs associated with routing orders to other
options exchanges. While the Exchange is no longer offering a
discounted Routing Fee to route to NOM and BX, the Exchange notes that
the Routing Fee will be $0.13 for these markets, similar to other
options markets, if they pay a rebate.\17\ Routing services offered by
the Exchange are completely optional and market participants can
readily select between various providers of routing services, including
other exchanges and broker-dealers. Also, the Exchange notes that
market participants may elect to mark their orders as ``Do Not Route''
to avoid any routing fees.\18\
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\16\ The Exchange would no longer assess the lower routing of
$0.13 per contract, in addition to the actual transaction fee
assessed, when routing to NOM and BX.
\17\ Both NOM and BX offer rebates. See NOM's Pricing Schedule
at Options 7, Section 2 and BX's Pricing Schedule at Options 7,
Section 2.
\18\ See Phlx Options 3, Section 7(d).
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The Exchange's proposal to assess a Non-Customer an increased
routing fee of $1.20 to route to another options exchange and a
Customer a Fixed Fee of $0.23 per contract, in addition to the actual
transaction fee assessed by the away market, for routing contracts to
any options exchange is equitable and not unfairly discriminatory as
all Non-Customers would be assessed a uniform routing fee.
Additionally, Customers will be uniformly assessed the same fee,
regardless of the destination market. Customers will continue to
receive favorable pricing as compared to other market participants
because Customer liquidity enhances market quality on the Exchange by
providing more trading opportunities, which benefits all market
participants. Finally, the Exchange notes that market participants may
elect to market orders as Do Not Route to avoid any routing fees.
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.
Inter-Market Competition
The proposal does not impose an undue burden on inter-market
competition. The Exchange believes its proposal remains competitive
with other options markets and will offer market participants with
another choice of where to transact options. The Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
exchanges. Because competitors are free to modify their own fees in
response, and because market participants may readily adjust their
order routing practices, the Exchange believes that the degree to which
fee changes in this market may impose any burden on competition is
extremely limited.
Intra-Market Competition
The proposed amendments do not impose an undue burden on intra-
market competition.
Options 7, Section 4
The Exchange's proposal to amend a qualifier for several QCC
Rebates to lower the number of qualifying QCC contracts that must be
executed in a given month from 1,000,000 qualifying QCC contracts to
750,000 qualifying QCC contracts does not impose an undue burden on
competition because all members and member organizations may qualify
for QCC Rebates, provided they transact the requisite volume.
Options 7, Section 7
The Exchange's proposal to assess a Non-Customer an increased
routing fee of $1.20 to route to another options exchange and a
Customer a Fixed Fee of $0.23 per contract, in addition to the actual
transaction fee assessed by the away market, for routing contracts to
any options exchange does not impose an undue burden on competition as
all Non-Customers would be assessed a uniform routing fee.
Additionally, Customers will be uniformly assessed the same fee,
regardless of the destination market. Customers will continue to
receive favorable pricing as compared to other market participants
because Customer liquidity enhances market quality on the Exchange by
providing more trading opportunities, which benefits all market
participants. Finally, the Exchange notes that market participants may
elect to market orders as Do Not Route to avoid any routing fees.
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\19\
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\19\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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: (i)
necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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 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#fb898e979ed6989496969e958f88bb889e98d59c948d"><span class="__cf_email__" data-cfemail="493b3c252c642a2624242c273d3a093a2c2a672e263f">[email protected]</span></a>. Please include
file number SR-Phlx-2023-47 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-2023-47. 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
[[Page 81154]]
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-2023-47 and should be submitted on or before December 12, 2023.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25657 Filed 11-20-23; 8:45 am]
BILLING CODE 8011-01-P
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