Notice2024-03540
Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rule 1308 To Extend the Temporary Remote Inspection Relief for Members Through June 30, 2024
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Published
February 22, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 36 (Thursday, February 22, 2024)</title>
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[Federal Register Volume 89, Number 36 (Thursday, February 22, 2024)]
[Notices]
[Pages 13386-13389]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-03540]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99548; File No. SR-MIAX-2024-10]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Amend Exchange Rule 1308 To Extend the Temporary Remote
Inspection Relief for Members Through June 30, 2024
February 15, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on February 6, 2024, Miami International
Securities Exchange, LLC (``MIAX'' or ``Exchange'') filed with the U.S.
Securities and Exchange Commission (``Commission'' or ``SEC'') a
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 is filing a proposal to amend Exchange Rule 1308,
Supervision of Accounts, to extend the temporary remote inspection
relief for Members \3\ through June 30, 2024.
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\3\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
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The text of the proposed rule change is available on the Exchange's
website at <a href="https://www.miaxglobal.com/markets/us-options/miax-options/rule-filings">https://www.miaxglobal.com/markets/us-options/miax-options/rule-filings</a>, at MIAX's principal office, 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
The Exchange proposes to amend Exchange Rule 1308, Supervision of
Accounts, to extend the temporary remote inspection relief for Members
through June 30, 2024. The Exchange makes this proposal to provide its
Members continuity related to conducting inspections as part of
satisfying the obligations of Exchange Rule 1308, Supervision of
Accounts, at offices and locations requiring inspection during the
first half of calendar year 2024.\4\ The Exchange believes that the
proposed extension is necessary to provide firms the time to prepare
for the implementation of the FINRA pilot program on remote inspections
(``FINRA Pilot Program''). The U.S. Securities and Exchange Commission
(``Commission'' or ``SEC'') approved the FINRA Pilot Program on
November 17, 2023,\5\ and on January 23, 2024, FINRA announced the
implementation date of July 1, 2024.\6\ The Exchange plans to make a
rule filing to incorporate the FINRA Pilot Program into Exchange Rule
1308, Supervision of Accounts, prior to the FINRA Pilot Program
implementation date.
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\4\ Commission staff and FINRA have stated in guidance that
inspections must include a physical, on-site review component. See
SEC National Examination Risk Alert, Volume I, Issue 2 (November 30,
2011) and FINRA Regulatory Notice 11-54 (November 2011) (joint SEC
and FINRA guidance stating, a ``broker-dealer must conduct onsite
inspections of each of its office locations; [OSJs] and non-OSJ
branches that supervise non-branch locations at least annually, all
non-supervising branch offices at least every three years; and non-
branch offices periodically.'') (footnote defining an OSJ omitted).
See also SEC Division of Market Regulation, Staff Legal Bulletin No.
17: Remote Office Supervision (March 19, 2004) (stating, in part,
that broker-dealers that conduct business through geographically
dispersed offices have not adequately discharged their supervisory
obligations where there are no on-site routine or ``for cause''
inspections of those offices).
\5\ See Securities Exchange Act Release Nos. 97398 (April 28,
2023), 88 FR 28620 (May 4, 2023) (``FINRA Pilot Program Proposal'');
98982 (November 17, 2023), 88 FR 82464 (November 24, 2023) (``FINRA
Pilot Program Approval Order'') (SR-FINRA-2023-007).
\6\ See FINRA Regulatory Notice 24-02 (``FINRA Pilot Program
Notice''), <a href="https://www.finra.org/rules-guidance/notices/24-02">https://www.finra.org/rules-guidance/notices/24-02</a>. See
supra note 5.
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The COVID-19 pandemic has caused a host of operational disruptions
to the securities industry and impacted Members, regulators, investors,
and other stakeholders. In response to the pandemic, the Exchange began
providing temporary relief to Members from specified Exchange Rules and
requirements, including Exchange Rule 1308(d), Annual Branch Office
Inspections, for calendar years 2020, 2021, 2022, and 2023, subject to
specified conditions,\7\ due to the logistical challenges of going on-
site while public health and safety concerns related to COVID-19
persisted. The temporary relief provided in Exchange Rule 1308(d),
Annual Branch Office Inspection, lapsed on December 31, 2023.
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\7\ See Securities Exchange Act Release Nos. 90937 (January 15,
2021), 86 FR 6944 (January 25, 2021) (SR-MIAX-2021-01) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Exchange Rule 1308, Supervision of Accounts, To Adopt
Temporary Rules To Extend the Time by Which Members Must Complete
Their Branch Office Inspections for the Calendar Year 2020 and To
Provide Temporary Remote Inspection Relief for Their Office
Inspections for Calendar Years 2020 and 2021); 94251 (February 15,
2022), 87 FR 9764 (February 22, 2022) (SR-MIAX-2022-09) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change by
Miami International Securities Exchange, LLC To Amend Exchange Rule
1308, Supervision of Accounts); and 96867 (February 9, 2023), 88 FR
9919 (February 15, 2023) (SR-MIAX-2022-04) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 1308, Supervision of Accounts).
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The pandemic accelerated the industry's adoption of a broad remote
work environment and the Exchange recognizes that the pandemic has
profoundly changed attitudes on where work can occur. As a result of
this change many firms have adopted, in varying scale, hybrid work
models involving personnel who are working at least part time from
alternative work locations (e.g., private residences). As part of an
effort to modernize its rules to reflect evolving technologies and
business models, in April 2023, FINRA filed the FINRA Pilot Program
with the Commission.\8\ The FINRA Pilot Program provides for a
voluntary, three-year remote inspection pilot program to allow broker-
dealers to elect to fulfill their obligation under FINRA Rule 3110(c),
Internal Inspections, by conducting inspections of some or all branch
offices and non-branch locations remotely without an on-site visit to
such office or location, subject to specified terms. On November 17,
2023, the Commission approved the FINRA Pilot Program.\9\ The FINRA
Pilot Program is designed to allow both FINRA and the firms that are
planning to participate in the FINRA Pilot Program additional time to
develop the technology and processes that will be essential to
operationalize compliance with the FINRA Pilot Program's requirements.
For example, firms will need to conduct an eligibility review, and
conduct and
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document a risk assessment for each office and location that they elect
to inspect remotely, and implement technology to collect and report the
required data and information to FINRA. Firms that do not elect to
participate or would be excluded from participating in the FINRA Pilot
Program will also be impacted and would need additional time to staff,
schedule, and resume on-site inspections of offices or locations \10\
within the context of some lingering health concerns and fluid work
locations.\11\
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\8\ See supra note 5.
\9\ Id.
\10\ See supra note 4.
\11\ While the World Health Organization declared an end to
COVID-19 as a public health emergency, COVID-19 remains an ongoing
public health problem. See WHO Director-General, Statement on the
fifteenth meeting of the IHR (2005) Emergency Committee on the
COVID-19 pandemic (May 5, 2023) (stating, in part, that the
``[w]hile the global risk assessment remains high, there is evidence
of reducing risks to human health. . .''), available at <a href="https://www.who.int/news/item/05-05-2023-statement-on-the-fifteenth-meeting-of-the-international-health-regulations-">https://www.who.int/news/item/05-05-2023-statement-on-the-fifteenth-meeting-of-the-international-health-regulations-</a>(2005)-emergency-committee-
regarding-the-coronavirus-disease-(covid-19)-
pandemic?_sm_au_=iVVWFFPz51g33QZrctQ2NK76F2NJ1 (last visited January
10, 2024); see also Benjamin J. Silk, et al., COVID-19 Surveillance
After Expiration of the Public Health Emergency Declaration--United
States, May 11, 2023 (stating, among other things, that ``[a]lthough
COVID-19 no longer poses the societal emergency that it did when it
first emerged in late 2019, COVID-19 remains an ongoing public
health challenge. By April 26, 2023, more than 104 million U.S.
COVID-19 cases, 6 million related hospitalizations, and 1.1 million
COVID-19- associated deaths were reported to CDC[.]''), 72 MMWR Morb
Mortal Wkly Rep, 523-528 (2023), <a href="https://www.cdc.gov/mmwr/volumes/72/wr/pdfs/mm7219e1-H.pdf">https://www.cdc.gov/mmwr/volumes/72/wr/pdfs/mm7219e1-H.pdf</a> (last visited January 10, 2024). Recent
data on hospitalizations from the CDC indicate that the number of
hospitalizations is up 20.4% in the most recent week (as of December
24 to December 30, 2023). See Centers for Disease Control and
Prevents (``CDC''), COVID Data Tracker, Data Update for the United
States, <a href="https://covid.cdc.gov/covid-data-tracker/#datatracker-home">https://covid.cdc.gov/covid-data-tracker/#datatracker-home</a>
(last visited January 10, 2024).
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In sum, as calendar year 2024 begins, the proposed extension of
Exchange Rule 1308(d) would provide firms continuity in meeting their
inspection obligations and would allow FINRA time to operationalize the
FINRA Pilot Program. Relatedly, the proposed extension would give time
for: (1) firms that are planning to participate in the FINRA Pilot
Program to implement the processes needed to comply with the proposed
terms therein; and (2) firms that are not planning to participate or
are excluded from participating in the FINRA Pilot Program, to prepare
to resume conducting on-site inspections of their offices and locations
as part of satisfying the obligations of Exchange Rule 1308(d).
The Exchange is not proposing to amend the other conditions of
Exchange Rule 1308. The current conditions of the rule for firms that
elect to conduct remote inspections would remain unchanged: such firms
must amend or supplement their written supervisory procedures for
remote inspections, use remote inspections as part of an effective
supervisory system, and maintain the required documentation. The
Exchange continues to believe this temporary remote inspection option
is a reasonable alternative for firms to fulfill their Exchange Rule
1308 obligations under the current circumstances described above. This
proposed extension is designed to maintain the investor protection
objectives of the inspection requirements under these circumstances. As
part of those objectives, firms should consider whether, under their
particular operating conditions, continued reliance on Exchange Rule
1308(d) to conduct remote inspections would be reasonable under the
circumstances. For example, firms with offices that are open to the
public or that are otherwise doing business as usual should consider
whether some in-person inspections would be feasible and add value to
the firms' supervisory program. The Exchange emphasizes that the
inspection requirement is one aspect of a firm's overall supervisory
system, and that the inspection, whether done remotely under Exchange
Rule 1308 or in accordance with the proposed FINRA Pilot Program, or
on-site, would be held to the existing standards of review under
Exchange Rule 1308.\12\
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\12\ Those standards provide, in part, that based on the factors
set forth under that supplementary material, members ``may need to
provide for more frequent review of certain locations.''
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The Exchange notes that the proposed rule change is substantively
identical to the proposed rule changes recently filed the Investors
Exchange LLC (``IEX'').\13\ The Exchange notes that MIAX Chapter XIII
is incorporated by reference into the rulebooks of the Exchange's
affiliates, MIAX PEARL, LLC (``MIAX Pearl'') and MIAX Emerald, LLC
(``MIAX Emerald''). As such, the amendments to MIAX Chapter XIII
proposed herein will also apply to MIAX Pearl and MIAX Emerald Chapters
XIII.
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\13\ See Securities Exchange Act Release No. 99383 (Jan.17,
2024), 89 FR 4355 (Jan. 23, 2024) (SR-IEX-2024-02).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\14\ Specifically, the Exchange believes that the proposed rule
change is consistent with the Section 6(b)(5) \15\ requirements that
the rules of an exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, 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. Additionally, the Exchange
believes that the proposed rule change is consistent with the Section
6(b)(5) \16\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers. The Exchange's rule proposal is intended to harmonize the
Exchange's supervision rules, specifically with respect to the
requirements for inspections of Members' branch offices and other
locations, with those of FINRA, on which they are based. Consequently,
the proposed change will conform the Exchange's rules to changes made
to corresponding FINRA rules, thus promoting application of consistent
regulatory standards with respect to rules that FINRA enforces pursuant
to its regulatory services agreement with the Exchange. The proposed
rule change would also avoid a potential lapse in the temporary relief
while FINRA prepares for the implementation of its recently approved
FINRA Pilot Program, and allow firms time to adapt to the pilot
program, and prepare for conducting on-site inspections, as applicable,
while continuing to serve and promote the protection of investors and
the public interest.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
\16\ Id.
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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
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
rule change is not designed to address any competitive issue but to
align the Exchange's rules with those of FINRA, which will assist FINRA
in its oversight work done pursuant to a regulatory services agreement
with the Exchange. The proposed rule change will also provide for
consistent application of the Exchange's supervision rules with those
of FINRA, on which they are based. Consequently,
[[Page 13388]]
the Exchange does not believe that the proposed change implicates
competition at all.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has designated this rule filing as non-controversial
under Section 19(b)(3)(A) of the Act \17\ and Rule 19b-4(f)(6) \18\
thereunder. Because the 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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)
thereunder. In addition, the Exchange provided the Commission with
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.\19\
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6).
\19\ 17 CFR 240.19b-4(f)(6)(iii).
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The Exchange believes that this filing is non-controversial because
it raises no novel issues and is consistent with FINRA rules previously
approved by or filed with the Commission. In particular, the purpose of
the proposed rule change is to harmonize with and conform to FINRA
rules. The Exchange believes that the proposal promotes the protection
of investors as it will harmonize the Exchange's supervision rules with
those of FINRA, which will simplify the oversight process conducted by
FINRA pursuant to a regulatory services agreement with the Exchange.
Moreover, the Exchange does not believe that the proposed rule change
implicates competition at all because the proposed change aligns the
Exchange's rules with those of FINRA, which will assist it in its
oversight work done pursuant to such regulatory services agreement. The
proposed rule change is based on the recent changes by IEX,\20\ and
therefore, does not present any new or novel issues not already
considered by the Commission.
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\20\ See supra note 13.
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A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\22\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and public interest. The Exchange has asked the
Commission to waive the 30-day operative delay to permit the Exchange
to harmonize its rules with FINRA, as described herein, upon
effectiveness of the proposed rule filing.
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\21\ 17 CFR 240.19b-4(f)(6).
\22\ 17 CFR 240.19b-4(f)(6)(iii).
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Since the proposed rule change would address Members' ability to
conduct remote inspections for any inspections to be conducted through
June 30, 2024, waiving the 30-day operative delay would help ensure
that Members could plan their 2024 inspection program and conduct
remote inspections under a harmonized rule set, while at the same time
helping ensure that its Members continue to perform their supervisory
obligations. The Exchange stated that the proposed rule change does not
present any new or novel issues because the Exchange is harmonizing its
supervision rules with those of FINRA, on which they are based. The
Exchange further stated that the proposed rule change would provide
only temporary relief during the period in which the Exchange
harmonizes its supervision rules with FINRA. For these reasons, the
Commission believes that waiver of the 30-day operative delay for this
proposed rule change is consistent with the protection of investors and
the public interest. Accordingly, the Commission waives the 30-day
operative delay and designates the proposed rule change operative upon
filing.\23\
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\23\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change'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 under
Section 19(b)(2)(B) \24\ of the Act to determine whether the proposed
rule should be approved or disapproved.
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\24\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="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#aad8dfc6cf87c9c5c7c7cfc4ded9ead9cfc984cdc5dc"><span class="__cf_email__" data-cfemail="2f5d5a434a024c4042424a415b5c6f5c4a4c01484059">[email protected]</span></a>. Please include
file number SR-MIAX-2024-10 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-MIAX-2024-10. 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-MIAX-2024-10 and should be
submitted on or before March 14, 2024.
[[Page 13389]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-03540 Filed 2-21-24; 8:45 am]
BILLING CODE 8011-01-P
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