Notice2024-08805
Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Change To Modify Rule 980NYP
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Published
April 25, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 81 (Thursday, April 25, 2024)</title>
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[Federal Register Volume 89, Number 81 (Thursday, April 25, 2024)]
[Notices]
[Pages 31786-31789]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-08805]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99995; File No. SR-NYSEAMER-2024-26]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Change To Modify Rule
980NYP
April 19, 2024
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on April 12, 2024, NYSE American LLC (``NYSE American'' 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 self-regulatory
organization. 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\ 15 U.S.C. 78a.
\3\ 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 modify Rule 980NYP (Electronic Complex
Order Trading) to specify that a
[[Page 31787]]
Complex Customer Cross Order received during a Complex Order Auction
(``COA'') would result in the early end of the COA. The proposed rule
change is available on the Exchange's website at <a href="http://www.nyse.com">www.nyse.com</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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to modify Rule 980NYP (Electronic Complex
Order Trading) to specify that a Complex Customer Cross (``Complex
C2C'') Order received during a COA would result in the early end of the
COA. This proposed functionality is not new or novel and mirrors a
recently adopted rule requiring that a COA in progress ends early upon
the receipt of a Complex QCC Order in the same complex strategy as the
COA.\4\ As discussed below, the reasons justifying the early end of a
COA upon the receipt of a Complex QCC Order apply equally to the
required early end of a COA upon receipt of a Complex C2C Order in the
same complex strategy.\5\
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\4\ See Rule 980NYP(f)(3)(E). See also Securities Exchange Act
Release No. 99354 (January 17, 2024), 89 FR 4358 (January 232 [sic],
2024) (SR-NYSEAMER-2024-03) (adopting, on an immediately effective
basis, Rule 980NYP(f)(3)(E), which specifies that a COA in progress
ends early upon receipt of a Complex QCC Order in the same complex
strategy). The Exchange notes that the same rule change has been
adopted on its affiliated options exchange, NYSE Arca Inc. See Arca
Rule 6.91-O(f)(3)(E). See Securities Exchange Act Release No. 99597
(February 23, 2024), 89 FR 14906 (February 29, 2024) (SR-NYSEARCA-
2024-17) (adopting, on an immediately effective basis, Arca Rule
6.91P-O (f)(3)(E) which specifies that a COA in progress ends early
upon receipt of a Complex QCC Order in the same complex strategy).
\5\ See, e.g., id., 89 FR, at 4359.
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Rule 980NYP reflects how Electronic Complex Orders (``ECOs'') will
trade on the Exchange \6\ and paragraph (f) to this rule describes the
handling of ECOs submitted to the Complex Order Auction (COA)
process.\7\ When a COA Order initiates a COA, the Exchange disseminates
a Request for Response (``RFR'') to solicit potentially price-improving
ECO interest--which solicited interest includes interest designated to
respond to the COA (i.e., COA GTX Orders) and unrelated price-improving
ECO interest (resting and newly arriving) that arrives during the
Response Time Interval (each an ``RFR Response'') (collectively, the
``auction interest'').\8\ The COA lasts for the duration of the
Response Time Interval unless, during the COA, the Exchange receives
certain options trading interest that requires the COA to conclude
early.\9\ When the COA concludes, the COA Order executes first with
price-improving ECO interest, next with any contra-side interest,
including the leg markets (if permissible),\10\ and any remaining
balance (that is not cancelled) is ranked in the Consolidated Book (the
``Consolidated Book'' or ``Book'').\11\ Once the COA Order executes to
the extent possible--whether with the best-priced Complex Orders or the
best-priced interest in the leg markets--and is placed in the Book, the
Exchange will update its complex order book and, if applicable, the
Exchange BBO (as a result of any executions of the COA Order with the
leg markets).
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\6\ See generally Rule 980NYP (Electronic Complex Order
Trading). Unless otherwise specified, all capitalized terms used
herein have the same meaning as is set forth in Rule 980NYP.
\7\ See Rules 980NYP(f) (Execution of ECOs During a COA), (f)(1)
(Initiation of a COA), (f)(2) (Pricing of a COA). See also Rule
980NYP(a)(3)(A) (defining a ``COA Order'' as an ECO designated as
eligible to initiate a COA).
\8\ See Rules 980NYP(a)(3)(B) (defining, and detailing the
information included in, each RFR); (a)(3)(C) (defining each ``RFR
Response'' as, among other things, ``any ECO'' received during the
Response Time Interval that is in the same complex strategy as, and
is marketable against, the COA Order); and (a)(3)(D) (defining the
Response Time Interval as the period during which RFR Responses may
be entered, which period ``will not be less than 100 milliseconds
and will not exceed one (1) second,'' as determined by the Exchange
and announced by Trader Update). See Rule 980NYP(b)(2)(C) (defining
a ``COA GTX Order,'' including that such order is submitted in
response to an RFR announcing a COA and will trade with the COA
Order to the extent possible and then cancel).
\9\ See Rule 980NYP(f)(3)(A)-(E) (setting forth the
circumstances under which a COA will conclude before the end of the
Response Time Interval, including, as discussed infra, upon receipt
of a Complex QCC Order in the same complex strategy as the COA).
\10\ The Exchange notes that there are certain limitations to
how an ECO, including a COA Order post-COA, may interact with the
leg markets. See, e.g., Rule 980NYP(e)(1)(A) (providing, in relevant
part, that the leg markets will trade first with an ECO, but only if
the legs can execute with the ECO ``in full or in a permissible
ratio,'' and, once the leg markets trade with the ECO to the extent
possible, such ECO will trade with same-priced ECOs resting in the
Book). See also Rule 980NYP(e)(1)(C)-(D) (describing ECOs that are
not permitted to trade with the leg markets).
\11\ See Rule 980NYP(f)(4)(A)-(C) (Allocation of COA Orders)
(providing, in relevant part, that when a COA ends early or at the
end of the Response Time Interval, a COA Order trades first with
price-improving interest, next ``with any contra-side interest,
including the leg markets, unless the COA is designated as a Complex
Only Order'' and any remaining portion is ranked in the Consolidated
Book and the COA Order is processed as an ECO pursuant to Rule
980NYP(e) (Execution of ECOs During Core Trading Hours). See Rule
900.2NY (defining Consolidated Book as ``the Exchange's electronic
book of orders and quotes.'').
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The Exchange proposes to modify Rule 980NYP(f)(3)(E) to add an
additional early end scenario to specify that a COA in progress will
end early any time there is a Complex C2C Order submitted in the same
complex strategy as the COA Order.\12\ By its terms, a Complex C2C
Order ``that is not rejected'' by the Exchange, ``will immediately
trade in full at its limit price.'' \13\
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\12\ See proposed Rule 980NYP(f)(3)(E).
\13\ See Rule 900.3NYP(g)(2)(A) (providing that a Customer Cross
(``C2C'') Order, including a Complex C2C Order, ``that is not
rejected per paragraph (g)(2)(B) [Execution of C2C Orders] or (C)
[Execution of Complex C2C Orders] below will immediately trade in
full at its limit price'').
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To avoid rejection, a Complex C2C Order must satisfy certain price
validations, including that each option leg may not be priced worse
than the Exchange BBO; and, that the transaction price must be equal to
or better than the best-priced Complex Orders, unless the best-priced
Complex Orders contains displayed Customer interest, in which case the
transaction price must improve such interest.\14\ In addition, the
price of a Complex C2C Order must be priced at or between the DBBO;
\15\ provided, however, that the Complex C2C Order may not equal the
DBBO if the DBBO is calculated using the Exchange BBO and the Exchange
BBO for any component of the complex strategy on either side of the
market includes displayed Customer
[[Page 31788]]
interest.\16\ Specifically, if the DBB (DBO) includes a displayed
Customer interest on the Exchange, the transaction price must improve
the DBB (DBO) by at least one cent ($0.01).\17\
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\14\ See Rule 900.3NYP(g)(2)(C).
\15\ The DBBO establishes a derived (theoretical) bid or offer
for a particular complex strategy. See Rule 980NYP(a)(5) (defining
the DBBO and providing that the bid (offer) price used to calculate
the DBBO on each leg will be the Exchange BB (BO) (if available),
bound by the maximum allowable Away Market Deviation). The Away
Market Deviation, as defined in Rule 980NYP(a)(1), ensures that an
ECO does not execute too far away from the prevailing market. Rule
980NYP(a)(5) also provides for the establishment of the DBBO in the
absence of an Exchange BB (BO), or ABB (ABO), or both. A Complex C2C
Order will not be processed if there is no DBBO for any leg of the
strategy either because there is no Exchange BBO or Away BBO for a
leg of the complex strategy, or the best bid and offer prices for a
leg are locked or crossed, per Rule 980NYP(a)(5)(B) or (a)(5)(C).
See Rule 900.3NYP(g)(2)(C).
\16\ See Rule 900.3NYP(g)(2)(C) & (g)(2)(C)(i).
\17\ See id.
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As noted above, until a COA concludes, the Book is not updated to
reflect any COA Order executions (with price-improving auction interest
or with resting ECO or leg market interest) or any balance of the COA
Order ranking in the Book. Thus, to allow the later-arriving Complex
C2C Order to be evaluated based on the most up-to-date Book, the
Exchange proposes to end a COA upon the arrival of a Complex C2C Order
in the same complex strategy. This proposed early termination would
allow the Exchange to incorporate executions from the COA, or any
remaining balance of the COA Order, to conduct the requisite price
validations per Rule 900.3NYP(g)(2)(C) for the Complex C2C Order--
including based on the Exchange BBO, the DBBO, and best-priced Complex
Orders on the Exchange following the COA Order executions and ranking.
Like current Rule 980NYP(3)(f)(E), the proposed rule change would
be consistent with current Rule 980NYP(f)(3)(A)-(D), which describes
four circumstances that cause the early end of a COA to ensure that
later-arriving interest does not trade ahead of a COA Order and to
ensure that the Book is updated to reflect executions resulting from
the COA. The Exchange believes that the proposed rule change achieves
this same objective. As with the existing early end scenarios, the
proposed early end of a COA does not prevent the COA Order from trading
with any interest, including price-improving interest, that arrived
prior to the early termination (i.e., because of a Complex C2C Order in
the same complex strategy as the COA). In addition, any portion of the
COA Order that does not trade in the COA is placed on the Consolidated
Book where it continues to have opportunities to trade.\18\
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\18\ See note 11, supra (describing that any remaining portion
of a COA Order following the COA will be placed on the Consolidated
Book and will be processed as an ECO).
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\19\ in general, and furthers the objectives of Section
6(b)(5),\20\ in particular, because it is 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 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.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed amendment to Rule
980NYP(f)(3) regarding the additional circumstance that would cause a
COA to end early would promote just and equitable principles of trade
because it would ensure that the COA Order is executed to the extent
possible and, if applicable, is ranked in the Consolidated Book before
the Exchange evaluates the later-arriving Complex C2C Order. As noted
above, until the COA concludes, the Book is not updated to reflect any
COA Order executions (with price-improving auction interest or with
resting ECO or leg market interest) or any balance of the COA Order
ranking in the Book. This proposed early termination would then allow
the Exchange to incorporate executions from the COA, or any remaining
balance of the COA Order, to conduct the requisite price validations
for the Complex C2C Order (per Rule 900.3NYP(g)(2)(C)) based on the
most up-to-date Book (i.e., based on the DBBO, Exchange BBO, and best-
priced Complex Orders on the Exchange following the COA).
As noted herein, the proposed change is being made for the same
reasons that a COA in progress would end early upon the receipt of
another Cross Order--a Complex QCC Order, per Rule 980NYP(f)(3)(E)--and
therefore raises no new or novel issues and would ensure internal
consistency of Exchange rules. In addition, Rule 908NYP(f)(A)-(D)
describes the other four circumstances under which a COA must end early
to ensure that later-arriving interest does not trade ahead of a COA
Order and to ensure that the Book is updated to reflect executions
resulting from the COA. The Exchange believes that the proposed rule
change achieves this same objective. As with each of the early end
scenarios, the proposed early end of a COA does not prevent the COA
Order from trading with any interest, including price-improving
interest, that arrived prior to the early termination (i.e., because of
a Complex C2C Order in the same complex strategy as the COA). As such,
the proposed change would benefit investors because it would ensure the
timely executions of COA Orders (at potentially improved prices) and
would also allow a timely execution of the Complex C2C Orders in the
same complex strategy as the COA Order. In addition, the proposal would
ensure that the prices used to validate a Complex C2C Order would
incorporate executions from the COA, or any remaining balance of the
COA Order.\21\
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\21\ As noted, any portion of the COA Order that does not trade
in the COA is placed in the Consolidated Book where it continues to
have opportunities to trade. See, e.g., note 12 [sic], supra.
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For the same reasons articulated when the Exchange adopted Rule
980NYP(f)(3)(E) (early end of a COA upon receipt of a Complex QCC
Order), the Exchange believes that its proposed approach would provide
the best protection to investors because ending a COA upon receipt of a
C2C Order would ensure that the COA Order executes to the extent
possible and that the Exchange relies on the most-up-to-date Book
(following executions in the COA) to validate the price of the Complex
QCC [sic] Order. Thus, the Exchange believes the proposed rule change
would promote just and equitable principles of trade because it would
help preserve--and maintain investor's confidence in--the integrity of
the Exchange's local market.
Finally, the Exchange believes that modifying the rule as proposed
would add clarity and transparency to Rule 980NYP regarding the
handling of COA Orders.
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 intra-market competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
rule change would apply in the same manner to all similarly-situated
market participants that opt to utilize the COA process, the use of
which is voluntary and, as such, market participants are not required
to avail themselves of this process.
The Exchange does not believe that its proposed rule change will
impose any burden on inter-market competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed change is designed to ensure that both a COA Order and a C2C
Order receive timely executions based on current market conditions. To
the extent that other options exchanges offer complex order auctions
and Complex C2C Orders, such exchanges are free to adopt (if they have
not already done so) the early termination provision proposed herein.
[[Page 31789]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) \23\ thereunder, the Exchange has designated this proposal as
one that effects a change that: (i) does not significantly affect the
protection of investors or the public interest; (ii) does not impose
any significant burden on competition; and (iii) by its terms, does not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest.\24\
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(6).
\24\ In addition, Rule 19b-4(f)(6) requires a self-regulatory
organization to give the Commission written notice of its intent to
file 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 pursuant to Rule 19b-4(f)(6) under the
Act normally does not become operative for 30 days after the date of
its filing. However, Rule 19b-4(f)(6)(iii) \25\ 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. The Exchange states
that waiver of the operative delay would allow the Exchange to
immediately implement the Complex C2C functionality, including the
associated early end scenarios in proposed Exchange Rule
980NYP(f)(3)(E). The Commission finds that waiving the operative delay
is consistent with the protection of investors and the public interest
because it will allow a COA Order in a complex strategy to execute to
the extent possible after the Exchange receives a Complex C2C Order in
the same strategy while allowing the Exchange to conduct the required
price validations for the Complex C2C Order \26\ based on a Book that
has been updated to reflect any executions of the COA Order, thereby
ensuring that the required price validations for the Complex C2C Order
have accounted for all trading interest on the Exchange.\27\ In
addition, any portion of the COA Order that does not execute during the
COA may be placed in the Consolidated Book, where it will continue to
have opportunities to trade. For these reasons, the Commission
designates the proposal operative upon filing.\28\
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\25\ 17 CFR 240.19b-4(f)(6)(iii).
\26\ See Exchange Rule 900.3NYP(g)(2)(C).
\27\ The Exchange's proposal to end a COA early when it receives
a Complex C2C Order for the same strategy as the COA Order is
consistent with current Exchange Rule 980NYP(f)(3)(E). Specifically,
as discussed above, Exchange Rule 980NYP(f)(3)(E) currently states
that a COA will end early if the Exchange receives a Complex QCC
Order in the same complex strategy as the COA order The Exchange
proposes to amend Exchange Rule 980NYP(f)(3)(E) to provide that a
COA also will end early if the Exchange receives a Complex C2C Order
in the same complex strategy as the COA Order. The Exchange states
that the purpose of the early termination is the same for both
Complex QCC and Complex C2C Orders--to allow the Exchange to conduct
the required price validations for a Complex QCC Order or Complex
C2C Order based on a Book that has been updated to include any
executions from the COA for the same complex strategy. The Exchange
states that ending the COA upon receipt of a Complex C2C Order in
the same strategy as the COA Order protects investors by ensuring
that the COA Order executes to the extent possible and that the
Exchange relies on the most-up-to-date Book (following executions in
the COA) to validate the price of the Complex C2C Order, which the
Exchange believes will help to preserve the integrity of the
Exchange's local market.
\28\ For purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 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 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#4f3d3a232a622c2022222a213b3c0f3c2a2c61282039"><span class="__cf_email__" data-cfemail="592b2c353c743a3634343c372d2a192a3c3a773e362f">[email protected]</span></a>. Please include
file number SR-NYSEAMER-2024-26 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-NYSEAMER-2024-26. 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-NYSEAMER-2024-26 and should
be submitted on or before May 16, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-08805 Filed 4-24-24; 8:45 am]
BILLING CODE 8011-01-P
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