Notice2024-10943
Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the NYSE American Options Fee Schedule
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Published
May 20, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 98 (Monday, May 20, 2024)</title>
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[Federal Register Volume 89, Number 98 (Monday, May 20, 2024)]
[Notices]
[Pages 43926-43929]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-10943]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100126; File No. SR-NYSEAMER-2024-29]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the NYSE American Options Fee Schedule
May 14, 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 May 1, 2024, NYSE American LLC (``NYSE American'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``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 amend the NYSE American Options Fee
Schedule (``Fee Schedule'') regarding Initiating Participant Rebates
for Single-Leg Customer Best Execution Auctions. The Exchange proposes
to implement the fee change effective May 1, 2024. 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 purpose of this filing is to modify certain Initiating
Participant Rebates offered for initiating Single-Leg Customer Best
Execution Auctions (each a ``CUBE Auction'').\4\
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\4\ See generally Rule 971.1NYP (describing the CUBE Auction,
which is an electronic crossing mechanism for single-leg orders with
a price improvement auction on the Exchange).
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Background
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient.
There are currently 17 registered options exchanges competing for
order flow. Based on publicly-available information, and excluding
index-based options, no single exchange has more than 16% of the market
share of executed volume of multiply-listed equity and ETF options
trades.\5\ Therefore, currently no exchange possesses significant
pricing power in the execution of multiply-listed equity & ETF options
order flow. More specifically, in March of 2024, the Exchange had less
than 9% market share of executed volume of multiply-listed equity & ETF
options trades.\6\ Thus, in such a low-concentrated and highly
competitive market, no single options exchange possesses significant
pricing power in the execution of option order flow.
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\5\ The OCC publishes options and futures volume in a variety of
formats, including daily and monthly volume by exchange, available
here: <a href="https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics">https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics</a>.
\6\ Based on a compilation of OCC data for monthly volume of
equity-based options and monthly volume of equity-based ETF options,
see id., the Exchanges market share in equity-based options
increased from 7.55% for the month of March 2023 to 8.36% for the
month of March 2024.
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow, or discontinue use of certain categories of products,
in response to fee changes. Accordingly, competitive forces constrain
the Exchange's transaction fees (and credits), and market participants
can readily trade on competing venues if they deem pricing levels at
those other venues to be more favorable. In response to the competitive
environment, the Exchange offers specific rates and credits in its Fees
Schedule, as do other competing options exchanges, which the Exchange
believes provide incentive to ATP Holders to increase order flow of
certain qualifying orders.
Proposal
In response to these competitive forces, the Exchange has
established various pricing incentives designed to encourage increased
Electronic volume executed on the Exchange, including (but not limited
to) the American Customer Engagement (``ACE'') Program and the
Professional Volume Incentive program.\7\ To encourage participation in
the ACE Program and CUBE Auctions, the Exchange offers an ACE
Initiating Participant Rebate to ACE Program participants that initiate
CUBE Auctions.\8\ The Exchange also offers an alternative to the ACE
Initiating Participant Rebate--the Alternative Initiating Participant
Rebate--that enables non-ACE Program participants to qualify for this
Rebate on certain initiating CUBE Orders provided they meet certain
Professional volume requirements and increase their initiating CUBE
volume.\9\
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\7\ See Fee Schedule Sections I.E. (American Customer Engagement
(``ACE'') Program); and I.H. (Professional Volume Incentive).
\8\ See Fee Schedule Section I.G (CUBE Auction Fees & Credits,
Single-Leg CUBE Auction).
\9\ Id., note 2. The Alternative Initiating Participant Rebate
is available to ATP Holders that execute a minimum of 5,000
contracts ADV in the ``Professional'' range and increase their
Initiating CUBE Orders by the greater of 40% over their August 2019
volume or 15,000 contracts ADV. Id. Section I.H. of the Fee Schedule
defines volume in the Professional range as Electronic volume of
Professional Customers, Broker Dealers, Non-NYSE American Options
Market Makers, and Firms.
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The ACE Initiating Participant Rebate (the ``ACE Rebate'') and the
Alternative Initiating Participant Rebate are applied to each of the
first 5,000 contracts per leg of a CUBE Order executed in a CUBE
Auction (each a ``qualifying contract'').\10\ Currently, the ACE Rebate
is ($0.12) per qualifying contract for ATP Holders that qualify for any
of the five ACE Program Tiers. The Alternative Initiating Participant
Rebate is ($0.10) per qualifying contract. These rebates are in
addition to any additional credits offered for participation in CUBE
Auctions and an ATP Holder that
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qualifies for both rebates would be entitled only to the greater of the
two rebates.\11\
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\10\ Id.
\11\ Id.
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The Exchange proposes to modify the ACE Initiating Participant
Credit such that ATP Holders who qualify for the ACE Program are
eligible to receive a different ACE Rebate amount depending on which
ACE Tier that ATP Holder achieves. Specifically, ACE Program
participants that qualify for ACE Tiers 1, 2, or 3 would be eligible
for a ($0.05) per contract rebate for qualify contracts.\12\ The ACE
Program participants that qualify for ACE Tiers 4 or 5 (the highest ACE
Tiers) would continue to be eligible for the ($0.12) per contract
rebate for qualifying contracts.\13\ The proposed change is design
[sic] to incent ATP Holders that currently qualify for the ACE Rebates
to increase their Electronic volume on the Exchange (i.e., and to
qualify for ACE Tier 4 or 5. For ACE Program participants that do not
achieve ACE Tiers 4 or 5, the Exchange believes that the ($0.05) per
contract ACE Rebate would continue to incent ACE Program participants
to submit initiating CUBE Orders. The Exchange notes that the ACE
Program Tiers are competitively achievable for all ATP Holders that
submit significant Customer order flow, in that all firms that submit
the requisite significant Customer order flow could compete to meet the
tiers.
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\12\ See proposed Fee Schedule Section I.G (CUBE Auction Fees &
Credits, Single-Leg CUBE Auction), including updates to note 2.
\13\ See proposed Fee Schedule Section I.G (CUBE Auction Fees &
Credits, Single-Leg CUBE Auction), including updates to note 2
(specifying that the ACE Rebate amount is tied to the ACE Program
Tier achieved).
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The Exchange also proposes to eliminate the Alternative Initiating
Participant Rebate as it did not sufficiently encourage non-ACE Program
participants to submit initiating CUBE Orders.\14\ Moreover, the
Exchange believes that the removal of stale and outdated volume
benchmarks (i.e., August 2019) would allow the Exchange to streamline
the Fee Schedule.
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\14\ See proposed Fee Schedule Section I.G (CUBE Auction Fees &
Credits, Single-Leg CUBE Auction), including updates to note 2
(removing reference to the Alternative Initiating Participant Rebate
and associated volume requirements).
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To the extent that the proposed modification encourages the
submission of CUBE Orders, all market participants stand to benefit
from increased liquidity and opportunities for price improvement.
Further, because the ACE Rebate is tied to Customer order flow--in
addition to initiating CUBE volume, the Exchange believes all market
participants stand to benefit from increased order flow, which promotes
market depth, facilitates tighter spreads and enhances price discovery.
The increased liquidity on the Exchange would result in enhanced market
quality for all participants.
The Exchange notes the fee changes proposed herein are consistent
with similar fees/credits offered on other options exchanges.\15\
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\15\ See, e.g., Miami Options Exchange LLC (``MIAX'') Fee
Schedule, 1.a.iii. (Transaction Fees, Multiply-Listed Options
Exchange Fees, Priority Customer Rebate Program) (providing a
($0.10) per contract credit for PRIME Agency Orders--the MIAX
equivalent to initiating CUBE Orders and an additional ($0.02) per
contract credit for Priority Customer Agency Orders submitted to
PRIME), which amounts are tied to meeting certain Priority Customer
volume thresholds; and Cboe Exchange Inc. (``Cboe'') Fee Schedule,
Volume Incentive Program (providing Trading Permit Holders
(``TPH'')--their ATP Holder equivalent per contract credits for
Public Customer orders transmitted by TPHs and executed
electronically on the Exchange, provided the TPH meets certain
volume thresholds in a month).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\16\ in general, and furthers the
objectives of Sections 6(b)(4) and (5) of the Act,\17\ in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities and does not unfairly discriminate between
customers, issuers, brokers or dealers.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the proposed change to the ACE Rebate is
reasonable, equitable, and not unfairly discriminatory. As noted above,
the Exchange operates in highly competitive market. The Exchange is
only one of several options venues to which market participants may
direct their order flow, and it represents a small percentage of the
overall market. As such, market participants can readily direct order
flow to competing venues if they deem fee levels at a particular venue
to be excessive or incentives to be insufficient. The Exchange believes
that the proposed fee change is reasonable, equitable, and not unfairly
discriminatory in that the Exchange and competing options exchanges
currently offer reduced fees or credits in connection with Customer
volume and auction volume. The proposed change to the ACE Rebate is
reasonable because it continues to encourage ATP Holders to take the
opportunity to receive credits on initiating CUBE Orders by reaching
the Customer volume thresholds (set forth in the ACE Program). The
Exchange notes that the volume thresholds for each Tier of the ACE
Program are not being modified in this proposal--only the amount of ACE
Rebate associated with each Tier. The Exchange also believes that the
changes to the ACE Rebate, as amended, are in a reasonable increment to
encourage overall order flow to the Exchange without change the
criteria for reaching each ACE Program Tier.
The Exchange believes that the proposal represents an equitable
allocation of rebates and is not unfairly discriminatory because all
ATP Holders have the opportunity to meet the ACE Program Tier
thresholds and, in turn, qualify for the higher ACE Rebate. The
Exchange also notes that the proposed changes will not adversely impact
any ATP Holder's ability to qualify for other credit tiers. Rather,
should an ATP Holder not achieve ACE Program Tier 4 or 5, the ATP
Holder will still receive the ACE Rebate (albeit a reduced one).
Further, the proposal is based on the amount and type of business
transacted on the Exchange and ATP Holders are not obligated to
participate in CUBE Auctions. Rather, the proposal is designed to
encourage participants to utilize the Exchange as a primary trading
venue (if they have not done so previously) or increase Electronic
Customer volume sent to the Exchange to be eligible to receive an ACE
Rebate.
The Exchange believes that the proposed elimination of the
Alternative Initiating Participant Rebate is reasonable, equitable, and
not unfairly discriminatory as this Rebate was not functioning as
intended. Moreover, the proposed removal of this Rebate is reasonable
because it eliminates a stale and outdated volume benchmarks (i.e.,
August 2019) and would therefore streamline the Fee Schedule.
As noted herein, relative volume-based incentives and discounts
have been widely adopted by exchanges \18\ and are reasonable,
equitable and non-discriminatory because they are open to all ATP
Holders on an equal basis and provide additional benefits or discounts
that are reasonably related to (i) the value to an exchange's market
quality and (ii) associated higher levels of market activity, such as
higher levels of liquidity provision and/or growth patterns.
Additionally, as noted above, the Exchange operates in a highly
competitive market. The Exchange is only one of several options venues
to which market participants may direct their order flow. Competing
options exchanges offer similar tiered pricing
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structures to that of the Exchange, including schedules of rebates/
credits and fees that apply based upon members achieving certain volume
and/or growth thresholds. These competing pricing schedules, moreover,
are presently comparable to those that the Exchange provides, including
the rebates and credits available based on Customer and auction
volume.\19\
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\18\ See supra note 15.
\19\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act, the Exchange does
not believe that the proposed rule change would impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, as discussed above, the Exchange believes
that the proposed changes would continue to encourage the submission of
additional liquidity to a public exchange, thereby promoting market
depth, price discovery and transparency and enhancing order execution
opportunities for all market participants. As a result, the Exchange
believes that the proposed changes further the Commission's goal in
adopting Regulation NMS of fostering integrated competition among
orders, which promotes ``more efficient pricing of individual stocks
for all types of orders, large and small.'' \20\
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\20\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS
Adopting Release'').
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Intramarket Competition
The Exchange believes that the proposed change to the ACE Rebate
does not impose any burden on intramarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act. All
ATP Holders have the opportunity to meet the ACE Program Tier
thresholds and, in turn, qualify for the higher ACE Rebate. The
Exchange does not believe that the proposed changes to the ACE Rebate
will adversely impact any ATP Holder's ability to qualify for other
credit tiers. Rather, should an ATP Holder not achieve ACE Program Tier
4 or 5, the ATP Holder will still receive the ACE Rebate (albeit a
reduced one). Further, the proposal is based on the amount and type of
business transacted on the Exchange and ATP Holders are not obligated
to participate in CUBE Auctions. Rather, the proposal is designed to
encourage participants to utilize the Exchange as a primary trading
venue (if they have not done so previously) or increase Electronic
Customer volume sent to the Exchange to be eligible to receive an ACE
Rebate.
The Exchange believes this proposed change will help promote
competition by providing incentives for market participants to continue
to submit Customer order flow to the Exchange and thus, create a
greater opportunity for Customers to receive additional price
improvement and access greater liquidity. As such, the Exchange does
not believe the proposed changes to ACE Initiating Participant rebate
will impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
The Exchange believes that the proposed elimination of the
Alternative Initiating Participant Rebate does not impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because it would apply equally
to all similarly-situated ATP Holders.
Intermarket Competition
The Exchange operates in a highly competitive market in which
market participants can readily favor one of the 17 competing option
exchanges if they deem fee levels at a particular venue to be
excessive. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and to attract
order flow to the Exchange. Based on publicly-available information,
and excluding index-based options, no single exchange currently has
more than 16% of the market share of executed volume of multiply-listed
equity and ETF options trades.\21\ Therefore, no exchange currently
possesses significant pricing power in the execution of multiply-listed
equity & ETF options order flow. More specifically, in March of 2024,
the Exchange had less than 9% market share of executed volume of
multiply-listed equity & ETF options trades.\22\
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\21\ See supra note 5.
\22\ Based on OCC data, supra note 6, the Exchange's market
share in equity-based options increased from 7.55% for the month of
March 2023 to 8.36% for the month of March 2024.
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The Exchange believes that the proposed rule change reflects this
competitive environment as it designed to encourage ATP Holders to
direct trading interest to the Exchange, to provide liquidity and to
attract order flow. To the extent that this purpose is achieved, all
the Exchange's market participants should benefit from the improved
market quality and increased opportunities for price improvement.
The Exchange believes that the proposed changes could promote
competition between the Exchange and other execution venues, including
those that currently offer similar pricing structures, by encouraging
additional orders to be sent to the Exchange for execution.\23\
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\23\ See supra note 15.
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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
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \24\ of the Act and subparagraph (f)(2) of Rule
19b-4 \25\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such 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) \26\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\26\ 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#e795928b82ca84888a8a82899394a7948284c9808891"><span class="__cf_email__" data-cfemail="e391968f86ce808c8e8e868d9790a3908680cd848c95">[email protected]</span></a>. Please include
file number SR-NYSEAMER-2024-29 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-2024-29. This
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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-2024-29 and should
be submitted on or before June 10, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10943 Filed 5-17-24; 8:45 am]
BILLING CODE 8011-01-P
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