Notice2024-15407
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Regarding Dedicated Cores
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Published
July 15, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 135 (Monday, July 15, 2024)</title>
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[Federal Register Volume 89, Number 135 (Monday, July 15, 2024)]
[Notices]
[Pages 57482-57485]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-15407]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100476; File No. SR-CboeBYX-2024-024]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule Regarding Dedicated Cores
July 9, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on July 1, 2024, Cboe BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') filed with the Securities and Exchange Commission (the
``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
Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX Equities'')
proposes to amend its Fees Schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/BYX/">http://markets.cboe.com/us/equities/regulation/rule_filings/BYX/</a>), at the Exchange's Office of the Secretary, 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 its fee schedule to amend the fees
and increase the maximum cap for Dedicated Cores.\3\
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\3\ The Exchange initially adopted pricing for Dedicated Cores
on May 6, 2024 (SR-CboeBYX-2024-014). On July 1, 2024 the Exchange
withdrew that filing and submitted this filing.
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By way of background, the Exchange recently began to allow Users
\4\ to assign a Single Binary Order Entry (``BOE'') logical order entry
port \5\ to a single dedicated Central Processing Unit (CPU Core)
(``Dedicated Core''). Historically, CPU Cores had been shared by
logical order entry ports (i.e., multiple logical ports from multiple
firms may connect to a single CPU Core). Use of Dedicated Cores
however, can provide reduced latency, enhanced throughput, and improved
performance since a firm using a Dedicated Core is utilizing the full
processing power of a CPU Core instead of sharing that power with other
firms. This offering is completely voluntary and is available to all
Users that wish to purchase Dedicated Cores. Users may utilize BOE
logical order entry ports on shared CPU Cores, either in lieu of, or in
addition to, their use of Dedicated Core(s). As such, Users are able to
operate across a mix of shared
[[Page 57483]]
and dedicated CPU Cores which the Exchange believes provides additional
risk and capacity management. Further, Dedicated Cores are not required
nor necessary to participate on the Exchange and as such Users may opt
not to use Dedicated Cores at all.
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\4\ A User may be either a Member or Sponsored Participant. The
term ``Member'' shall mean any registered broker or dealer that has
been admitted to membership in the Exchange, limited liability
company or other organization which is a registered broker or dealer
pursuant to Section 15 of the Act, and which has been approved by
the Exchange. A Sponsored Participant may be a Member or non-Member
of the Exchange whose direct electronic access to the Exchange is
authorized by a Sponsoring Member subject to certain conditions. See
Exchange Rule 11.3.
\5\ Users may currently connect to the Exchange using a logical
port available through an application programming interface
(``API''), such as the Binary Order Entry (``BOE'') protocol. A BOE
logical order entry port is used for order entry.
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The Exchange proposes to assess the following monthly fees for
Users that wish to use Dedicated Cores and adopt a maximum limit.
First, the Exchange proposes to provide up to two Dedicated Cores to
all Users who wish to use Dedicated Cores, at no additional cost. For
the use of more than two Dedicated Cores, the Exchange proposes to
assess the following fees: $650 per Dedicated Core for 3-10 Dedicated
Cores; $850 per Dedicated Core for 11-15 Dedicated Cores; and $1,050
per Dedicated Core for 16 or more Dedicated Cores. The proposed fees
are progressive and the Exchange proposes to include the following
example in the Fees Schedule to provide clarity as to how the fees will
be applied. Particularly, the Exchange will provide the following
example: if a User were to purchase 11 Dedicated Cores, it will be
charged a total of $6,050 per month ($0 * 2 + $650 * 8 + $850 * 1). The
Exchange also proposes to make clear in the Fees Schedule that the
monthly fees are assessed and applied in their entirety and are not
prorated. The Exchange notes the current standard fees assessed for BOE
Logical Ports, whether used with Dedicated or shared CPU cores, will
remain applicable and unchanged.\6\
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\6\ The Exchange currently assesses $550 per port per month. See
Cboe BYX Equities Fee Schedule.
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Since the Exchange currently has finite amount of physical space in
its data centers in which its servers (and therefore corresponding CPU
Cores) are located, the Exchange also proposes to prescribe a maximum
limit on the number of Dedicated Cores that Users may purchase each
month. The purpose of establishing these limits is to manage the
allotment of Dedicated Cores in a fair manner and to prevent the
Exchange from being required to expend large amounts of resources in
order to provide an unlimited number of Dedicated Cores. The Exchange
previously established a limit for Members of a maximum number of 20
Dedicated Cores and Sponsoring Members a limit of a maximum number of 8
Dedicated Cores for each of their Sponsored Access relationships.\7\
Now that the Exchange has a better understanding of User demand
relative to its available space since the initial launch three months
ago, the Exchange proposes to increase that cap and provide that
Members will be limited to a maximum number of 60 Dedicated Cores \8\
and Sponsoring Members will be limited to a maximum number of 25
Dedicated Cores for each of their Sponsored Access relationships.\9\
The Exchange notes that it will continue monitoring Dedicated Core
interest by all Users and allotment availability with the goal of
increasing these limits to meet Users' needs if and when the demand is
there and the Exchange is able to accommodate additional Dedicated
Cores.
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\7\ See Securities Exchange Act Release No. 100122 (May 13,
2024) 89 FR 43452 (May 17, 2024) (SR-CboeBYX-2024-014).
\8\ The prescribed maximum quantity of Dedicated Cores for
Members applies regardless of whether that Member purchases the
Dedicated Cores directly from the Exchange and/or through a Service
Bureau. In a Service Bureau relationship, a customer allows its MPID
to be used on the ports of a technology provider, or Service Bureau.
One MPID may be allowed on several different Service Bureaus.
\9\ The fee tier(s) applicable to Sponsoring Members are
determined on a per Sponsored Access relationship basis and not on
the combined total of Dedicated Cores across Sponsored Users. For
example, under the proposed changes, a Sponsoring Member that has
three Sponsored Access relationships is entitled to a total of 75
Dedicated Cores for those 3 Sponsored Access relationships but would
be assessed fees separately based on the 25 Dedicated Cores for each
Sponsored User (instead of combined total of 75 Dedicated Cores).
For example, a Sponsoring Member with 3 Sponsored Access
relationships would pay $19,950 per month if each Sponsored Access
relationship purchased the maximum 25 Dedicated Cores. More
specifically, the Sponsoring Member would be provided 2 Dedicated
Cores at no additional cost for each Sponsored User under Tier 1
(total of 6 Dedicated Cores at no additional cost) and provided an
additional 8 Dedicated Cores at $650 each for each Sponsored User, 5
Dedicated Cores at $850 each for each Sponsored User and 10
Dedicated Cores at $1,050 each for each Sponsored User (combined
total of 69 additional Dedicated Cores).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\10\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \11\ 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 the proposed rule change is consistent with the
Section 6(b)(5) \12\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change is consistent with Section 6(b)(4) \13\ of the Act, which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its Members and other
persons using its facilities.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
\13\ 15 U.S.C. 78f(b)(4).
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The Exchange believes the proposal is reasonable because the
Exchange is offering any Users who wishes to utilize Dedicated Cores up
to two Dedicated Cores at no additional cost.\14\ The Exchange believes
the proposed fees are reasonable because Dedicated Cores provide a
valuable service in that it may provide reduced latency, enhanced
throughput, and improved performance compared to use of a shared CPU
Core since a firm using a Dedicated Core is utilizing the full
processing power of a CPU Core. The Exchange also emphasizes however,
that the use of Dedicated Cores is not necessary for trading and as
noted above, is entirely optional. Users can also continue to access
the Exchange through shared CPU Cores at no additional cost. Indeed,
less than half of the Exchange's Members currently use Dedicated Cores.
Depending on a firm's specific business needs, the proposal enables
Users to choose to use Dedicated Cores in lieu of, or in addition to,
shared CPU Cores (or as noted, not use Dedicated Cores at all). If a
User finds little benefit in having Dedicated Cores, or determines
Dedicated Cores are not cost-efficient for its needs or does not
provide sufficient value to the firm, such User may continue its use of
the shared CPU Cores, unchanged. The Exchange also has no plans to
eliminate shared CPU Cores nor to require Users to purchase Dedicated
Cores. The Exchange also notes that the proposed fees are the same as
the fees recently adopted and assessed for Dedicated Cores on its
affiliated exchange, Cboe EDGA Exchange, Inc. (``Cboe EDGA'').\15\
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\14\ Of the Users that currently maintain Dedicated Cores,
approximately 35% maintain 1 or 2 Dedicated Cores and therefore pay
no additional fees.
\15\ See Cboe U.S. Equities Fee Schedule, EDGA Equities,
Dedicated Cores. See Securities Exchange Act Release No. 100300
(June 10, 2024) 89 FR 50653 (June 14, 2024) (SR-CboeEDGA2024-020).
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[[Page 57484]]
The Exchange also believes that the proposed Dedicated Core fees
are equitable and not unfairly discriminatory because they continue to
be assessed uniformly to similarly situated users in that all Users who
choose to purchase Dedicated Cores will be subject to the same proposed
tiered fee schedule. Further all Users are entitled to up to 2
Dedicated Cores at no additional cost. The Exchange believes the
proposed ascending fee structure is also reasonable, equitable and not
unfairly discriminatory as it is designed so that firms that use a
higher allotment of the Exchange's finite number of Dedicated Cores pay
higher rates, rather than placing that burden on market participants
that have more modest needs who will have the flexibility of obtaining
Dedicated Cores at lower price points in the lower tiers. As such, the
proposed fees do not favor certain categories of market participants in
a manner that would impose a burden on competition; rather, the
ascending fee structure reflects the (finite) resources consumed by the
various needs of market participants--that is, the lowest Dedicated
Core consuming Users pay the least, and highest Dedicated Core
consuming Users pay the most. Other exchanges similarly assess higher
fees to those that consume more Exchange resources.\16\ It's also
designed to encourage firms to manage their needs in a fair manner and
to prevent the Exchange from being required to expend large amounts of
resources in order to provide an additional number of Dedicated Cores.
Moreover, as discussed above and in more detail below, the Exchange
cannot currently offer an unlimited number of Dedicated Cores due in
part to physical space constraints. The Exchange believes the proposed
ascending fee structure is another appropriate means, in conjunction
with an established cap, to manage this finite resource and ensure the
resource is apportioned more fairly.
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\16\ See also Cboe U.S. Options Fees Schedule, BZX Options,
Options Logical Port Fees, Ports with Bulk Quoting Capabilities.
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The Exchange believes it is reasonable to limit the number of
Dedicated Cores Users can purchase because the Exchange has a finite
amount of space in its third-party data centers to accommodate CPU
cores, including Dedicated Cores. The Exchange must also take into
account timing considerations in procuring additional Dedicated Cores
and related hardware such as servers, switches, optics and cables, as
well as the readiness of the Exchange's data center to accommodate
additional Dedicated Cores in the Exchange's respective Order Handler
Cabinets. The Exchange has, and will continue to, monitor market
participant demand and space availability and endeavor to adjust the
limit if and when the Exchange is able to accommodate additional
Dedicated Cores. The Exchange monitors its capacity and data center
space and thus is in the best place to determine these limits and
modify them as appropriate in response to changes to this capacity and
space, as well as market demand. For example, since the launch of
Dedicated Cores on February 26, 2024, the Exchange's affiliate Cboe
EDGA has increased the prescribed maximum limit twice as a result of
evaluating the demand relative to Dedicated Cores availability.\17\ The
proposed limits also apply uniformly to similarly situated market
participants (i.e., all Members are subject to the same limit and all
Sponsored Participants are subject to the same limit, respectively).
The Exchange believes it's not unfairly discriminatory to provide for
different limits for different types of Users. For example, the
Exchange believe it's not unfairly discriminatory to provide for an
initial lower limit to be allocated for Sponsored Participants because
unlike Members, Sponsored Participants are able to access the Exchange
without paying a Membership Fee. Members also have more regulatory
obligations and risk that Sponsored Participants do not. For example,
while Sponsored Participants must agree to comply with the Rules of the
Exchange, it is the Sponsoring Member of that Sponsored Participant
that remains ultimately responsible for all orders entered on or
through the Exchange by that Sponsored Participant. The industry also
has a history of applying fees differently to Members as compared to
Sponsored Participants.\18\ Lastly, the Exchange believes its proposed
maximum limits, and distinction between Members and Sponsored Users, is
another appropriate means to help the Exchange manage its allotment of
Dedicated Cores and better ensure this finite resource is apportioned
fairly.
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\17\ See Securities Exchange Act Release No. 99983 (April 17,
2024) 89 FR 30418 (April 23, 2024) (SR-CboeEDGA-2024-014).
\18\ See e.g., Securities Exchange Act Release No. 68342
(December 3, 2012) 77 FR 73096 (December 7, 2012) (SR-CBOE-2012-114)
and Securities Exchange Act Release No. 66082 (January 3, 2012) 77
FR 1101 (January 9, 2012) (SR-C2-2011-041).
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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
impose any burden on intramarket competition that is not necessary in
furtherance of the purposes of the Act because the proposed tiered fee
structure will apply equally to all similarly situated Users that
choose to use Dedicated Cores. As discussed above, Dedicated Cores are
optional and Users may choose to utilize Dedicated Cores, or not, based
on their views of the additional benefits and added value provided by
utilizing a Dedicated Core. The Exchange believes the proposed fee will
be assessed proportionately to the potential value or benefit received
by Users with a greater number of Dedicated Cores and notes that Users
may determine at any time to cease using Dedicated Cores. As discussed,
Users can also continue to access the Exchange through shared CPU Cores
at no additional cost. Finally, all Users will be entitled to two
Dedicated Cores at no additional cost.
Next, the Exchange believes the proposed rule change does not
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. As previously
discussed, the Exchange operates in a highly competitive market,
including competition for exchange memberships. Market Participants
have numerous alternative venues that they may participate on,
including 15 other equities exchanges, as well as off-exchange venues,
where competitive products are available for trading. Indeed,
participants can readily choose to submit their order flow to other
exchange and off-exchange venues if they deem fee levels at those other
venues to be more favorable. Moreover, the Commission has repeatedly
expressed its preference for competition over regulatory intervention
in determining prices, products, and services in the securities
markets. Specifically, in Regulation NMS, the Commission highlighted
the importance of market forces in determining prices and SRO revenues
and, also, recognized that current regulation of the market system
``has been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \19\ The fact that this market is competitive has also
long been recognized by the courts. In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit stated as follows: ``[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';
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[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'. . .
.''.\20\ Accordingly, the Exchange does not believe its proposed change
imposes any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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\19\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\20\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(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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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
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) of the Act \21\ and paragraph (f) of Rule 19b-4 \22\
thereunder. 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 will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f).
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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 coment 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#fa888f969fd7999597979f948e89ba899f99d49d958c"><span class="__cf_email__" data-cfemail="3b494e575e16585456565e554f487b485e58155c544d">[email protected]</span></a>. Please include
file number SR-CboeBYX-2024-024 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-CboeBYX-2024-024. 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-CboeBYX-2024-024 and should
be submitted on or before August 5, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15407 Filed 7-12-24; 8:45 am]
BILLING CODE 8011-01-P
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