Notice2025-03432
Order Under Section 36 of the Securities Exchange Act of 1934 (the “Exchange Act”) Granting the New York Stock Exchange LLC's Application To Amend a Conditional Exemption From Section 12(a) of the Exchange Act
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Published
March 4, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 41 (Tuesday, March 4, 2025)</title>
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[Federal Register Volume 90, Number 41 (Tuesday, March 4, 2025)]
[Notices]
[Pages 11194-11197]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-03432]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102490; File No. S7-2024-07]
Order Under Section 36 of the Securities Exchange Act of 1934
(the ``Exchange Act'') Granting the New York Stock Exchange LLC's
Application To Amend a Conditional Exemption From Section 12(a) of the
Exchange Act
February 26, 2025.
I. Introduction
On April 12, 2024, the Securities and Exchange Commission (the
``Commission'') received an application from the New York Stock
Exchange LLC (the ``NYSE'') to amend a conditional exemption from
Section 12(a) of the Exchange Act that the Commission granted to the
NYSE on November 16, 2006 (the ``2006 Exemption'') \1\ pursuant to
Section 36 \2\ of the Exchange Act,\3\ in accordance with the
procedures set forth in Exchange Act Rule 0-12.\4\ The 2006 Exemption
granted exemptive relief from Section 12(a) \5\ of the Exchange Act to
permit the NYSE's members, brokers, and dealers to trade debt
securities not registered under the Exchange Act on the NYSE's
Automated Bond System, now known as ``NYSE Bonds,'' subject to certain
conditions. One of those conditions is that an issuer of the debt
securities, or the issuer's parent if the issuer is a wholly-owned
subsidiary, has at least one class of common or preferred equity
securities that is: (i) registered under Section 12(b)
[[Page 11195]]
of the Exchange Act; and (ii) listed on the NYSE.\6\ The NYSE's
application seeks to amend the 2006 Exemption by revising part (ii) of
this condition so that debt securities not registered under the
Exchange Act would be permitted to trade on NYSE Bonds if their issuer,
or the issuer's parent if the issuer is a wholly-owned subsidiary, has
a class of common or preferred equity securities listed on any national
securities exchange,\7\ not only the NYSE. All other terms of the 2006
Exemption would remain the same.
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\1\ Order Granting the New York Stock Exchange, Inc.'s (n/k/a
the New York Stock Exchange LLC) Application for an Exemption
Pursuant to Section 36 of the Securities Exchange Act of 1934,
Release No. 34-54766 (Nov. 16, 2006) [71 FR 67657 (Nov. 22, 2006)]
(``2006 Exemption'').
\2\ 15 U.S.C. 78mm. Section 36(a)(1) of the Exchange Act
authorizes the Commission to exempt, conditionally or
unconditionally, any person, security, or transaction, or any class
or classes of persons, securities, or transactions, from any
Exchange Act provision or any rule or regulation thereunder by rule,
regulation, or order, to the extent that the exemption is necessary
or appropriate in the public interest and consistent with the
protection of investors.
\3\ 15 U.S.C. 78a et seq.
\4\ 17 CFR 240.0-12.
\5\ 15 U.S.C. 78l(a).
\6\ See 2006 Exemption, supra note 1. See also Letter from Mary
Yeager, New York Stock Exchange, to Jonathan G. Katz, Secretary,
Securities and Exchange Commission, dated May 26, 2005 (NYSE's
request for exemptive relief), available at <a href="https://www.sec.gov/files/rules/exorders/s70605/s70605-16.pdf">https://www.sec.gov/files/rules/exorders/s70605/s70605-16.pdf</a>; Notice of an Application
of the New York Stock Exchange, Inc. for an Exemption Pursuant to
Section 36 of the Securities Exchange Act of 1934 and Request for
Comment, Release No. 34-51998 (July 8, 2005) [70 FR 40748 (July 14,
2005)].
\7\ A ``national securities exchange'' is a securities exchange
that has registered with the Commission under Section 6 of the
Exchange Act. 15 U.S.C. 78f.
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On October 29, 2024, the Commission approved publication of a
notice of the application submitted by the NYSE (the ``Notice'').\8\
The Commission received one comment letter on the Notice, which was
supportive of the NYSE's application and is discussed below.\9\ This
order grants the NYSE's application to amend the 2006 Exemption,
subject to the conditions set forth below. This order supersedes the
2006 Exemption.
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\8\ Notice of an Application of the New York Stock Exchange LLC
for an Exemption Pursuant to Section 36 of the Securities Exchange
Act of 1934 and Request for Comment, Release No. 34-101468 (Oct. 29,
2024) [89 FR 87668 (Nov. 4, 2024)] (``NYSE Application'').
\9\ See infra note 26.
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II. Background
Section 12(a) of the Exchange Act provides in relevant part that it
``shall be unlawful for any member, broker or dealer to effect any
transaction in any security (other than an exempted security \10\) on a
national securities exchange unless a registration is effective as to
such security for such exchange.'' Section 12(b) \11\ of the Exchange
Act describes how an issuer may register a security on a national
securities exchange. Accordingly, unless the equity or debt security is
an ``exempted security'' \12\ or otherwise exempt from Exchange Act
registration (for example, as the result of an exemption pursuant to
Section 36 of the Exchange Act), the security must be registered by the
issuer under the Exchange Act before a member, broker, or dealer may
trade that security on a national securities exchange.
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\10\ See Section 3(a)(12) of the Exchange Act [15 U.S.C.
78c(a)(12)] (defining ``exempted security'').
\11\ 15 U.S.C. 78l(b).
\12\ See supra note 10.
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However, brokers or dealers (collectively ``broker-dealers'') \13\
who trade debt securities other than on a national securities
exchange--e.g., over-the-counter (``OTC'')--may trade debt securities
regardless of whether the issuer registered those securities under the
Exchange Act. This is the case because although the Exchange Act
requires issuers to register certain equity securities that are not
traded on a national securities exchange, it does not require issuers
to register debt securities that are not traded on a national
securities exchange. In particular, Section 12(g) \14\ of the Exchange
Act, the only Exchange Act provision other than Section 12(a) to impose
an affirmative Exchange Act registration requirement on issuers,
requires the registration of equity securities but not debt
securities.\15\
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\13\ ``Broker'' is generally defined in section 3(a)(4)(A) of
the Exchange Act as any person engaged in the business of effecting
transactions in securities for the account of others. 15 U.S.C.
78c(a)(4)(A). ``Dealer,'' in turn, is generally defined in section
3(a)(5)(A) of the Exchange Act as any person engaged in the business
of buying and selling securities for such person's own account
through a broker or otherwise. 15 U.S.C. 78c(a)(5)(A). The term
``broker-dealer'' is used to encompass all brokers, all dealers, and
firms that are both brokers and dealers.
\14\ 15 U.S.C. 78l(g).
\15\ Section 12(g)(1) of the Exchange Act and Rule 12g-1 [17 CFR
240.12g-1] promulgated thereunder require an issuer to register a
class of equity securities if the issuer of the securities, at the
end of its fiscal year, has more than $10,000,000 in total assets
and a class of equity securities held by either 2,000 persons or 500
persons who are not accredited investors. When Congress amended the
Exchange Act in 1964 to add Section 12(g), it extended the
registration requirement to specified equity securities that are not
exchange-traded. No comparable provision was provided for debt
securities that are not exchange-traded.
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As the Commission has stated in the past, this disparate regulatory
treatment between debt securities traded on an exchange versus those
traded in the OTC market may have unnecessarily and unintentionally
affected the structure and development of the public debt markets.\16\
The Commission has taken certain steps to mitigate the effects of such
disparate treatment. For example, in 1994, to reduce existing
regulatory distinctions between exchange-traded debt securities and
debt securities that trade in the OTC market, the Commission adopted
Exchange Act Rule 3a12-11.\17\ Rule 3a12-11 provides for the automatic
effectiveness of Form 8-A registration statements for exchange-traded
debt securities, exempts exchange-traded debt from the borrowing
restrictions under section 8(a) of the Exchange Act,\18\ and exempts
exchange-traded debt from certain proxy and information statement
requirements under sections 14(a), (b), and (c) of the Exchange
Act.\19\
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\16\ See Release Nos. 34-34922 (Nov. 1, 1994) [59 FR 55342 (Nov.
7, 1994)], and 34-34139 (June 1, 1994) [59 FR 29398 (June 7, 1994)].
\17\ 17 CFR 240.3a12-11. Release No. 34-34922 (Nov. 1, 1994) [59
FR 55342 (Nov. 7, 1994)].
\18\ 15 U.S.C. 78h(a).
\19\ 15 U.S.C. 78n(a), (b), and (c).
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As another example, in 2001, the Commission approved the Financial
Industry Regulatory Authority's (``FINRA'') (formerly the National
Association of Securities Dealers, Inc. (``NASD'')), rules for the
Transaction Reporting and Compliance Engine (``TRACE'') to, among other
things, improve price transparency in the corporate bond market.\20\
FINRA has subsequently increased transparency in the corporate bond
market through TRACE by requiring more contemporaneous reporting. In
2005, FINRA shortened the deadline for reporting most transactions to
TRACE to 15 minutes,\21\ and, in 2015, FINRA required such transactions
to be reported as soon as practicable but no later than within 15
minutes.\22\ In 2024, the Commission approved a FINRA rule change to
reduce the 15-minute reporting timeframe for transactions reported to
FINRA's TRACE system to one minute.\23\
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\20\ See Release No. 34-43873 (Jan. 23, 2001) [66 FR 8131 (Jan.
29, 2001)] (Order Approving File No. SR-NASD-99-65).
\21\ See Release No. 34-49854 (June 14, 2004) [69 FR 35088 (June
23, 2004)] (Order Approving File No. SR-NASD-2004-057).
\22\ See Release No. 34-75782 (Aug. 28, 2015) [80 FR 53375
(Sept. 3, 2015)] (Order Approving File No. SR-FINRA 2015-025).
\23\ See Release No. 34-101121 (Sept. 20, 2024) [89 FR 78930
(Sept. 26, 2024)] (Order Approving File No. SR-FINRA-2024-004). On
Nov. 15, 2024, the American Securities Association (``ASA'') filed a
petition for review of the Commission's order with the United States
Court of Appeals for the 11th Circuit. See American Securities
Association v. United States Securities and Exchange Commission, No.
24-13750 (11th Cir., filed Nov. 15, 2024). On Feb. 13, 2025, ASA
filed a motion to hold the case in abeyance to Aug. 13, 2025. See
American Securities Association v. United States Securities and
Exchange Commission, No. 24-13750 (11th Cir., filed Feb. 13, 2025).
The court granted ASA's motion on Feb. 18, 2025. See American
Securities Association v. United States Securities and Exchange
Commission, No. 24-13750 (11th Cir., Feb. 18, 2025) (order granting
petitioner's motion to hold the appeal in abeyance).
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On November 16, 2006, the Commission granted the 2006 Exemption to
permit the NYSE to trade debt securities not registered under the
Exchange Act on the facility that is now known as NYSE Bonds, subject
to certain conditions. The Commission stated that granting this
exemption ``will
[[Page 11196]]
serve the public interest by minimizing unnecessary regulatory
disparity and promoting competition'' in the public debt markets.\24\
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\24\ See 2006 Exemption, supra note 1, at 67658.
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The disparate regulatory treatment of debt securities traded on an
exchange versus those traded in the OTC market may continue to impact
competition between those markets. The NYSE noted in its application
that ``[t]he current regulatory landscape . . . puts NYSE Bonds at a
competitive disadvantage to the [alternative trading systems],'' as
``[t]he vast majority'' of electronic transactions in the corporate
bonds markets occur on alternative trading systems.\25\
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\25\ NYSE Application, supra note 8, at 6.
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III. Discussion and Amended Exemptive Relief
As noted above, the Commission received one comment letter on the
Notice.\26\ The commenter was supportive of the proposal and stated it
believes ``that allowing a greater proportion of debt securities to
trade on NYSE [B]onds as contemplated by the application will benefit
investors and the marketplace, as long as the Commission's approval of
NYSE's application does not result in the imposition of prohibitions or
restrictions on those same debt securities being traded on other market
centers.'' \27\ This order imposes no such prohibitions or
restrictions.
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\26\ Letter from Thomas M. Merritt, Virtu Financial, Inc. (Dec.
2, 2024), available at <a href="https://www.sec.gov/comments/s7-2024-07/s7202407-544515-1559362.pdf">https://www.sec.gov/comments/s7-2024-07/s7202407-544515-1559362.pdf</a>.
\27\ Id.
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Section 36(a)(1) of the Exchange Act grants the Commission the
authority, with certain limitations not at issue here,\28\ to
``conditionally or unconditionally exempt any person, security, or
transaction . . . from any provision or provisions of [the Exchange
Act] or of any rule or regulation thereunder, to the extent that such
exemption is necessary or appropriate in the public interest, and is
consistent with the protection of investors.'' \29\ The amended
exemptive relief is appropriate in the public interest and consistent
with the protection of investors because it will minimize unnecessary
regulatory disparity and promote competition and transparency in the
public debt markets.
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\28\ Sections 36(b) of the Exchange Act sets forth certain
limitations to the Commission's exemptive authority under Section
36(a). 15 U.S.C. 78mm(b) (``The Commission may not, under this
section, exempt any person, security, or transaction, or any class
or classes of persons, securities, or transactions from section 15C
or the rules or regulations issued thereunder or (for purposes of
section 15C and the rules and regulations issued thereunder) from
any definition in paragraph (42), (43), (44), or (45) of section
3(a).''). See also 15 U.S.C. 78mm(c) (setting forth additional
limitations on the Commission's exemptive authority not applicable
here).
\29\ 15 U.S.C. 78mm(a)(1).
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Presently, unlike on a national securities exchange, broker-dealers
may trade debt securities in the OTC market (for example, on one or
more alternative trading systems) regardless of whether the issuer
registered that class of debt under the Exchange Act. The requested
exemption is designed to minimize that disparate regulatory treatment
and to promote competition between national securities exchanges and
OTC markets that trade debt securities.
The other conditions of the 2006 Exemption will remain in effect
and continue to serve to protect investors by minimizing any reduction
in information available as a result of the exemption we are granting.
Further, the conditions are designed to ensure that investors continue
to have access to comprehensive public information about an issuer,
including the issuer's detailed disclosure in a registration statement
filed under the Securities Act of 1933 \30\ and accompanying trust
indenture qualified under the Trust Indenture Act of 1939,\31\ and
substantially all of the public information that would be available if
the securities were registered under Section 12 of the Exchange Act. To
the extent that the amended exemptive relief encourages increased
trading of debt securities on national securities exchanges, it also
may promote greater price transparency with respect to such debt
securities.\32\
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\30\ 15 U.S.C. 77a et seq.
\31\ 15 U.S.C. 77aaa-77bbbb.
\32\ See NYSE Application, supra note 8, at 7 (``In contrast to
OTC markets trading debt securities, the Exchange's bond market
disseminates both last sale prices as they occur on the Exchange
exclusive of any mark-ups, mark-downs, or other charges, and bid and
ask quotations. This market data is available through some 400,000
market data displays providing subscribers--primarily securities
firms and financial institutions--with direct instantaneous access
to this information, throughout each trading day. The Exchange is
not aware of any comparable level of transparency--trade prices,
quotations, and speed of availability for corporate bond prices--
that exists currently elsewhere. This transparency is absent when a
bond delists from, or is not traded on, the Exchange.'').
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The Commission is granting the amended exemptive relief subject to
the one additional undertaking that the Commission proposed in the
Notice: the NYSE will monitor daily the delistings of equity securities
of each issuer whose debt securities are listed for trading on NYSE
Bonds or, if the issuer of the debt securities is a wholly-owned
subsidiary, equity securities of the issuer's parent company. This
undertaking will help protect investors by mitigating the risk that
investors will trade an issuer's debt securities on NYSE Bonds without
access to the information regarding the issuer that is required
pursuant to the Exchange Act for listed equity securities. If the
equity securities of an issuer are delisted, then the NYSE would have
to ensure that the issuer's debt securities no longer trade on NYSE
Bonds in order to satisfy the conditions of this exemption.\33\
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\33\ In addition to the new undertaking, the Commission is
amending the 2006 Exemption by listing in our order several other
undertakings with which the NYSE must comply. This is a non-
substantive change, as the 2006 Exemption required the NYSE to
comply with the same undertakings (set forth in paragraphs in (a),
(b), (c), (d), and (e) of our order), but did not expressly list
those undertakings in the order. Instead, the 2006 Exemption
referred to the NYSE's application, which set forth those
undertakings. The Commission is listing the undertakings in this
order for the sake of clarity and ease of reference. The Commission
also is making certain other changes to the wording of the order
that do not have any substantive effect.
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In granting this relief, the Commission expects that the NYSE will
design, implement, and maintain all rules related to the relief in a
manner that protects investors and the public interest and does not
unfairly discriminate between customers, issuers, or broker-dealers.
Accordingly, it is ordered pursuant to Section 36 of the Exchange
Act that, under the terms and conditions set forth below, an NYSE
member or broker-dealer may, without violating Section 12(a) of the
Exchange Act, effect a transaction on NYSE Bonds, and any successor
bond trading facility, in a debt security that has not been registered
under Section 12(b) of the Exchange Act. This exemption does not extend
to any other section or provision of the Exchange Act.
For purposes of this order, the term ``debt securities'' is defined
as set forth in NYSE Rule 1400, as in effect on February 26, 2025.\34\
Rule 1400 states, in relevant part, that ``the term Debt Securities
includes only securities that, if they were to be listed on the NYSE,
would be listed under Sections 102.03 or 103.05 of the NYSE's Listed
Company Manual; provided, however, that such securities shall not
include any security that is defined as an `equity security' under
Section 3(a)(11) of the Exchange Act.'' \35\ Rule 1400 further states
that ``[f]or the avoidance of doubt, note that the term Debt Securities
does not include a security that, if listed on the NYSE, would have
been listed under Section 703.19 of the NYSE's Listed Company Manual or
any equity-linked debt securities listed under Rule 5P. The
[[Page 11197]]
references in this Rule to Sections 102.03, 103.05, and 703.19 of the
NYSE's Listed Company Manual are to those sections as in effect on
January 31, 2005.'' \36\
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\34\ NYSE R. 1400 (2025).
\35\ Id.
\36\ Id.
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For purposes of this order, the following conditions must be
satisfied:
(1) The issuer of the debt security has registered the offer and
sale of such security under the Securities Act of 1933;
(2) The issuer of the debt security, or the issuer's parent company
if the issuer is a wholly-owned subsidiary,\37\ has at least one class
of common or preferred equity securities registered under Section 12(b)
of the Exchange Act and listed on a national security exchange;
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\37\ The terms ``parent'' and ``wholly-owned'' have the same
meanings as defined in Rule 1-02 of Regulation S-X [17 CFR 210.1-
02].
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(3) The transfer agent of the debt security is registered under
Section 17A of the Exchange Act; \38\
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\38\ 15 U.S.C. 78q-1.
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(4) The trust indenture for the debt security is qualified under
the Trust Indenture Act of 1939;
(5) The NYSE has complied with the undertakings set forth below to
distinguish between debt securities registered under Section 12(b) of
the Exchange Act and listed on the NYSE and debt securities trading
pursuant to this order; and
(6) The NYSE will delist a class of debt securities that was listed
on the NYSE as of November 16, 2006 only if the issuer of that class of
debt security does not object to the delisting of those securities.
With respect to item (2) above, the NYSE undertakes to monitor
daily the delistings of equity securities of each issuer whose debt
securities are listed for trading on NYSE Bonds or, if the issuer of
the debt securities is a wholly-owned subsidiary, equity securities of
the issuer's parent company.
With respect to the undertakings referred to in item (5) above, the
NYSE will:
(a) Provide definitions of ``listed'' debt securities and
``traded'' debt securities on NYSE Bonds and on the NYSE's website;
(b) Identify on NYSE Bonds and on the NYSE's website whether a
particular debt security is ``listed'' or ``traded''; \39\
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\39\ The NYSE will distinguish debt securities ``listed'' on
NYSE Bonds from those ``traded'' on NYSE Bonds in the following
manner: (1) the NYSE will uniquely identify ``listed'' and
``traded'' debt securities on the NYSE Bonds Bond Directory located
on the NYSE's website; (2) the NYSE will also make such information
available on the NYSE Bonds Security Master File on a daily basis
through ICE Data Services (``IDS''); and (3) the NYSE will publish a
Trader Update to notify members and member organizations each time a
debt security becomes available to trade on NYSE Bonds.
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(c) Directly provide members and member organizations notification
prior to the date that trading of the debt securities commences on NYSE
Bonds to clarify the distinction between ``listed'' debt securities and
``traded'' debt securities and to provide notification that eligible
debt securities will be traded on NYSE Bonds;
(d) Issue a press release upon approval of this exemption request
stating that ``listed'' debt securities would trade alongside
``traded'' debt securities on NYSE Bonds; and
(e) Obtain corporate action information from IDS for debt
securities covered by this request.
With respect to undertaking (e), IDS, an affiliate of the NYSE, is
a bond issue tracking service that provides the NYSE a customized
online reference for corporate actions relevant to bonds. The tracking
system provides information and data electronically to the NYSE, and
provides:
<bullet> Notification of calls (redemptions) of traded bonds,
<bullet> Notification of tender offers for traded bonds,
<bullet> Notice of defaults in payment of interest on traded bonds,
<bullet> Notice of consent solicitations for traded bonds, and
<bullet> Notice of corporate actions for traded bonds (includes
tender offers, issuer name changes, and CUSIP number changes).
By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-03432 Filed 3-3-25; 8:45 am]
BILLING CODE 8011-01-P
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