Notice2025-03514
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change Relating to the ICC Procedures for Identification of Contract Reference Obligations
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Published
March 5, 2025
Issuing agencies
Securities and Exchange Commission
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<title>Federal Register, Volume 90 Issue 42 (Wednesday, March 5, 2025)</title>
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[Federal Register Volume 90, Number 42 (Wednesday, March 5, 2025)]
[Notices]
[Pages 11348-11352]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-03514]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102504; File No. SR-ICC-2025-002]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change Relating to the ICC Procedures for
Identification of Contract Reference Obligations
February 27, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ and Rule 19b-4,\2\ notice is hereby given that on February 13,
2025, ICE Clear Credit LLC (``ICE Clear Credit'' or ``ICC'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared primarily by ICC. 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. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
ICE Clear Credit proposes revisions to the ICE Clear Credit Rules
(the ``Rules'')
[[Page 11349]]
relating to the selection of substitute reference obligations and
proposes to adopt a related new set of Procedures for the
Identification of Contract Reference Obligations (the ``Reference
Obligation Procedures'' or the ``Procedures'') addressing such matters
in further detail. The text of the amendments to the new Procedures is
attached [SIC] in Exhibit 5A, the text of the amendments to the Rules
is attached [SIC] in Exhibit 5B.\3\
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\3\ Capitalized terms used but not defined herein have the
meanings specified the Rules and the Procedures.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, ICC 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. ICC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(a) Purpose
ICE Clear Credit is proposing to amend its Rules and adopt new
Reference Obligation Procedures to codify and specify in further detail
its processes used for selecting substitute Contract Reference
Obligations,\4\ including where a Substitution Event has occurred.
Under its existing Rules, ICE Clear Credit generally selects a Contract
Reference Obligation for each cleared single-name CDS Contract.\5\ As
such, the Contract Reference Obligation is relevant for the
determination of the ``Deliverable Obligations'' that will apply to the
Contract in the event of a Credit Event with respect to the underlying
Reference Entity.\6\ In addition, in certain circumstances as discussed
herein (such as following a redemption in full of the Contract
Reference Obligation), ICE Clear Credit, in its role as Calculation
Agent with respect to the Contract as defined under its existing Rules,
will identify a substitute Contract Reference Obligation.
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\4\ As used herein, the term ``Contract Reference Obligation''
refers to a contract reference obligation specified under the
applicable subchapter of the Rules for a particular single-name
transaction type (such as a SNAC Contract Reference Obligation),
consistent with the definition as used in proposed Rule 20-601.
\5\ The Contract Reference Obligation serves as the ``Reference
Obligation'' as that term is used in the Applicable Credit
Derivatives Definitions.
\6\ Specifically, pursuant to the Applicable Credit Derivatives
Definitions, it is generally the case that (i) the Contract
Reference Obligation will be a Deliverable Obligation, regardless of
whether it meets the otherwise applicable Deliverable Obligation
criteria, and (ii) in order to be eligible as such, other
Deliverable Obligations must not be subordinated in right of payment
to the Contract Reference Obligation.
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ICE Clear Credit is proposing to adopt a new Rule 20-601, together
with the new Procedures, which will clarify its responsibilities when
selecting a substitute Contract Reference Obligation. Under the
proposed Rule, notwithstanding anything to the contrary in the Rules or
Appliable Credit Derivatives Definitions, ICC's role as a Calculation
Agent with respect to identifying a Substitute Reference Obligation to
replace a Contract Reference Obligation for which a Substitute Event
has occurred would be limited to performing the functions set out in
the ICE Clear Credit Procedures (which will include the new Reference
Obligation Procedures). Rule 20-601 will also define ``Contract
Reference Obligation'' for this purpose to be the applicable contract
reference obligation for the relevant transaction type under the Rules
(i.e., a SNAC Contract Reference Obligation, STEC Contract Reference
Obligation, SES Contract Reference Obligation, STEFC Contract Reference
Obligation, SWES Contract Reference Obligation, SAS Contract Reference
Obligation, STAC Contract Reference Obligation, STASC Contract
Reference Obligation, STASFC Contract Reference Obligation, STEMC
Contract Reference Obligation or STSEIC Contract Reference Obligation,
as applicable).
The Reference Obligation Procedures would set out in further detail
the methodology and process for the identification of Contract
Reference Obligations in regard to each Single-Name CDS Contract
accepted for clearing by ICC (both as an initial matter and following a
Substitution Event). The Reference Obligation Procedures generally
would codify ICC's current practices with respect to the selection of
Contract Reference Obligations, which ICC has utilized to fulfill its
obligations as Calculation Agent under its existing Rules, but would
also include certain enhanced procedures for public consultation that
would mark a change from its current practices, as discussed in further
detail below. Pursuant to the Procedures, a Contract Reference
Obligation would be identified for the Reference Entity for a single
name CDS Contract when the contract is first listed for clearing at ICE
Clear Credit. ICC would identify a Substitute Reference Obligation when
called for under the Applicable Credit Derivatives Definitions in
accordance with the new Rule 20-601 and the Procedures.\7\
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\7\ Consistent with current practice, the Reference Obligation
Procedures would state that ICC would not select a Contract
Reference Obligation for a Reference Entity where ``Standard
Reference Obligation'' or ``No Reference Obligation'' is indicated
on the List of Eligible Reference Entities maintained by ICC.
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The Procedures would identify the overall objective in selecting
Contract Reference Obligations as seeking to reflect CDS market
participants' consensus as to the most appropriately representative
obligation of the relevant seniority of the Reference Entity. The
Procedures note certain factors that market participants may consider
relevant for this purpose, including outstanding principal amount,
remaining maturity, liquidity, and availability of public information
concerning the obligation. ICE Clear Credit would begin the selection
process by using commercially available reference data from a data
vendor to identify the most liquid reference obligation used in
connection with the trading of CDS on the applicable Reference Entity,
frequently known as the ``Preferred'' reference obligation. ICC would
identify a proposed original Contract Reference Obligation based on the
current Preferred, if available, or a proposed substitute Contract
Reference Obligation based on a change in the Preferred.
The Procedures would detail the consultation process that ICC would
undertake with Clearing Participants and other market participants to
consider whether such a proposed obligation should be used as the
Contract Reference Obligation. Consistent with current practice, the
proposed Contract Reference Obligations would be shared with and
reviewed by ICC's Operations Working Group (``OWG''), which consists of
operations personnel from Clearing Participants. The role of the OWG is
to review and provide feedback regarding various operational matters
including consultation regarding the selection and substitution of
Contract Reference Obligations. The OWG typically meets weekly and OWG
meeting materials are distributed by ICC's Client Services Department
to all OWG members in advance of the meeting date. There is no limit to
the number of Clearing Participant operational personnel that can
participate in OWG meetings. With respect to the OWG's consultation
role regarding Contract Reference Obligations, OWG Members may raise
objections to any proposed new or
[[Page 11350]]
substitute Contract Reference Obligation either at an OWG meeting or by
email to ICC any time before the deadline identified by ICC for raising
objections to the proposed Contract Reference Obligation (the
``Objection Date'').
Furthermore, and also consistent with current practice, proposed
Contract Reference Obligations would also be shared with and reviewed
by ICC's Trading Advisory Group (``TAG''), which consists of trading
personnel from Clearing Participants. The role of the TAG is to provide
market insight into a variety of trading topics, including consultation
regarding the selection and substitution of Contract Reference
Obligations. The TAG typically meets weekly and proposed new or
substitute Contract Reference Obligations are sent to the members of
the TAG in advance of meetings via email. There is no limit to the
number of Clearing Participant trading personnel that can participate
in TAG meetings. The TAG members may raise objections regarding the
proposed Contract Reference Obligation either at a TAG meeting or by
sending an email to ICC prior to the Objection Date. The Procedures
would set out the process for OWG or TAG members to make objections.
The Procedures would also add a new process for public
consultation, in addition to the above consultations with the OWG and
TAG. At the same time of consultation with the OWG and TAG, ICC would
publish any proposed original or substitute Contract Reference
Obligation on its website and invite market participants to submit any
objections. The Procedures also set out the process for making such
objections.
The Procedures would also address the manner in which ICC would
resolve any objections raised through these consultations and would
postpone adopting the proposed original or substitute Contract
Reference Obligation until the objections are addressed to its
satisfaction. The Procedures would list a series of non-exhaustive
steps that ICC may take to resolve the objections as it determines
appropriate, recognizing that different steps may be appropriate for
different situations or objections. Potential steps would include
obtaining additional information from the objector, contacting (or
asking the objector to contact) the relevant market data vendor that
has identified a Preferred reference obligation regarding the
identification and objections raised with respect thereto. Should such
consultation with the data vendor result in the data vendor identifying
a different Preferred reference obligation, ICC will consider such
obligation as an alternative proposed Contract Reference Obligation
through the consultation process identified in the Procedures and
described above, and any objection raised with respect to an
alternative proposed Contract Reference Obligation would be resolved
pursuant to the objections resolution process identified in the
Procedures. Furthermore, additional steps ICC may undertake to attempt
to resolve an objection include: conducting a legal review of the
available proposed Contract Reference Obligation documentation,
participating in further discussions with OWG members, TAG members or
other market participants, consulting with the CDS Risk Committee, and/
or submitting (directly or indirectly) a question to the relevant
Credit Derivatives Determinations Committee whether the proposed
Contract Reference Obligation is an appropriate Substitute Reference
Obligation.
Finally, the Procedures identify certain exceptions to the process
described in the Procedures in certain scenarios. In the case of a
Succession Event that requires the identification of a new Contract
Reference Obligation, ICC will follow the industry agreed timelines for
implementing the Succession Event, which may not allow for the normal
review process to occur or would require an abbreviated review process.
Likewise, if a Contract Reference Obligation is changed in connection
with the re-naming of a Reference Entity, the industry timelines may
not allow ICC to conduct its regular Contract Reference Obligation
review process or may require an abbreviated review process. In
addition, the Procedures would not apply to the determination of a
Contract Reference Obligation for a new trade resulting from a
Restructuring Credit Event (which would be determined in accordance
with the Rules).
(b) Statutory Basis
ICE Clear Credit believes that the proposed amendments to the Rules
are consistent with the requirements of Section 17A of the Securities
Exchange Act of 1934 (the ``Act'') \8\ and the regulations thereunder
applicable to it. In particular, Section 17A(b)(3)(F) of the Act \9\
requires, among other things, that the rules of a clearing agency be
designed to promote the prompt and accurate clearance and settlement of
securities transactions and, to the extent applicable, derivative
agreements, contracts, and transactions, the safeguarding of securities
and funds in the custody or control of the clearing agency or for which
it is responsible, and the protection of investors and the public
interest. The proposed amendments are generally designed to facilitate
the prompt and accurate clearance and settlement of securities
transactions by codifying and documenting the process of selecting
Contract Reference Obligations (both initially upon acceptance of a
Contract for clearing and upon a Substitution Event), including the
process for consultation with Clearing Participants through the OWG and
TAG and the process of addressing objections raised in the consultation
process. The amendments thus would provide greater clarity and
certainty for Clearing Participants and other market participants as to
the process for selection of Contract Reference Obligations, which in
turn would provide greater clarity and certainty for Clearing
Participants and other market participants as to the terms and
conditions of contracts cleared by ICC. The amendments also expand
current practices to provide for disclosure of a proposed new Contract
Reference Obligation on the ICC website, giving any interested market
participant additional opportunity to raise concerns or objections.
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\8\ 15 U.S.C. 78q-1.
\9\ 15 U.S.C. 78q-1(b)(3)(F).
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Overall, in ICC's view, the Rule amendments and new Procedures
would provide for a transparent and robust process for selection of
initial and substitute Contract Reference Obligations. ICC believes
that the Rule amendments and new Procedures will therefore facilitate
the accurate clearing of credit default swap contracts, within the
meaning of Section 17A(b)(3)(F), while also more clearly defining the
role and responsibilities of ICC in the process (as compared to the
existing Rules, which address the substance that is intended to guide
ICC in determining the selection of a Contract Reference Obligation but
which do not address in detail the process for making a Contract
Reference Obligation selection). First, the amendments provide a
detailed procedure for obtaining and reflecting the views of interested
market participants as to the appropriate Contract Reference
Obligation. Second, by starting with a Preferred obligation used in the
credit default swap market generally (including both index and single
name products), the Procedures are designed to avoid creating
unnecessary differences between cleared and uncleared credit default
swap contracts involving the same reference entity, and thereby avoid
fragmentation of the CDS market. Third,
[[Page 11351]]
the existing consultation process, as codified by the Procedures,
provides additional certainty that ICC has selected an appropriately
representative Contract Reference Obligation, reflective of market
expectations, by soliciting any potential objections to a Contract
Reference Obligation from both operational and trading personnel of its
Clearing Participants. ICC believes that these personnel are well
positioned to judge the appropriateness of Contract Reference
Obligations and provide feedback to ICC. Fourth, the Procedures would
adopt a new, further step of soliciting feedback from any interested
market participant (whether or not a Clearing Participant) through
publication of the proposed Contract Reference Obligation on ICC's
website (and allowing market participants to register objections). The
Procedures address steps that ICC may take to resolve any objections
raised in these steps with respect to a proposed Contract Reference
Obligation. In sum, ICC believes that the amended Rule and Procedures
will provide clarity for Clearing Participants (and other market
participants) as to the process for selecting Contract Reference
Obligations, the role of ICC in that process, and the opportunities for
each such participant to influence the process if they have a view as
to the appropriate Contract Reference Obligation. In ICC's view, the
Procedures are unlikely to impose significant additional costs or
burdens on ICC itself or its Clearing Participants or other market
participants, or to result in undue delay in selecting a Contract
Reference Obligation. ICC has determined that the Procedures will thus
enhance its ability to select appropriate Contract Reference
Obligations, consistent with the Rules and the reasonable expectations
and interests of market participants and other stakeholders. As a
result, the amendments would promote the prompt and accurate clearance
and settlement of securities transactions and derivatives agreements,
contracts and transactions, and generally promote the protection of
investors and the public interest in the operation of clearing
services, within the meaning of Section 17A(b)(3)(F) of the Act.\10\
(ICC does not believe the amendments would affect the safeguarding of
securities and funds which are in the custody or control of ICC or for
which it is responsible, within the meaning of Section 17A(b)(3)(F).)
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
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The amendments are also consistent with relevant provisions of Rule
17Ad-22. Rule 17Ad-22(e)(2) provides that ``[e]ach covered clearing
agency shall establish, implement, maintain and enforce written
policies and procedures reasonably designed to, as applicable [. . .]
[p]rovide for governance arrangements that are [c]lear and
transparent'' \11\ and ``consider the interests of participants'
customers . . . and other relevant stakeholders of the covered clearing
agency''.\12\ The Rules, as proposed to be revised, and new Procedures
would enhance the transparency of the process for selecting Contract
Reference Obligations, through codifying current practices and by
providing for public consultation (and opportunity for objection) with
respect to proposed new Contract Reference Obligations. The revised
consultation process would also enhance ICC's ability to consider the
views of relevant stakeholders with respect to Contract Reference
Obligation selection. In ICE Clear Credit's view, the amendments to the
Rules are therefore consistent with the requirements of Rule 17Ad-
22(e)(2).\13\
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\11\ 17 CFR 240.17ad-22(e)(2)(i).
\12\ 17 CFR 240.17ad-22(e)(2)(vi).
\13\ 17 CFR 240.17ad-22(e)(2).
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Rule 17Ad-22(e)(21) requires that a clearing agency ``be efficient
and effective in meeting the requirements of its participants and the
markets it serves.'' \14\ The amendments are intended to document the
process for identifying Contract Reference Obligations, including the
process for consultation with Clearing Participants and other market
participants and the process for addressing objections to proposed
Contract Reference Obligations. The amendments will also provide an
enhanced process for seeking market feedback, through public notice on
its website. As such, the amendments are, in ICE Clear Credit's view,
consistent with meeting the requirements of its participants and the
markets it serves in an efficient and effective way and will therefore
facilitate compliance with Rule 17Ad-22(e)(21).\15\
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\14\ 17 CFR 240.17ad-22(e)(21)(iii).
\15\ 17 CFR 240.17ad-22(e)(21).
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Rule 17Ad-25(j) requires a clearing agency to have ``written
policies and procedures reasonably designed to require the board of
directors to solicit, consider and document its consideration of the
views of participants and other relevant stakeholders of the . . .
clearing agency regarding material developments in its risk management
and operations on a recurring basis.'' \16\ The amended Rule and
Procedures are consistent with this requirement. The Board, after
consulting with the Risk Committee, has determined to adopt these
amendments to facilitate ICC's ability to consider the views of
participants and other relevant stakeholders. As noted above, the
Procedures provide for solicitation of views regarding changes to
Contract Reference Obligations from Clearing Participants, through both
the TAG and OWG. Furthermore, the Procedures provide for consideration
of views of market participants generally, as proposed Contract
Reference Obligations will be posted on the ICC website to permit
market participants to raise any objections.
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\16\ 17 CFR 240.17ad-25(j).
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(B) Clearing Agency's Statement on Burden on Competition
ICE Clear Credit does not believe the proposed amendments would
have any impact, or impose any burden, on competition not necessary or
appropriate in furtherance of the purposes of the Act. The amendments
are being adopted to update and clarify the Rules and adopt the new
Procedures in relation to the selection of Contract Reference
Obligations. As set forth above, the proposed amendments will generally
codify existing practices relating to the selection of Contract
Reference Obligations and will provide for additional public
consultation with market participants. The amendments will not
otherwise affect the terms of cleared Contracts. Accordingly, ICE Clear
Credit does not believe the amendments would affect the rights and
obligations of Clearing Participants or other market participants
clearing transactions through ICC, or affect the costs of clearing, the
ability of market participants to access clearing, or the market for
clearing services generally. Therefore, ICE Clear Credit does not
believe the proposed rule change imposes any burden on competition that
is inappropriate in furtherance of the purposes of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received from Members, Participants or Others
Written comments relating to the proposed amendments have not been
solicited or received by ICE Clear Credit. ICE Clear Credit will notify
the Commission of any comments received with respect to the proposed
rule change.
[[Page 11352]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</a>);
or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5a282f363f77393537373f342e291a293f39743d352c"><span class="__cf_email__" data-cfemail="a7d5d2cbc28ac4c8cacac2c9d3d4e7d4c2c489c0c8d1">[email protected]</span></a>. Please include
File Number SR-ICC-2025-002 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File Number SR-ICC-2025-002. 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-regulations/self-regulatory-organization-rulemaking">https://www.sec.gov/rules-regulations/self-regulatory-organization-rulemaking</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 such filings will also be available for inspection and
copying at the principal office of ICE Clear Credit and on ICE Clear
Credit's website at <a href="https://www.theice.com/clear-credit/regulation">https://www.theice.com/clear-credit/regulation</a>.
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-ICC-2025-002 and should
be submitted on or before March 26, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-03514 Filed 3-4-25; 8:45 am]
BILLING CODE 8011-01-P
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