Notice2025-22614
Self-Regulatory Organizations; The Options Clearing Corporation; Order Granting Approval of Proposed Rule Change by The Options Clearing Corporation Concerning Certain Revisions in Connection With Proposed Modifications to the Manner in Which OCC Accounts for the Guaranty Substitution Payment in OCC's Liquidity Risk Management Processes
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 12, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 237 (Friday, December 12, 2025)</title>
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[Federal Register Volume 90, Number 237 (Friday, December 12, 2025)]
[Notices]
[Pages 57796-57799]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-22614]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104350; File No. SR-OCC-2025-013]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Granting Approval of Proposed Rule Change by The Options Clearing
Corporation Concerning Certain Revisions in Connection With Proposed
Modifications to the Manner in Which OCC Accounts for the Guaranty
Substitution Payment in OCC's Liquidity Risk Management Processes
December 9, 2025.
I. Introduction
On August 29, 2025, the Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange
[[Page 57797]]
Commission (``Commission'') the proposed rule change SR-OCC-2025-013,
pursuant to Section 19(b) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder, to permit OCC to
account for the cash payment OCC could make to the National Securities
Clearing Corporation following the default of a common clearing
participant that is attributable only to OCC-related activity in OCC's
liquidity stress testing (hereinafter defined as ``Proposed Rule
Change'').\3\ The Proposed Rule Change was published for public comment
in the Federal Register on September 15, 2025.\4\ On September 25,
2025, pursuant to Section 19(b)(2) of the Exchange Act,\5\ the
Commission designated a longer period within which to approve,
disapprove, or institute proceedings to determine whether to approve or
disapprove the Proposed Rule Change, until December 14, 2025.\6\ The
Commission has received no comments regarding the Proposed Rule Change.
For the reasons discussed below, the Commission is approving the
Proposed Rule Change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Notice of Filing infra note 4, at 90 FR 44430.
\4\ See Exchange Act Release No. 103937 (Sep. 10, 2025), 90 FR
44430 (Sep. 15, 2025) (File No. SR-OCC-2025-013) (``Notice of
Filing'').
\5\ 15 U.S.C. 78s(b)(2).
\6\ Exchange Act Release No. 104078 (Sep. 25, 2025), 90 FR 47012
(Sep. 30, 2025) (File No. SR-OCC-2025-013).
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II. Background
OCC is a central counterparty, which means that, as part of its
function as a clearing agency, it interposes itself as the buyer to
every seller and the seller to every buyer for certain financial
transactions. OCC is the sole clearing agency for standardized equity
options listed on national securities exchanges registered with the
Commission, including options that contemplate the physical delivery of
equities cleared by the National Securities Clearing Corporation
(``NSCC'') in exchange for cash (``physically-settled'' options).\7\
OCC also clears certain futures contracts that, at maturity, require
the delivery of equity securities cleared by NSCC in exchange for cash.
As a result, the exercise and assignment of certain options or
maturation of certain futures cleared by OCC effectively results in
stock settlement obligations to be cleared by NSCC (``E&A Activity'').
Because OCC is obligated to perform on the contracts it clears, even
where one of its Clearing Members defaults, OCC is exposed to liquidity
risk \8\ in the form of exposure to a Clearing Member's trading
activities. OCC manages such risk, in part, by performing daily stress
testing \9\ that covers a wide range of scenarios.\10\
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\7\ The term ``physically-settled'' as used throughout the OCC
Rulebook refers to cleared contracts that settle into their
underlying interest (i.e., options or futures contracts that are not
cash-settled). When a contract settles into its underlying interest,
shares of stock are sent (i.e., delivered) to contract holders who
have the right to receive the shares from contract holders who are
obligated to deliver the shares at the time of exercise/assignment
in the case of an option and at the time of maturity in the case of
a future. Capitalized terms used but not defined herein have the
meanings specified in OCC's Rules and By-Laws, available at <a href="https://www.theocc.com/about/publications/bylaws.jsp">https://www.theocc.com/about/publications/bylaws.jsp</a>.
\8\ Liquidity risk is the risk that a counterparty will have
insufficient funds to meet its financial obligations as and when
expected, although it may be able to do so in the future. Bank for
International Settlements & International Organization of Securities
Commissions, Principles for Financial Market Infrastructures,
<a href="https://www.bis.org/cpmi/publ/d101a.pdf">https://www.bis.org/cpmi/publ/d101a.pdf</a>.
\9\ Stress testing is the estimation of credit or liquidity
exposures that would result from the realization of potential stress
scenarios, such as extreme price changes, multiple defaults, or
changes in other valuation inputs and assumptions. 17 CFR 240.17ad-
22(a).
\10\ See OCC Rule 1001.
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NSCC and OCC maintain a legal agreement, generally referred to by
the parties as the ``Accord,'' that governs the processing of such E&A
Activity for firms that are members of both OCC and NSCC (``Common
Members'').\11\ Under the terms of the Accord, NSCC is required to
accept E&A Activity from OCC (i.e., guaranty the positions of a
defaulting Common Member), provided that OCC makes a payment to NSCC
called the ``Guaranty Substitution Payment,'' or ``GSP.'' The GSP was
incorporated into the Accord to address liquidity and operational
issues that could arise at OCC in the event of a Common Member
default.\12\ The incorporation of the GSP is designed to reduce OCC's
potential liquidity exposure to an amount that is within the scope of
its resources.\13\ To take advantage of this change, however, OCC must
be prepared to make a cash payment to NSCC.\14\ As a result, OCC
accounts for the potential need to make a Guaranty Substitution Payment
to NSCC in its liquidity risk management planning based on information
provided by NSCC.
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\11\ Pursuant to OCC Rule 302, outside of certain limited
exceptions, every Clearing Member that effects transactions in
physically-settled options or futures must also be a participant in
NSCC.
\12\ See Exchange Act Release No. 99735 (Mar. 14, 2024), 89 FR
19907, 19908 (Mar. 20, 2024) (File No. SR-OCC-2023-007) (``Accord
Approval'').
\13\ See id. at 19912.
\14\ See id.
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NSCC calculates the amounts of the components used to determine the
GSP and other financial information each trading day (``T'') for each
Common Member. The components used to determine the GSP are a Common
Member's unpaid Required Fund Deposit (``RFD'') and unpaid Supplemental
Liquidity Deposit (``SLD'') obligation as defined by NSCC's rules, some
amount of which may be attributable to E&A Activity. NSCC calculates
the GSP by determining that are attributable to E&A Activity. NSCC then
sends the results to OCC at the NSCC Family level on T+1 each day prior
to morning settlement.
As a conservative approach to liquidity risk management, OCC chose
to incorporate a Common Member's total RFD and SLD obligations to NSCC
(not just the portion represented in the GSP) into OCC's liquidity risk
management.\15\ As a result, OCC currently collects resources to
account for activity that is not related to the settlement of the
underlying equity securities related to E&A Activity. OCC made this
design choice prior to implementation of the GSP to increase the
likelihood that OCC would be in a position to make a future Guaranty
Substitution Payment that exceeds historical GSP requirements.\16\
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\15\ See id. at 19910.
\16\ See id. at 19912.
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Based on observations from the 13 months following implementation
of the GSP, OCC identified unexpected amounts in the data from NSCC
that could cause OCC to over collect resources.\17\ OCC believes that
NSCC's calculation methodology for SLD obligations may include activity
by affiliates of a Common Member that are not OCC Clearing Members.\18\
Further, the data NSCC sends to OCC sometimes includes deficits related
to non-E&A Activity (e.g., exchange traded fund creation and redemption
activity).\19\
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\17\ See Notice of Filing, 90 FR at 44431.
\18\ See id.
\19\ See id. OCC received data from NSCC suggesting a potential
need to hold $7 billion driven by certain SLD obligations where E&A
Activity from OCC was related to only $60 million of exposure. The
addition exposures arose from affiliates of the Common Member, but
not the Common Member itself. See id.
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OCC proposes to change its Comprehensive Stress Testing & Clearing
Fund Methodology, and Liquidity Risk Management Description (the
``Methodology Description'') and OCC's Liquidity Risk Management
Framework (``LRMF'') so that OCC will account for only the portion of a
Clearing Member's unpaid RFD and SLD obligations related to E&A
Activity in OCC's liquidity risk management processes.
The Methodology Description enables OCC to review the sufficiency
of its financial resources and includes stress
[[Page 57798]]
tests designed to size and monitor the sufficiency of prefunded credit
and liquidity resources. The Methodology Description currently requires
that OCC will include the peak amount of historical actual RFD and SLD
obligations specific to each CMO Group for the relevant expiration on a
twelve-month period at a CMO Group level. It requires that OCC account
for its potential liabilities using the total amount of deficits at
NSCC in its calculation while acknowledging that, in the event of a
default, OCC will be responsible only for a proportionate share of both
the RFD and SLD obligations that are attributable to E&A Activity.
OCC proposes to amend the Methodology Description to require OCC to
account for only the amount of unpaid RFD and SLD obligations
attributable to E&A Activity, which OCC would define as the Final GSP
going forward.\20\ Because OCC intends to include only the Final GSP in
its liquidity stress testing, OCC also proposes to remove references to
the inclusion of the peak historical actual unpaid RFDs and SLDs
specific to each CMO Group.
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\20\ The textual changes to the Methodology include replacement
of ``GSP'' with ``Final GSP'' and the addition of descriptions
consistent OCC's current practice and understanding (e.g., NSCC
calculates SLDs at the Family level, OCC is responsible for Final
GSP in the event of a Common Member default).
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The LRMF is designed to ensure OCC holds sufficient funds to meet
its intraday, same-day, and multiday settlement obligations. OCC
proposes to amend the LRMF to clarify its ability to elect to pay NSCC
the Final GSP as opposed to a Common Member's total unpaid RFD and SLD
obligations. OCC also proposes to amend sections of the LRMF relating
to governance and reporting. OCC proposes to add language to the LRMF
to reflect OCC's existing authority to call for financial resources
from its Clearing Members as a Required Cash Deposit or additional
Clearing Member's margin if the potential settlement obligations
approach or exceed OCC liquidity resources available to fulfill OCC's
settlement obligations if a Clearing Member defaults. Similarly, OCC
proposes to amend the LRMF to reflect OCC's current authority to place
a Clearing Member on Watch Level if there is increased liquidity risk
from stressed liquidity demands and to collect margin to collateralize
a Clearing Member's elevated liquidity exposures once on Watch Level.
OCC also proposes to amend the LRMF's requirements for monthly
review activities. Specifically, OCC proposes to add language that
would require monthly review by the Stress Testing Working Group
(``STWG'') of reporting on stress testing adequacy and provide for
escalation to the Management Committee intra-month if any problems are
found. The LRMF would require that such review include an analysis of
the Final GSP received after the calculation of stressed liquidity
demands. Such analysis shows the overall impact to prior stressed
liquidity demand calculations when new historical peaks are
subsequently observed.
To ensure that it maintains sufficient liquid resources, OCC would
continue its risk management practices related to the incorporation of
GSP into its liquidity risk management. For example, OCC would continue
to include the potential obligation to pay GSP on two consecutive days
in its liquidity risk management processes. Specifically, OCC would
incorporate the peak Final GSP (observed over the preceding 12 months)
into a member's forecasted liquidity demands to be covered over a
potential two-day default management process. OCC believes that
likelihood of observing two consecutive peak Final GSP amounts is low
due to the cyclical nature of OCC E&A Activity whose largest notional
exposures tend to be separated across tenors further than one day
apart, and most highly concentrated during standard monthly
expirations.\21\ Further, OCC believes provisioning for payment of two
peak Final GSPs is conservative because the default of a member, by
definition, would stop further trading by the suspended member and
result in OCC taking only risk reducing actions with regard to the
defaulter's portfolio.\22\
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\21\ See Notice of Filing, 90 FR at 44432.
\22\ See id.
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Similarly, OCC would continue its processes for monitoring
liquidity exposures and calling for additional resources ahead of
potential exceedances. Such processes include monitoring anticipated
cash settlements each business day during the week leading up to
standard monthly expiration as well as evaluating margin forecasts and
intraday trading activity. As noted above, if a Clearing Member's
activity exceeds position risk thresholds, OCC has the ability to place
a Clearing Member on watch and recommend appropriate preventative
measures. Additionally, OCC may call for additional cash from its
Clearing Members based on the liquidity demands, including potential
GSP payments generated by OCC's Sufficiency Scenarios.
III. Discussion and Commission Findings
Section 19(b)(2)(C) of the Exchange Act directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to such organization.\23\ Under the Commission's
Rules of Practice, the ``burden to demonstrate that a proposed rule
change is consistent with the Exchange Act and the rules and
regulations issued thereunder . . . is on the self-regulatory
organization [`SRO'] that proposed the rule change.'' \24\
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\23\ 15 U.S.C. 78s(b)(2)(C).
\24\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
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The description of a proposed rule change, its purpose and
operation, its effect, and a legal analysis of its consistency with
applicable requirements must all be sufficiently detailed and specific
to support an affirmative Commission finding,\25\ and any failure of an
SRO to provide this information may result in the Commission not having
a sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rules and
regulations.\26\ Moreover, ``unquestioning reliance'' on an SRO's
representations in a proposed rule change is not sufficient to justify
Commission approval of a proposed rule change.\27\
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\25\ Id.
\26\ Id.
\27\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
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After carefully considering the Proposed Rule Change, the
Commission finds that the Proposed Rule Change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to OCC. More specifically, the Commission finds
that the Proposed Rule Change is consistent with and with Section
17A(b)(3)(F) of the Exchange Act,\28\ Exchange Act Rule 17ad-22(e)(7)
\29\ as described in detail below.
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\28\ 15 U.S.C. 78q-1(b)(3)(F).
\29\ 17 CFR 240.17ad-22(e)(7).
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A. Consistency With Section 17A(b)(3)(F) of the Exchange Act
Section 17A(b)(3)(F) of the Exchange Act requires, among other
things, that a clearing agency's rules be designed to foster
cooperation and coordination
[[Page 57799]]
with persons engaged in the clearance and settlement of securities
transactions and, in general, to protect investors and the public
interest.\30\ Based on the Commission's review of the record, and for
the reasons described below, the changes described above are consistent
Section 17A(b)(3)(F) of the Exchange Act \31\ because it is designed to
avoid collecting liquidity resources to cover exposures unrelated to
the activity OCC clears while continuing to hold resources to manage
OCC's peak historical exposures and maintaining tools to monitor and
address risks beyond those exposures as they arise.
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\30\ 15 U.S.C. 78q-1(b)(3)(F).
\31\ 15 U.S.C. 78q-1(b)(3)(F).
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As discussed above, OCC currently incorporates a Common Member's
total RFD and SLD obligations to NSCC into OCC's liquidity risk
management. This design choice was made prior to implementation of the
GSP to increase the likelihood that OCC would be in a position to make
a future Guaranty Substitution Payment that exceeds historical GSP
requirements. Based on 13 months of data post implementation, this
choice could require OCC to collect billions of dollars in collateral
to cover exposure arising not at a member, but at such member's
affiliate for activity cleared and risk managed by NSCC. The Proposed
Rule Change would allow OCC to collect collateral based on exposures
presented by activity it clears for its members rather than for
unrelated activity processed by another clearing agency. Focusing OCC's
collateral and risk management on its exposures will support the
ability of Common Members to operate across multiple clearing agencies
with a reduced cost.
The Proposed Rule Change will, however, reduce the collateral OCC
has available to manage a default, which raises the question of how OCC
will manage liquidity demands in excess of historical peaks. As
described above, OCC proposes to rely on both the conservative
collection collateral to cover peak Final GSP requirements over two
consecutive days as well as OCC's suite of monitoring and collateral
collection tools designed to forecast and manage exposures. The
likelihood that OCC would be required to pay peak Final GSP amounts for
two consecutive days is low given the default management processes
described above. As also described above, OCC's monitoring processes
allow it to impose protective measures and collect additional resources
well in advance of potentially large options expirations.
OCC may collect amounts of resources from Clearing Members not
related to transactions OCC clears. The Proposed Rule Change would
better align liquidity needs with the risk of clearing those
transactions OCC clears. This alignment could reduce collateral
requirements for Clearing Members. By reducing the amount of funds
collected from Clearing Members, OCC would decrease the costs
associated with securities transactions. By reducing costs associated
with clearing securities transactions, OCC would potentially allow the
public to trade at lower costs which will serve the public interest.
Accordingly, the Proposed Rule Change is consistent with the
requirements of Section 17A(b)(3)(F) of the Exchange Act.\32\
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\32\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17ad-22(e)(7) Under the Exchange Act
Rule 17ad-22(e)(7)(i) under the Exchange Act requires that a
covered clearing agency establish, implement, maintain, and enforce
written policies and procedures reasonably designed to effectively
measure, monitor, and manage the liquidity risk that arises in or is
borne by the covered clearing agency, including measuring, monitoring,
and managing its settlement and funding flows on an ongoing and timely
basis, and its use of intraday liquidity by maintaining sufficient
liquid resources at the minimum in all relevant currencies to effect
same-day settlement and, where appropriate, intraday and multiday
settlement of payment obligations with a high degree of confidence
under a wide range of foreseeable stress scenarios that includes, but
is not limited to, the default of the participant family that would
generate the largest aggregate payment obligation for the covered
clearing agency in extreme but plausible market conditions.\33\
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\33\ 17 CFR 240.17ad-22(e)(7)(i).
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As described above, OCC proposes to reduce the output of its
liquidity stress testing by incorporating Final GSP requirements rather
than a Common Member's total RFD and SLD obligations. Although this
change would reduce the calculation of OCC's total liquidity need, it
would do so by excluding exposures not reasonably attributable to
activity cleared by OCC while continuing to incorporate exposures
arising out of the activity that is cleared by OCC. OCC would continue
to include conservative assumptions in its liquidity risk management to
increase the likelihood that it collects sufficient liquid resources to
cover future scenarios, such as maintaining sufficient resources to
cover the peak Final GSP on two consecutive days using a 12-month
lookback period. OCC would also continue to monitor Clearing Members
for signs of increased risk and to call for financial resources from
Clearing Members based on risk increases and forecasts. Additionally,
OCC proposes requiring monthly review by the STWG of a report on stress
test adequacy, including an analysis \34\ of the Final GSP received
after the calculation of stressed liquidity demands, and providing for
escalation to the Management Committee as appropriate. On balance, the
focus on activity cleared by OCC, conservative assumptions, monitoring,
and resource collection tools provide a reasonable framework for OCC
manage to its settlement and funding flows related to E&A Activity.
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\34\ This analysis shows the overall impact to prior stressed
liquidity demand calculations when new historical peaks are
subsequently observed.
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Accordingly, the Proposed Rule Change is consistent with Rule 17ad-
22(e)(7) under the Exchange Act.\35\
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\35\ 17 CFR 240.17ad-22(e)(7).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
Proposed Rule Change is consistent with the requirements of the
Exchange Act, and in particular, the requirements of Section 17A of the
Exchange Act \36\ and the rules and regulations thereunder.
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\36\ In approving the Proposed Rule Change, the Commission has
considered the proposed rules' impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\37\ that the Proposed Rule Change (SR-OCC-2025-013) be,
and hereby is, approved.
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\37\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-22614 Filed 12-11-25; 8:45 am]
BILLING CODE 8011-01-P
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