[Federal Register Volume 75, Number 43 (Friday, March 5, 2010)]
[Notices]
[Pages 10332-10336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-4658]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61592; File No. SR-BATS-2010-002]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by BATS Exchange, Inc. to Offer Certain BATS Exchange Data
Products
February 25, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that on February 2, 2010, BATS Exchange, Inc. (``BATS'' or the
``Exchange'') 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 by the
Exchange. On February 22, 2010, BATS filed Amendment No. 1 to the
proposed rule change. The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, 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
The Exchange has filed a proposed rule change to offer certain new
Exchange data products to Exchange Members \3\ and other market data
recipients. In connection with such data products, the Exchange is
proposing to amend the fee schedule applicable to Members and non-
members of the Exchange pursuant to BATS Rules 15.1(a) and (c). The
Exchange will implement the proposed rule change on the first day of
the month immediately following Commission approval (or on the date of
approval, if on the first business day of a month).
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\3\ A Member is any registered broker or dealer that has been
admitted to membership in the Exchange.
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The text of the proposed rule change is available on the Exchange's
Web site at http://www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the 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
[[Page 10333]]
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 purpose of the proposed rule change is to begin offering three
new data products containing Exchange data. Specifically, the Exchange
proposes to offer a new Last Sale Feed, Historical Data Products, and a
data product called BATS Market Insight. The Exchange currently offers
its data products to Members and other data recipients free of
charge.\4\
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\4\ The Exchange currently offers various data feeds free of
charge, including, but not limited to, TCP PITCH, Multicast PITCH,
and TCP FAST PITCH, which are depth of book data feeds containing
real-time quotation and transaction data from the Exchange; TCP
DROP, which contains order execution and other information (e.g.,
modifications and cancellations) specific to the Exchange activity
of one or more Users; and TCP TOP, which contains real-time top of
book quotation and transaction information from the Exchange.
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BATS Last Sale Feed
First, the Exchange is proposing to begin offering a new feed, the
BATS Last Sale Feed, to Members and non-members. The BATS Last Sale
Feed will be a direct data feed product that provides real-time,
intraday trade information, including price, volume and time of
executions. The BATS Last Sale Feed will not include quotation
information.
Currently, the Exchange provides real-time last sale information
from its market center to the Security Information Processors
(``SIPs'') for the national market system plans governing trading in
NYSE listed securities (``Tape A securities''), NASDAQ listed
securities (``Tape C securities''), and securities listed on exchanges
other than NYSE or NASDAQ (``Tape B securities''). The SIPs then
consolidate the Exchange's last sale information with similar
information from other market centers, and disseminate the consolidated
last sale data to market participants, including market data vendors.
The BATS Last Sale Feed will include last sale information regarding
all Tape A, B and C securities with respect to activity occurring
solely on the Exchange.
Various data recipients may wish to subscribe to and use the BATS
Last Sale Feed. For instance, data recipients that provide real-time
market information on public Web sites or offer dynamic stock tickers,
portfolio trackers, price/time graphs and other visual systems can use
the Last Sale Feed in lieu of using the Exchange's existing data feeds.
Such data recipients may prefer the BATS Last Sale Feed because the
Exchange's existing data feeds contain a significant amount of
additional information that such data recipients may not need, which
may result in unnecessary technology costs (e.g., development,
telecommunications or storage costs). The Exchange notes that similar
market-specific last sale data products are offered by other market
centers or will likely be offered in the near future.\5\
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\5\ See NASDAQ Rule 7039; Release No. 34-59598 (March 18, 2009),
74 FR 12919 (March 25, 2009) (File No. SR-NYSEArca-2009-05) (order
approving proposed rule change to establish fees for a NYSE Arca
data service, including a last sale product); see also Release No.
34-61112 (December 4, 2009), 74 FR 65569 (December 10, 2009) (File
No. SR-BX-2009-077) (filing of an immediately effective rule related
to introduction of a last sale feed by NASDAQ OMX BX).
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No market participant is required to subscribe to the BATS Last
Sale Feed because the same last sale prices are available in the
Exchange's other data feeds.\6\ Market participants can also gain
access to BATS last sale prices that are integrated with the prices
that other markets make available through the SIPs. Indeed, even though
the BATS Last Sale Feed may provide to some participants an efficient
alternative to the consolidated price information that investors and
broker-dealers can receive on a consolidated basis from the SIPs, the
Exchange believes that the information that the Exchange contributes to
the consolidated tape and the increasingly lower latency of the data
feeds offered by the SIPs will continue to satisfy the needs of the
vast majority of individual and professional investors. Although
certain data recipients might supplement their data feeds by adding the
BATS Last Sale Feed, it is unlikely that data recipients or
distributors will replace the consolidated last sale feed provided by
the SIPs with the BATS Last Sale Feed. The Exchange represents that it
will not distribute its last sale feed on a more timely basis than it
makes available the data that is provided to the SIPs for consolidation
and dissemination.
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\6\ See supra, note 4.
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The proposed cost of the BATS Last Sale Feed is $5,000 per month
for any data recipient that chooses to receive the data feed for
internal use only. For data recipients that wish to redistribute the
BATS Last Sale Feed, the Exchange will not require such recipients to
count, classify (e.g., professional or non-professional) or report to
the Exchange information regarding the customers to which they provide
the data. Instead, the Exchange proposes a flat fee of $25,000 per
month for any data recipient that wishes to redistribute the BATS Last
Sale Feed externally. End users will not have to pay the Exchange for
the BATS Last Sale Feed or enter into contracts with the Exchange. The
Exchange believes that the proposed pricing model is simple and easy
for data recipients to comply with, and thus, will result in a minimal
additional administrative burden for data recipients with respect to
the BATS Last Sale Feed. Rule 603(a)(2) of Regulation NMS \7\ requires
markets to distribute market data ``on terms that are not unreasonably
discriminatory.'' Regardless of a data recipient's reasons for
subscribing to the BATS Last Sale Feed, the fee for such feed applies
equally to all data recipients that wish to use the feed for internal
use only and equally to all data recipients that wish to redistribute
the feed. Accordingly, the Exchange believes its proposal satisfies
Rule 603(a)(2) of Regulation NMS.\8\
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\7\ 17 CFR 603(a)(2).
\8\ Id.
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BATS Historical Data Products
Second, the Exchange proposes to begin providing historical data to
data recipients upon request for a fee. The Exchange currently provides
historical data upon request on an ad hoc basis, but proposes to begin
charging a fee due to the infrastructure costs of storing and providing
such data. Similar to what it does today, the Exchange proposes to
provide a data recipient with the requested historical data on an
external hard drive provided by the Exchange. As an alternative means
to obtain historical data, the Exchange will provide market
participants with access to a database from which they can download
data that is up to 3 months old. As proposed, the Exchange will offer
the following three products through either of these distribution
methods: (1) Historical top of book data from the Exchange's TOP data
feed (``Historical TOP Data''), (2) historical data from the Exchange's
PITCH data feed (``Historical PITCH Data''), and (3) historical
transaction data from the Exchange's Last Sale Feed (``Historical Last
Sale Data''). BATS Historical TOP Data, BATS Historical PITCH Data and
BATS Historical Last Sale Data will be provided to data recipients for
internal use only, and thus, no redistribution will be permitted.
Historical data provided by the Exchange can be used for a variety
of purposes. For instance, data recipients
[[Page 10334]]
that wish to back-test certain trading strategies can use Historical
PITCH or Historical TOP Data for such purpose. As another example, data
recipients that provide market information through public websites or
develop dynamic stock tickers, portfolio trackers, price/time graphs
and other visual systems can use Historical Last Sale data for such
purposes. The Exchange notes that similar historical data products are
offered by other market centers.\9\ The proposed cost of user-
accessible BATS Historical TOP Data, BATS Historical PITCH Data or BATS
Historical Last Sale Data is $500 per month of data accessed by any
individual user. The Exchange's databases will contain up to 90 days of
data at any point in time. For data that the Exchange provides on an
external hard drive to a market participant the proposed cost is $2,500
per 1 terabyte (TB) drive generated by the Exchange. Each of the
proposed costs set forth above applies per data product. For instance,
an individual user that obtained access to BATS Historical Top Data
would pay $500 for access to a particular month's data, and if that
user also wanted access to BATS Historical Last Sale Data, the
individual user would need to pay another $500 for such access.
Similarly, a market participant would pay $2,500 for an external hard
drive containing BATS Historical TOP Data that fits on a 1 TB drive
(internal use only); such participant would have to pay separately for
a 1 TB drive containing BATS Historical Last Sale Data or BATS
Historical PITCH Data.
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\9\ See NASDAQ Rule 7022; see also http://www.nyxdata.com for
information regarding NYSE OpenBook History and ArcaBook FTP,
historical data products offered by the NYSE and NYSE Arca,
respectively.
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BATS Market Insight
Finally, the Exchange proposes to begin offering data that can be
used to analyze the depth of liquidity of the Exchange's book,
including reserve and hidden interest on a historical basis. This data,
referred to by the Exchange as BATS Market Insight, will provide a
market participant with information regarding the depth of the market
at the Exchange in minute increments. Data will become available for
access by market participants 10 days following each trade date (T +
10) and will be available for 30 days. Specifically, a participant
using BATS Market Insight will be able to obtain data regarding total
order interest, displayed order interest and hidden order interest at
each price point in specific Tape A, B and C securities traded on the
Exchange. BATS Market Insight will be provided to data recipients for
internal use only, and thus, no redistribution will be permitted. BATS
Market Insight can be used by market participants to improve their
trading and order routing strategies. The Exchange notes that a similar
market data product is offered by NASDAQ.\10\
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\10\ See NASDAQ Rule 7023(d).
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The proposed cost for access to BATS Market Insight is $1,000 per
user per month.
Additional Discussion Regarding Proposed Data Products
In adopting Regulation NMS, the Commission granted self-regulatory
organizations and broker-dealers increased authority and flexibility to
offer new and unique market data products to the public. The Commission
believed this authority would expand the amount of data available to
consumers, and also spur innovation and competition for the provision
of market data. The data products proposed herein appear to be
precisely the sort of market data product that the Commission
envisioned when it adopted Regulation NMS. The BATS Last Sale Feed will
offer BATS-specific data in a new form not previously available to
market data consumers, in a manner similar to that provided by other
markets. The Historical Data Products proposed by the Exchange will
allow market participants to purchase useful historical data from the
Exchange while at the same time enabling the Exchange to better cover
its infrastructure costs and to improve its market technology and
services. Finally, BATS Market Insight will enable market participants
to conduct BATS-specific analysis to meet their needs.
The bases under the Act for the proposed rule change are: (1) The
requirement under Section 6(b)(4) \11\ that an exchange have rules that
provide for the equitable allocation of reasonable dues, fees and other
charges among its members and other persons using its facilities; and
(2) the requirement under Section 6(b)(5) \12\ that the rules of an
exchange be designed to promote just and equitable principles of trade
and not to permit unfair discrimination between customers, issuers,
brokers or dealers.
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\11\ 15 U.S.C. 78f(b)(4).
\12\ 15 U.S.C. 78f(b)(5).
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In its recent ``Order Setting Aside Action by Delegated Authority
and Approving Proposed Rule Change Relating to NYSE Arca Data'' (the
``NYSE ArcaBook Approval Order''),\13\ the Commission reiterated its
position from its release approving Regulation NMS that it should
``allow market forces, rather than regulatory requirements, to
determine what, if any, additional quotations outside the NBBO are
displayed to investors.'' \14\
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\13\ See Release No. 34-59039 (December 2, 2008), 73 FR 74770
(December 9, 2008) (File No. SR-NYSE Arca-2006-21).
\14\ See Release No. 34-51808 (June 9, 2005), 70 FR at 37566-
37567 (June 29, 2005) (File No. S7-10-04) (the ``Regulation NMS
Release'').
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The Exchange and its market data products are subject to
significant competitive forces and the proposed fees represent
responses to that competition. To start, the Exchange competes
intensely for order flow. It competes with the other national
securities exchanges that currently trade equities, with electronic
communication networks, with quotes posted in FINRA's Alternative
Display Facility, with alternative trading systems, and with securities
firms that primarily trade as principal with their customer order flow.
In addition, the proposed data products would compete with a number
of alternative products. For instance, the BATS Last Sale Feed does not
provide a complete picture of all trading activity in a security.
Rather, the other national securities exchanges, the several Trade
Reporting Facilities of FINRA, and ECNs that produce proprietary data
all produce trades and trade reports. Each is currently permitted to
produce last sale information products, and many currently do,
including Nasdaq and NYSE. In addition, market participants can gain
access to BATS last sale prices through free data feeds provided by the
Exchange or integrated with the prices of other markets on feeds made
available through the SIPs. With respect to BATS Market Insight, the
Exchange is proposing to offer a product that, while specific to the
Exchange's data, is similar to a product offered by Nasdaq with respect
to executions on Nasdaq. Furthermore, a market participant could gain
access to the same information provided through the proposed BATS
Market Insight product through a combination of: (1) Existing, free
data feeds from the Exchange (for displayed trading interest), and (2)
information gathered by the market participant through its trading
activities on the Exchange and/or through the consolidated data
published by the SIPs reporting executions that occurred on the
Exchange (for non-displayed trading interest).
In setting the level of the proposed data product fees, the
Exchange took into consideration several factors, including:
[[Page 10335]]
(1) Consultation with some of the entities that the Exchange
anticipates will be the most likely to take advantage of the products;
(2) the contribution of market data revenues that the Exchange
believes is appropriate for vendors and other entities that provide
market data to the investing public;
(3) the contribution that revenues accruing from the proposed fees
will make to meeting the overall costs of the Exchange's operations;
(4) investors', broker-dealers' and data vendors' access to the
Exchange's last sale prices through existing data feeds; and
(5) the fact that the proposed fees provide an alternative to
existing Network A and Network B fees under the CTA Plan and to the
fees imposed under the Nasdaq/UTP Plan, alternatives that vendors will
purchase only if they determine that the perceived benefits outweigh
the cost.
In the aftermath of the NYSE ArcaBook Approval Order, the Exchange
believes that the competition among exchanges for order flow and the
competition among exchanges for market data products subject the
proposed data product fees to significant competitive forces.
In addition, the Exchange believes that no substantial
countervailing basis exists to support a finding that the fees fail to
meet the requirement of the Act.
In sum, the availability of a variety of alternative sources of
information imposes significant competitive pressures on Exchange data
products and the Exchange's compelling need to attract order flow
imposes significant competitive pressure on the Exchange to act
equitably, fairly, and reasonably in setting the proposed data product
fees. The proposed data product fees are, in part, responses to that
pressure. The Exchange believes that the proposed fees would reflect an
equitable allocation of its overall costs to users of its facilities.
2. Statutory Basis
The rule change proposed in this submission is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities exchange, and, in particular,
with the requirements of Section 6(b) of the Act.\15\ Specifically, the
Exchange believes that the proposed change is consistent with Section
6(b)(4) of the Act,\16\ because it provides an equitable allocation of
reasonable dues, fees, and other charges among its members and other
recipients of Exchange data. The Exchange believes that its proposed
fees for the data products described herein are reasonable in light of
the benefits to data recipients and the fact that the Exchange's
existing data feeds will continue to be provided free of charge. These
products are completely optional in that no consumer is required to
purchase any of them and only those consumers that deem such products
to be of sufficient overall value and usefulness will purchase them. To
the extent consumers do purchase the data products, the revenue
generated will offset the Exchange's fixed costs of operating and
regulating a highly efficient and reliable platform for the trading of
U.S. equities. It will also help the Exchange cover its costs in
developing and running that platform, as well as ongoing infrastructure
costs.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4).
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The Exchange also believes that the proposed change is consistent
with Section 6(b)(5) of the Act,\17\ which requires, among other
things, that the Exchange's rules are not designed to unfairly
discriminate between customers, issuers, brokers or dealers.
Specifically, the Exchange believes that the fees proposed for the new
data products are equitable in that they are optional and apply
uniformly to all data recipients irrespective of each recipient's
relationship to the Exchange (e.g., Member, non-Member data recipient,
etc.).
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\17\ 15 U.S.C. 78f(b)(5).
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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 competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposal to introduce
certain new data products is designed to increase transparency and the
efficiency of executions by enabling data recipients to receive and use
Exchange data in new ways. As described above, there is significant
competition for the provision of market data to broker-dealers and
other market data consumers, as well as competition for the orders that
generate the data. In introducing the proposed data products, the
Exchange is providing products similar to data products offered by
other market centers.
In proposing and adopting Regulation NMS, the Commission rescinded
the prior prohibition on SROs from disseminating their trade reports
independently,\18\ subjecting that distribution to the ``fair and
reasonable'' and ``not unreasonably discriminatory'' standards that
have historically governed the distribution of consolidated data.\19\
The Commission stated, ``Given that * * * SROs will continue to
transmit trades to the Networks pursuant to the Plans * * *, the
Commission believe [SIC] that SROs and their members also should be
free to distribute their trades independently.'' \20\
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\18\ See Rule 601 of Regulation NMS.
\19\ See Rule 603(b) of Regulation NMS.
\20\ See Footnote 638 of Regulation NMS Release, supra note 13.
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The Commission rescinded the prohibition in recognition of the fact
that competition in the realm of SRO trade-report distribution would
produce market forces and innovation that would benefit the investing
public. The NYSE ArcaBook Approval Order enforces this finding. By
means of the data products proposed herein, the Exchange would provide
vendors and broker-dealers with an alternative market data product and
fee structure that does not exist today, without altering or rescinding
any existing market data products. If they believe that the proposed
product and fee structure are useful and cost-effective to their
business model, they will embrace them. The only change to an existing
data product is that the Exchange will now, for the first time, charge
for the provision of historical data. The Exchange believes this charge
is reasonable, however, given the cost of both maintaining and
providing such data.
Given the existence of alternative products containing BATS last
sale information, the fact that the Historical Data Products and BATS
Market Insight are consistent with products and information provided by
the Exchange's competitors and are purely optional sources of
information that can be used by data recipients that see value in such
information, the Exchange does not believe that the proposed data
products will result in any burden on competition that is not necessary
or appropriate in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any written comments from members or other interested parties.
[[Page 10336]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
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, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-BATS-2010-002 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2010-002. This file
number should be included on the subject line if e-mail 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 Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site viewing and
printing in the Commission's Public Reference Room, 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. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-BATS-2010-002 and should be submitted on or before March
26, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-4658 Filed 3-4-10; 8:45 am]
BILLING CODE 8011-01-P