[Federal Register Volume 82, Number 148 (Thursday, August 3, 2017)]
[Notices]
[Pages 36168-36172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16298]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81256; File No. SR-NASDAQ-2017-077]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Alter the Exchange's Fee Schedule for the Short Interest Report

July 28, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 25, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``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.\3\ 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.
    \3\ The Commission notes that Nasdaq initially filed this 
proposal as SR-NASDAQ-2017-064 on June 29, 2017. Nasdaq withdrew 
that filing on July 13, 2017 and replaced it with SR-NASDAQ-2017-
071. On July 25, 2017, Nasdaq withdrew that filing and replaced it 
with this filing.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to alter the Exchange's fee schedule for the 
Short Interest Report at Rule 7022.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and

[[Page 36169]]

at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to alter the fee 
schedule for the Short Interest Report at Rule 7022. The Exchange 
proposes to replace the current fee structure, which is based on the 
frequency of distribution, with a subscription service based on the 
number of Subscribers receiving that report. Nasdaq proposes these 
changes to: (i) Partially offset increases in Nasdaq's cost of 
producing the report; (ii) more accurately reflect the value of the 
product to purchasers by establishing fees based on the number of 
Subscribers receiving the report rather than frequency of distribution; 
and (iii) provide an incentive to distribute the report widely by 
offering reduced rates to Distributors with a proven record of 
disseminating data widely to professionals and members of the investing 
public.
Short Interest Report
    The Short Interest Report is a summary of short interest positions 
for all Nasdaq-listed issues as reported by the Financial Industry 
Regulatory Authority (FINRA); it is designed to facilitate the 
distribution of short sale data to the media and assist investors and 
traders in developing risk-assessment tools and trading models for 
Nasdaq-listed issues. Reports are available on a semi-monthly basis on 
a secured FTP server.
Current Fee Structure
    Fees for the Short Interest Report are set forth in Subsection C of 
Nasdaq Rule 7022(b), under the title Nasdaq Issues Summary 
Statistics.\4\ Fees are divided into two schedules, depending upon 
whether the report is distributed more or less than once per month. 
Reports distributed once per month, quarter or year are charged as 
follows: $250 for 1-500 Subscribers; $300 for 501-999 Subscribers; $350 
for 1,000-4,999 Subscribers; $400 for 5,000-9,999 Subscribers; and $500 
for over 10,000 Subscribers. Reports distributed more often than once 
per month are charged $1,000 per month for unlimited internal 
distribution and $2,500 per month for unlimited external 
distribution.\5\ In addition, an annual set of aged reports previously 
distributed more often than once a month is available for $3,000 for an 
unlimited number of subscribers.
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    \4\ The Short Interest Report is the only report currently 
distributed under the fee schedule for Nasdaq Summary Statistics set 
forth in Subsection C of Nasdaq Rule 7022(b). See Securities 
Exchange Act Release 73662 at n.3 (November 20, 2014), 79 FR 70600 
(November 26, 2014) (SR-NASDAQ-2014-106); Securities Exchange Act 
Release 72911 (August 25, 2014), 79 FR 51628 (August 29, 2014) (SR-
NASDAQ-2014-086); Securities Exchange Act Release 68636 (January 11, 
2013), 78 FR 3940 (January 17, 2013) (SR-NASDAQ-2013-009).
    \5\ Internal distribution is defined as distribution within the 
recipient firm, while external distribution is defined as 
distribution both inside and outside of the firm.
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Proposed Fee Structure
    The proposed fee structure, set forth in revised Rule 7022(c),\6\ 
establishes a flat fee of $500 per month for unlimited access to the 
Short Interest Report. Separate fees based on the frequency of 
distribution are removed, including fees for reports distributed once 
per month, quarter, or year, and fees for an annual set of aged reports 
previously distributed more often than once a month. Internal 
distribution fees remain the same at $1,000 per month.
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    \6\ The Exchange proposes to move the fee schedule for the 
report from Subsection C of Rule 7022(b) to Rule 7022(c) because the 
proposed fees are designed specifically for the Short Interest 
Report. Subsection C of Nasdaq Rule 7022(b) will be reserved until 
needed for a new report that falls within that category of 
information. In 2013, the Exchange moved the Daily List and 
Fundamental Data information in a similar fashion from Nasdaq Issues 
Summary Statistics into Rule 7022(d), which will be re-designated as 
Rule 7022(e) by this rule change. See Securities Exchange Act 
Release 68636 (January 11, 2013), 78 FR 3940 (January 17, 2013) (SR-
NASDAQ-2013-009).
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    External distribution fees are revised to reflect the number of 
Subscribers with access to the report, as follows: $2,500 for 1-499 
Subscribers; $5,000 for 500-9,999 Subscribers; and $7,500 for 10,000 or 
more Subscribers or on an open Web site.
    Distributors that serve a large number of external Subscribers will 
be offered reduced fees. Firms that purchase an enterprise license for 
Nasdaq Basic under Rule 7047(b)(5), an enterprise license for depth-of-
book data under Rule 7023(c)(3), or that pay $5,000 or more in monthly 
usage fees for Nasdaq Last Sale (NLS) or NLS Plus under Rule 7039 
(excluding distributor fees under Rule 7039(c)), will be eligible for a 
reduced rate of $1,500 per month for distribution to an unlimited 
number of external Subscribers or on an open Web site.\7\ This fee is a 
reduction from the current flat fee of $2,500.\8\
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    \7\ The Exchange offers a reduced rate for the largest 
distributors of a number of its market data products. For example, 
the Exchange establishes a maximum fee of $41,500 per month for NLS 
for Nasdaq and NLS for NYSE/NYSE MKT without regard to usage in Rule 
7039(b). Also, firms that purchase enterprise licenses under Rules 
7023(c)(3) or Rule 7047(b)(5) may pay less for the same service than 
firms that elect not to purchase an enterprise license. As explained 
in the discussion of statutory basis, offering discounts to firms 
that elect to purchase an enterprise license or that otherwise pay 
large amounts in market data fees is an equitable allocation of 
reasonable dues, fees, and other charges.
    \8\ The Exchange also corrects a typographical error in the fee 
schedule by replacing ``4999'' with ``4,999.''
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    These changes are proposed to: (i) Partially offset increases in 
Nasdaq's cost of producing the report; (ii) more accurately reflect the 
value of the product to purchasers by establishing fees based on the 
number of Subscribers receiving the report rather than frequency of 
distribution; and (iii) provide an incentive to distribute the report 
widely by offering reduced rates to Distributors with a proven record 
of disseminating data widely to professionals and members of the 
investing public.
    The impetus for the proposed fee changes arose when FINRA increased 
its annual charges for receipt of short interest data effective January 
1, 2017, resulting in an increase to Nasdaq's cost in producing the 
report. In response, the Exchange reviewed the Short Interest Report 
fee structure, and determined that fees should be based on the number 
of Subscribers receiving it, rather than the frequency of distribution. 
The Exchange proposes these revisions because the number of Subscribers 
is a better measure of the value of the report to both professionals 
and the investing public than the frequency of distribution. The 
Exchange also proposes to adjust the fee structure to encourage wider 
dissemination of the report by reducing fees for firms with a proven 
ability to disseminate information widely. This includes firms with a 
sufficiently large Subscriber base to purchase enterprise licenses for 
Nasdaq Basic and depth-of-book data, or that have demonstrated broad 
dissemination of Exchange data by

[[Page 36170]]

paying over $5,000 per month in monthly usage fees for NLS or NLS Plus.
    The proposed fees for the Short Interest Report are optional in 
that they apply only to firms that elect to purchase these products. 
The proposed changes do not impact the cost of any other Nasdaq 
product.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers. The proposed fee increase reasonably 
reflects the value that members and sponsored customers receive for the 
service, and a reduced rate for large Distributors avoids placing a 
disproportionate financial burden on Distributors that have purchased 
enterprise licenses to control costs or that have already expended 
substantial amounts to distribute certain Nasdaq market data products 
intended for the general investing public.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange proposes charging the same $500 subscription fee and 
$1,000 internal distribution fee to all Distributors.
    External distribution fees will be based on a tiered fee structure 
that depends on the number of Subscribers, with a reduced rate for 
Distributors that purchase certain enterprise licenses or that pay more 
than a certain amount for NLS or NLS Plus. Firms with between 1 and 499 
Subscribers will continue to pay $2,500, while firms with more 
Subscribers pay either $5,000 or $7,500, depending on the number of 
Subscribers. The tiered structure for external distribution is an 
equitable allocation of reasonable dues, fees and other charges because 
the higher fees are commensurate with the higher value of the report 
for Distributors with more Subscribers.
    The reduced rate for Distributors that have elected to purchase an 
enterprise license for the distribution of Nasdaq depth-of-book 
products or Nasdaq Basic, or that pay substantial fees for the 
distribution of NLS or NLS Plus, is also an equitable allocation of 
reasonable dues, fees and other charges. Enterprise licenses are a 
frequently-employed method for allowing Distributors to control costs, 
and purchasing such licenses may, from time to time, result in the 
enterprise license purchaser paying less for the same service than a 
Distributor that elected not to purchase such a license. This is an 
equitable allocation of reasonable dues, fees and other charges because 
Distributors have a choice of whether or not to purchase the enterprise 
license.
    The Exchange also proposes a fee cap on short interest report fees 
for firms that pay over $5,000 per month in monthly usage fees for NLS 
or NLS Plus. This is analogous to the fee cap of $41,500 per month for 
NLS in Rule 7039(b). It is an equitable allocation of reasonable dues, 
fees and other charges because it avoids placing a disproportionate 
financial burden on Distributors that pay a substantial amount for 
distributing data to the general investing public by limiting the total 
amount that such Distributors are required to pay. This fee cap will be 
applied equally to all Distributors that reach the established level of 
fees for NLS or NLS Plus.
    In adopting Regulation NMS,\11\ the Commission granted SROs and 
broker-dealers increased authority and flexibility to offer new and 
unique market data to the public. It was believed that this authority 
would expand the amount of data available to consumers, and also spur 
innovation and competition for the provision of market data. The Short 
Interest Report--which supplies data on short interest positions for 
all Nasdaq-listed issues as reported by the Financial Industry 
Regulatory Authority--is the type of market data product that the 
Commission envisioned when it adopted regulation NMS. The Commission 
concluded that Regulation NMS--deregulating the market in proprietary 
data--would further the Act's goals of facilitating efficiency and 
competition:
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    \11\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to receive 
(and pay for) such data. The Commission also believes that efficiency 
is promoted when broker-dealers may choose to receive (and pay for) 
additional market data based on their own internal analysis of the need 
for such data.\12\
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    \12\ Id.
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    By removing unnecessary regulatory restrictions on the ability of 
exchanges to sell their own data, Regulation NMS advanced the goals of 
the Act and the principles reflected in its legislative history.
    In NetCoalition v. Securities and Exchange Commission \13\ 
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\14\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \15\ ``No one disputes 
that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers' . . . .'' \16\
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    \13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \14\ See NetCoalition, at 534-535.
    \15\ Id. at 537.
    \16\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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    Data products such as the Short Interest Report are a means by 
which exchanges compete to attract order flow. To the extent that 
exchanges are successful in such competition, they earn trading 
revenues and also enhance the value of their data products by 
increasing the amount of data they provide. The need to compete for 
order flow places substantial pressure upon exchanges to keep their 
fees for both executions and data reasonable.\17\
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    \17\ See Sec. Indus. Fin. Mkts. Ass'n (SIFMA), Initial Decision 
Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June 1, 2016) (finding 
the existence of vigorous competition with respect to non-core 
market data).
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    The proposed changes are consistent with Section 6(b)(5) of the 
Act. The proposed fees will reflect the value of the product by basing 
fees on the number of Subscribers receiving the report, and the reduced 
fees for certain large Distributors avoids allocating disproportionally 
high charges to Distributors that already expend substantial amounts to 
distribute certain Nasdaq products. The proposed changes would not 
permit unfair discrimination because the Exchange will apply the

[[Page 36171]]

same fee to all similarly-situated Distributors.
    Fees for the Short Interest Report are optional in that they apply 
only to firms that elect to purchase the product, which, like all 
proprietary data products, they may cancel at any time.

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. Indeed, the Exchange believes 
that the Short Interest Report enhances competition by creating a fee 
structure that reflects the value of the report to both Distributors 
and Subscribers and encourages the dissemination of the report to 
professionals and the investing public.
    The market for data products is extremely competitive and firms may 
freely choose alternative venues and data vendors based on the 
aggregate fees assessed, the data offered, and the value provided. 
Numerous exchanges compete with each other for listings, trades, and 
market data itself, providing virtually limitless opportunities for 
entrepreneurs who wish to produce and distribute their own market data. 
Transaction execution and proprietary data products are complementary 
in that market data is both an input and a byproduct of the execution 
service. In fact, market data and trade execution are a paradigmatic 
example of joint products with joint costs. The decision whether and on 
which platform to post an order will depend on the attributes of the 
platform where the order can be posted, including the execution fees, 
data quality and price, and distribution of its data products. Without 
trade executions, exchange data products cannot exist. Moreover, data 
products are valuable to many end users only insofar as they provide 
information that end users expect will assist them or their customers 
in making trading decisions.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the revenues it receives from both 
products and the joint costs it incurs. Moreover, the operation of the 
exchange is characterized by high fixed costs and low marginal costs. 
This cost structure is common in content distribution industries such 
as software, where developing new software typically requires a large 
initial investment (and continuing large investments to upgrade the 
software), but once the software is developed, the incremental cost of 
providing that software to an additional user is typically small, or 
even zero (e.g., if the software can be downloaded over the internet 
after being purchased).\18\ It is costly to build and maintain a 
trading platform, but the incremental cost of trading each additional 
share on an existing platform, or distributing an additional instance 
of data, is very low. Market information and executions are each 
produced jointly (in the sense that the activities of trading and 
placing orders are the source of the information that is distributed) 
and are each subject to significant scale economies.
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    \18\ See William J. Baumol and Daniel G. Swanson, ``The New 
Economy and Ubiquitous Competitive Price Discrimination: Identifying 
Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol. 
70, No. 3 (2003).
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    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products. The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including SRO markets, as well as internalizing BDs and various forms 
of alternative trading systems (``ATSs''), including dark pools and 
electronic communication networks (``ECNs''). Each SRO market competes 
to produce transaction reports via trade executions, and two FINRA-
regulated TRFs compete to attract internalized transaction reports. It 
is common for BDs to further and exploit this competition by sending 
their order flow and transaction reports to multiple markets, rather 
than providing them all to a single market. Competitive markets for 
order flow, executions, and transaction reports provide pricing 
discipline for the inputs of proprietary data products. The large 
number of SROs, TRFs, BDs, and ATSs that currently produce proprietary 
data or are currently capable of producing it provides further pricing 
discipline for proprietary data products. Each SRO, TRF, ATS, and BD is 
currently permitted to produce proprietary data products, and many 
currently do or have announced plans to do so, including Nasdaq, NYSE, 
NYSE MKT, NYSE Arca, and the BATS exchanges.
    In this competitive environment, an ``excessive'' price for one 
product will have to be reflected in lower prices for other products 
sold by the Exchange, or otherwise the Exchange may experience a loss 
in sales that may adversely affect its profitability.
    In this instance, the proposed rule change enhances competition by 
creating a fee structure that reflects the value of the report to both 
Distributors and Subscribers and encourages the dissemination of the 
report to professionals and the investing public. If the Short Interest 
Report were to become unattractive to members and sponsored firms, 
those firms would opt not to purchase the product, and it is likely 
that the Exchange will lose market share as a result. As such, the 
Exchange does not believe that the proposed changes will impair 
competition in the financial markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\19\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or 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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2017-077 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

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    All submissions should refer to File Number SR-NASDAQ-2017-077. 
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 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, 100 F 
Street NE., Washington, DC 20549 on official business days between the 
hours of 10:00 a.m. and 3:00 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-
NASDAQ-2017-077, and should be submitted on or before August 24, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-16298 Filed 8-2-17; 8:45 am]
BILLING CODE 8011-01-P