[Federal Register Volume 86, Number 144 (Friday, July 30, 2021)]
[Notices]
[Pages 41138-41141]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-16226]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92491; File No. SR-MRX-2021-09]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Opening Process
July 26, 2021.
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 19, 2021, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III, below, which Items
have been prepared by the Exchange. 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. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend MRX Options 3, Section 8, ``Options
Opening Process.''
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/mrx/rules, 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 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
MRX proposes to amend Options 3, Section 8, ``Options Opening
Process.'' Specifically, the Exchange proposes to amend the definition
of Valid Width Quote at Options 3, Section 8(a)(8).
MRX's Opening Process for an option series is conducted pursuant to
Options 3, Section 8 paragraphs (f)-(j), on or after 9:30 a.m. Eastern
the ABBO, if any, is not crossed and the System has received, within
two minutes \3\ of the opening trade or quote on the market for the
underlying security,\4\ a Valid Width Quote. The System will accept a
Primary Market Maker's Valid Width Quote or the Valid Width Quote of at
least one Competitive Market Maker.\5\ Today, MRX requires a Primary
Market Maker to enter a Valid Width Quote in 90% of their assigned
series, not later than one minute following the dissemination of a
quote or trade by the market for the underlying security.\6\ Primary
Market Makers must promptly enter a Valid Width Quote in the remainder
of their assigned series, which did not open within one minute
following the dissemination of a quote or trade by the market for the
underlying security.\7\ In either case, the Primary Market Maker or
Competitive Market Maker must enter a Valid Width Quote to open an
options series. MRX Options 3, Section 8(a)(8) defines a Valid Width
Quote as follows:
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\3\ The Exchange may designated a shorter time provided it is
disseminated to membership on the Exchange's website.
\4\ In the case of index options, the timing is within two
minutes of the receipt of the opening price in the underlying index
or within two minutes of market opening for the underlying security
in the case of U.S. dollar-settled foreign currency options. In both
cases the Exchange may designated a shorter time provided it is
disseminated to membership on the Exchange's website.
\5\ The Exchange proposes an amendment within Options 3, Section
8(c)(1)(B) as described below.
\6\ In the case of index options, a Primary Market Maker must
enter a Valid Width Quote in 90% of their assigned series, not later
than one minute following the receipt of the opening price in the
underlying index. The Primary Market Maker assigned in a particular
U.S. dollar-settled foreign currency option must enter a Valid Width
Quote, in 90% of their assigned series, not later than one minute
after the announced market opening. See Options 3, Section 8(c)(3).
The Exchange proposes to make a technical amendment to Options 3,
Section 8(c)(3) which is described below.
\7\ In the case of index options, Primary Market Makers must
promptly enter a Valid Width Quote in the remainder of their
assigned series, which did not open following the receipt of the
opening price in the underlying index or, with respect to U.S.
dollar-settled foreign currency options, following the announced
market opening. See Options 3, Section 8(c)(3).
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A ``Valid Width Quote'' is a two-sided electronic quotation
submitted by a Market Maker that meets the following requirements:
Differentials shall be no more than $.25 between the bid and offer for
each options contract for which the bid is less than $2, no more than
$.40 where the bid is at least $2 but does not exceed $5, no more than
$.50 where the bid is more than $5 but does not exceed $10, no more
than $.80 where the bid is more than $10 but does not exceed $20, and
no more than $1 where the bid is $20 or greater, provided that, in the
case of equity options, the bid/ask differentials stated above shall
not apply to in-the-money series where the market for the underlying
security is wider than the differentials set forth above. The bid/ask
differentials for in-the-money options series may be as wide as the
quotation for the underlying security on the primary market, or its
decimal equivalent rounded down to the nearest minimum increment. The
Exchange may establish differences other than the above for one or more
series or classes of options.
The Exchange proposes to amend a Valid Width Quote to instead
provide:
A ``Valid Width Quote'' is a two-sided electronic quotation
submitted by a Market Maker that meets the following requirements:
Differentials shall be no more than $5, provided that, in the case of
equity options, the bid/ask differential stated above shall not apply
[[Page 41139]]
to in-the-money series where the market for the underlying security is
wider than the differential set forth above. The bid/ask differentials
for in-the-money options series may be as wide as the quotation for the
underlying security on the primary market, or its decimal equivalent
rounded down to the nearest minimum increment. The Exchange may
establish differences other than the above for one or more series or
classes of options. Such differences will be posted by the Exchange on
its website.
This proposed language is similar to Nasdaq BX, Inc. (``BX'').\8\
The Exchange proposes to widen the current bid/ask differentials for
several reasons.
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\8\ BX Options 3, Section 8(a)(9) provides, ``A `Valid Width
Quote' is a two-sided electronic quotation, submitted by a Market
Maker, quoted with a difference not to exceed $5 between the bid and
offer regardless of the price of the bid. However, respecting in-
the-money series where the market for the underlying security is
wider than $5, the bid/ask differential may be as wide as the
quotation for the underlying security on the primary market, or its
decimal equivalent rounded down to the nearest minimum increment.
The Exchange may establish differences other than the above for one
or more series or classes of options.'' See also Securities Exchange
Act Release No. 89731 (September 1, 2020), 85 FR 55524 (September 8,
2020) (SR-BX-2020-016) (Order Approving Proposed Rule Change To
Amend BX's Opening Process in Connection With a Technology
Migration).
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First, the proposal would conform the Valid Width Quote definition
of MRX to that of BX. BX refers to a difference not to exceed $5
between the bid and offer within the description of a Valid Width
Quote, similar to BX Options 2, Section 4(f) and 5(d)(2) that describes
intra-day quotes. By amending MRX's Valid Width Quote, the Exchange
notes that the $5 difference is akin to MRX's intra-day requirement
within MRX Options 2, Section 4(b)(4).\9\
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\9\ MRX Options 2, Section 4(b)(4) provides, ``. . . To price
options contracts fairly by, among other things, bidding and
offering so as to create differences of no more than $5 between the
bid and offer following the opening rotation in an equity or index
options contract. The Exchange may establish differences other than
the above for one or more series or classes of options.'' Intra-day,
MRX also distinguishes in-the-money options series where the
underlying securities market is wider than the differentials set
forth above. For these series, the bid/ask differential may be as
wide as the spread between the national best bid and offer in the
underlying security.
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Second, the proposed differential would simplify the differential
for Primary Market Makers, who would continue to be required to submit
a Valid Width Quote during the Opening Process in their assigned
options series. Widening the differentials would allow Primary Market
Makers and Competitive Market Makers that elect to quote during the
Opening Process, an ability to quote wider during the Opening Process
when an underlying is volatile. Today, pursuant to Options 3, Section
8(a)(8), the Exchange may establish differences other than the
established bid/ask differentials for one or more series or classes of
options. With this proposal, the Exchange is not amending its ability
to continue to establish differences for one or more series or classes
of options, rather the Exchange may continue to set other requirements
pursuant to current MRX Options 3, Section 8(a)(8). Today, the Exchange
has established Valid Width Quote differentials which differ from those
described within Options 3, Section 8(a)(8),\10\ they are:
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\10\ See https://www.nasdaq.com/docs/2021/03/22/MRXSystemSetting.pdf.
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Maximum bid/ask
Bid price low end of Bid price high end of differential
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$0.00 $1.99 $0.75
2.00 4.99 1.20
5.00 9.99 1.50
10.00 19.99 2.40
20.00 20.00+ 3.00
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Also, options with an expiration more than nine months away continue to
be permitted a Valid Width Quote bid/ask differential of $5.00. The
Exchange will continue to utilize the differentials currently posted on
its website until such time as it provides notice to Members of a
change.
Third, the Exchange also proposes to add rule text to state that
such differences will be posted by the Exchange on its website.\11\
Posting the current differentials on its website would allow Members to
easily refer to the quoting obligations for the Opening Process.
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\11\ Id.
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Technical Amendment
The Exchange proposes to amend ``Quotes'' to ``Quote'' within
Options 3, Section 8(c)(1)(B). The Exchange also proposes to remove two
incorrect citations to Options 3, Section 8(c)(1)(iii). The ``iii'' was
removed in a prior rule change.\12\
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\12\ See Securities Exchange Act Release No. 88660 (April 16,
2020), 85 FR 22482 (April 22, 2020) (SR-MRX-2020-09) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Options 3, Section 8, Relating to the Options Opening Process).
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2. Statutory Basis
The Exchange believes that its proposal to establish a $5
difference is consistent with Section 6(b) of the Act.\13\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \14\ requirements that the rules of
an exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \15\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
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The Exchange believes that the proposed $5 difference for the Valid
Width Quote is more appropriate because it reflects the Exchange's
experience in administering the rule and would continue to give Market
Makers flexibility including during the Opening Process. The Exchange
notes that the current standard is not being applied as the Exchange
has established Valid Width Quote differentials which differ from those
described within Options 3, Section 8(a)(8).\16\ Widening the Valid
Width Quote requirement would provide Primary Market Makers, and
Competitive Market Makers that elect to quote during the Opening
Process, additional flexibility when submitting Valid Width Quotes
during the Opening Process thereby allowing these Market Makers the
ability to quote wider in instances where the Exchange has not
established Valid Width Quote differentials which differ from those in
the rule because volatile market conditions exist or there is news
regarding an underlying security which may impact pricing. Primary
Market Makers are integral to the Exchange's Opening Process as MRX is
dependent on receiving a Valid Width Quote to open an options series.
With this proposal, Primary Market Makers would continue to be required
to submit a Valid Width Quote during the Opening Process in their
assigned options series.\17\
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\16\ See supra note 10.
\17\ Today, MRX, Nasdaq GEMX, LLC (``GEMX''), Nasdaq ISE, LLC
(``ISE''), Nasdaq Phlx LLC (``Phlx''), Miami International
Securities Exchange, LLC (``MIAX'') and MIAX Emerald, LLC
(``Emerald'') and are the only options markets that require a
Primary Market Maker, or Lead Market Maker in the case of Phlx, to
submit a quote to open an options series.
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The proposal would conform the Valid Width Quote definition of MRX
to
[[Page 41140]]
that of BX.\18\ BX refers to a difference not to exceed $5 between the
bid and offer within the description of a Valid Width Quote, similar to
BX Options 2, Section 4(f) and 5(d)(2) that describes intra-day quotes.
By amending MRX's Valid Width Quote, the Exchange notes that the $5
difference is akin to MRX's intra-day requirement within MRX Options 2,
Section 4(b)(4).\19\ Also, today, MIAX and Emerald require market
makers to enter a valid width NBBO with a difference of no more than $5
between the bid and offer.\20\
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\18\ See supra note 8.
\19\ See supra note 9.
\20\ MIAX and Emerald require Market Makers to submit a valid
width NBBO in the opening where the bid and offer of the NBBO differ
no more than differences outlined in MIAX and Emerald Rule
603(b)(4)(i). MIAX and Emerald Rule 603(b)(4)(i) provides that
bidding and offering so as to create differences of no more than $5
between the bid and offer. Rule 603(b)(4)(ii) provides MIAX and
Emerald may establish differences other than the bid/ask
differentials described in (i) above for one or more option series
or classes, respectively. See MIAX and Emerald Rules 503.
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Not all options markets have bid/ask differentials. In 2019, Cboe
removed its quote width requirements while citing corresponding rules
of its affiliated exchanges.\21\ Cboe noted in the 2019 Rule Change
that the current quote width requirement at the time for generally all
classes was $10, however, its Market-Makers consistently maintained
two-sided quotes that were much tighter than the required width. Cboe
opined that, even if markets experienced periods of stress or
volatility, they remained obligated to maintain two sided markets and
engage in a course of dealings that must be reasonably calculated to
contribute to the maintenance of a fair and orderly market, which
includes refraining from making bids or offers that are inconsistent
with such course of dealings and updating quotations in response to
changed market conditions.\22\ Cboe noted that it did not believe that
continuing to provide for a quote width requirement was necessary nor
would it impact the maintenance of fair and orderly markets because
Market-Makers already quoted at a bid/ask spread much narrower than the
requirements and were required to continuously fulfill their
obligations to engage in a course of dealings reasonably calculated to
contribute to the maintenance of a fair and orderly market.\23\
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\21\ See Securities Exchange Act Release No. 87024 (September
19, 2019), 84 FR 50545 (September 25, 2019) (SR-Cboe-2019-059)
(``2019 Rule Change'').
\22\ Id.
\23\ Id.
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Unlike Cboe, MRX does require its Market Makers to quote both
during the Opening Process and intra-day within certain established
bid/ask differentials. The Exchange notes that widening its Valid Width
Quote differential during the Opening Process will not impact the
maintenance of fair and orderly markets because Market Makers on MRX,
unlike other markets that do not require quoting during the Opening
Process, will continue to require that its Market Makers provide Valid
Width Quotes during the Opening Process, thereby ensuring liquidity.
Also, Market Makers may quote tighter than the defined Valid Width
Quote differential. Finally, similar to Cboe's argument in the 2019
Rule Change, Market Makers are required to continuously fulfill their
obligations to engage in a course of dealings reasonably calculated to
contribute to the maintenance of a fair and orderly market.
Today, the Exchange has discretion to set other differentials,\24\
similar to MIAX and Emerald.\25\ The Exchange currently is utilizing
that discretion to set different bid/ask differentials based on its
observation of market openings. Currently, the Exchange requires Market
Makers to submit Valid Width Quotes which are tighter than the proposed
$5 difference.
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\24\ See Options 3, Section 8(a)(8), the Exchange may establish
differences other than the established bid/ask differentials for one
or more series or classes of options.
\25\ See MIAX and Emerald Rules 503.
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The Exchange's robust Opening Process seeks to encourage quality
markets. As noted herein, unlike a majority of options markets,\26\ it
requires Primary Market Makers to quote during the Opening Process to
ensure liquidity as well as an efficient Opening Process where options
series are opened quickly and at fair prices.
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\26\ See supra note 17.
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The proposal to add rule text to state that such differences will
be posted by the Exchange on its website \27\ would allow Members to
easily refer to the quoting obligations for the Opening Process.
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\27\ Id.
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Technical Amendment
The Exchange's proposal to amend ``Quotes'' to ``Quote'' within
Options 3, Section 8(c)(1)(B) and remove two incorrect citations to
Options 3, Section 8(c)(1)(C) will bring greater clarity to the
Exchange's Rules.
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 Exchange's proposal to
require Primary Market Makers and Competitive Market Makers to bid and/
or offer an option series with differences of no more than $5 for
options on equities and index options does not impose an undue burden
on competition. All Primary Market Makers, and Competitive Market
Makers who elect to quote during the Opening Process, would be subject
to the same requirement to submit a Valid Width Quote when submitting
quotes during the Opening Process. Differentials would be available on
the Exchange's website and therefore transparent, allowing Members to
easily refer to the quoting obligations for the Opening Process.
Finally, the proposal would also align quoting requirements more
closely to intra-day requirements within MRX Options 2, Section
4(b)(4).
With respect to inter-market competition, the Exchange notes that
most options markets do not require market makers to quote during the
opening.\28\ The Exchange notes that MIAX and Emerald have quoting
requirements in the opening similar to the differential proposed
herein. Also, ISE, GEMX and Phlx are filing similar rule changes to
this proposal.\29\
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\28\ See supra note 17 citing the options markets that require
bid/ask differentials.
\29\ See SR-ISE-2021-17, SR-GEMX-2021-07 and SR-Phlx-2021-42.
These rule changes are not yet noticed.
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Technical Amendment
Exchange's proposal to amend ``Quotes'' to ``Quote'' within Options
3, Section 8(c)(1)(B) and remove two incorrect citations to Options 3,
Section 8(c)(1)(C) will bring greater clarity to the Exchange's Rules.
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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \30\ and
[[Page 41141]]
subparagraph (f)(6) of Rule 19b-4 thereunder.\31\
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\30\ 15 U.S.C. 78s(b)(3)(A)(iii).
\31\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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 necessary or
appropriate in the public interest, for the protection of investors, or
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-MRX-2021-09 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.
All submissions should refer to File Number SR-MRX-2021-09. 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 (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 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 10:00 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MRX-2021-09 and should be submitted on
or before August 20, 2021.
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\32\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16226 Filed 7-29-21; 8:45 am]
BILLING CODE 8011-01-P