[Federal Register Volume 89, Number 59 (Tuesday, March 26, 2024)]
[Notices]
[Pages 21118-21122]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06337]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99802; File No. SR-DTC-2024-003]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change To Amend the Clearing Agency 
Risk Management Framework

March 20, 2024.
    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 March 11, 2024, The Depository Trust Company (``DTC'') 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 clearing agency. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    (a) The proposed rule change consists of amendments to the Clearing 
Agency Risk Management Framework (``Risk Management Framework'', or 
``Framework'') of DTC and its affiliates, Fixed Income Clearing 
Corporation (``FICC'') and National Securities Clearing Corporation 
(``NSCC,'' and together with FICC and DTC, the ``Clearing 
Agencies'').\3\
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    \3\ See Securities Exchange Act Release Nos. 81635 (Sep. 15, 
2017), 82 FR 44224 (Sep. 21, 2017) (SR-DTC-2017-013; SR-FICC-2017-
016; SR-NSCC-2017-012) (``Initial Filing''), Securities Exchange Act 
Release No. 89271 (July 9, 2020), 85 FR 42933 (July 15, 2020) (SR-
NSCC-2020-012); Securities Exchange Act Release No. 89269 (July 9, 
2020), 85-42954 (July 15, 2020) (SR-DTC-2020-009); Securities 
Exchange Act Release No. 89270 (July 9, 2020), 85-42927 (July 15, 
2020) (SR-FICC-2020-007); Securities Exchange Act Release No. 96799 
(Feb. 03, 2023), 88 FR 8506 (Feb. 9, 2023) (SR-DTC-2023-001); 
Securities Exchange Act Release No. 96800 (Feb. 3, 2023), 88-8491 
(Feb. 9, 2023) (SR-FICC-2023-001); Securities Exchange Act Release 
No. 96801 (Feb. 3, 2023), 88-8502 (Feb. 9, 2023) (SR-NSCC-2023-001); 
Securities Exchange Act Release No. 99097 (Dec. 6, 2023), 88-86186 
(Dec. 12, 2023) (SR-FICC-2023-016); Securities Exchange Act Release 
No. 99098 (Dec. 6, 2023), 88-86183 (Dec. 12, 2023) (SR-NSCC-2023-
012); and Securities Exchange Act Release No. 99108 (Dec. 07, 2023), 
88 FR 86430 (Dec. 13, 2023) (SR-2023-DTC-012) (together with the 
Initial Filing, ``Framework Filings'').
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    The proposed rule change would amend the Framework to (1) describe 
how the Clearing Agencies may solicit the views of their participants 
and other industry stakeholders, for example, in developing new 
services or risk management practices, and in evaluating existing 
products or risk management practices; (2) provide for the annual 
assessment and subsequent review of FICC's Government Securities 
Division (``GSD'') access models by FICC's Board of Directors (``FICC 
Board''), in compliance with the requirements of Rule 17Ad-
22(e)(18)(iv)(C) under the Act; and (3) make other conforming and clean 
up changes to the Framework, as described in greater detail below.\4\
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    \4\ 17 CFR 240.17Ad-22(e)(18)(iv)(C). See Securities Exchange 
Act Release No. 99149 (Dec. 13, 2023), 89 FR 2714 (Jan. 16, 2024) 
(``Adopting Release,'' and the rules adopted therein referred to 
herein as ``Treasury Clearing Rules''). FICC must implement the new 
requirements of Rule 17Ad-22(e)(18)(iv)(C) by March 31, 2025.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for

[[Page 21119]]

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 clearing agency has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The Clearing Agency Risk Management Framework provides an outline 
for, among other things, how each of the Clearing Agencies 
comprehensively manages the risks, including the legal, credit, 
liquidity, operational, general business, investment, custody, and 
other risks, that arise in or are borne by it and, in this way, 
supports the Clearing Agencies' compliance with certain requirements of 
Rule 17Ad-22(e) under the Act, as described in the Framework 
Filings.\5\
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    \5\ See supra note 3. As described in the Framework Filings, the 
Framework describes how the Clearing Agencies address their 
respective compliance with the requirements of Rules 17Ad-22(e)(1), 
(3), (20), (21), (22) and (23). 17 CFR 240.17Ad-22(e)(1), (3), (20), 
(21), (22) and (23).
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    The Clearing Agencies routinely solicit their participants' and 
other industry stakeholders' views when developing new products, 
services or risk management practices, and when evaluating existing 
products, services or risk management practices in order to continue to 
meet the industry's needs, consistent with their responsibility to 
provide sound risk management and comply with other applicable 
provisions of the Exchange Act. Solicitation of industry views may be 
undertaken in a number of ways, including targeted outreach to firms 
expected to be impacted by a proposal to broader engagement with a 
stakeholder council that is assembled to consider issues relevant to a 
proposal.
    Furthermore, the Commission recently adopted amendments to Rule 
17Ad-22(e)(18)(iv)(C) under the Act that are applicable to FICC as a 
covered clearing agency that provides, through GSD, central 
counterparty services for transactions in U.S. Treasury securities. 
Rule 17Ad-22(e)(18)(iv)(C) requires that the FICC Board annually review 
the policies and procedures that are reasonably designed to ensure that 
FICC has appropriate means to facilitate access to clearance and 
settlement services of all eligible secondary market transactions in 
U.S. Treasury securities, including those of indirect participants.\6\ 
In connection with this requirement, FICC would conduct an annual 
assessment of its access models, which would include the solicitation 
of participant and other stakeholder views, prior to the FICC Board's 
review of those models. The proposed rule changes to the Framework 
would describe the scope of this annual assessment of GSD's access 
models and the FICC Board's subsequent review. These proposed changes 
would facilitate FICC's compliance with the requirements of Rule 17Ad-
22(e)(18)(iv)(C).\7\
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    \6\ Supra note 4.
    \7\ Id. Contemporaneous with this filing, FICC will file 
separate proposed rule changes to address other requirements 
applicable to it and adopted as part of the Treasury Clearing Rules.
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    Therefore, the proposed changes would amend the Framework to (i) 
describe the Clearing Agencies' solicitation of participant and 
stakeholder views in connection with their development and evaluation 
of products, services and risk management practices; (ii) describe the 
annual assessment of GSD's access models, which would include 
solicitation of participant and stakeholder views, and the subsequent 
annual review of those models by FICC's Board; and (iii) make other 
conforming and clean-up changes to the Framework, as discussed in 
further detail below.
i. Solicitation of Participant and Stakeholder Views
    Currently, Section 3 of the Framework outlines the Clearing 
Agencies' risk management strategies for managing Key Clearing Agency 
Risks in compliance with Rule 17Ad-22(e)(3).\8\ As noted above, the 
Clearing Agencies may, and regularly do, solicit the views of their 
participants and other industry stakeholders when, for example, 
developing new products, services or risk management measures, or when 
evaluating or making enhancements to existing products, services or 
risk management measures. This engagement can take many forms, 
including, for example, targeted outreach to firms that may be impacted 
by the matter being evaluated, wider solicitation of views through 
industry surveys, or through the engagement of a standing stakeholder 
council that has been established to advise on the matters related to 
the proposal.
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    \8\ ``Key Clearing Agency Risks'' are defined in Section 3 of 
the Framework and include, ``legal, credit, liquidity, operational, 
general business, investment, custody, and other risks, that arise 
in or are borne by the Clearing Agencies.'' Supra note 3.
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    The Clearing Agencies' consideration of these views supports its 
management of risks by ensuring that its activities continue to meet 
the needs of the industry its serves, consistent with their 
responsibility to provide sound risk management and comply with other 
applicable provisions of the Exchange Act. For example, participants 
and other stakeholders could identify any unintended impacts a proposal 
may have on their business models or practices and provide the Clearing 
Agencies with recommendations on how to meet the goal of a proposal 
through alternative approaches.
    Therefore, the proposed changes would add Section 3.4 to the 
Framework to describe how the Clearing Agencies may solicit the views 
of participants and stakeholders. A subsection 3.4.1 would describe how 
such solicitation may occur generally, including, for example, through 
targeted outreach to specific participants impacted by a proposal, more 
widely distributed surveys, and ad hoc forums, as well as through the 
establishment of standing advisory councils made up of representatives 
of the participants and other stakeholders. This subsection would also 
identify the stakeholders that may participate in such councils, 
including, for example, representatives from transfer agents, liquidity 
providers, market infrastructures, institutional and retail investors, 
customers of the Clearing Agencies' participants, securities issuers, 
and securities holders. The proposed changes would provide general 
description of how the Clearing Agencies may solicit the views of 
participants and other industry stakeholders, but would not create an 
obligation for the Clearing Agencies to conduct such outreach in any 
particular circumstances.
ii. Annual Assessment and FICC Board Review of GSD's Access Models
    Additionally, the proposed Section 3.4, in a subsection 3.4.2, 
would describe more specifically that an advisory council would assist 
in an annual review of GSD's access models. This assessment of GSD's 
access models would be required to be conducted annually by FICC and 
would precede an annual review of GSD's access models by the FICC 
Board, as required by Rule 17Ad-22(e)(18)(iv)(C).\9\
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    \9\ Supra note 4. Contemporaneous with this filing, FICC will 
file a separate proposed rule change to address the other 
requirements of Rule 17Ad-22(e)(18)(iv)(C).
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    The annual review of GSD's access models would be designed to 
determine whether FICC continues to provide

[[Page 21120]]

appropriate and flexible means to facilitate access to clearance and 
settlement of all eligible secondary market transactions in U.S. 
Treasury securities, including those of indirect participants, 
consistent with FICC's responsibility to provide sound risk management 
and comply with its applicable regulatory requirements. The proposed 
Section 3.4 of the Framework would further provide that the annual 
review would include the following, in furtherance of its goal: (1) 
document any instance in which FICC treats transactions differently and 
confirm that any variation in treatment is both necessary and 
appropriate; (2) consider whether to enable GSD's Netting Members to 
submit to eligible transactions for clearance and settlement that have 
been executed by two indirect participants of FICC/GSD (``done-away''); 
(3) consider the volumes and proportion of the markets that are being 
centrally cleared through different access models; and (4) consider 
whether it is appropriate to develop and propose an additional category 
or categories of Netting Members to the GSD Rules to reflect the types 
of legal entities that applied to be a Netting Member over the prior 12 
months and did not fit into one of the existing Netting Member 
categories.
    Engaging participants, their customers and other stakeholders in 
this annual review would facilitate FICC's ability to meet these goals. 
Participants and other stakeholders could, for example, assist in 
identifying ways the GSD access models may treat their, or their 
customers' transactions differently and in assessing whether such 
variation in treatment is both necessary and appropriate. A stakeholder 
council, which would include representatives of participants, their 
customers and as well as other industry stakeholders, could also 
provide FICC with information regarding their business models and how 
they, and their customers, use GSD's clearing services. Through this 
outreach, FICC could better understand the volumes and proportions of 
the markets that are being centrally cleared through different access 
models. Participant and stakeholder views obtained in the review of 
GSD's access models would be included in the annual review of those 
models by the FICC Board and, therefore, support FICC's compliance with 
Rule 17Ad-22(e)(18)(iv)(C) under the Act.\10\
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    \10\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
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    As noted above, FICC is separately filing a proposed rule change to 
address the other requirements of Rule 17Ad-22(e)(18)(iv)(C), including 
changes that would provide a framework for FICC to consider an 
applicant, including a legal entity that is organized or established 
under the laws of a country other than the United States, to be a 
Netting Member if that applicant does not meet the eligibility criteria 
of one of the existing Netting Member categories. In connection with 
its annual review of the GSD access models, the proposed changes to the 
Framework would also require that FICC review the types and number of 
legal entities that have applied to be a Netting Member under the 
proposed provision over the prior 12 months. Based on that review, FICC 
would determine whether it would be appropriate to adopt, through a 
proposed rule change, a new category of Netting Member and the 
applicable qualifications and membership standards.
iii. Other Conforming and Clean Up Changes
    The Clearing Agencies would also make conforming and other clean up 
changes to the Framework. These changes would include changes to the 
Executive Summary of the Framework in Section 1 to (1) include the 
annual review of GSD's access models, pursuant to Rule 17Ad-
22(e)(18)(iv)(C) under the Act,\11\ in the list of regulatory 
requirements that are addressed in the Framework; and (2) update the 
description of the contents of Section 3 of the Framework to include 
the solicitation of participant and stakeholder views and annual review 
of GSD's access models as part of the Clearing Agencies' management of 
risks.
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    \11\ Id.
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    The proposed changes would also remove the defined term 
``Management Committee'' wherever referenced and replace it with 
``senior management committee.'' The same internal management committee 
would maintain the responsibilities of the current Management 
Committee, as described in the Framework, but the proposed changes to 
remove the capitalized reference to this committee would allow the 
Framework to continue to be accurate notwithstanding any future changes 
to the name of this committee.
    Other grammatical clean up changes would also be made to the 
Framework.
Implementation Timeframe
    Subject to approval by the Commission, the Clearing Agencies expect 
to implement the proposal by no later than March 31, 2025, and would 
announce the effective date of the proposed change by an Important 
Notice posted to the Clearing Agencies' website.
2. Statutory Basis
    The Clearing Agencies believe that the proposed changes are 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a registered clearing agency, 
particularly, Section 17A(b)(3)(F) of the Act \12\ and Rule 17Ad-
22(e)(18)(iv)(C) under the Act,\13\ for the reasons described below.
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    \12\ 15 U.S.C. 78q-1(b)(3)(F).
    \13\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
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    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of a registered clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and assure 
the safeguarding of securities and funds which are in their custody or 
control or for which they are responsible.\14\ The proposed changes 
would describe how the Clearing Agencies solicit the views of their 
participants and stakeholders in developing new, and evaluating 
existing, products, services and risk management practices. As 
described above, by soliciting these views, the Clearing Agencies would 
be able to identify, for example, any unintended consequences a 
proposal may have on its participants and obtain recommendations on how 
to meet its goals through alternative approaches. In this way, by 
managing the risk that a proposal could have an unintended consequences 
on participants, the proposed changes to describe the solicitation of 
participant and stakeholder views by the Clearing Agencies in 
developing proposals would promote the prompt and accurate clearance 
and settlement of securities transactions, consistent with Section 
17A(b)(3)(F) of the Act.\15\
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    \14\ Supra note 12.
    \15\ Id.
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    The proposed changes to make conforming and clean up changes to the 
Framework would ensure that the Framework is clear and accurate in 
describing the risk management functions of the Clearing Agencies. The 
risk management functions described in the Framework allow the Clearing 
Agencies to continue to promote the prompt and accurate clearance and 
settlement of securities transactions and continue to assure the 
safeguarding of securities and funds which are in their custody or 
control or for which they are responsible. By improving the clarity and 
accuracy of the descriptions of risk management functions within the 
Framework, the proposed changes

[[Page 21121]]

would assist the Clearing Agencies in carrying out these risk 
management functions. Therefore, the Clearing Agencies believe these 
proposed changes are consistent with the requirements of Section 
17A(b)(3)(F) of the Act.\16\
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    \16\ Id.
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    Rule 17Ad-22(e)(18)(iv)(C) under the Act requires, among other 
things, that the FICC Board annually review the policies and procedures 
that are reasonably designed to ensure that FICC has appropriate means 
to facilitate access to clearance and settlement services of all 
eligible secondary market transactions in U.S. Treasury securities, 
including those of indirect participants.\17\ The proposed changes to 
the Framework would describe how GSD's access models would be assessed 
annually, including through the solicitation of feedback on such access 
models by a stakeholder council. The proposed changes would also 
describe the goals of the assessment and how those goals would be met. 
Finally, the proposed changes would provide that the assessment of 
GSD's access models be conducted prior to, and in support of, the 
annual review of those models by the FICC Board, as required by Rule 
17Ad-22(e)(18)(iv)(C).\18\ Therefore, the Clearing Agencies believe 
these proposed changes are consistent with the requirements of Rule 
17Ad-22(e)(18)(iv)(C).\19\
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    \17\ 17 CFR 240.17Ad-22(e)(18)(iv)(C).
    \18\ Id.
    \19\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    The Clearing Agencies do not believe that the proposed changes to 
the Framework to describe the solicitation of participant and 
stakeholder views, and the annual review of the GSD's access models, 
would have any impact on competition. The proposed changes would 
describe an existing process by which the Clearing Agencies engage with 
their participants and other stakeholders regularly in connection with 
their evaluation of proposals and their assessment of existing 
practices. The proposed change would also describe how it would use 
various methods for soliciting feedback from different groups, which 
will facilitate its ability to solicit a wide range of views from 
different types of firms. Further, as described above, the goal of the 
annual assessment and review of GSD's access models is to ensure FICC 
offers appropriate means to facilitate access to GSD's clearing 
services, including those of indirect participants. By contributing to 
the development of access models that are designed to facilitate access 
to GSD's clearing services by a wider variety of market participants, 
the annual assessment and review of GSD's access models in the 
Framework would promote competition in the markets where GSD operates.
    The Clearing Agencies do not believe the proposed rule changes to 
make conforming and clean up changes to the Framework would impact 
competition. These changes would ensure the clarity and accuracy of the 
descriptions of risk management functions in the Framework. They would 
not affect participants' rights and obligations. As such, the Clearing 
Agencies believe the proposal to make conforming and clean up changes 
would not have any impact on competition.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    The Clearing Agencies have not received or solicited any written 
comments relating to this proposal. If any written comments are 
received, they will be publicly filed as an Exhibit 2 to this filing, 
as required by Form 19b-4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
Section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at www.sec.gov/regulatory-actions/how-to-submit-comments. General questions regarding 
the rule filing process or logistical questions regarding this filing 
should be directed to the Main Office of the Commission's Division of 
Trading and Markets at [email protected] or 202-551-5777.
    The Clearing Agencies reserve the right not to respond to any 
comments received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments:

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-DTC-2024-003 on the subject line.

Paper Comments:

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

All submissions should refer to file number SR-DTC-2024-003. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of DTC and on DTCC's 
website (https://dtcc.com/legal/sec-rule-filings.aspx). Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright

[[Page 21122]]

protection. All submissions should refer to file number SR-DTC-2024-003 
and should be submitted on or before April 16, 2024.

    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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06337 Filed 3-25-24; 8:45 am]
BILLING CODE 8011-01-P