[Federal Register Volume 89, Number 98 (Monday, May 20, 2024)]
[Notices]
[Pages 43903-43907]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10955]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100139; File No. SR-GEMX-2024-10]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 7, 
Section 6

May 14, 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 May 1, 2024, Nasdaq GEMX, LLC (``GEMX'' 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 its Rules at Options 7, Section 
6.\3\
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    \3\ The Exchange initially filed the proposed pricing changes on 
November 28, 2023 (SR-GEMX-2023-16) to be effective on December 1, 
2023. On December 5, 2023, the Exchange withdrew SR-GEMX-2023-16 and 
replaced it with SR-GEMX-2023-19. On January 16, 2023, the Exchange 
withdrew SR-GEMX-2023-19 and submitted SR-GEMX-2024-03. On March 7, 
2024, the Exchange withdrew SR-GEMX-2024-03 and submitted SR-GEMX-
2024-07. On May 1, 2024, the Exchange withdrew SR-GEMX-2024-07 and 
submitted this filing.
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    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/gemx/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
    The Exchange proposes to amend Options 7, Section 6, C, Ports and 
Other Services. Specifically, the Exchange proposes to amend the 
monthly caps for SQF Ports \4\ and SQF Purge Ports.\5\
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    \4\ ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Market Makers to connect, send, and receive messages related 
to quotes, Immediate-or-Cancel Orders, and auction responses to the 
Exchange. Features include the following: (1) options symbol 
directory messages (e.g., underlying instruments); (2) System event 
messages (e.g., start of trading hours messages and start of 
opening); (3) trading action messages (e.g., halts and resumes); (4) 
execution messages; (5) quote messages; (6) Immediate-or-Cancel 
Order messages; (7) risk protection triggers and purge 
notifications; (8) opening imbalance messages; (9) auction 
notifications; and (10) auction responses. The SQF Purge Interface 
only receives and notifies of purge requests from the Market Maker. 
Market Makers may only enter interest into SQF in their assigned 
options series. Immediate-or-Cancel Orders entered into SQF are not 
subject to the Order Price Protection, Market Order Spread 
Protection, and Size Limitation Protection in Options 3, Section 
15(a)(1)(A), (1)(B), and (2)(B) respectively. See Supplementary 
Material .03(c) to Options 3, Section 7.
    \5\ SQF Purge is a specific port for the SQF interface that only 
receives and notifies of purge requests from the Market Maker. 
Dedicated SQF Purge Ports enable Market Makers to seamlessly manage 
their ability to remove their quotes in a swift manner. The SQF 
Purge Port is designed to assist Market Makers in the management of, 
and risk control over, their quotes. Market Makers may utilize a 
purge port to reduce uncertainty and to manage risk by purging all 
quotes in their assigned options series. Of note, Market Makers may 
only enter interest into SQF in their assigned options series. 
Additionally, the SQF Purge Port may be utilized by a Market Maker 
in the event that the Member has a system issue and determines to 
purge its quotes from the order book.
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    Today, GEMX assesses $1,250 per port, per month for an SQF Port as 
well as an SQF Purge Port.\6\ Also, today, SQF Ports and SQF Purge 
Ports are subject to a monthly cap of $17,500, which cap is applicable 
to Market Makers.
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    \6\ The Exchange proposes to add a comma between ``per port'' 
and ``per month'' in the Options 7, Section 6, C, SQF Port and SQF 
Purge Port Fee rule text. The Exchange also proposes to remove an 
extraneous period in Options 7, Section 6, C, in the second 
paragraph.
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    At this time, the Exchange proposes to establish an increased SQF 
Fee and SQF Purge Port Cap to Primary Market Makers and Market Makers 
that do not provide a minimum amount of liquidity on GEMX. This 
proposed increased SQF Fee and SQF Purge Port Cap is intended to 
incentivize Primary Market Makers and Market Makers to add liquidity on 
GEMX for the benefit of other market participants in order to lower 
their fees. GEMX proposes to increase the SQF Port and SQF Purge Port 
Cap to $27,500 a month if a Primary Market Maker or Market Maker does 
not transact 0.50% of Total Customer Volume in electronic simple orders 
that adds liquidity in a month.\7\ Today, GEMX caps an SQF Port and SQF 
Purge Port at $17,500 a month.\8\ With this proposal, the Exchange 
would not assess Primary Market Makers and Market Makers an SQF Port 
and SQF Purge Port Cap beyond the monthly cap of $27,500, instead of 
$17,500, once the Member has exceeded the proposed port cap for the 
respective month. Primary Market Makers and Market Makers who transact 
0.50% of Total Customer Volume in electronic simple orders that adds 
liquidity in a month will continue to be subject to the $17,500 SQF 
Port and SQF Purge Port Cap.
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    \7\ For purposes of this cap, ``Total Customer Volume'' shall be 
defined as a percentage of all cleared customer volume at The 
Options Clearing Corporation in Multiply Listed Equity Options and 
Exchange-Traded Products (``TCV'').
    \8\ The Exchange also proposes a technical amendment to remove 
an extra period in Options 7, Section 6, C.
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    Pursuant to Supplementary Material .03(c) to Options 3, Section 7, 
Market Makers may only enter interest into SQF in their assigned 
options series. Pursuant to Supplementary Material .03(c) to Options 3, 
Section 7, the SQF interface allows Market Makers to connect, send, and 
receive messages related to quotes, Immediate-or-Cancel Orders, and 
auction responses to the Exchange. An SQF Purge is a specific port for 
the SQF interface that only receives and notifies of purge requests 
from the Market Maker. A GEMX Market Maker requires only one SQF Port 
to

[[Page 43904]]

submit quotes in its assigned options series into GEMX. While a Market 
Maker may elect to obtain multiple SQF Ports and SQF Purge Ports to 
organize its business,\9\ only one SQF Port and SQF Purge Port is 
necessary for a Market Maker to fulfill its regulatory quoting 
obligations.\10\
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    \9\ For example, a Market Maker may desire to utilize multiple 
SQF Ports for accounting purposes, to measure performance, for 
regulatory reasons or other determinations that are specific to that 
Member.
    \10\ GEMX Market Makers have various regulatory requirements as 
provided for in Options 2, Section 4. Additionally, GEMX Market 
Makers have certain quoting requirements with respect to their 
assigned options series as provided in Options 2, Section 5. SQF 
Ports are the only quoting protocol available on GEMX and only 
Market Makers may utilize SQF Ports. The same is true for SQF Purge 
Ports.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed pricing change to increase the SQF Port and SQF Purge 
Port monthly cap from $17,500 per month to $27,500 per month if Primary 
Market Makers or Market Makers do not transact 0.50% of Total Customer 
Volume in electronic simple orders that adds liquidity in a month is 
reasonable because it will incentivize Primary Market Makers and Market 
Makers to add liquidity on GEMX to lower their costs. The Exchange 
believes that the total volume required to achieve the cap is 
reasonable as the Exchange has limited the volume to simple orders, as 
not all Market Makers transact complex orders. Further, 0.50% of Total 
Customer Volume in electronic simple orders that adds liquidity in a 
month is an achievable number for Market Makers who currently add 
volume to the Exchange. Additionally, the Exchange believes that an SQF 
Fee and SQF Purge Port Cap of $27,500, in lieu of $17, 500, is 
reasonable because Primary Market Makers and Market Makers are 
obligated, among other things, to compete with other Market Makers to 
improve the market in all series of options classes to which the Market 
Maker is appointed and to update market quotations in response to 
changed market conditions in all series of options classes to which the 
Market Maker is appointed.\13\ The Exchange believes that it is 
reasonable to increase the SQF Port and SQF Purge Port Cap to $27,500 
for Primary Market Makers and Market Makers that do not transact 0.50% 
of Total Customer Volume in electronic simple orders that adds 
liquidity in a month because the Exchange believes that Primary Market 
Makers and Market Makers that do not contribute a minimum amount of 
liquidity on GEMX should not be subject to the same opportunities to 
lower their costs as those Primary Market Makers and Market Makers that 
do contribute to liquidity and therefore provide the ability for other 
market participants to engage with that order flow. The Exchange 
believes that the increase is modest and would serve to encourage 
Primary Market Makers and Market Makers to submit order flow to GEMX in 
order to lower their cost and would result in additional order 
competition, which also benefits market participants. The Exchange 
believes this proposal promotes liquidity, quote competition, and 
trading opportunities.
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    \13\ See Options 2, Section 4(b)(1) and (3).
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    SQF Ports and SQF Purge Ports are utilized by Primary Market Makers 
and Market Makers to quote on GEMX. A Market Maker may submit all 
quotes through one SQF Port and utilize one SQF Purge Port to view its 
purge requests. While a Market Maker may elect to obtain multiple SQF 
Ports to organize its business,\14\ only one SQF Port is necessary for 
a Market Maker to fulfill its regulatory quoting obligations.\15\ For 
those Market Makers that elect to organize themselves by obtaining a 
greater number of SQF Ports or SQF Purge Ports, they will be subject to 
a cap.\16\ For Market Makers that only take 1 SQF Port or only a few 
SQF Ports or SQF Purge Ports, their costs would be far below the 
$27,500 or $17,500 threshold for the cap.
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    \14\ For example, a Market Maker may desire to utilize multiple 
SQF Ports and SQF Purge Ports for accounting purposes, to measure 
performance, for regulatory reasons or other determinations that are 
specific to that member organization.
    \15\ Market Makers have various regulatory requirements as 
provided for in Options 2, Section 4. Additionally, Market Makers 
have certain quoting requirements with respect to their assigned 
options series as provided in Options 2, Section 5. SQF Ports are 
the only quoting protocol available on GEMX.
    \16\ The number of ports that members choose to purchase varies 
widely. Today, on GEMX, no Market Makers have 1 SQF Port/SQF Purge 
Port, 1 Market Maker had 2-5 SQF Ports/SQF Purge Ports, 4 Market 
Makers have between 6-10 SQF Ports/SQF Purge Ports, and 8 Market 
Makers have more than 11 SQF Ports/SQF Purge Ports.
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    The proposed pricing change to increase the SQF Fee and SQF Purge 
Cap for Primary Market Makers and Market Makers to $27,500 a month if 
Primary Market Makers or Market Makers do not transact 0.50% of Total 
Customer Volume in electronic simple orders that adds liquidity in a 
month is equitable and not unfairly discriminatory as all Primary 
Market Makers and Market Makers would be able to cap their SQF Port and 
SQF Purge Port costs at $17,500, provided they transacted the requisite 
volume, otherwise Primary Market Makers and Market Makers would be 
uniformly subject to the $27,500 SQF Port and SQF Purge Port Cap. The 
Exchange notes that unlike other market participants, Primary Market 
Makers are obligated to quote in the Opening Process and intra-day.\17\ 
Additionally, Market Makers may enter quotes in the Opening Process to 
open an option series and they are required to quote intra-day.\18\ 
Further, unlike other market participants, Primary Market Makers and 
Market Makers have obligations to compete with other Market Makers to 
improve the market in all series of options classes to which the Market 
Maker is appointed and to update market quotations in response to 
changed market conditions in all series of options classes to which the 
Market Maker is appointed.\19\ Finally, unlike other market 
participants, Primary Market Makers and Market Makers incur other costs 
related to their quoting obligations in addition to other fees paid by 
other market participants. Market Makers are subject to a number of 
fees, unlike other market participants. Market Makers pay separate 
Membership Fees,\20\ and CMM Trading Right Fees,\21\ in addition to 
other fees paid by other market participants. These liquidity providers 
are critical market participants in that they are the only market 
participants that provide liquidity to GEMX and are necessary for 
opening the market. Allowing Primary Market Makers and Market Makers to 
manage their costs by capping SQF Ports and SQF Purge Ports in addition 
to transaction fees enables these essential market participants to 
manage their business model more effectively and better allocate 
resources to other technologies that are necessary to manage risk and 
capacity to ensure that these market participants continue to compete 
effectively on GEMX. The following chart represents the

[[Page 43905]]

classification of GEMX members and the percentage of Market Makers.
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    \17\ See Options 3, Section 8 and Options 2, Section 5.
    \18\ Id.
    \19\ See Options 2, Section 4(b)(1) and (3).
    \20\ See Options 7, Section 6, A.
    \21\ See Options 7, Section 6, B.
    [GRAPHIC] [TIFF OMITTED] TN20MY24.312
    
    GEMX believes Primary Market Makers and Market Makers should be 
eligible for certain incentives because they fulfill a unique role on 
the Exchange and are the only market participants required to submit 
quotes to the Exchange. The proposed SQF Port and SQF Purge Cap is 
designed to ensure that Primary Market Makers and Market Makers add a 
certain amount of liquidity on GEMX in order to be able to cap their 
SQF Port and SQF Purge Port Fees at the lower cap of $17,500 as 
compared to the increased cap of $27,500. The Exchange would apply the 
criteria uniformly when applying the SQF Fee and SQF Purge Cap to 
Primary Market Makers and Market Makers.
    Finally, GEMX believes the proposed SQF Fee and SQF Purge Cap is 
constrained by competitive forces and reasonably designed in 
consideration of the competitive environment in which the Exchange 
operates. This fee structure incents Primary Market Makers and Market 
Makers to support increased liquidity, quote competition, and trading 
opportunities on the Exchange, for the benefit of all market 
participants.

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.
Intermarket Competition
    The proposal does not impose an undue burden on intermarket 
competition. The Exchange believes its proposal remains competitive 
with other options markets who also offer order entry protocols. The 
Exchange notes that it operates in a highly competitive market in which 
market participants can readily favor competing venues if they deem fee 
levels at a particular venue to be excessive. The chart below shows the 
February 2024 market share for multiply listed options by exchange. Of 
the 17 operating options exchanges, none currently has more than a 
17.6% market share. Customers widely distribute their transactions 
across exchanges according to their business needs and the ability of 
each exchange to meet those needs through technology, liquidity and 
functionality.

[[Page 43906]]

[GRAPHIC] [TIFF OMITTED] TN20MY24.313

    Market share is the percentage of volume on a particular exchange 
relative to the total volume across all exchanges, and indicates the 
amount of order flow directed to that exchange. High levels of market 
share enhance the value of trading and ports.
    In such an environment, the Exchange must continually adjust its 
fees to remain competitive with other exchanges. Because competitors 
are free to modify their own fees in response, and because market 
participants may readily adjust their order routing practices, the 
Exchange believes that the degree to which fee changes in this market 
may impose any burden on competition is extremely limited.
Intramarket Competition
    The proposed pricing change to increase the SQF Fee and SQF Purge 
Cap for Primary Market Makers and Market Makers to $27,500 a month if 
Primary Market Makers or Market Makers do not transact 0.50% of Total 
Customer Volume in electronic simple orders that adds liquidity in a 
month does not impose an undue burden on competition as all Primary 
Market Makers and Market Makers would be able to cap their SQF Port and 
SQF Purge Port costs at $17,500, provided they transacted the requisite 
volume, otherwise Primary Market Makers and Market Makers would be 
uniformly subject to the $27,500 SQF Port and SQF Purge Port Cap. The 
Exchange notes that unlike other market participants, Primary Market 
Makers are obligated to quote in the Opening Process and intra-day.\22\ 
Additionally, Market Makers may enter quotes in the Opening Process to 
open an option series and they are required to quote intra-day.\23\ 
Further, unlike other market participants, Primary Market Makers and 
Market Makers have obligations to compete with other Market Makers to 
improve the market in all series of options classes to which the Market 
Maker is appointed and to update market quotations in response to 
changed market conditions in all series of options classes to which the 
Market Maker is appointed.\24\ Finally, unlike other market 
participants, Primary Market Makers and Market Makers incur other costs 
related to their quoting obligations in addition to other fees paid by 
other market participants. Market Makers are subject to a number of 
fees, unlike other market participants. Market Makers pay separate 
Membership Fees,\25\ and CMM Trading Right Fees,\26\ in addition to 
other fees paid by other market participants. These liquidity providers 
are critical market participants in that they are the only market 
participants that provide liquidity to GEMX and are necessary for 
opening the market. Allowing Primary Market Makers and Market Makers to 
manage their costs by capping SQF Ports and SQF Purge Ports in addition 
to transaction fees enables these essential market participants to 
manage their business model more effectively and better allocate 
resources to other technologies that are necessary to manage risk and 
capacity to ensure that these market participants continue to compete 
effectively on GEMX. GEMX believes Primary Market Makers and Market 
Makers should be eligible for certain incentives because they fulfill a 
unique role on the Exchange and are the only market participants 
required to submit quotes to the Exchange. The proposed SQF Port Cap is 
designed to ensure that Primary Market Makers and Market Makers add a 
certain amount of liquidity on GEMX in order to be able to cap their 
SQF Port and SQF Purge Port Fees at the lower cap of $17,500 as 
compared to the increased cap of $27,500. The Exchange would apply the 
criteria uniformly when applying the SQF Fee and SQF Purge Cap to 
Primary Market Makers and Market Makers.
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    \22\ See Options 3, Section 8 and Options 2, Section 5.
    \23\ Id.
    \24\ See Options 2, Section 4(b)(1) and (3).
    \25\ See Options 7, Section 6, A.
    \26\ See Options 7, Section 6, B.
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    Finally, GEMX believes the proposed SQF Fee and SQF Purge Cap is 
constrained by competitive forces and reasonably designed in 
consideration of the competitive environment in which the Exchange 
operates. This fee structure incents Primary Market Makers and Market 
Makers to support increased liquidity, quote competition, and trading 
opportunities on the Exchange, for the benefit of all market 
participants.

[[Page 43907]]

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.\27\ 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.
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    \27\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-GEMX-2024-10 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-GEMX-2024-10. 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 the Exchange. 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 protection. All 
submissions should refer to file number SR-GEMX-2024-10 and should be 
submitted on or before June 10, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10955 Filed 5-17-24; 8:45 am]
BILLING CODE 8011-01-P