[Federal Register Volume 90, Number 117 (Friday, June 20, 2025)]
[Notices]
[Pages 26360-26363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-11295]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103266; File No. SR-ICC-2025-010]
Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing of Proposed Rule Change Relating to ICC's Clearing Participant
Default Management Procedures & ICC Clearing Rules
June 16, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on June 3, 2025, ICE Clear Credit LLC (``ICC'' or
``ICE Clear Credit'') 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 primarily by ICC. 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
The principal purpose of the proposed rule change is to revise the
ICC Clearing Participant Default Management Procedures (the ``Default
Management Procedures'') and the ICC Clearing Rules (the ``Rules'')
related to ICC Clearing Participant (``CP'') default management.\3\
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\3\ Capitalized terms used but not defined herein have the
meanings specified in the Treasury Policy or, if not defined
therein, the ICE Clear Credit Rules (the ``Rules'').
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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, ICC included statements
concerning the purpose of and basis for the proposed rule change,
security-based swap submission, or advance notice and discussed any
comments it received on the proposed rule change, security-based swap
submission, or advance notice. The text of these statements may be
examined at the places specified in Item IV below. ICC has prepared
summaries, set forth in sections (A), (B), and (C) below, of the most
significant aspects of these statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(a) Purpose
ICC proposes to revise the Default Management Procedures and to
make related changes to the Rules. The Default Management Procedures
set forth ICC's default management process, including the actions taken
by ICC to determine that a CP is in default of its obligations to ICC
under the Rules, as well as the actions taken by ICC in connection with
the close-out of the defaulting CP's portfolio. The proposed revisions
(i) remove Direct Liquidation \4\ transactions as both a hedging and
liquidation mechanism, (ii) update ICC's position porting functionality
and (iii) make general updates and clarifications, all as discussed
herein. ICC believes such revisions will facilitate the prompt and
accurate clearance and settlement of securities transactions and
derivative agreements, contracts, and transactions for which it is
responsible. ICC proposes to make such changes effective following
Commission approval of the proposed rule change. The proposed updates
are described in detail as follows.
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\4\ Direct Liquidation is defined in Rule 20-605(d)(v), but in
general means direct transactions with market participants.
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I. Remove Direct Liquidation Transactions
ICC proposes to eliminate references to Direct Liquidation in the
Default Management Procedures as a hedging and liquidation mechanism in
the context of managing a defaulting CP's portfolio. ICC believes that
the use of Direct Liquidation transactions is no longer necessary or
desirable, as such functionality is now fully available through ICC's
Default Management System (``DMS'') through its hedge and liquidation
auction capabilities.
ICC proposes changes to reflect the removal of Direct Liquidation
throughout the Default Management Procedures. As a result of the
removal of Direct Liquidations as a hedging and liquidation mechanism,
ICC proposes to remove ``Direct Liquidation'' as a defined term in
Section 2. and as a Standard Default Management Action \5\ in Section
3. ICC proposes to remove language from Section 6.5.2. that describes
the operational set-up necessary to execute hedging and/or liquidation
transactions directly with CP counterparties, as such operational set-
up no longer will be necessary with the removal of Direct Liquidation
transactions. Furthermore, ICC proposes to remove Direct Liquidation
transactions from the list of items that the CDS Default Committee \6\
may be consulted on in Section 7. Consultation on this matter will no
longer be necessary given the removal of Direct Liquidation
transactions.
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\5\ Rule 20-605(d) defines certain Standard Default Management
Actions that ICC has the right to take in effecting the closing-out
process.
\6\ Rule 20-617(a) defines the CDS Default Committee, which is
responsible for taking certain actions provided in the Rules and ICC
procedures upon a CP default.
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ICC proposes to remove Direct Liquidation transactions in the
context of liquidating a defaulting CP's portfolio from the Default
Management Procedures by deleting Section 8.6. in its entirety. Current
Section 8.6. describes the process and steps that ICC would follow
should it determine to execute Direct Liquidation transactions to
liquidate a defaulting CP's portfolio by way of bilateral transactions
directly with counterparties. While the current Default Management
Procedures include the option for Direct Liquidation transactions,
current Section 8.6. notes that the preferred method of liquidating a
defaulting CP's portfolio is by way of an auction (as described in
current Section 8.5. of the Default Management Procedures). ICC
believes that the automated liquidation auction capabilities of the DMS
offer a more efficient and transparent approach to liquidating a
defaulting CP's portfolio as compared to Direct Liquidation
transactions. As a result, ICC believes that the DMS liquidation
auction process has superseded the need for ICC to maintain the
capability to directly execute bilateral Direct Liquidation
transactions.
ICC also proposes to remove direct execution of transactions in the
context of hedging a defaulting CP's portfolio from the Default
Management Procedures by removing Section 8.4. in its entirety. Current
Section 8.4. describes the process and steps that ICC would follow
should it determine to execute an Initial Cover Transaction \7\ by way
of bilateral transactions directly with counterparties. While the
current Default Management Procedures include the option for the direct
execution of Initial Cover Transactions, current Section 8.4. notes
that the preferred method of executing Initial Cover
[[Page 26361]]
Transactions is by way of an auction (as described in Section 8.3. of
the Default Management Procedures). ICC believes that the automated
hedge auction capabilities of the DMS offer a more efficient and
transparent approach to hedging a defaulting CP's portfolio as compared
to the direct execution of an Initial Cover Transaction. As a result,
ICC believes that the DMS hedge auction process has superseded the need
for ICC to maintain the capability to directly execute bilateral
Initial Cover Transactions. ICC also proposes to remove a reference to
executing Initial Cover Transactions with market participants in
Section 7.3. that is no longer necessary given the removal of the
option for the direct execution of Initial Cover Transactions.
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\7\ Initial Cover Transaction is defined in Rule 20-605(d)(i),
but is generally understood to mean a hedging transaction.
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ICC proposes to make changes to the Rules analogous to the above-
described changes to the Default Management Procedures to remove Direct
Liquidation transactions as both a hedging and liquidation mechanism.
ICC proposes to remove the definition of ``Direct Liquidation'' from
Rule 102. Also, ICC proposes to remove Rule 20-605(d)(v)(ii) which
covers the option to execute hedge or liquidation transactions by way
of direct transactions with market participants. As a result of the
proposed deletion of the option to execute hedge or liquidation
transactions by way of direct transactions with market participants,
ICC proposes to further revise Rule 20-605(d)(v) to indicate that hedge
and liquidation transactions ``shall'' (instead of ``may'') be entered
into pursuant to Default Auctions \8\ and, as with the proposed
revisions, Default Auctions will be the only mechanism remaining for
the execution of hedge and liquidation transactions. In addition, ICC
proposes deleting references to Direct Liquidation from Rule 20-605(l),
including with respect to entering into trades through Direct
Liquidation and using resources to cover certain obligations from a
Direct Liquidation. As a result of the above-described changes, certain
sub-sections of Rules 20-605(d)(v) and 20-605(l) are proposed to be re-
numbered or re-lettered as appropriate.
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\8\ Default Auctions are defined in Rule 102, but is generally
understood to mean an auction conducted pursuant to the Default
Auction Procedures.
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II. Update ICC's Position Porting Functionality
ICC proposes changes to the Default Management Procedures to
describe ICC's updated position porting capabilities. As part of the
post-default porting process, ICC shares with its Futures Commission
Merchant/Broker Dealer CPs (``potential receiving CPs'') certain client
portfolios cleared by the defaulting CP(s), identifies potential
receiving CPs willing to take on the portfolios, and subsequently
selects to which potential receiving CPs each client portfolio is
transferred, if any. Currently, ICC's post-default porting process
relies on ICC's Client Services and Support department (``CSS'') using
and maintaining a manual Excel-based tool (the ``Porting Tool'') to
generate the necessary emails and attachments required as part of the
post-default porting process. Due to additional porting functionality
incorporated in the DMS, ICC proposes to replace the manual Porting
Tool process with the automated DMS porting functionality.
ICC proposes to reflect the removal of the Porting Tool throughout
the Default Management Procedures. ICC proposes to remove ``Porting
Tool'' as a defined term in Section 2. ICC proposes to remove the
entirety of Section 4.3.2.3. which discusses how ICC maintains and
updates certain information in the Porting Tool. Section 4.3.2.3. is no
longer necessary with the de-commission of the Porting Tool.
ICC proposes revisions to Section 10.1. of the Default Management
Procedures to remove all references to the steps necessary to use the
manual Porting Tool, including removal of references to the ICC Chief
Operating Officer (who currently requests use of the Porting Tool) and
references to CSS (who currently performs the described Porting Tool
steps). As a replacement for the manual Porting Tool steps, ICC
proposes to add to Section 10.1. a description of the steps necessary
to execute the DMS porting functionality, including the following:
Creation of a porting event in the DMS;
Selection of the client accounts at the defaulting CP(s)
that will be offered for porting;
Make available for download the portfolios associated with
the client accounts offered for porting to the identified non-
defaulting CPs; and
Enable each non-defaulting CP to select in the DMS which
client account they are willing to accept.
In addition, ICC proposes to modify Section 10.1. of the Default
Management Procedures to note that the above listed steps related to
the porting functionality of the DMS will be performed by the ICC Risk
department upon the request of the ICC Chief Risk Officer. ICC believes
migrating the manual Porting Tool process to the automated DMS porting
tool will improve the efficiency and accuracy of ICC's post-default
porting process, reducing manual steps and reducing the risk of
potential manual errors.
In furtherance of the proposed changes to migrate the porting
process from the manual Porting Tool to the more efficient DMS porting
functionality, ICC proposes the following additional changes to the
Default Management Procedures. Amended Section 10.4. removes language
on the use of the Porting Tool and includes language on the use of the
DMS porting functionality in respect of a porting event, including
canceling a porting event in the DMS if the ICC Chief Risk Officer
determines not to transfer any porting portfolios (i.e., client
portfolios of the defaulting CP). ICC proposes further changes to
Sections 10.5. and 10.6., which discuss how ICC determines which
porting portfolios to try to transfer to potential receiving CPs.
Currently, pursuant to Section 10.5., potential receiving CPs use email
to communicate to CSS the porting portfolios they are willing to
receive, and CSS records such responses in the Porting Tool. The
proposed changes to Section 10.5. automate this process using the DMS.
Namely, pursuant to amended Section 10.5., potential receiving CPs use
the DMS to select the client accounts they are willing to receive.
Additionally, current Section 10.6. describes the assignment of porting
portfolios to relevant receiving CPs, including how CSS communicates
such assignments to receiving CPs using the Porting Tool to generate
and send emails. Amended Section 10.6. describes the use of the DMS to
record and communicate such assignments. Amended Section 10.6. also
instructs the ICC Head of Treasury, upon instruction of the ICC Chief
Operating Officer, to perform any required money movements associated
with the transfer of client account positions. ICC also proposes to
remove Section 10.7. in its entirety, which describes the use of the
Porting Tool to execute transfers, as it is no longer necessary given
the removal of the Porting Tool.
Finally, ICC proposes new Section 11. to the Default Management
Procedures, related to position management. Proposed new Section 11.
describes how the DMS maintains position records reflecting the
execution of relevant default management actions. Specifically, at the
end of each day, the DMS generates position files and CSS coordinates
with relevant teams to execute the position transfers/adjustments in
the clearing system.
[[Page 26362]]
III. General Updates and Clarifications
ICC proposes to make certain clarifying, conforming and other non-
substantive changes to the Default Management Procedures, as further
set out below.
ICC proposes to remove ``Approved Auction Participants''
as a defined term in Section 2., as this term is not used elsewhere in
the document;
ICC proposes to amend the title of Table 1 in Section
4.3.2.2. to correct a typographical error;
ICC proposes to clarify relevant roles and
responsibilities in Section 4.3.2.2. by adding the ``Transfer
Coordinator'' role to Table 1 to reflect current practices. Such role
is not new and is currently referenced elsewhere in the current Default
Management Procedures (e.g., Section 4.3.2.1.);
ICC proposes to correct a typographical error in Section
10. to change ``non-Defaulting'' to ``non-defaulting'';
ICC proposes terminology updates to replace certain manual
tasks associated with the use of the Porting Tool and reflect the use
of the DMS in Section 10., including replacing ``distributes'' with
``makes available'' and ``collates'' with ``reviews'';
ICC proposes to update current Section 12. to include the
proposed changes in the revision history of the document;
ICC proposes to update footnote 4 and remove footnote 5
which contain procedures that were previously retired; \9\ and
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\9\ See Exchange Act Release No. 93705 (Dec. 2, 2021), 86 FR
69699 (Dec. 8, 2021) (SR-ICC-2021-021) (retiring the ICC CDS
Clearing Counterparty Monitoring Procedures: Bank Counterparties and
the ICC CDS Clearing Counterparty Monitoring Procedures: FCM
Counterparties and adopting the ICC Counterparty Monitoring
Procedures).
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ICC proposes minor revisions to re-number section
references and footnotes based on the changes described above.
(b) Statutory Basis
Section 17A(b)(3)(F) of the Act \10\ requires, among other things,
that the rules of a clearing agency be designed to promote the prompt
and accurate clearance and settlement of securities transactions, and
to the extent applicable, derivative agreements, contracts and
transactions; to assure the safeguarding of securities and funds which
are in the custody or control of the clearing agency or for which it is
responsible; in general, to protect investors and the public interest;
and to comply with the provisions of the Act and the rules and
regulations thereunder. ICC believes that the proposed changes are
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to ICC, in particular, to Section
17(A)(b)(3)(F),\11\ because ICC believes that the proposed revisions to
the Default Management Procedures and Rules enhance policies, practices
and procedures with respect to the management of a CP default. As
described above, such changes (i) remove Direct Liquidation
transactions as both a hedging and liquidation mechanism, (ii) update
ICC's position porting functionality, and (iii) make general updates
and clarifications. These changes improve efficiency, transparency and
accuracy of ICC's default processes, reducing manual steps and reducing
the risk of potential manual errors, all of which enhances ICC's
ability to manage the risk of a default. The clarification and clean-up
changes ensure that the documentation of ICC's Default Management
Procedures and Rules remains up-to-date, transparent, and focused on
clearly articulating the policies and procedures used to support ICC's
default management process such that ICC can take timely action in case
of a default. ICC believes that such changes augment ICC's procedures
relating to default management and enhance ICC's ability to withstand
defaults and continue providing clearing services, thereby promoting
the prompt and accurate clearance and settlement of securities
transactions, derivatives agreements, contracts, and transactions; the
safeguarding of securities and funds which are in the custody or
control of ICC or for which it is responsible; and the protection of
investors and the public interest. As such, the proposed rule change is
designed to promote the prompt and accurate clearance and settlement of
securities transactions, derivatives agreements, contracts, and
transactions; to contribute to the safeguarding of securities and funds
associated with security-based swap transactions in ICC's custody or
control, or for which ICC is responsible; and, in general, to protect
investors and the public interest within the meaning of section
17A(b)(3)(F) of the Act.\12\
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
\11\ Id.
\12\ Id.
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Rule 17Ad-22(e)(2)(i) and (v) \13\ requires each covered clearing
agency to establish, implement, maintain, and enforce written policies
and procedures reasonably designed to provide for governance
arrangements that are clear and transparent and specify clear and
direct lines of responsibility. The Default Management Procedures
continue to set out the assignment of responsibilities in the execution
of default management actions. For example, the proposed rule change
describes the roles of the ICC Chief Risk Officer, ICC Chief Operating
Officer, ICC Head of Treasury, and ICC Risk department with respect to
the use of the DMS. In ICC's view, the proposed rule change is
therefore consistent with the requirements of Rule 17Ad-22(e)(2)(i) and
(v).\14\
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\13\ 17 CFR 240.17ad-22(e)(2)(i) and (v).
\14\ Id.
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Rule 17Ad-22(e)(4)(ii) \15\ requires each covered clearing agency
to establish, implement, maintain, and enforce written policies and
procedures reasonably designed to effectively identify, measure,
monitor, and manage its credit exposures to participants and those
arising from its payment, clearing, and settlement processes, including
by maintaining additional financial resources at the minimum to enable
it to cover a wide range of foreseeable stress scenarios that include,
but are not limited to, the default of the two participant families
that would potentially cause the largest aggregate credit exposure for
the covered clearing agency in extreme but plausible market conditions.
The proposed changes to the Default Management Procedures and Rules
eliminate references to Direct Liquidation as a hedging and liquidation
mechanism in the context of managing a defaulting CP's portfolio. As
described above, ICC believes that the use of Direct Liquidation
transactions is no longer necessary or desirable, as such functionality
is now fully available through the DMS through its hedge and
liquidation auction capabilities. ICC believes that the automated
liquidation and hedge auction capabilities of the DMS offer a more
efficient and transparent approach, which enhances ICC's ability to
manage a default. ICC also proposes to replace the manual Porting Tool
process with the automated DMS porting functionality, which will
improve the efficiency and accuracy of ICC's post-default porting
process, reducing manual steps and reducing the risk of potential
manual errors, thereby enhancing ICC's ability to manage a default. As
such, the proposed amendments would strengthen ICC's ability to
maintain its financial resources and withstand the pressures of
defaults, consistent with the requirements of Rule 17Ad-
22(e)(4)(ii).\16\
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\15\ 17 CFR 240.17ad-22(e)(4)(ii).
\16\ Id.
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[[Page 26363]]
Rule 17Ad-22(e)(13) \17\ requires each covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to ensure it has the authority and
operational capacity to take timely action to contain losses and
liquidity demands and continue to meet its obligations by, at a
minimum, requiring its participants and, when practicable, other
stakeholders to participate in the testing and review of its default
procedures, including any close-out procedures, at least annually and
following material changes thereto. The proposed changes to the Default
Management Procedures and Rules continue to ensure that ICC can take
timely action to contain losses and liquidity demands and continue
meeting its obligations in the event of a default, including by using
the DMS with respect to its hedge and liquidation auction capabilities
and automated porting functionality, which promotes ICC's ability to
efficiently and safely manage its close-out process, thereby enhancing
ICC's ability to withstand defaults and continue providing clearing
services. Additionally, ICC believes that the clarification and clean-
up changes further enhance ICC's default management process by ensuring
that the Default Management Procedures and Rules remain up-to-date,
clear, and transparent to ensure that ICC can take timely action to
contain losses and liquidity demands and continue meeting its
obligations in the event of a default. Therefore, ICC believes the
proposed rule change is consistent with the requirements of Rule 17Ad-
22(e)(13).\18\
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\17\ 17 CFR 240.17ad-22(e)(13).
\18\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
ICC does not believe the proposed rule change would have any
impact, or impose any burden, on competition. The proposed rule change
to revise the Default Management Procedures and Rules will apply
uniformly across all market participants. Therefore, ICC does not
believe the proposed rule change imposes any burden on competition that
is inappropriate in furtherance of the purposes of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments relating to the proposed rule change have not been
solicited or received. ICC will notify the Commission of any written
comments received by ICC.
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, security-based swap submission, or advance notice 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-ICC-2025-010 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-ICC-2025-010. 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, security-
based swap submission, or advance notice that are filed with the
Commission, and all written communications relating to the proposed
rule change, security-based swap submission, or advance notice 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 such filings will also be available for inspection and copying at
the principal office of ICE Clear Credit and on ICE Clear Credit's
website at https://www.ice.com/clear-credit/regulation.
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 materials that is obscene or subject to copyright protection.
All submissions should refer to file number SR-ICC-2025-010 and should
be submitted on or before July 11, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-11295 Filed 6-18-25; 8:45 am]
BILLING CODE 8011-01-P