Document ID: SEC-2017-0702-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2017-05-02T04:00Z

[Federal Register Volume 82, Number 83 (Tuesday, May 2, 2017)]
[Notices]
[Pages 20502-20506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08814]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80531; File No. SR-OCC-2017-002]

Self-Regulatory Organizations; the Options Clearing Corporation; 
Order Approving Proposed Rule Change Concerning Changes to the Options 
Clearing Corporation's Management Structure

April 26, 2017.
    On February 22, 2017, the Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-OCC-2017-002 pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on March 13, 2017.\3\ The Commission did not 
receive any comment letters on the proposed rule

[[Page 20503]]

change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 80168 (March 7, 
2017), 82 FR 13522 (March 13, 2017) (SR-OCC-2017-002).
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I. Description of the Proposed Rule Change

    This proposed rule change by OCC will amend OCC's By-Laws, Rules, 
Board of Directors Charter (``Board Charter''), Compensation and 
Performance Committee Charter (``CPC Charter''), Dividend Policy, and 
Refund Policy to address organizational changes within OCC's management 
structure. Specifically, OCC is proposing the following: (1) Amendments 
to OCC's By-Laws to provide that the Executive Chairman will also serve 
as Chief Executive Officer (``CEO''); (2) amendments to OCC's By-Laws 
and Rules to reflect that the President will no longer be a recognized 
officer of OCC; (3) amendments to OCC's By-Laws to provide that the 
Board will elect the Chief Operating Officer (``COO'') and a newly 
recognized Chief Administrative Officer (``CAO''); (4) amendments to 
OCC's By-Laws and Rules to provide that the COO and CAO will each have 
authority to take certain actions or grant exceptions where that 
authority was previously granted to the President; (5) conforming 
changes to OCC's Board Charter, CPC Charter, and the Dividend and 
Refund Policies reflecting the proposed amendments described above; (6) 
amendments to OCC's By-Laws to separate the positions of Treasurer and 
Chief Financial Officer (``CFO''); and (7) a number of administrative 
changes and refinements to the By-Laws and Rules.

(1) The Executive Chairman Also Serves as a Newly Recognized CEO

    Under the proposed rule change, the Executive Chairman will 
continue to be appointed by the Board and be responsible for OCC's 
control functions. However, OCC proposes to amend Article IV, Section 6 
of the By-Laws to provide that the Executive Chairman will also serve 
as a newly recognized CEO. In that capacity, the Executive Chairman and 
CEO will be responsible for all aspects of OCC's business and the day-
to-day administration of its affairs that are not otherwise assigned to 
the COO or CAO.
    OCC notes that, under its current By-Laws, the President is 
responsible for all aspects of OCC's business that do not report 
directly to the Executive Chairman and is responsible for the day-to-
day administration of OCC's affairs in accordance with the directions 
of the Executive Chairman. The proposed rule change will provide the 
Executive Chairman/CEO with explicit responsibility for overseeing all 
aspects of OCC's business and the day-to-day administration of its 
affairs, with the COO and CAO each being responsible for aspects of the 
business of OCC that do not report directly to the Executive Chairman 
and CEO and administering the day to day affairs and business of OCC in 
accordance with the directions of the Executive Chairman and CEO. In 
connection with this change, OCC's senior management will be 
reorganized within an Office of the Executive Chairman that will be 
comprised of the Executive Chairman (who will also serve as CEO), the 
COO and the CAO. OCC believes that this new management structure will 
combine the breadth and depth of experience and skill necessary within 
OCC's senior management team to provide for the efficient and effective 
management and operation of OCC, improve OCC's ability to serve 
Clearing Members and the markets for which it clears, and help to 
ensure that OCC is so organized and has the capacity to facilitate the 
prompt and accurate clearance and settlement of the transactions it 
clears.

(2) The President Is No Longer a Recognized Officer of OCC

    OCC proposes a number of amendments throughout its By-Laws and 
Rules to remove references to the office of President to reflect the 
fact that the President will no longer be a recognized officer within 
OCC's management. As described in more detail below, all references to 
the authority and responsibilities of the President will be removed and 
such references will be replaced as appropriate with references to the 
COO and newly appointed CAO. OCC believes that eliminating the role of 
President and distributing the wide range of authority and 
responsibilities associated therewith to two senior officers (the CAO 
and COO) will provide for a broader range of knowledge, skills, and 
experience within OCC's senior management team, promote more efficient 
and effective management and operation of OCC, improve OCC's ability to 
serve Clearing Members and the markets for which it clears, and help to 
ensure that OCC is so organized and has the capacity to facilitate the 
prompt and accurate clearance and settlement of the transactions it 
clears.

(3) Election of the COO and CAO

    OCC proposes to amend Article IV, Sections 1, 8 and 13 of the By-
Laws to provide that the Board will elect a COO and a CAO and will set 
the salaries for such officers. Accordingly, OCC will continue to have 
a COO within its management structure because, as noted above, the 
President also serves as COO under OCC's existing By-Laws. The CAO, 
however, is a newly recognized officer within OCC's management 
structure. As is currently the case regarding the President, neither 
the COO nor the CAO will be required to be a member of the Board upon 
election. Also, consistent with the existing prohibition against the 
same person holding any two of the offices of Executive Chairman, 
President and Member Vice Chairman,\4\ the restriction will continue to 
apply but will reference the COO and CAO rather than the President. As 
noted above, OCC believes that eliminating the role of President and 
distributing the wide range of responsibilities associated therewith to 
the COO and a newly appointed CAO will provide for more efficient and 
effective management and operation of OCC, improve OCC's ability to 
serve Clearing Members and the markets for which it clears, and help to 
ensure that OCC is so organized and has the capacity to facilitate the 
prompt and accurate clearance and settlement of the transactions it 
clears.
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    \4\ See Article IV, Section 1 of the By-Laws.
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(4) Assignment of Certain Responsibilities to the COO and CAO

    The responsibility of management to carry out OCC's affairs is 
frequently assigned to groups of officers, including the Executive 
Chairman, President, and other officers of appropriate seniority. This 
approach provides flexibility to help ensure that responsibility is not 
concentrated in any one officer, that OCC's affairs are carried out 
efficiently, and that management has the capacity to continue carrying 
out OCC's business and day-to-day affairs even if a particular officer 
is absent or becomes disabled. To preserve the benefits of this 
structure given the elimination of the office of President, OCC 
proposes that the COO and CAO will instead assume certain 
responsibilities in the By-Laws and Rules where they are currently 
assigned, at least in part, to the President.
    Under the proposed changes to Article IV, Section 8 of the By-Laws, 
the COO and CAO will be responsible for the aspects of OCC's business 
that do not report directly to the Executive Chairman, as determined by 
the Board to promote the efficient and effective management and 
operation of OCC, and they will administer their responsibilities in 
accordance with directions from the Executive Chairman. Under the 
proposed management structure changes, the COO initially will be 
responsible for the oversight of OCC's

[[Page 20504]]

technology and operations functions while the CAO will be responsible 
for the oversight of the finance, human resources, financial risk 
management, corporate planning, product and business development, and 
project management aspects of OCC's business. In addition, in the event 
of any absence or disability of the Executive Chairman, the COO and CAO 
will each have the authority and responsibility to fulfill the duties 
and have the powers of the Executive Chairman. However, in the absence 
or disability of the Executive Chairman, neither the COO nor the CAO 
will be permitted to preside at meetings of the Board or stockholders.
    Under the proposed amendments to Article IV, Sections 2, 3, 9, and 
13 of the By-Laws, the COO and CAO each will have authority, consistent 
with the authority previously granted to the President, to appoint 
officers and agents as they deem necessary or appropriate to carry out 
the functions assigned to them. This includes, but is not limited to, 
the authority to appoint certain Vice Presidents within management. Any 
officers or agents who are appointed by the COO or CAO will be subject 
to their supervision and will be able to be removed by the COO and CAO, 
respectively, at any time, with or without cause. Such officers or 
agents will exercise powers and perform duties as determined by the COO 
or the CAO and the term and salary \5\ of any such positions will also 
be determined by the COO or CAO, respectively. The Executive Chairman 
and CEO will also have the authority to set the terms, powers, duties, 
and salaries of any officer or agent appointed by the COO or CAO and to 
remove officers or agents appointed by the COO and CAO.
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    \5\ Any salary fixed by the COO or CAO will be subject to any 
contrary action taken by the Board, as is the case today regarding 
any officers or agents appointed by the Executive Chairman or the 
President. See Article IV, Section 13 of the By-Laws.
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    Other examples of the responsibilities of the President being 
reallocated to the COO and CAO in the By-Laws and Rules include, but 
are not limited to, that the COO and CAO will, under certain 
conditions, have shared authority with the Executive Chairman and other 
officers to do the following: (1) Approve banks or trust companies as 
Approved Custodians; (2) declare the existence of an emergency and take 
related actions; (3) approve clearing membership applications and grant 
related extensions; (4) impose restrictions on options exercises; (5) 
determine reasonable means through which to borrow or otherwise obtain 
funds using Clearing Fund contributions; (6) sign certificates 
representing shares in OCC; (7) waive or suspend OCC's By-Laws, Rules, 
policies, procedures or any other of OCC's rules in emergency 
circumstances to protect OCC or the public interest; (8) impose 
restrictions on certain Clearing Member transactions, positions and 
activities; (9) extend settlement times in emergency conditions; (10) 
waive the required margin deposit of a Clearing Member in the interest 
of maintaining fair and orderly markets; \6\ and (11) authorize late 
filing of an exercise notice by a Clearing Member.\7\
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    \6\ See Rule 609A. OCC also proposes to make a ministerial 
change to this rule to clarify a reference to the Securities and 
Exchange Commission.
    \7\ See proposed changes in (1) OCC By-Laws Article I, Section 
1; (2) Article III, Section 15; (3) Article V, Sections 1-3, I&P 
.01; (4) Article VI, Section 17; (5) Article VIII, Section 5; (6) 
Article IX, Section 12; (7) Article IX, Section 14; (8) OCC Rule 
305; (9) Rule 505; (10) Rule 609A; and (11) Rule 801.
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    OCC believes the proposed changes described above will result in an 
appropriate and effective management structure that combines the 
breadth and depth of experience and skill necessary within OCC's senior 
management team to (i) provide for the efficient and effective 
management and operation of OCC, (ii) improve OCC's ability to serve 
Clearing Members and the markets for which it clears, and (iii) help to 
ensure that OCC is so organized and has the capacity to facilitate the 
prompt and accurate clearance and settlement of the transactions it 
clears. Moreover, the proposed changes to OCC's management structure 
will provide important flexibility to help ensure that responsibility 
is not unduly concentrated in any one officer, that OCC's affairs are 
carried out efficiently, and that management has the capacity to 
continue carrying out OCC's business and day-to-day affairs even if a 
particular officer is absent or becomes disabled.
    OCC also proposes to amend Article IV, Section 12 of the By-Laws to 
provide that, in the event of a vacancy of the office of Controller, 
the Executive Chairman (in addition to the Board) will have the 
authority to designate a person to serve as chief accounting officer of 
OCC until the office of Controller is filled. OCC believes it will be 
appropriate for the Executive Chairman to replace the President in this 
role given the Executive Chairman's capacity as Management Director.

(5) Conforming Changes to Certain OCC Charters and Policies

    In connection with the proposed changes described above, OCC also 
proposes to change certain references to the President that appear in 
its Board Charter, CPC Charter, Dividend Policy and Refund Policy. 
These changes are described below and will not otherwise modify OCC's 
management structure.
    OCC proposes to amend the Board Charter to reflect that the Board 
has responsibility for selecting, overseeing and, where appropriate, 
replacing the COO and CAO, and that the Board evaluates and sets the 
compensation of these officers. The proposed amendments will also state 
that the Board provides counsel and advice to the COO and CAO and 
oversees those officers as part of the Board's evaluation of whether 
OCC's business is being appropriately managed. OCC notes that the 
proposed amendments are consistent with the Board's existing 
obligations with respect to the election and oversight of the 
President.
    Additionally, OCC proposes to amend the CPC Charter to reflect that 
the CPC will generally oversee the compensation, benefits and 
perquisites of the COO and CAO, including responsibility for making 
associated recommendations to the Board, and to identify that the CPC 
is responsible for reviewing and approving the annual goals and 
objectives of the COO and CAO. OCC also proposes to amend the CPC 
Charter to reflect that the CPC will now meet at least annually with 
the COO and CAO (instead of the President) to discuss and review 
compensation and performance levels of senior management and other key 
officers. In addition, the CPC Charter will be amended to reflect that 
the CPC reviews OCC's employment contracts with the COO and CAO (in 
place of the President) and makes recommendations to the Board 
regarding related approvals.
    OCC's Refund Policy will be amended to reflect that, in addition to 
the Executive Chairman, the COO or CAO will have authority under 
certain conditions to determine the payment date of refunds. This 
authority is currently reserved to the Executive Chairman and the 
President. OCC will also amend the Dividend Policy to reflect that, in 
addition to the Executive Chairman, the COO or CAO (rather than the 
President) will have authority under certain conditions to determine 
the payment date of dividends if for any reason OCC's Refund Policy is 
not in effect. As a housekeeping matter that is unrelated to the COO 
and CAO assuming certain responsibilities of the President, OCC is also 
updating its Dividend Policy and Refund Policy to reflect that the 
Commission recently

[[Page 20505]]

adopted its Standards for Covered Clearing Agencies.\8\
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    \8\ See Securities Exchange Act Release No. 78961 (September 28, 
2016), 81 FR 70786 (October 13, 2016).
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(6) Separation of Treasurer and Chief Financial Officer Positions

    OCC proposes to amend Article IV, Section 11 of the By-Laws to 
eliminate a sentence that provides that OCC's Treasurer shall also 
serve as CFO absent another person being designated by the Board to 
serve in that capacity. OCC believes that separating these positions 
and eliminating this provision of the By-Laws will allow for greater 
flexibility relative to the structure, management and operation of 
OCC's corporate finance group. Under the proposed rule change, the 
Board will continue to appoint OCC's Treasurer as currently required 
under Article IV, Section 1 of the By-Laws; however, the Treasurer will 
no longer automatically serve as CFO, and the Board will not be 
responsible for appointing OCC's CFO.

(7) Administrative Changes and Refinements

    OCC is proposing a number of administrative changes and refinements 
to its By-Laws and Rules. Specifically, OCC proposes to add a 
definition of ``Designated Officer'' in Article I, Section 1 of the By-
Laws. The term is already used elsewhere in OCC's By-Laws and Rules 
(e.g., Article III, Section 15 of the By-Laws and Rule 1102). OCC 
believes that locating this definition in Article, I, Section 1 of the 
By-Laws with the majority of the other definitions that are used in 
OCC's By-Laws and Rules promotes organizational consistency and clarity 
in OCC's legal framework. OCC also proposes to amend Interpretation and 
Policy .01 of Rule 309 to change a reference to ``OCC'' to ``the 
Corporation'' to conform to existing convention in OCC's By-Laws and 
Rules.
    Additionally, OCC proposes to amend Interpretation and Policy .01 
of Article III, Section 7 of the By-Laws, which concerns the use of the 
criteria of OCC's Fitness Standards for Directors, Clearing Members and 
Others in the election of Management Directors, to remove a reference 
to the President. OCC notes that, in addition to the proposed 
elimination of the office of President in this proposed rule change, in 
2014, the Commission approved a proposed rule change providing that 
OCC's President will no longer be considered a Management Director.\9\ 
OCC also proposes to amend Interpretation and Policy .02 of Rule 1104 
to remove references to the Management Vice Chairman. In September 
2016, the Commission approved a proposed rule change by OCC to 
eliminate the role of Management Vice Chairman.\10\ OCC is proposing to 
remove remaining references to this position that were intended to be 
removed as part of SR-OCC-2016-002.
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    \9\ See Securities Exchange Act Release No. 73785 (December 8, 
2014), 79 FR 73915 (December 12, 2014) (SR-OCC-2014-18).
    \10\ See Securities Exchange Act Release No. 78862 (September 
16, 2016), 81 FR 65415 (September 22, 2016) (SR-OCC-2016-002).
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    Finally, OCC proposes a number of non-substantive amendments to 
correct typographical errors in the By-Laws and Rules (e.g., correction 
of typographical error in Rule 305(c) to refer to the ``Executive'' 
Chairman and in Rule 309A to state ``an'' Appointed Clearing Member).

II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \11\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. The Commission finds that the proposal is 
consistent with Section 17A(b)(3)(A) of the Act \12\ and Rules 17Ad-
22(e)(1) \13\ and 17Ad-22(e)(2) \14\ thereunder, as described in detail 
below.
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    \11\ 15 U.S.C. 78s(b)(2)(C).
    \12\ 15 U.S.C. 78q-1(b)(3)(A).
    \13\ 17 CFR 240.17Ad-22(e)(1).
    \14\ 17 CFR 240.17Ad-22(e)(2).
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A. Consistency With Section 17A(b)(3)(A) of the Act

    The Commission finds OCC's proposed changes to be consistent with 
Section 17A(b)(3)(A) of the Act.\15\ Section 17A(b)(3)(A) of the Act 
\16\ requires, among other things, that a clearing agency be so 
organized and have the capacity to be able to facilitate the prompt and 
accurate clearance and settlement of securities transactions and 
derivative agreements, contracts, and transactions for which it is 
responsible. As noted above, after implementation of the proposed 
changes, OCC's Executive Chairman will also serve as OCC's CEO, the 
President's duties and powers will be reallocated among the Executive 
Chairman, COO and CAO, the COO and CAO will have authority to take 
action or grant exceptions under certain conditions, and the positions 
of Treasurer and CFO will be separated. According to OCC, these 
leadership and organizational changes are intended to promote efficient 
management and operation by doing the following: (i) Providing for a 
broad range of knowledge, skills, and experience within OCC's 
management team, (ii) improving the alignment of officers' 
responsibilities with their skills and experience and thereby enhancing 
efficiency and effectiveness within OCC's management, and (iii) 
ensuring that there continues to be an appropriate allocation of duties 
and powers among officers such that management has the capacity to 
continue carrying out OCC's affairs even if a particular officer is 
absent or disabled. By promoting OCC's efficient management and 
operation, the proposed leadership and organizational changes will 
support OCC's efforts to ensure that it is organized and has the 
capacity to be able to facilitate the prompt and accurate clearance and 
settlement of securities transactions.
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    \15\ 15 U.S.C. 78q-1(b)(3)(A).
    \16\ Id.
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B. Consistency With Rule 17Ad-22(e)(1)

    The Commission finds that the proposed changes are consistent with 
Rule 17Ad-22(e)(1).\17\ Rule 17Ad-22(e)(1) \18\ requires each covered 
clearing agency to establish, implement, maintain and enforce written 
policies and procedures reasonably designed to provide for a well-
founded, clear, transparent, and enforceable legal basis for each 
aspect of its activities in all relevant jurisdictions. Pursuant to 
this proposal, OCC is centralizing the definition of ``Designated 
Officer'' in Article I, Section 1 and making other clarifying and 
conforming changes to OCC's governing documents. OCC states that such 
conforming and clarifying changes will promote organizational 
consistency and clarity in OCC's legal framework to ensure that the 
legal framework remains well-founded, transparent and enforceable in 
all relevant jurisdictions.
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    \17\ 17 CFR 240.17Ad-22(e)(1).
    \18\ Id.
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C. Consistency With Rule 17Ad-22(e)(2)

    The Commission finds that the proposed changes to specify the 
responsibilities of the Chairman/CEO, COO and CAO, as well as the 
proposed changes to specify which positions are board-appointed, are 
consistent with the requirements in Rule 17Ad-22(e)(2).\19\ Rule 17Ad-
22(e)(2) \20\ requires each covered clearing agency to establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to provide for governance arrangements that, among

[[Page 20506]]

other things, are clear and transparent and specify clear and direct 
lines of responsibility. According to OCC, the proposed amendments to 
OCC's By-Laws, Rules, charters and policies will provide clear and 
transparent statements of the responsibilities of its Executive 
Chairman/CEO, COO and CAO within the overall management structure of 
OCC. In addition, the proposed amendments support clarity and 
transparency by reflecting in OCC's By-Laws and Rules organizational 
changes to provide that the President will no longer be a recognized 
officer of OCC, to provide that the Board will appoint the COO and CAO, 
and to separate the positions of Treasurer and CFO. Finally, the 
proposed changes, in specifying the responsibilities of the Chairman/
CEO, COO and CAO, support the requirement that OCC provide for 
governance arrangements that specify clear and direct lines of 
responsibility, helping to clarify the roles that each individual will 
fulfill and fostering accountability at OCC.
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    \19\ 17 CFR 240.17Ad-22(e)(2).
    \20\ Id.
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed change is consistent with the requirements of the Act, and in 
particular, with the requirements of Section 17A of the Act \21\ and 
the rules and regulations thereunder.
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    \21\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\22\ that the proposed rule change (SR-OCC-2017-002) be, 
and it hereby is, approved.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08814 Filed 5-1-17; 8:45 am]
 BILLING CODE 8011-01-P