Document ID: SEC-2022-0890-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.
Posted Date: 2022-07-11T04:00Z

[Federal Register Volume 87, Number 131 (Monday, July 11, 2022)]
[Notices]
[Pages 41153-41156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14633]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95197; File No. SR-DTC-2022-007]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend the Reorganizations Service Guide

July 5, 2022.
    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 June 28, 2022, 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. DTC filed the proposed rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(4) 
thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change \5\ consists of amendments to the Guide to 
provide Participants with the option to submit voluntary 
reorganizations instructions via Application Program Interface 
(``API'') and ISO 20022 real-time messaging (collectively, ``Automated 
Instruction Messaging'') for Automated Subscription Offer Program 
(``ASOP'')-eligible offers (each, an ``ASOP Offer'') \6\ and for 
Automated Puts System (``APUT'')-eligible offers (each, an ``APUT 
Offer''),\7\ and to make technical and ministerial changes to the 
Guide, as discussed more fully below.
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    \5\ Each term not otherwise defined herein has its respective 
meaning as set forth in the Rules, By-Laws and Organization 
Certificate of DTC (the ``Rules'') and the Reorganizations Service 
Guide (the ``Guide''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
    \6\ When an agent makes a rights offer through ASOP, a 
Participant can submit instructions to DTC for transmission to the 
agent, surrender its rights to the agent's account at DTC, and have 
its DTC account debited for the associated subscription payment. 
When the underlying securities are distributed by the agent, DTC 
credits the securities to the account of the Participant.
    \7\ A Participant can submit instructions to DTC for the 
exercise of payment, retainment and relinquishment options on put 
options securities for transmission to the agent, surrender its put 
securities to the agent's account at DTC and have its DTC account 
credited with the payment. APUT allows agents to review and 
reconcile all the instructions that were made for an offer.
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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 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 purpose of the proposed rule change is to amend the Guide to 
provide Participants with the option to submit voluntary 
reorganizations instructions via Automated Instruction Messaging for 
ASOP Offers and APUT Offers, and to make technical and ministerial

[[Page 41154]]

changes to the Guide, as discussed more fully below.
(i) Automated Instruction Messaging
A. Background
    When an issuer or agent announces an ASOP Offer, it communicates 
the details of the offer to DTC, which announces the ASOP Offer to its 
Participants in accordance with the Guide and applicable Rules. 
Participants then relay the information to their clients, which, in 
turn, relay the information to their clients, and so forth, down to the 
investor level. For example, the ASOP Offer information flows from the 
issuer/agent to DTC, DTC to Participant, Participant to Investor 
Manager client, Investment Manager to its investor clients. Each level 
of the chain solicits and compiles instructions from its clients and 
submits the instructions back up the chain, until the instructions 
reach the Participant level. Each Participant compiles and aggregates 
all instructions received from its clients and submits the instructions 
to DTC through the PTS PSOP or PBS Rights Subscriptions functions via 
nonautomated key entry.\8\ The whole process needs to be completed 
before the expiration date and time of the ASOP Offer.\9\
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    \8\ PTS (Participant Terminal System) and PBS (Participant 
Browser System) are user interfaces for DTC settlement and asset 
services functions. PTS is mainframe-based, and PBS is web-based 
with a mainframe back-end. Participants may use either PTS or PBS, 
as they are functionally equivalent. PSOP and Rights Subscriptions 
are functions of PTS and PBS, respectively, that are currently used 
by Participants to submit instructions, submit protects, submit 
cover of protects, submit cover of protects on behalf of another 
Participant, and submit withdrawals on various subscription events 
through ASOP. PUTS and Put Bond Options are functions of PTS and 
PBS, respectively, that are currently used by Participants to 
exercise put options.
    \9\ The process is substantially similar for APUT Offers.
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    There are certain potential risks and costs associated with manual 
processing, particularly in connection with voluntary reorganizations 
instructions. Nonautomated input may increase the likelihood of errors, 
which can result in rejected instructions or erroneous elections. 
Rejected instructions and erroneous elections can delay the submission 
of the instructions for voluntary offers, which typically have to be 
submitted within a short timeframe. Further, because information about 
a voluntary offer and the compilation and transmission of instructions 
flows across different market segments, the lack of automation and 
standardization can also lead to errors along the chain.
    Therefore, DTC is proposing to provide Participants with the 
ability to use Automated Instruction Messaging via ISO 20022 messages 
and API functionality for ASOP Offers and APUT Offers.
    The functionality for the submission of instructions through 
standardized ISO 20022 messaging already exists at DTC. Currently, 
Participants have the option to submit instructions using ISO 20022 
messaging for Automated Tender Offer Program (``ATOP'')-eligible 
voluntary reorganizations offers (each, an ``ATOP Offer'').\10\ ISO 
20022 is a standard that provides the financial industry with a common 
language to capture business transactions and associated message flows. 
The benefits offered by ISO 20022 include, but are not limited to: (i) 
greater straight through processing by utilizing a data model that 
conforms to market practice and (ii) improved accuracy and less 
processing risk due to enhanced data elements.
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    \10\ See Guide, supra note 5, at 12. See also Securities 
Exchange Act Release No. 92339 (July 7, 2021), 86 FR 36810 (July 13, 
2021) (SR-DTC-2021-010) (``ATOP Automated Messaging Filing'').
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    DTC already offers API functionality for the submission of certain 
instructions to DTC.\11\ For example, Participants can currently engage 
with the DTC ClaimConnect service via APIs.\12\ APIs enable the flow of 
information between computer applications and provide Participants the 
ability to easily access and evaluate customer data as well as provide 
Participants with callable endpoints for deleting data resources and 
for reading and updating data resource values. Stated another way, APIs 
provides enhanced flexibility for Participants, making the process of 
accessing from, and transmitting information to, DTC and its downstream 
customers more efficient. The flexibility of APIs and its use of modern 
programming languages provide benefits that include, but are not 
limited to: (i) less frequent maintenance, (ii) client development and 
implementation can be quicker to market, and (iii) more efficient 
integration channels.
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    \11\ The ATOP Automated Messaging Filing also provided for 
certain API functionality for ATOP Offers. However, DTC has not yet 
implemented this API functionality. Pursuant to the proposed rule 
change, the implementation of API functionality for ATOP Offers (as 
described in the ATOP Automated Messaging Filing) would be 
implemented at the same time as the implementation of API 
functionality for ASOP Offers and APUT Offers in Q3 of 2022. This 
proposed rule change does not apply to the following ATOP actions: 
(1) Withdrawal/Cancellation and (2) Submitting a Cover of Protect on 
Behalf of Another Participant, nor (3) to the ASOP action of 
Submitting a Cover of Protect on Behalf of Another Participant. DTC 
anticipates that Automated Instruction Messaging for these actions 
would be available in Q4 of 2022/Q1 of 2023, subject to regulatory 
approval.
    \12\ See ClaimConnect Service Guide, p.8, available at http://www.dtcc.com/legal/rules-and-procedures.aspx.
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B. Automated Instruction Messaging
    Pursuant to the proposed rule change, Automated Instruction 
Messaging would be available for the following actions for ASOP Offers: 
(i) Accepting an ASOP-Eligible Offer, (ii) Accepting an ASOP-Eligible 
Offer via Notice of Guaranteed Delivery, and (iii) Submitting a Cover 
of Protect. Automated Instruction Messaging would also be available for 
the following action for APUT Offers: Accepting an APUT-Eligible Offer.
    Automated Instruction Messaging for the ASOP Offers and APUT Offers 
would consist of (i) Automated Instruction Messages for the input of 
instructions and (ii) Automated Response Messages for feedback and 
status output with respect to submitted instructions. The ISO 20022 
Corporate Action Instruction (CAIN) message and the API POST function 
are Automated Instruction Messages. The ISO 20022 Corporate Action 
Instruction Status Advice (CAIS) message and the API GET function are 
Automated Response Messages.
    The ISO 20022 Automated Instruction Messages and ISO 20022 
Automated Response Messages would be available in Q2 of 2022 for the 
actions referenced above. The API Automated Instruction Messages and 
API Automated Response Messages would be available in Q3 of 2022 for 
the actions referenced above.
    As noted above, automating instructions for ASOP Offers and APUT 
Offers would streamline the flow of information, reducing the costs, 
errors and risks that are associated with nonautomated processing. 
Accordingly, pursuant to the proposed rule change, DTC would provide 
Participants with the ability to automate and standardize the 
submission of instructions for ASOP Offers and APUT Offers through 
Automated Instruction Messaging.
(ii) Proposed Rule Changes
    Pursuant to the proposed rule change, DTC is proposing to:
    1. Add references to ``Automated Instruction Messaging'' or 
``Automated Instruction Message,'' as context requires, where other 
types of instruction input for ASOP Offers (e.g., PTS PSOP/PBS Rights 
Subscription) and/or for APUT Offers (e.g., PTS PUTS/PBS Put Option 
Bonds) are referenced.
    2. Add references to ``Automated Response Message'' where other 
types of responses and/or status reports relating to instructions on 
ASOP Offers (e.g.,

[[Page 41155]]

PTS/PBS, CA Web or Participant Daily Activity Statement) are 
referenced.
    3. Add references to ``a field within Automated Instruction 
Messaging'' where a field or comments box on the PTS PSOP/PBS 
Subscriptions screen is referenced.
    4. Amend the Guide to reflect that when a Participant uses an 
Automated Instruction Message, it must check its Automated Response 
Message, in order to ensure that its transactions were properly 
processed and recorded, and to note that a Participant could 
additionally check its Participant Daily Activity Statement and the CA 
Web.
    5. Amend the Guide to reflect that input errors for Automated 
Instruction Messaging entries would be reported via Automated Response 
Message.
    6. In the ``Automated Instruction Messaging'' Section:
    a. Add an asterisk to the title and, as a footnote, insert the 
sentence ``API functionality for the referenced ATOP, ASOP, and APUT 
actions would be available in Q3 of 2022.''
    b. Add a note that ``Withdrawals for Puts (Survivor Options only) 
must be performed via PTS/PBS, and cannot be instructed via Automated 
Instruction Message.''
    c. Insert a list of the actions for ASOP Offers for which Automated 
Instruction Messaging is available, which would be: Accepting an ASOP-
Eligible Offer, Accepting an ASOP-Eligible Offer via Notice of 
Guaranteed Delivery, and Submitting a Cover of Protect.
    d. Insert language to reflect that Automated Instruction Messaging 
would be available for the action ``Accepting an APUT-Eligible Offer'' 
for APUT Offers.
    7. In the ``About the Service'' subsection of the ``Puts'' section, 
clarify that Participants use the Puts program for APUT-eligible 
offers, and that Participants can use PTS/PBS functions or Automated 
Instruction Messaging in connection with the Puts program.
    8. In the ``Exercising Put Options'' subsection of ``Puts'' 
section, clarify that Participants should use PTS PUTS/PBS Put Options 
Bonds or Automated Instruction Messaging for put options that have an 
offer to purchase with no withdrawal privilege, and that they should 
use PTS PTOP/PBS Voluntary Tenders and Exchanges or Automated 
Instruction Messaging for put options that have an offer to purchase 
with a withdrawal privilege.
    9. In the ``Subscription Instructions'' subsection of the ``About 
DTC's Automated Subscription Offer Program (ASOP)'' section, insert 
language to reflect that when a Participant is accepting a right offer 
by surrendering rights or by Notice of Guaranteed Delivery, 
Participants instructing via PTS PSOP or PBS Rights Subscriptions can 
combine up to 12 separate customer reference instructions, and to add 
that Participants instructing via Automated Instruction Messaging would 
be able to combine up to 99 separate customer reference instructions 
into one Automated Instruction Message.
    10. In the ``Checklist for Submitting an Acceptance'' subsection of 
the ``Accepting an ASOP-Eligible Offer'' section, amend the ``Note:'' 
to add that when a Participant transmits via Automated Instruction 
Messaging, it can combine up to 99 separate customer reference 
instructions into one Automated Instruction Message.
    11. In the ``Checklist for Submitting a Protect'' section, insert 
the following language to address how a Participant needs to 
acknowledge the Notice of Guaranteed Delivery when it transmits an 
acceptance by Notice of Guaranteed Delivery via Automated Instruction 
Messaging: ``Likewise, when you transmit an acceptance via Automated 
Instruction Messaging, you will be required to acknowledge the Notice 
of Guaranteed Delivery required by the offer identified by the CUSIP 
you specify in your acceptance. The message must contain your 
acknowledgement. If your message does not contain your acknowledgement, 
your acceptance will be rejected. By acknowledging the Notice of 
Guaranteed Delivery via Automated Instruction Messaging, you agree that 
(i) you have received, and will be bound by the terms of, the Notice of 
Guaranteed Delivery required by the offer identified in the acceptance 
and (ii) the agreement set forth in the preceding clause (i) may be 
enforced against you by the Offeror in such offer.''
    12. In the ``Checklist for Submitting a Cover of Protect via PTS 
PSOP, or PBS Rights Subscriptions'' section, insert the following 
language to address how a Participant needs to acknowledge the 
Subscription Form when it transmits a cover of protect via Automated 
Instruction Messaging: ``Likewise, when you transmit an instruction to 
cover a protect via Automated Instruction Messaging, you will be 
required to acknowledge the Subscription Form required by the offer 
identified by the CUSIP you specify in your instruction. The message 
must contain your acknowledgment. If you do not submit your 
acknowledgement, your instruction will be rejected. By submitting the 
acknowledgment via Automated Instruction Messaging, you agree that (i) 
you have received, and will be bound by the terms of, the Subscription 
Form required by the offer identified in your instruction and (ii) the 
agreement set forth in the preceding clause (i) may be enforced against 
you by the Offeror in such offer.''
    13. In the ``Checklist for Submitting Sell Instructions'' 
subsection of the ``Surrendering Rights for Sale via ASOP'' section, 
insert the following language to address how a Participant needs to 
acknowledge the Subscription Form when it transmits sell instructions: 
``Likewise, when you transmit sell instructions via Automated 
Instruction Messaging, you will be required to acknowledge the 
Subscription Form required by the offer identified by the CUSIP you 
specify in your acceptance. If your message does not contain your 
acknowledgment, your acceptance will be rejected. By acknowledging the 
Subscription Form via Automated Instruction Messaging, you agree that 
(i) you have received, and will be bound by the terms of the 
Subscription Form required by the offer identified in the acceptance 
and (ii) the agreement set forth in the preceding clause (i) may be 
enforced against you by the Offeror in such offer.''
    14. Add a reference to ``Automated Instruction Messaging'' to the 
following section headings: ``Submitting a Cover of Protect via PTS 
PSOP or PBS Rights Subscriptions for an ASOP-Eligible Offer,'' and 
``Checklist for Submitting a Cover of Protect via PTS PSOP or PBS 
Rights Subscriptions.''
    15. Make ministerial changes to correct typos and omissions and to 
enhance conformity and readability, including, but not limited to:
    a. Deleting footnote 1 as redundant.
    b. Adding the name of the corresponding PBS function where the 
equivalent PTS function is referenced.
    c. Augmenting mentions of PBS and PTS functions with their full 
technical names.
    d. Inserting references to the CA Web to correctly reflect that a 
Participant can check the CA Web, in addition to its Participant Daily 
Activity Statement and Automated Response Messages, to ensure that its 
transactions were properly processed and recorded.
    e. Inserting references to ISO 20022 messaging and the CA Web to 
correctly reflect them as sources of ASOP Offer details.
    f. Inserting references to ISO 20022 messages to reflect them as 
source for a Participant to receive information about its 
reorganization account and subaccount activities.
    g. Stating that Participants that subscribe to the ISO 20022 
Instructions Statement Report (CAST) or Automated Response Messages 
would be able to

[[Page 41156]]

verify instructions status on the message.
    h. Enhancing clarity and readability.
    i. Correcting typographical errors.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act requires, in part, that the Rules 
be designed to promote the prompt and accurate clearance and settlement 
of securities transactions.\13\
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    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed rule change would amend the Guide to provide 
Participants with the option to use Automated Instruction Messaging for 
ASOP Offers and APUT Offers. As discussed above, the use of Automated 
Instruction Messaging for ASOP Offers and APUT Offers would provide 
greater straight-through processing, improved accuracy, more efficient 
integration channels and less processing risk than nonautomated 
processing.
    DTC believes that the proposed rule change to amend the Guide to 
make technical and clarifying changes would enhance the clarity and 
transparency of the Guide. By enhancing the clarity and transparency of 
the Guide, the proposed rule change would allow Participants to more 
efficiently and effectively conduct their business in connection with 
processing reorganization events and associated securities 
transactions.
    Based on the foregoing, DTC believes that the proposed rule change 
is designed to promote the prompt and accurate clearance and settlement 
of securities transactions, consistent with Section 17A(b)(3)(F) of the 
Act, cited above.

(B) Clearing Agency's Statement on Burden on Competition

    DTC believes that the proposed rule change to provide Participants 
with the option to use Automated Instruction Messaging for ASOP Offers 
and APUT Offers would not have any impact on competition. Because 
Automated Instruction Messaging would be an optional service that would 
be available to all Participants in connection with ASOP Offers and 
APUT Offers, DTC does not believe that the proposed rule change would 
impose a burden on competition.\14\ In addition, DTC believes that the 
proposed rule change to make technical and ministerial changes to the 
Guide, would not have any impact on competition because it would merely 
enhance the clarity of the procedures relating to ASOP Offers and APUT 
Offers. In light of the foregoing, DTC does not believe that the 
proposed rule changes would impose a burden on competition.\15\
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    \14\ 15 U.S.C. 78q-1(b)(3)(I).
    \15\ Id.
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    DTC has not received or solicited any written comments relating to 
this proposal. If any written comments are received, they would 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 https://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.
    DTC reserves the right to not respond to any comments 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) \16\ of the Act and paragraph (f) \17\ of Rule 19b-4 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f).
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-DTC-2022-007 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-2022-007. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of DTC and on DTCC's website 
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-DTC-2022-007 and should be submitted on 
or before August 1, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-14633 Filed 7-8-22; 8:45 am]
BILLING CODE 8011-01-P