Document ID: SEC-2008-0560-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-04-11T04:00Z

[Federal Register: April 11, 2008 (Volume 73, Number 71)]
[Notices]               
[Page 19923-19926]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11ap08-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57626; File No. SR-NYSEArca-2008-28]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval of Proposed Rule Change to 
Trade Pursuant to Unlisted Trading Privileges Shares of the Bear 
Stearns Current Yield Fund

April 4, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 13, 2008, NYSE Arca, Inc. (``NYSE Arca'' or the ``Exchange''), 
through its wholly owned subsidiary NYSE Arca Equities, Inc., filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been substantially prepared by the Exchange. This order provides 
notice of the proposed rule change, and approves the proposal on an 
accelerated basis.
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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 trade pursuant to unlisted trading 
privileges (``UTP'') shares of the Bear Stearns Current Yield Fund, an 
investment portfolio of the Bear Stearns Active ETF Trust. The text of 
the proposed rule change is available at the Exchange's principal 
office, the Commission's Public Reference Room, and http://
www.nyse.com.

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 III 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 trade pursuant to UTP shares (``Shares'') 
of the Bear Stearns Active ETF Trust (the ``Trust'') under NYSE Arca 
Equities Rule 8.600.\3\ The Trust consists of one investment portfolio, 
the Bear Stearns Current Yield Fund (``Fund''), and is an actively 
managed open-end investment company.
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    \3\ Recently, the Commission approved NYSE Arca Equities Rule 
8.600, which permits the listing and trading, or trading pursuant to 
UTP, of Managed Fund Shares. See Securities Exchange Act Release No. 
57619 (April 4, 2008) (SR-NYSEArca-2008-25). Managed Fund Shares 
will be structured very similarly to Investment Company Units and 
Portfolio Depositary Receipts based on a stock index and listed or 
traded pursuant to UTP under NYSE Arca Equities Rules 5.2(j)(3) and 
8.100, respectively. However, Managed Fund Shares will be managed 
like traditional actively-managed open-end investment companies and 
will have specified investment goals and objectives. Unlike 
exchange-traded funds based on a stock index, those goals and 
objectives will not involve seeking to replicate, or provide 
investment results that correspond generally to, the price and yield 
or total return performance of a specified index.
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    Recently, the American Stock Exchange, LLC (``Amex'') adopted rules 
relating to listing and trading of securities issued by actively 
managed open-end investment companies (Managed Fund Shares), and to 
list Shares of the Trust pursuant to those new rules (``Amex 
Proposal'').\4\
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    \4\ See Securities Exchange Act Release No. 57297 (February 8, 
2008), 73 FR 8723 (February 14, 2008) (SR-Amex-2008-02) (notice of 
the proposed rule change); Securities Exchange Act Release No. 57514 
(March 17, 2008), 73 FR 15230 (March 21, 2008) (SR-Amex-2008-02) 
(order approving the proposed rule change).
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a. Description of the Fund and the Trust
    The Trust is organized as a Delaware statutory trust and is an 
open-end registered investment company under the Investment Company Act 
of 1940 (``1940 Act'').\5\ The Fund, an exchange-traded fund, is the 
sole investment portfolio of the Trust.
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    \5\ 15 U.S.C. 80a.
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    The investment objective of the Fund is to seek as high a level of 
current income as is consistent with the preservation of capital and 
liquidity. The Fund will be actively managed by its portfolio manager, 
who will have discretion to choose securities for the Fund's portfolio 
consistent with the Fund's investment objective. The Fund's portfolio 
manager seeks to attain the Fund's objective by investing primarily in 
short-term debt obligations, including U.S. government securities, bank 
obligations, corporate debt obligations, mortgage-backed and asset-
backed securities, municipal obligations, foreign bank obligations 
(U.S. dollar denominated), foreign corporate debt obligations (U.S. 
dollar denominated), repurchase agreements, and reverse repurchase 
agreements. The Fund is not a ``money market'' fund, nor is it subject 
to certain rules and regulations under the 1940 Act governing money 
market funds.
    The Registration Statement for the Trust, including the prospectus 
and Statement of Additional Information (``SAI''), will provide a 
detailed description of the Fund including, but not limited to, 
structure, creation/redemption process, investment objectives and 
policies, characteristics, tax status, and distributions.\6\ Investors 
are directed to the Fund's prospectus and SAI for a complete 
explanation of the Fund.
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    \6\ See Securities Act Registration No. 333-141421 and 
Investment Company Act Registration No. 811-22038.

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[[Page 19924]]

b. Availability of Information Regarding the Fund and the Shares
    The daily NAV for the Fund will be calculated each business day and 
disseminated publicly to all market participants at the same time.
    Prior to the opening each business day, the Fund will make publicly 
available on its Web site a file of all the portfolio securities held 
by the Fund and the quantities thereof, as of the close of business on 
the prior business day, reflecting all securities bought and sold on 
such prior business day. This information will be available to 
investors and market participants accessing the Fund's Web site and 
will form the basis for the Fund's calculation of NAV as of the close 
of regular trading on the Exchange (ordinarily 4 p.m.).
    Amex will disseminate, at least every 15 seconds, during regular 
Amex trading hours, through the facilities of the Consolidated Tape 
Association, an estimated value for the Fund on a per-Share basis (for 
purposes of proposed NYSE Arca Equities Rule 8.600, the ``Portfolio 
Indicative Value''). An independent pricing service will calculate a 
Portfolio Indicative Value for the Fund in the manner discussed below. 
The Portfolio Indicative Value is designed to provide investors with a 
reference value which can be used in connection with other related 
market information. Amex will not guarantee the accuracy or 
completeness of the Portfolio Indicative Value. None of the Trust, the 
Board of Trustees of the Fund, or the Advisor is responsible for the 
calculation or dissemination of the Portfolio Indicative Value, and 
they make no warranty as to its accuracy or its usefulness to traders 
of Shares. The pricing service will calculate the Portfolio Indicative 
Value during hours of trading on the Exchange by dividing the 
``Estimated Fund Value'' as of the time of the calculation by the total 
Shares outstanding. ``Estimated Fund Value'' is the sum of the 
estimated amount of cash held in the Fund's portfolio, the estimated 
value of the securities held in the Fund's portfolio, and the estimated 
amount of accrued interest, minus the estimated amount of liabilities.
    The Fund's Web site will display the Prospectus, the SAI, and 
additional quantitative information that is updated on a daily basis, 
including, among other things, the following information, on a per-
Share basis: (1) The prior business day's NAV; (2) and the reported 
mid-point of the bid-ask spread at the time of NAV calculation (``Bid-
Ask Price''); (3) a calculation of the premium or discount of the Bid-
Ask Price against such NAV; and (4) data in chart format displaying the 
frequency distribution of discounts and premiums of the Bid-Ask Price 
against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. Amex also intends to disseminate a variety 
of data with respect to Shares on a daily basis, by means of CTA and CQ 
High Speed Lines, including quotation and last-sale data information 
and the number of Shares outstanding.
    As previously noted, prior to the opening of each business day, the 
Fund will make publicly available on its Web site the portfolio 
securities held by the Fund as of the close of business on the prior 
business day. All investors and market participants will have access to 
the Fund's Web site. This Web site disclosure of portfolio holdings 
will be made daily and will include, as applicable, the specific types 
and amounts of short-term debt securities and the amount of cash held 
in the portfolio of the Fund.
    As with other exchange-traded funds, information regarding 
secondary market prices and volume of the Shares will be broadly 
available in real time throughout the trading day.
c. Trading Halts
    The Exchange represents that it will cease trading the Shares of 
the Fund if the listing market stops trading the Shares because of a 
regulatory halt similar to a halt based on NYSE Arca Equities Rule 
7.12. UTP trading in the Shares will also be governed by the trading 
halt provisions of NYSE Arca Equities Rule 7.34, relating to temporary 
interruptions in the calculation or wide dissemination of the Portfolio 
Indicative Value or the value of the underlying index.
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of a Fund.\7\ Trading in Shares of the Fund will 
be halted if the circuit breaker parameters in NYSE Arca Equities Rule 
7.12 have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. These may include: (1) the extent to 
which trading is not occurring in the securities comprising the 
Disclosed Portfolio and/or the Financial Instruments of a Fund; or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.
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    \7\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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d. Surveillance
    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products (which will include 
Managed Fund Shares) to monitor trading in the Shares. The Exchange 
represents that these procedures are adequate to properly monitor 
Exchange trading of the Shares in all trading sessions and to deter and 
detect violations of Exchange rules and applicable federal securities 
laws.\8\
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    \8\ See e-mail dated April 4, 2008 from Michael Cavalier, 
Associate General Counsel, NYSE Group, Inc., to Christopher Chow, 
Special Counsel, Commission.
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    The Exchange's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. When such situations 
are detected, surveillance analysis follows and investigations are 
opened, where appropriate, to review the behavior of all relevant 
parties for all relevant trading violations.
    The Exchange may obtain information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges who are members or 
affiliate members of the ISG.\9\
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    \9\ A list of the current members and affiliate members of ISG 
may be found at http://www.isgportal.com. The Exchange notes that 
not all of the Fund's portfolio holdings may trade on exchanges that 
are members or affiliate members of the ISG.
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    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
e. Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an Information Bulletin of applicable suitability 
requirements and the special characteristics and risks associated with 
trading the Shares, including risks inherent with trading the Shares 
during the Opening and Late Trading Sessions when the updated Portfolio 
Indicative Value is not calculated and disseminated. Specifically, the 
Bulletin will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Unit size (and that Shares are 
not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a), which 
imposes a duty of due diligence on its ETP Holders to learn the 
essential facts relating to every customer prior to trading the 
Shares;\10\ (3) how

[[Page 19925]]

information regarding the Portfolio Indicative Value is disseminated; 
(4) the requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (5) trading information.
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    \10\ NYSE Arca Equities Rule 9.2(a) provides that ETP Holders, 
before recommending a transaction, must have reasonable grounds to 
believe that the recommendation is suitable for the customer based 
on any facts disclosed by the customer as to his other security 
holdings and as to his financial situation and needs. Further, the 
rule provides, with a limited exception, that prior to the execution 
of a transaction recommended to a non-institutional customer, the 
ETP Holder shall make reasonable efforts to obtain information 
concerning the customer's financial status, tax status, investment 
objectives, and any other information that the ETP Holder believes 
would be useful to make a recommendation. See Securities Exchange 
Act Release No. 34-54026 (June 21, 2006), 71 FR 36850 (June 28, 
2006) (SR-PCX-2005-115).
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    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Trust's Registration 
Statement. The Bulletin will discuss any exemptive, no-action, or 
interpretive relief granted by the Commission from any rules under the 
Act. The Bulletin will also disclose that the NAV for the Shares will 
be calculated after 4 p.m. Eastern Time each trading day.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\11\ in general, and furthers the objectives of Section 6(b)(5) 
\12\ in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system. The Exchange believes that the 
proposed rule change will enhance competition among market participants 
to the benefit of investors and the marketplace.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    In addition, the proposed rule change is consistent with Rule 12f-5 
under the Act \13\ because the Exchange deems the Shares to be equity 
securities, thus rendering the Shares subject to the Exchange's rules 
governing the trading of equity securities.
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    \13\ 17 CFR 240.12f-5.
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2008-28 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2008-28. This 
file number should be included on the subject line if e-mail 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 Web site (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 inspection 
and copying 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 filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2008-28 and should 
be submitted on or before May 2, 2008.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\14\ In particular, the Commission finds that the proposal is 
consistent with Section 6(b)(5) of the Act \15\ in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission believes that 
this proposal should benefit investors by increasing competition among 
markets that trade the Shares.
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    \14\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
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    In addition, the Commission finds that the proposal is consistent 
with Section 12(f) of the Act,\16\ which permits an exchange to trade, 
pursuant to UTP, a security that is listed and registered on another 
exchange.\17\ The Commission notes that it approved the original 
listing and trading of the Shares on Amex.\18\ The Commission also 
finds that the proposal is consistent with Rule 12f-5 under the 
Act,\19\ which provides that an exchange shall not extend UTP to a 
security unless the exchange has in effect a rule or rules providing 
for transactions in the class or type of security to which the exchange 
extends UTP. The Exchange has represented that it meets this 
requirement because it deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules

[[Page 19926]]

governing the trading of equity securities.
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    \16\ 15 U.S.C. 78l(f).
    \17\ Section 12(a) of the Act, 15 U.S.C. 78l(a), generally 
prohibits a broker-dealer from trading a security on a national 
securities exchange unless the security is registered on that 
exchange pursuant to Section 12 of the Act. Section 12(f) of the Act 
excludes from this restriction trading in any security to which an 
exchange ``extends UTP.'' When an exchange extends UTP to a 
security, it allows its members to trade the security as if it were 
listed and registered on the exchange even though it is not so 
listed and registered.
    \18\ See supra note 4.
    \19\ 17 CFR 240.12f-5.
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\20\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotations and last-sale information regarding the Shares 
will be disseminated through the facilities of the CTA and Consolidated 
Quote High Speed Lines. Amex will disseminate through the facilities of 
the CTA an updated Portfolio Indicative Value on a per-Share basis at 
least every 15 seconds during regular Amex trading hours. The following 
information regarding the Trust will be disseminated on a daily basis: 
the portfolio securities held by the Trust; the NAV, which will be 
disseminated to all market participants at the same time; and the 
number of Shares outstanding.
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    \20\ 5 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission also believes that the proposal is reasonably 
designed to prevent trading in the Shares when transparency is 
impaired. The Exchange represents that it will halt trading in the 
Shares if the listing market institutes a regulatory halt in trading of 
the Shares. The Exchange also has represented that it would follow the 
procedures with respect to trading halts set forth in NYSE Arca 
Equities Rule 7.34, which provides, inter alia, for trading halts in 
certain circumstances when the Portfolio Indicative Value is not being 
disseminated as anticipated.
    The Commission notes that, if the Shares should be delisted by the 
listing exchange, NYSE Arca would no longer have authority to trade the 
Shares pursuant to this order.
    In support of this proposal, the Exchange has made the following 
representations:
    1. The Exchange's surveillance procedures are adequate to properly 
monitor trading of the Shares in all trading sessions and to deter and 
detect violations of Exchange rules and applicable federal securities 
laws.
    2. Prior to the commencement of trading, the Exchange would inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares, including 
risks inherent with trading the Shares during the Opening and Late 
Trading Sessions when the updated Portfolio Indicative Value is not 
calculated and disseminated, and of suitability recommendation 
requirements.
    3. The Information Bulletin also would discuss the requirement that 
ETP Holders deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction.

This approval order is based on these representations.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publication of the 
notice of filing thereof in the Federal Register.
    Previously, the Commission found that the listing and trading of 
the Shares on Amex is consistent with the Act. The Commission presently 
is not aware of any regulatory issue that should cause it to revisit 
that finding or would preclude the trading of the Shares on the 
Exchange pursuant to UTP. Therefore, accelerating approval of this 
proposal should benefit investors by creating, without undue delay, 
additional competition in the market for the Shares.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NYSEArca-2008-28) is hereby 
approved on an accelerated basis.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Florence E. Harmon,
Deputy Secretary.
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    \22\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E8-7698 Filed 4-10-08; 8:45 am]

BILLING CODE 8011-01-P