Document ID: SEC-2016-1424-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2016-08-15T04:00Z

[Federal Register Volume 81, Number 157 (Monday, August 15, 2016)]
[Notices]
[Pages 54170-54173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19322]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78520; File No. SR-DTC-2016-005]

Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change Regarding the Implementation 
of Functionality To Submit a Cover of Protect on Behalf of Another 
Participant and the Removal of the Option To Cover of Protect Directly 
With Agent

August 9, 2016.
    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 July 29, 2016, 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 DTC. DTC filed the proposed rule change pursuant to Section 
19(b)(2) of the Act.\3\ 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)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change by DTC would update its Procedures\4\ set 
forth in the Guide to make changes to certain options within its 
Participant Subscription Offer Program (``PSOP'')\5\ and Participant 
Tender Offer Program (``PTOP'') functions.\6\ Specifically, DTC 
proposes to add an option called ``Cover of Protect on Behalf of 
Another Participant'' (``CPAP'') to both PSOP and PTOP (``PSOP/PTOP'') 
that would allow a Participant to tender subscription rights 
(``Rights'') or Securities through DTC to an agent (``Offer 
Agent''),\7\ on behalf of another Participant that needs to tender such 
Rights or Securities in order to receive the shares and/or 
consideration from (i) a subscription rights offering (a ``Rights 
Offer''); or (ii) a cash tender offer or exchange offer (collectively, 
a ``Tender/Exchange Offer'') (together with Rights Offer, ``Offer''). 
DTC would also eliminate an option called ``Cover of Protect Submitted 
Directly to Agent'' (``CPDA'') from PSOP/PTOP that has allowed a 
Participant to tender Rights or Securities through DTC to be eligible 
to receive the shares and/or consideration from an Offer, when such 
Participant submitted its initial acceptance directly to the Offer 
Agent outside of DTC. In addition, DTC proposes to make ministerial 
changes to the text of the Guide, as more fully described below.
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    \4\ Capitalized terms not otherwise defined herein have the 
meaning set forth in the Rules, By-Laws and Organization Certificate 
of DTC (the ``Rules''), available at http://www.dtcc.com/legal/rules-and-procedures.aspx and the Reorganizations Service Guide (the 
``Guide''), available at http://www.dtcc.com/~/media/Files/
Downloads/legal/service-guides/Reorganizations.pdf.
    \5\ References in this rule filing to ``PSOP'' refer to both the 
PSOP function within the DTC Participant Terminal System (``PTS'') 
interface and the equivalent ``Rights Subscription'' function within 
the Participant Browser System (``PBS'') interface. PSOP is a 
function that is used by Participants to submit instructions 
including oversubscriptions, submit protects, submit cover of 
protects, submit cover of protects on behalf of another Participant, 
and submit Rights sell instructions on Rights Subscription events. 
PTS and PBS are user interfaces for DTC's 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.
    \6\ References in this rule filing to ``PTOP'' refer to both the 
PTOP function within the PTS interface and the equivalent 
``Voluntary Tenders and Exchanges'' function within the PBS 
interface. PTOP is a function that is 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 Voluntary Reorganization events.
    \7\ The Offer Agent is the fiscal agent of the offeror, 
typically a bank or trust company that is designated to coordinate 
the process of the 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, DTC 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. DTC 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 proposed rule change by DTC would update its Procedures set 
forth in the Guide to make changes to certain options within its PSOP 
and PTOP functions. Specifically, DTC proposes to add an option called 
CPAP to PSOP/PTOP that would allow a Participant to tender Rights or 
Securities through DTC to an Offer Agent, on behalf of another 
Participant that needs to tender such Rights or Securities in order to 
receive the shares and/or consideration from (i) a Rights Offer; or 
(ii) a Tender/Exchange Offer. DTC would also eliminate an option called 
CPDA from PSOP/PTOP that has allowed a Participant to tender Rights or 
Securities through DTC to be eligible to receive the shares and/or 
consideration from an Offer, when such Participant submitted its 
initial acceptance directly to the Offer Agent outside of DTC. In 
addition, DTC proposes to make ministerial changes to the text of the 
Guide, as more fully described below.
(i) Protects and Covers
(a) Protects and Covers Outside of DTC
Subscription Rights Offering
    A Rights Offer is the issuance of Rights to each shareholder as of 
a record date set by the issuer. Rights are issued to each shareholder 
in proportion to the number of shares it holds, and entitles the 
shareholder to purchase additional

[[Page 54171]]

shares at a discount. Rights may be either non-transferable or 
transferable. Holders are able to trade transferable Rights in the 
secondary market.
    In order to subscribe to a Rights Offer, an investor or its broker 
(``Investor'') must, prior to the expiration of the Rights Offer, 
deliver to the Offer Agent: (i) The Rights, (ii) an executed 
subscription form for such Rights Offer (``Subscription Form'') in 
which it subscribes to the new shares of the Rights Offer, and (iii) 
the payment due for the purchase of the shares.
Tender Offers and Exchange Offers
    A tender offer is a solicitation by an issuer or a third party to 
purchase a substantial percentage of the issuer's shares for a 
specified period of time. The tender offer is at a fixed price, usually 
higher than the current market price, and is usually conditioned on a 
sufficient number of the issuer's shareholders tendering a fixed number 
of their shares. An exchange offer is an offer by an issuer to exchange 
its Securities for other Securities (of that issuer or another).
    If an Investor wants to accept a Tender/Exchange Offer, it submits 
to the Offer Agent: (i) The letter of transmittal for such Tender/
Exchange Offer (``Letter of Transmittal'') setting forth the terms of 
the tender or exchange, including information about the quantity of 
Securities being tendered as well as where and to whom the payment 
should be made, and (ii) the Securities it is tendering.
Cover of Protect
    An Investor may want to accept an Offer but will not have the 
necessary Rights or Securities, as the case may be, before the 
expiration date of the Offer. If permitted by the terms of the Offer, 
the Investor may submit to the Offer Agent the notice of guaranteed 
delivery for such Offer (``Notice of Guaranteed Delivery'') which 
serves as (i) protection of the Investor's acceptance of the Offer (the 
``Protect''), and sets forth the number of shares being subscribed to 
or the amount of Securities being tendered, and (ii) a guarantee that 
the Rights or Securities (the ``Cover'') will be delivered to the Offer 
Agent within the period prescribed by the Offer (the ``Protect 
Period'').\8\
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    \8\ A Protect Period is usually three business days after the 
expiration of the Offer.
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Covering Another Investor's Protect
    In some cases, an Investor may find that it will not have the 
necessary Rights or Securities, as the case may be, in time to tender 
to the Offer Agent before the expiration of the Protect Period. This 
may occur due to a failed trade or late delivery of such Rights or 
Securities. If the Investor is unable to deliver the Rights or 
Securities within the Protect Period, it will have failed to validly 
tender and will not be eligible to purchase shares under the Rights 
Offer or to receive the consideration of the Tender/Exchange Offer, 
respectively. However, another Investor who does hold the Rights or 
Securities, and typically owes such Rights or Securities to the 
Investor who submitted the Protect because of a failed trade or late 
delivery, may submit the Cover to the Offer Agent on behalf of such 
Investor.
(b) Protects and Covers Through DTC
PSOP and PTOP
    DTC distributes information to Participants regarding the 
reorganization activity that it handles. Generally, this information is 
distributed through PSOP/PTOP, or the Reorganization Inquiry for 
Participants (``RIPS'') function of PTS/PBS. Upon receiving notice of 
such reorganization activity, Participants may use the PSOP (for Rights 
Offers) or PTOP (for Tender/Exchange Offers) functions to elect 
participation in the reorganization event and to place related 
instructions for DTC to process.
DTC's Automated Subscription Offer Program
    As part of its corporate action \9\ services, DTC offers the 
Automated Subscription Offer Program (``ASOP''),\10\ through which DTC, 
as a conduit between Participants and the Offer Agents, processes 
Rights Offers for Eligible Securities. Each Offer Agent for a Rights 
Offer that is eligible for processing through ASOP enters into an 
agreement with DTC specifying, among other things, that the relay of 
electronic messages by DTC will qualify as the execution and delivery 
of Subscription Forms or Notices of Guaranteed Delivery by 
Participants.
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    \9\ Corporate actions processed by DTC include, but are not 
limited to, the reorganization of Eligible Securities resulting from 
mergers, acquisitions, and reverse splits. DTC performs corporate 
actions processing through its Mandatory and Voluntary 
Reorganization Services. See DTC Operational Arrangements, available 
at http://www.dtcc.com/~/media/Files/Downloads/legal/issue-
eligibility/eligibility/operational-arrangements.pdf.
    \10\ See Securities Exchange Act Release No. 35108 (December 16, 
1994), 59 FR 67356 (December 29, 1994) (SR-DTC-94-15) (instituting 
ASOP).
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    ASOP enables Participants to submit subscription instructions using 
PSOP. Through PSOP, a Participant that wants to subscribe to a Rights 
Offer transmits its acceptance and acknowledgment of the terms of the 
Subscription Form, and instructs and authorizes DTC to surrender the 
Rights and process the corresponding payment to the Offer Agent. In 
accordance with these electronic instructions, DTC effects book-entry 
deliveries of the Rights by transferring the Rights from the 
Participant's Account to a DTC operational account maintained by DTC on 
behalf of the Offer Agent (``Agent Account'') and sending an electronic 
confirmation to the Offer Agent. DTC debits the Participant's 
Settlement Account for the amount of the subscription payments and 
wires the payment to the Offer Agent. When the additional shares are 
distributed by the Offer Agent, DTC credits the Securities to the 
Account of the Participant.
    If permitted by the terms of the Rights Offer, if a Participant 
will not have the Rights before the expiration date of the Rights 
Offer, it may submit a Protect to the Offer Agent by transmitting 
through PSOP its acceptance and acknowledgment of the terms of the 
Notice of Guaranteed Delivery. If the Participant receives the Rights 
before the day designated by DTC as the Cover end date (the ``DTC Cover 
Protect Expiration Date''),\11\ the Participant may submit a Cover of 
Protect by transmitting its acceptance of the terms in the Letter of 
Transmittal via a Cover of Protect option in PSOP, and instructing DTC 
to deliver the Rights and process the payment to the Offer Agent.
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    \11\ The DTC Cover Protect Expiration Date is usually one 
business day earlier than the Protect Period expiration date 
established by the terms of the Offer.
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DTC's Automated Tender Offer Program
    DTC offers the Automated Tender Offer Program (``ATOP''),\12\ 
through which DTC processes Tender/Exchange Offers for Eligible 
Securities. Offer Agents for Tender/Exchange Offers eligible for 
processing through ATOP must enter into a master agreement with DTC.
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    \12\ For a description of ATOP, refer to Securities Exchange Act 
Release No. 33797 (March 22, 1994), 59 FR 14696 (March 29, 1994) 
(SR-DTC-93-11) (approving enhancements to ATOP).
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    A Participant uses PTOP to transmit its acceptance and 
acknowledgement of the Letter of Transmittal of the applicable Tender/
Exchange Offer and to instruct DTC to deliver the Securities to the 
Offer Agent. In accordance with permitted instructions, DTC effects 
book-entry delivery of Securities from the Participant's Account to the 
Agent Account. When the payment (for a tender offer) and/or Securities 
(for an exchange offer) are distributed by the Offer Agent, DTC credits 
the amount of

[[Page 54172]]

the payment and/or Securities to the Settlement Account or Account of 
the Participant, respectively.
    A Participant's Securities may not be available to tender to the 
Offer Agent prior to the expiration of the Tender/Exchange Offer. If 
the Participant anticipates receiving the Securities and wants to 
participate in the Tender/Exchange Offer, it may, if permitted by the 
terms of the Tender/Exchange Offer, submit a Protect by transmitting 
through PTOP its acknowledgement and acceptance of the terms of the 
Notice of Guaranteed Delivery. Before the DTC Cover Protect Expiration 
Date, the Participant must acknowledge and agree to the terms of the 
Letter of Transmittal through PTOP and instruct DTC to deliver the 
Securities to the Offer Agent to Cover such Participant's Protect. If 
the Participant is unable to deliver the Securities before the DTC 
Cover Protect Expiration Date, it will have failed to validly tender 
and will not be eligible for the consideration of the Tender/Exchange 
Offer.
(c) Proposal
    As explained above, there are times when a Participant that 
submitted a Protect (the ``Protecting Participant'') may need to have 
another Participant (the ``Covering Participant'') Cover the Protect. 
Currently, neither PSOP nor PTOP has the specific functionality for a 
Covering Participant to submit a Cover on behalf of a Protecting 
Participant.
    However, DTC is aware that Covering Participants frequently utilize 
the PSOP/PTOP CPDA option in order to submit a Cover on behalf of 
another Participant, which is not the intended purpose of the CPDA 
function. The intended purpose of the CPDA function is to enable a 
Participant that submitted a Protect directly to an Offer Agent outside 
of DTC to later submit the corresponding Cover through DTC.
    In order to address directly a Participant's need to submit a Cover 
of another Participant's Protect, DTC proposes to add the CPAP option 
to PSOP/PTOP. With this enhancement, the Protecting Participant would 
submit a Protect through PSOP/PTOP, and the Covering Participant would 
be able to submit a Cover through PSOP/PTOP by providing the Protecting 
Participant's Protect ID, Protect Sequence Number, and Protect 
Participant ID. This enhanced functionality would automate the matching 
of Covers to corresponding Protects, as well as automatically allocate 
the applicable credits for Securities and/or payments directly to the 
Protecting Participant, rather than to the Covering Participant. The 
CPAP option would eliminate the need for Participants to utilize CPDA 
for the unintended purpose of Covering another Participant's Protect.
    In addition, to further reduce the risks, burden, and costs to DTC 
associated with the manual processing of the CPDA option in PSOP/PTOP, 
DTC is proposing to eliminate that option. When a Participant uses CPDA 
to submit a Cover for another Participant's Protect, DTC must manually 
process the Cover and use manual exception processing to match the 
Cover to the corresponding Protect. In addition, DTC must allocate the 
credits for Securities and/or payment from the Offer to the Covering 
Participant. Even when a Participant uses CPDA for its intended 
purpose, which is infrequent, it is a labor intensive process for DTC, 
as it must manually process the Cover and return the allocation to the 
Offer Agent within a narrow timeframe. Therefore, DTC proposes that 
when a Participant submits a Protect directly to the Offer Agent, such 
Participant would need to submit the Cover directly to the Offer Agent, 
and not through PSOP/PTOP.
(ii) Technical Changes
    The proposed rule change would revise the Guide to make ministerial 
updates to reflect current terminology and practices, as set forth 
below. The Guide would be updated to:
     Correct the text of the Guide to accurately reflect names 
of functions accessible through PTS, and to accurately reflect the 
names of the corresponding functions that are accessible through PBS. 
Presently, the Guide assigns PTS functions to PBS, and does not provide 
the names of the corresponding PBS functions.
     Correct the timeframes within which a Participant can 
submit a Notice of Guaranteed Delivery on the expiration date of a 
Rights Offer. Generally, a Participant may submit a Notice of 
Guaranteed Delivery through PSOP/PTOP from 8:00 a.m. to 2:15 p.m., at 
which time the window closes to allow for settlement of cash 
activities. However, DTC will re-open the window from 3:30 p.m. to 5:00 
p.m. on the expiration date of the Offer to allow Participants extra 
time to submit a Notice of Guaranteed Delivery before the Offer 
expires, provided that the Offer Agent agrees to accept deferred 
subscription payments. The text of the Guide incorrectly reflects an 
open window from 8:00 a.m. to 5:00 p.m., which is not the practice. 
With this rule filing, the text would be corrected to reflect the 
correct 8:00 a.m. to 2:15 p.m. and 3:30 p.m. to 5:00 p.m. windows.
     Pursuant to Participant requests, expand the availability 
of PTOP for a Participant to submit a Cover of Protect, on the dates 
specified in the notice of an Offer. The current availability is until 
4:15 p.m. or 12:00 p.m., depending on the type of Offer, and the 
proposed rule change would revise the text to reflect availability 
until 5:00 p.m. or 1:00 p.m., as applicable.
     Remove references to the UNIT Swingovers service. Several 
years ago, the UNIT Swingovers service was discontinued, and instead, 
voluntary unit separations and recombinations \13\ began to be 
processed under the FAST program.\14\
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    \13\ A unit is a Security comprised of more than one class of 
Securities, e.g., common stock and warrants (the components). In a 
voluntary unit separation, the separation and recombination between 
the security component and the security is done by the Participant 
and transfer agent using DTC's Deposit and Withdrawal at Custodian 
system.
    \14\ Securities Exchange Act Release No. 59199 (January 6, 
2009), 74 FR 1266 (January 12, 2009) (SR-DTC-2008-14).
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     Clarify information regarding available reports and 
methods of submission and receipt.
     Replace reference to `NASDAQ' with `FINRA'.
     Replace reference to `AMEX' with `NASDAQ'.
     Add the title of the Guide, delete `Copyright,' and update 
the `Important Legal Information' to align with other DTC service 
guides.
     Correct spelling, grammatical, capitalization, numbering, 
and typographical errors throughout.
     Update other text, including address, phone numbers, Web 
site information, and methods of communication.
Implementation Date
    DTC will announce the effective date via Important Notice upon the 
Commission's approval of the proposed rule change.
2. Statutory Basis
    Section 17A(b)(3)(F) of the Act \15\ requires that the rules of the 
clearing agency be designed, inter alia, to promote the prompt and 
accurate clearance and settlement of securities transactions. DTC 
believes that the proposed rule change is consistent with this 
provision because (i) by adding the CPAP option by which a Participant 
can submit a Cover through PSOP/PTOP on behalf of another Participant 
instead of improperly using the CPDA option that then requires DTC to 
resort to manual processing and allocate the consideration to the 
Covering

[[Page 54173]]

Participant rather than the Protecting Participant, and (ii) by 
removing the CPDA option and requiring that Participants that Protect 
outside of DTC to also Cover outside DTC, the proposed rule change 
would establish a process that would streamline Cover of Protect 
transactions, allocations and recordkeeping for Participants, and 
reduce manual processing and the risks, burdens, and costs associated 
with such processing for DTC, thereby promoting the prompt and accurate 
clearance and settlement of securities, consistent with the 
requirements of the Act, in particular Section 17A(b)(3)(F), cited 
above.
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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    Additionally, the proposed ministerial changes to the Procedures, 
which update the Guide as set forth above, would provide additional 
clarity to Participants and would ensure the accuracy of the Procedures 
by reflecting the present state of DTC's reorganization services and 
practices, thereby promoting the prompt and accurate clearance and 
settlement of securities, consistent with the requirements of the Act, 
in particular Section 17A(b)(3)(F), cited above.

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

    DTC does not believe that the proposed rule change would have any 
impact, or impose any burden, on competition because it would remove a 
function that is infrequently used for its intended purpose, and would 
establish a new function, available to all Participants, without the 
addition of a new fee.

(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. DTC will notify the Commission of any written 
comments received by DTC.

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 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 rule-comments@sec.gov. Please include 
File Number SR-DTC-2016-005 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-DTC-2016-005. 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 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 Web site 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 
Web site (http://dtcc.com/legal/sec-rule-filings.aspx). 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-DTC-2016-005 and should be 
submitted on or before September 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Robert W. Errett,
Deputy Secretary.
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    \16\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-19322 Filed 8-12-16; 8:45 am]
 BILLING CODE 8011-01-P