Document ID: SEC-2012-1906-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-11-20T05:00Z

[Federal Register Volume 77, Number 224 (Tuesday, November 20, 2012)]
[Notices]
[Pages 69679-69682]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28144]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68227; File No. SR-NYSEArca-2012-123]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Change the 
Monthly Fees for the Use of Ports

November 14, 2012.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on November 1, 2012, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 amend the NYSE Arca Equities Schedule of 
Fees and Charges for Exchange Services (the ``Fee Schedule'') to change 
the monthly fees for the use of ports. The text of the proposed rule 
change is available on the Exchange's Web site at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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 self-regulatory organization 
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 those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to change the 
monthly fees for the use of ports that provide connectivity to the 
Exchange's trading systems (i.e., ports for entry of orders and/or 
quotes (``order/quote entry ports'')) and to implement a fee for ports 
that allow for the receipt of ``drop copies'' of order or transaction 
information (``drop copy ports'' and, together with order/quote entry 
ports, ``ports'').\4\ The Exchange proposes to implement the fee 
changes on November 1, 2012.
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    \4\ Firms receive confirmations of their orders and receive 
execution reports via the order/quote entry port that is used to 
enter the order or quote. A ``drop copy'' contains redundant 
information that a firm chooses to have ``dropped'' to another 
destination (e.g., to allow the firm's back office and/or compliance 
department, or another firm--typically the firm's clearing broker--
to have immediate access to the information). Such drop copies can 
only be sent via a drop copy port. Drop copy ports cannot be used to 
enter orders and/or quotes.
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Order/Quote Entry Ports
    The Exchange currently makes order/quote entry ports available for 
connectivity to its trading systems and charges $300 per port pair per 
month for up to five pairs of ports, then $1,500 per month for each 
additional five pairs of ports.\5\
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    \5\ See Securities Exchange Act Release No. 63056 (October 6, 
2010), 75 FR 63233 (October 14, 2010) (SR-NYSEArca-2010-87) (the 
port fee ``Adopting Release''). See also Securities Exchange Act 
Release No. 66110 (January 5, 2012), 77 FR 1766 (January 11, 2012) 
(SR-NYSEArca-2012-01) (the port fee ``Amending Release''). For 
example, the current fee for six pairs of ports would be $3,000 
total per month (i.e., $1,500 total for the first five pairs and 
$1,500 for the sixth pair). The fee would remain $3,000 for pairs 
seven through 10. The fee would increase by $1,500, to $4,500 total, 
for pairs 11 through 15.
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    The Exchange proposes to change the current methodology for order/
quote entry port billing, such that order/quote entry ports would be 
charged on a per port basis, without billing in groups of five and 
without requiring that ports be in pairs.\6\ More specifically, the 
Exchange proposes to charge $200 per port per month for order/quote 
entry ports, which are currently charged $300 per pair per month for 
activity on NYSE Arca Equities; \7\ provided, however, that (i) users 
of the Exchange's Risk Management Gateway service (``RMG'') would not 
be charged for order/quote entry ports if such ports are designated as 
being used for RMG purposes, and (ii) unutilized order/quote entry 
ports that connect to the Exchange via its backup datacenter would be 
considered established for backup purposes and not charged port 
fees.\8\
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    \6\ The Exchange stated in the Adopting Release that the port 
fee is charged per participant. The Exchange later clarified that 
``per participant'' means per ETP ID for purposes of the port fees, 
since an ETP Holder may have more than one unique ETP ID. See 
Amending Release, at 1766-1767. The proposed fee change would change 
the current methodology such that ports would not be charged on a 
per ETP ID basis. Accordingly, reference to per ETP ID would be 
removed from the Fee Schedule related to port fees.
    \7\ The Exchange does not currently charge for order/quote entry 
ports related to option activity on NYSE Arca Options. However, via 
a separate proposed rule change, the Exchange is proposing to 
implement port fees applicable to option activity on NYSE Arca 
Options. See SR-NYSEArca-2012-122. In this regard, separate port 
fees would be charged for an order/quote entry port that is 
authorized for both equity and option order/quote entry.
    \8\ Since the Adopting Release, the Exchange has not charged for 
order/quote entry ports that connect to the Exchange through its 
backup datacenter, which is currently located in Chicago, Illinois, 
irrespective of whether activity was conducted through such ports.
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    The Exchange proposes that users of RMG would not be charged for 
order/quote entry ports if such ports are designated as being used for 
RMG purposes. RMG enables Sponsoring ETP Holders to verify whether a 
Sponsored Participant's orders comply with order criteria established 
by the Sponsoring ETP Holder for the Sponsored Participant, including, 
among other things, criteria related to order size (per order or daily 
quantity limits), credit limits (per order or daily value), specific 
symbols or end users.\9\ Currently, users of RMG are required to pay 
the existing order/quote entry port fees for connectivity to the 
Exchange's trading systems, in addition to the RMG

[[Page 69680]]

connection fees related to such ports.\10\ The Exchange proposes that 
users of RMG would no longer be required to pay port fees for order/
quote entry ports designated as being used for RMG because, in the 
Exchange's opinion, order/quote entry ports are an integral part of RMG 
and such users are already charged a fee for RMG, including additional 
connections related thereto, which the Exchange believes is sufficient 
to cover its costs related to making the order/quote entry ports 
available for RMG purposes. Accordingly, the Exchange proposes to 
specify that port fees are not applicable to order/quote entry ports 
designated as being used for RMG.
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    \9\ See Securities Exchange Act Release No. 60607 (September 1, 
2009), 74 FR 46275 (September 8, 2009) (SR-NYSEArca-2009-80) (order 
approving RMG). See also Securities Exchange Act Release No. 60664 
(September 14, 2009), 74 FR 48110 (September 21, 2009) (SR-NYSEArca-
2009-81) (establishing RMG fees). The Exchange proposes a non-
substantive change to the Fee Schedule to move the first instance of 
Risk Management Gateway being defined as ``RMG.''
    \10\ Currently, a $3,000 charge per month applies for an initial 
RMG connection and a $1,000 charge for every additional connection 
thereafter.
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Drop Copy Ports
    The Exchange proposes to implement a fee for drop copy ports,\11\ 
for which the Exchange does not currently charge a fee, provided, 
however, that users of RMG would not be charged for drop copy ports if 
such ports are designated as being used for RMG purposes. The Exchange 
proposes to charge $500 per port per month for drop copy ports.\12\ 
Additionally, the Exchange proposes to specify that only one fee per 
drop copy port would apply, even if the port receives drop copies from 
multiple order/quote entry ports and/or drop copies for activity on 
both NYSE Arca Equities and NYSE Arca Options.
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    \11\ See supra note 4.
    \12\ The Exchange proposes to add language to the Fee Schedule 
to differentiate between drop copy ports and order/quote entry 
ports.
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    In addition, the Exchange proposes that users of RMG would not be 
charged for drop copy ports if such ports are designated as being used 
for RMG purposes. The Exchange proposes that users of RMG not be 
required to pay port fees for drop copy ports designated as being used 
for RMG because, in the Exchange's opinion, ports are an integral part 
of RMG and such users are already charged a fee for RMG, including 
additional connections related thereto, which the Exchange believes is 
sufficient to cover its costs related to making the ports available for 
RMG purposes. Accordingly, the Exchange proposes to specify that port 
fees are not applicable to drop copy ports designated as being used for 
RMG.
Backup Datacenter
    Finally, the Exchange proposes that unutilized order/quote entry 
ports that connect to the Exchange via its backup datacenter and are 
not utilized be considered established for backup purposes and not 
charged port fees.\13\ However, if activity were conducted through one 
of these order/quote entry ports, whether for backup or any other 
purposes, port fees would apply for the relevant month or months. In 
this regard, the Exchange notes that it monitors usage of these 
particular ports. Accordingly, if an order/quote were sent to the 
Exchange via one of these ports, then the port would be charged the 
applicable monthly port fee.
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    \13\ See supra note 8.
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    The Exchange also proposes that drop copy ports that connect to the 
Exchange via its backup datacenter not be charged if the drop copy port 
is configured such that it is duplicative of another drop copy port of 
the same user, regardless of whether the drop copy port is utilized or 
not. The Exchange is proposing to treat drop copy ports in this manner 
because a firm would not derive any value or utility from a drop copy 
port in the datacenter that is duplicative of another drop copy port 
that it already has outside of the datacenter, in that, because drop 
copy ports are used to send duplicative information, a second drop copy 
port carrying the same information would not be a useful resource, 
except for a backup purpose.
    Overall, the Exchange believes that the changes proposed herein 
will result in the method of billing for ports more closely aligning 
with the needs of firms with ports. The proposed changes will also 
permit the Exchange to remain competitive with other exchanges with 
respect to fees charged for ports.\14\ The Exchange notes that the 
proposed changes are not otherwise intended to address any other issues 
surrounding ports or port fees and that the Exchange is not aware of 
any problems that port users would have in complying with the proposed 
change.
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    \14\ For example, the charge for connectivity to the NASDAQ 
Stock Market LLC (``NASDAQ'') NY-Metro and Mid-Atlantic Datacenters 
is $500 and a separate charge for Pre-Trade Risk Management ports is 
applicable, which ranges from $400 to $600 and is capped at $25,000 
per firm per month. Also, the BATS Exchange, Inc. (``BZX'') charges 
$400 per month per pair (primary and secondary data center) for 
logical ports. Additionally, EDGA Exchange, Inc. (``EDGA'') and EDGX 
Exchange, Inc. (``EDGX'') each charge $500 per port. EDGA and EDGX 
also provide the first five ports for free.
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    The Exchange proposes to implement these changes on November 1, 
2012. In this regard, the Exchange notes that billing for ports would 
be based, as is currently on the case, on the number of ports on the 
third business day prior to the end of the month. In addition, the 
level of activity with respect to a particular port would still not 
affect the assessment of monthly fees, such that, except for ports that 
are not charged and ports considered established for backup purposes, 
even if a particular port is not used, a port fee would still apply.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\15\ in general, and furthers the objectives of Section 
6(b)(4) of the Act,\16\ in particular, because it provides for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members, issuers and other persons using its facilities and does 
not unfairly discriminate between customers, issuers, brokers or 
dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
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    Overall, the Exchange believes that the proposed changes, including 
the rates proposed, are reasonable because the fees charged for order/
quote entry ports and drop copy ports are expected to permit the 
exchange to offset, in part, its connectivity costs associated with 
making such ports available, including costs based on gateway software 
and hardware enhancements and resources dedicated to gateway 
development, quality assurance, and support. In this regard, the 
Exchange believes that its fees are competitive with those charged by 
other venues, and that in some cases its port fees are less expensive 
than many of its primary competitors.\17\ The Exchange believes that 
the changes proposed herein will result in the method of billing for 
ports more closely aligning with the needs of firms with ports.
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    \17\ See supra note 14.
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    The Exchange believes that the proposed change to the methodology 
for billing for order/quote entry ports is reasonable because it will 
simplify the fees for ports by eliminating the pair requirement and 
allowing a firm that requires more than five pairs of ports to request, 
and pay for, the specific number of ports that it requires, rather than 
requesting ports in pairs and in groups of five. This aspect of the 
proposed change is also equitable and not unfairly discriminatory 
because it will result in charges for order/entry ports being based on 
the number of ports utilized. This aspect of the proposed change is 
also equitable and not unfairly discriminatory because it will apply on 
an equal basis for all ports on the Exchange, except for order/quote 
entry ports related to RMG and order/quote entry ports in the backup 
datacenter that are not utilized.\18\
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    \18\ The Exchange describes below how the proposed changes 
regarding RMG and the backup datacenter are consistent with the Act.

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[[Page 69681]]

    The Exchange believes that it is reasonable to charge $200 per port 
per month for order/quote entry ports because, when combined with the 
change to the methodology for billing for ports, it could result in a 
decrease in the overall cost to users of ports. The proposed rate is 
also reasonable because it is comparable to the rates of other 
exchanges.\19\ The Exchange also believes that these changes to the 
fees are equitable and not unfairly discriminatory because they would 
apply to all users of order/quote entry ports on the Exchange, subject 
to the exceptions noted above.
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    \19\ See supra note 14.
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    The Exchange believes that the proposed new fee for drop copy ports 
is reasonable because it will result in a fee being charged for the use 
of technology and infrastructure provided by the Exchange. In this 
regard, the Exchange believes that the rate is reasonable because it is 
comparable to the rate charged by other exchanges for drop copy 
ports.\20\ Furthermore, the Exchange believes that the proposed rate 
for a drop copy port is reasonable because, when compared to the 
proposed rate for order/quote entry ports, it reflects the level of 
resources required of the Exchange to establish and maintain the port, 
including the various sources from which data comes (i.e., establishing 
connections to order/quote entry ports as well as, in certain 
circumstances, to order/quote entry ports on both NYSE Arca Equities 
and NYSE Arca Options). The proposed rate is also reasonable in light 
of the functional/operational differences between a drop copy port and 
an order/quote entry port (e.g., that configuration and monitoring of 
the drop copy port is more substantial and because drop copy ports 
capture cumulative activity).
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    \20\ See supra note 14.
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    The Exchange also believes that it is reasonable that only one fee 
per drop copy port would apply, even if the port receives drop copies 
from multiple order/quote entry ports and/or from both NYSE Arca 
Equities and NYSE Arca Options, because the purpose of drop copies is 
such that a trading unit's or a firm's entire order and execution 
activity is captured, including with respect to both equities and 
options. This is also reflected in the rate of $500 that is proposed 
for drop copy ports, which is higher than the rate proposed for order/
quote entry ports. The Exchange believes that the proposed new fee for 
drop copy ports is equitable and not unfairly discriminatory because it 
will apply on an equal basis to all users of drop copy ports and to all 
drop copy ports on the Exchange, except for those order/entry ports 
related to RMG and ports in the backup datacenter.\21\ In this regard, 
all firms are able to request drop copy ports, as is the case with 
order/quote entry ports.
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    \21\ See supra note 18.
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    The Exchange believes that not charging for ports that are 
designated to be used for RMG is reasonable because ports are an 
integral part of RMG and such users are already charged a fee for RMG, 
including additional connections related thereto, which the Exchange 
believes is sufficient to cover its costs related to making the ports 
available for RMG purposes.\22\ In this regard, ports not designated as 
being used for RMG purposes would remain subject to port fees. The 
Exchange also believes that this is equitable and not unfairly 
discriminatory because it would apply equally to all ETP Holders that 
utilize RMG, which is fully-voluntary and is available to any ETP 
Holder.
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    \22\ See supra note 9.
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    The Exchange believes that it is reasonable to not charge for 
order/quote entry ports in its backup datacenter that are not utilized. 
However, the exchange does not restrict firms from using order/quote 
entry ports from the backup datacenter and, as described above, if one 
of these ports is utilized for order/quote entry, then port fees would 
apply. The Exchange believes that this is equitable and not unfairly 
discriminatory because it would permit firms to have ports established 
for backup purposes, should they ever be needed, without the burden of 
paying for such ports when they are not utilized. The Exchange believes 
this is equitable and not unfairly discriminatory because firms will 
not be disincentivized from requesting backup ports because of a fee 
that may otherwise apply. This would contribute to the efficiency of a 
backup process if primary order/quote entry ports ever became 
unavailable.
    The Exchange also believes that it is reasonable to not charge for 
drop copy ports in its backup datacenter if configured such that it is 
duplicative of another drop copy port of the same user, regardless of 
whether the drop copy port is utilized or not. The Exchange believes 
that it is reasonable to treat drop copy ports in this manner because a 
firm would not derive any value/use from a drop copy port in the 
datacenter that is duplicative of another drop copy port that it 
already has outside of the datacenter (i.e., because drop copy ports 
are used to send duplicative information anyways, a second drop copy 
port carrying the same information would not be a useful resource), 
except for a backup purpose. The Exchange believes that this is 
equitable and not unfairly discriminatory because it would permit firms 
to have ports established for drop copy purposes in the backup 
datacenter, should they ever be needed, without the burden of paying 
for such ports. Because the drop copy port would not be providing any 
information that the firm did not already have, since the port would be 
configured such that it is duplicative of another drop copy port of the 
same user, the Exchange believes that it is equitable and not unfairly 
discriminatory to treat order/quote entry ports and drop copy ports 
differently in this manner. The Exchange believes this is also 
equitable and not unfairly discriminatory because firms will not be 
disincentivized from requesting backup drop copy ports because of a fee 
that may otherwise apply. This would contribute to the efficiency of a 
backup process if primary drop copy ports ever became unavailable.
    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues. In such an environment, the Exchange must continually 
review, and consider adjusting, its fees and credits to remain 
competitive with other exchanges. For the reasons described above, the 
Exchange believes that the proposed rule change reflects this 
competitive environment.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \23\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \24\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE Arca.
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f)(2).

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[[Page 69682]]

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-NYSEArca-2012-123 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2012-123. 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 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-2012-123 and should 
be submitted on or before December 11, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28144 Filed 11-19-12; 8:45 am]
BILLING CODE 8011-01-P