
[Federal Register Volume 79, Number 69 (Thursday, April 10, 2014)]
[Notices]
[Pages 19947-19950]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08058]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71879; File No. SR-NYSE-2014-15]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Its Price List To Introduce a New Credit for Certain Retail 
Providing Liquidity on the Exchange

April 4, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on March 24, 2014, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') 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 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 its Price List to introduce a new 
credit for certain retail providing liquidity on the Exchange. The 
Exchange proposes to implement the fee change effective April 1, 2014. 
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 the 
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 its Price List to introduce a new 
credit for certain retail providing liquidity on the Exchange.\4\ The 
Exchange proposes to implement the fee change effective April 1, 2014.
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    \4\ The proposed pricing would only apply to securities priced 
$1.00 or greater.
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    The Exchange currently operates the Retail Liquidity Program as a 
pilot program that is designed to attract additional retail order flow 
to the Exchange for NYSE-listed securities while also providing the 
potential for price improvement to such order flow.\5\ Retail order 
flow is submitted through the Retail Liquidity Program as a distinct 
order type called a ``Retail Order,'' which is defined in Rule 
107C(a)(3) as an agency order or a riskless principal order that meets 
the criteria of Financial Industry Regulatory Authority, Inc. 
(``FINRA'') Rule 5320.03 that originates from a natural person and is 
submitted to the Exchange by a Retail Member Organization (``RMO''), 
provided that no change is made to the terms of the order with respect 
to price or side of market and the order does not originate from a 
trading algorithm or any other computerized methodology.\6\ An 
execution of a Retail Order is always considered to remove liquidity, 
whether against contra-side interest in the Retail Liquidity Program or 
against the Book.\7\ As described in the Price List, executions of 
Retail Orders receive a credit of $0.0005 per share if executed against 
Retail Price Improvement Orders (``RPIs'') or Mid-Point Passive 
Liquidity (``MPL'') Orders and are otherwise charged according to 
standard fees applicable to non-Retail Orders if executed against the 
Book.\8\
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    \5\ See Rule 107C. See also Securities Exchange Act Release No. 
67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55).
    \6\ RMO is defined in Rule 107C(a)(2) as a member organization 
(or a division thereof) that has been approved by the Exchange under 
Rule 107C to submit Retail Orders.
    \7\ A Retail Order is an Immediate or Cancel Order. See Rule 
107C(a)(3). See also Rule 107C(k) for a description of the manner in 
which a member or member organization may designate how a Retail 
Order will interact with available contra-side interest.
    \8\ RPI is defined in Rule 107C(a)(4) and consists of non-
displayed interest in NYSE-listed securities that is priced better 
than the best protected bid (``PBB'') or best protected offer 
(``PBO''), as such terms are defined in Regulation NMS Rule 
600(b)(57), by at least $0.001 and that is identified as such. MPL 
Order is defined in Rule 13 as an undisplayed limit order that 
automatically executes at the mid-point of the protected best bid or 
offer (``PBBO'').
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    The Exchange proposes to introduce a new credit of $0.0030 per 
share for executions of orders designated as ``retail'' that provide 
liquidity on the Book.\9\ An order properly designated as ``retail'' 
would be required to satisfy the requirements of Rule 107C(a)(3), but 
would not be submitted as a Retail Order within the Retail Liquidity 
Program and therefore would not need to be submitted by an RMO.\10\ 
Designation of an order as ``retail'' for purposes of the proposed new 
credit would be separate and distinct from submission of a Retail Order 
for purposes of the Retail Liquidity Program, despite the 
characteristics being identical (i.e., they must each satisfy the 
requirements in Rule 107C(a)(3)).
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    \9\ The existing rates in the Price List would apply to 
executions of MPL Orders (e.g., $0.0015 per share). Similarly, the 
existing rates in the Price List would apply to executions of Non-
Displayed Reserve Orders (e.g., $0.0010 per share). A Supplemental 
Liquidity Provider (``SLP'') market maker (``SLMM'') could designate 
orders as ``retail'' and be eligible for the proposed new credit. 
Orders designated as ``retail'' that provide liquidity would count 
toward a member's or member organization's overall level of 
providing volume for purposes of other pricing on the Exchange that 
is based on such levels (e.g., the Tier 1, Tier 2 and Tier 3 Adding 
Credits).
    \10\ The RMO aspect of Rule 107C(a)(3) would not be considered 
when determining whether an order designated as ``retail'' satisfies 
the requirements thereunder.
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    The Exchange proposes to permit members and member organizations to 
designate orders as ``retail'' for the purposes of the proposed $0.0030 
credit either (1) by means of a specific tag in the order entry message 
or (2) by designating a particular member or member organization 
mnemonic used at the Exchange as a ``retail mnemonic.'' A member or 
member organization would be required to attest, in a form and/or 
manner prescribed by the Exchange, that substantially all orders 
submitted to the Exchange satisfy the requirements of Rule 
107C(a)(3).\11\
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    \11\ This would be similar to the process under the Retail 
Liquidity Program, whereby an RMO must attest, in a form prescribed 
by the Exchange, that substantially all orders submitted as Retail 
Orders will qualify as such under Rule 107C. See Rule 107C(b)(C). 
This would also be similar to the manner in which an Exchange 
Trading Permit (``ETP'') Holder on NYSE Arca Equities, Inc. (``NYSE 
Arca Equities'') may designate orders as ``retail'' outside of the 
NYSE Arca Equities Retail Liquidity Program. See, e.g., Securities 
Exchange Act Release No. 68322 (November 29, 2012), 77 FR 72425 
(December 5, 2012) (SR-NYSEArca-2012-129).

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[[Page 19948]]

    A member or member organization would be required to have written 
policies and procedures reasonably designed to assure that it will only 
designate orders as ``retail'' if all the requirements of Rule 
107C(a)(3) are met. Such written policies and procedures must require 
the member or member organization to (1) exercise due diligence before 
entering orders designated as ``retail'' to assure that such entry is 
in compliance with the requirements specified by the Exchange, and (2) 
monitor whether orders designated as ``retail'' meet the applicable 
requirements. If the member or member organization represents orders 
designated as ``retail'' from another broker-dealer customer of the 
member or member organization, the member's or member organization's 
supervisory procedures must be reasonably designed to assure that the 
orders it receives from such broker-dealer customer that it designates 
as ``retail'' meet the requirements of Rule 107C(a)(3). The member or 
member organization must (1) obtain an annual written representation, 
in a form acceptable to the Exchange, from each broker-dealer customer 
that sends it orders to be designated as ``retail'' that entry of such 
orders designated as ``retail'' will be in compliance with the 
requirements specified by the Exchange, and (2) monitor whether its 
broker-dealer customer's orders designated as ``retail'' meet the 
applicable requirements.\12\
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    \12\ FINRA, on behalf of the Exchange, would review member and 
member organization compliance with these requirements through an 
exam-based review of the member's or member organization's internal 
controls.
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    Designating orders as ``retail'' would be optional. Accordingly, a 
member or member organization that chooses not to designate orders as 
``retail'' would therefore either (1) not use the applicable tag in the 
order entry message or (2) not designate any of its mnemonics as 
``retail mnemonics.'' The Exchange further proposes that it may 
disqualify a member or member organization from eligibility for the 
proposed new $0.0030 credit if the Exchange determines, in its sole 
discretion, that a member or member organization has failed to abide by 
any of the requirements proposed herein, including, for example, if a 
member or member organization (1) designates greater than a de minimis 
quantity of orders to the Exchange as ``retail'' that fail to meet any 
of the applicable requirements, (2) fails to make the required 
attestation to the Exchange, or (3) fails to maintain the required 
policies and procedures.
    The proposed change is not otherwise intended to address any other 
issues, and the Exchange is not aware of any problems that members and 
member organizations would have in complying with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\13\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange notes that a significant percentage of the orders of 
individual investors are executed over-the-counter.\15\ While the 
Exchange believes that markets and price discovery optimally function 
through the interactions of diverse flow types, it also believes that 
growth in internalization has required differentiation of retail order 
flow from other order flow types. In this regard, the Exchange believes 
that the proposed change is reasonable because it would contribute to 
maintaining or increasing the proportion of retail flow in exchange-
listed securities that are executed on a registered national securities 
exchange (rather than relying on certain available off-exchange 
execution methods). The proposed change is also equitable and not 
unfairly discriminatory because it would contribute to investors' 
confidence in the fairness of their transactions and because it would 
benefit all investors by deepening the Exchange's liquidity pool, 
supporting the quality of price discovery, promoting market 
transparency and improving investor protection.
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    \15\ See Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 
(January 21, 2010) (``Concept Release'') (noting that dark pools and 
internalizing broker-dealers executed approximately 25.4% of share 
volume in September 2009). See also Mary Jo White, Focusing on 
Fundamentals: The Path to Address Equity Market Structure (Speech at 
the Security Traders Association 80th Annual Market Structure 
Conference, Oct. 2, 2013) (available on the Commission's Web site) 
(``White Speech''); Mary L. Schapiro, Strengthening Our Equity 
Market Structure (Speech at the Economic Club of New York, Sept. 7, 
2010) (available on the Commission's Web site) (``Schapiro 
Speech''). In her speech, Chair White noted a steadily increasing 
percentage of trading that occurs in ``dark'' venues, which appear 
to execute more than half of the orders of long-term investors. 
Similarly, in her speech, only three years earlier, Chair Schapiro 
noted that nearly 30 percent of volume in U.S.-listed equities was 
executed in venues that do not display their liquidity or make it 
generally available to the public and the percentage was increasing 
nearly every month.
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    The Exchange also believes that providing a credit for executions 
of orders that provide liquidity on the Book and that are designated as 
``retail'' is reasonable because it would create an added financial 
incentive for members and member organizations to bring additional 
retail flow to a public market. The proposed new credit is also 
reasonable because it would reduce the costs of members and member 
organizations that represent retail flow and potentially also reduce 
costs to their customers. The proposed change is also reasonable 
because it would be similar to the manner in which The Nasdaq Stock 
Market, LLC (``NASDAQ'') provides a $0.0033 credit for ``Designated 
Retail Orders'' that provide liquidity.\16\
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    \16\ See NASDAQ Rule 7018.
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    Absent this proposal, for example, a credit of $0.0022, $0.0020 or 
$0.0017 (or $0.0010 if a Non-Displayed Reserve Order) would apply to 
the retail providing liquidity that this proposal targets for a member 
or member organization that qualifies for the Tier 1, Tier 2 or Tier 3 
Adding Credits, respectively.\17\ A credit of $0.0015 per share (or 
$0.0010 per share if a Non-Displayed Reserve Order) would otherwise 
apply to the retail providing liquidity. The Exchange believes that 
providing a credit of $0.0030 per share for executions of orders that 
provide liquidity on the Book and that are designated as ``retail'' is 
reasonable because it is set at a level that would reasonably 
incentivize members and member organizations to qualify for eligibility 
to designate orders as ``retail'' (e.g., attestations and procedures) 
as well as to actually direct such retail flow to the Exchange. Such 
orders designated as ``retail'' would increase the pool of robust 
liquidity available on the Exchange, thereby contributing to the 
quality of the Exchange's market and to the Exchange's status as a 
premier destination for liquidity and order execution. The Exchange 
believes that, because retail flow is likely to reflect long-term 
investment intentions, it promotes price discovery and dampens 
volatility. Accordingly, the presence of retail flow on the Exchange 
has the potential to benefit all market

[[Page 19949]]

participants. For this reason, the Exchange believes that it is 
equitable and not unfairly discriminatory to provide a financial 
incentive to encourage greater retail participation on the Exchange.
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    \17\ The Price List also provides for credits for SLPs.
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    The Exchange believes that the process for designating orders as 
``retail'' and the requirements surrounding such designations, such as 
attestations and procedures, are reasonable because they would 
reasonably ensure that substantially all of those orders would satisfy 
the applicable requirements of Rule 107C(a)(3) and therefore be 
eligible for the corresponding credit of $0.0030 per share. These 
processes and requirements are also reasonable because they are 
substantially similar to those in effect on the Exchange for the Retail 
Liquidity Program and on NYSE Arca Equities related to pricing for 
certain retail flow.\18\ More specifically, the Exchange understands 
that some members and member organizations represent both retail flow 
as well as other agency and riskless principal flow that may not meet 
the strict requirements of Rule 107C(a)(3). The Exchange further 
understands that limitations in order management systems and routing 
networks used by such members and member organizations may make it 
infeasible for them to isolate 100% of retail flow from other agency or 
riskless principal, non-retail flow that they would direct to the 
Exchange. Unable to make the categorical attestation required by the 
Exchange, some members and member organizations may not attempt to 
qualify for the proposed new $0.0030 credit, notwithstanding that they 
have substantial retail flow. The Exchange believes that it is 
reasonable to permit a de minimis amount of orders to be designated as 
``retail,'' despite not satisfying the requirements of Rule 107C(a)(3), 
because it would allow for enough flexibility to accommodate member and 
member organization system limitations while still reasonably ensuring 
that no more than a de minimis amount of orders submitted to the 
Exchange would not satisfy the requirements of Rule 107C(a)(3). This is 
also equitable and not unfairly discriminatory because it will 
reasonably ensure that similarly situated members and member 
organizations that have only slight differences in the capability of 
their systems would be able to equally benefit from the proposed 
pricing for orders designated as ``retail.''
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    \18\ See supra note 11.
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    The pricing proposed herein is equitable and is not designed to 
permit unfair discrimination, but instead to promote a competitive 
process around retail executions such that retail investors' orders 
would be subject to greater transparency. As previously recognized by 
the Securities and Exchange Commission (``Commission''), ``markets 
generally distinguish between individual retail investors, whose orders 
are considered desirable by liquidity providers because such retail 
investors are presumed on average to be less informed about short-term 
price movements, and professional traders, whose orders are presumed on 
average to be more informed.'' \19\ The Exchange has sought to balance 
this view in setting the pricing of the credit available for executions 
of orders designated as ``retail'' that provide liquidity compared to 
other liquidity providing executions, recognizing that the ability of a 
member's or member organization's contra-side liquidity to interact 
with such orders designated as ``retail'' could be a potential benefit 
applicable to the members or member organizations submitting such 
contra-side liquidity.
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    \19\ See SR-NYSE-2011-55, supra note 5. See also Concept 
Release, White Speech, Schapiro Speech, supra note 15.
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    The proposal is also equitable and not unfairly discriminatory 
because the ability to designate an order as ``retail'' is available to 
all members and member organizations that submit qualifying orders and 
satisfy the other related requirements.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\20\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, the Exchange believes that the proposed 
change would increase competition among execution venues and encourage 
additional liquidity. In this regard, the Exchange believes that the 
transparency and competitiveness of attracting additional executions on 
an exchange market, and the pricing related thereto, would encourage 
competition. The proposed change would also permit the Exchange to 
compete with other markets, including NASDAQ, which similarly provides 
a credit for ``Designated Retail Orders'' that provide liquidity.\21\
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    \20\ 15 U.S.C. 78f(b)(8).
    \21\ See supra note 16.
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    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees and rebates to remain competitive with other exchanges and 
with alternative trading systems that have been exempted from 
compliance with the statutory standards applicable to exchanges. 
Because competitors are free to modify their own fees and credits in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited. As a result of all of these considerations, the 
Exchange does not believe that the proposed changes will impair the 
ability of member organizations or competing order execution venues to 
maintain their competitive standing in the financial markets.

 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) \22\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \23\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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. If the Commission 
takes such action, the Commission shall institute proceedings

[[Page 19950]]

under Section 19(b)(2)(B) \24\ of the Act to determine whether the 
proposed rule change should be approved or disapproved.
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    \24\ 15 U.S.C. 78s(b)(2)(B).
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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 rule-comments@sec.gov. Please include 
File Number SR-NYSE-2014-15 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-NYSE-2014-15. 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 inspection and 
copying in the Commission's Public Reference Section, 100 F Street NE., 
Washington, DC 20549-1090, on official business days between the hours 
of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be available 
for Web site viewing and printing at the NYSE's principal office and on 
its Internet Web site at www.nyse.com. 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-NYSE-2014-15 and should be submitted on 
or before May 1, 2014.

    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. 2014-08058 Filed 4-9-14; 8:45 am]
BILLING CODE 8011-01-P


