
[Federal Register Volume 79, Number 176 (Thursday, September 11, 2014)]
[Notices]
[Pages 54322-54325]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-21651]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73013; File No. SR-NYSEARCA-2014-95]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the NYSE 
Arca Equities Schedule of Fees and Charges for Exchange Services To (i) 
Change the Pricing for the Retail Liquidity Program and the 
Qualification Requirement for the Existing Retail Order Tier, and To 
Add a New Retail Order Credit Under Basic Rates, and (ii) Eliminate 
Obsolete Pricing Tiers

September 5, 2014.
    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 August 26, 2014, 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 (``Fee Schedule'') to (i) change 
the pricing for the Retail Liquidity Program and the qualification 
requirement for the existing Retail Order Tier, and to add a new Retail 
Order credit under Basic Rates, and (ii) eliminate obsolete pricing 
tiers. The Exchange proposes to implement the fee changes effective 
September 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 
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 (i) change the 
pricing for the Retail Liquidity Program and the qualification 
requirement for the existing Retail Order Tier, and to add a new Retail 
Order credit under Basic Rates, and (ii) eliminate obsolete pricing 
tiers. The Exchange proposes to implement the fee changes effective 
September 1, 2014.
Retail Liquidity Program
    The Retail Liquidity Program is a pilot program that is designed to 
attract additional retail order flow to the Exchange for NYSE Arca-
listed securities and securities traded pursuant to unlisted trading 
privileges (``UTP Securities'') while also providing the potential for 
price improvement to such order flow.\4\ Retail order flow is submitted 
through the Retail Liquidity Program as a distinct order type called a 
``Retail Order,'' which is defined in Rule 7.44(a)(3) as an agency 
order or a riskless principal order that meets the criteria of 
Financial Industry Regulatory Authority, Inc. 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.\5\ In addition to RMOs, Retail Liquidity 
Providers (``RLPs'') were created as an additional class of market 
participant under the Retail Liquidity Program. RLPs are required to 
provide potential price improvement for Retail Orders in the form of 
``Retail Price Improvement Orders'' (``RPIs''), which are non-displayed 
interest that is better than the best protected bid (``PBB'') or best 
protected offer (``PBO''), as such terms are defined in Regulation NMS 
Rule

[[Page 54323]]

600(b)(57) (together, ``PBBO'').\6\ ETP Holders other than RLPs are 
also permitted, but not required, to submit RPIs.
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    \4\ See Rule 7.44. See Securities Exchange Act Release No. 71176 
(December 23, 2013), 78 FR 79524 (December 30, 2013) (SR-NYSEArca-
2013-107).
    \5\ RMO is defined in Rule 7.44(a)(2) as an ETP Holder that is 
approved by the Exchange under Rule 7.44 to submit Retail Orders.
    \6\ See 17 CFR 242.600(b)(57). RLP is defined in Rule 7.44(a)(1) 
as an ETP Holder that is approved by the Exchange to act as such and 
that is required to submit RPIs in accordance with Rule 7.44. RPI is 
defined in Rule 7.44(a)(4) and consists of non-displayed interest in 
NYSE Arca-Alisted securities and UTP Securities, excluding NYSE-
listed (Tape A) securities, that is priced better than the PBBO by 
at least $0.001 and that is identified as such.
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    RLP executions of RPIs against Retail Orders in Tape B and Tape C 
securities are not currently charged or provided with a credit (i.e., 
they are free). The Exchange proposes to instead provide a credit of 
$0.0003 per share. RMOs currently receive a credit of $0.0005 per share 
for executions of Retail Orders in Tape B and Tape C securities if 
executed against RPIs and other price-improving interest. The Exchange 
proposes to eliminate this credit so that such Retail Order executions 
would be free (i.e., no credit or charge).
Retail Order Tier and New Retail Order Basic Rate Credit
    The Exchange currently provides a credit of $0.0033 per share under 
the Retail Order Tier for Retail Orders that provide liquidity on the 
Exchange in Tape A, Tape B and Tape C securities if the ETP Holder 
executes an average daily volume (``ADV'') of Retail Orders during the 
month that is 0.20% or more of U.S. consolidated ADV (``CADV'').\7\ The 
Retail Order Tier credit is available only to Retail Orders that 
provide liquidity on the Exchange, but an ETP Holder currently may 
qualify for the Retail Order Tier based on its ADV of Retail Orders 
that both provide and remove liquidity from the Exchange. The Exchange 
proposes that only Retail Orders that provide liquidity would count 
toward qualifying for the Retail Order Tier; Retail Orders that remove 
liquidity would no longer count. The Exchange also proposes to decrease 
the CADV threshold for qualification from 0.20% to 0.15%.
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    \7\ An ETP Holder is able to designate an order as a Retail 
Order for purposes of the non-Retail Liquidity Program pricing 
(i.e., the Retail Order Tier and, as described herein, the proposed 
Retail Order Basic Rate credit) without designating the order as a 
Retail Order for purposes of the Retail Liquidity Program pricing. 
An order designated only for non-Retail Liquidity Program pricing 
would not be eligible to execute in the Retail Liquidity Program or 
be subject to Retail Liquidity Program pricing. However, an ETP 
Holder could choose to designate an order for purposes of both the 
Retail Liquidity Program and otherwise, in which case the Exchange 
would consider the order to be a Retail Order for purposes of 
executions within the Retail Liquidity Program, and apply Retail 
Liquidity Program pricing for any such executions, and also then as 
a Retail Order for purposes of the Retail Order Tier and the 
proposed Retail Order Basic Rate credit for any executions outside 
of the Retail Liquidity Program. The same requirements of Rule 
7.44(a)(3) applies with respect to Retail Orders, whether within or 
outside of the Retail Liquidity Program. The Exchange described 
these details in a prior rule change that introduced the Retail 
Liquidity Program pricing, including that the manner in which an 
order was designated (i.e., either within or outside of the Retail 
Liquidity Program, or both) would determine the applicable pricing. 
See Securities Exchange Act Release No. 71722 (March 13, 2014), 79 
FR 15376 (March 19, 2014) (SR-NYSEArca-2014-22).
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    Currently, an ETP Holder that submits Retail Orders that provide 
liquidity, but that does not qualify for the Retail Order Tier or a 
separate Tiered rate in the Fee Schedule, is subject to the Basic Rate 
credit of $0.0020 per share for such executions. The Exchange proposes 
to add a new Basic Rate credit of $0.0030 per share for Retail Orders 
that provide liquidity.
Elimination of Obsolete Pricing
    The Fee Schedule currently includes several pricing tiers that have 
not encouraged ETP Holders to increase their activity to qualify for 
the tiers as significantly as the Exchange anticipated they would. 
These tiers are as follows: (i) Investor Tiers 1-4, (ii) Retail Order 
Cross Asset Tier, and (iii) Routable Order Cross Asset Tier. The 
Exchange proposes to remove these pricing tiers from the Fee Schedule 
as well as any related cross references.
    The proposed change is not otherwise intended to address any other 
issues, and the Exchange is not aware of any problems that ETP Holders 
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,\8\ in general, and furthers the 
objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\9\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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Retail Liquidity Program
    The Exchange believes that the proposed changes to the rates under 
the Retail Liquidity Program are reasonable. The Exchange originally 
introduced the existing rates approximately five months ago.\10\ At 
that time, the Exchange stated that, because the Retail Liquidity 
Program was a pilot program, the Exchange anticipated that it would 
periodically review applicable pricing to seek to ensure that it 
contributes to the goal of the Retail Liquidity Program, which is 
designed to attract additional retail order flow to the Exchange for 
NYSE Arca-listed securities and UTP Securities while also providing the 
potential for price improvement to such order flow. The proposed new 
rates are a result of this review.
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    \10\ See Securities Exchange Act Release No. 71722 (March 13, 
2014), 79 FR 15376 (March 19, 2014) (SR-NYSEArca-2014-22).
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    The Exchange believes that providing a credit of $0.0003 per share 
for RLP and Non-RLP executions of RPIs against Retail Orders is 
reasonable because it would further incentivize submission of RPIs for 
interaction with Retail Orders and therefore could result in greater 
price improvement for Retail Orders. The Retail Order credit was 
designed to create a financial incentive for RMOs to bring additional 
retail order flow to a public market during the initial implementation 
of the Retail Liquidity Program. The proposed change also is reasonable 
because, despite the elimination of the credit, RMOs, and indirectly 
their customers, would continue to receive significant benefits in the 
form of price improvement by interacting with RPIs.
    The Exchange notes that a significant percentage of the orders of 
individual investors are executed over-the-counter.\11\ 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. The proposed new rates would be set 
at levels that would continue to reasonably incentivize RMOs to direct 
Retail Orders to the Exchange and would contribute to robust amounts of 
RPI liquidity submitted by RLPs and non-RLPs being available for 
interaction with the Retail Orders. Together, this would increase

[[Page 54324]]

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 Orders are likely 
to reflect long-term investment intentions, they promote price 
discovery and dampen volatility. Accordingly, the presence of Retail 
Orders on the Exchange has the potential to benefit all market 
participants. For this reason, the Exchange believes that the proposed 
pricing is equitable and not unfairly discriminatory and would continue 
to encourage greater retail participation on the Exchange.
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    \11\ 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 pricing proposed herein, like the Retail Liquidity Program 
itself, is not designed to permit unfair discrimination, but instead to 
promote a competitive process around retail executions such that retail 
investors would receive better prices than they currently do through 
bilateral internalization arrangements. The Exchange believes that the 
transparency and competitiveness of operating a program such as the 
Retail Liquidity Program on an exchange market, and the pricing related 
thereto, would result in better prices for retail investors. 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.
Retail Order Tier and New Retail Order Basic Rate Credit
    The Exchange believes that it is reasonable that only Retail Orders 
that provide liquidity would count toward qualifying for the Retail 
Order Tier. This would result in the type of volume to which the 
corresponding credit applies being the same as the volume that counts 
toward qualification--i.e., only Retail Orders that provide liquidity 
for both. The Exchange also believes that the proposed change is 
reasonable because, while Retail Orders that remove liquidity would no 
longer count toward qualifying for the Retail Order Tier, the 
qualifying threshold would be decreased from 0.20% to 0.15%. The 
Exchange believes that the decreased threshold may balance the effect 
of the more narrow activity that would count toward qualifying. The 
Exchange believes that the proposed threshold of 0.15% is reasonable 
because it would remain within a range that the Exchange believes would 
continue to incentivize ETP Holders to submit Retail Orders to the 
Exchange in order to qualify for the applicable credit of $0.0033 per 
share. This would continue to contribute to increasing liquidity 
available on the Exchange.
    The Exchange believes that it is reasonable to add a new Basic Rate 
credit of $0.0030 per share for Retail Orders that provide liquidity. 
The Exchange believes that the proposed new credit would contribute 
further to balancing the effect of the more narrow activity that would 
count toward qualifying for the Retail Order Tier, as described above. 
In this regard, an ETP Holder that does not qualify for the Retail 
Order Tier would still be eligible for a credit for its Retail Orders 
that provide liquidity that is higher than the standard $0.0020 per 
share Basic Rate credit for providing liquidity, which the Exchange 
believes may be below the level that would continue to encourage 
submission of Retail Orders on the Exchange. The proposed new $0.0030 
Basic Rate credit would be set at a level that would reasonably 
contribute to encouraging ETP Holders to submit Retail Orders. Retail 
Orders that provide liquidity would receive the new Basic Rate credit 
of $0.0030 per share if the ETP Holder does not qualify for the Retail 
Order Tier or another Tiered rate in the Fee Schedule.
    The proposed new Retail Order Basic Rate credit would create an 
added financial incentive for ETP Holders to bring additional retail 
flow to a public market. The proposed new credit also is reasonable 
because it would reduce the costs of ETP Holders that represent retail 
flow and potentially also reduce costs to their customers. The Exchange 
also believes that the proposed $0.0030 credit is reasonable because it 
would be identical to the credit on New York Stock Exchange LLC for 
transactions in orders designated as ``retail'' that provide liquidity. 
The proposed credit also would be similar to the manner in which The 
Nasdaq Stock Market, LLC provides a $0.0033 credit for ``Designated 
Retail Orders'' that provide liquidity.\12\
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    \12\ See NASDAQ Rule 7018.
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    The Exchange believes that the proposed change is equitable and not 
unfairly discriminatory because maintaining or increasing the 
proportion of Retail Orders in exchange-listed securities that are 
executed on a registered national securities exchange (rather than 
relying on certain available off-exchange execution methods) would 
contribute to investors' confidence in the fairness of their 
transactions and would benefit all investors by deepening the 
Exchange's liquidity pool, supporting the quality of price discovery, 
promoting market transparency and improving investor protection. This 
aspect of the proposed change also is consistent with the Act because 
all similarly situated ETP Holders would pay the same rate, as is 
currently the case, and because all ETP Holders would be eligible to 
qualify for the rates by satisfying the related thresholds, where 
applicable. Furthermore, the submission of Retail Orders is optional 
for ETP Holders, in that an ETP Holder could choose whether to submit 
Retail Orders and, if it does, the extent of its activity in this 
regard.
Elimination of Obsolete Pricing
    The Exchange believes that it is reasonable to eliminate the 
obsolete pricing tiers from the Fee Schedule because ETP Holders have 
not increased their activity to qualify for these tiers as 
significantly as the Exchange anticipated they would. The Exchange 
believes that this is equitable and not unfairly discriminatory because 
the tiers would be eliminated entirely--no ETP Holders would remain 
able to qualify for the eliminated tiers. This aspect of the proposed 
change would therefore result in a more streamlined Fee Schedule, 
including with respect to removal of related cross references.
    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,\13\ 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 encourage the submission of additional liquidity to a 
public exchange, thereby promoting price discovery and transparency and 
enhancing order execution opportunities for ETP Holders. The Exchange 
believes that this could promote competition between the Exchange and 
other execution venues, including those that currently offer similar 
order types and comparable transaction pricing, by encouraging

[[Page 54325]]

additional orders to be sent to the Exchange for execution. The 
Exchange also believes that the proposed rule change is consistent with 
the Act in this regard, because it strikes an appropriate balance 
between fees and credits, which will encourage submission of orders to 
the Exchange, thereby promoting competition. The removal of obsolete 
pricing tiers is not competitive in nature, but would result in a more 
streamlined Fee Schedule.
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    \13\ 15 U.S.C. 78f(b)(8).
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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 ETP Holders 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) \14\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \15\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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 under 
Section 19(b)(2)(B) \16\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \16\ 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-NYSEARCA-2014-95 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-NYSEARCA-2014-95. 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 Section, 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 will also be available 
for inspection and copying 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-NYSEARCA-2014-95 and should be submitted on or before 
October 2, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21651 Filed 9-10-14; 8:45 am]
BILLING CODE 8011-01-P


