[Federal Register Volume 84, Number 246 (Monday, December 23, 2019)]
[Notices]
[Pages 70599-70602]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27594]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87779; File No. SR-NYSEAMER-2019-57]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Change To Amend the NYSE 
American Options Fee Schedule Relating to the MM FAANG Credit

December 17, 2019.
    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 December 9, 2019, NYSE American LLC (``NYSE American'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. 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.
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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 American Options Fee 
Schedule (``Fee Schedule'') relating to the MM FAANG Credit. The 
Exchange proposes to implement the fee change effective December 9, 
2019. The proposed change is available on the Exchange's website 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to modify an incentive program 
(described below), which is designed to encourage Market Makers to 
provide more competitive prices and deeper liquidity in options on the 
NYSE FANG+ Index (``NYSE FANG+''), which trades under the symbol FAANG. 
FAANG is an acronym for the market's five most popular and best-
performing tech stocks, namely Facebook, Apple, Amazon, Netflix and 
Alphabet's Google.
    Currently, the Exchange offers a $5,000 credit to Market Maker 
organizations--specifically, NYSE American Options Market Maker, 
Specialist, e-Specialist or Directed Order Market Makers--that execute 
at least 500 total monthly contract sides that open a position in FAANG 
on the Exchange (the ``MM FAANG Credit'' or ``Credit''). The Credit, 
which is applied against all Exchange fees charged to a Market Maker, 
is currently capped at $50,000, so if more than ten Market Maker 
organizations qualify for a MM FAANG Credit in a calendar month, the MM 
FAANG Credit for each qualifying firm will be a pro rata share of 
$50,000.\3\
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    \3\ See Fee Schedule, Section I.A., Options Transaction Fees and 
Credits, Rates for Options Transactions, note 7 (Options on NYSE 
FANG+ Index (``FAANG'') transactions), available here: https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf.
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    The Exchange proposes to continue to provide $50,000 in Credits to 
encourage Market Maker organizations to provide liquidity in FAANG, but 
provide for two different qualifying levels with different monthly 
credits. As proposed, the Exchange proposes to add an alternative, 
higher monthly credit of $10,000 for Market Maker Organizations that 
execute at least 2,000 total monthly contract sides that open a 
position in FAANG on the Exchange. This credit would be capped at 
$25,000. Accordingly, if more than two firms qualify, they must share 
$25,000 pro rata. The Exchange also proposes to reduce the total 
credits available for firms that qualify for the current Credit from 
$50,000 to $25,000, and similarly reduce the fewest number of 
qualifying firms that would be entitled to the full Credit from eleven 
to six. The Exchange believes that the proposed change would incent 
firms that have historically qualified for the Credit to trade greater 
volume to earn the higher (proposed) Credit. And, believes that the 
lower (existing) volume threshold should still attract firms (including 
those that have never achieved the Credit) to trade the requisite 
volume in FAANG to earn the Credit.
    The Exchange proposes to implement the fee change effective 
December 9, 2019.
Background
    The Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. In Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \4\
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    \4\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS 
Adopting Release'').
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    There are currently 16 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than 16% of the market 
share of executed volume of multiply-listed

[[Page 70600]]

equity and ETF options trades.\5\ Therefore, no exchange possesses 
significant pricing power in the execution of multiply-listed equity & 
ETF options order flow. More specifically, in the first quarter of 
2019, the Exchange had less than 10% market share of executed volume of 
multiply-listed equity & ETF options trades.\6\
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    \5\ The OCC publishes options and futures volume in a variety of 
formats, including daily and monthly volume by exchange, available 
here: https://www.theocc.com/market-data/volume/default.jsp.
    \6\ Based on OCC data, see id., the Exchange's market share in 
equity-based options declined from 9.82% for the month of January to 
7.86% for the month of September.
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    With respect to FAANG, this index is listed and traded only on the 
Exchange and NYSE Arca, Inc. (``NYSE Arca''). However, this index 
product competes with market participants that choose to create their 
own synthetic index product by trading in the basket of securities that 
comprise the FAANG index. This proposed fee change is designed to 
increase liquidity for market participants that would like to trade 
FAANG by encouraging Market Maker organizations to open more positions 
in FAANG on the Exchange.
Proposed Fee Change
    The Exchange proposes to modify the existing Credit and add an 
alternative that offers a higher credit for firms that execute a higher 
number of total monthly contract sides that open a position in FAANG on 
the Exchange, as set forth in more detail below. With this proposed 
change, the total amount available under the Credit would not be 
changing. Rather, the Exchange would make available a higher per-firm 
credit for firms that provide more liquidity in FAANG. The Exchange 
believes the proposed modifications would further the Exchange's goal 
of encouraging Market Makers to make a market in these (relatively) new 
products, which would in turn, benefit market participants that are 
interested in trading FAANG.
    To effect this change, the Exchange proposes to modify the Credit 
to reduce the cap on the credits available for the existing 
qualification from $50,000 to $25,000. With this change, if more than 
five (as opposed to more than ten) firms execute at least 500 total 
monthly FAANG contract sides in a calendar month, the Credit for each 
qualifying firm would be a pro rata share of $25,000 (down from 
$50,000).\7\ The Exchange also proposes to make clear that the 
limitation of five firms qualifying for the MM FAANG Credit applies to 
the $5,000 credit.\8\
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    \7\ See proposed Fee Schedule, Section I.A., Options Transaction 
Fees and Credits, Rates for Options Transactions, note 7 (Options on 
NYSE FANG+ Index (``FAANG'') transactions).
    \8\ See id. In light of the proposed changes, to make the Fee 
Schedule easier to navigate, the Exchange also proposes to describe 
each alternative credit in bullet points, with typographical edits 
to the current rule text for clarity, and to remove reference to 
``$5,000'' where it appears in the current rule and to add the 
concept of a ``specified minimum number'' of ``eligible contract 
sides.'' See id.
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    The Exchange also proposes to add an alternative Credit to the same 
Market Maker organizations described above. As proposed, any such firm 
that executes at least 2,000 total monthly contract sides that open a 
position in FAANG on the Exchange would qualify for a credit of 
$10,000; provided, however, that if more than two firms qualify for the 
proposed (higher) FAANG Credit in a calendar month, the MM FAANG Credit 
for each qualifying firm would be a pro rata share of $25,000.\9\ As 
further proposed, a Market Maker firm that qualified for both Credits 
would be eligible for only one of the two alternatives (i.e., the 
higher). As proposed, the Exchange's maximum exposure under the Credit 
would continue to be $50,000, but this cap would be split between the 
two different qualifying rates.
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    \9\ See id. As with the current Credit, only those FAANG 
transactions marked as ``open'' would be eligible to be counted 
towards the MM FAANG Credit. To add clarity and transparency to the 
Fee Schedule, the Exchange also proposes to add the word ``FAANG'' 
prior to the word contracts to make clear that this MM FAANG Credits 
applies only to such contracts. See id.
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    The Exchange believes the proposed modified MM FAANG Credit would 
further the Exchange's goal of encouraging trading in this (relatively) 
new index product, in particular by encouraging Market Makers to 
provide increased liquidity in tighter markets, which would in turn, 
benefit all market participants through more opportunities to trade.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Sections 6(b)(4) and (5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposed Rule Change Is Reasonable
    The Exchange operates in a highly competitive market. The 
Commission has repeatedly expressed its preference for competition over 
regulatory intervention in determining prices, products, and services 
in the securities markets. In Regulation NMS, the Commission 
highlighted the importance of market forces in determining prices and 
SRO revenues and, also, recognized that current regulation of the 
market system ``has been remarkably successful in promoting market 
competition in its broader forms that are most important to investors 
and listed companies.'' \12\
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    \12\ See Reg NMS Adopting Release, supra note 4, at 37499.
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    There are currently 16 registered options exchanges competing for 
order flow. Based on publicly-available information, and excluding 
index-based options, no single exchange has more than 16% of the market 
share of executed volume of multiply-listed equity and ETF options 
trades.\13\ Therefore, no exchange possesses significant pricing power 
in the execution of multiply-listed equity & ETF options order flow. 
More specifically, in the third quarter of 2019, the Exchange had less 
than 10% market share of executed volume of multiply-listed equity & 
ETF options trades.\14\
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    \13\ See supra note 5.
    \14\ Based on OCC data, see supra note 6, in 2019, the 
Exchange's market share in equity-based options declined from 9.82% 
for the month of January to 7.86% for the month of September.
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    The Exchange believes that the ever-shifting market share among the 
exchanges from month to month demonstrates that market participants can 
shift order flow, or discontinue or reduce use of certain categories of 
products, in response to fee changes. Accordingly, competitive forces 
constrain options exchange transaction fees. Stated otherwise, changes 
to exchange transaction fees can have a direct effect on the ability of 
an exchange to compete for order flow.
    While FAANG lists and trades only on the Exchange and NYSE Arca, 
this index product competes with market participants that choose to 
create their own synthetic index product by trading in the basket of 
securities that comprise the FAANG index. This proposed fee change is 
designed to increase liquidity for market participants that would like 
to trade FAANG by encouraging Market Maker organizations to open more 
positions in FAANG on the Exchange.
    More specifically, the Exchange believes that the proposed 
modification to the MM FAANG Credit is designed to generate additional 
order flow to the Exchange by creating incentives to transact in FAANG, 
which increased liquidity would benefit all market participants, 
including non-Market

[[Page 70601]]

Makers that are interested in trading FAANG. The Exchange believes that 
the proposed change would incent firms that have historically qualified 
for the Credit to trade greater volume to earn the higher (proposed) 
Credit. And, believes that the lower (existing) volume threshold should 
still attract firms (including those that have never achieved the 
Credit) to trade the requisite volume in FAANG to earn the Credit. To 
the extent that the proposed change attracts more FAANG transactions to 
the Exchange, this increased order flow would continue to make the 
Exchange a more competitive venue for order execution, which, in turn, 
promotes just and equitable principles of trade and removes impediments 
to and perfects the mechanism of a free and open market and a national 
market system.
    To the extent the proposed change continues to attract greater 
volume and liquidity (to the Floor or otherwise), the Exchange believes 
the proposed change would improve the Exchange's overall 
competitiveness and strengthen its market quality for all market 
participants. In the backdrop of the competitive environment in which 
the Exchange operates, the proposed rule change is a reasonable attempt 
by the Exchange to increase the depth of its market and improve trading 
opportunities to better compete with other exchange offerings.
    The Exchange cannot predict with certainty whether any firms would 
avail themselves of this proposed fee change, as historically, whether 
or when a firm qualifies for the MM FAANG Credit has varied month to 
month. Assuming historical behavior can be predictive of future 
behavior, the Exchange cannot predict the number of firms that may 
qualify for the alternative MM FAANG Credit, but believes that firms 
would be encouraged to take advantage of the modified Credit.
    Finally, the Exchange believes that the technical changes to the 
rule text (i.e., clarifying ``FAANG contract sides'' and including 
concept of a specified minimum number of ``eligible contract sides'') 
is reasonable as it would streamline the Fee Schedule, adding clarity 
and transparency, thereby making the Fee Schedule easier for market 
participants to navigate.\15\
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    \15\ See supra notes 8, 9.
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The Proposed Rule Change Is An Equitable Allocation of Credits and Fees
    The Exchange believes the proposed rule change is an equitable 
allocation of its fees and credits. The proposal is based on the amount 
and type of business transacted on the Exchange and Market Makers can 
opt to avail themselves of the MM FAANG Credit or not. To the extent 
that the proposed change attracts more FAANG transactions to the 
Exchange, this increased order flow would continue to make the Exchange 
a more competitive venue for, among other things, order execution. 
Thus, the Exchange believes the proposed rule change would improve 
market quality for all market participants on the Exchange and, as a 
consequence, attract more order flow to the Exchange thereby improving 
market-wide quality and price discovery.
The Proposed Rule Change Is Not Unfairly Discriminatory
    The Exchange believes it is not unfairly discriminatory to modify 
the MM FAANG Credit because the proposed modification would be 
available to all similarly-situated market participants on an equal and 
non-discriminatory basis.
    The proposal is based on the amount and type of business transacted 
on the Exchange and Market Maker organizations are not obligated to try 
to achieve the MM FAANG Credit. In addition, Market Maker organizations 
have increased obligations with respect to trading on the Exchange, and 
the Exchange believes that making this this Credit available to Market 
Maker organizations would more likely result in increased liquidity in 
FAANG on the Exchange. To the extent that the proposed change attracts 
a variety of transactions to the Exchange, this increased order flow 
would continue to make the Exchange a more competitive venue for, among 
other things, order execution. Thus, the Exchange believes the proposed 
rule change would improve market quality for all market participants on 
the Exchange and, as a consequence, attract more order flow to the 
Exchange thereby improving market-wide quality and price discovery. The 
resulting increased volume and liquidity would provide more trading 
opportunities and tighter spreads to all market participants and thus 
would promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
    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.

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

    In accordance with Section 6(b)(8) of the Act, the Exchange does 
not believe that the proposed rule change would impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. Instead, as discussed above, the Exchange believes 
that the proposed changes would encourage the submission of additional 
liquidity to a public exchange, thereby promoting market depth, price 
discovery and transparency and enhancing order execution opportunities 
for all market participants. As a result, the Exchange believes that 
the proposed change furthers the Commission's goal in adopting 
Regulation NMS of fostering integrated competition among orders, which 
promotes ``more efficient pricing of individual stocks for all types of 
orders, large and small.'' \16\
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    \16\ See Reg NMS Adopting Release, supra note 4, at 37499.
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    Intramarket Competition. The proposed change is designed to attract 
additional order flow to the Exchange by improving quote quality. The 
Exchange also believes the proposed Credit, as modified, is 
procompetitive as it would further the Exchange's goal of introducing 
(relatively) new products to the marketplace and encouraging Market 
Makers to provide liquidity in these products, which would in turn, 
benefit all market participants. Market participants that do not wish 
to trade in FAANG are not obliged to do so. To the extent that there is 
an additional competitive burden on market participants that are not 
eligible for the modified MM FAANG Credit (i.e., non-Market Maker 
organizations), the Exchange believes that this is appropriate because 
the proposal would incent Market Makers to transact in FAANG, which 
would enhance the quality of the Exchange's markets and increases the 
volume of contracts traded here. To the extent that this purpose is 
achieved, all of the Exchange's market participants should benefit from 
the improved market liquidity. Enhanced market quality and increased 
transaction volume that results from the anticipated increase in order 
flow directed to the Exchange will benefit all market participants and 
improve competition on the Exchange. Further, the proposed Credit would 
be applied to all similarly situated participants (i.e., Market Maker 
organizations), and, as such, the proposed change would not impose a 
disparate burden on

[[Page 70602]]

competition either among or between classes of market participants.
    Finally, the Exchange believes that the technical changes to the 
rule text (i.e., clarifying ``FAANG contract sides'' and including 
concept of a specified minimum number of ``eligible contract sides'') 
do not impose an undue burden on competition. Instead, the proposed 
changes would add clarity and transparency making the Fee Schedule 
easier for market participants to navigate.\17\
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    \17\ See supra notes 8, 9.
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    Intermarket Competition. While there is limited intermarket 
competition with respect to FAANG, as it lists and trades only on the 
Exchange and NYSE Arca, this index product competes with market 
participants that choose to create their own synthetic index product by 
trading in the basket of securities that comprise the FAANG index on 
other exchanges. This proposed fee change would therefore promote 
intermarket competition because it is designed to increase liquidity 
for market participants that would like to trade FAANG by encouraging 
Market Maker organizations to open more positions in FAANG on the 
Exchange. The Exchange believes that the proposed change could promote 
competition between the Exchange and other execution venues, by 
encouraging additional orders to be sent to the Exchange for execution. 
The Exchange does not believe that the proposed change will impair the 
ability of any market participants 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) \18\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \19\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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) \20\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \20\ 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-NYSEAMER-2019-57 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-NYSEAMER-2019-57. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEAMER-2019-57, and should be 
submitted on or before January 13, 2020.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27594 Filed 12-20-19; 8:45 am]
 BILLING CODE 8011-01-P


