[Federal Register Volume 87, Number 68 (Friday, April 8, 2022)]
[Notices]
[Pages 20895-20901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07464]



[[Page 20895]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94601; File No. SR-CboeBZX-2021-086]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 2 and Order Instituting Proceedings To 
Determine Whether To Approve or Disapprove a Proposed Rule Change, as 
Modified by Amendment No. 2, To Amend the Opening Auction Process 
Provided Under Rule 11.23(b)(2)(B)

April 4, 2022.
    On December 21, 2021, Cboe BZX Exchange, Inc. (``BZX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to to amend the Opening Auction process under BZX 
Rule 11.23(b)(2)(B). The proposed rule change was published for comment 
in the Federal Register on January 5, 2022.\3\ On February 14, 2022, 
pursuant to Section 19(b)(2) of the Act,\4\ the Commission designated a 
longer period within which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to disapprove the proposed rule change.\5\ On April 
1, 2022, the Exchange filed Amendment No. 2 to the proposed rule 
change, which amended and superseded the proposed rule change as 
originally filed.\6\ The Commission is publishing this notice and order 
to solicit comments on the proposed rule change, as modified by 
Amendment No. 2, from interested persons and to institute proceedings 
pursuant to Section 19(b)(2)(B) of the Act \7\ to determine whether to 
approve or disapprove the proposed rule change, as modified by 
Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 93888 (December 30, 
2021), 87 FR 532.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 94238, 87 FR 9399 
(February 18, 2022). The Commission designated April 5, 2022, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ On March 31, 2022, the Exchange submitted Amendment No. 1 to 
the proposed rule change, and on April 1, 2022, the Exchange 
withdrew Amendment No. 1 to the proposed rule change. Amendment No. 
2 is available on the Commission's website at: https://www.sec.gov/comments/sr-cboebzx-2021-086/srcboebzx2021086-20122189-278229.pdf.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Securities and Exchange Commission 
(``Commission'') a proposal to amend the Opening Auction process 
provided under Rule 11.23(b)(2)(B) to better align the Opening Auction 
Process with current market conditions, and, where certain market 
conditions are not optimal, to delay the Opening Auction from occurring 
until those market conditions have improved. The text of the proposed 
rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, 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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    This Amendment No. 2 to SR-CboeBZX-2021-086 amends and replaces in 
its entirety the proposal amended March 31, 2022 \8\ and as originally 
submitted on December 21, 2022 [sic]. The Exchange submits this 
Amendment No. 2 in order to clarify certain points and add additional 
details to the proposal.
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    \8\ The Exchange filed Amendment No. 1 March 31, 2022, which 
amended the proposal as originally submitted on December 31, 2022 
[sic]. On April 1, 2022, the Exchange withdrew that amendment and 
submitted this Amendment No. 2.
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    The Exchange proposes to amend Rule 11.23(b)(2)(B) to make the 
Opening Auction process more dynamic by, under certain circumstances 
delaying the Opening Auction in order to incorporate additional 
information into the determination of the Opening Auction price. 
Specifically, as proposed the Rule would provide that when there is no 
Valid NBBO \9\ in a BZX-listed security and there is an Indicative 
Price \10\ that is not within the Collar Price Range,\11\ the Opening 
Auction will be delayed until market conditions improve or the delay 
period has lapsed, as further described below. The Exchange notes that 
the official opening price disseminated by the primary listing market 
provides market participants valuable information which in most cases 
is used to calculate the initial limit up-limit down (``LULD'') bands 
and also may serve as the basis for trading strategies for that trading 
day. However, the official opening price is not as important or time 
sensitive as the official closing price disseminated by the primary 
listing market, which is used for the pricing and valuation of certain 
indices, funds and derivative products. As such, the Exchange believes 
that the proposal strikes an appropriate balance by providing 
additional time for the Opening Auction process to occur so that under 
such circumstances BZX-listed securities have an opportunity for more 
meaningful price formation that is more representative of current 
market conditions, but does not delay the determination of the BZX 
Official Opening Price so as to impact the processes that use the 
official opening price, such as the dissemination of certain data by 
the Securities Information Processor (``SIP'').\12\
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    \9\ As provided in Rule 11.23(a)(23), an NBBO is a Valid NBBO 
where: (i) There is both a NBB and NBO for the security; (ii) the 
NBBO is not crossed; and (iii) the midpoint of the NBBO is less than 
the Maximum Percentage away from both the NBB and the NBO. See 
Exchange Rule 11.23(a)(23). The Maximum Percentage will vary 
depending on the price of the NBBO midpoint. Currently, the Maximum 
Percentages are as follows: For a NBBO midpoint price less than or 
equal to $25, the Maximum Percentage is 5%; for a NBBO midpoint 
price greater than $25 but less than or equal to $50, the Maximum 
Percentage is 2.5%; for a NBBO midpoint price greater than $50, the 
Maximum Percentage is 1.5%. See Section 1.5 (Definitions) of the US 
Equities Auction Process at https://cdn.cboe.com/resources/membership/Cboe_US_Equities_Auction_Process.pdf.
    \10\ The term ``Indicative Price'' shall mean the price at which 
the most shares from the Auction Book and the Continuous Book would 
match. In the event of a volume based tie at multiple price levels, 
the Indicative Price will be the price which results in the minimum 
total imbalance. In the event of a volume based tie and a tie in 
minimum total imbalance at multiple price levels, the Indicative 
Price will be the price closest to the Volume Based Tie Breaker. See 
Exchange Rule 11.23(a)(10).
    \11\ See Exchange Rule 11.23(a)(6).
    \12\ The SIP links the U.S. markets by processing and 
consolidating all protected bid/ask quotes and trades from every 
trading venue into a single data feed.

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[[Page 20896]]

Background
    As noted above, the Exchange is proposing that under limited 
circumstances its current Opening Auction process would be amended to 
delay the process such that additional information could be 
incorporated into the determination of the Opening Auction price. 
Currently, Rule 11.23(b)(2)(B) sets forth the process by which the BZX 
Official Opening Price \13\ is determined for BZX-listed securities 
during the Opening Auction Process. Specifically, as provided in Rule 
11.23(b)(2)(B), the Opening Auction price will be the price level 
within the Collar Price Range that maximizes the number of shares 
executed between the Continuous Book \14\ and Auction Book \15\ in the 
Opening Auction. In the event of a volume based tie at multiple price 
levels, the Opening Auction price will be the price which results in 
the minimum total imbalance. In the event of a volume based tie and a 
tie in minimum total imbalance at multiple price levels, the Opening 
Auction price will be the price closest to the Volume Based Tie 
Breaker.\16\
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    \13\ See Exchange Rule 11.23(a)(5).
    \14\ See Exchange Rule 11.23(a)(7).
    \15\ See Exchange Rule 11.23(a)(1).
    \16\ The Volume Based Tie Breaker is the midpoint of the NBBO 
for a particular security where the NBBO is a Valid NBBO. Where the 
NBBO is not a Valid NBBO, the price of the FLSET is used as the 
Volume Based Tie Breaker. See Exchange Rule 11.23(a)(23).
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    The Volume Based Tie Breaker for an Opening Auction will be the 
midpoint of the NBBO where there is a Valid NBBO. Where there is no 
Valid NBBO, the Final Last Sale Eligible Trade (``FLSET'') \17\ will be 
used as the Volume Based Tie Breaker.\18\ Because the FLSET is 
typically based on the most recent execution in a security during 
Regular Trading Hours, its value may be significantly away from the 
Indicative Price at the time of the Opening Auction process, especially 
in more thinly traded securities. As a result, the Exchange has 
observed instances where auction eligible orders priced in-line with 
the Indicative Price were not executed in the Opening Auction because 
they were outside the Collar Price Range established using the FLSET. 
Based on analysis by the Exchange and feedback from market 
participants, certain of these instances resulted in orders not 
receiving executions in the Opening Auction that would have otherwise 
occurred at prices that would have been acceptable to both parties to 
the execution. To illustrate this point, the Exchange presents the 
following example.
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    \17\ See Exchange Rule 11.23(a)(9).
    \18\ The Exchange estimates that there is no Valid NBBO for 
approximately 5.81% of the Exchange's Opening Auctions.
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Example 1
    Consider a security with a prevailing NBBO at 9:30:00 a.m. of 
$27.10 x $29.54 and two Limit-On-Open orders on the Auction Book--a buy 
for 1,000 shares at $27.90 and a sell for 1,500 shares at $27.90.\19\ 
The Indicative Price, which is the price at which the most shares from 
the Auction Book and the Continuous Book would match, would be $27.90 
because the only crossed interest comes from the two orders on the 
Auction Book. Therefore, there is crossed interest willing to execute 
at a price within the NBBO. However, because the midpoint of the NBBO 
(i.e., $28.32) is more than the Maximum Percentage \20\ away from both 
the NBB and NBO, the NBBO is not a Valid NBBO and thus the NBBO 
midpoint would not be used as the Volume Based Tie Breaker. Instead, 
the Volume Based Tie Breaker would be the FLSET, which would, by 
definition, be the BZX Official Closing Price from the previous 
business day, which was $26.52. Using the FLSET as the Collar 
Midpoint,\21\ the Collar Price Range would be $25.19 x $27.85.\22\ 
Because the Indicative Price is outside of the Collar Price Range and 
there is no crossed interest within the Collar Price Range, there would 
be no execution as part of the Opening Auction. Therefore, crossed 
interest from the Auction Book that was priced equal to or more 
aggressive than the Indicative Price and was within the NBBO would be 
canceled without execution.\23\
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    \19\ For purposes of this example, there are no orders on the 
Continuous Book.
    \20\ As noted above, the Maximum Percentage for a NBBO midpoint 
price greater than $25 but less than or equal to $50 is 2.5%.
    \21\ As provided in Rule 11.23(a)(6), the Collar Midpoint is the 
Volume Based Tie Breaker for Opening Auctions.
    \22\ The Collar Price Range is always double the Maximum 
Percentage. Therefore, the Collar Price Range in Example 1 is 5%.
    \23\ See Exchange Rule 11.23(b)(3)(C).
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Proposal
    Based on the scenario described above, the Exchange is proposing to 
change its Opening Auction functionality only in circumstances where 
(i) there is an Indicative Price, (ii) there is not a Valid NBBO, and/
or (iii) the Indicative Price is not within the FLSET-established 
Collar Price Range. As proposed and described in further detail below, 
the Opening Auction would occur pursuant to the Standard Opening 
Auction Process if the NBBO becomes a Valid NBBO (i.e., the spread 
narrows as markets open such that the midpoint of the NBBO is less than 
the Maximum Percentage away from both the NBB and the NBO) before 
9:30:05, or if the Indicative Price moves within the Collar Price Range 
set by the FLSET (i.e., orders on the Auction Book and/or non-displayed 
orders on the Continuous Book change the price level at which the most 
shares from the Auction Book and the Continuous Book would match to be 
within the Collar Price Range) prior to 9:34:30.
    Proposed Rule 11.23(b)(2)(B)(i) would set forth the ``Standard 
Opening Process'', which mirrors the current process described in Rule 
11.23(b)(2)(B). Proposed Rule 11.23(b)(2)(B)(ii) would provide that if 
there is no Valid NBBO and the Indicative Price is within the Collar 
Price Range, the Opening Auction price will be established pursuant to 
the Standard Opening Process. Proposed Rule 11.23(b)(2)(B)(iii) would 
delay and set forth an alternative Opening Auction Process in the event 
there is no Valid NBBO and the Indicative Price is not within the 
Collar Price Range. The proposal is designed to prevent the 
cancellation of auction eligible orders priced equally or more 
aggressive than the Indicative Price which the Exchange believes will 
facilitate the presence of sufficient liquidity and information to make 
the Opening Auction a meaningful price formation event in BZX-listed 
securities.
    Proposed Rule 11.23(b)(2)(B)(iii) would provide that the Opening 
Auction price will be delayed as set forth in subparagraphs (a) and (b) 
as follows:
    (a) If after the one-second delay there is a Valid NBBO or the 
Indicative Price is within the Collar Price Range, the Opening Auction 
price will be established pursuant to the Standard Opening Auction 
Process. If there is no Valid NBBO and the Indicative Price is not 
within the Collar Price Range after the one-second delay, the Opening 
Auction will be delayed by one additional second, at which point if 
there is a Valid NBBO or the Indicative Price is within the Collar 
Price Range, the Opening Auction price will be established pursuant to 
the Standard Opening Process. If after the additional one-second delay 
there is a Valid NBBO or the Indicative Price is not within the Collar 
Price Range, the process described in this paragraph (a) will continue 
to be applied in one-second increments until either the Opening Auction 
occurs or until five seconds has lapsed (i.e., 9:30:05 a.m.).
    (b) If the Opening Auction has not occurred by 9:30:05, the System 
will widen the Collar Price Range in the direction of the Indicative 
Price by 5%

[[Page 20897]]

of the Volume Based Tie Breaker, which will be Final Last Sale Eligible 
Trade as of 9:30:05 a.m. (the ``Widening Amount'').\24\ If the 
Indicative Price is within the widened Collar Price Range, the Opening 
Auction price will be established pursuant to the Standard Opening 
Auction Process. If the Indicative Price is not within the widened 
Collar Price Range, the Opening Auction will be further delayed, as 
discussed below.
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    \24\ The Exchange notes that Widening Amount will be locked-in 
as of 9:30:05, and will not change between 9:30:05 and 9:34:30 even 
in the event that a round lot trade reported to the consolidated 
tape was received by the Exchange during that time (i.e., a FLSET).
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    In sum, the process described in proposed paragraph Rule 
11.23(b)(2)(B)(iii)(a) would simply allow for the Opening Auction to 
occur using the Standard Opening Process described in paragraph 
11.23(b)(2)(B)(i), the only difference between the current process 
being that such Opening Auction could instead occur within the first 
five seconds of Regular Trading Hours \25\ based on whether there is a 
Valid NBBO or the Indicative Price is within the Collar Price Range. 
If, after each one-second delay, there is no longer an Indicative Price 
(i.e., there is no longer crossed interest), the Opening Auction would 
occur immediately pursuant to proposed Rule 11.23(2)(B)(v). After the 
first five seconds of Regular Trading Hours, the System will only check 
for whether the Indicative Price is within the Collar Price Range and 
will not check for a Valid NBBO because the process described in 
Proposed Rules 11.23(b)(2)(B)(iii)(b)(1) through (4) is intended to 
closely follow the reopening process that is described in the Twelfth 
Amendment of the Plan to Address Extraordinary Market Volatility \26\ 
(the ``Plan'') and corresponding Exchange Rules, as described in 
further detail below.
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    \25\ See Exchange Rule 1.5(w).
    \26\ See Securities and Exchange Act no. 79410 (November 28, 
2016) 81 FR 87114 (December 2, 2016) (Notice of Filing of the 
Twelfth Amendment to the National Market System Plan To Address 
Extraordinary Market Volatility (``Amendment 12'')).
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    Proposed Rules 11.23(b)(2)(B)(iii)(b)(1) through (4) would set 
forth the delay of the Opening Auction if no auction has occurred 
between 9:30:05 and 9:34:30. Specifically, the proposed Rules would 
provide:
    (1) The System will check to see whether the Indicative Price is 
inside the widened Collar Price Range every second between 9:30:05 and 
9:30:30 a.m. If an Indicative Price is inside the widened Collar Price 
Range during a check, the Opening Auction price will be established 
pursuant to the Standard Opening Auction Process.
    (2) If by 9:30:30 a.m. the Indicative Price is not within the 
widened Collar Price Range, the Collar Price Range will again widen by 
the Widening Amount. The System will check to see whether the 
Indicative Price is inside the widened Collar Price Range every second 
between 9:30:30 and 9:31:30 a.m. If an Indicative Price is inside the 
widened Collar Price Range during a check, the Opening Auction price 
will be established pursuant to the Standard Opening Auction Process.
    (3) If by 9:31:30 a.m. the Indicative Price is not within the 
widened Collar Price Range, the System will check to see whether the 
Indicative Price is inside the widened Collar Price Range every second 
between 9:31:30 and 9:34:30 a.m. If an Indicative Price is inside the 
widened Collar Price Range during a check, the Opening Auction price 
will be established pursuant to the Standard Opening Auction Process. 
Unless the Opening Auction has occurred, the Collar Price Range will 
widen in the direction of the Indicative Price by the Widening Amount 
each minute from 9:31:30 to 9:34:30.
    (4) If no Opening Auction has occurred by 9:34:30 a.m., the Opening 
Auction will occur pursuant to the Standard Opening Auction Process 
using the expanded Collar Price Range as of 9:34:30.
    The Exchange first notes that if, during after each one-second 
delay, there is no longer an Indicative Price (i.e., there is no longer 
crossed interest), the Opening Auction would occur immediately pursuant 
to proposed Rule 11.23(2)(B)(v).\27\ The Exchange is also proposing to 
stop extending the Opening Auction Process at 9:34:30 a.m. in part to 
ensure that the Exchange is able to disseminate the BZX Official 
Opening Price with sufficient time to be used in the determination of 
the opening price \28\ pursuant to the Plan, from which the reference 
price \29\ is used to calculate the LULD bands. Specifically, the 
reference price for trading is typically the opening price on the 
primary listing exchange in an NMS Stock if such opening price occurs 
less than five minutes after the start of Regular Trading Hours. 
Therefore, because under the proposal the Opening Auction Process would 
occur no later than 9:34:30, the LULD bands would be determined based 
on the BZX Official Opening Price. While the LULD bands for BZX-listed 
securities could be determined pursuant to the Plan without a BZX 
Official Opening Price, the Exchange believes that the inclusion of 
such price provides for LULD bands that more accurately reflect current 
market conditions.
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    \27\ The Exchange notes that the BZX Official Opening Price will 
be the price of the FLSET, which will be the previous BZX Official 
Closing Price unless an FLSET occurred after 9:30:00.
    \28\ For purposes of the Plan, ``opening price'' shall mean the 
price of a transaction that opens trading on the primary listing 
exchange. If the primary listing exchange opens with quotations, the 
``opening price'' shall mean the closing price of the NMS Stock on 
the primary listing exchange on the previous trading day, or if no 
such closing price exists, the last sale on the primary listing 
exchange.See section I(I) of the Plan.
    \29\ For purposes of the plan, ``reference price'' shall have 
the meaning provided in Section V of the Plan. See section I(R) of 
the Plan. Section V of the Plan provides that the LULD price bands 
are based on a reference price for each NMS Stock that, for purposes 
of the first reference price for a trading day shall be the opening 
price on the primary listing exchange in an NMS Stock if such 
opening price occurs less than five minutes after the start of 
Regular Trading Hours. If the opening price on the primary listing 
exchange in an NMS Stock does not occur within five minutes after 
the start of Regular Trading Hours, the first reference price for a 
trading day shall be the arithmetic mean price of eligible reported 
transactions for the NMS Stock over the preceding five minute time 
period. If there is no opening price on the primary listing exchange 
in an NMS Stock and no trades have occurred by 9:35:00, the previous 
reference price shall remain in effect.
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    The Exchange also proposes to move the last two sentences of 
existing Rule 11.23(b)(2)(B) to proposed Rules 11.23(b)(2)(B)(iv) and 
(v), respectively, with certain modifications to Rule 
11.23(b)(2)(B)(v). Specifically, proposed Rule 11.23(b)(2)(B)(iv) would 
provide that the Opening Auction Price will be the BZX Official Opening 
Price. Proposed Rule 11.23(b)(2)(B)(v) would provide that in the event 
that there is no Opening Auction for an issue, the BZX Official Opening 
Price will be the price of the FLSET. The Exchange proposes to 
eliminate the provision that states that the FLSET will be the previous 
BZX Official Closing Price as it is possible that an FLSET may occur 
between 9:30:00 and 9:34:30.
    Based on the above proposed amendments, the Exchange proposes to 
amend Rules 11.23(b)(1)(A) and (B) to reflect that the Opening Auction 
may occur at a time other than 9:30 a.m. Specifically, the Exchange 
proposes to amend paragraph (A) to provide the following: Users may 
submit orders to the Exchange as set forth in Rule 11.1. Any Eligible 
Auction Orders \30\ designated for the Opening Auction will be queued 
for participation in the Opening Auction. Users may submit limit-on-
open (``LOO'') and market-on-open (``MOO'') orders until 9:28 a.m., at 
which point any additional LOO and MOO orders submitted to the Exchange

[[Page 20898]]

will be rejected. Regular Hours Only \31\ (``RHO'') market orders will 
also be rejected from 9:28 a.m. until the Opening Auction has 
concluded. Users may submit late-limit-on-open \32\ (``LLOO'') orders 
from 9:28 a.m. until the Opening Auction has concluded. Any LLOO orders 
submitted before 9:28 a.m. or after the Opening Auction has concluded 
will be rejected. RHO limit orders submitted from 9:28 a.m. until the 
Opening Auction has concluded will be treated as LLOO orders.
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    \30\ See Exchange Rule 11.23(a)(8).
    \31\ See Exchange Rule 11.9(b)(7).
    \32\ See Exchange Rule 11.23(a)(12).
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    The Exchange proposes to amend Rule 11.23(b)(1)(B) to provide that 
Eligible Auction Orders designated for the Opening Auction may not be 
cancelled or modified from 9:28 a.m. until the Opening Auction has 
concluded except that RHO limit orders designated for the Opening 
Auction may be modified, but not cancelled, from 9:28 a.m. until the 
time the Opening Auction has concluded. Any such RHO limit orders 
modified from 9:28 a.m. until the Opening Auction has concluded will be 
treated as LLOO orders.
    To illustrate the proposed functionality, consider the following 
examples.
Example 2
    Applying the same facts from Example 1 related to current 
functionality above, assume a security has a prevailing NBBO at 9:30:00 
a.m. of $27.10 x $29.54 and two Limit-On-Open orders on the Auction 
Book--a buy for 1,000 shares at $27.90 and a sell for 1,500 shares at 
$27.90.\33\ The Indicative Price, which is the price at which the most 
shares from the Auction Book and the Continuous Book would match, would 
be $27.90 because the only crossed interest comes from the two orders 
on the Auction Book.
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    \33\ For purposes of this example, there are no orders on the 
Continuous Book.
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    Because there was no Valid NBBO and the Indicative Price was 
outside of the Collar Price Range, the System would check at each 
second starting at 9:30:00 and ending at 9:30:05 for a Valid NBBO and 
for the Indicative Price that is within the Collar Price Range. 
Assuming that these checks did not find a Valid NBBO or an Indicative 
Price within the Collar Price Range, after the check at 9:30:05 the 
Collar Price Range is widened in the direction of the Indicative Price 
by 5% of the FLSET (i.e., $26.52) as of 9:30:05, or $1.33, resulting in 
a Collar Price Range of $25.19 x $29.18. Upon the first one second 
check thereafter, the Indicative Price of $27.90 is within the widened 
Collar Price Range and the auction occurs immediately pursuant to the 
Standard Opening Auction Process.
Example 3
    Applying the facts from Example 2 above, but also considering that 
another two orders exist on the Auction Book including a buy order for 
2,000 shares at $30.50 and a sell order for 500 shares at $30.50.\34\ 
The additional orders entered to the Auction Book would move the 
Indicative Price to $30.50 because $30.50 would be the price at which 
the most shares would match (i.e., 2,000 shares). Given that the 
Indicative Price ($30.50) is not within the widened Collar Price Range 
calculated above ($25.19 x $29.18), the Opening Auction would not occur 
after the first collar widening. As such, the System would check at 
each second starting at 9:30:05 and ending at 9:30:30 for an Indicative 
Price that is within the Collar Price Range. Assuming that the 
Indicative Price did not change and thus the checks would not find an 
Indicative Price within the Collar Price Range, after the check at 
9:30:30 the Collar Price Range would once again be widened in the 
direction of the Indicative Price by the same 5% amount used for the 
initial collar widening at 9:30:05 ($1.33). The Collar Price Range from 
9:30:30 to 9:31:30 would then be $25.19 x $30.51. Upon the first one 
second check thereafter, the Indicative Price of $30.50 is within the 
widened Collar Price Range and the auction would occur immediately 
pursuant to the Standard Opening Auction Process.
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    \34\ For purposes of this example, assume there are no orders on 
the BZX Continuous Book.
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Example 4
    Applying the facts from Example 3 above, but replacing the two 
additional orders to the Auction Book a buy order for 2,000 shares at 
$34.75 and a sell order for 500 shares at $34.75. The orders entered to 
the Auction Book would move the Indicative Price to $34.75 because 
$34.75 would be the price at which the most shares would match (i.e., 
2,000 shares). Given that the Indicative Price ($34.75) is not within 
the widened Collar Price Range calculated above at 9:30:30 ($25.19 x 
$30.51), the Opening Auction would not occur after the second collar 
widening. As such, the System would check at each second starting at 
9:30:30 and ending at 9:31:30 for the Indicative Price being within the 
Collar Price Range. Assuming that the Indicative Price did not change 
and thus the checks would not find an Indicative Price within the 
Collar Price Range, after the check at 9:31:30 the Collar Price Range 
would again widen in the direction of the Indicative Price by the same 
5% amount used for the initial collar widening at 9:30:05 (i.e., 
$1.33). Therefore, the Collar Price Range would be $25.19 x $31.84 for 
the period between 9:31:30 and 9:32:30. Again, assuming there is no 
change to the Indicative Price, at 9:32:30 the Collar Price Range would 
widen by $1.33 in the direction of the Indicative Price, which would be 
$25.19 x $33.17 for the period between 9:32:30 and 9:33:30. Again, 
assuming there is no change to the Indicative Price, at 9:33:30 the 
Collar Price Range would widen by $1.33 in the direction of the 
Indicative Price, which would be $25.19 x $34.50 for the period between 
9:33:30 and 9:34:30. At this point, the Indicative Price (i.e., $34.75) 
remains higher than the top end of the Collar Price Range (i.e., 
$34.50). As such, the Opening Auction would occur at 9:34:30, but would 
occur within the final Collar Price Range at $27.91, which is the price 
level tied for the most volume (i.e., 1,500 shares), lowest imbalance 
(i.e., 500 shares), and closest to the Volume Based Tie Breaker (i.e., 
the FLSET of $26.52), instead of at the Indicative Price.
    As described above, the current functionality described in Example 
1 would result in no opening auction because all crossed interest was 
outside the Collar Price Range set using the FLSET. Examples 2 and 3 
demonstrate scenarios in which the proposed functionality of delaying 
the Opening Auction Process and widening the Collar Price Range would 
allow participants to execute in an opening auction that would occur at 
a price more reflective of current market conditions, and that would 
permit the greatest volume of crossed interest to execute. 
Alternatively, Example 4 demonstrates that even with the proposed delay 
and widened Collar Price Range, the Opening Auction may not occur at a 
price for which any or all crossed interest may execute. The Exchange 
includes Example 4 in order to illustrate that not all crossed interest 
in an auction should necessarily be executed and that at some point the 
benefit of continuing to delay the Opening Auction would be outweighed 
by the need to establish the BZX Official Opening Price, in particular 
to ensure that it is reported to the SIP in advance of 9:35 a.m. so 
that it can be used as the reference price from which the LULD bands 
are calculated.
    Under the proposal, the Opening Auction would be delayed until 
either (1) the NBBO becomes a Valid NBBO,

[[Page 20899]]

(2) the Indicative Price is within the Collar Price Range (i.e., if the 
Opening Auction occurred between 9:30:01 and 9:30:05) or within the 
widened Collar Price Range (i.e., if the Opening Auction occurred 
between 9:30:06 and 9:34:30), or (3) the delay period of four minutes 
and 30 seconds lapsed. While the proposal does not guarantee that 
certain orders priced equally or more aggressive to the Indicative 
Price will execute in the Opening Auction, it provides for additional 
time for the market to develop at the beginning of the trading day 
before conducting the Opening Auction.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act.\35\ Specifically, the proposed change is 
consistent with Section 6(b)(5) of the Act,\36\ because it 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, protect investors and the public 
interest. The Exchange also believes the proposed rule change is 
consistent with Section 6(b)(1) of the Act, which provides that the 
Exchange be organized and have the capacity to be able to carry out the 
purposes of the Act and to enforce compliance by the Exchange's Members 
and persons associated with its Members with the Act, the rules and 
regulations thereunder, and the rules of the Exchange.\37\ Generally, 
the Exchange believes that the proposed changes will improve the price 
discovery process in the Opening Auction for securities listed on the 
Exchange along with additional benefits set forth below.
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    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(5).
    \37\ 15 U.S.C. 78f(b)(1).
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    First, the Exchange believes proposed Rules 11.23(b)(2)(B)(i) and 
(ii) are consistent with the Act as the proposed paragraphs are 
substantially similar to existing Rule 11.23(b)(2)(B) and involve no 
change in the Opening Auction functionality. Second, the Exchange 
believes proposed Rule 11.23(b)(2)(B)(iii) 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, protect investors and the public interest. The proposal is 
designed to increase the likelihood that auction eligible orders that 
are priced equally or more aggressive than the Indicative Value of the 
security are able to participate in the Opening Auction instead of 
being canceled because they are priced outside the Collar Price Range 
established using the FLSET. As stated above, current Rule 
11.23(b)(2)(B) provides that in the event there is no Valid NBBO, the 
FLSET will be used as the Volume Based Tie Breaker and basis for 
calculating the Collar Price Range. Because the current Opening Auction 
process occurs at 9:30:00 a.m., such a Collar Price Range is based on 
an FLSET that may not have occurred recently or may not otherwise be 
reflective of current market conditions. As a result, the Exchange has 
observed instances where auction eligible orders priced equally or more 
aggressive than the Indicative Price were canceled without execution 
because they were outside the Collar Price Range established using the 
FLSET. While these observed instances have been infrequent, the 
Exchange believes it is important to ensure that the BZX Opening 
Process is designed to maximize the greatest volume of executions so 
that the BZX Official Opening Price accurately reflects current market 
conditions. As a result, the Exchange believes that the proposal 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, protect investors and the public 
interest. Furthermore, the Exchange believes the proposal strikes a 
balance of providing additional execution opportunities for auction 
eligible orders priced equally or more aggressive than the Indicative 
Price of the security while also limiting any such delay so that the 
BZX Official Opening Price is reported to the SIP by 9:35 a.m. and is 
therefore used as the reference price for which the LULD bands are 
established.
    The Exchange notes that the concept of delaying an auction and 
widening the Collar Price Range as provided in proposed paragraphs 
11.23(b)(2)(B)(iii)(b)(1) through (4) is similar to the Twelfth 
Amendment of the Plan and corresponding amendments by the primary 
listing exchanges. Specifically, Amendment 12 was created to improve 
re-openings following a trading pause,\38\ with an eye towards 
carefully balancing halt auction price quality and the speed with which 
continuous trading can be resumed. Amendment 12 provided that auction 
halt periods would be extended if either the auction price at which the 
most shares would be traded is outside the range of the pre-defined 
price threshold collars (the ``price threshold collars'') or there is a 
market order share imbalance. Further, Amendment 12 provided that the 
price threshold collars would be widened in the event that the 
auction's halt period is extended. In its approval of Amendment 12, the 
Commission stated that it is appropriate in the public interest, for 
the protection of investors and the maintenance of a fair and orderly 
market to provide that a trading pause continue until the primary 
listing exchange has reopened trading using its established reopening 
procedures, even if such reopening is more than 10 minutes after the 
beginning of a trading pause, and to require that trading centers may 
not resume trading in an NMS Stock following a trading pause without 
price bands in such NMS Stock. The Commission stated that these two 
provisions together support a more standardized process for reopening 
trading after a trading pause has been declared.
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    \38\ A ``trading pause'' refers to a function of the LULD 
mechanism provided under the Plan. Specifically, the Plan sets for 
procedures that provide for market-wide LULD requirements that 
prevent trades in individual NMS stocks from occurring outside of 
the specified price bands and provides for trading pauses to 
accommodate more fundamental price moves.
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    As a primary listing exchange, the Exchange amended Rule 11.23(d) 
to incorporate the provisions of Amendment 12.\39\ Specifically, under 
Rule 11.23(d)(1)(A) the Quote-Only Period \40\ with respect to a halt 
auction commences five (5) minutes prior to such halt auction. Adopted 
Rule 11.23(d)(2)(C) provides for the Quote-Only Period to be extended 
an additional five (5) minutes should a halt auction be unable to be 
performed due to Market Order \41\ imbalance under 11.23(d)(2)(B)(i) 
\42\ or if the indicative price, before being adjusted for halt auction 
collars, is outside the halt

[[Page 20900]]

auction collars set forth in adopted subparagraphs (i) \43\ and (ii) 
\44\ to Exchange Rule 11.23(d)(2)(C) (either, an ``Impermissible 
Price'') (``Initial Extension Period''). Similar to the proposal, Rule 
11.23(d)(2)(C)(ii) provides that at the beginning of the Initial 
Extension Period the upper (lower) halt auction collar shall be 
increased (decreased) by five (5) percent in the direction of the 
Impermissible Price, rounded to the nearest minimum price variation. 
For securities with a halt auction reference price of $3.00 or less, 
the halt auction collar shall be increased (decreased) in $0.15 
increments in the direction of the Impermissible Price. At the 
beginning of each additional extension period, the halt auction collar 
shall be widened in accordance with this paragraph by the same amount 
as the Initial Extension Period. In its approval order,\45\ the 
Commission stated that ``extending the Trading Pause and widening the 
halt auction collar on the side of the Impermissible Price would be a 
measured approach to provide additional time to attract offsetting 
interest, to help to address an imbalance that may not be resolved 
within the prior halt auction collars, and to reduce the potential for 
triggering another Trading Pause.''
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    \39\ See Securities Exchange Act No. 75879 (October 26, 2016) 81 
FR 75875 (November 1, 2016) (SR-BatsBZX-2016-61) (Notice of Filing 
of a Proposed Rule Change To Amend Exchange Rule 11.23, Auctions, To 
Enhance the Reopening Auction Process Following a Trading Halt 
Declared Pursuant to the Plan To Address Extraordinary Market 
Volatility Pursuant to Rule 608 of Regulation NMS). See also 
Securities Exchange Act No. 79885 (January 26, 2017) 82 FR 8968 
(February 1, 2017) (SR-BatsBZX-2016-61) (Order Granting Approval of 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend 
Exchange Rule 11.23, Auctions, To Enhance the Reopening Auction 
Process Following a Trading Halt Declared Pursuant to the Plan To 
Address Extraordinary Market Volatility Pursuant to Rule 608 of 
Regulation NMS).
    \40\ ``Quote-Only Period'' is defined as ``a designated period 
of time prior to a halt auction, a Volatility Closing Auction, or an 
IPO Auction during which Users may submit orders to the Exchange for 
participation in the auction.'' See Exchange Rule 11.23(a)(17).
    \41\ See Rule 11.9(a)(2).
    \42\ Under 11.23(d)(2)(B)(i), the Quote-Only Period may be 
extended where there are unmatched Market Orders on the Auction Book 
associated with the auction.
    \43\ Rule 11.23(d)(2)(C)(i) provides for the initial halt 
auction collar calculations.
    \44\ Rule 11.23(d)(2)(C)(ii) provides for the widening of the 
halt auction collars.
    \45\ Supra note 26.
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    The Exchange notes that the purpose of Amendment 12 and 
corresponding Exchange amendment was intended to delay a halt auction 
to attract offsetting interest, while the purpose of this proposal is 
intended to delay the Opening Auction Process in order to provide the 
Opening Auction price additional time to reflect current market 
conditions. Nonetheless, the Exchange believes the purposes of each is 
designed to balance auction price quality and the speed with which an 
auction can occur and thus continuous trading can be resumed, in the 
case of a halt auction, or when the BZX Official Opening Price is 
determined and reported to the SIP, in the case of an Opening Auction. 
Therefore, the Exchange believes the proposal is appropriate, in the 
public interest, for the protection of investors and the maintenance of 
a fair and orderly market.
    The Exchange also believes its proposal to the last two sentences 
of existing Rule 11.23(b)(2)(B) to paragraphs 11.23(b)(2)(B)(iv) and 
(v), respectively, will improve clarity and readability of the rule. 
Further, the proposal to remove the provision of paragraph 
11.23(b)(2)(B)(v) that states the FLSET will be the previous BZX 
Official Closing Price is consistent with the new proposed 
functionality, which would allow for an FLSET to occur between 9:30 and 
9:34:30.
    Finally, the Exchange believes its proposed clarifications to Rules 
11.23(b)(1)(A) and (B) to reflect that the Opening Auction may occur at 
a time other than 9:30 a.m. will allow the Exchange to more easily 
administer its rules, and Members can more clearly understand how the 
Opening Auction Process may occur. Specifically, the proposed 
amendments to Rules 11.23(b)(1)(A) and (B) will add clarity, 
transparency and internal consistency to Exchange rules making them 
easier to navigate, in light of the other proposed Rule changes 
described herein.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, allowing the 
Exchange to make the above proposed modifications will allow the 
Exchange to better compete with other exchanges as a listing venue by 
improving the Exchange's auction process by allowing more executions to 
occur at more reasonable prices that are based on the current value of 
the security. As mentioned above, the Exchange has received feedback 
from market participants regarding the issue under the current process, 
and the proposed amendments will both address this feedback and improve 
the Exchange's auction process, allowing it to better compete as both a 
listing and execution venue.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2021-086, as Modified by Amendment No. 2, and Grounds for 
Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \46\ to determine whether the proposed rule 
change, as modified by Amendment No. 2, should be approved or 
disapproved. Institution of proceedings is appropriate at this time in 
view of the legal and policy issues raised by the proposal. Institution 
of proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described below, the Commission seeks and encourages interested persons 
to provide additional comment on the proposed rule change, as modified 
by Amendment No. 2.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\47\ the Commission is 
providing notice of the grounds for disapproval under consideration. As 
described above, the Exchange has proposed to amend the Opening Auction 
Process Provided Under Rule 11.23(b)(2)(B). In certain cases, the 
proposed Opening Auction Process would result in a delay in the 
calculation of the BZX Official Opening Price, which in most cases is 
the reference price for LULD price bands.
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    \47\ Id.
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    The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to, the consistency 
of the proposal with Sections 6(b)(5) \48\ and 6(b)(8) \49\ of the Act. 
Section 6(b)(5) of the Act requires that the rules of a national 
securities exchange be designed, among other things, to promote just 
and equitable principles of trade, to 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, and not 
be designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. Section 6(b)(8) of the Act requires that the rules 
of a national securities exchange not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(b)(5).
    \49\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their data, views, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5), 6(b)(8), or any other provision of the Act, or the rules and

[[Page 20901]]

regulations thereunder. Although there do not appear to be any issues 
relevant to approval or disapproval that would be facilitated by an 
oral presentation of data, views, and arguments, the Commission will 
consider, pursuant to Rule 19b-4 under the Act,\50\ any request for an 
opportunity to make an oral presentation.\51\
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    \50\ 17 CFR 240.19b-4.
    \51\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975, 
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 
94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 2, should be approved or disapproved by April 29, 2022. 
Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal May 13, 2022.
    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in Amendment No. 2, and any other issues raised by the proposed rule 
change under the Act. In this regard, the Commission seeks commenters' 
views regarding whether a delay in the calculation of the BZX Official 
Opening Price would affect the trading of BZX-listed securities on 
other national securities exchanges or other trading venues or 
otherwise impact any processes that rely on the calculation of the BZX 
Official Opening Price, including the calculation and dissemination of 
LULD price bands.
    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 [email protected]. Please include 
File No. SR-CboeBZX-2021-086 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 No. SR-CboeBZX-2021-086. The 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 No. SR-CboeBZX-2021-086 and should be submitted by 
April 29, 2022. Rebuttal comments should be submitted by May 13, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\52\
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    \52\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-07464 Filed 4-7-22; 8:45 am]
BILLING CODE 8011-01-P


