[Federal Register Volume 87, Number 81 (Wednesday, April 27, 2022)]
[Notices]
[Pages 25065-25069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-08911]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94773; File No. SR-ISE-2022-10]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
of Proposed Rule Change To Amend ISE Options 4, Section 5, Series of 
Options Contracts Open for Trading

April 21, 2022.
    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 April 11, 2022, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II 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 Options 4, Section 5, ``Series of 
Options Contracts Open for Trading.'' Specifically, this proposal seeks 
to amend Supplementary Material .07 to Options 4, Section 5.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, 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 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
    The Exchange proposes to amend Options 4, Section 5, ``Series of 
Options Contracts Open for Trading.'' Specifically, the Exchange 
proposes to amend Supplementary Material .07 to Options 4, Section 5 to 
account for conflicts between different provisions within the Short 
Term Options Series Rules.
    In 2021, ISE amended Options 4, Section 5 to limit the intervals 
between strikes in equity options listed as part of the Short Term 
Option Series Program, excluding Exchange-Traded Fund Shares and ETNs, 
that have an expiration date more than twenty-one days from the listing 
date (``Strike Interval Proposal'').\3\ The Strike Interval Proposal 
adopted a new Supplementary Material .07 to Options 4, Section 5 which 
included a table that intended to

[[Page 25066]]

specify the applicable strike intervals that would supersede 
Supplementary Material .03(e) \4\ for Short Term Option Series in 
equity options, excluding Exchange-Traded Fund Shares and ETNs, which 
have an expiration date more than twenty-one days from the listing 
date. The Strike Interval Proposal was designed to reduce the density 
of strike intervals that would be listed in later weeks, within the 
Short Term Options Series Program, by utilizing limitations for 
intervals between strikes which have an expiration date more than 
twenty-one days from the listing date.
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    \3\ See Securities Exchange Act Release No. 91930 (May 18, 
2021), 86 FR 27907 (May 24, 2021) (SR-ISE-2021-09) (Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 
4, Section 5, ``Series of Options Contracts Open for Trading'' To 
Limit Short Term Options Series Intervals Between Strikes).
    \4\ Supplementary Material .03(e) of Options 4, Section 5 
states, ``Strike Interval. During the month prior to expiration of 
an option class that is selected for the Short Term Option Series 
Program pursuant to this Rule (``Short Term Option''), the strike 
price intervals for the related non-Short Term Option (``Related 
non-Short Term Option'') shall be the same as the strike price 
intervals for the Short Term Option. The Exchange may open for 
trading Short Term Option Series on the Short Term Option Opening 
Date that expire on the Short Term Option Expiration Date at strike 
price intervals of (i) $0.50 or greater where the strike price is 
less than $100, and $1 or greater where the strike price is between 
$100 and $150 for all option classes that participate in the Short 
Term Options Series Program; (ii) $0.50 for option classes that 
trade in one dollar increments and are in the Short Term Option 
Series Program; or (iii) $2.50 or greater where the strike price is 
above $150.''
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    At this time, the Exchange proposes to amend the rule text within 
Supplementary Material .07 to Options 4, Section 5 to clarify the 
current rule text and amend the application of the table to account for 
potential conflicts within the Short Term Options Series Rules. 
Currently, the table within Supplementary Material .07 to Options 4, 
Section 5 is as follows: \5\
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    \5\ The Share Price would be the closing price on the primary 
market on the last day of the calendar quarter and the Average Daily 
Volume would be the total number of options contracts traded in a 
given security for the applicable calendar quarter divided by the 
number of trading days in the applicable calendar quarter The 
Average Daily Volume would be the total number of options contracts 
traded in a given security for the applicable calendar quarter 
divided by the number of trading days in the applicable calendar 
quarter. Beginning on the second trading day in the first month of 
each calendar quarter, the Average Daily Volume shall be calculated 
by utilizing data from the prior calendar quarter based on Customer-
cleared volume at The Options Clearing Corporation. For options 
listed on the first trading day of a given calendar quarter, the 
Average Daily Volume shall be calculated using the quarter prior to 
the last trading calendar quarter. See Supplementary Material .07 to 
Options 4, Section 5.

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                                                                                             Share price
                                           -------------------------------------------------------------------------------------------------------------
                   Tier                                                                     $25 to less     $75 to less    $150 to less       $500 or
                                                Average daily volume       Less than $25     than $75        than $150       than $500        greater
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1.........................................  Greater than 5,000..........           $0.50           $1.00           $1.00           $5.00           $5.00
2.........................................  Greater than 1,000 to 5,000.            1.00            1.00            1.00            5.00           10.00
3.........................................  0 to 1,000..................            2.50            5.00            5.00            5.00           10.00
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    The first sentence of Supplementary Material .07 to Options 4, 
Section 5 provides, ``With respect to listing Short Term Option Series 
in equity options, excluding Exchange-Traded Fund Shares and ETNs, 
which have an expiration date more than twenty-one days from the 
listing date, the following table will apply as noted within 
Supplementary Material .03(e).''
    First, the Exchange proposes to amend the first sentence of 
Supplementary Material .07 to instead provide, ``With respect to 
listing Short Term Option Series in equity options, excluding Exchange-
Traded Fund Shares and ETNs, which have an expiration date more than 
twenty-one days from the listing date, the following table, which 
specifies the applicable interval for listing, will apply as noted 
within Supplementary Material .03(f).'' The table within Supplementary 
Material .07 provides for the listing of intervals based on certain 
parameters (average daily volume and share price). The Exchange 
proposes to add the phrase ``which specifies the applicable interval 
for listing'' to make clear that the only permitted intervals are as 
specified in the table within Supplementary Material .07, except in the 
case where Supplementary Material .03(e) provides for a greater 
interval as described in more detail below.
    Second, the Exchange proposes to amend the first sentence of 
Supplementary Material .07 to cite to Supplementary Material .03(f) \6\ 
instead of .03(e) \7\ as paragraph (f) indicates when the table within 
Supplementary Material .07 applies.
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    \6\ Supplementary Material .03(f) of Options 4, Section 5 
provides, ``Notwithstanding (e) above, when Short Term Options 
Series in equity options, excluding Exchange-Traded Funds (``ETFs'') 
and ETNs, have an expiration more than twenty-one days from the 
listing date, the strike interval for each options class shall be 
based on the table within Supplementary Material .07.''
    \7\ Supplementary Material .03(e) of Options 4, Section 5, 
provides, ``Strike Interval. During the month prior to expiration of 
an option class that is selected for the Short Term Option Series 
Program pursuant to this Rule (``Short Term Option''), the strike 
price intervals for the related non-Short Term Option (``Related 
non-Short Term Option'') shall be the same as the strike price 
intervals for the Short Term Option. The Exchange may open for 
trading Short Term Option Series on the Short Term Option Opening 
Date that expire on the Short Term Option Expiration Date at strike 
price intervals of (i) $0.50 or greater where the strike price is 
less than $100, and $1 or greater where the strike price is between 
$100 and $150 for all option classes that participate in the Short 
Term Options Series Program; (ii) $0.50 for option classes that 
trade in one dollar increments and are in the Short Term Option 
Series Program; or (iii) $2.50 or greater where the strike price is 
above $150.''
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    Third, the Exchange proposes to add a new sentence within 
Supplementary Material .07 to Options 4, Section 5 which states, ``To 
the extent there is a conflict between applying Supplementary Material 
.03(e) and the below table, the greater interval would apply.'' Today, 
there are instances where a conflict is presented as between the 
application of the table within Supplementary Material .07 and the rule 
text within Supplementary Material .03(e) with respect to the correct 
interval. Adding the proposed sentence would make clear to Members the 
applicable intervals where there is a conflict between the rule text 
within Supplementary Material .07 and the rule text within 
Supplementary Material .03(e), thereby providing certainty as to the 
outcome. The Exchange proposes to insert the words ``greater than'' 
because it proposes to permit Supplementary Material .03(e) of Options 
4, Section 5 to govern only in the event that the interval would be 
greater. The same analysis would not be conducted where the result 
would be a lesser interval. By way of example,
    Example 1: Assume a Tier 1 stock that closed on the last day of Q1 
with a quarterly share price less than $150. Next, assume during Q2 the 
share price rose above $150. Utilizing the table within Supplementary 
Material .07, the interval would be $1.00 even though the price rose 
above $150 because the Share Price was calculated utilizing data from 
the prior calendar quarter. Utilizing Supplementary Material .03(e), 
the interval would be $2.50 if the price rose above $150. The greater 
interval would then be $2.50 as per Supplementary Material .03(e) in 
this scenario. Therefore, the following strikes would

[[Page 25067]]

be eligible to list: $152.5 and $157.5. For strikes less than $150, the 
following strikes would be eligible to list: $149 and $148 because 
Short Term Options Series with expiration dates more than 21 days from 
the listing date as well as Short Term Options Series with expiration 
dates less than 21 days from the listing date would both be eligible to 
list $1 intervals pursuant to Supplementary Material .07 and 
Supplementary Material .03(e) of Options 5, Section 4.
    Example 2: Assume a Tier 2 stock that closed on the last day of Q1 
with a quarterly share price less than $25. Next, assume during Q2 the 
share price rose above $100. Utilizing the table within Supplementary 
Material .07 the interval would be $1.00 even though the price rose 
above $100 because the Share Price was calculated utilizing data from 
the prior calendar quarter. Utilizing Supplementary Material .03(e), 
the interval would be $1.00 if the price rose above $100. The $1 
interval is the same in both cases in this scenario and therefore there 
is no conflict. Now assume during the quarter the price rose above 
$150. Utilizing the table within Supplementary Material .07, the 
interval would continue to be $1.00 because the Share Price relied on 
data from the prior calendar quarter, however, pursuant to 
Supplementary Material .03(e), the interval would be $2.50. The greater 
interval would then be $2.50 as per Supplementary Material .03(e) in 
this scenario.
    Example 3: Assume a Tier 3 stock that closed on the last day of Q1 
with a quarterly share price less than $25. Next, assume during Q2 the 
share price rose above $100. Utilizing the table within Supplementary 
Material .07 the interval would be $2.50 even though the price rose 
above $100 because the Share Price relied on data from the prior 
calendar quarter. Utilizing Supplementary Material .03(e), the interval 
would be $1.00 if the price rose above $100. The greater interval would 
then be $2.50 as per the table in Supplementary Material .07 in this 
scenario.
    Fourth, the Exchange proposes to delete the last sentence of the 
first paragraph of Supplementary Material .07 to Options 4, Section 5 
which states, ``The below table indicates the applicable strike 
intervals and supersedes Supplementary Material .03(d) which permits 
additional series to be opened for trading on the Exchange when the 
Exchange deems it necessary to maintain an orderly market, to meet 
customer demand or when the market price of the underlying security 
moves substantially from the exercise price or prices of the series 
already opened.'' The table within Supplementary Material .07 impacts 
strike intervals, while Supplementary Material .03(d) \8\ describes 
adding series of options. The table within Supplementary Material .07 
supersedes other rules pertaining to strike intervals, but the table 
does not supersede rules governing the addition of options series. 
Therefore, the table within Supplementary Material .07 and 
Supplementary Material .03(d) do not conflict with each other. Deleting 
the reference to Supplementary Material .03(d) will avoid confusion.
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    \8\ Supplementary Material .03(d) of Options 5, Section 4 
provides, ``Additional Series. If the Exchange opens less than 
thirty (30) Short Term Option Series for a Short Term Option 
Expiration Date, additional series may be opened for trading on the 
Exchange when the Exchange deems it necessary to maintain an orderly 
market, to meet customer demand or when the market price of the 
underlying security moves substantially from the exercise price or 
prices of the series already opened.''
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    Fifth, and finally, the Exchange provides within the last sentence 
of Supplementary Material .07 to Options 4, Section 5 that, 
``Notwithstanding the limitations imposed by Supplementary Material 
.07, this proposal does not amend the range of strikes that may be 
listed pursuant to Supplementary Material .03, regarding the Short Term 
Option Series Program.'' The Exchange proposes to remove this rule 
text. While the range limitations continue to be applicable to the 
table within Supplementary Material .07, the strike ranges do not 
conflict with strike intervals and therefore the sentence is not 
necessary. Removing the last sentence of Supplementary Material .07 to 
Options 4, Section 5 will avoid confusion. Also, the rule text within 
Supplementary Material .03(f) of Options 5, Section 4 otherwise 
indicates when Supplementary Material .07 would apply.
Implementation
    The Exchange proposes to implement this rule change on August 1, 
2022. The Exchange will issue an Options Trader Alert to notify Members 
of the implementation date.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ in particular, in that it is designed 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. The Strike Proposal continues to limit the intervals between 
strikes listed in the Short Term Options Series Program that have an 
expiration date more than twenty-one days.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange's proposal to add clarifying language to the first 
sentence of Supplementary Material .07 of Options 4, Section 5, is 
consistent with the Act because it will make clear that the only 
permitted intervals are as specified in the table within Supplementary 
Material .07, except in the case where Supplementary Material .03(e) 
provides for a greater interval. This amendment will bring greater 
transparency to the rule.
    Amending the first sentence of Supplementary Material .07 to cite 
to Supplementary Material .03(f) instead of .03(e) is consistent with 
the Act because paragraph (f) indicates when the table within 
Supplementary Material .07 applies.
    Adopting a new sentence within Supplementary Material .07 of 
Options 4, Section 5 to address a potential conflict between the Short 
Term Options Series Program rules, specifically as between the 
application of the table within Supplementary Material .07 and the rule 
text within Supplementary Material .03(e), with respect to the correct 
interval is consistent with the Act. The table within Supplementary 
Material .07 supersedes other strike interval rules, but does not 
supersede the addition of option series. Therefore, these rules do not 
conflict with the table. Deleting the reference to Supplementary 
Material .03(d) will avoid confusion. This new rule text will make 
clear to Members the applicable intervals when there is a conflict 
between the rule text within Supplementary Material .07 and the rule 
text within Supplementary Material .03(e), thereby providing certainty 
as to the outcome. The proposed new rule text promotes just and 
equitable principles of trade by adding transparency to the manner in 
which ISE implements its listing rules, and protects investors and the 
general public by removing uncertainty.
    Removing the last sentence of the first paragraph of Supplementary 
Material .07 to Options 4, Section 5 is consistent with the Act because 
the table within Supplementary Material .07 impacts strike intervals, 
while Supplementary Material .03(d) describes the addition of options 
series. The table within Supplementary Material .07 supersedes other 
rules pertaining to strike intervals, but the table does not supersede 
rules governing the addition of options series.

[[Page 25068]]

Therefore, the table within Supplementary Material .07 and 
Supplementary Material .03(d) do not conflict with each other. Deleting 
the reference to Supplementary Material .03(d) will avoid confusion.
    Removing the last sentence of Supplementary Material .07 to Options 
4, Section 5 is consistent with the Act because while the range 
limitations continue to be applicable, the strike ranges do not 
conflict with strike intervals, rendering the sentence unnecessary. 
Removing the last sentence of Supplementary Material .07 to Options 4, 
Section 5 will avoid confusion. Also, the rule text within 
Supplementary Material .03(f) of Options 5, Section 4 otherwise 
indicates when Supplementary Material .07 would apply.
    The Strike Interval Proposal was designed to reduce the density of 
strike intervals that would be listed in later weeks, within the Short 
Term Options Series Program, by utilizing limitations for intervals 
between strikes which have an expiration date more than twenty-one days 
from the listing date. The Exchange's proposal intends to continue to 
remove certain strike intervals where there exist clusters of strikes 
whose characteristics closely resemble one another and, therefore, do 
not serve different trading needs,\11\ rendering these strikes less 
useful. Also, the Strike Interval Proposal continues to reduce the 
number of strikes listed on ISE, allowing Lead Market Makers and Market 
Makers to expend their capital in the options market in a more 
efficient manner, thereby improving overall market quality on ISE.
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    \11\ For example, two strikes that are densely clustered may 
have the same risk properties and may also be the same percentage 
out-of-the money.
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    Additionally, by making clear that the greater interval would 
control as between the rule text within Supplementary Material .07 and 
the rule text within Supplementary Material .03(e), the Exchange is 
reducing the number of strikes listed in a manner consistent with the 
intent of the Strike Interval Proposal, which was to reduce strikes 
which were farther out in time. The result of this clarification is to 
select wider strike intervals for Short Term Option Series in equity 
options which have an expiration date more than twenty-one days from 
the listing date. This rule change would harmonize strike intervals as 
between inner weeklies (those having less than twenty-one days from the 
listing date) and outer weeklies (those having more than twenty-one 
days from the listing date) so that strike intervals are not widening 
as the listing date approaches.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Strike Interval Proposal 
continues to limit the number of Short Term Options Series Program 
strike intervals available for quoting and trading on ISE for all ISE 
Participants.
    Adding clarifying language to the first sentence of Supplementary 
Material .07 of Options 4, Section 5 to make clear which parameter the 
table within Supplementary Material .07 of Options 4, Section 5 amends 
within the Short Term Options Series Program will bring greater 
transparency to the rules. Amending the first sentence of Supplementary 
Material .07 to cite to Supplementary Material .03(f) instead of .03(e) 
does not impose an undue burden on competition because paragraph (f) 
indicates when the table within Supplementary Material .07 applies. 
Adopting a new sentence to address potential conflicts as between the 
rule text within Supplementary Material .07 and the rule text within 
Supplementary Material .03(e) of Options 4, Section 5, within the Short 
Term Options Series Program, will bring greater transparency to the 
manner in which ISE implements its listing rules. The table within 
Supplementary Material .07 impacts strike intervals, while 
Supplementary Material .03(d) describes adding series of options. The 
table within Supplementary Material .07 supersedes other strike 
interval rules, but does not supersede the addition of series. Removing 
the last sentence of the first paragraph of Supplementary Material .07 
to Options 4, Section 5 does not impose an undue burden on competition 
because the table within Supplementary Material .07 supersedes other 
rules pertaining to strike intervals, but the table does not supersede 
rules governing the addition of options series. Also, deleting the 
reference to Supplementary Material .03(d) will avoid confusion. 
Finally, removing the last sentence of Supplementary Material .07 to 
Options 4, Section 5 will remove any potential confusion. While the 
range limitations continue to be applicable, the strike ranges do not 
conflict with strike intervals and are not necessary.
    While this proposal continues to limit the intervals of strikes 
listed on ISE, the Exchange continues to balance the needs of market 
participants by continuing to offer a number of strikes to meet a 
market participant's investment objective. The Exchange's Strike 
Interval Proposal does not impose an undue burden on inter-market 
competition as this Strike Interval Proposal does not impact the 
listings available at another self-regulatory organization.

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

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 [email protected]. Please include 
File Number SR-ISE-2022-10 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-ISE-2022-10. 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

[[Page 25069]]

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-ISE-2022-10, and should be submitted on 
or before May 18, 2022.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08911 Filed 4-26-22; 8:45 am]
BILLING CODE 8011-01-P


