[Federal Register Volume 87, Number 137 (Tuesday, July 19, 2022)]
[Notices]
[Pages 43065-43072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15307]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95272; File No. SR-EMERALD-2022-23]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rule 518, Complex Orders, and Exchange Rule 515, Execution of 
Orders and Quotes, To Permit Pricing of Stock-Option Complex Strategies 
in any Decimal Price the Exchange Determines

July 13, 2022.
    Pursuant to the provisions of 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 July 1, 2022, MIAX Emerald, LLC (``MIAX 
Emerald'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a 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 its Rulebook to permit pricing of 
stock-option complex strategies in any decimal price the Exchange 
determines.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/emerald at MIAX 
Emerald's principal office, 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

[[Page 43066]]

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 Exchange Rule 518, Complex Orders, 
and Exchange Rule 515, Execution of Orders and Quotes, to permit 
pricing of stock-option complex strategies in any decimal price the 
Exchange determines. The Exchange notes that this proposal is 
substantively identical to a recent proposal by the MIAX Options 
Exchange that was noticed by the Commission.\3\
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    \3\ See Securities Exchange Act Release No. 94836 (May 3, 2022), 
87 FR 27670 (May 9, 2022) (SR-MIAX-2022-17) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change by Miami 
International Securities Exchange, LLC to Amend Exchange Rule 518, 
Complex Orders and Exchange Rule 515, Execution of Orders and 
Quotes, To Permit Pricing of Stock-Option Complex Strategies In any 
Decimal Price the Exchange Determines).
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Background
    In August 2019, the Exchange adopted rules governing the trading 
in, and detailing the functionality of the Emerald Options System \4\ 
in the handling of complex orders on the Exchange.\5\ The Exchange 
defines a ``complex order'' as any order involving the concurrent 
purchase and/or sale of two or more different options in the same 
underlying security (the ``legs'' or ``components'' of the complex 
order), for the same account, in a ratio that is equal to or greater 
than one-to-three (.333) and less than or equal to three-to-one (3.00) 
and for the purposes of executing a particular investment strategy. 
Mini-options may only be part of a complex order that includes other 
mini-options. Only those complex orders in the classes designated by 
the Exchange and communicated to Members \6\ via Regulatory Circular 
with no more than the applicable number of legs, as determined by the 
Exchange on a class-by-class basis and communicated to Members via 
Regulatory Circular,\7\ are eligible for processing. A Post-Only order 
may not be a component of a complex order and will be rejected by the 
System.\8\
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    \4\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \5\ See Securities Exchange Act Release No. 85345 (March 18, 
2019), 84 FR 10848 (March 22, 2019) (SR-EMERALD-2019-13).
    \6\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
    \7\ See MIAX Emerald Regulatory Circular 2019-67, Trading of 
Complex Orders on MIAX Emerald (August 13, 2019) available at 
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2019_67.pdf.
    \8\ See Exchange Rule 518(a)(5).
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    A complex order can also be a ``stock-option order'' as described 
further, and subject to the limitations set forth, in Interpretation 
and Policy .01 of this Rule. A stock-option order is an order to buy or 
sell a stated number of units of an underlying security (stock or 
Exchange Traded Fund Share (``ETF'')) or a security convertible into 
the underlying stock (``convertible security'') coupled with the 
purchase or sale of options contract(s) on the opposite side of the 
market representing either (i) the same number of units of the 
underlying security or convertible security, or (ii) the number of 
units of the underlying stock necessary to create a delta neutral 
position, but in no case in a ratio greater than eight-to-one (8.00), 
where the ratio represents the total number of units of the underlying 
security or convertible security in the option leg to the total number 
of units of the underlying security or convertible security in the 
stock leg. Only those stock-option orders in the classes designated by 
the Exchange and communicated to Members via Regulatory Circular with 
no more than the applicable number of legs as determined by the 
Exchange on a class-by-class basis and communicated to Members via 
Regulatory Circular,\9\ are eligible for processing.\10\
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    \9\ See supra note 7.
    \10\ See Exchange Rule 518(a)(5).
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    Additionally, the Exchange offers a Complex Qualified Contingent 
Cross Order or ``cQCC'' Order which is comprised of an originating 
complex order to buy or sell where each component is at least 1,000 
contracts that is identified as being part of a qualified contingent 
trade, as defined in Rule 516, Interpretations and Policies .01,\11\ 
coupled with a contra-side complex order or orders totaling an equal 
number of contracts. The trading of cQCC Orders is governed by Rule 
515(h)(4).\12\
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    \11\ A ``qualified contingent trade'' is a transaction 
consisting of two or more component orders, executed as agent or 
principal, where: (a) At least one component is an NMS Stock, as 
defined in Rule 600 of Regulation NMS under the Exchange Act; (b) 
all components are effected with a product or price contingency that 
either has been agreed to by all the respective counterparties or 
arranged for by a broker-dealer as principal or agent; (c) the 
execution of one component is contingent upon the execution of all 
other components at or near the same time; (d) the specific 
relationship between the component orders (e.g., the spread between 
the prices of the component orders) is determined by the time the 
contingent order is placed; (e) the component orders bear a 
derivative relationship to one another, represent different classes 
of shares of the same issuer, or involve the securities of 
participants in mergers or with intentions to merge that have been 
announced or cancelled; and (f) the transaction is fully hedged 
(without regard to any prior existing position) as a result of other 
components of the contingent trade. See Interpretations and Polices 
.01 of Exchange Rule 516.
    \12\ See Exchange Rule 518(b)(6).
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    Exchange Rule 515(h)(4) currently provides that, cQCC Orders, as 
defined in Rule 518(b)(6), are automatically executed upon entry 
provided that, with respect to each option leg of the cQCC Order, the 
execution (i) is not at the same price as a Priority Customer Order on 
the Exchange's Book; and (ii) is at or between the NBBO. The System 
will reject a cQCC Order if, at the time of receipt of the cQCC Order: 
(i) the strategy is subject to a cPRIME Auction pursuant to Rule 515A, 
Interpretation and Policy .12 or to a Complex Auction pursuant to Rule 
518(d); or (ii) any component of the strategy is subject to a SMAT 
Event as described in Rule 518(a)(16). Further paragraph (A) of 
Exchange Rule 515(h)(4) provides that cQCC Orders will be automatically 
canceled if they cannot be executed. Paragraph (B) of Exchange Rule 
515(h)(4) provides that, cQCC Orders may only be entered in the minimum 
trading increments applicable to complex orders under Rule 
518(c)(1)(i). Paragraph (C) of Exchange Rule 515(h)(4) provides that, 
the Exchange will determine, on a class-by-class basis, the option 
classes in which cQCC Orders are available for trading on the Exchange, 
and will announce such classes to Members via Regulatory Circular.\13\
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    \13\ See Exchange Rule 515(h)(4).
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    Trading of complex orders on the Exchange is governed by Exchange 
Rule 518, Complex Orders. Minimum increments and trade prices for 
complex orders are described in current subparagraph (i) of Rule 
518(c)(1) which states, bids and offers on complex orders and quotes 
may be expressed in $0.01 increments, and the component(s) of a complex 
order may be executed in $0.01 increments, regardless of the minimum 
increments otherwise applicable to individual components of the complex 
order. Current subparagraph (ii) of Exchange Rule 518(c)(1) states, if 
any component of a complex strategy would be executed at a price that 
is equal to a Priority

[[Page 43067]]

Customer \14\ bid or offer on the Simple Order Book,\15\ at least one 
other component of the complex strategy must trade at a price that is 
better than the corresponding EBBO.\16\ Current subparagraph (iii) of 
Exchange Rule 518(c)(1) states, a complex order will not be executed at 
a net price that would cause any component of the complex strategy to 
be executed: (A) at a price of zero; or (B) ahead of a Priority 
Customer order on the Simple Order Book without improving the EBBO of 
at least one component of the complex strategy. Current subparagraph 
(iv) of Exchange Rule 518(c)(1) states, a complex order or eQuote (as 
defined in Interpretation and Policy .02 of this Rule) will not be 
executed at a price that is outside of its MPC Price (as defined in 
Interpretation and Policy .05(f) of this Rule) or its limit price.
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    \14\ The term ``Priority Customer'' means a person or entity 
that (i) is not a broker or dealer in securities, and (ii) does not 
place more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s). See 
Exchange Rule 100.
    \15\ The term ``Simple Order Book'' is the Exchange's regular 
electronic book of orders and quotes. See Exchange Rule 518(a)(15).
    \16\ The term ``EBBO'' means the best bid or offer on the Simple 
Order Book on the Exchange. See Exchange Rule 518(a)(10).
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Proposal
    The Exchange now proposes to (i) amend its rule pertaining to the 
pricing of complex orders to permit the pricing of stock-option complex 
strategies in any decimal price the Exchange determines; and (ii) make 
additional changes to the Exchange's rulebook necessary to support the 
implementation of the proposed pricing structure. The Exchange notes 
that its proposal is substantively identical to a recent proposal made 
by the Exchange's affiliate, MIAX Options.\17\
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    \17\ See supra note 3.
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Rule 518 Complex Orders
    Specifically, the Exchange proposes to amend subsection (c)(1) 
Minimum Increments and Trade Prices of Rule 518, to adopt new paragraph 
(ii), and to renumber current paragraph (c)(1)(ii) as paragraph 
(c)(1)(iii). New paragraph (c)(1)(ii) will provide that, bids and 
offers on complex orders, quotes, and RFR Responses for stock-option 
complex strategies (including a cQCC Order entered with a stock 
component) may be expressed in any decimal price the Exchange 
determines. The option component(s) of such a complex order may be 
executed in $0.01 increments, regardless of the minimum increments 
otherwise applicable to individual components of the complex order, and 
the stock component of such a complex order may be executed in any 
decimal price permitted in the equity market. The Exchange notes that 
its proposed rule text is identical to that of the Exchange's 
affiliate, MIAX Options.\18\ Minimum increments less than $0.01 are 
appropriate for stock-option orders as the stock component can trade at 
finer decimal increments permitted by the equity market. Furthermore, 
the Exchange notes that even with the flexibility provided in the 
proposed rule, the individual options and stock legs must trade at 
increments allowed by the Commission in the options and equities 
markets.
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    \18\ See MIAX Options Exchange Rule 518(c)(1)(ii).
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    To support the pricing of stock-option orders in any decimal price 
the Exchange determines, the Exchange is proposing to make a number of 
conforming changes throughout its Rulebook to clearly differentiate 
pricing and support of complex strategies with only option components, 
(which remains unchanged under this proposal in $0.01 increments), and 
pricing and support of stock-option complex strategies which may be in 
sub-penny increments, as determined by the Exchange. The Exchange notes 
that the proposed changes described herein are substantively identical 
to changes made by the Exchange's affiliate, MIAX Options.\19\
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    \19\ See supra note 3.
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    Therefore, the Exchange proposes to make a minor conforming change 
to the rule text of current paragraph (c)(1)(ii) of Rule 518, which 
will be renumbered as paragraph (c)(1)(iii). The current rule text 
states that, if any component of a complex strategy would be executed 
at a price that is equal to a Priority Customer bid or offer on the 
Simple Order Book, at least one other component of the complex strategy 
must trade at a price that is better than the corresponding EBBO. The 
Exchange now proposes to amend the rule to add additional detail and 
specificity by stating that, if any component of a complex strategy 
would be executed at a price that is equal to a Priority Customer bid 
or offer on the Simple Order Book, at least one other option component 
of the complex strategy must trade at a price that is better than the 
corresponding EBBO. The Exchange believes that clarifying that the 
component of the complex strategy must be an option component adds 
additional detail to the rule and makes it clear in the Exchange's 
rules that a Priority Customer bid or offer must be improved by at 
least $0.01 by the option component of either a complex strategy with 
only option components or the option component of a stock-option 
complex strategy. The Exchange notes that its proposed rule text is 
identical to that of the Exchange's affiliate, MIAX Options.\20\
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    \20\ See MIAX Options Exchange Rule 518(c)(1)(iii).
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    Additionally, the Exchange proposes to amend paragraph (i) of 
subsection (c)(1), Minimum Increments and Trade Prices, of Exchange 
Rule 518, to add additional detail and clarity to the rule text. 
Currently, the rule provides that, bids and offers on complex orders 
and quotes may be expressed in $0.01 increments, and the component(s) 
of a complex order may be executed in $0.01 increments, regardless of 
the minimum increments otherwise applicable to individual components of 
the complex order. The Exchange now proposes to amend the rule text to 
provide that, bids and offers on complex orders, quotes, and RFR 
Responses for complex strategies having only option components may be 
expressed in $0.01 increments, and the component(s) of such a complex 
order may be executed in $0.01 increments, regardless of the minimum 
increments otherwise applicable to individual components of the complex 
order. The Exchange notes that its proposed rule text is identical to 
that of the Exchange's affiliate, MIAX Options.\21\
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    \21\ See MIAX Options Exchange Rule 518(c)(1)(i).
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    Paragraph (c)(1)(i) pertains to complex strategies that have only 
option components (as opposed to paragraph (c)(1)(ii) which pertains to 
stock-option complex strategies) and therefore provides that bids, 
offers, and RFR Responses for complex strategies having only option 
components may be expressed in $0.01 increments. The Exchange believes 
this change is necessary to differentiate between which strategies are 
required to be priced in $0.01 increments (complex strategies having 
only option components) and which strategies may be priced in an 
increment other than $0.01 (stock-option complex strategies). The 
Exchange believes this amendment provides additional detail and clarity 
regarding the pricing of complex strategies having only option 
components, which is not changing under this proposal.
    The Exchange also proposes to amend the rule text of current 
paragraph (c)(1)(iii) of Rule 518 to make two minor conforming changes 
and to renumber the paragraph as new paragraph (c)(1)(iv). Currently, 
the rule states that, a complex order will not be executed at a net 
price that would cause any component of the complex strategy to be

[[Page 43068]]

executed: (A) at a price of zero; or (B) ahead of a Priority Customer 
order on the Simple Order Book without improving the EBBO of at least 
one component of the complex strategy. The Exchange now proposes to add 
additional detail and specificity to the rule to state that, a complex 
order will not be executed at a net price that would cause any option 
component of the complex strategy to be executed: (A) at a price of 
zero; or (B) ahead of a Priority Customer order on the Simple Order 
Book without improving the EBBO of at least one option component of the 
complex strategy.\22\ The Exchange believes that clarifying that the 
component of the complex strategy must be an option component adds 
additional detail and clarity to the rule. The Exchange also proposes 
to make a non-substantive change to existing paragraph (c)(1)(iv) to 
renumber the paragraph as (c)(1)(v). The Exchange notes that its 
proposed rule text is identical to that of the Exchange's affiliate, 
MIAX Options.\23\
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    \22\ The Exchange also proposes to make an identical conforming 
change to paragraph (d)(6) of Rule 518 that is identical to MIAX 
Options Exchange Rule 518(d)(6).
    \23\ See MIAX Options Exchange Rule 518(c)(1)(iv).
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    The Exchange proposes to amend subparagraph (i) of section (c)(4), 
Managed Interest Process for Complex Orders, of Rule 518 to add 
additional detail and clarity to the rule text. The managed interest 
process for complex orders ensures that a complex order will never be 
executed at a price that is through the individual component prices on 
the Simple Order Book.
    Currently, the rule provides that, when the opposite side icEBBO 
\24\ includes a Priority Customer Order, the System will book and 
display such booked complex order on the Strategy Book \25\ at a price 
(the ``book and display price'') that is $0.01 away from the current 
opposite side icEBBO. The Exchange proposes to amend the rule text to 
provide that, when the opposite side icEBBO includes a Priority 
Customer Order, the System will book and display such booked complex 
order on the Strategy Book at a price (the ``book and display price'') 
such that at least one option component is priced $0.01 away from the 
current opposite side EBBO. The EBBO is comprised of the best bid and 
the best offer on the Simple Order Book on the Exchange.\26\
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    \24\ The icEBBO is a calculation that uses the best price from 
the Simple Order Book for each component of a complex strategy 
including displayed and non-displayed trading interest. For stock-
option orders, the icEBBO for a complex strategy will be calculated 
using the best price (whether displayed or non-displayed) on the 
Simple Order Book in the individual option component(s), and the 
NBBO in the stock component. See Exchange Rule 518(a)(12).
    \25\ The ``Strategy Book'' is the Exchange's electronic book of 
complex orders and complex quotes. See Exchange Rule 518(a)(17).
    \26\ See supra note 16.
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    This change supports the proposed change to 518(c)(1)(iii) which 
provides that if any component of a complex strategy would be executed 
at a price that is equal to a Priority Customer bid or offer on the 
Simple Order Book, at least one option component of the complex 
strategy must trade at a price that is better than the corresponding 
EBBO. Together, these changes ensure that no complex strategy (either a 
complex strategy with only option components or a stock-option complex 
strategy) will execute ahead of a Priority Customer order on the Simple 
Order Book without improving the EBBO of at least one option component 
of the complex strategy by at least $0.01.\27\ The Exchange believes 
this change provides additional detail and clarity regarding the 
managed interest process for complex strategies with only option 
components and for stock-option complex strategies, and harmonizes the 
rule text to the System behavior. The Exchange notes that its proposed 
rule text is substantively identical to that of the Exchange's 
affiliate, MIAX Options.\28\
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    \27\ See Exchange Rule 518(c)(1)(iv) as proposed herein.
    \28\ See MIAX Options Exchange Rule 518(c)(4)(i) (The MIAX 
Options Exchange's rule text references the MBBO whereas the 
proposed rule text references the EBBO).
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    The Exchange proposes to amend paragraph (d)(4), RFR Response, of 
Rule 518 to make a conforming change to the rule necessary to support 
pricing of stock-option complex strategies in any decimal price 
determined by the Exchange. Currently, Rule 518(d)(4) provides that, 
RFR responses may be submitted in $0.01 increments. The Exchange 
proposes to amend this provision to provide that RFR Responses may be 
submitted in the increments defined in proposed subparagraphs (c)(1)(i) 
and (c)(1)(ii) of this Rule. This proposed change is consistent with 
the proposed change to Rule 518(c)(1), Minimum Increments and Trade 
Prices, as described above, and aligns the pricing of complex 
strategies with only option components in $0.01, which is not changing 
under this proposal, and the pricing of complex strategies with a stock 
component in any decimal price the Exchange determines as proposed 
herein. RFR responses submitted for a complex strategy having only 
option components may be expressed in $0.01 increments as proposed in 
subparagraph (c)(1)(i), whereas RFR responses submitted for a stock-
option complex strategy may be expressed in any decimal price the 
Exchange determines as proposed in subparagraph (c)(1)(ii). This change 
aligns RFR responses for complex strategies with only option components 
to the current price interval for complex orders of $0.01, which is not 
changing under this proposal, and aligns the pricing interval for 
stock-option complex strategies with the proposed change discussed 
herein to be in any decimal price as determined by the Exchange.\29\ 
The Exchange notes that its proposed rule text is identical to that of 
the Exchange's affiliate, MIAX Options.\30\
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    \29\ The Exchange also proposes to make an identical conforming 
change to Rule 518(e) for cLEP Responses that is identical to MIAX 
Options Exchange Rule 518(e), Responses.
    \30\ See MIAX Options Exchange Rule 518(d)(4).
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    The Exchange proposes to amend paragraph (d)(6)(i) of Rule 518 to 
add additional detail and clarity to the operation of the rule 
necessary to support pricing of stock-option complex strategies in sub-
penny increments and clarify that the pricing and processing of complex 
strategies with only option components will remain unchanged under this 
proposal. Currently, the rule states that, at the conclusion of the 
Response Time Interval, Complex Auction-eligible orders will be priced 
and executed as follows, and allocated pursuant to subparagraph (7) of 
Rule 518: \31\ (i) Using $0.01 inside the current icEBBO as the 
boundary (the ``boundary''), the System will calculate the price where 
the maximum quantity of contracts can trade and also determine whether 
there is an imbalance.\32\
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    \31\ See Exchange Rule 518(d)(6).
    \32\ See Exchange Rule 518(d)(6)(i).
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    The Exchange now proposes to amend the rule text to state that, at 
the conclusion of the Response Time Interval, Complex Auction-eligible 
orders will be priced and executed as follows, and allocated pursuant 
to subparagraph (7) of Rule 518: (i) Using $0.01 inside the current 
icEBBO for complex strategies with only option components or using a 
decimal price increment (as determined by the Exchange) inside the 
current icEBBO for stock-option complex strategies as the boundary (the 
``boundary''), the System will calculate the price where the maximum 
quantity of contracts can trade and also determine whether there is an 
imbalance. This proposed change is consistent with the proposed change 
to Rule 518(c)(1), Minimum Increments and Trade Prices, as described 
above and allows the Exchange to accurately

[[Page 43069]]

calculate prices for stock-option complex strategies. Using the same 
pricing increments that each complex strategy is priced in ($0.01 for 
complex strategies with only option components and the decimal price 
increment as determined by the Exchange for stock-option complex 
strategies) ensures that there are no calculation or rounding errors 
which ensures the accuracy and integrity of the Exchange's price 
calculations and the System's determination of the price where the 
maximum quantity of contracts can trade and also the System's 
determination of an imbalance. The Exchange believes this change adds 
additional detail and clarity to the rule, by clarifying current 
behavior as it relates to complex strategies with only option 
components and facilitates the proposed change to permit pricing of 
complex strategies with an option component in any decimal price the 
Exchange determines. The Exchange notes that its proposed rule text is 
substantively identical to that of the Exchange's affiliate, MIAX 
Options.\33\
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    \33\ See MIAX Options Exchange Rule 518(d)(6)(i) (MIAX Options 
Exchange's rule text references the icMBBO whereas the proposed rule 
text references the icEBBO).
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    The Exchange proposes to amend paragraph (d)(6)(i)(A)2.a. of Rule 
518 to provide for calculations in $0.01 increments to support complex 
strategies with only option components and to provide for calculations 
in any decimal price increment as determined by the Exchange to support 
stock-option complex strategies. Currently, the rule provides that, if 
the midpoint price is not in a $0.01 increment, the System will round 
toward the midpoint of the dcEBBO \34\ to the nearest $0.01. The 
Exchange now proposes to amend the rule text to state that, for complex 
strategies with only option components if the midpoint price is not in 
a $0.01 increment, the System will round toward the midpoint of the 
dcEBBO to the nearest $0.01; for stock-option complex strategies, if 
the midpoint price is not in a decimal price increment as determined by 
the Exchange, the System will round toward the midpoint of the dcEBBO 
to the nearest decimal price increment as determined by the Exchange. 
The Exchange notes that its proposed rule text is substantively 
identical to that of the Exchange's affiliate, MIAX Options.\35\
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    \34\ The dcEBBO is calculated using the best displayed price for 
each component of a complex strategy from the Simple Order Book. For 
stock-option orders, the dcEBBO for a complex strategy will be 
calculated using the Exchange's best displayed bid or offer in the 
individual option component(s) and the NBBO in the stock component. 
See Exchange Rule 518(a)(8).
    \35\ See MIAX Options Exchange Rule 518(d)(6)(i)(A)2.a. (MIAX 
Options Exchange's rule text references the dcMBBO whereas the 
proposed rule text references the dcEBBO).
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    Similarly, the Exchange also proposes to amend paragraph 
(d)(6)(i)(A)2.b. of Rule 518 to provide for calculations in $0.01 
increments to support complex strategies with only option components 
and to provide for calculations in any decimal increment as determined 
by the Exchange to support stock-option complex strategies. Currently, 
the rule provides that if the midpoint of the highest and lowest prices 
is also the midpoint of the dcEBBO and is not in a $0.01 increment the 
System will round the price up to the next $0.01 increment. The 
Exchange now proposes to amend the rule text to state that, if the 
midpoint of the highest and lowest prices is also the midpoint of the 
dcEBBO and is not in a $0.01 increment for complex strategies with only 
option components or in a decimal price increment as determined by the 
Exchange for stock-option complex strategies, the System will round the 
price up to the next $0.01 increment for complex strategies with only 
option components or to a decimal price increment as determined by the 
Exchange for stock-option complex strategies The Exchange notes that 
its proposed rule text is identical to that of the Exchange's 
affiliate, MIAX Options.\36\
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    \36\ See MIAX Options Exchange Rule 518(d)(6)(i)(A)2.b.
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    To properly perform the internal calculations described in Exchange 
Rule 518(d)(6)(i)(A)2.a. and b. correctly it is imperative that the 
decimal increment being used in the calculation properly aligns to the 
decimal quoting increment being used on the Exchange for that strategy, 
be it for complex strategies with only option components or stock-
option complex strategies. Using the appropriate decimal increment that 
the strategy is priced in ($0.01 for complex strategies with only 
option components or any decimal price as determined by the Exchange 
for stock-option complex strategies) ensures that the Exchange 
accurately calculates the auction start price to the proper decimal 
precision for either complex strategies with only option components 
(which may only be in $0.01 increments) or stock-option complex 
strategies (which may be in any price increment as determined by the 
Exchange). The Exchange believes these changes provide additional 
detail and clarification regarding the differentiation in calculations 
for complex strategies with only option components that are priced in 
$0.01 increments, which remains unchanged under this proposal, and 
calculations for stock-option complex strategies, which may be priced 
in increments other than $0.01. This change is necessary to support the 
proposed change discussed herein to price stock-option strategies in 
any decimal price increment as determined by the Exchange. The Exchange 
notes that its proposed rule text is substantively identical to that of 
the Exchange's affiliate, MIAX Options.\37\
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    \37\ See MIAX Options Exchange Rule 518(d)(6)(i) (MIAX Options 
Exchange's rule text references the icMBBO whereas the proposed rule 
text references the icEBBO).
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Rule 515 Execution of Orders and Quotes
Customer to Customer Cross Orders
    The Exchange proposes to amend paragraph (h), Crossing Orders, of 
Rule 515, to clarify that Complex Customer Cross (``cC2C'') pricing is 
not changing under this proposal. Currently, subparagraph (B) of 
paragraph (3), of Rule 515(h), Complex Customer Cross (``cC2C'') Orders 
provides that cC2C Orders \38\ may only be entered in the minimum 
trading increments applicable to complex orders under Rule 
518(c)(1)(i). Current Rule 518(c)(1)(i) provides that the minimum 
trading increments applicable to complex orders is $0.01.\39\ The 
Exchange proposes to amend subparagraph (B) to state that, cC2C Orders 
may only be entered in minimum trading increments of $0.01. The 
Exchange notes that its proposed rule text is identical to that of the 
Exchange's affiliate, MIAX Options.\40\
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    \38\ A Complex Customer Cross or ``cC2C'' Order is comprised of 
one Priority Customer complex order to buy and one Priority Customer 
complex order to sell at the same price and for the same quantity. 
Trading of cC2C Orders is governed by Rule 515(h)(3). See Exchange 
Rule 518(b)(5).
    \39\ Bids and offers on complex orders and quotes may be 
expressed in $0.01 increments, and the component(s) of a complex 
order may be executed in $0.01 increments, regardless of the minimum 
increments otherwise applicable to individual components of the 
complex order. See Exchange Rule 518(c)(1)(i).
    \40\ See MIAX Options Exchange Rule 515(h)(3)(B).
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Complex Qualified Contingent Cross Orders
    cQCC Orders \41\ may be entered into the Exchange's System with a 
stock

[[Page 43070]]

component or without the stock component. To support and facilitate the 
pricing proposal for stock-option strategies as proposed herein, a cQCC 
entered without the stock component will be treated as a complex 
strategy with only option components for pricing purposes (pricing in 
$0.01 increments only), whereas a cQCC entered with the stock component 
will be treated as a complex strategy with a stock component under the 
Exchange's new quoting structure as proposed herein. Therefore, the 
Exchange proposes to amend subparagraph (B) of paragraph (4), Complex 
Qualified Contingent Cross (``cQCC'') Orders to provide that cQCC 
Orders may only be entered in the minimum trading increments applicable 
to complex orders under proposed Rule 518(c)(1)(i) or 518(c)(1)(ii) if 
the cQCC Order includes the stock component upon entry. The Exchange 
notes that its proposed rule text is identical to that of the 
Exchange's affiliate, MIAX Options.\42\
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    \41\ A Complex Qualified Contingent Cross or ``cQCC'' Order is 
comprised of an originating complex order to buy or sell where each 
component is at least 1,000 contracts that is identified as being 
part of a qualified contingent trade, as defined in Rule 516, 
Interpretations and Policies .01, coupled with a contra-side complex 
order or orders totaling an equal number of contracts. Trading of 
cQCC Orders is governed by Rule 515(h)(4). See Exchange Rule 
518(b)(6).
    \42\ See MIAX Options Exchange Rule 515(h)(4)(B).
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    Additionally, the Exchange proposes to adopt new subparagraph (D) 
to paragraph (4) of Rule 515(h) to provide a more fulsome description 
of cQCC Order handling of a cQCC Order entered without the stock 
component and a cQCC Order entered with the stock component. New 
subparagraph (D) will provide that, a cQCC Order may be entered with or 
without the stock component. A cQCC Order entered without the stock 
component will be treated as a complex strategy with only option 
components. A cQCC Order entered with the stock component shall be 
subject to Rule 518.01. A Member that submits a cQCC Order to the 
Exchange (with or without the stock component) represents that such 
order satisfies the requirements of a qualified contingent trade (as 
described in Interpretations and Policies .01 of Rule 516) and agrees 
to provide information to the Exchange related to the execution of the 
stock component as determined by the Exchange and communicated via 
Regulatory Circular.\43\ The Exchange notes that its proposed rule text 
is identical to that of the Exchange's affiliate, MIAX Options.\44\
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    \43\ See proposed Rule 515(h)(4)(D) and see also MIAX Emerald 
Regulatory Circular 2019-66, Regulatory Requirements when entering a 
Qualified Contingent Cross Order (``QCC'') or a Complex Qualified 
Contingent Cross Order (``cQCC'') (August 13, 2019) available at: 
https://www.miaxoptions.com/sites/default/files/circular-files/MIAX_Emerald_RC_2019_66.pdf.
    \44\ See MIAX Options Exchange Rule 515(h)(4)(D).
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Implementation Date
    The Exchange plans to implement the proposed rule change at the end 
of Q3, 2022, or early Q4 of 2022, and will announce the implementation 
date to its Members via Regulatory Circular.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \45\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \46\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system and, in general, to protect investors and the public interest.
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    \45\ 15 U.S.C. 78f(b).
    \46\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change benefits 
investors and promotes just and equitable principles of trade because 
it provides investors with the ability to price stock-option complex 
strategies with greater precision.\47\ This provides investors with 
greater opportunities for execution as it allows for more accurate 
pricing of stock-option complex strategies. The net price of a complex 
strategy with a stock component may result in a price that is 
accurately expressed in a finer decimal increment than $0.01 as a 
result of the stock ratio being used.
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    \47\ The Exchange notes that other options exchanges permit 
stock-option orders to be priced in decimal increments. See Cboe 
Options Rule 5.33(f)(i)(B), Nasdaq ISE Options 3, Section 14(c)(1), 
Cboe EDGX Rule 21.20(f)(1)(B); and MIAX Options Exchange Rule 
518(c)(1)(ii).
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Example 1 Stock-Option Complex Strategy
    The current market is:

EBBO XYZ Jan 15 Put 0.95 (10) x 1.00 (10)
NBBO XYZ Stock 20.00 (100) x 20.01 (100)

    Customer strategy: A customer order to Buy 1 XYZ Jan 15 Put and Buy 
33 Shares of XYZ is received. The customer would like to pay $1.00 for 
the option and pay $20.01 for the stock for a net price $7.6033 as per 
the calculation of the strategy market below.
    The market for the Strategy is:

Strategy Bid = (Option Bid * Option Ratio) + (Stock Bid * Stock Ratio/
100)
Strategy Bid = (0.95 * 1) + (20.00 * .33)
Strategy Bid = 7.5500
Strategy Ask = (Option Ask * Option Ratio) + (Stock Ask * Stock Ratio/
100)
Strategy Ask = (1.00 * 1) + (20.01 * .33)
Strategy Ask = 7.6033
Strategy market = 7.5500 x 7.6033

    As the Exchange does not support stock option strategies priced in 
four decimal increments this strategy would be sent to a venue that 
supports four decimal pricing for execution.
    Under the Exchange's proposal to permit stock-option complex 
strategies to be expressed in any decimal price as determined by the 
Exchange, if the Exchange determines to price stock-option complex 
strategies in $0.0001 increments, the above strategy could be placed on 
the Exchange's Strategy Book at its calculated net price. The customer 
who would like to pay $1.00 for the option and pay $20.01for the stock 
can now pay $1.00 for the option and pay $20.01 for the stock for a net 
price of $7.6033 as per the calculation above.
    Pricing stock-option complex strategies in sub-penny increments 
permits more precision pricing and allows for complex strategies with a 
stock component to be effectively traded on the Exchange. Currently, 
firms that wish to execute these types of strategies will not send them 
to the MIAX Emerald Exchange due to the current System limitation which 
constrains the price to two decimal places, whereas the strategy may be 
more precisely priced in sub-penny increments on exchanges that permit 
sub-penny pricing of stock-option complex strategies to four decimal 
places.\48\
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    \48\ See id.
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    Further, the Exchange believes that the proposed rule change 
removes impediments to and perfects the mechanisms of a free and open 
market and a national market system and, in general, protects investors 
and the public interest by offering similar functionality to Members 
that can be found on other competing option exchanges.\49\ Competition 
benefits investors by providing investors an additional venue to choose 
from when making order routing decisions.
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    \49\ See id.
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    Additionally, the Exchange believes its proposal to leave Complex 
Customer Cross Order functionality unchanged promotes just and 
equitable principles of trade, removes impediments to and perfects the 
mechanisms of a free and open market and a national market system and, 
in general, to protects investors and the public interest. A Complex 
Customer Cross Order is

[[Page 43071]]

comprised of one Priority Customer complex order to buy and one 
Priority Customer complex order to sell at the same price and for the 
same quantity.\50\ Complex Customer Cross Orders are not exposed to the 
marketplace and are executed upon entry, provided that the execution is 
at least $0.01 better than the icEBBO, or the best net price of a 
complex order on the Strategy Book, whichever is more aggressive.\51\ 
The Exchange believes that requiring a minimum improvement of $0.01 
benefits investors and the public interest as it is not a de minimis 
price improvement amount. Further, the Exchange does not believe that 
Members on the Exchange are disadvantaged in any way by not being able 
to execute Complex Customer Cross Orders with a stock component in a 
sub-penny interval, as Members may use the cQCC Order type for stock-
option complex strategies, or expose their stock-option complex 
strategy order to the market via the Exchange's cPRIME for price 
improvement in sub-penny increments.
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    \50\ See Exchange Rule 518(b)(2)(d).
    \51\ See Exchange Rule 515(h)(3).
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    To support the pricing of stock-option orders in any decimal price 
the Exchange determines, the Exchange is proposing to make a number of 
non-substantive conforming changes throughout its rules to clearly 
differentiate pricing and support of complex strategies with only 
option components, (which remains unchanged under this proposal in 
$0.01 increments), and pricing and support of stock-option complex 
strategies, which may be in any decimal price the Exchange determines. 
The Exchange believes that its proposed non-substantive changes to add 
additional detail and clarity to the Exchange's rulebook benefits 
investors and the public interest as it provides transparency and 
eliminates the potential for confusion regarding the operation of the 
Exchange's rules.

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 Exchange does not 
believe that its proposal will impose any burden on intra-market 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because all Members of the Exchange that transact 
stock-option complex strategies will be able to price stock-option 
complex strategies in more precise increments.
    The Exchange does not believe that the proposed rule change will 
impose any burden on inter-market competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes that its proposal may benefit inter-market competition as 
other competing option exchanges offer similar price precision for 
stock-option complex strategies.\52\
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    \52\ See CboeEDGX Exchange Rule 21.20(f)(1)(B) which provides 
that Users may express bids and offers for a stock-option order 
(including a QCC with Stock Order) in any decimal price the Exchange 
determines. The option leg(s) of a stock-option order may be 
executed in $0.01 increments, regardless of minimum increments 
otherwise applicable to the option leg(s), and the stock leg of a 
stock-option order may be executed in any decimal price permitted in 
the equity market; and Cboe Exchange Rule 5.33(f)(1)(B) which 
similarly provides that Users may express bids and offers for a 
stock-option order (including a QCC with Stock Order) in any decimal 
price the Exchange determines. The minimum increment for the option 
leg(s) of a stock-option order is $0.01 or greater, which the 
Exchange may determine on a class-by-class basis, regardless of the 
minimum increments otherwise applicable to the option leg(s), and 
the stock leg of a stock-option order may be executed in any decimal 
price permitted in the equity market. See also Tradedesk Updates, 
Cboe Options Exchange Announces Support for QCC with an Equity Leg 
and Improved Pricing Precision on Complex Orders with an Equity Leg 
(March 2, 2018) (allowing a price with four decimal places on all 
complex orders that include a stock leg and that are routed for 
electronic trading) available at https://cdn.cboe.com/resources/release_notes/2018/QCC-w-equity-leg-and-CPS-4-digit-decimal.pdf; See 
also MIAX Options Exchange Rule 518(c)(1)(ii).
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    Additionally, the non-substantive changes proposed by the Exchange 
will have no impact on competition as they provide additional clarity 
and detail in the Exchange's rules and are not changes made for any 
competitive purpose.

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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \53\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\54\
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    \53\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \54\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the 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 to 
determine whether the proposed rule should be approved or 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-EMERALD-2022-23 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-EMERALD-2022-23. 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

[[Page 43072]]

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-
EMERALD-2022-23, and should be submitted on or before August 9, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
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    \55\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-15307 Filed 7-18-22; 8:45 am]
BILLING CODE 8011-01-P


