[Federal Register Volume 87, Number 219 (Tuesday, November 15, 2022)]
[Notices]
[Pages 68525-68529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24766]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96270; File No. SR-ICEEU-2022-020]


Self-Regulatory Organizations; ICE Clear Europe Limited; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to Amendments to the Clearing Rules, Collateral and Haircut Procedures, 
Collateral and Haircut Policy and Finance Procedures

November 8, 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 October 31, 2022, ICE Clear Europe Limited (``ICE Clear Europe'' or 
the ``Clearing House'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule changes described in 
Items I, II and III below, which Items have been primarily prepared by 
ICE Clear Europe. ICE Clear Europe filed the proposed rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(1) and 
(f)(4) \4\ thereunder, such that the proposed rule change was 
immediately effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(1), (f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    ICE Clear Europe Limited (``ICE Clear Europe'' or the ``Clearing 
House'') proposes to amend its Clearing Rules (``Rules''), Collateral 
and Haircut Procedures (``Collateral and Haircut Procedures''), 
Collateral and Haircut Policy (``Collateral and Haircut Policy'') and 
Finance Procedures (``Finance Procedures'') (each of the foregoing a 
``Document'' and together the ``Documents'') to provide for the 
acceptance by the Clearing House of certain emission allowances 
provided by Clearing Members in respect of original margin requirements 
for F&O Contracts for which they are the underlier.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, ICE Clear Europe 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. ICE Clear Europe has prepared summaries, 
set forth in sections (A), (B), and (C) below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

(a) Purpose
    ICE Clear Europe is proposing to update the Documents as described 
below to provide for the acceptance by ICE Clear Europe of certain 
emission allowances provided by Clearing Members as Permitted Cover in 
respect of original margin requirements for F&O Contracts for which the 
allowance is the relevant deliverable asset. The amendments make 
certain other clarifications to accommodate such collateral and similar 
collateral that ICE Clear Europe may determine to accept in the future. 
The amendments related to acceptance of emissions allowances are 
principally set forth in the Finance Procedures, with certain related 
and conforming changes being made in the Rules and the Collateral and 
Haircut Policy and Procedures.
Finance Procedures
    The Finance Procedures would include a new paragraph 9 providing 
for the acceptance of Eligible Emission Allowances as Permitted Cover. 
Paragraph 9.1 would provide that such paragraph does not apply to FCM/
BD Clearing Members (and accordingly such Clearing Members would not be 
permitted to provide Eligible Emission Allowances as Permitted Cover). 
Such paragraph would apply to each Sponsored Principal (or Sponsor 
appointed to make and receive transfers in respect of Eligible Emission 
Allowances as Original Margin on an Individually Segregated Sponsored 
Account) in the same way it would apply to a Clearing Member. Paragraph 
9.2 would set out key definitions, specifically ``Eligible Emission 
Allowances'' (allowances that ICE Clear Europe has determined to accept 
in respect of Original Margin) and ``Emissions Margin Account'' (the 
Clearing House's account at a relevant emissions registry for receipt 
of Eligible Emission Allowances as margin). Eligible Emissions 
Allowances would not include allowances delivered to the Clearing House 
to physically settle a Contract.

[[Page 68526]]

    Paragraph 9.3 would describe the circumstances under which Clearing 
Members would be permitted to use Eligible Emission Allowances as 
Original Margin. Specifically, Clearing Members would be able to use 
Eligible Emission Allowances only to satisfy Original Margin 
requirements for F&O Contracts in respect of which the Emission 
Allowances are the Deliverable. The Clearing House would be able to 
impose limits on the amount or value of Eligible Emission Allowances 
which would be provided as Original Margin and would communicate such 
limits to Clearing Members from time to time. Eligible Emission 
Allowances would be required to conform to eligibility criteria as set 
out by the Clearing House from time to time. Pursuant to paragraph 9.4, 
Clearing Members transferring Emission Allowances as Original Margin to 
the Clearing House would be required to have executed and delivered the 
Emission Allowances Supplement. The Emission Allowances Supplement is 
set forth as Exhibit 3. Paragraph 9.5 provides that Eligible Emission 
Allowances would have to be transferred to ICE Clear Europe's Emissions 
Margin Account in order to be accepted as Original Margin and all 
transfers to and from such account are to be in accordance with the 
terms, conditions and applicable procedures of the relevant Emissions 
Registry and Registry Regulations (as defined in the Clearing House's 
Delivery Procedures). Under paragraph 9.6, receipt and release of 
Eligible Emission Allowances as Original Margin would only be available 
on business days and working days (as applicable) as provided by the 
relevant Emission Registry, and the Clearing House is unable to receive 
transfers of or release such allowances on non-Clearing House business 
days. Eligible Emission Allowances would be valued for margin purposes 
at an exchange rate to be determined by the Clearing House in its 
discretion from time to time, pursuant to paragraph 9.7. The Clearing 
House is also entitled to modify the list of Permitted Cover as related 
to Eligible Emission Allowances, including by way of addition or 
removal of any class of Eligible Emission Allowances, not crediting 
previously transferred Eligible Emission Allowances or varying haircuts 
on Eligible Emission Allowances at any time, pursuant to paragraph 9.8.
    Paragraphs 9.9-9.13 would establish procedures for transferring 
Eligible Emission Allowances to ICE Clear Europe as Original Margin. 
Prior to effecting such transfer, the Clearing Member would be required 
to provide details of an Emissions Registry Account from which it would 
make the transfer as well as the contact details of the person 
authorized to instruct the transfer on behalf of such Clearing Member. 
The Clearing Member would also have to submit a transfer request to the 
Clearing House via ECS. Transfer of Eligible Emission Allowances would 
be made through the Emission Registry's electronic system to the 
Emissions Margin Account. The Clearing House would have the right to 
not treat such Eligible Emission Allowances as Original Margin under 
specified circumstances, including if required information has not been 
provided to the Clearing House; any relevant limits set by the Clearing 
House are exceeded; or for any other reason that places or risks 
placing the Clearing House under additional risk or liability. The 
amendments would also specify the times by which Eligible Emissions 
Allowances must be received by the Clearing House in order to be 
credited, and state that the relevant record in the ECS would be 
adjusted after the Clearing House's confirmation of completion of the 
relevant transfer in the Emission Margin Account.
    Paragraphs 9.14-9.17 would similarly establish procedures for 
release and return of Eligible Emission Allowances by the Clearing 
House. These provisions apply where a Clearing Member has surplus 
collateral with the Clearing House which it wishes to reduce via a 
return to it of Eligible Emission Allowances. To affect such return, 
such Clearing Member would be required to provide a release request to 
the Clearing House using the form specified by the Clearing House and 
submit release instructions to the Clearing House via ECS. Release 
instructions submitted through ECS would be required to be accepted by 
the Clearing House before the Eligible Emissions Allowances are 
released to the Clearing Member. The Clearing House would have the 
right to reject release instructions in specified circumstances, 
including if: required information has not been provided to the 
Clearing House; any relevant limits set by the Clearing House are 
exceeded; the transfer would result or risks resulting in an uncovered 
liability towards the Clearing House; or for any other reason that 
places or risks placing the Clearing House under additional risk or 
liability. The subsection would also specify the timing for update of 
the Clearing House's records in ECS upon an accepted request for 
release and for the instruction of the relevant Emissions Registry to 
release the Eligible Emission Allowances. In paragraph 11 of the 
Finance Procedures, certain non-substantive updates would be made to 
distinguish Emission Allowances from other non-cash collateral.
Rules
    The definition of ``Clearing Membership Agreement'' would be 
updated to include in such definition Emission Allowances Supplement 
referenced above. The amendments would also add a definition of the 
foregoing and provide that ``Emission Allowances Supplement'' means an 
addendum to a Clearing Membership Agreement concerning the transfer of 
Emission Allowances to and from the Clearing House as Permitted Cover. 
An unrelated clarifying amendment would also be made to add the term 
``Gold Addendum'', which would reference the addendum to a Clearing 
Membership Agreement that is currently used by the Clearing House and 
Clearing Members concerning the transfer of gold to and from the 
Clearing House as Permitted Cover in accordance with the existing 
Finance Procedures, and to add appropriate references to the Gold 
Addendum in the term Clearing Membership Agreement and other relevant 
terms.
    A clarifying amendment would be made to Rule 502 (Margin) to state 
that Permitted Cover is required to be transferred in accordance with 
the Finance Procedures and would only be recognized by the Clearing 
House at or after the times stated in the Finance Procedures (in order 
to ensure the Rules are consistent with the Finance Procedures). A 
conforming amendment would be made to Rule 503(k) (Margin Calls and 
Return of Surplus Collateral) to provide that each Permitted Cover 
report would include details of other asset classes (in addition to 
securities) provided as margin. As amended, the report would thus 
reflect Emissions Allowances transferred as margin.
    The settlement finality provisions in Part 12 of the Rules would be 
amended to address various matters relating to Emissions Allowances as 
Permitted Cover. In Rule 1201, definitions of ``Emission Allowance 
Collateral'' (defined as Permitted Cover in the form of an Emission 
Allowance) and a reference to Emission Allowance Collateral Transfer 
Order would be added. Rule 1202(b) (Transfer Orders Arising) would be 
updated to add a concept of Emission Allowance Collateral Transfer 
Order, which would arise from a request accepted by the Clearing House 
to transfer Emission Allowance Collateral to or from the Clearing 
House. The amendments also

[[Page 68527]]

specify in Rule 1202(g) that each Emission Allowance Collateral 
Transfer Order is to apply and have effect in respect of the Emission 
Allowance to be transferred to (or to the order of) the Clearing House 
or Clearing Member, in a manner similar to the treatment of Collateral 
Transfer Orders for other types of non-cash Permitted Cover.
    Rule 1202(m) is similarly being amended to add a new clause (vii) 
to address the parties as to which an Emissions Allowance Collateral 
Transfer Order would have effect, including the relevant Clearing 
Member, the Clearing House, the Emissions Registry and any relevant SFD 
Custodian. Subsequent clauses of Rule 1202(m) would be renumbered. In 
Rule 1202(m)(vi)(A), a clarification would be made to state that for a 
Collateral Transfer Order, the relevant parties would include a 
Clearing Member that is the transferee of the relevant Non-Cash 
Collateral. This change does not represent a change in current 
practice.
    Rule 1203(f) (Transfer Orders Becoming Irrevocable) would be 
updated to clarify that the time at which a Collateral Transfer Order 
to a Clearing Member becomes irrevocable (which was previously 
omitted). The change does not represent a change in current practice.
    Rule 1203(g) would be amended to state when an Emission Allowance 
Collateral Transfer Order for transfer to each of the Clearing House 
and the Clearing Member would become irrevocable. In respect of an 
Emission Allowance Collateral Transfer Order for transfer to the 
Clearing House, such order would become irrevocable at the earlier of 
the time when: (i) the Clearing House accepts in accordance with the 
Finance Procedures the relevant transfer request submitted by the 
Clearing Member; (ii) the Clearing House receives the Emission 
Allowance into its account at the Emissions Registry; (iii) any related 
order becomes irrevocable within that other designated system or 
Emissions Registry; or (iv) the record of the Emissions Registry 
becomes conclusive evidence of the Clearing House's title to the 
relevant Emission Allowance under applicable law. In respect of an 
Emission Allowance Collateral Transfer Order for transfer to the 
Clearing Member, such order would become irrevocable when the Clearing 
Member receives the Emission Allowance in circumstances in which the 
record of the Emissions Registry becomes conclusive evidence of the 
Clearing Member's title to that Emission Allowance under applicable 
law.
    Amendments to Rule 1203(l) would clarify that Emission Allowance 
Delivery Orders (which relate to transfer of Emission Allowances for 
settlement, rather than as Permitted Cover) for transfer to the 
Clearing House become irrevocable when the record of the Emissions 
Registry becomes conclusive evidence of the Clearing House's title to 
the relevant Emission Allowance under applicable law. Emission 
Allowance Delivery Orders for transfer to the Clearing Member would 
become irrevocable when the Clearing Member receives the Emission 
Allowance in circumstances in which the record of the Emissions 
Registry becomes conclusive evidence of the Clearing Member's title to 
that Emission Allowance under applicable law.
    The amendments would include an update to Rule 1204(i) (Variations 
to or Cancellation of Transfer Orders) to provide that in addition to 
Emission Allowance Delivery Orders, Emission Allowance Collateral 
Transfer Orders would be cancelled immediately and automatically if, 
prior to become irrevocable, an Emissions Registry that is used by the 
Clearing House or Clearing Member becomes subject to Insolvency or 
otherwise permanently ceases operations. Rule 1205(c) (Termination of 
Transfer Orders) would be amended to provide that Emission Allowance 
Collateral Transfer Orders made to the Clearing House would be 
satisfied in the same manner as Collateral Transfer Orders. The 
amendments would also add a clarification to address satisfaction of 
Collateral Transfer Orders made to the Clearing Member (which was 
previously omitted and would not result in a change in practice). The 
amendments would also provide that Emission Allowance Collateral 
Transfer Orders to Clearing Members would be satisfied in the same 
manner. Non-substantive updates would be made to the numbering and 
section references in the Rules to account for the inclusion of the 
amendments.
Collateral and Haircut Policy
    Related amendments would be made to the Collateral and Haircut 
Policy to provide that ICE Clear Europe may accept the underlier of a 
given futures or options contract as Permitted Cover to cover the 
margin requirement for positions in that contract. The amendment thus 
address acceptance of Emission Allowances as cover for margin 
requirements for related F&O Contracts. Eligibility criteria for the 
underlier, its haircuts and limits would take into account the credit 
market and liquidity risk of the underlying asset. Clarifications would 
be made to headings and section references to distinguish such margin 
cover from other types of Permitted Cover.
Collateral and Haircut Procedures
    Corresponding changes relating to the use of the underlier as 
margin cover would be made to the Collateral and Haircut Procedures. 
The updates in the Collateral and Haircut Procedures would further 
provide the eligibility criteria that margin cover assets must meet as 
follows: (i) such assets are sufficiently liquid, (ii) the market for 
such assets must have sufficient price history to permit the Clearing 
House to analyze the statistical returns of the assets, (iii) the 
assets must be capable of daily revaluation, (iv) the Clearing House 
must be capable of managing the assets operationally, and (v) the 
assets must be an Eligible Currency (as set out in the Rules).
    The amendments would provide that the Clearing House would 
typically use market pricing convention to determine the margin cover 
value calculation as follows: Cover Value = Nominal * Price * (1-
Haircut). The amendments would also provide that relative limits for 
the use of margin cover would be established to provide that the 
Clearing Member has a balance between the margin cover and other 
acceptable collateral based on a qualitative assessment of the 
different types of margin cover and collateral.
(b) Statutory Basis
    ICE Clear Europe believes that proposed amendments are consistent 
with the requirements of Section 17A of the Act \5\ and the regulations 
thereunder applicable to it. In particular, Section 17A(b)(3)(F) of the 
Act \6\ requires, among other things, that the rules of a clearing 
agency be designed to promote the prompt and accurate clearance and 
settlement of securities transactions and, to the extent applicable, 
derivative agreements, contracts, and transactions, the safeguarding of 
securities and funds in the custody or control of the clearing agency 
or for which it is responsible, and the protection of investors and the 
public interest.
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    \5\ 15 U.S.C. 78q-1.
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    The amendments to the Documents are intended to permit the Clearing 
House to accept Emissions Allowances as Permitted Cover for F&O 
Contracts for which they are the underlier. The amendments set out the 
procedures for accepting such Permitted Cover and for the transfer of 
such assets to and from the Clearing House using the facilities of the 
relevant Emissions Register. The amendments also establish parameters,

[[Page 68528]]

eligibility criteria, rules and requirements (as applicable) applicable 
to the acceptance of such assets by the Clearing House as Permitted 
Cover. ICE Clear Europe believes Emissions Allowances are an 
appropriate form of Permitted Cover with respect to meeting the margin 
obligations for these related F&O Contracts and would thereby 
facilitate its ability to meet its obligations to Clearing Members in 
the event of a default by a Clearing Member. In ICE Clear Europe's 
view, the amendments hereby promote the efficient operation and 
stability of the Clearing House and the prompt and accurate clearance 
and settlement of cleared contracts. Such enhanced risk management is 
also generally consistent with the protection of investors and the 
public interest in the safe operation of the Clearing House. (ICE Clear 
Europe would not expect the adoption of the amendments to affect 
materially the safeguarding of securities and funds in ICE Clear 
Europe's custody or control or for which it is responsible.) 
Accordingly, the amendments to the Documents satisfy the requirements 
of Section 17A(b)(3)(F).\7\
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed amendments to each Document is also consistent with 
relevant provisions of Rule 17Ad-22. \8\ Rule 17Ad-22(e)(3)(i) provides 
that ``[e]ach covered clearing agency shall establish, implement, 
maintain and enforce written policies and procedures reasonable 
designed to, as applicable [. . .] identify, measure, monitor and 
manage the range of risks that arise in or are borne by the covered 
clearing agency''.\9\ For similar reasons, the amendments are intended 
to enhance the Clearing House's overall risk management through margin 
requirements for emissions F&O Contracts. ICE Clear Europe believes 
that acceptance of Emission Allowances as Permitted Cover is 
appropriate for these specific F&O Contracts for which the Emission 
Allowance is the underlier, in light of the specific characteristics 
and risks of these assets. In the context of these contracts, 
acceptance of the underlying allowances to cover margin would serve to 
reduce the risk to the Clearing House of a default by a Clearing Member 
with respect to such contracts. The amendments provide appropriate 
mechanisms for transfer of such assets to the account of the Clearing 
House as cover for margin, and provide for appropriate eligibility 
criteria, parameters and limits to provide further protection to the 
Clearing House. The amendments will not otherwise change the margin 
model for the relevant contracts or the amount of initial margin that 
is required. In ICE Clear Europe's view, as set out above, the 
amendments would thus facilitate overall risk management with respect 
to the expansion of assets eligible to accepted as Permitted Cover, 
consistent with the requirements of Rule 17Ad-22(e)(3)(i).\10\
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    \8\ 17 CFR 240.17 Ad-22.
    \9\ 17 CFR 240.17 Ad-22(e)(3)(i).
    \10\ 17 CFR 240.17 Ad-22(e)(3)(i).
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(B) Clearing Agency's Statement on Burden on Competition

    ICE Clear Europe does not believe the proposed amendments would 
have any impact, or impose any burden, on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The amendments 
are intended to permit the Clearing House to accept Emissions 
Allowances as Permitted Cover for F&O Contracts for which they are the 
underlier. The amendments set out the procedures for accepting such 
Permitted Cover and for the transfer of such assets to and from the 
Clearing House using the facilities of the relevant Emissions Register, 
as well as the parameters, eligibility criteria, rules and requirements 
(as applicable) applicable to the acceptance of such assets by the 
Clearing House as Permitted Cover. ICE Clear Europe does not believe 
that proposed amendments would adversely affect competition among 
Clearing Members, materially affect the costs of clearing, adversely 
the ability of market participants to access clearing or the market for 
clearing services generally, or otherwise adversely affect competition 
in clearing services. Therefore, ICE Clear Europe does not believe the 
proposed rule change imposes any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments relating to the proposed amendment has not been 
solicited or received by ICE Clear Europe. ICE Clear Europe will notify 
the Commission of any comments received with respect to the proposed 
rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \11\ and paragraph (f) of Rule 19b-4 \12\ 
thereunder. 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an email to [email protected]. Please include 
File Number SR-ICEEU-2022-020 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-ICEEU-2022-020. 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 such filings will also be available for inspection 
and copying at the principal office of ICE Clear Europe and on ICE 
Clear Europe's website at https://www.theice.com/clear-europe/regulation. All comments received will

[[Page 68529]]

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-ICEEU-2022-020 and should be submitted on or before December 6, 
2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-24766 Filed 11-14-22; 8:45 am]
BILLING CODE 8011-01-P


