[Federal Register Volume 85, Number 55 (Friday, March 20, 2020)]
[Notices]
[Pages 16163-16166]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05850]
[[Page 16163]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88389; File No. SR-NASDAQ-2019-089]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Amendment No. 1 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To
Amend Rule 5815 To Preclude Stay During Hearing Panel Review of Staff
Delisting Determinations in Certain Circumstances
March 16, 2020.
I. Introduction
On November 27, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend Nasdaq Rule 5815 regarding review of
Nasdaq Staff Delisting Determinations by Hearings Panels to preclude
the stay of trading of a Company's securities during the review period
in specified circumstances. The proposed rule change was published for
comment in the Federal Register on December 17, 2019.\3\ On January 30,
2020, pursuant to Section 19(b)(2) of the Act,\4\ the Commission
designated a longer period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to disapprove the proposed rule change.\5\ On
March 13, 2020, the Exchange filed Amendment No. 1 to the proposed rule
change, which superseded and replaced the proposed rule change in its
entirety.\6\ The Commission has received no comment letters on the
proposed rule change. The Commission is publishing notice of the filing
of Amendment No. 1 to solicit comment from interested persons, and is
approving the proposed rule change, as modified by Amendment No. 1, on
an accelerated basis.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 87716 (Dec. 11,
2019), 84 FR 69007 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 88090, 85 FR 6655
(Feb. 5, 2020). The Commission designated March 16, 2020, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ In Amendment No. 1, the Exchange removed a change proposed
in the original filing to remove a stay where a special purpose
acquisition company, or ``SPAC,'' does not satisfy the requirements
described in IM-5101-2 that the company must meet initial listing
requirements following the completion of a business combination with
an operating company. Nasdaq stated in Amendment No. 1 that it was
removing this portion of the proposed rule change while it re-
assesses the treatment of SPACs. Amendment No. 1 is available at:
https://www.sec.gov/comments/sr-nasdaq-2019-089/srnasdaq2019089-6951085-212268.pdf.
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II. Description of the Proposal, as Modified by Amendment No. 1
Pursuant to Nasdaq Rule 5815, when a Company \7\ receives a Staff
Delisting Determination \8\ it may request in writing that the Hearings
Panel \9\ review the matter in a written or an oral hearing. Under
existing rules, a timely request for a hearing ordinarily will stay the
suspension and delisting action pending the issuance of a written
decision from the Hearings Panel (``Panel Decision'').\10\
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\7\ The term ``Company'' means the issuer of a security listed
or applying to list on Nasdaq. See Nasdaq Rule 5005(a)(6).
\8\ A ``Staff Delisting Determination'' is a written
determination by the Listing Qualifications Department to delist a
listed Company's securities for failure to meet a continued listing
standard. See Nasdaq Rule 5805(h).
\9\ The ``Hearings Panel'' is an independent panel made up of at
least two persons who are not employees or otherwise affiliated with
Nasdaq or its affiliates, and who have been authorized by the Nasdaq
Board of Directors. See Nasdaq Rule 5805(d).
\10\ See Nasdaq Rule 5815(a)(1). In the case of a Staff
Delisting Determination related to the requirements to timely file
periodic reports with the Commission, the delisting action is only
stayed for 15 calendar days unless the Company specifically requests
and the Hearings Panel grants a further stay. See Nasdaq Rule
5815(a)(1)(B).
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The Exchange proposes to amend Nasdaq Rule 5815 to preclude the
stay of a Staff Delisting Determination during the Hearings Panel
review period in two specified circumstances. Under the proposal, a
timely request for a hearing will not stay the suspension of the
securities from trading pending the issuance of a written Panel
Decision when the Staff Delisting Determination is related to one of
the following deficiencies: (i) A Company whose application for initial
listing has not been approved prior to consummation of a transaction
whereby the Company combines with a non-Nasdaq entity, resulting in a
change of control of the Company and potentially allowing the non-
Nasdaq entity to obtain a Nasdaq listing, as described in Nasdaq Rule
5110(a) (such a Company is referred to herein as a ``Change of Control
Company''); \11\ or (ii) a Company that has filed for protection under
any provision of the federal bankruptcy laws, or comparable foreign
laws, or that has announced that liquidation has been authorized by its
board of directors and that it is committed to proceed, as described in
Nasdaq Rule 5110(b).\12\ In both of these situations, under the
proposal, the Company's securities will be suspended from trading on
the Exchange during the pendency of the Hearings Panel review and will
remain suspended unless the written Panel Decision issued after the
hearing determines to reinstate the trading of the securities.\13\ As
noted above, this would be in contrast to the application of the
current rules that ordinarily stays the suspension of securities during
the pendency of an appeal of a delisting determination to the Hearings
Panel.\14\
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\11\ Under Nasdaq Rule 5110(a) (Business Combinations with Non-
Nasdaq Entities Resulting in a Change of Control), a Company must
apply for initial listing in connection with a transaction whereby
the Company combines with a non-Nasdaq entity, resulting in a change
of control of the Company and potentially allowing the non-Nasdaq
entity to obtain a Nasdaq listing. If the Company's application for
initial listing has not been approved prior to consummation of the
transaction, Nasdaq will issue a Staff Delisting Determination. See
Nasdaq Rule 5110(a). See also Notice, supra note 3, 84 FR at 69008.
Nasdaq stated that a Company would only be subject to suspension
under the proposal if it does not contest the applicability of Rule
5110(a), or if the Hearings Panel has already concluded that the
rule is applicable, and if the Company does not satisfy the initial
inclusion requirements upon consummation of the transaction. See
Notice, supra note 3, 84 FR at 69008, n.9 (referencing Nasdaq FAQ
413, available at https://listingcenter.nasdaq.com/Material_Search.aspx?materials=413&mcd=LQ&criteria=2.)
\12\ See proposed Nasdaq Rule 5815(a)(1)(B)(ii). Under Nasdaq
Rule 5110(b) (Bankruptcy and Liquidation), Nasdaq staff may use its
discretionary authority under the Rule 5100 Series to suspend or
terminate the listing of a Company that has filed for protection
under any provision of the federal bankruptcy laws or comparable
foreign laws, or has announced that liquidation has been authorized
by its board of directors and that it is committed to proceed, even
though the Company's securities otherwise meet all enumerated
criteria for continued listing on Nasdaq. See Nasdaq Rule 5110(b).
See also Notice, supra note 3, 84 FR at 69009.
\13\ See proposed Nasdaq Rule 5815(a)(1)(B)(ii). The Exchange
also proposes to make non-substantive conforming changes to Nasdaq
Rule 5815(a)(1)(A) and (B). See proposed Nasdaq Rule 5815(a)(1)(A)
and (B).
\14\ See supra note 10 and accompanying text.
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The Exchange stated, among other things, in support of its proposal
to eliminate the stay upon appeal for change of control situations that
it believes because the Company is a new business entity that must meet
initial listing standards it should not be traded during appeal since
the new Company never established compliance with listing standards and
that such trading could then mislead the investing public.\15\ As to
Companies in bankruptcy or liquidation, the Exchange noted, among other
things, that it believed continued trading during a delisting review by
the Hearings Panel could expose shareholders to increased
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risks due to the limited information during bankruptcy proceedings and
the uncertainty of outcomes.\16\
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\15\ See Notice, supra note 3, 84 FR at 69008.
\16\ See id.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\17\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\18\
which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, 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. In addition, the Commission finds
that the proposed rule change, as modified by Amendment No. 1, is
consistent with Section 6(b)(7) of the Act,\19\ which requires, among
other things, that the rules of a national securities exchange provide
a fair procedure for the prohibition or limitation by the exchange of
any person with respect to access to services offered by the exchange.
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\17\ 15 U.S.C. 78f(b). In approving this proposed rule change,
as modified by Amendment No. 1, the Commission has considered the
proposed rule change's impact on efficiency, competition, and
capital formation. See 15 U.S.C. 78c(f).
\18\ 15 U.S.C. 78f(b)(5).
\19\ 15 U.S.C. 78f(b)(7).
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Nasdaq has proposed to eliminate the stay of suspension from
trading of a Company's securities, upon appeal of a Staff Delisting
Determination, during the pendency of the Hearings Panel's review where
the Staff Delisting Determination is related to the following
deficiencies: (i) A Change of Control Company whose application for
initial listing was not approved prior to consummation of the change-
of-control transaction; or (ii) a Company undergoing bankruptcy or
liquidation. As a result, even if appealed, Companies issued Staff
Delisting Determinations related to such deficiencies will have their
securities immediately suspended from trading unless and until the
Hearings Panel issues a decision that reinstates the securities.
With respect to the proposed removal of the stay during the
pendency of the Hearings Panel's review upon appeal of a Nasdaq staff
determination to delist a Change of Control Company that did not have
its initial listing approved prior to consummation of the relevant
transaction, the Commission believes immediate suspension of trading in
such circumstances is appropriate and consistent with the Act. A Change
of Control Company following the change of control transaction with a
non-Nasdaq entity is a new business entity and, as a result, is
required by Nasdaq's rules to demonstrate compliance with the
Exchange's initial listing standards.\20\ The Commission believes, as
the Exchange has also stated, that permitting such companies to trade
on the Exchange during the pendency of the Hearings Panel review
without having demonstrated compliance with the Exchange's initial
listing standards, as is the case under the current rule, may be
misleading to investors, because it gives the appearance that the
Company has met the standards imposed by Nasdaq.
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\20\ See supra note 11.
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Nasdaq also noted in its proposal that the Change of Control
Company could use the benefits of its Nasdaq listing and continued
trading during the review process to achieve compliance with the
initial listing requirements it does not satisfy.\21\ The Commission
also believes that investor protection issues are raised if such a
Company can use the continued listing and trading of its securities on
the Exchange during the pendency of the hearing review process to try
to achieve compliance with initial listing requirements that it has not
met, even though the new Company never qualified initially for trading
in the first instance like any new listing applicant is required to
do.\22\ While Nasdaq stated in its proposal that newly listing
Companies must demonstrate compliance with all initial listing
requirements before they are listed,\23\ Nasdaq further noted that the
Change of Control Companies covered by the proposed rule change are
effectively new entities but have not completed the standard vetting
process conducted by the Exchange of all new listed companies and
demonstrated compliance with initial listing requirements.\24\
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\21\ See Notice, supra note 3, 84 FR at 69008.
\22\ See Securities Exchange Act Release No. 82478 (Jan. 9,
2018) 83 FR 2278 (Jan. 16, 2018) (Nasdaq-2018-087) (Order
Instituting Proceedings Relating to Special Purpose Acquisition
Companies Listing Standards) (``The Commission notes that initial
listing standards, absent an explicit exception, apply upon initial
listing.'').
\23\ See Notice, supra note 3, 84 FR at 69008-09.
\24\ See id. at 69009 (``No company may trade on The Nasdaq
Stock Market until it demonstrates compliance with the listings
qualifications rules of the Exchange.''). The Commission notes that
the fair procedure requirements under Section 6(b)(7) of the Act are
consistent with, among other things, not automatically allowing a
Company that invokes the appeal process to continue to trade during
the appeal and gain the benefit of continued listing and trading
during the pendency of that process and, in effect, gain additional
time to achieve compliance with initial listing standards that the
Company has not (and has never) met. See also discussion, infra, on
Section 6(b)(7) under the Act.
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The Commission further believes that the Exchange's proposal to
remove the stay during the pendency of a Hearings Panel's review and
immediately suspend trading where Nasdaq Staff has determined to delist
a Company in bankruptcy or liquidation and the Company has appealed
that determination is consistent with the Act. In such situations, the
Company has acknowledged it is having insurmountable financial
difficulties and the Commission believes there are investor protection
concerns with allowing such securities to continue to trade during the
appeal process. For example, the Exchange stated that continued listing
of a Company's securities on the Exchange during the pendency of
bankruptcy proceedings exposes investors to increased risk due to the
uncertainty of the outcome and the limited information provided during
bankruptcy proceedings.\25\ In addition, the Exchange stated that, in
its experience with respect to bankrupt or liquidating Companies, there
is generally no residual equity for the current stockholders.\26\
Furthermore, the Commission believes that continued trading of the
Company's shares during the duration of the Hearings Panel's review
could be misleading to investors and, as Nasdaq stated, can create
confusion about the Company's ability to satisfy Nasdaq's initial
listing requirements upon emerging from bankruptcy as required under
Nasdaq Rule 5110(b). While a Company emerging from bankruptcy
protection may continue to be listed and traded on the Exchange if the
Company demonstrates compliance with the Exchange's initial listing
standards, Nasdaq represented that of 37 Staff Delisting Determinations
related to bankruptcy between 2016 and 2018, only one Company remained
listed and demonstrated compliance with the initial listing
requirements upon emerging from bankruptcy.\27\
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\25\ See Notice, supra note 3, 84 FR at 69009.
\26\ See id.
\27\ See id. at 69009, n.12.
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As the Commission has previously noted, the development and
enforcement of meaningful listing
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standards \28\ for an exchange is of substantial importance to
financial markets and the investing public. Among other things, listing
standards provide the means for an exchange to screen issuers that seek
to become listed, and to provide listed status only to those that are
bona fide companies that have or will have sufficient public float,
investor base, and trading interest likely to generate depth and
liquidity sufficient to promote fair and orderly markets. Meaningful
listing standards also are important given investor expectations
regarding the nature of securities that have achieved an exchange
listing, and the role of an exchange in overseeing its market and
assuring compliance with its listing standards.\29\ Allowing
essentially new Companies that have not demonstrated compliance with
the Exchange's initial listing standards to continue trading on the
Exchange during the pendency of the Hearings Panel's review of a Staff
Delisting Determination may be confusing to investors and raises
investor protection concerns.\30\ Similar investor protection concerns
are present with allowing Companies that have sought bankruptcy
protection or that have announced a liquidation to continue trading on
the Exchange during the pendency of the Hearings Panel's review.\31\
The Commission believes that Nasdaq's proposal will further the
purposes of Section 6(b)(5) of the Act by, among other things,
protecting investors and the public interest by preventing continued
trading on the Exchange in such a Company's securities unless and until
the Hearings Panel determines that continued trading on Nasdaq is
appropriate.
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\28\ The Commission notes that this reference to ``listing
standards'' is referring to both initial and continued listing
standards.
\29\ See, e.g., Securities Exchange Act Release Nos. 65708 (Nov.
8, 2011), 76 FR 70799 (Nov. 15, 2011) (SR-NASDAQ-2011-073) (order
approving a proposal to adopt additional listing requirements for
companies applying to list after consummation of a ``reverse
merger'' with a shell company), and 57785 (May 6, 2008), 73 FR 27597
(May 13, 2008) (SR-NYSE-2018-17) (order approving a proposal to
adopt new initial and continued listing standards to list securities
of special purpose acquisition companies). See also Securities
Exchange Act Release No. 81856 (October 11, 2017), 82 FR 48296,
48298 (Oct. 17, 2017) (SR-NYSE-2017-31) (stating that in addition,
once a security has been approved for initial listing, maintenance
criteria allow an exchange to monitor the status and trading
characteristics of that issue so that fair and orderly markets can
be maintained).
\30\ See In re Tassaway, Securities Exchange Act Release No.
11291, 45 SEC. 706, 709, 1975 SEC LEXIS 2057, at *6 (Mar. 13, 1975)
(``[P]rimary emphasis must be placed on the interests of prospective
future investors . . . [who are] entitled to assume that the
securities in [Nasdaq] meet [Nasdaq's] standards. Hence the presence
in [Nasdaq] of non-complying securities could have a serious
deceptive effect.''). See also In re Biorelease Corporation,
Securities Exchange Act Release No. 35575, 1995 SEC LEXIS 818, at
*13 (Apr. 6, 1995) (``[T]hough exclusion from the system may hurt
existing investors, primary emphasis must be placed on the interests
of prospective future investors. Prospective investors are entitled
to assume that the securities listed [on Nasdaq] meet the system's
listing standards.'').
\31\ See supra note 27 and accompanying text.
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The Commission further believes the proposed rule change is
consistent with Section 6(b)(7) of the Act in that it provides a fair
procedure for the prohibition or limitation by the Exchange of any
person with respect to access to services offered. The Commission notes
that pursuant to the proposal, a Company whose securities are suspended
pending its appeal would be given the same opportunity it currently has
to present its case to the Hearings Panel pursuant to current Nasdaq
rules. Further, a Company's shares will be suspended unless and until
the Hearings Panel issues a written decision determining that continued
trading on Nasdaq is appropriate. If the Panel Decision determines to
permit continued trading of the securities, the Company's shares can
then resume trading on the Exchange.\32\ The Commission believes that
limitations on trading of a Company's securities during the pendency of
the Hearings Panel's review is appropriate in the situations prescribed
by the proposed rule in light of the need to protect investors and the
public interest and that the Nasdaq's hearings review process will
continue, as it currently does, to provide a fair procedure for the
review of Staff Delisting Determinations in accordance with Section
6(b)(7) of the Act.\33\
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\32\ See Nasdaq Rule 5815. Should the Hearings Panel decide the
Company's securities should be delisted, the Company would be
afforded an appeal of the Panel Decision to the Listing Counsel as
would any listed company or new applicant denied listing. Id.
\33\ See also supra note 24.
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IV. Accelerated Approval of the Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
1 in the Federal Register. Amendment No. 1 removed a change proposed in
the original filing to remove a stay where a special purpose
acquisition company, or ``SPAC,'' does not satisfy the requirements
described in IM-5101-2 that the Company must meet initial listing
requirements following the completion of a business combination with an
operating company while Nasdaq reassesses the treatment of SPACs. The
amendment did not modify the remaining two circumstances in which the
Exchange has proposed to eliminate the stay of suspension from trading
of a Company's securities following receipt of a Staff Delisting
Determination during the pendency of the Hearings Panel's review--a
Change of Control Company whose application for initial listing was not
approved prior to consummation of the change-of-control transaction, or
a Company undergoing bankruptcy or liquidation. The Commission also
notes that these remaining aspects of the proposed rule change were
noticed for comment in the Federal Register and no comments were
received in response to that notice. The Commission has also found that
the proposal, as modified by Amendment No. 1, is consistent with the
Act for the reasons discussed herein. Accordingly, the Commission finds
good cause, pursuant to Section 19(b)(2) of the Act,\34\ to approve the
proposed rule change, as modified by Amendment No. 1, on an accelerated
basis.
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\34\ 15 U.S.C. 78s(b)(2).
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V. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 is consistent with the
Exchange 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-NASDAQ-2019-089 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-NASDAQ-2019-089. 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
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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 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-
NASDAQ-2019-089, and should be submitted on or before April 10, 2020.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\35\ that the proposed rule change (SR-NASDAQ-2019-089), as
modified by Amendment No. 1, be, and it hereby is, approved on an
accelerated basis.
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\35\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05850 Filed 3-19-20; 8:45 am]
BILLING CODE 8011-01-P