RBC Capital Markets® |
Filed Pursuant to Rule 433
Registration Statement No. 333-227001
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The information in this preliminary terms supplement is not complete and may be changed.
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Preliminary Terms Supplement
Subject to Completion:
Dated February 6, 2019
Pricing Supplement Dated February ___, 2019 to the
Product Prospectus Supplement ERN-EI-1, Prospectus Supplement and Prospectus, Each Dated September 7,
2018
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$_________
Bearish Digital Buffered Notes Linked to the S&P
500® Index, due April 12, 2021 Royal Bank of Canada
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Per Note
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Total
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Price to public(1)
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100.00%
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$
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Underwriting discounts and commissions(1)
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0.50%
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$
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Proceeds to Royal Bank of Canada
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99.50%
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$
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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Issuer:
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Royal Bank of Canada (“Royal Bank”)
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Underwriter:
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RBC Capital Markets, LLC (“RBCCM”)
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Reference Asset:
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S&P 500® Index (“SPX”)
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Bloomberg Ticker:
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SPX
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Currency:
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U.S. Dollars
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Minimum Investment:
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$1,000 and minimum denominations of $1,000 in excess thereof
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Trade Date (Pricing
Date):
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February 7, 2019
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Issue Date:
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February 12, 2019
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CUSIP:
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78013XZC5
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Valuation Date:
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April 7, 2021
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Maturity Date:
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April 12, 2021, subject to extension for market and other disruptions, as described in the product prospectus supplement dated September 7, 2018.
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Payment at Maturity (if
held to maturity):
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1. If the Percentage Change is zero or negative, you will receive, for each $1,000 in principal amount of the Notes, the Digital Payment.
2. If the Percentage Change is positive, but is less than or equal to 20%, you will receive the principal amount of the Notes.
3. If the Percentage Change is greater than 20%, you will receive, for each $1,000 in principal amount of the Notes, an amount calculated as follows:
$1,000 + [$1,000 x [(-1 x Percentage Change) + Buffer Amount]]
However, the amount payable at maturity will not be less than $200 for each $1,000 in principal amount of the Notes. If the Final Level is greater than the Initial Level by more than 20%, you could lose up to 80% of the Principal Amount.
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Percentage Change:
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The Percentage Change, expressed as a percentage, is calculated using the following formula:
Final Level- Initial Level
Initial Level
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Initial Level:
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The closing level of the Reference Asset on the Trade Date.
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Final Level:
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The closing level of the Reference Asset on the Valuation Date.
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Digital Payment:
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$1,200 for each $1,000 in principal amount of the Notes.
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Buffer Amount:
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20%
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Calculation Agent:
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RBCCM
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P-2
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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U.S. Tax Treatment:
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By purchasing a Note, each holder agrees (in the absence of a change in law, an administrative determination or a judicial ruling to the contrary) to treat the
Notes as a pre-paid cash-settled derivative contract for U.S. federal income tax purposes. However, the U.S. federal income tax consequences of your investment in the Notes are uncertain and the Internal Revenue Service could assert that
the Notes should be taxed in a manner that is different from that described in the preceding sentence. Please see the section below, “Supplemental Discussion of U.S. Federal Income Tax Consequences,” and the discussion (including the
opinion of our counsel Morrison & Foerster LLP) in the product prospectus supplement dated September 7, 2018 under “Supplemental Discussion of U.S. Federal Income Tax Consequences,” which apply to the Notes.
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Secondary Market:
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RBCCM (or one of its affiliates), though not obligated to do so, may maintain a secondary market in the Notes after the Issue Date. The amount that you may receive upon sale of your Notes prior to maturity may be less than the principal amount of your Notes.
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Listing:
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The Notes will not be listed on any securities exchange.
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Clearance and
Settlement:
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DTC global (including through its indirect participants Euroclear and Clearstream, Luxembourg as described under “Description of Debt Securities — Ownership and
Book-Entry Issuance” in the prospectus dated September 7, 2018).
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Terms Incorporated in
the Master Note:
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All of the terms appearing above the item captioned “Secondary Market” on pages P-2 and P-3 of this terms supplement and the terms appearing under the caption
“General Terms of the Notes” in the product prospectus supplement dated September 7, 2018, as modified by this terms supplement.
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P-3
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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P-4
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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Example 1 —
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Calculation of the payment at maturity where the Percentage Change is negative.
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Percentage Change:
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-10%
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Payment at Maturity:
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In this case, you will receive the Digital Payment.
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In this case, on a $1,000 investment, a -10% Percentage Change results in a payment at maturity of $1,200, a 20% return on the Notes. You will receive a fixed
positive return on the Notes, even though the Percentage Change is negative.
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Example 2 —
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Calculation of the payment at maturity where the Percentage Change is positive, but does not exceed 20%.
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Percentage Change: 5%
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Payment at Maturity: In this case, you will receive the principal amount.
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In this case, on a $1,000 investment, a 5% Percentage Change results in a payment at maturity of $1,000, a 0% return on the Notes. You will not receive any
positive return on the Notes, even though the Percentage Change is positive.
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Example 3 —
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Calculation of the payment at maturity where the Percentage Change is greater than 20%.
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Percentage Change: 30%
Payment at Maturity: In this case, you will receive $900, calculated as follows:
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$1,000 + [$1,000 x [(-1 x Percentage Change) + Buffer Amount]]
$1,000 + [$1,000 x [(-1 x 30%) + 20%]]
$1,000 + [$1,000 x -10%]
$1,000 + -$100 = $900
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In this case, on a $1,000 investment, a Percentage Change of 30% results in a payment at maturity of $900 a 10% loss on the Notes. If the Percentage Change is positive, you could lose up to 80% of the principal amount of the Notes.
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Example 4 —
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Calculation of the payment at maturity where the Percentage Change is greater than 20%, resulting in the maximum loss on the Notes.
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Percentage Change: 150%
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Payment at Maturity: In this case, you will receive $200.
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In this case, since the amount calculated using the formula set forth above would result in an amount due at maturity of less than $200, the payment at maturity
is $200, representing a loss of 80% of the principal amount.
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P-5
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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Principal at Risk if the Level of the
Reference Asset Increases – Investors in the Notes could lose a substantial portion of their principal amount if the level of the Reference Asset increases by more than 20%. If the Final Level exceeds the Initial Level by
more than 20%, you will lose 1% of the principal amount for each 1% that the Percentage Change exceeds 20%, up to a maximum loss of 80% of the principal amount.
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Any Positive Return on the Notes at Maturity Is Limited – Even if the level of the Reference Asset
decreases, the return on the Notes is limited to the return represented by the Digital Payment. Even if the Final Level is more than 20% less than the Initial Level, your maximum return on the Notes will be only 20%. The Notes are not
designed for investors who seek an investment linked to the full negative performance of the Reference Asset.
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The Notes Do Not Pay Interest and Your Return May Be Lower than the Return on a Conventional Debt Security of
Comparable Maturity – There will be no periodic interest payments on the Notes as there would be on a conventional fixed-rate or floating-rate debt security having the same maturity. The return that you will receive on the
Notes, which could be zero, may be less than the return you could earn on other investments. Your return may be less than the return you would earn if you bought a conventional senior interest bearing debt security of Royal Bank. As a
result, your investment in the Notes may not reflect the full opportunity cost to you when you consider factors, such as inflation, that affect the time value of money.
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Payments on the Notes Are Subject to Our Credit Risk, and Changes in Our Credit Ratings Are Expected to Affect the
Market Value of the Notes – The Notes are Royal Bank’s senior unsecured debt securities. As a result, your receipt of the amount due on the maturity date is dependent upon Royal Bank’s ability to repay its obligations at that
time. This will be the case even if the level of the Reference Asset increases after the Trade Date. No assurance can be given as to what our financial condition will be at the maturity of the Notes.
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There May Not Be an Active Trading Market for the Notes—Sales in the Secondary Market May Result in Significant
Losses – There may be little or no secondary market for the Notes. The Notes will not be listed on any securities exchange. RBCCM and other affiliates of Royal Bank may make a market for the Notes; however, they are not
required to do so. RBCCM or any other affiliate of Royal Bank may stop any market-making activities at any time. Even if a secondary market for the Notes develops, it may not provide significant liquidity or trade at prices advantageous
to you. We expect that transaction costs in any secondary market would be high. As a result, the difference between bid and asked prices for your Notes in any secondary market could be substantial. The stated payment by Royal Bank,
including the potential repayment of principal, only applies if you hold the Notes to maturity. Sales prior to maturity could result in a loss on your investment.
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You Will Not Have Any Rights to the Securities Included in the Reference Asset – As a holder of the Notes,
you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of securities included in the Reference Asset would have.
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The Initial Estimated Value of the Notes Will Be Less than the Price to the Public – The initial estimated
value set forth on the cover page and that will be set forth in the final pricing supplement for the Notes does not represent a minimum price at which we, RBCCM or any of our affiliates would be willing to purchase the Notes in any
secondary market (if any exists) at any time. If you attempt to sell the Notes prior to maturity, their market value may be lower than the price you paid for them and the initial estimated value. This is due to, among other things,
changes in the level of the Reference Asset, the borrowing rate we pay to issue securities of this kind, and the inclusion in the price to the public of the underwriting discount and the estimated costs relating to our hedging of the
Notes. These factors, together with various credit, market and economic factors over the term of the Notes, are expected to reduce the price at which you may be able to sell the Notes in any secondary market and will affect the value of
the Notes in complex and unpredictable ways. Assuming no change in market conditions or any other relevant factors, the price, if any, at which you may be able to sell your Notes prior to maturity may be less than your original purchase
price, as any such sale price would not be expected to include the underwriting
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P-6
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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The Initial Estimated Value of the Notes on the Cover Page and that We Will Provide in the Final Pricing
Supplement Are Estimates Only, Calculated as of the Time the Terms of the Notes Are Set – The initial estimated value of the Notes will be based on the value of our obligation to make the payments on the Notes, together with
the mid-market value of the derivative embedded in the terms of the Notes. See “Structuring the Notes” below. Our estimates are based on a variety of assumptions, including our credit spreads, expectations as to dividends, interest
rates and volatility, and the expected term of the Notes. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the Notes or similar securities at a price that is
significantly different than we do.
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Inconsistent Research – Royal Bank or its affiliates may issue research reports on securities that are, or
may become, components of the Reference Asset. We may also publish research from time to time on financial markets and other matters that may influence the levels of the Reference Asset or the value of the Notes, or express opinions or
provide recommendations that may be inconsistent with the purchasing or holding the Notes or with the investment view implicit in the Notes or the Reference Asset. You should make your own independent investigation of the merits of
investing in the Notes and the Reference Asset.
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Market Disruption Events and Adjustments – The payment at maturity and the Valuation Date are subject to
adjustment as described in the product prospectus supplement. For a description of what constitutes a market disruption event as well as the consequences of that market disruption event, see “General Terms of the Notes—Market Disruption
Events” in the product prospectus supplement.
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P-7
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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P-8
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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P-9
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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P-10
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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P-11
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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P-12
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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P-13
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RBC Capital Markets, LLC
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Bearish Digital Buffered Notes Linked to the
S&P 500® Index
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P-14
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RBC Capital Markets, LLC
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