Notice2023-03160
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Fees Schedule Concerning Membership Fees and Market Maker Appointment Fees
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Published
February 15, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 31 (Wednesday, February 15, 2023)</title>
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[Federal Register Volume 88, Number 31 (Wednesday, February 15, 2023)]
[Notices]
[Pages 9942-9945]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03160]
[[Page 9942]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96854; File No. SR-CboeEDGX-2023-006]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Exchange's Fees Schedule Concerning Membership Fees and
Market Maker Appointment Fees
February 9, 2023.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on January 27, 2023, Cboe EDGX Exchange, Inc. (the
``Exchange'' or ``EDGX'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
\3\ 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
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'')
proposes to amend its Fees Schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/options/regulation/rule_filings/edgx/">http://markets.cboe.com/us/options/regulation/rule_filings/edgx/</a>), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt new Membership fees.\4\ First, the
Exchange proposes to establish a monthly Participant Fee for Options
Members of the Exchange of $500. Additionally, EDGX Options Market
Makers would be assessed a Market Maker Participant Fee of $750 per
month (i.e., Market Makers would pay a monthly fee of $1,250). The
Participant Fees are non-refundable. If a firm becomes a Member during
a calendar month after the first trading day of the month, the
participant fee for the Member for that calendar month will be prorated
based on the remaining trading days in the calendar month.
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\4\ The Exchange initially filed the proposed fee changes on
January 3, 2023 (SR-CboeEDGX-2023-003). On January 27, 2023, the
Exchange withdrew that filing and submitted this proposal.
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The Exchange also proposes to adopt fees relating to Market Maker
appointments (set forth in the ``Market Maker Appointments Sliding
Scale'') which will be based on an Appointment Unit Tier schedule that
assigns an appointment weight to each class within a tier.
Particularly, EDGX Options Market Makers must select class appointments
in the classes they seek to make markets electronically.\5\ As
proposed, a Market Maker will be charged for one or more ``Appointment
Units'' (which will scale from 1 ``unit'' to more than 6 ``units''),
depending on which classes they select appointments in. All classes
will be placed within a specific tier according to trading volume
statistics (excluding the proposed AA Tier), and assigned an
``appointment weight'' depending upon its tier location as follows:
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\5\ See EDGX Options Rule 22.3(a).
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Appointment
Appointment unit tier Option class weight
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AA.......................... IWM.......................... .50
SPY.......................... .50
VXX.......................... .100
A *......................... Classes 1-60................. .100
B *......................... Classes 61-120............... .060
C *......................... Classes 121-345.............. .040
D *......................... Classes 346-570.............. .025
E *......................... Classes 571-999.............. .015
F *......................... All Remaining Classes........ .001
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* Excludes Tier AA.
The Exchange will rebalance the above tiers (excluding the ``AA''
tier above) once each calendar quarter, which may result in additions
or deletions to their composition and announces such rebalances
pursuant to Exchange Rule 16.3 at least 10 business days before the
rebalance takes effect. The proposed appointment unit tier assignment
and rebalances are based on national average daily volume. When a class
changes tiers, it will be assigned the appointment unit of that tier.
Appointment weights for each assigned class will be summed for each
Market Maker ID used to trade to obtain the total appointment units. If
the sum of appointments is a fractional amount, the total will be
rounded up to the next highest whole Appointment Unit. Total quantity
will be determined by the highest quantity used at any point during the
month. The following lists the proposed progressive monthly fees for
Appointment Units: \6\
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\6\ For example, if a Market Maker's total appointment units
amount to 2.5 units, the Market Maker will be assessed a total
monthly appointment fee of $850 (1 appointment unit at $0, 1
appointment unit at $500 and 1 appointment unit at $350).
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Monthly
Appointment units fee
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1............................................................ $0
2............................................................ 500
3-5.......................................................... 350
>6........................................................... 100
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\7\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \8\ requirements that the rules of an exchange be
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
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ Id.
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The Exchange believes that there is value in becoming a Member of
the Exchange and that the proposed Participant Fees are reasonable. The
[[Page 9943]]
proposed fees are also significantly lower than the membership fees
imposed by several other options exchanges that charge such fees.\10\
They are also comparable to fees assessed by the Exchange's affiliated
options exchange Cboe BZX Exchange, Inc. (``BZX Options'').\11\ Other
national securities exchanges also recently adopted participant fees
for their exchange members.\12\ The Exchange also historically has not,
currently does not, nor does it presently contemplate charging any
application fees for Membership nor so-called ``headcount fees,''
(e.g., fees charged for each Form U4 filed for registration of a
representative or a principal or the transfer or re-licensing of such
personnel,\13\) further highlighting the reasonableness of the proposed
Participant Fees. Furthermore, EDGX Options Members have not been
assessed any membership-related fees since the platform became
available over 7 years ago. Newly-opened exchanges often charge no fees
for certain services such as membership, in order to attract order flow
to an exchange, and later amend their fees for those services.\14\
Allowing newly-opened exchanges time to build and sustain market share
before charging non-transactional fees encourages market entry and
promotes competition.
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\10\ See e.g., PHLX Section 8A, Permit and Registration Fees,
which generally assesses monthly Permit Fees between $4,000 and
$6,000. See also, BOX Options Fee Schedule, Section IX Participant
Fees, which assesses non-Market Makers a Participant Fee of $1,500
per month and assesses Market Maker's Trading Permit fees between
$4,000 and $10,000 per month; NYSE American Options Fees Schedule,
Section III(A) Monthly ATP Fees and NYSE Arca Options Fees and
Charges, OTP Trading Participant Rights, which assesses a monthly
permit (``ATP'') fee of $1,000 for Clearing Members and Order Floor
Providers, and a monthly ATP fees up to $8,000 for Market-Makers;
and MIAX Options Fee Schedule, Section 3, Membership Fees, which
assesses an Electronic Exchange Members Trading Permit fee of $1,500
per month and a Market Maker Trading Permit Fee between $7,000 and
$22,000 per month.
\11\ See Cboe BZX Options Fee Schedule, Membership Fees, which
assesses BZX Options Members a monthly fee between $500 and $1,000.
\12\ See e.g., Securities Exchange Act Release No. 93927
(January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19)
(introduction of membership fees by MEMX). See also Securities
Exchange Act Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17,
2022) (SR-BOX-2022-17).
\13\ See, e.g., ``NASDAQ Membership Fees,'' ($55 for each Form
U-4 filed for the registration of a Representative or Principal, and
$55 for each Form U-4 filed for the transfer or re-licensing of a
Representative or Principal).
\14\ See e.g., Securities Exchange Act Release No. 93927
(January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19)
(introduction of membership fees by MEMX).
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The Exchange believes that the proposed Participant Fees are not
unfairly discriminatory because it would be assessed uniformly across
all Members or firms that seek to become Members. Additionally, the
Exchange believes that the proposed fees are not unfairly
discriminatory because no broker-dealer is required to become a Member
of the Exchange. There is also no regulatory requirement that Market
Makers connect and access any one options exchange or that any market
participant connect to any one particular options exchange. Moreover, a
Market Maker membership is not a requirement to participate on the
Exchange and participation on an exchange in any capacity is completely
voluntary. Indeed, while the Exchange currently has 51 members that
trade options, Cboe BZX has 63 members that trade options, Cboe Options
has 98 Trading Permit Holders (``TPHs'') (i.e., members) and Cboe C2
has 52 TPHs. There is also no firm that is a Member of EDGX Options
only. Further, based on publicly available information regarding a
sample of the Exchange's competitors, NYSE American Options has 73
members,\15\ and NYSE Arca Options has 67 members,\16\ MIAX Options has
44 members \17\ and MIAX Pearl Options has 41 members.\18\ BOX
Exchange, Inc. (``BOX'') noted in a recent rule change to adopt
Electronic Market Maker Trading Permit Fees that it reviewed membership
details at three options exchanges and found that there are 62 market
making firms across those three exchanges.\19\ Particularly, BOX found
that 42 of the 62 market making firms access only one of the three
exchanges. BOX additionally identified numerous market makers that are
members of other options exchanges, but not BOX.
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\15\ See <a href="https://www.nyse.com/markets/american-options/membership#directory">https://www.nyse.com/markets/american-options/membership#directory</a>.
\16\ See <a href="https://www.nyse.com/markets/arca-options/membership#directory">https://www.nyse.com/markets/arca-options/membership#directory</a>.
\17\ See <a href="https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_12222021.pdf">https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_12222021.pdf</a>.
\18\ See <a href="https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Pearl_Options_Exchange_Members_12012021.pdf">https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Pearl_Options_Exchange_Members_12012021.pdf</a>.
\19\ See Securities and Exchange Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17).
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Accordingly, the vigorous competition among national securities
exchanges provides many alternatives for firms to voluntarily decide
whether membership to the Exchange is appropriate and worthwhile, and
as noted above, no broker-dealer is required to become a Member of the
Exchange. Indeed, there are currently 15 other registered options
exchanges that trade options and one additional options exchange
expected to launch in 2023. Further, low barriers to entry mean that
new exchanges may rapidly and inexpensively enter the market and offer
additional substitute platforms to further compete with the Exchange
and the products it offers. For example, there are 3 exchanges that
have been added in the U.S. options markets in the last 5 years (i.e.,
Nasdaq MRX, LLC, MIAX Pearl, LLC, and MIAX Emerald LLC) and one
additional options exchange that is expected to launch in 2023 (i.e.,
MEMX LLC). Notwithstanding the foregoing, the Exchange still believes
that the proposed fee of $500 as a monthly Participant Fee, and
additional fee of $750 for Market Makers is reasonable, equitably
allocated and not unfairly discriminatory, even for a broker-dealer
that determines it should join the Exchange for business purposes, as
those business reasons should presumably result in revenue capable of
covering the proposed fee.
The Exchange believes its proposed Market Maker Appointments
Sliding Scale fees are also reasonable as its affiliated exchange, Cboe
Exchange, Inc. (``Cboe Options''), offers the same structure with
respect to fees for appointment classes and as the proposed fees are
significantly lower than the Cboe Options fees that were adopted
recently in 2020.\20\ The Exchange believes the proposed tier
compositions, corresponding appointment weights and rebalance process
are also reasonable as they are the same as they are for Cboe Options.
In addition, other exchanges offer a similar structure with respect to
assessing Market-Maker fees based on appointment classes and the
proposed fees are again significantly lower than such fees, including
the fees just recently adopted by BOX.\21\
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\20\ See Securities Exchange Act Release No. 90333 (November 4,
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105). See also
Cboe Options Fees Schedule, Market-Maker EAP Appointments Sliding
Scale, which assesses fees between $3,100 to $6,000 per appointment
unit versus the proposed Market Maker Appointments Sliding Scale
which assesses significantly lower rates between $100 to $500 per
appointment unit.
\21\ See e.g., NYSE Arca, Inc. (``NYSEArca'') Fee Schedule,
which assesses Market Makers $6,000 for up to 175 option issues, an
additional $5,000 for up to 350 option issues, an additional $4,000
for up to 1,000 option issues, and an additional $3,000 for all
option issues traded on the Exchange. See also Miami International
Securities Exchange, LLC (``MIAX'') Fee Schedule Fee, which assesses
Market Makers $7,000 for up to 10 classes or up to 20% of classes by
volume, $12,000 for up to 40 classes or up to 35% of classes by
volume, $17,000 for up to 100 classes or up to 50% or classes by
volume, and $22,000 for over 100 classes or over 50% of classes by
volume up to all classes listed on MIAX. See Securities and Exchange
Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 2022) (SR-
BOX-2022-17) and BOX Exchange Fees Schedule, Section 1. Participant
Fees, which assesses Market Makers $4,000 for up to 10 option
classes, $6,000 for up to 40 classes, $8,000 for up to 100 classes
and $10,000 for over 100 classes. By comparison, the Exchange
anticipates that EDGX Options Market Makers on average would need
approximately 9.5 Appointment Units, costing $2,050 per month for
appointment fees.
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[[Page 9944]]
Moreover, as discussed above, there is no regulatory requirement
that any market participant, including Market Makers, connect to any
one particular options exchange. This is evidenced by the fact that no
firm is an EDGX Options only member and further illustrated by the
analysis described above by BOX in which it found 42 of 62 market
making firms across three exchanges access only one of those three
exchanges. Also as noted, a Market Maker membership is not a
requirement to participate on the Exchange and participation on an
exchange in any capacity is completely voluntary. Accordingly, Market
Makers choose if and how to access a particular exchange and because it
is a choice; if a Market Maker deems a particular exchange as charging
excessive fees to participate, such Market Maker may not connect, and
existing Market Makers would disconnect from the Exchange.
The Exchange believes the proposed Market Maker Appointments
Sliding Scale fees are equitable and not unfairly discriminatory
because they will apply uniformly to all Market Makers, and all
similarly situated Market Makers (i.e., those with same number of
Appointment Units), will be subject to the same fee. The Exchange also
believes that assessing Market Makers that quote in fewer classes lower
total fees is reasonable and appropriate as it will allow the Exchange
to retain and attract smaller-scale Market Makers, which are an
integral component of the options industry marketplace. The Exchange
believes it's equitable and not unfairly discriminatory to assess
higher fees for Market Makers that have a higher number of class
appointments since they are likely to utilize more bandwidth and
capacity on the Exchange's network. The Exchange also notes that other
options exchanges assess fees at different rates based upon a member's
participation on that exchange, and, as such, this concept is not new
or novel.\22\ The Exchange lastly believes that the proposed Market
Maker Participant and Market Maker Appointments Sliding Scale fees are
equitable and not unfairly discriminatory because Market Makers
generally consume the most bandwidth and resources of the Exchange's
network. As such, the Exchange believes it's equitable and not unfairly
discriminatory to assess Market Makers an additional Participant Fee
and Market Maker Appointments Sliding Scale fees.
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\22\ Id.
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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 proposed fee change will
not impact intramarket competition because it will apply to all
similarly situated Members equally. The Exchange also believes that the
proposed Market Maker Participant and Market Maker Appointments Sliding
Scale fees do not place certain market participants at a relative
disadvantage to other market participants because the proposed fees do
not favor certain categories of market participants in a manner that
would impose a burden on competition; rather, the fee rates are
designed in order to provide objective criteria for Market Makers of
different sizes and business models that best matches their quoting
activity on the Exchange. Further, as noted above, Market Makers
generally consume the most bandwidth and resources of the network.
The Exchange's proposed Participant Fees, including the Market
Maker Participant Fee, will be lower than the cost of membership on
other exchanges as described in detail above and therefore, may
stimulate intermarket competition by attracting additional firms to
become Members on the Exchange or at least should not deter interested
participants from joining the Exchange. In addition, as discussed in
the statutory basis section above, participant fees are subject to
competition from other exchanges. Accordingly, if the changes proposed
herein are unattractive to market participants, the Exchange can, and
likely will, see a decline in membership as a result. The Exchange
operates in a highly competitive market in which market participants
can determine whether or not to join the Exchange based on the value
received compared to the cost of joining and maintaining membership on
the Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \23\ of the Act and subparagraph (f)(2) of Rule
19b-4 \24\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 15 U.S.C. 78s(b)(2)(B).
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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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c1b3b4ada4eca2aeacaca4afb5b281b2a4a2efa6aeb7"><span class="__cf_email__" data-cfemail="2a585f464f07494547474f445e596a594f49044d455c">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2023-006 on the subject line.
Paper Comments
<bullet> 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-CboeEDGX-2023-006. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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
[[Page 9945]]
proposed rule change between the Commission and any person, other than
those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CboeEDGX-2023-006, and
should be submitted on or before March 8, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03160 Filed 2-14-23; 8:45 am]
BILLING CODE 8011-01-P
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