Notice2024-21763
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule
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Published
September 24, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 185 (Tuesday, September 24, 2024)</title>
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[Federal Register Volume 89, Number 185 (Tuesday, September 24, 2024)]
[Notices]
[Pages 77945-77949]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-21763]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101092; File No. SR-CBOE-2024-039]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Fees Schedule
September 18, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 3, 2024, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 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://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx">http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx</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.
[[Page 77946]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fees Schedule, effective
September 3, 2024.
The Exchange first notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of 17 options venues to which market participants
may direct their order flow. Based on publicly available information,
no single options exchange has more than 15% of the market share.\3\
Thus, in such a low-concentrated and highly competitive market, no
single options exchange possesses significant pricing power in the
execution of option order flow. The Exchange believes that the ever-
shifting market share among the exchanges from month to month
demonstrates that market participants can shift order flow or
discontinue to reduce use of certain categories of products in response
to fee changes. Accordingly, competitive forces constrain the
Exchange's transaction fees, and market participants can readily trade
on competing venues if they deem pricing levels at those other venues
to be more favorable. In response to competitive pricing, the Exchange,
like other options exchanges, offers rebates and assesses fees for
certain order types executed on or routed through the Exchange.
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\3\ See Cboe Global Markets U.S. Options Monthly Market Volume
Summary (August 29, 2024), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
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The Exchange currently offers a variety of auction mechanisms,
which provide price improvement opportunities for eligible orders,
whereby the eligible orders are electronically exposed for an Exchange-
determined period in accordance with the applicable Exchange Rule,
during which time Users may submit responses (collectively referred to
herein as ``auction responses'' or ``auction response messages'') to an
auction message.
For example, the Exchange offers Automated Improvement Mechanism
(``AIM''), which includes functionality in which a Trading Permit
Holder (``TPH'') (an ``Initiating TPH'') may electronically submit for
execution an order it represents as agent on behalf of a customer,
broker dealer, or any other person or entity (``Agency Order'') against
any other order it represents as agent, as well as against principal
interest in AIM only, (an ``Initiating Order'') provided it submits the
Agency Order for electronic execution into the AIM Auctions.\4\ Upon
commencement of an auction, market participants may submit responses
(``Responder'') to trade against the Agency Order. At the conclusion of
an auction, depending on the contra-side interest available, the
Initiating Order may be allocated a certain percentage of the Agency
Order. Other examples of auction mechanisms offered by the Exchange
include Solicitation Auction Mechanism (``SAM''), FLEX AIM \5\ and FLEX
SAM \6\ auctions.
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\4\ See Rule 5.37 (AIM); Rule 5.39 (SAM); Rule 5.38 (Complex
AIM); Rule 5.40 (Complex SAM); Rule 5.73 (FLEX AIM); and Rule 5.74
(FLEX SAM).
\5\ See Rule 5.73.
\6\ See Rule 5.74.
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Additionally, the Exchange offers an electronic FLEX Auction
Process, described in Rule 5.72(c). A TPH may electronically submit a
FLEX Order (simple or complex) into an electronic FLEX Auction for
execution. Upon receipt of a FLEX Order that meets the conditions in
Rule 5.72(c)(1), the FLEX Auction commences, and the System initiates a
FLEX Auction by sending a FLEX Auction notification message to FLEX
Traders detailing the FLEX Order and any FLEX Trader may submit
responses to the FLEX Auction. The FLEX Auction concludes at the end of
the determined exposure interval, and the System executes the FLEX
Order against the FLEX responses at the best price(s), to the price at
which the balance of the FLEX Order or the FLEX responses can be fully
executed.\7\
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\7\ See Rule 5.72(c)(3).
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The Fees Schedule contains specific transaction fees for orders
executed using AIM. For example, the Exchange assesses a fee of $0.07
per contract for certain AIM Contra orders in index products, yielding
fee code YB. The Exchange also assesses a fee of $0.07 per contract for
certain AIM Contra orders in equity, Exchange Traded Funds (``ETF'')
and ETN options, yielding fee code YC. Additionally, the Exchange
assesses no charge for Customer AIM Agency/Primary and Contra orders in
equity, ETF and ETN options, yielding fee code CK. The Exchange notes
that under the Fees Schedule, fees for AIM Agency/Primary and Contra
orders apply uniformly to qualifying orders in SAM, FLEX AIM and FLEX
SAM.\8\ Currently, orders in an electronic FLEX Auction are assessed
under the standard transaction fees for electronic orders.
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\8\ See Fees Schedule Footnotes 18 and 19.
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Clarifying Changes
The Exchange notes that currently, within the Rates Table for All
Products Excluding Underlying Symbol List A \9\ (the ``Rates Table''),
fees for ``Equity, ETF, and ETN Options'' for Clearing TPH (``F''
Capacity Code); non-TPH Affiliate (``L'' Capacity Code); Market-Maker
(``M'' capacity code); Broker-Dealer (``B'' Capacity Code); Non-TPH
Market-Maker (``N'' Capacity Code); Joint Back-Office (``J'' Capacity
Code); and Professional (``U'' Capacity Code) capacities are grouped
with index products for purposes of transaction fees. As part of the
proposed changes, for the aforementioned capacities, the Exchange
proposes to separate out fees for equity, ETF, and ETN options as a
separate line item within the table. Except as otherwise noted within
this filing, the fees for equity, ETF and ETN options remain unchanged.
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\9\ See Fees Schedule Footnote 34.
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Next, the Exchange proposes to amend the Rates Table to include fee
code YC. Currently, fee code YC is appended to AIM Contra orders in
equity and ETF options for the following capacities: Clearing TPH
(``F'' Capacity Code); non-TPH Affiliate (``L'' Capacity Code); Broker-
Dealer (``B'' Capacity Code); Non-TPH Market-Maker (``N'' Capacity
Code); Joint Back-Office (``J'' Capacity Code); and Professional (``U''
Capacity Code). The Exchange inadvertently omitted the fee code (and
corresponding fee) from the Rates Table and now proposes to add
references to the fee code and its rate, within the Rates Table, as
applicable. The Exchange also proposes to amend the Rates Table to
clarify that fee code MA is appended to Market-Maker (``M'' Capacity
Code) AIM Contra orders in equity, ETF, and ETN options.
Fee Code Related Changes
The Exchange proposes to amend fee code YC to also apply to orders
in equity, ETF, and ETN options responding to an electronic FLEX
Auction (``FLEX Auction Responder'') (in addition to AIM Contra
orders), for the following capacities: Clearing TPH (``F'' Capacity
Code); non-TPH Affiliate (``L'' Capacity Code); Broker-Dealer (``B''
Capacity Code); Non-TPH Market-Maker (``N'' Capacity Code); Joint Back-
Office (``J'' Capacity Code); and Professional (``U'' Capacity
Code).\10\ The charge
[[Page 77947]]
assessed per contract for fee code YC remains the same under the
proposed rule change. Further, the Exchange proposes to append fee code
CK to Customer (Capacity Code ``C'') orders in equity, ETF and ETN
options initiating (``FLEX Auction Initiator'') and responding (``FLEX
Auction Responder'') to an electronic FLEX Auction.
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\10\ The proposed changes are added to the column in the Rates
Table which sets forth standard transaction fees for electronic
orders in Penny and Non-Penny classes; as part of the proposed
changes, for F/L and B/N/U/J capacities, the Exchange restated fee
codes FB/FC and BB/BC within the column, as appropriate; there are
no changes to these fee codes as part of the proposal.
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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.\11\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \12\ 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) \13\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change is consistent with Section 6(b)(4) of the Act,\14\ which
requires that Exchange rules provide for the equitable allocation of
reasonable dues, fees, and other charges among its TPHs and other
persons using its facilities.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ Id.
\14\ 15 U.S.C. 78f(b)(4).
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The Exchange believes its proposal to amend the Rates Table to
separate ``Equity, ETF, and ETN Options'' fees for Clearing TPH; non-
TPH Affiliate; Broker-Dealer; Non-TPH Market-Maker; Joint Back-Office;
Professional; and Market-Maker capacities from fees for index products
for the aforementioned capacities and to update the Rates Table to
correct inadvertent omission to fee codes MA and YC, as applicable, is
reasonable, equitable and consistent with the Act. The changes are
designed to provide additional clarity to TPHs with respect to the
Exchange's pricing, in particular in regard to AIM pricing. Further,
the Exchange's proposal to add reference to fee codes MA and YC, as
applicable, is intended to correct inadvertent errors where the fee
codes should have been placed within the Rates Table. Additionally, the
proposed changes promote just and equitable principles of trade and are
designed to removed impediments to and perfect the mechanism of a free
and open market and a national market system as they provide
transparency to TPHs regarding the applicability of fee codes within
the Rates Table and eliminate potential for confusion.
Additionally, the Exchange believes the proposed rule change to
amend fee code YC to apply to applicable AIM Contra and FLEX Auction
Responder orders in equity, ETF and ETN options and to append fee code
CK to Customer FLEX Auction Initiator or Responder orders in equity,
ETF and ETN options is reasonable, equitable, and not unfairly
discriminatory. As stated above, the Exchange operates in a highly
competitive market in which market participants can readily direct
order flow to competing venues if they deem fee levels at a particular
venue to be excessive or incentives to be insufficient. The proposed
fee changes reflect a competitive pricing structure designed to
incentivize market participants to direct their order flow to the
Exchange's FLEX Auctions, which the Exchange believes would enhance
market quality to the benefit of all TPHs.
The Exchange notes that the proposed fees in connection with
certain FLEX Auction orders do not represent a significant departure
from the fees currently offered under the Fees Schedule for market
participants for similar offerings. As noted above, the Exchange offers
several electronic auction mechanisms, including AIM, SAM, FLEX AIM,
FLEX SAM, and the FLEX Auction Process. Under the Fees Schedule, fees
for AIM Agency/Primary and Contra orders apply uniformly to qualifying
orders in AIM, SAM, FLEX AIM and FLEX SAM.\15\ The Exchange believes it
is reasonable to generally align the fees for FLEX Auction initiating
and response orders in equity, ETF and ETN options, with other auctions
designed to promote price improvement.
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\15\ See Fees Schedule Footnotes 18 and 19.
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The Exchange believes that the proposed fees are reasonably
designed to incentivize relevant capacities (i.e., Customer, Clearing
TPH, non-TPH Affiliate, Broker-Dealer, Non-TPH Market-Maker, Joint
Back-Office, and Professional) to continue to respond, and potentially
increase their responses, to electronic FLEX Auctions. Further, the
Exchange believes the proposed fees are reasonably designed to
incentivize Customers to initiate electronic FLEX Auctions. An overall
increase in FLEX Auctions provides additional opportunities for price
discovery and execution, to the benefit of all market participants.
The Exchange further notes that excluding orders in Underlying
Symbol List A from the proposed FLEX Auction fees is also consistent
with the same exclusions under the structure of the Exchange's fees for
AIM Agency/Primary and AIM Contra orders. These specific sets of
proprietary products are also commonly excluded from a variety of fee
programs, qualification calculations and transaction fees, including
the Volume Incentive Program, the Marketing Fee, and the Clearing TPH
Fee Cap.
The Exchange also believes that the proposed changes are equitable
and not unfairly discriminatory. The charges assessed per contract for
fee codes YC and CK remain the same under the proposed rule change.
Further, the proposed fees for electronic FLEX Auction Initiator and
Responder orders will apply equally to all applicable orders, i.e., all
such TPHs will be assessed the same amount.
The Exchange also believes that continuing to assess standard
transaction fees for Market-Maker orders in a FLEX Auction is equitable
and not unfairly discriminatory because Market-Makers have incentive
opportunities not otherwise applicable to market participants, such as
the Liquidity Provider Sliding Scale program. Further, the Exchange
believes the continuing to assess standard transaction fees for
Clearing TPH, non-TPH Affiliate, Broker-Dealer, Non-TPH Market-Maker,
Joint Back-Office, and Professional FLEX Auction Initiator orders is
equitable and not unfairly discriminatory, because the options industry
has a long history of providing preferential pricing to Customers, and
the Exchange's current fees schedule currently does so in many places,
as do the fees structures of multiple other exchanges.\16\
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\16\ See, e.g., NYSE American Options Fee Schedule, Section
I(G), ``CUBE Auction Fees and Credits'', which assesses a lower
transaction fee for customer orders than that of other market
participants for executions in CUBE Auctions.
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[[Page 77948]]
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.
As noted above, the proposal to amend the Rates Table to separate
``Equity, ETF, and ETN Options'' fees for Clearing TPH; non-TPH
Affiliate; Broker-Dealer; Non-TPH Market-Maker; Joint Back-Office;
Professional; and Market-Maker capacities from fees for index products
for the aforementioned capacities and to update the Rates Table to
correct inadvertent omission to fee codes MA and YC, as applicable, is
designed to provide additional clarity to TPHs with respect to the
Exchange's pricing, provide transparency to TPHs regarding the
applicability of fee codes within the Rates Table and eliminate
potential for confusion.
Additionally, the Exchange does not believe the proposed rule
change to amend fee code YC to apply to applicable AIM Contra and FLEX
Auction Responder orders in equity, ETF and ETN options and to append
fee code CK to Customer FLEX Auction Initiator or Responder orders in
equity, ETF and ETN options will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. All TPH's applicable AIM Contra and FLEX Auction
Responder orders in equity, ETF and ETN options will automatically
yield fee code YC and uniformly be assessed the corresponding fee.
Further, all TPH's applicable Customer FLEX Auction Initiator or
Responder orders in equity, ETF and ETN options will yield fee code CK
and uniformly be assessed the corresponding fee.
The Exchange does not believe the clarifying changes set forth
within the proposal will impose any burden on inter-market competition
as the changes are intended to protect investors by providing further
transparency regarding the Exchange's Fees Schedule. Additionally, the
Exchange does not believe the proposed fee code changes will impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. As previously discussed, the
Exchange operates in a highly competitive market. Members have numerous
alternative venues that they may participate on and direct their order
flow, including 17 other options exchanges and off-exchange venues.
Additionally, the Exchange represents a small percentage of the overall
market. Based on publicly available information, no single options
exchange has more than 16% of the market share.\17\ Therefore, no
exchange possesses significant pricing power in the execution of option
order flow. Indeed, participants can readily choose to send their
orders to other exchange and off-exchange venues if they deem fee
levels at those other venues to be more favorable. Moreover, the
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. Specifically, in Regulation NMS, the
Commission highlighted the importance of market forces in determining
prices and SRO revenues and, also, recognized that current regulation
of the market system ``has been remarkably successful in promoting
market competition in its broader forms that are most important to
investors and listed companies.'' \18\ The fact that this market is
competitive has also long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated as follows: ``[n]o one disputes that competition for order flow
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .''.\19\ Accordingly, the Exchange
does not believe its proposed fee change imposes any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
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\17\ See Cboe Global Markets U.S. Options Monthly Market Volume
Summary (August 29, 2024), available at <a href="https://markets.cboe.com/us/options/market_statistics/">https://markets.cboe.com/us/options/market_statistics/</a>.
\18\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\19\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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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 has become effective pursuant to Section
19(b)(3)(A) of the Act \20\ and paragraph (f) of Rule 19b-4 \21\
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. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#86f4f3eae3abe5e9ebebe3e8f2f5c6f5e3e5a8e1e9f0"><span class="__cf_email__" data-cfemail="5b292e373e76383436363e352f281b283e38753c342d">[email protected]</span></a>. Please include
file number SR-CBOE-2024-039 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-CBOE-2024-039. 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="https://www.sec.gov/rules/sro.shtml">https://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 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
[[Page 77949]]
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal office of the Exchange. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection. All submissions should refer to file number
SR-CBOE-2024-039 and should be submitted on or before October 15, 2024.
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\22\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-21763 Filed 9-23-24; 8:45 am]
BILLING CODE 8011-01-P
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