[Federal Register Volume 89, Number 185 (Tuesday, September 24, 2024)]
[Notices]
[Pages 77945-77949]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[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 (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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 https://markets.cboe.com/us/options/market_statistics/.
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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 https://markets.cboe.com/us/options/market_statistics/.
    \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 (https://www.sec.gov/rules/sro.shtml); 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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public

[[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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