[Federal Register Volume 83, Number 8 (Thursday, January 11, 2018)]
[Notices]
[Pages 1438-1442]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00303]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82444; File No. SR-CboeBZX-2017-023]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the 
iShares Gold Exposure ETF, a Series of the iShares U.S. ETF Trust, 
Under Exchange Rule 14.11(i), Managed Fund Shares

January 5, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 1439]]

``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 21, 2017, Cboe BZX Exchange, Inc. (``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II 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

    The Exchange filed a proposal to list and trade shares of the 
iShares Gold Exposure ETF (the ``Fund''), a series of the iShares U.S. 
ETF Trust (the ``Trust''), under Exchange Rule 14.11(i) (``Managed Fund 
Shares''). The shares of the Fund are referred to herein as the 
``Shares.''
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, 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 parts 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 list and trade the Shares under Exchange 
Rule 14.11(i), which governs the listing and trading of Managed Fund 
Shares on the Exchange.\3\ The Fund is a series of, and the Shares will 
be offered by, the Trust, which was established as a Delaware statutory 
trust on June 21, 2011. BlackRock Fund Advisors (the ``Adviser'') will 
serve as the investment adviser to the Fund. The Trust is registered 
with the Commission as an open-end management investment company and 
has filed a registration statement on behalf of the Fund on Form N-1A 
(``Registration Statement'') with the Commission.\4\
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    \3\ The Commission originally approved Exchange Rule 14.11(i) in 
Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR 
55148 (September 6, 2011) (SR-BATS-2011-018) and subsequently 
approved generic listing standards for Managed Fund Shares under 
Exchange Rule 14.11(i)(4)(C) in Securities Exchange Act Release No. 
78396 (July 22, 2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-
100) (``Generic Listing Rules'').
    \4\ See Registration Statement on Form N-1A for the Trust, filed 
with the Commission on November 1, 2017 (File Nos. 333-179904 and 
811-22649). The descriptions of the Fund and the Shares contained 
herein are based, in part, on information in the Registration 
Statement. The Commission has issued an order granting certain 
exemptive relief to the Adviser and open-end management companies 
advised by the Adviser under the Investment Company Act of 1940 (15 
U.S.C. 80a-1). See Investment Company Act Release No. 29571 (January 
24, 2011) (File No. 812-13601).
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    As a result of the instruments that will be indirectly held by the 
Fund, the Adviser, which is a member of the National Futures 
Association (``NFA''), will register as a commodity pool operator \5\ 
with respect to the Fund. If the Fund retains any sub-adviser in the 
future, such sub-adviser will register as a commodity pool operator or 
commodity trading adviser, if required by Commodity Futures Trading 
Commission (``CFTC'') regulations. The Fund will be subject to 
regulation by the CFTC and NFA and applicable disclosure, reporting and 
recordkeeping rules imposed upon commodity pools.
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    \5\ As defined in Section 1a(11) of the Commodity Exchange Act.
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    Exchange Rule 14.11(i)(7) provides that, if the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect a ``fire 
wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\6\ In addition, Exchange 
Rule 14.11(i)(7) further requires that personnel who make decisions on 
the investment company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable investment company 
portfolio. Exchange Rule 14.11(i)(7) is similar to Exchange Rule 
14.11(b)(5)(A)(i) (which applies to index-based funds); however, 
Exchange Rule 14.11(i)(7) in connection with the establishment of a 
``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser is 
not a registered broker-dealer, but is affiliated with multiple broker-
dealers and has implemented ``fire walls'' with respect to such broker-
dealers regarding access to information concerning the composition and/
or changes to the Fund's portfolio. In addition, Adviser personnel who 
make decisions regarding the Fund's portfolio are subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the Fund's portfolio. In the event that (a) the 
Adviser becomes registered as a broker-dealer or newly affiliated with 
another broker-dealer, or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes affiliated with a broker-dealer, it 
will implement a fire wall with respect to its relevant personnel or 
such broker-dealer affiliate, as applicable, regarding access to 
information concerning the composition and/or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    The Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
    The Exchange submits this proposal in order to allow the Fund to 
hold listed derivatives (i.e., Listed Gold Derivatives, as defined 
below) in a manner that does not comply with Exchange Rule 
14.11(i)(4)(C)(iv)(b).\7\ Otherwise, the

[[Page 1440]]

Fund will comply with all other listing requirements on an initial and 
continued listing basis under Exchange Rule 14.11(i) for Managed Fund 
Shares.
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    \7\ Exchange Rule 14.11(i)(4)(C)(iv)(b) provides that ``the 
aggregate gross notional value of listed derivatives based on any 
five or fewer underlying reference assets shall not exceed 65% of 
the weight of the portfolio (including gross notional exposures), 
and the aggregate gross notional value of listed derivatives based 
on any single underlying reference asset shall not exceed 30% of the 
weight of the portfolio (including gross notional exposures).''
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iShares Gold Exposure ETF
    The Fund will seek to provide exposure, on a total return basis, to 
the price performance of gold. The Fund will seek to achieve its 
investment objective by investing primarily in a combination of (i) 
exchange-traded gold futures contracts (``Gold Futures'') \8\ and other 
listed derivatives \9\ that correlate to the investment returns of 
physical gold (such other listed derivatives together with Gold 
Futures, ``Listed Gold Derivatives''), based on the notional value of 
such derivative instruments; (ii) over-the-counter (``OTC'') 
derivatives that correlate to the investment returns of physical gold 
(``OTC Gold Derivatives''), based on the notional value of such 
derivative instruments; and (iii) exchange-traded products (``ETPs'') 
\10\ backed by or linked to physical gold (``Gold ETPs,'' and 
collectively with Listed Gold Derivatives and OTC Gold Derivatives, the 
``Gold Investments''). In seeking total return, the Fund will 
additionally aim to generate interest income and capital appreciation 
through a cash management strategy consisting primarily of cash and 
cash equivalents, including repurchase agreements and money market 
instruments, investments in government obligations, including U.S. 
government and agency securities, treasury inflation-protected 
securities, and sovereign debt obligations of non-U.S. countries, and 
investment-grade fixed-income securities, including corporate bonds 
(collectively, ``Fixed Income Investments''). The Fund will be an 
actively managed exchange-traded fund and will not seek to replicate 
the performance of a specified index.
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    \8\ Gold Futures held by the Fund will primarily be front month 
COMEX gold futures contracts (GC).
    \9\ For purposes of this proposal, the term ``listed 
derivatives'' will be consistent with its use in Exchange Rule 
14.11(i)(4)(C)(iv), which provides that listed derivatives include 
listed futures, options, and swaps on commodities, currencies and 
financial instruments (e.g., stocks, fixed income, interest rates, 
and volatility) or a basket or index of any of the foregoing.
    \10\ As defined in Exchange Rule 11.8(e)(1)(A), ETP means any 
security listed pursuant to Exchange Rule 14.11.
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    The Fund's investment strategy related to the Gold Investments will 
seek to maximize correlation with the Bloomberg Composite Gold Index 
(the ``Bloomberg Benchmark''), which is comprised of exchange-traded 
gold futures contracts and one or more ETPs backed by or linked to 
physical gold. The Bloomberg Benchmark is designed to track the price 
performance of gold. Although the Fund generally holds, among other 
instruments, the same futures contracts under the same futures rolling 
schedule, and the same ETPs backed by or linked to physical gold, as 
those included in the Bloomberg Benchmark, the Fund is not obligated to 
invest in any such futures contracts or ETPs included in, and does not 
seek to track the performance of, the Bloomberg Benchmark.
    The Fund expects to seek to gain exposure to Gold Investments by 
investing through a wholly-owned subsidiary organized in the Cayman 
Islands (the ``Subsidiary''). The Subsidiary is advised by the Adviser. 
Unlike the Fund, the Subsidiary is not an investment company registered 
under the Investment Company Act of 1940. The Subsidiary has the same 
investment objective as the Fund. References below to the holdings of 
the Fund are inclusive of the direct holdings of the Fund as well as 
the indirect holdings of the Fund through the Subsidiary.
    In order to achieve its investment objective, under Normal Market 
Conditions,\11\ the aggregate gross notional value of Listed Gold 
Derivatives is generally not expected to exceed 75%, but may, in 
certain circumstances, approach 100%, of the Fund (including gross 
notional values). As noted above, Exchange Rule 14.11(i)(4)(C)(iv) 
prevents the Fund from holding listed derivatives based on any five or 
fewer underlying reference assets in excess of 65% of the weight of the 
portfolio (including gross notional exposures) and from holding listed 
derivatives based on any single underlying reference asset in excess of 
30% of the weight of its portfolio (including gross notional 
exposures). The Exchange is proposing to allow the Fund to hold up to 
100% of the weight of its portfolio (including gross notional 
exposures) in listed derivatives based on a single underlying reference 
asset through its investment in Listed Gold Derivatives. Allowing the 
Fund to hold a greater portion of its portfolio in Listed Gold 
Derivatives would mitigate the Fund's dependency on holding OTC 
derivative instruments, which would reduce the Fund's operational 
burden by allowing the Fund to primarily use listed futures contracts 
and other listed derivatives to achieve its investment objective and 
would also reduce counter-party risk associated with holding OTC 
instruments.
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    \11\ As defined in Exchange Rule 14.11(i)(3)(E), the term 
``Normal Market Conditions'' includes, but is not limited to, the 
absence of trading halts in the applicable financial markets 
generally; operational issues causing dissemination of inaccurate 
market information or system failures; or force majeure type events 
such as natural or man-made disaster, act of God, armed conflict, 
act of terrorism, riot or labor disruption, or any similar 
intervening circumstance.
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    Under Normal Market Conditions, the Fund generally will primarily 
hold Listed Gold Derivatives, including Gold Futures, OTC Gold 
Derivatives,\12\ Gold ETPs,\13\ and/or Fixed Income Investments.\14\ 
The Exchange represents that, except for the 65% and 30% limitations in 
Exchange Rule 14.11(i)(4)(C)(iv)(b), the Fund's proposed investments 
will satisfy, on an initial and continued listing basis, all of the 
Generic Listing Rules and all other applicable requirements for Managed 
Fund Shares under Exchange Rule 14.11(i). The Trust is required to 
comply with Rule 10A-3 under the Act for the initial and continued 
listing of the Shares of the Fund. In addition, the Exchange represents 
that the Shares of the Fund will meet and be subject to all other 
requirements of the Generic Listing Rules and other applicable 
continued listing requirements for Managed Fund Shares under Exchange 
Rule 14.11(i), including those requirements regarding the Disclosed 
Portfolio (as defined in the Exchange rules) and the requirement that 
the Disclosed Portfolio and the net asset value (``NAV'') will be made 
available to all market participants at the same time,\15\ intraday 
indicative value,\16\ suspension of trading or removal,\17\ trading 
halts,\18\ disclosure,\19\ and firewalls.\20\ Further, at least 100,000 
Shares will be outstanding upon the commencement of trading.\21\ 
Moreover, at least 90% of the weight of the Fund in Listed Gold 
Derivatives will trade on markets that are a member of

[[Page 1441]]

Intermarket Surveillance Group (``ISG'') or affiliated with a member of 
ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\22\ All statements and representations 
made in this filing regarding the description of the portfolio or 
reference assets, limitations on portfolio holdings or reference 
assets, dissemination and availability of reference assets and intraday 
indicative values, and the applicability of Exchange listing rules 
specified in this filing shall constitute continued listing 
requirements for the Fund. The Trust, on behalf of the Fund, has 
represented to the Exchange that it will advise the Exchange of any 
failure by the Fund or the Shares to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Act, the Exchange will surveil for compliance with the continued 
listing requirements. If the Fund or the Shares are not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under Exchange Rule 14.12.
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    \12\ The aggregate gross notional value of the Fund's holdings 
in OTC Gold Derivatives will not exceed 20% of the weight of the 
portfolio (including gross notional exposures) in compliance with 
Exchange Rule 14.11(i)(4)(C)(v).
    \13\ The Fund's holdings in Gold ETPs will comply with the 
requirements of Exchange Rule 14.11(i)(4)(C)(i)(a).
    \14\ The Fund will hold Fixed Income Investments (which includes 
cash and cash equivalents) in order to collateralize its derivatives 
positions and such holdings will comply with Exchange Rules 
14.11(i)(4)(C)(ii) and (iii).
    \15\ See Exchange Rules 14.11(i)(4)(A)(ii) and 
14.11(i)(4)(B)(ii).
    \16\ See Exchange Rule 14.11(i)(4)(B)(i).
    \17\ See Exchange Rule 14.11(i)(4)(B)(iii).
    \18\ See Exchange Rule 14.11(i)(4)(B)(iv).
    \19\ See Exchange Rule 14.11(i)(6).
    \20\ See Exchange Rule 14.11(i)(7).
    \21\ See Exchange Rule 14.11(i)(4)(A)(i).
    \22\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \23\ in general and Section 6(b)(5) of the Act \24\ in 
particular because the Exchange believes that the proposed rule change 
is 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 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 given that the 
Shares will meet each of the initial and continued listing criteria in 
Exchange Rule 14.11(i) with the exception of Exchange Rule 
14.11(i)(4)(C)(iv)(b), which requires that the aggregate gross notional 
value of listed derivatives based on any five or fewer underlying 
reference assets shall not exceed 65% of the weight of the portfolio 
(including gross notional exposures), and the aggregate gross notional 
value of listed derivatives based on any single underlying reference 
asset shall not exceed 30% of the weight of the portfolio (including 
gross notional exposures). The Exchange believes that the liquidity in 
the Listed Gold Derivatives markets mitigates the concerns that 
Exchange Rule 14.11(i)(4)(C)(iv)(b) is intended to address and that 
such liquidity would prevent the Shares from being susceptible to 
manipulation.\25\ Further, allowing the Fund to hold a greater portion 
of its portfolio in Listed Gold Derivatives would mitigate the Fund's 
dependency on holding OTC instruments, which would reduce the Fund's 
operational burden by allowing the Fund to primarily use listed futures 
contracts and other listed derivatives to achieve its investment 
objective and would also reduce counter-party risk associated with 
holding OTC instruments. The Exchange believes that its surveillance 
procedures are adequate to properly monitor the trading of the Shares 
on the Exchange during all trading sessions and to deter and detect 
violations of Exchange rules and the applicable federal securities 
laws. At least 90% of the weight of the Fund in Listed Gold Derivatives 
will trade on markets that are a member of ISG or affiliated with a 
member of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. The Exchange may obtain information 
regarding trading in the Shares and at least 90% of the weight of the 
Fund invested in Listed Gold Derivatives via the ISG from other 
exchanges who are members or affiliates of the ISG or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement.\26\ The Exchange further notes that the Fund will meet and 
be subject to all other requirements of the Generic Listing Rules and 
other applicable continued listing requirements for Managed Fund Shares 
under Exchange Rule 14.11(i), including those requirements regarding 
the Disclosed Portfolio and the requirement that the Disclosed 
Portfolio and the NAV will be made available to all market participants 
at the same time, intraday indicative value, suspension of trading or 
removal, trading halts, disclosure, and firewalls. Further, at least 
100,000 Shares will be outstanding upon the commencement of trading.
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    \23\ 15 U.S.C. 78f.
    \24\ 15 U.S.C. 78f(b)(5).
    \25\ In September and October of 2017, the average daily COMEX 
gold futures contract volume was 340,000 and 292,000 for front month 
contracts, respectively. This equates to an average daily traded 
notional value of approximately $37.5 billion and $44.9 billion, 
respectively.
    \26\ See note 22, supra.
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    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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 purpose of the Act. The Exchange notes that the 
proposed rule change rather will facilitate the listing and trading of 
an additional actively-managed exchange-traded fund that will enhance 
competition among both market participants and listing venues, to the 
benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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 (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4735322b226a24282a2a222933340734222469202831"><span class="__cf_email__" data-cfemail="542621383179373b3939313a2027142731377a333b22">[email protected]</span></a>. Please include 
File No. SR-CboeBZX-2017-023 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 No. SR-CboeBZX-2017-023. This file 
number should be included on the

[[Page 1442]]

subject line if email is used. To help the Commission process and 
review your comments more efficiently, please use only one method. The 
Commission will post all comments on the Commission's internet website 
(http://www.sec.gov/rules/sro.shtml). Copies of the submission, all 
subsequent amendments, all written statements with respect to the 
proposed rule change that are filed with the Commission, and all 
written communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549 on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
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 No. SR-
CboeBZX-2017-023 and should be submitted on or before February 1, 2018.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00303 Filed 1-10-18; 8:45 am]
 BILLING CODE 8011-01-P


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