Document ID: SEC-2018-0435-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2018-03-16T04:00Z

[Federal Register Volume 83, Number 52 (Friday, March 16, 2018)]
[Notices]
[Pages 11803-11807]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05329]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82854; File No. SR-CBOE-2018-012]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Establish Fees for Options That Overlie the S&P Select Sector Index 
Options

March 12, 2018.

    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 March 1, 2018, 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

    The Exchange proposes to establish fees for options that overlie 
the S&P Select Sector Index options (``Sector Index options''). The 
text of the

[[Page 11804]]

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.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On October 4, 2017, the Exchange submitted a proposed rule change 
to amend certain rules in connection with listing S&P Select Sector 
Index \3\ options under generic narrow-based listing standards, which 
became effective on November 3, 2017.\4\ The Exchange rules currently 
permit the Exchange to list and trade options overlying each S&P Select 
Sector Index (``Sector Index options''). The Exchange proposes to 
establish fees for Sector Index options.
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    \3\ There are ten S&P Select Sector Indexes: S&P Financial 
Select Sector Index (IXM), S&P Energy Select Sector Index (IXE), S&P 
Technology Select Sector Index (IXT), S&P Health Care Select Sector 
Index (IXV), S&P Utilities Select Sector Index (IXU), S&P Consumer 
Staples Select Sector Index (IXR), S&P Industrials Select Sector 
Index (IXI), S&P Consumer Discretionary Select Sector Index (IXY), 
S&P Materials Select Sector Index (IXB), and S&P Real Estate Select 
Sector Index (IXRE). The options listing symbols for options 
overlying these indexes will be: SIXM, SIXE, SIXT, SIXV, SIXU, SIXR, 
SIXI, SIXY, SIXB, and SIXRE, respectively.
    \4\ Securities Exchange Act Release No. 81879 (October 16, 
2017), 82 FR 48858 (October 20, 2017) (SR-CBOE-2017-065).
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    By way of background, a specific set of proprietary products are 
commonly included or excluded from a variety of programs, qualification 
calculations and transaction fees. In lieu of listing out these 
products in various sections of the Fees Schedule, the Exchange uses 
the term ``Underlying Symbol List A'' to represent these products.\5\ 
The Exchange notes the reason the products in Underlying Symbol List A 
are often collectively included or excluded from certain programs, 
qualification calculations and transactions fees is because the 
Exchange has expended considerable resources developing and maintaining 
its proprietary, exclusively listed products. Similar to the products 
currently represented by ``Underlying Symbol List A,'' Sector Index 
options are not listed on any other exchange. As such, the Exchange 
proposes to establish fees for Sector Index options similar to those 
applicable to options overlying the indexes in Underlying Symbol List 
A, as well as similarly exclude those options from several programs 
from products [sic] in Underlying Symbol List A are excluded. The 
Exchange does not propose to add Sector Index options to Underlying 
Symbol List A. In lieu of listing out these products in various 
sections of the Fees Schedule, the Exchange proposes to refer to Sector 
Indexes in the Fees Schedule (which is defined in proposed footnote 
47).
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    \5\ Currently, Underlying Symbol List A is defined in Footnote 
34 and represents the following proprietary products: OEX, XEO, RUT, 
RLG, RLV, RUI, AWDE, FTEM, FXTM, UKXM, SPX (including SPXW), VIX, 
VOLATILITY INDEXES and binary options.
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    Specifically, like products in Underlying Symbol List A, the 
Exchange proposes to except Sector Index options from the Volume 
Incentive Program (``VIP''),\6\ the Marketing Fee,\7\ the Clearing 
Trading Permit Holder Fee Cap (``Fee Cap''),\8\ exemption from fees for 
facilitation orders,\9\ the AIM Contra Execution Fee,\10\ the CFLEX AIM 
Response Fee,\11\ the Clearing Trading Permit Holder Proprietary and/or 
their Non-Trading Permit Holder Affiliates transaction fee cap for all 
non-facilitation business executed in AIM or open outcry, or as a QCC 
or FLEX transaction,\12\ the Order Router Subsidy (``ORS'') and Complex 
Order Router Subsidy (``CORS'') Programs,\13\ the per contract per side 
surcharge for noncustomer complex order executions that remove 
liquidity from the COB and auction response in the complex order 
auction and AIM,\14\ and the calculation of qualifying volume for 
rebates for Floor Broker Trading Permit Holder Trading Permit Fees.\15\
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    \6\ See Cboe Options Fees Schedule, Volume Incentive Program 
(VIP) table and Footnote 36.
    \7\ See Cboe Options Fees Schedule, Footnote 6.
    \8\ See Cboe Options Fees Schedule, Footnote 11.
    \9\ See Cboe Options Fees Schedule, Footnotes 11 and 12.
    \10\ See Cboe Options Fees Schedule, Footnote 18.
    \11\ See Cboe Options Fees Schedule, Footnote 20.
    \12\ See Cboe Options Fees Schedule, Footnote 22.
    \13\ See Cboe Options Fees Schedule, Order Router Subsidy 
Program and Complex Order Router Subsidy Program table and Footnotes 
29 and 30.
    \14\ See Cboe Options Fees Schedule, Footnote 35.
    \15\ See Cboe Options Fees Schedule, Footnote 25.
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    The Exchange does intend to apply to Sector Index options the 
Liquidity Provider Sliding Scale.\16\ Although the Exchange proposes 
fees for Sector Index options similar to those established for products 
in ``Underlying Symbol List A,'' the Exchange proposes to apply to 
Sector Index options the Liquidity Provider Sliding Scale to encourage 
Market-Makers to provide liquidity in these classes and believes that 
including them in this sliding scale will provide such incentive.
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    \16\ See Cboe Options Fees Schedule, Specified Proprietary Index 
Options Rate Table--Underlying Symbol List A and Sector Indexes.
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    The Exchange next proposes to establish transaction fees for Sector 
Index options. Particularly, the Exchange proposes to assess the same 
fees for Sector Index options as apply to OEX Weekly and XEO Weekly 
options, except for Market-Maker transaction fees, which will be 
subject to the Liquidity Provider Sliding Scale as described above, and 
except for Clearing Trading Permit Holder Proprietary transactions, 
which will be $0.25 rather than subject to the Proprietary Products 
Sliding Scale for Clearing Trading Permit Holder Proprietary Orders. 
Transaction fees for Sector Index options will be as follows (all 
listed rates are per contract): \17\
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    \17\ See id.

------------------------------------------------------------------------
 
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Customer (origin code C).....  $0.30.
Clearing Trading Permit        $0.25.\18\
 Holder Proprietary (origin
 codes F and L).
Market-Maker (origin code M).  Liquidity Provider Sliding Scale.
Joint Back-Office, Broker-     $0.40.
 Dealer, Non-Trading Permit
 Holder Market-Maker,
 Professional/Voluntary
 Professional (origin codes
 BNWJ).
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[[Page 11805]]

    The Exchange also proposes to apply to Sector Index options the 
CFLEX Surcharge Fee of $0.10 per contract for all Sector Index option 
orders executed electronically on CFLEX, capped at $250 per trade 
(i.e., first 2,500 contracts per trade).\19\ The CFLEX Surcharge Fee 
assists the Exchange in recouping the cost of developing and 
maintaining the CFLEX system. The Exchange notes that the CFLEX 
Surcharge Fee (and $250 cap) also applies to other proprietary index 
options, including products in Underlying Symbol List A.
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    \18\ Currently, there is one line in the Specified Proprietary 
Index Options Rate Table for Clearing Trading Permit Holder 
Proprietary, pursuant to which all products subject to that table 
(Underlying Symbol List A) were [sic] subject to the Proprietary 
Products Sliding Scale for Clearing Trading Permit Holder 
Proprietary Orders. The proposed rule change divides Clearing 
Trading Permit Holder Proprietary line in the transaction rate table 
into two, indicating that Underlying Symbol List A will continue to 
be subject to the sliding scale, and Sector Indexes will be $0.25.
    \19\ See id. [sic].
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    The Exchange currently assesses an Index License Surcharge of $0.10 
per contract for all non-customer orders for products in Underlying 
Symbol A except RUT and SPX. The Exchange proposes to assess a 
Surcharge of $0.10 per contract in order to recoup the costs associated 
with the Sector Index license. In order to promote and encourage 
trading of Sector Index options, the Exchange proposes to waive the 
Index License Surcharge for Sector Index option transactions through 
June 30, 2018.\20\
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    \20\ See id. [sic].
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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.\21\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \22\ 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) \23\ 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,\24\ which 
requires that Exchange rules provide for the equitable allocation of 
reasonable dues, fees, and other charges among its Trading Permit 
Holders and other persons using its facilities.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
    \23\ Id.
    \24\ 15 U.S.C. 78f(b)(4).
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    Particularly, the Exchange believes it is reasonable to charge 
different fee amounts to different user types in the manner proposed 
because the proposed fees are consistent with the price differentiation 
that exists today for other index products, including those in 
Underlying Symbol A. The Exchange also believes that the proposed fee 
amounts for Sector Index option orders are reasonable because the 
proposed fee amounts are the same already assessed for other 
proprietary products (i.e. OEX Weeklys and XEO Weeklys), as well as are 
within the range of amounts assessed for the Exchange's other 
proprietary products.\25\
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    \25\ See Cboe Options Fees Schedule, Specified Proprietary Index 
Options Rate Table--Underlying Symbol A and Sector Indexes.
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    The Exchange believes that it is equitable and not unfairly 
discriminatory to assess lower fees to Customers as compared to certain 
other market participants except Market-Makers and Clearing Trading 
Permit Holders because Customer order flow enhances liquidity on the 
Exchange for the benefit of all market participants. Specifically, 
customer liquidity benefits all market participants by providing more 
trading opportunities, which attracts Market-Makers. An increase in the 
activity of these market participants in turn facilitates tighter 
spreads, which may cause an additional corresponding increase in order 
flow from other market participants. The fees offered to customers are 
intended to attract more customer trading volume to the Exchange. 
Moreover, 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 
many other exchanges. Finally, all fee amounts listed as applying to 
Customers will be applied equally to all Customers (meaning that all 
Customers will be assessed the same amount).
    The Exchange believes that it is equitable and not unfairly 
discriminatory to, [sic] assess lower fees to Market-Makers pursuant to 
the Liquidity Provider Sliding Scale as compared to other market 
participants because Market-Makers, unlike other market participants, 
take on a number of obligations, including quoting obligations, that 
other market participants do not have. Further, these lower fees 
offered to Market-Makers are intended to incent Market-Makers to quote 
and trade more on the Exchange, thereby providing more trading 
opportunities for all market participants. Additionally, the proposed 
fee for Market-Makers will be applied equally to all Market-Makers 
(meaning that all Market-Makers will be subject to the Liquidity 
Provider Sliding Scale). This concept also applies to orders from all 
other origins. It should also be noted that all fee amounts described 
herein are intended to attract greater order flow to the Exchange in 
Sector Index options, which should therefore serve to benefit all 
Exchange market participants.
    Similarly, it is equitable and not unfairly discriminatory to 
assess lower fees to Clearing Trading Permit Holder Proprietary orders 
than those of other market participants (except Market-Makers) because 
Clearing Trading Permit Holders also have a number of obligations (such 
as membership with the Options Clearing Corporation), significant 
regulatory burdens, and financial obligations, that other market 
participants do not need to take on. The Exchange also notes that the 
Sector Index option fee amounts for each separate type of market 
participant will be assessed equally to all such market participants 
(i.e. all Broker-Dealer orders will be assessed the same amount, all 
Joint Back-Office orders will be assessed the same amount, etc.). The 
Exchange believes the proposed transaction fee of $0.25 per contract 
for Clearing Trading Permit Holders is reasonable, equitable, and not 
unfairly discriminatory because is comparable to the amount of 
transaction fees for Clearing Trading Permit Holders in other 
proprietary products.\26\
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    \26\ See Cboe Options Fee Schedule, Cboe Options Clearing 
Trading Permit Holder Proprietary Products Sliding Scales Table. The 
maximum transaction fee per contract in the Table B (related to the 
VIX Sliding Scale) part of that table is $0.25.
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    The Exchange believes the proposed transaction fees for Brokers 
Dealers, Non-Trading Permit Holder Market-Makers, Professionals/
Voluntary Professionals, JBOs and Customers are reasonable because they 
are the same as those assessed for transactions in certain other 
proprietary products.\27\ The

[[Page 11806]]

Exchange also notes that the Sector Index option fee amounts for each 
separate type of market participant will be assessed equally to all 
such market participants (i.e. all Broker-Dealer orders will be 
assessed the same amount, all Joint Back-Office orders will be assessed 
the same amount, etc.).
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    \27\ Id.
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    The Exchange believes that assessing an Index License Surcharge Fee 
of $0.10 per contract to Sector Index option transactions is reasonable 
because the Surcharge helps recoup some of the costs associated with 
the license for Sector Index options. Additionally, the Exchange notes 
that the Surcharge amount is the same as, and in some cases lower than, 
the amount assessed as an Index License Surcharge to other index 
products. The proposed Surcharge is also equitable and not unfairly 
discriminatory because the amount will be assessed to all market 
participants to whom the Surcharge applies. Not applying the Sector 
Index License Surcharge Fee to Customer orders is equitable and not 
unfairly discriminatory because this is designed to attract Customer 
Sector Index option orders, which increases liquidity and provides 
greater trading opportunities to all market participants. The Exchange 
believes it is reasonable, equitable and not unfairly discriminatory to 
waive the Index License Surcharge because it promotes and encourages 
trading of these new products and applies to all Trading Permit 
Holders.
    Similarly, the Exchange believes assessing a CFLEX Surcharge Fee of 
$0.10 per contract for all Sector Index option orders executed 
electronically on CFLEX and capping it at $250 (i.e., first 2,500 
contracts per trade) is reasonable because it is the same amount 
currently charged to other proprietary index products for the same 
transactions.\28\ The proposed Surcharge is also equitable and not 
unfairly discriminatory because the amount will be assessed to all 
market participants to whom the CFLEX Surcharge applies.
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    \28\ See Cboe Options Fees Schedule, Index Options Rate Table--
All Index Products Excluding Underlying Symbol List A and Sector 
Indexes, CFLEX Surcharge Fee and Specified Proprietary Index Options 
Rate Table--Underlying Symbol List A and Sector Indexes, CFLEX 
Surcharge Fee.
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    Excepting VIP, the Marketing Fee, the Fee Cap, exemption from fees 
for facilitation orders, the AIM Contra Execution Fee, the CFLEX AIM 
Response Fee, the Clearing Trading Permit Holder Proprietary and/or 
their Non-Trading Permit Holder Affiliates transaction fee cap for all 
non-facilitation business executed in AIM or open outcry, or as a QCC 
or FLEX transaction, the ORS and CORS Programs,\29\ the per contract 
per side surcharge for noncustomer complex order executions that remove 
liquidity from the COB and auction response in the complex order 
auction and AIM,\30\ and the calculation of qualifying volume for 
rebates for Floor Broker Trading Permit Holder Trading Permit Fees is 
reasonable because other proprietary products are excepted from those 
same items. This is equitable and not unfairly discriminatory for the 
same reason; it seems equitable to except Sector Index options from 
items on the Fees Schedule from which other proprietary products are 
also excepted.
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    \29\ See Cboe Options Fees Schedule, Order Router Subsidy 
Program and Complex Order Router Subsidy Program table and Footnotes 
29 and 30.
    \30\ See Cboe Options Fees Schedule, Footnote 22.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that are not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because, while different fees 
are assessed to different market participants in some circumstances, 
these different market participants have different obligations and 
different circumstances as discussed above. For example, Market-Makers 
have quoting obligations that other market participants do not have. 
The Exchange does not believe the proposed rule change to waive the 
Index License Surcharge through June 30, 2018 will impose any burden on 
intramarket competition because it applies to all Trading Permit 
Holders and encourages trading in these new products.
    The Exchange does not believe that the proposed rule changes will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because Sector 
Index options will be exclusively listed on Cboe Options. To the extent 
that the proposed changes make Cboe Options a more attractive 
marketplace for market participants at other exchanges, such market 
participants are welcome to become Cboe Options market participants.

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 \31\ and paragraph (f) of Rule 19b-4 \32\ 
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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    \31\ 15 U.S.C. 78s(b)(3)(A).
    \32\ 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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2018-012 on the subject line.

Paper Comments

     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-2018-012. 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 (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

[[Page 11807]]

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 Number SR-
CBOE-2018-012, and should be submitted on or beforeApril 6, 2018.
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    \33\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05329 Filed 3-15-18; 8:45 am]
 BILLING CODE 8011-01-P