Document ID: SEC-2018-0459-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2018-03-20T04:00Z

[Federal Register Volume 83, Number 54 (Tuesday, March 20, 2018)]
[Notices]
[Pages 12210-12213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05563]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82874; File No. SR-CboeBZX-2018-017]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Market Data Section of the Fee Schedule Applicable to its Equity 
Options Platform

March 14, 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 6, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b 4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 amend the Market Data section of 
its fee schedule applicable to its equity options platform (``BZX 
Options'') to adopt fees for a new data feed to be known as BZX Options 
Top.
    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 BZX Options Top feed is a data feed that offers top of book 
quotations and execution information based on options orders entered 
into the System.\5\ The Exchange proposes to amend its fee schedule to 
incorporate fees for distribution of eh BZX Options Top feed.\6\ The 
proposed fees include the following, each of which are described in 
detail below: (i) Distribution Fees for both Internal and External 
Distributors; \7\ (ii) Usage Fees for both Professional \8\ and Non-
Professional \9\ Users; and (iii)

[[Page 12211]]

an Enterprise Fee. The Exchange is proposing identical fees for the BZX 
Options Top feed as to those currently in place for the BZX Options 
Depth feed.
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    \5\ Exchange Rule 21.15(b)(2). See also Securities Exchange Act 
Release No. 82776 (February 26, 2018) (SR-CboeBZX-2018-013) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change to 
Adopt the BZX Options Top Feed).
    \6\ The Exchange also proposed to rename Multicast Pitch as BZX 
Options Depth to reflect a recent change to the Exchange's rules 
that was filed with the Commission. Id.
    \7\ A ``Distributor'' is defined as ``any entity that receives 
the Exchange Market Data product directly from the Exchange or 
indirectly through another entity and then distributes it internally 
or externally to a third party.'' See the Exchange's fee schedule 
available at http://markets.cboe.com/us/options/membership/fee_schedule/bzx/. An ``Internal Distributor'' is defined as ``a 
Distributor that receives the Exchange Market Data product and then 
distributes that data to one or more Users within the Distributor's 
own entity.'' Id. An ``External Distributor'' is defined as ``a 
Distributor that receives the Exchange Market Data product and then 
distributes that data to a third party or one or more Users outside 
the Distributor's own entity.'' Id.
    \8\ A ``Professional User'' is defined as ``any User other than 
a Non-Professional User.'' Id.
    \9\ A ``Non-Professional User'' is defined as ``a natural person 
or qualifying trust that uses Data only for personal purposes and 
not for any commercial purpose and, for a natural person who works 
in the United States, is not: (i) Registered or qualified in any 
capacity with the Securities and Exchange Commission, the 
Commodities Futures Trading Commission, any state securities agency, 
any securities exchange or association, or any commodities or 
futures contract market or association; (ii) engaged as an 
``investment adviser'' as that term is defined in Section 202(a)(11) 
of the Investment Advisors Act of 1940 (whether or not registered or 
qualified under that Act); or (iii) employed by a bank or other 
organization exempt from registration under federal or state 
securities laws to perform functions that would require registration 
or qualification if such functions were performed for an 
organization not so exempt; or, for a natural person who works 
outside of the United States, does not perform the same functions as 
would disqualify such person as a Non-Professional User if he or she 
worked in the United States.'' Id.
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    Distribution Fees. As proposed, each Internal Distributor that 
receives BZX Options Top shall pay a fee of $3,000 per month. Each 
External Distributor that receives BZX Options Top shall pay a fee of 
$2,000 per month. The Exchange also proposes to make clear in its fee 
schedule that where a Distributor acts as both an External and Internal 
Distributor of BZX Options Top that it will pay the greater of the two 
Distribution fees for internal or external use and not be charged both 
fees each month.
    User Fees. The Exchange proposes to charge Internal Distributors 
and External Distributors that redistribute the BZX Options Depth feed 
different fees for their Professional Users and Non-Professional Users. 
The Exchange will assess a monthly fee for Professional Users of $30.00 
per User. Non-Professional Users will be assessed a monthly fee of 
$1.00 per User. The proposed rates are identical to then those 
currently charged for the BZX Options Depth feed. Since both the BZX 
Option Depth Feed and BZX Options Top feed both include top-of-book 
information, the Exchange proposes to not charge separate per User fees 
for each product. As a result, one User fee would allow access to the 
BZX Options Top Feed and the BZX Options Depth Feed. The Exchange 
proposes to amend its fee schedule accordingly.
    Distributors that receive the BZX Options Depth feed will be 
required to count every Professional User and Non-Professional User to 
which they provide the market data product(s), the requirements for 
which are identical to that currently in place for BZX Options Depth. 
Thus, the Distributor's count will include every person and device that 
accesses the data regardless of the purpose for which the individual or 
device uses the data. However, because one User fee would allow access 
to the BZX Options Top Feed and the BZX Options Depth Feed, 
Distributors that provide a person or device access to both the BZX 
Options Top Feed and the BZX Options Depth Feed need only to count that 
person or device as a single User and not a User of both market data 
products. Distributors must report all Professional and Non-
Professional Users in accordance with the following:
     In connection with a Distributor's distribution of the 
market data product, the Distributor should count as one User each 
unique User that the Distributor has entitled to have access to the 
market data product. However, where a device is dedicated specifically 
to a single individual, the Distributor should count only the 
individual and need not count the device.
     The Distributor should identify and report each unique 
User. If a User uses the same unique method to gain access to the 
market data product, the Distributor should count that as one User. 
However, if a unique User uses multiple methods to gain access to the 
market data product (e.g., a single User has multiple passwords and 
user identifications), the Distributor should report all of those 
methods as an individual User.
     Distributors should report each unique individual person 
who receives access through multiple devices as one User so long as 
each device is dedicated specifically to that individual.
     If a Distributor entitles one or more individuals to use 
the same device, the Distributor should include only the individuals, 
and not the device, in the count.
    Enterprise Fee. The Exchange also proposes to establish a $3,500 
per month Enterprise Fee that will permit a recipient firm who receives 
BZX Options Depth from a Distributor to receive the data for an 
unlimited number of Professional and Non-Professional Users. For 
example, if a recipient firm had 15,000 Professional Users who each 
receive BZX Options Top at $30.00 per month, then that recipient firm 
will pay $450,000 per month in Professional Users fees. Under the 
proposed Enterprise Fee, the recipient firm will pay a flat fee of 
$3,500 for an unlimited number of Professional and Non-Professional 
Users. A recipient firm must pay a separate Enterprise Fee for each 
Distributor that controls the display of BZX Options Depth if it wishes 
such User to be covered by an Enterprise Fee rather than by per User 
fees. A recipient firm that pays the Enterprise Fee will not have to 
report its number of such Users on a monthly basis. However, every six 
months, a recipient firm must provide the Exchange with a count of the 
total number of natural person users of each product, including both 
Professional and Non-Professional Users.
Implementation Date
    The Exchange intends to implement the proposed changes to its fee 
schedule on March 9, 2018.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Section 6(b)(4),\11\ in particular, as they are designed 
to provide for the equitable allocation of reasonable dues, fees and 
other charges among its members and other recipients of Exchange data. 
The Exchange believes that the proposed rates are equitable and non-
discriminatory in that they apply uniformly to all recipients of 
Exchange data and that the proposed fees are competitive with those 
charged by other venues and, therefore, reasonable and equitably 
allocated to recipients.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes that the proposed rule change is 
consistent with Section 11(A) of the Act \12\ in that it supports (i) 
fair competition among brokers and dealers, among exchange markets, and 
between exchange markets and markets other than exchange markets and 
(ii) the availability to brokers, dealers, and investors of information 
with respect to quotations for and transactions in securities. 
Furthermore, the proposed rule change is consistent with Rule 603 of 
Regulation NMS,\13\ which provides that any national securities 
exchange that distributes information with respect to quotations for or 
transactions in an NMS stock do so on terms that are not unreasonably 
discriminatory. In adopting Regulation NMS, the Commission granted 
self-regulatory organizations and broker-dealers increased authority 
and flexibility to offer new and unique market data to the public. It 
was believed that this authority would expand the amount of data 
available to consumers, and also spur innovation and competition for 
the provision of market data.
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    \12\ 15 U.S.C. 78k-1.
    \13\ 17 CFR 242.603.
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    In addition, the proposed fees would not permit unfair 
discrimination because all of the Exchange's customers and market data 
vendors will be subject to the proposed fees on an equivalent basis. 
BZX Options Depth is distributed and purchased on a voluntary basis, in 
that neither the Exchange nor market data distributors are required by 
any rule or regulation to make this data available. Accordingly, 
Distributors and Users can discontinue use at any time

[[Page 12212]]

and for any reason, including due to an assessment of the 
reasonableness of fees charged. Firms have a wide variety of 
alternative market data products from which to choose, such as similar 
proprietary data products offered by other exchanges and consolidated 
data. Moreover, the Exchange is not required to make any proprietary 
data products available or to offer any specific pricing alternatives 
to any customers.
    In addition, the fees that are the subject of this rule filing are 
constrained by competition. As explained below in the Exchange's 
Statement on Burden on Competition, the existence of alternatives to 
BZX Options Depth further ensures that the Exchange cannot set 
unreasonable fees, or fees that are unreasonably discriminatory, when 
vendors and subscribers can elect such alternatives. That is, the 
Exchange competes with other exchanges (and their affiliates) that 
provide similar market data products. If another exchange (or its 
affiliate) were to charge less to distribute its similar product than 
the Exchange charges to distribute BZX Options Depth, prospective Users 
likely would not subscribe to, or would cease subscribing to BZX 
Options Depth.
    The Exchange notes that the Commission is not required to undertake 
a cost-of-service or rate-making approach. The Exchange believes that, 
even if it were possible as a matter of economic theory, cost-based 
pricing for non-core market data would be so complicated that it could 
not be done practically.
    Distribution Fee. The Exchange believes that the proposed 
Distribution Fees are also reasonable, equitably allocated, and not 
unreasonably discriminatory. The fees for Members and non-Members are 
uniform except with respect to reasonable distinctions with respect to 
internal and external distribution, the fee for both are equal for each 
of the market data products subject to this proposal. The proposed 
amendment to the Internal Distributor fee is equitable and reasonable 
as the proposed fees is similar to fees currently charged by the Nasdaq 
Stock Market LLC (``Nasdaq'') for their options top-of-book data 
product. Nasdaq currently charges external distributors of BONO,\14\ 
$2,000 per month.\15\ Nasdaq's fee for external distribution is 
identical to that proposed by the Exchange herein. In addition, the 
Chicago Board Options Exchange, Incorporated (``CBOE'') charges a 
monthly fee of $9,000 to internal and external distributors of its top-
of-book data.\16\
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    \14\ BONO stands for Best of Nasdaq Options (``BONO\SM\'') is a 
data feed that provides The Nasdaq Options Market (``NOM'') Best Bid 
and Offer and last sale information for trades executed on NOM. See 
Nasdaq Sec. 4(d), NASDAQ Options Market Data Distributor Fees 
available at http://www.nasdaqtrader.com/Micro.aspx?id=optionsPricing.
    \15\ See Nasdaq Sec. 4(a), NASDAQ Options Market Data 
Distributor Fees available at http://www.nasdaqtrader.com/Micro.aspx?id=optionsPricing.
    \16\ See CBOE Market Data Express, LLC (MDX) CBOE Streaming 
Markets Fee Schedule available at https://www.cboe.org/publish/mdxfees/mdxfeescheduleforcboedatafeeds.pdf [sic].
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    The Exchange proposes to charge External Distributors lower fees 
than Internal Distributors to promote broader distribution of exchange 
data. The Exchange notes that External Distributors redistribute BZX 
Options Top to those outside of their organization while Internal 
Distributors distribute BZX Options Top within their own organization. 
Charging lower fees for external distribution should encourage 
Distributors, such as market data vendors who solely redistribute 
market data, to subscribe to BZX Options Top as an External 
Distributor, therefore, expanding the distribution network of the 
Exchange's data.
    User Fees. The Exchange believes that implementing the Professional 
and Non-Professional User fees for BZX Options Top are equitable and 
reasonable because they will result in greater availability to 
Professional and Non-Professional Users. Moreover, introducing a modest 
Non-Professional User fee for BZX Options Depth is reasonable because 
it provides an additional method for retail investors to access BZX 
Options Top data by providing the same data that is available to 
Professional Users. The Exchange believes that the proposed fees are 
equitable and not unfairly discriminatory because they will be charged 
uniformly to recipient firms and Users. The fee structure of 
differentiated Professional and Non-Professional fees is utilized by 
the Exchange for the Cboe One Feed and has long been used by other 
exchanges for their proprietary data products, and by the Nasdaq UTP 
and the CTA and CQ Plans in order to reduce the price of data to retail 
investors and make it more broadly available.\17\ Offering BZX Options 
Top to Non-Professional Users with the same data available to 
Professional Users results in greater equity among data recipients. The 
requirement that Distributors count every Professional User and Non-
Professional User to which they provide the market data product(s) is 
also equitable and reasonable because the requirements are identical to 
that currently in place for other market data products offered by the 
Exchange. Also, the Exchange believes it is reasonable to charge one 
User fee for access to the BZX Options Top Feed and the BZX Options 
Depth Feed as the BZX Options Depth Feed also included top-of-book 
data.
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    \17\ See Securities Exchange Act Release Nos. 74285 (February 
18, 2015), 80 FR 9828 (February 24, 2015) (SR-BATS-2015-11); 74283 
(February 18, 2015), 80 FR 9809 (February 24, 2015) (SR-EDGA-2015-
09); 74282 (February 17, 2015), 80 FR 9487 (February 23, 2015) (SR-
EDGX-2015-09); and 74284 (February 18, 2015), 80 FR 9792 (February 
24, 2015) (SR-BYX-2015-09). See also, e.g., Securities Exchange Act 
Release No. 20002, File No. S7-433 (July 22, 1983) (establishing 
nonprofessional fees for CTA data); and Nasdaq Rules 7023(b), 7047.
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    In addition, the proposed fees are reasonable when compared to 
similar fees for comparable products offered by Nasdaq. Specifically, 
Nasdaq charges a fee of $40 per month to professional users and $1.00 
per month to non-professional users of its BONO feed.\18\ Each of these 
fees charged by Nasdaq are either equal to or higher than that proposed 
herein.
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    \18\ See Nasdaq Sec. 4(a), NASDAQ Options Market Data 
Distributor Fees available at http://www.nasdaqtrader.com/Micro.aspx?id=optionsPricing.
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    Enterprise Fee. The proposed Enterprise Fee for BZX Option Top is 
equitable and reasonable as the fees proposed could result in a fee 
reduction for recipient firms with a large number of Professional and 
Non-Professional Users. Meanwhile, the Exchange notes that Nasdaq does 
not offer such potential fee relief for its BONO feed.\19\ If a 
recipient firm has a smaller number of Professional Users of BZX 
Options Top, then it may continue using the per User structure and 
benefit from the per User Fee reductions. By reducing prices for 
recipient firms with a large number of Professional and Non-
Professional Users, the Exchange believes that more firms may choose to 
receive and to distribute BZX Options Top, thereby expanding the 
distribution of this market data for the benefit of investors.
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    \19\ Id.
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    The Exchange further believes that the proposed Enterprise Fee is 
reasonable because it will simplify reporting for certain recipients 
that have large numbers of Professional and Non-Professional Users. 
Firms that pay the proposed Enterprise Fee will not have to report the 
number of Users on a monthly basis as they currently do, but rather 
will only have to count natural person users every six months, which is 
a significant reduction in administrative burden. Finally, the Exchange 
believes that it is equitable and not unfairly discriminatory to 
establish an Enterprise

[[Page 12213]]

Fee because it reduces the Exchange's costs and the Distributor's 
administrative burdens in tracking and auditing large numbers of Users.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
Exchange's ability to price BZX Options Top is constrained by: (i) 
Competition among exchanges, other trading platforms, and Trade 
Reporting Facilities (``TRF'') that compete with each other in a 
variety of dimensions; (ii) the existence of inexpensive real-time 
consolidated data and market-specific data and free delayed data; and 
(iii) the inherent contestability of the market for proprietary data.
    The Exchange and its market data products are subject to 
significant competitive forces and the proposed fees represent 
responses to that competition. To start, the Exchange competes 
intensely for order flow. It competes with the other national 
securities exchanges that currently trade equities, with electronic 
communication networks, with quotes posted in FINRA's Alternative 
Display Facility, with alternative trading systems, and with securities 
firms that primarily trade as principal with their customer order flow.
    In addition, BZX Options Top competes with a number of alternative 
products. For instance, BZX Options Top does not provide a complete 
picture of all trading activity in a security. Rather, the other 
national securities exchanges, the several TRFs of FINRA, and 
Electronic Communication Networks (``ECN'') that produce proprietary 
data all produce trades and trade reports. Each is currently permitted 
to produce last sale information products, and many currently do, 
including Nasdaq and NYSE. In addition, market participants can gain 
access to BZX Options last sale and depth-of-book quotations, though 
integrated with the prices of other markets, on feeds made available 
through the SIPs.
    In sum, the availability of a variety of alternative sources of 
information imposes significant competitive pressures on Exchange data 
products and the Exchange's compelling need to attract order flow 
imposes significant competitive pressure on the Exchange to act 
equitably, fairly, and reasonably in setting the proposed data product 
fees. The proposed data product fees are, in part, responses to that 
pressure. The Exchange believes that the proposed fees would reflect an 
equitable allocation of its overall costs to users of its facilities.
    In addition, when establishing the proposed fees, the Exchange 
considered the competitiveness of the market for proprietary data and 
all of the implications of that competition. The Exchange believes that 
it has considered all relevant factors and has not considered 
irrelevant factors in order to establish fair, reasonable, and not 
unreasonably discriminatory fees and an equitable allocation of fees 
among all Users. The existence of alternatives to BZX Options Top, 
including existing similar feeds by other exchanges, consolidated data, 
and proprietary data from other sources, ensures that the Exchange 
cannot set unreasonable fees, or fees that are unreasonably 
discriminatory, when vendors and subscribers can elect these 
alternatives or choose not to purchase a specific proprietary data 
product if its cost to purchase is not justified by the returns any 
particular vendor or subscriber would achieve through the purchase.

(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

    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 
thereunder.\21\ 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.
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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

     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-CboeBZX-2018-017 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-CboeBZX-2018-017. 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 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-CboeBZX-2018-017 and should be submitted 
on or before April 10, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05563 Filed 3-19-18; 8:45 am]
 BILLING CODE 8011-01-P