Document ID: SEC-2020-1054-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-07-06T04:00Z

[Federal Register Volume 85, Number 129 (Monday, July 6, 2020)]
[Notices]
[Pages 40344-40347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14488]

[[Page 40344]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89189; File No. SR-CBOE-2020-058]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fees Schedule

June 30, 2020.
    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 June 24, 2020, 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.

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

1. Purpose
    The Exchange proposes to adopt new Footnote 24 of the Fees Schedule 
to govern pricing changes that apply for the duration of time the 
Exchange trading floor is being operated in a modified manner in 
connection with the COVID-19 pandemic.\3\ By way of background, on 
March 16, 2020, the Exchange suspended open outcry trading to help 
prevent the spread of COVID-19 \4\ and has been operating in an all-
electronic configuration since then. The Exchange intends to reopen its 
trading floor on June 15, 2020, but with a modified configuration of 
trading crowds in order to implement social distancing and other 
measures consistent with local and state health and safety guidelines 
to help protect the safety and welfare of individuals accessing the 
trading floor. As a result, the Exchange is relocating and modifying 
the physical area of certain trading crowds and will also be 
determining and reducing how many floor participants may access the 
trading floor, along with determining where floor participants may 
stand.
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    \3\ The Exchange initially filed the proposed fee changes on 
June 15, 2020 (SR-CBOE-2020-056). On business date June 24, 2020, 
the Exchange withdrew that filing and submitted this filing. The 
Exchange also notes that pricing changes governed by Footnote 12 
would not apply when the Exchange operates in a modified state.
    \4\ On March 11, 2020, the World Health Organization 
characterized COVID-19 as a pandemic and to slow the spread of the 
disease, federal and state officials implemented social-distancing 
measures, placed significant limitations on large gatherings, 
limited travel, and closed non-essential businesses.
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Proposed Changes
    The Exchange first proposes to amend how floor trading permit fees 
are assessed during the time the Exchange is operating in a modified 
state in connection with COVID-19. Pursuant to the Fees Schedule, in 
order to act as a Market-Maker on the floor, a Trading Permit Holder 
(``TPH'') must purchase a Market-Maker Floor Permit (``MM Floor 
Permit), and in order to act as a Floor Broker on the floor, a TPH must 
purchase a Floor Broker Permit (``FB Permit''). Fees for MM Floor 
Permits and FB Permits (collectively, ``trading floor permits'') are 
assessed based on the Floor Trading Permit Sliding Scales. As noted 
above, in order to help protect the safety and welfare of individuals 
that may access the trading floor, upon reopening on June 15, 2020, the 
Exchange will regulate how many individuals, including TPH nominees, 
may access the trading floor. As such, the Exchange does not wish to 
assess floor trading permit fees for trading permits that the TPH may 
hold but cannot use to access the trading floor. The Exchange therefore 
proposes to instead assess floor trading permit fees based on the 
number of trading permits that are ``used'' (i.e., based on the maximum 
number of nominees a TPH can, and does have, on the floor on a given 
day).\5\ More specifically, the Exchange proposes to provide that while 
operating in a modified state in connection with COVID-19, the Exchange 
will calculate floor trading permit fees by using the following 
formula: (i) The number of floor trading permits that have a nominee 
assigned to it in the Customer Web Portal system (``Portal'') in a 
given month, multiplied by the number of trading days that the floor is 
open and that a nominee is assigned to each respective trading permit 
in that month, divided by (ii) the total number of trading days in a 
month. The Exchange will round up to determine the total number of 
trading permits assessed fees using the Floor Trading Permit Sliding 
Scales. The Exchange also proposes to make clear that if the trading 
floor becomes fully operational mid-month, trading floor permit fees 
will continue to be assessed using the foregoing formula. The following 
is an example of how the proposed change in floor trading permit fees 
would be applied during a month where the trading floor is operating in 
a modified manner:
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    \5\ For example, if a TPH organization that normally has 5 floor 
Trading Permits is only allowed to have no more than 2 individuals 
on the trading floor when the floor is operated in a modified 
manner, that TPH organization will only be assessed for 2 trading 
permit fees if both trading permits are used, even if the TPH 
organization rotates which associated individuals are on the trading 
floor.
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    Example: A SPX Market-Maker TPH holds a total of 6 Market-Maker 
Floor Permits (``MM Floor Permits'') and is assigned 3 trading spaces 
on the trading floor in its modified configuration (i.e., may have up 
to 3 nominees on the floor at a time). In a month with 22 trading days, 
2 of the MM Floor Permits are assigned to a nominee in the Customer Web 
Portal for 17 trading days and 1 of the permits is assigned to a 
nominee in the Customer Web Portal for 7 trading days that over laps 
with the other 2 nominees (i.e., for 7 days in the month, the TPH has 3 
nominees on the floor). The Exchange would calculate the trading floor 
permit fees as follows: (i) 2 permits x 17 days + 1 permit x 7 days

[[Page 40345]]

(i.e., total 41 days), divided by (ii) 22 trading days, which equals = 
1.9 permits. Rounding up, the Exchange would apply the Floor Trading 
Permit Sliding Scale to 2 MM Floor Permits. Based on the Market-Maker 
Floor Trading Permit Sliding Scale, the TPH's total MM Floor Permit 
Fees for the month would be $10,500 (i.e., 1 @$6,000 + 1 @$4,500).\6\
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    \6\ The Exchange notes that Market-Maker Floor Tier Appointment 
Fees will continue to be assessed based on the number of trading 
permits ``used'' during a given month (i.e., the number of Tier 
Appointment Fees assessed will be determined by the highest number 
of trading permits used in the respective class on any particular 
day during the month, subject to any applicable thresholds being 
met). As such, in this example, the Market-Maker TPH would also be 
assessed 3 SPX Market-Maker Floor Tier Appointment Fees.
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    The Exchange next proposes to include language in Footnote 24 of 
the Fees Schedule to provide that certain registration fees will not be 
assessed when the trading floor is operating in a modified manner. By 
way of background, every TPH organization must designate an individual 
nominee to represent the organization with respect to each Floor Broker 
Trading Permit or Market-Maker Floor Trading Permit in all matters 
relating to the Exchange.\7\ An ``inactive nominee'' of a TPH 
organization is an individual who is eligible to become an effective 
nominee of that organization with respect to any Floor Broker Trading 
Permit or Market-Maker Floor Trading Permit which the organization 
holds.\8\ Only active nominees are permitted to act as a Market-Maker 
or Floor Broker on the trading floor. In order for an inactive nominee 
to act as a Market-Maker or Floor Broker on the trading floor, the TPH 
organization it is associated with must purchase an additional Floor 
Trading Permit or must swap places with an active nominee on a Trading 
Permit, which nominee would then become inactive. The Exchange 
currently assesses a monthly fee of $300 for any nominee that retains 
inactive status (i.e., ``Inactive Nominee Status Fee (Parking 
Space)''). The Exchange also assesses $100 each time an inactive 
nominee swaps places with a nominee on a Trading Permit (``Inactive 
Nominee Status Change (Trading Permit Swap)'' fee). As TPH 
organizations will not purchase additional floor Trading Permits while 
the trading floor is operating in a modified manner, and as the 
Exchange will be regulating how many nominees may access the trading 
floor, the Exchange believes the Inactive Nominee Status fee (Parking 
Space) and Inactive Nominee Status Change (Trading Permit Swap) fee 
should not apply during a month that the Exchange operates in a 
modified manner. The Exchange notes these fees also did not apply when 
the Exchange operated in an electronic-only configuration.\9\
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    \7\ See Cboe Options Rule 3.9(b).
    \8\ See Cboe Options Rule 3.9(e).
    \9\ See Cboe Options Fees Schedule, Footnote 12.
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    The Exchange next proposes to amend the Floor Broker ADV Discount. 
Under this discount program, FB Trading Permit fees are eligible for 
rebates based on the average customer (``C'') open-outcry contracts 
executed per day over the course of a calendar month in all underlying 
symbols. As the trading floor was closed from June 1 through June 12, 
2020 (and therefore there were no open-outcry contracts executed during 
this time), the Exchange proposes that for the month of June 2020, ADV 
will be based on June 15-June 30, 2020 volume.
    The Exchange next proposes to increase the floor SPX/SPXW Market-
Maker Tier Appointment fee from $3,000 per permit to $5,000 per permit 
when the Exchange is operating in a modified state. As noted above, 
Market-Maker Floor Tier Appointment Fees will continue to be assessed 
based on the number of trading permits ``used'' during a given month 
(i.e., the number of Tier Appointment Fees assessed will be determined 
by the highest number of trading permits used in the respective class 
on any particular day during the month, subject to any applicable 
thresholds being met).
    The Exchange also proposes to increase the Floor Brokerage fees for 
SPX and SPXW transactions. Specifically, the Exchange proposes to 
modestly increase the fee for non-crossed orders from $0.04 per 
contract to $0.05 per contract and the fee for crossed orders from 
$0.02 per contract to $0.03 per contract when the Exchange is operating 
in a modified state.
    The Exchange next proposes to waive the following facilities fees 
for as long as the trading floor is operating in a modified manner as 
such services and products cannot be utilized during such time; 
provided however that such fees will be pro-rated based on the 
remaining trading days in the calendar month if the trading floor 
becomes fully operational mid-month:

------------------------------------------------------------------------
              Description                              Fee
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Standard Booth Rental Fees.............  $195/month (Perimeter); $550/
                                          month (OEX, Dow Jones/MNX/
                                          VIX).
Non-Standard Booth Rental Fees.........  $1,250/month; $1.70 per sq ft./
                                          month.
Wireless Phone Rental..................  $110/month.
Arbitrage Phone Positions..............  $550/month.
Satellite TV...........................  $50/month.
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    Lastly, the Exchange proposes to eliminate an obsolete footnote 
reference in the Floor Brokerage Fees table. Particularly, the Exchange 
proposes to eliminate the reference to Footnote ``(40)''. The Exchange 
notes that although it recently eliminated Footnote 40 in its entirety 
(which is now ``reserved''), it inadvertently omitted eliminating the 
appended reference in the Floor Brokerage Fees table.\10\ The proposed 
deletion maintains clarity in the Fees Schedule and alleviates 
potential confusion.
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    \10\ See Securities and Exchange Act Release No. 88341 (March 6, 
2020), 85 FR 14513 (March 12, 2020) (SR-CBOE-2020-006).
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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

[[Page 40346]]

Section 6(b)(4) of the Act,\13\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposed rule change to assess fees to 
only those floor Trading Permits that are ``used'' to access the 
trading floor when the trading floor is operated in a modified manner 
is reasonable because TPHs will not be assessed fees for floor Trading 
Permits that cannot be used to use to access the trading floor. The 
Exchange believes the proposed formula is reasonable as it assesses 
fees based on the number of nominees that can, and do, access the 
trading floor and on the dates that such nominee is assigned to a 
Trading Permit. The Exchange believes using the number of days a 
nominee is assigned to a permit to calculate the floor trading permit 
fees is appropriate as there may be instances in which a TPH does not 
have a nominee available to occupy one of its assigned trading spaces 
(e.g., if a nominee must avoid the Exchange's facilities for a reason 
enumerated in the Covid-19 Policy).\14\ The Exchange believes the 
proposed rule change relating to floor trading permit fees is also 
reasonable, equitable and not unfairly discriminatory as it applies to 
all floor TPHs equally.
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    \14\ See Cboe Trade Notice ``Standards of Conduct related to the 
Reopening of the Cboe Options Trading Floor and COVID-19'', 
Reference ID C2020052601, available at https://cdn.cboe.com/resources/release_notes/2020/Standards-of-Conduct-related-to-the-Reopening-of-the-Cboe-Options-Trading-Floor-Notice-Final.pdf.
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    The Exchange believes the proposal to waive the Inactive Nominee 
Status fee and Inactive Nominee Status Change fee is reasonable, 
equitable and not unfairly discriminatory as TPHs would not be subject 
to such fees and it would apply uniformly to all nominees and inactive 
nominees. Also as discussed above, the Exchange does not believe it's 
appropriate to apply such fees, as TPH organizations will not be 
purchasing additional floor Trading Permits while the trading floor is 
operating in a modified manner, and as the Exchange is regulating how 
many nominees may access the trading floor. Moreover, as noted above, 
the Exchange already waives both fees when the trading floor is fully 
inoperable.\15\
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    \15\ See Cboe Options Fees Schedule, Footnote 12.
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    The Exchange also believes its proposal to base the ADV thresholds 
for the Floor Broker ADV Discount program on volume from June 15 
through June 30, 2020 is reasonable as such discount is based on open-
outcry volume only and the Exchange floor was closed between June 1-
June 12, 2020. The Exchange believes the proposed change is equitable 
and not unfairly discriminatory as it applies uniformly to all Floor 
Brokers.
    The Exchange believes the proposal to increase the floor SPX/SPXW 
Market-Maker Tier Appointment fee is reasonable because floor Market-
Makers trading SPX/SPXW will still be paying similar trading permit-
related fees as compared to when the trading floor was fully 
operational. Particularly, the Exchange notes that because it intends 
to limit the amount of Market-Makers in SPX/SPXW allowed on the trading 
floor when the trading floor is operated in a modified manner, Market-
Makers will be saving on trading permit fees it would otherwise incur 
if the trading floor were fully operational.\16\ The Exchange also 
notes that it has not increased the SPX/SPXW Market-Maker Tier 
Appointment fee amount since it was adopted ten years ago.\17\ The 
Exchange also believes the proposed rule change is reasonable, 
equitable and not unfairly discriminatory as it applies to all floor 
Market-Makers trading SPX/SPXW equally. The Exchange believes it's 
reasonable equitable and not unfairly discriminatory to increase the 
SPX/SPXW floor Market-Maker Tier Appointment fee and not the SPX/SPXW 
electronic Market-Maker Tier Appointment fee when the floor is 
operating in a modified state, as electronic Market-Makers pay the same 
trading permit fees regardless of whether the floor is open, closed or 
partially open, as compared to floor Market-Makers who are otherwise 
paying lower trading permit fees when the floor is partially open, as 
discussed above.
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    \16\ The Exchange notes that it intends to allow Market-Maker 
TPH organizations in SPX to assign nominees to approximately half of 
the floor MM Floor Permits each TPH organization holds to access the 
trading floor. As discussed above, Market-Makers would not be 
assessed fees for the MM Floor Permits it is not allowed to use to 
access the trading floor.
    \17\ See Securities Exchange Act Release No. 62386 (June 25, 
2010) 75 FR 38566 (July 2, 2010) (SR-CBOE-2010-060).
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    The Exchange similarly believes it's reasonable to increase the 
SPX/SPXW floor brokerage fees as it's a modest increase and as Floor 
Brokers in SPX are also expected to pay less in FB Permit fees when the 
Exchange is operating in a modified manner.\18\ The Exchange also notes 
that it has not increased the SPX/SPXW Floor Brokerage fee amounts in 
well over fourteen years.\19\ The Exchange believes the proposed rule 
change is reasonable, equitable and not unfairly discriminatory as it 
applies to all Floor Brokers equally.
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    \18\ The Exchange notes that it intends to allow Floor Broker 
TPH organizations in SPX to assign nominees to approximately half of 
the floor FB Floor Permits each TPH organization holds to access the 
trading floor. As discussed above, Floor Brokers would not be 
assessed fees for the FB Floor Permits it is not allowed to use to 
access the trading floor.
    \19\ See Securities Exchange Act Release No. 53372 (February 24, 
2006) 71 FR 11003 (March 3, 2006) (SR-CBOE-2006-10).
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    The Exchange believes the proposal to waive the identified facility 
fees is reasonable as market participants won't be subject to such 
fees. The listed facility fees each apply to a product or service that 
may only be utilized when the trading floor is operating at fully 
capacity and will not be available when the Exchange is operating in a 
modified manner. The Exchange believes it's therefore appropriate to 
waive such fees while the Exchange is operating in a modified manner. 
The Exchange also believes it's appropriate to pro-rate such fees if 
the trading floor reopens mid-month as market participants will have 
the benefit of using such services/products for the remainder of the 
month. The Exchange believes the proposed rule change is equitable and 
not unfairly discriminatory as it applies equally to all market 
participants.
    The Exchange lastly believes the proposed deletion of an obsolete 
footnote reference maintains clarity in the Fees Schedule and 
alleviates potential confusion, thereby reducing impediments to, and 
perfecting the mechanism of a free and open market and a national 
market system, and, in general, protecting investors and the public 
interest.

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 notes the 
proposed changes relating to Footnote 24 are not intended to address 
any competitive issue, but rather to address fee changes it believes 
are reasonable because the trading floor is reopening, but must be 
operated in a modified manner in connection with COVID-19 in order to 
help protect the safety and welfare of individuals access the trading 
floor. 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 the 
proposed changes apply equally to all

[[Page 40347]]

similarly situated market participants. 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 the proposed changes only affect trading on 
the Exchange in limited circumstances.

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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2020-058 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-2020-058. 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-CBOE-2020-058 and should be submitted on 
or before July 27, 2020.
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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\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14488 Filed 7-2-20; 8:45 am]
BILLING CODE 8011-01-P