[Federal Register Volume 87, Number 99 (Monday, May 23, 2022)]
[Notices]
[Pages 31287-31290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-10967]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94928; File No. SR-CBOE-2022-009]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Order 
Approving a Proposed Rule Change To Amend Rule 4.3.06 To Allow the 
Exchange To List and Trade Options on the Goldman Sachs Physical Gold 
ETF

May 17, 2022.

I. Introduction

    On March 25, 2022, Cboe Exchange, Inc. (``Exchange'' or ``Cboe'') 
filed with the Securities and Exchange

[[Page 31288]]

Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade options on the 
Goldman Sachs Physical Gold ETF (``AAAU'' or ``Trust''). The proposed 
rule change was published for comment in the Federal Register on April 
8, 2022.\3\ The Commission received one comment on the proposed rule 
change.\4\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 94594 (Apr. 4, 
2022), 87 FR 20901 (Apr. 8, 2022) (``Notice'').
    \4\ See Letter from Andrew Robison, dated April 28, 2022, 
available at https://www.sec.gov/comments/sr-cboe-2022-009/srcboe2022009.htm. The comments expressed by the commenter are not 
relevant to the proposed rule change.
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II. Description of the Proposed Rule Change

    Under Cboe Rule 4.3.06(a), securities deemed appropriate for 
options trading include Units \5\ that represent certain types of 
interests.\6\ Cboe Rule 4.3.06(a)(4) specifies Units that represent 
interests in the SPDR Gold Trust, the iShares COMEX Gold Trust, the 
iShares Silver Trust, the ETFS Silver Trust, the ETFS Gold Trust, the 
ETFS Palladium Trust, the ETFS Platinum Trust, or the Sprott Physical 
Gold Trust. The proposed rule change would add AAAU to the list of ETFs 
under Rule 4.3.06(a)(4) that may be approved for options trading on the 
Exchange.
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    \5\ The terms ``Unit'' and Exchange-Traded Fund (``ETF'') mean a 
share or other security traded on a national securities exchange and 
defined as an NMS stock as set forth in Cboe Rule 4.3. See Cboe 
Rule. 1.1. Capitalized terms not otherwise defined herein have the 
meanings set forth in CBOE's rules or the Notice.
    \6\ See Cboe Rules 4.3.06(a)(1)-(5).
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    The Exchange states that AAAU is a gold-backed commodity ETF 
structured as a trust, much like other Units currently deemed 
appropriate for options trading pursuant to Cboe Rule 4.3.06(a)(4), 
such as the SPDR Gold Trust (``GLD''), iShares COMEX Gold Trust 
(``IAU''), Aberdeen Standard Physical Gold Trust (``SGOL''), and Sprott 
Physical Gold Trust (``PHYS'').\7\ According to the Exchange, the 
Trust's investment objective is for its shares to reflect the 
performance of the price of gold (less the expenses of the Trust's 
operations), which offers investors an opportunity to gain exposure to 
gold without the complexities of gold delivery.\8\ The Trust issues 
Goldman Sachs Physical Gold ETF Shares, which represent units of 
fractional undivided beneficial interest in the Trust, the assets of 
which consist principally of gold.\9\ The Exchange states that AAAU is 
a competitively-priced commodity ETF whose cost is comparatively lower 
than the industry average for commodity ETFs.\10\ The Exchange asserts 
that AAAU provides investors with a cost-efficient alternative that 
allows a level of participation in the gold market through the 
securities market.\11\ The GLD, IAU, SGOL and PHYS trusts also issue 
shares that represent fractional undivided beneficial interest in the 
respective trust, each of which holds physical gold and is designed to 
track gold or the performance of the price of gold and offer access to 
the gold market.\12\
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    \7\ See Notice, supra note 3, 87 FR at 20902.
    \8\ See id.
    \9\ See id. The Trust may include minimal cash. See id. at n. 5.
    \10\ See Notice, supra note 3, 87 FR at 20902.
    \11\ See id.
    \12\ See id. The trusts may include minimal cash. See id. at 
n.6.
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    AAAU options will trade in the same manner as any other ETF options 
on the Exchange.\13\ The Exchange states that Cboe rules that currently 
apply to the listing and trading of the aforementioned options on gold-
backed commodity ETFs also will apply to the listing and trading of 
AAAU options on the Exchange.\14\ The Exchange notes that these include 
rules governing, among other things, listing criteria, expiration and 
exercise prices, minimum increments, position and exercise limits, 
margin requirements, customer accounts and trading halt procedures.\15\
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    \13\ See Notice, supra note 3, 87 FR at 20902.
    \14\ See id.
    \15\ See id.
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    The Exchange's initial listing standards for ETFs on which options 
may be listed and traded on the Exchange will apply to AAAU.\16\ The 
Exchange represents that AAAU satisfies the Exchange's initial listing 
standards as set forth in Cboe Rule 4.3(a) and Cboe Rule 4.3.06(b).\17\ 
Pursuant to Cboe Rule 4.3(a), an underlying security on which options 
may be listed and traded on the Exchange must be duly registered and be 
an NMS stock,\18\ and be characterized by a substantial number of 
outstanding shares which are widely held and actively traded.\19\ In 
addition, Cboe Rule 4.3.06(b) requires that Units must either (1) meet 
the criteria and guidelines under Cboe Rule 4.3.01,\20\ or (2) be 
available for creation or redemption each business day from or through 
the issuing trust, investment company, commodity pools or other issuer 
in cash or in kind at a price related to net asset value, and the 
issuing trust, investment company, commodity pools or other issuer is 
obligated to issue Units in a specified aggregate number even if some 
or all of the investment assets and/or cash required to be deposited 
have not been received by the issuing trust, investment company, 
commodity pools or other issuer, subject to the condition that the 
person obligated to deposit the investments has undertaken to deliver 
the investment assets and/or cash as soon as possible and such 
undertaking is secured by the delivery and maintenance of collateral 
consisting of cash or cash equivalents satisfactory to the issuer of 
the Units which underlie the option as described in the Units' 
prospectus.\21\ The Exchange represents that, at minimum, AAAU 
satisfies Cboe Rule 4.3.06(b)(2).\22\
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    \16\ See id.
    \17\ See id.
    \18\ See id. The term ``NMS stock'' has the meaning set forth in 
Rule 600 of Regulation NMS. See Cboe Rule 1.1.
    \19\ See Notice, supra note 3, 87 FR at 20902. The Exchange 
notes that the year-to-date (March 23, 2022) average daily volume 
(``ADV'') of AAAU shares is approximately 845,200 shares, the market 
capitalization of AAAU as of March 23, 2022 is approximately $727.3 
million and the NAV of its shares is $19.19. See id. at n. 7.
    \20\ See Cboe Rule 4.3.01 (providing guidelines established by 
the Board of Directors to be considered by the Exchange in 
evaluating potential underlying securities for Exchange option 
transactions).
    \21\ See Notice, supra note 3, 87 FR at 20902-03.
    \22\ See id. See also Goldman Sachs Physical Gold ETF, 
Prospectus (January 8, 2021) available at https://www.gsam.com/content/gsam/us/en/individual/products/etf-fund-finder/goldman-sachs-physical-gold-etf.html#activeTab=overview.
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    The Exchange states that AAAU also will be subject to the 
Exchange's continued listing requirements, set forth in Cboe Rule 
4.4.06, for ETFs deemed appropriate for options trading pursuant to 
Cboe Rule 4.3.06.\23\ Cboe Rule 4.4.06 provides that Units that were 
initially approved for options trading pursuant to Cboe Rule 4.3.06 
shall be deemed not to meet the requirements for continued approval, 
and the Exchange shall not open for trading any additional series of 
option contracts of the class covering such Units, if the Units cease 
to be an NMS stock or the Units are halted from trading in their 
primary market.\24\ Additionally, options on Units may be subject to 
the suspension of opening transactions in any of the following 
circumstances: (1) In the case of options covering Units approved for 
trading under Cboe Rule 4.3.06(b)(1), in accordance with the terms of 
paragraphs (a), (b), and (c) of Cboe Rule 4.4.01; (2) in the case of 
options covering Units approved for trading under Cboe Rule

[[Page 31289]]

4.3.06(b)(2), following the initial twelve-month period beginning upon 
the commencement of trading in the Units on a national securities 
exchange and are defined [sic] as an NMS stock, there are fewer than 50 
record and/or beneficial holders of such Units for 30 or more 
consecutive trading days; (3) the value of the index or portfolio of 
securities, non-U.S. currency, or portfolio of commodities including 
commodity futures contracts, options on commodity futures contracts, 
swaps, forward contracts and/or options on physical commodities and/or 
Financial Instruments and Money Market Instruments on which the Units 
are based is no longer calculated or available; or (4) such other event 
occurs or condition exists that in the opinion of the Exchange makes 
further dealing in such options on the Exchange inadvisable.\25\
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    \23\ See Notice, supra note 3, 87 FR at 20903.
    \24\ See id.
    \25\ See id.
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    AAAU options will be physically-settled contracts with American-
style exercise.\26\ The Exchange states that, consistent with Cboe Rule 
4.5, which governs the opening of options series on a specific 
underlying security (including ETFs), the Exchange will open at least 
one expiration month for options on AAAU \27\ and may also list series 
of options on AAAU for trading on a weekly \28\ or quarterly \29\ 
basis.\30\ The Exchange states that it may also list long-term equity 
option series (``LEAPS'') that expire from 12 to 180 months from the 
time they are listed.\31\
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    \26\ See id. See also Cboe Rule 4.2 (providing that the rights 
and obligations of holders and writers shall be as set forth in the 
Rules of The Options Clearing Corporation (``OCC'')); Cboe Equity 
Options Product Specifications (March 23, 2022) available at https://www.cboe.com/exchange_traded_stock/equity_options_spec/?msclkid=8079efbbaaf111ec83b46e77a2984348; OCC Rules, Chapter VIII 
(governing exercise and assignment) and Chapter IX (governing the 
discharge of delivery and payment obligations arising out of the 
exercise of physically-settled stock option contracts).
    \27\ See Notice, supra note 3, 87 FR at 20903 n. 11; see also 
Cboe Rule 4.5(b).
    \28\ See Notice, supra note 3, 87 FR at 20903. The weekly 
listing program is known as the Short Term Option Series Program and 
is described within Cboe Rule 4.5(d). See id. at n.12.
    \29\ See Notice, supra note 3, 87 FR at 20903; see also Cboe 
Rule 4.5(e).
    \30\ See Notice, supra note 3, 87 FR at 20903.
    \31\ See id.; see also Cboe Rule 4.5(f).
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    The Exchange states that, pursuant to Rule 4.5.07, which governs 
strike prices of series of options on Units, the interval between 
strike prices for series of options on AAAU will be $1 or greater where 
the strike price is $200 or less and $5.00 or greater where the strike 
price is greater than $200.\32\ The Exchange states that, pursuant to 
Cboe Rule 5.4, where the price of a series of AAAU options is less than 
$3.00 the minimum increment will be $0.05, and where the price is $3.00 
or higher, the minimum increment will be $0.10.\33\ The Exchange states 
that any and all new series of AAAU options that the Exchange lists 
will be consistent and comply with the expirations, strike prices and 
minimum increments set forth in Cboe Rules 4.5 and 5.4, as 
applicable.\34\
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    \32\ See Notice, supra note 3, 87 FR at 20903. The Exchange 
notes that for options listed pursuant to the Short Term Option 
Series Program, Rule 4.5(d)(5) specifically sets forth intervals 
between strike prices on Short Term Option Series. See id. at n. 15.
    \33\ See Notice, supra note 3, 87 FR at 20903; see also Cboe 
Rule 5.4. The Exchange states that, if options on AAAU are eligible 
to participate in the Penny Interval Program, the minimum increment 
will be $0.01 below $3.00 and $0.50 above $3.00. See Notice, supra 
note 3, 87 FR at 20903 n. 20.
    \34\ See Notice, supra note 3, 87 FR at 20903.
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    The Exchange states that position and exercise limits for options 
on ETFs, including options on AAAU, are determined pursuant to Cboe 
Rules 8.30 and 8.32, respectively.\35\ The Exchange states that 
position and exercise limits for ETF options vary according to the 
number of outstanding shares and the trading volumes of the underlying 
ETF over the past six months, where the largest in capitalization and 
the most frequently traded ETFs have an option position and exercise 
limit of 250,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market, and smaller 
capitalization ETFs have position and exercise limits of 200,000, 
75,000, 50,000 or 25,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market.\36\ The Exchange 
states that, given AAAU volume over the previous six months, the 
Exchange anticipates that upon initial listing, AAAU options will fall 
into the position limit bucket of 75,000 contracts.\37\ The Exchange 
further notes that Cboe Rule 10.3, which governs margin requirements 
applicable to the trading of all options on the Exchange, including 
options on ETFs, will also apply to the trading of AAAU options.\38\
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    \35\ See id.
    \36\ See id.
    \37\ See Notice, supra note 3, 87 FR at 20903 n. 21.
    \38\ See Notice, supra note 3, 87 FR at 20903.
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    The Exchange represents that the same surveillance procedures 
applicable to all other options on other Units currently listed and 
traded on the Exchange will apply to options on AAAU, and that it has 
the necessary systems capacity to support the new option series.\39\ 
The Exchange states it believes that its existing surveillance and 
reporting safeguards are designed to deter and detect possible 
manipulative behavior which might potentially arise from listing and 
trading ETF options, including AAAU options, as proposed.\40\ Also, the 
Exchange states it may obtain information from the CME Group New York 
Mercantile Exchange, Inc. (``NYMEX'') (a member of the Intermarket 
Surveillance Group (``ISG'')) \41\ related to any financial instrument 
that is based, in whole or in part, upon an interest in or performance 
of gold.\42\
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    \39\ See id.
    \40\ See Notice, supra note 3, 87 FR at 20903-04.
    \41\ The purpose of the ISG is to provide a framework for the 
sharing of information and the coordination of regulatory efforts 
among exchanges trading securities and related products to address 
potential intermarket manipulations and trading abuses. See https://isgportal.org/.
    \42\ See Notice, supra note 3, 87 FR at 20904.
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    The Exchange represents that it has also analyzed its capacity and 
believes the Exchange and OPRA have the necessary systems capacity to 
handle the additional traffic associated with the listing of new series 
that may result from the introduction of options on AAAU, up to the 
number of expirations currently permissible under its rules.\43\ The 
Exchange believes that because the proposal is limited to one class, 
any additional traffic that may be generated from the introduction of 
AAAU options will be manageable.\44\ The Exchange also proposes to 
amend Cboe Rule 4.3.06(a)(4) to update the names of the ``ETFS Silver 
Trust,'' the ``ETFS Gold Trust,'' the ``ETFS Palladium Trust'' and the 
``ETFS Platinum Trust'' to the ``Aberdeen Standard Physical Silver 
Trust,'' the ``Aberdeen Standard Physical Gold Trust,'' the ``Aberdeen 
Standard Physical Palladium Trust,'' and the ``Aberdeen Standard 
Physical Platinum Trust,'' respectively,\45\ and make a non-substantive 
change to the rule to replace superfluous commas with conjunctions.\46\
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    \43\ See id.
    \44\ See id.
    \45\ See Notice, supra note 3, 87 FR at 20902. The Exchange 
states that these ETFs were renamed in 2018. See id.
    \46\ See id.
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III. Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange \47\ and, in particular, the requirements of Section 6

[[Page 31290]]

of the Act.\48\ Specifically, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\49\ which 
requires, among other things, that the rules of a national securities 
exchange be designed 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.
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    \47\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \48\ 15 U.S.C. 78f.
    \49\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal to list and trade options 
on AAAU on the Exchange will provide investors with the ability to 
transact in AAAU options in a listed market environment, which could 
provide investors with heightened contra-party creditworthiness due to 
the role of OCC as issuer and guarantor of all listed options, as well 
as increased transparency and enhanced price discovery. Moreover, the 
Exchange already lists options on other gold-based ETFs, which, as 
described above, are trusts structured in substantially the same manner 
as AAAU,\50\ and the Exchange represents that it has not identified any 
issues with the continued listing and trading of the gold-backed ETF 
options that it currently lists for trading.\51\
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    \50\ See e.g., Securities Exchange Act Release No. 59055 (Dec. 
4, 2008), 73 FR 75148 (Dec. 10, 2008) (approving proposals to list 
and trade options on IAU and the iShares Silver Trust); Securities 
Exchange Act Release No. 57894 (May 30, 2008), 73 FR 32061 (Jun. 5, 
2008) (approving proposals to list and trade options on GLD); and 
Securities Exchange Act Release No. 61483 (Feb. 3, 2010), 75 FR 6753 
(Feb. 10, 2010) (approving proposals to list and trade options on 
the ETFS Gold Trust and ETFS Silver Trust).
    \51\ See Notice, supra note 3, at 20904.
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    As a national securities exchange, Cboe is required under Section 
6(b)(1) of the Act \52\ to enforce compliance by its members, and 
persons associated with its members, with the provisions of the Act, 
Commission rules and regulations thereunder, and its own rules. In 
addition, brokers that trade AAAU options also will be subject to best 
execution obligations and FINRA rules.\53\ Applicable exchange rules 
also require that customers receive appropriate disclosure before 
trading AAAU Options.\54\ Further, brokers opening accounts and 
recommending options transactions must comply with relevant customer 
suitability standards.\55\
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    \52\ 15 U.S.C. 78f(b)(1).
    \53\ See FINRA Rule 5310.
    \54\ See Cboe Rule 9.9 and Rule 9.15.
    \55\ See Cboe Rule 9.3.
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    Options on AAAU will trade as options under the trading rules of 
the Exchange.\56\ AAAU options must also satisfy Exchange initial 
listing and continued listing standards applicable to options on all 
Units, including the gold-backed commodity ETFs already approved for 
options trading on the Exchange. A security on which options may be 
listed and traded on the Exchange must be duly registered and be an 
``NMS stock'' as defined under Rule 600 of Regulation NMS \57\ and be 
characterized by a substantial number of outstanding shares which are 
widely held and actively traded.\58\ Additionally, Units must meet 
either (1) the criteria and guidelines under Cboe Rule 4.3.01,\59\ or 
(2) they must be available for creation or redemption each business day 
from or through the issuer in cash or in kind at a price related to net 
asset value, and the issuer must be obligated to issue Units in a 
specified aggregate number even if some or all of the investment assets 
required to be deposited have not been received by the issuer, subject 
to the condition that the person obligated to deposit the investments 
has undertaken to deliver the investment assets as soon as possible and 
such undertaking is secured by the delivery and maintenance of 
collateral consisting of cash or cash equivalents satisfactory to the 
issuer, as provided in the respective prospectus.\60\
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    \56\ See Chapter 5 of Cboe's Rules.
    \57\ 17 CFR 242.600.
    \58\ See Cboe Rule 4.3(a); see also supra note 19.
    \59\ See Cboe Rule 4.3.06(b)(1). See also Cboe Rule 4.3.01 
(providing guidelines established by the Board of Directors to be 
considered by the Exchange in evaluating potential underlying 
securities for Exchange option transactions).
    \60\ See Cboe Rule 4.3.06(b)(2). The Exchange represents that, 
at minimum, the AAAU satisfies this initial listing criteria. See 
Notice, supra note 3, 87 FR at 20903.
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    Series of AAAU options also will be subject to the Exchange's 
continued listing requirements, including standards applicable to the 
underlying Trust. If the Units cease to be an NMS stock or the Units 
are halted from trading in their primary market, the Exchange will deem 
Units that were initially approved for options trading pursuant to Cboe 
Rule 4.3.06 not to meet the requirements for continued approval, and 
the Exchange shall not open for trading any additional series of option 
contracts of the class covering such Units.\61\
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    \61\ See Cboe Rule 4.4.06.
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    The Exchange represents that its existing surveillance and 
reporting safeguards are designed to deter and detect possible 
manipulative behavior which might arise from listing and trading ETF 
options, including AAAU options.\62\ The Exchange also represents that 
it has the necessary systems capacity to support the new ETF option 
series.\63\ Additionally, the Commission notes that AAAU options will 
trade in the same manner as any other options on ETFs, and the same 
Exchange rules that currently govern the listing and trading of ETF 
options, including permissible expirations, strike prices and minimum 
increments, and applicable position and exercise limits and margin 
requirements, will govern the listing and trading of options on AAAU.
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    \62\ See Notice, supra note 3, 87 FR at 20903.
    \63\ See id.
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    Finally, the Commission believes that the Exchange's proposals to 
make grammatical edits to the rule text and update the names of certain 
ETFs in Cboe Rule 4.3.06(a)(4) are helpful technical changes that add 
clarity and accuracy to the rule text.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\64\ that the proposed rule change (SR-CBOE-2022-009) be, and 
hereby is, approved.
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    \64\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\65\
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    \65\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10967 Filed 5-20-22; 8:45 am]
BILLING CODE 8011-01-P


