
[Federal Register Volume 88, Number 162 (Wednesday, August 23, 2023)]
[Notices]
[Pages 57505-57508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-18104]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98158; File No. SR-BX-2023-020]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Set Fees for the 
Purchase of Field-Programmable Gate Array Technology as an Optional 
Delivery Mechanism for BX Totalview

August 17, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 9, 2023, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``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 set fees for the purchase of field-
programmable gate array (``FPGA'') technology as an optional delivery 
mechanism for BX TotalView.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, 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 aspects of such 
statements.

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

1. Purpose
    The purpose of the proposed rule change is to establish a fee 
schedule for the purchase of field-programmable gate array (``FPGA'') 
technology as an optional delivery mechanism for BX TotalView (``BX 
FPGA Service'').\3\ This follows a recently-filed proposal to offer 
FPGA technology as an optional delivery mechanism for BX TotalView.\4\
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    \3\ This Proposal was initially filed by the Exchange on May 23, 
2023. See Securities Exchange Act Release No. 97627 (May 31, 2023), 
88 FR 37112 (June 6, 2023) (SR-BX-2023-014). On July 7, 2023, that 
filing was withdrawn and replaced to provide supplemental 
information. See Securities Exchange Act Release No. 97946 (July 19, 
2023), 88 FR 47937 (July 25, 2023) (SR-BX-2023-016). On August 9, 
2023, the second filing was withdrawn and replaced with the instant 
filing, which provides additional information without changing the 
Proposal in substance.
    \4\ See SR-BX-2023-011 (``A proposal to offer field-programmable 
gate array (`FPGA') technology as an optional delivery mechanism for 
BX TotalView.''), available at https://listingcenter.nasdaq.com/rulebook/BX/rulefilings. A proposal to establish a fee schedule for 
the use of FPGA technology for the Phlx exchange is being filed 
concurrently with this proposal.
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FPGA
    FPGA is a hardware-based delivery mechanism that utilizes an 
integrated circuit that is programmed to reduce ``jitter''--a technical 
term of art referring to the deviation in amplitude, phase timing or 
width of a signal pulse in a digital signal--that will allow data to be 
processed in a more predictable, or ``deterministic,'' fashion. 
Reducing jitter can be useful for certain customers due to the 
variability in the timing of market data packets transmitted by an 
exchange over the course of the trading day. Orders, and therefore 
market data packets, typically accumulate in larger numbers at the 
beginning and end of the trading day, as well as during the peaks of 
activity that occur at random intervals during the day. These bursts of 
activity may alter the time interval between the delivery of data 
packets because software processes information at variable rates 
depending on load to the system. Processing times may increase at 
higher loads, and decrease during periods of lesser activity. FPGA 
technology processes data packets at a constant time interval, without 
regard to the number of packets processed. Higher levels of determinism 
mean less variable queuing, which improves the predictability of data 
transfer, particularly during times of peak market activity.

[[Page 57506]]

    The benefits of determinism depend on the use case of the customer, 
as well as the customer's specific system architecture.
    Higher determinism does not necessarily mean lower latency. The 
concepts of determinism and latency are related, but distinct. 
Determinism refers to predictability in the rate of data transmission; 
latency refers to the time required to process data or transport it 
from one location to another. Low latency is not necessarily 
deterministic, and higher determinism does not necessarily mean low 
latency. As such, use of FPGA technology will increase determinism, but 
does not guarantee lower latency at all times.\5\
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    \5\ Because software can be impacted by workload, FPGA 
technology in general can provide lower latency during periods of 
peak activity. The same FPGA technology that will support the BX 
FPGA Service is also broadly commercially available for purchase 
from third-party sellers unrelated to the Exchange.
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    Among customers that seek a higher degree of determinism, the 
benefits of FPGA technology vary, as FPGA technology is one possible 
solution, among a catalog of possible solutions, for increasing the 
consistency and predictability of message throughput over the course of 
the trading day. Some customers are able to adequately control jitter 
without using FPGA technology; other customers address jitter using 
specialized software, coding or other design solutions in conjunction 
with FPGA; still others use FPGA alone. The specific choice depends on 
a complex analysis of the customer's information technology systems in 
the context of their particular use cases.
    FPGA is a broadly-available, commonly-used type of programmable 
circuit that can be modified to suit different use cases. It is used in 
a wide spectrum of industries, including the consumer electronics, 
automotive, and aerospace, as well as in a variety of industrial 
applications. It is not unique to the financial services industry,\6\ 
or to the Exchange.
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    \6\ See, e.g., Contrive Datum Insights, ``Field-Programmable 
Gate Array (FPGA) Market is expected to reach around USD 22.10 
Billion by 2030, Grow at a CAGR of 15.12% during Forecast Period 
2023 to 2030,'' (February 21, 2023), available at https://www.globenewswire.com/en/news-release/2023/02/21/2612772/0/en/Field-Programmable-Gate-Array-FPGA-Market-Is-Expected-To-Reach-around-USD-22-10-Billion-by-2030-Grow-at-a-CAGR-Of-15-12-during-Forecast-Period-2023-To-2030-Data-By-Contrive-Datum-I.html (describing the 
general size and state of the FPGA market in 2023).
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    FPGA technology has been offered by the Nasdaq Stock Exchange for 
over a decade, and the Nasdaq Options Market for nearly as long,\7\ and 
has been cited by the SEC as an example of a technology useful in the 
distribution of market data products.\8\
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    \7\ See Securities Exchange Act Release No. 67297 (June 28, 
2012), 77 FR 39752 (July 5, 2012) (SR-Nasdaq-2012-063) (introducing 
FPGA technology); see also Nasdaq Data News 2012-13, available at 
http://www.nasdaqtrader.com/TraderNews.aspx?id=dn2012-13 
(introducing TotalView FPGA service as of August 1, 2012); 
Securities Exchange Act Release No. 74745 (April 16, 2015), 80 FR 
22588 (April 22, 2015) (SR-Nasdaq-2015-035) (establishing FPGA for 
the Nasdaq Options Market); The Nasdaq Stock Market LLC Rules, 
Equity 7, Section 126(c) (Hardware-Based Delivery of Nasdaq Depth 
data).
    \8\ See Securities Exchange Act Release No. 90610, 86 FR 18596, 
18647 (April 9, 2021) (File No. S7-03-20) (listing field 
programmable gate array services as an example of a technological 
innovation that could be employed by competing consolidators as part 
of the Market Data Infrastructure rule).
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    The Exchange proposes to offer the BX FPGA Service in conjunction 
with the Exchange's depth of book feed, BX TotalView. BX TotalView is a 
real-time market data product that provides full order depth using a 
series of order messages to track the life of customer orders in the BX 
market, as well as trade data for BX executions and administrative 
messages such as Trading Action messages, Symbol Directory, and Event 
Control messages.\9\
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    \9\ See Nasdaq BX, Inc. Rules, Equity 7, Section 123 (BX 
TotalView); see also Securities Exchange Act Release No. 59307 
(January 28, 2009), 74 FR 6069 (February 4, 2009) (establishing fees 
for BX TotalView).
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    Customers that choose to purchase BX TotalView without the BX FPGA 
Service will receive the same data as customers that elect to purchase 
BX TotalView with the BX FPGA Service.

Proposed Fees

    BX proposes internal distribution fees of $3,500 per month and 
external distribution fees of $350 for the BX FPGA Service; customers 
that elect to use the BX FPGA Service for both internal and external 
distribution will pay both fees.\10\ These fees are in addition to 
Market Data Distributor Fees,\11\ fees for BX TotalView,\12\ and other 
fees for Distribution Models.\13\ Customers that elect to receive BX 
depth of book data without using the BX FPGA Service will pay no fee in 
addition to the underlying fees listed above.
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    \10\ The difference in amount for external and external 
distribution reflects Nasdaq's experience that the Exchange's FPGA 
hardware is best employed at the point of ingestion, as the utility 
of FPGA technology falls as the data moves farther from the source.
    \11\ See Nasdaq BX, Inc. Rules, Equity 7, Section 119.
    \12\ See Id., Section 123.
    \13\ See Id., Section 126.
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    The proposed fees for the BX FPGA Service are substantially lower 
than fees for the Nasdaq FPGA Service, which are set at $25,000 per 
Distributor for internal only distribution, $2,500 for external only, 
and $27,500 for internal and external distribution.\14\ The difference 
is based, in part, on a comparison of peak activity at the two 
exchanges. As noted above, high levels of determinism are particularly 
valuable during periods of peak activity.
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    \14\ See The Nasdaq Stock Market LLC Rules, Equity 7 (Pricing 
Schedule), Section 126(c) (Hardware-based delivery of Nasdaq depth 
data).
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    Although there is considerable variation in the number of messages 
at various peaks, as well as the duration of peak activity, the 
proposed fees are roughly comparable to the differences in average peak 
activity at the BX exchange relative to the Nasdaq exchange. Exchange 
staff have also discussed the proposed fees with customers, and 
believe, based on those discussions and their own business judgment, 
that the proposed fees fairly reflect the value of the BX FPGA Service. 
A number of customers provisionally agree with this assessment, and 
have indicated that they are interested in testing it.
    No other exchange currently offers FPGA technology as a separate 
service in conjunction with the delivery of a proprietary data feed, 
and therefore there are no other fees for comparison.
    If BX is incorrect in its determination that the proposed fees 
reflect the underlying value of the BX FPGA Service, customers will not 
purchase the product. The BX FPGA Service is not necessary for a 
customer to ingest and process depth of book information, and those 
customers that seek a higher degree of determinism have a number of 
options at their disposal to reduce jitter without using the BX FPGA 
Service.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\15\ in general, and furthers the objectives of 
sections 6(b)(4) and 6(b)(5) of the Act,\16\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4) and (5).
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    The Proposal is reasonable and unlikely to burden the market 
because the purchase of the BX FPGA Service is optional for all 
categories of customers. No customer and no category of customers (such 
as, for example, vendors, proprietary trading firms, banks, hedge 
funds, market makers, or high frequency trading firms) are required to 
purchase the BX FPGA

[[Page 57507]]

Service for either legal or technological reasons--even a customer that 
seeks to reduce jitter.\17\
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    \17\ Not all customers of depth of book information process at 
sufficiently high speeds for jitter to become a concern. Neither 
FPGA hardware nor its substitutes are required to ingest depth of 
book information.
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    The Nasdaq exchange has over ten years of experience in selling the 
Nasdaq FPGA Service. That experience has shown that the vast majority 
of Nasdaq depth customers do not find value in the Nasdaq FPGA Service. 
The Exchange expects customers that do not find value in the Nasdaq 
FPGA Service to make a similar decision with respect to the BX FPGA 
Service, and continue to ingest BX TotalView as they do now.
    For those customers that may seek to increase determinism, the 
purchase of FPGA technology from the BX exchange will be only one of 
several options available. FPGA technology is not unique to the 
Exchange or even the financial services industry. Third-party data 
vendors offer FPGA technology services. Customers may also install 
their own FPGA hardware for internal use. All of these are viable 
options; the benefits of any particular option will depend on the 
particular customer's systems and use cases.
    Customers may also choose not to address jitter using FPGA 
technology at all. As noted above, FPGA technology processes the data 
at a consistently predictable rate relative to software. This 
predictability in the rate of processing may not be advantageous or 
optimal for all systems receiving the exchange data feed.
    The design of data processing architecture is complex. The 
ingestion of data from an exchange is just one step in the life-cycle 
of trading. Customers must also generate and submit orders, evaluate 
trades, and then generate new orders while interacting with multiple 
exchanges. All of these steps are part of a single trading system. 
Changing any one step in the process--by, for example, purchasing the 
BX FPGA Service when other exchanges may not offer FPGA--often results 
in the need for changes to other aspects of the process. As such, the 
decision to buy the BX FPGA Service will be based on whether the 
service is compatible with the customer's trading system as a whole, 
not just on whether it may facilitate the processing of data from a 
single exchange. The appropriateness of any particular solution will 
depend on the customer's system architecture, and the specific use 
cases for the market data consumed.
    To illustrate the choice faced by exchange customers, consider the 
decisions made by the two consolidated data processors, the UTP and CTA 
Plans, two different systems that use dissimilar means to achieve an 
optimal solution. Both perform the same task--combining quotes and 
trades from all U.S. exchanges into a consolidated data feed with 
relatively low jitter. Yet only one processor--the CTA Plan--uses FPGA 
hardware, while the other--the UTP Plan--does not.
    This is because the UTP Plan's design, coding and hardware achieve 
the desired level of determinism without FPGA technology. The CTA Plan, 
by contrast, elected to incorporate FPGA technology into its system 
design. Notwithstanding these different design decisions, both plans 
achieve broadly similar levels of performance. FPGA technology is 
therefore not essential to addressing jitter, but rather is one option 
among many to address the issue.
    Market data customers face an array of choices to optimize 
determinism, much like the UTP and CTA Plans. For example, a customer 
may purchase and deploy its own FPGA hardware, without purchasing the 
proposed FPGA technology service from the Exchange, after receiving 
data from the Exchange. Another customer may find use of the BX FPGA 
Service, which lowers the level of jitter prior to the customer's 
receipt of the data, to be a better fit for its system architecture. 
The solution chosen will vary based on the needs and design choices of 
the customer.
    The experience of the Nasdaq exchange in offering the Nasdaq FPGA 
Service shows that customers sensitive to jitter often avail themselves 
of substitutes for FPGA technology, a decision that can change over 
time. Over the past decade, a total of 21 current or potential users of 
the Nasdaq FPGA Service--all of which sought a higher degree of 
determinism--substituted the Nasdaq FPGA Service with an alternative 
solution. Six of these customers were in the process of developing and 
testing the Nasdaq FPGA Service, but ultimately decided not to purchase 
it before completing this process. The remaining 15 customers purchased 
the Nasdaq FPGA Service, only to cancel it after using it. Because all 
of these customers continued to utilize the underlying data, these 
cancelations demonstrate that the BX FPGA Service, like the Nasdaq FPGA 
Service, will be an optional service, even for those customers that 
seek to reduce jitter.
    Moreover, as noted above, no other exchange currently offers FPGA 
technology in conjunction with their proprietary data feeds as a 
separate service, notwithstanding the fact that it is a widely 
available technology, providing further evidence that customers have 
multiple options at their disposal to address jitter.
    In the experience of the Nasdaq exchange, the Nasdaq FPGA Service 
is purchased by vendors, proprietary trading firms, banks, high-
frequency trading firms, hedge funds, and market makers. The Nasdaq 
exchange is aware of no systematic differences within any of these 
categories among market participants that choose to use or not to use 
the Nasdaq FPGA Service.
    Few customers of Nasdaq TotalView purchase the Nasdaq FPGA Service. 
This is because the bulk of customers consume Nasdaq TotalView for 
display (i.e., human) usage. FPGA technology impacts performance at a 
speed that a human cannot process, and there is no need for FPGA 
technology for such usage.
    Of the customers that receive Nasdaq TotalView from Nasdaq (either 
through a direct feed or an extranet connection), and are in a position 
to utilize the Nasdaq FPGA Service, only about 15 percent purchase it.
    Most strikingly, only approximately 3% of market makers at Nasdaq 
purchase the Nasdaq FPGA Service.\18\ This may seem a surprising 
result, given that market makers, by definition, trade throughout the 
day and during periods of peak activity, but, as noted above, customers 
have several options: purchase FPGA services from a third-party vendor, 
implement FPGA technology on their own, or configure their systems to 
process data during peaks without the use of FPGA. The fact that only 
about 3% of market makers at the Nasdaq exchange purchase the Nasdaq 
FPGA Service demonstrates that most customers make use of alternative 
solutions. As such, the determining factor in whether to purchase the 
Nasdaq FPGA Service is not the category of customer, but rather the 
compatibility of that service with the customer's specific systems 
architecture and technical requirements, which can and do change over 
time as systems are modified, replaced or updated.
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    \18\ The 3% figure represents the percentage of designated 
market makers by market participant identifier (``MPID'') that 
currently purchase the Nasdaq FPGA Service relative to all MPIDs on 
the Nasdaq Market Center. The MPID is a unique four-letter mnemonic 
assigned to each Participant in the Nasdaq Market Center. A 
Participant may have one or more than one MPID. See The Nasdaq Stock 
Market LLC Rules, Equity 1, Section 1(a)(11).
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    For all of these reasons, customers can discontinue the use of the 
BX FPGA Service at any time, or decide not to purchase it, for any 
reason, including the level of fees.

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    Customers that choose not to purchase the BX FPGA Service are not 
impacted by the proposal.
    The BX FPGA Service will be available to all customers on a non-
discriminatory basis, and therefore the proposed fees are not designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
    This Proposal, a response to customer demand, is a product of a 
competitive marketplace. To date, lower levels of peak activity at the 
BX Exchange relative to the Nasdaq exchange have been associated with 
low levels of customer interest in this product. Recently, however, BX 
has heard from customers interested in using FPGA technology for BX 
TotalView. To address this customer demand, and to drive liquidity to 
the BX Exchange by making it a more attractive trading venue, BX has 
decided to offer this product.
    Approval of this Proposal will further promote competition by 
providing market participants additional choices in the transmission of 
depth of book data.
    Nothing in the Proposal burdens inter-market competition (the 
competition among self-regulatory organizations) because approval of 
the Proposal does not impose any burden on the ability of other 
exchanges to compete. As noted above, FPGA technology is generally 
available and any exchange has the ability to offer it if it so 
chooses.
    Nothing in the Proposal burdens intra-market competition (the 
competition among consumers of exchange data) because the BX FPGA 
Service will be available to any customer under the same fee schedule 
as any other customer, and any market participant that wishes to 
purchase the BX FPGA Service can do so on a non-discriminatory basis.

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

    No written comments were either solicited or received.

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)(ii) of the Act.\19\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-BX-2023-020 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-BX-2023-020. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-BX-2023-020 and should be 
submitted on or before September 13, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-18104 Filed 8-22-23; 8:45 am]
BILLING CODE 8011-01-P


