
[Federal Register Volume 88, Number 241 (Monday, December 18, 2023)]
[Notices]
[Pages 87476-87480]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27675]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99147; File No. SR-CboeBZX-2023-099]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Fee Schedule Applicable to Members and Non-Members of the Exchange 
Pursuant to BZX Rules 15.1(a) and (c) in Order To Adopt a New Tier 
Under Footnote 13 (Tape B Volume and Quoting) Specific to Single-Stock 
Exchange Traded Funds (``Single-Stock ETFs'')

December 12, 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 December 1, 2023, 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 and 
II below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to

[[Page 87477]]

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)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
a proposed rule change to amend the Fee Schedule applicable to Members 
and non-members of the Exchange pursuant to BZX Rules 15.1(a) and (c) 
in order to adopt a new Tier under footnote 13 (Tape B Volume and 
Quoting) specific to Single-Stock Exchange Traded Funds (``Single-Stock 
ETFs''). 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://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fee Schedule applicable to its 
equities trading platform (``BZX Equities'') to adopt a new Tier under 
footnote 13 (Tape B Volume and Quoting) specific to Single-Stock 
ETFs.\5\ The Exchange proposes to implement these amendments to its fee 
schedule December 1, 2023.
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    \5\ Single-Stock ETFs are investment products that pay positive 
or negative multiples of the market performance of the single 
underlying security.
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    The Exchange first notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of 16 registered equities exchanges, as well as a 
number of alternative trading systems and other off-exchange venues 
that do not have similar self-regulatory responsibilities under the 
Exchange Act, to which market participants may direct their order flow. 
Based on publicly available information,\6\ no single registered 
equities exchange has more than 17% of the market share. Thus, in such 
a low-concentrated and highly competitive market, no single equities 
exchange possesses significant pricing power in the execution of order 
flow. The Exchange in particular operates a ``Maker-Taker'' model 
whereby it pays credits to Members that add liquidity and assesses fees 
to those that remove liquidity. The Exchange's fee schedule sets forth 
the standard rebates and rates applied per share for orders that 
provide and remove liquidity, respectively. Currently, for orders in 
securities priced at or above $1.00, the Exchange provides a standard 
rebate of $0.00160 per share for orders that add liquidity and assesses 
a fee of $0.0030 per share for orders that remove liquidity.\7\ For 
orders in securities priced below $1.00, the Exchange does not provide 
a rebate or assess a fee for orders that add liquidity and assesses a 
fee of 0.30% of total dollar value for orders that remove liquidity.\8\ 
Additionally, in response to the competitive environment, the Exchange 
also offers Tiered pricing which provides Members opportunities to 
qualify for higher rebates or reduced fees where certain volume 
criteria and thresholds are met. Tiered pricing provides an incremental 
incentive for Members to strive for higher Tier levels, which provides 
increasingly higher benefits or discounts for satisfying increasingly 
more stringent criteria.
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    \6\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (July 31, 2023), available at https://www.cboe.com/us/equities/market_statistics/.
    \7\ See BZX Equities Fee Schedule, Standard Rates.
    \8\ Id.
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    Now, the Exchange proposes to adopt a new pricing Tier under 
footnote 13 of the Fee Schedule. Specifically, for orders yielding fee 
code B,\9\ the Exchange proposes to adopt LEP Tier 1 under footnote 13 
of the Fee Schedule.\10\ The Exchange is proposing that a Member \11\ 
will qualify for the LEP Tier 1 where the Member is enrolled in a 
minimum of five LEP Securities \12\ for which it meets certain required 
criteria (the ``Required Criteria''). A Member must be enrolled in at 
least the minimum number of LEP Securities for which it meets the 
Required Criteria every day in a trading month in order to be eligible 
for the proposed rebate. As proposed, the Exchange would count an LEP 
Security toward the minimum number of LEP Securities requirement where 
the Member meets the Required Criteria for at least 75% of the trading 
days in a particular month. As noted above, these proposed requirements 
are very similar to the existing LMP Tiers under footnote 13.
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    \9\ Fee code B is appended to displayed orders that add 
liquidity to BZX in Tape B securities.
    \10\ The existing tiers under footnote 13 were added in a fee 
filing adopting a similar structure related to LMP securities on the 
Exchange. See Securities Exchange Act No. 78338 (July 15, 2016) 81 
FR 47458 (July 21, 2016) (SR-BatsBZX-2016-041) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change Related to Fees 
for Use of Bats BZX Exchange, Inc.).
    \11\ See Exchange Rule 1.5(n).
    \12\ As discussed further below, the Exchange proposes to adopt 
the term ``LEP Securities'', which means a list of Single-Stock 
ETFs, including options-based ETFs in a single underlying equity 
security, for which the Exchange wants to incentivize Members to 
provide enhanced market quality. The Exchange will not remove a 
security from the list of LEP Securities without 30 days prior 
notice.
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    To qualify for proposed LEP Tier 1 a Member must be enrolled in at 
least five BZX-listed LEP Securities and meet the following Required 
Criteria,:
    (1) The Member has an NBBO Time \13\ of equal or greater than 20%;
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    \13\ ``NBBO Time'' means the average of the percentage of time 
during regular trading hours during which the Member maintains at 
least 100 shares at each of the NBB and NBO.
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    (2) Member has bids and offers with a ``Notional Depth'' \14\ of 
$75,000 on each side for at least 90% of the trading day; and
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    \14\ As discussed further below, the Exchange proposes to adopt 
a new definition for ``Notional Depth'' which means the notional 
value of bids of at least 100 shares that are within $0.05 of the 
BZX NBB and offers of at least 100 shares that are within $0.05 of 
the BZX NBO.
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    (3) The difference in the NBBO spread of each LEP Security is less 
than 0.50% for at least 95% of the trading day.
    The Required Criteria for each LEP Security will each be evaluated 
separately, and the Member does not need to meet the Required Criteria 
for all applicable LEP Securities on the same 75% of trading days. For 
example, in a month with 22 trading days, a Member would be eligible 
for Tier 1 where the Member met the Required Criteria in five LEP 
Securities in the first 11 trading days of the month and met the 
Required Criteria for a different set of five LEP Securities in the 
second 11 trading days of the month.
    Members that meet proposed LEP Tier 1 would receive a rebate of 
$0.0025 per share. In the event that a Member would receive a higher 
rebate under a different Tier set forth in the Fee Schedule, the

[[Page 87478]]

Member would be entitled to the higher of the two rebates. As noted 
above, the Exchange also proposes to adopt two new definitions to the 
Fee Schedule. First, the Exchange proposes to adopt the term Notional 
Depth which will mean the notional value of bids of at least 100 shares 
that are within $0.05 of the NBB or offers of at least 100 shares that 
are within $0.05 of the NBO. Second, the Exchange proposes to adopt the 
term ``LEP Securities'' which will a list of Single-Stock ETFs, 
including options-based ETFs in a single underlying equity security, 
for which the Exchange wants to incentivize Members to provide enhanced 
market quality.
    All Members will be eligible to enroll in LEP Securities, there 
will be no limit to the number of LEP Securities in which a Member may 
enroll, and there will be no limit to the number of Members that can 
enroll in each LEP Security.\15\ All Members enrolled in LMP Securities 
will be eligible for the rebate where the Member meets the Tape B 
Quoting LMP Tier 1 requirements. Such LEP Securities will include all 
Cboe-listed Single-Stock ETFs for which the Exchange wants to 
incentivize Members to provide enhanced market quality. The Exchange 
will not remove a security from the list of LEP Securities without 30 
days prior notice.
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    \15\ The Exchange anticipates that the initial list of LMP 
Securities will include at least nine ETPs. A current list of LEP 
Securities will be available on www.cboe.com, which will be updated 
as new securities are added to the list of LEP Securities. All Cboe-
listed LEP Securities will be enrolled in the program immediately 
upon listing on the Exchange.
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    The Exchange also proposes to make a conforming change to the 
existing Tiers under footnote 13 of the Fee Schedule. Specifically, the 
Exchange proposes to rename existing Tiers 1 and 2 under footnote 13 
``LMP Tier 1'' and ``LMP Tier 2'', respectively.
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.\16\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \17\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \18\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers as well as Section 6(b)(4) \19\ as it is designed 
to provide for the equitable allocation of reasonable dues, fees and 
other charges among its Members and other persons using its facilities.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ Id.
    \19\ 15 U.S.C. 78f(b)(4).
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    The proposed rule reflects a competitive pricing structure designed 
to incent market participants to direct their order flow to the 
Exchange and enhance market quality in LEP Securities and Tape B 
securities. The Exchange notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive. The Exchange believes that the proposed LEP Tier represents 
an equitable allocation of rebates and are not unfairly discriminatory 
because all Members are eligible for such LEP Tier and would have the 
opportunity to meet the LEP Tier's criteria and would receive the 
proposed rebate if such criteria is met. Further, the proposed rebates 
are commensurate with the proposed criteria. That is, the rebates 
reasonably reflect the difficulty in achieving the applicable criteria 
as proposed. Without having a view of activity on other markets and 
off-exchange venues, the Exchange has no way of knowing whether this 
proposed rule change would definitely result in any Members qualifying 
for the proposed LEP Tier. While the Exchange has no way of predicting 
with certainty how the proposed LEP Tier will impact Member activity, 
the Exchange reasonably expects four Members to compete for and reach 
the proposed LEP Tier. The Exchange also notes that proposed Tier/
rebate will not adversely impact any Member's ability to qualify for 
other reduced fee or enhanced rebate Tiers. Should a Member not meet 
the proposed criteria under the proposed LEP Tier, the Member will 
merely not receive that corresponding rebate.
    The Exchange believes that the proposed new LEP Tier is reasonable 
in that they will enhance market quality on the Exchange in two ways: 
(i) by incentivizing Members to meet certain quoting standards in LEP 
Securities designed to narrow spreads, increase size at the inside, and 
increase liquidity depth; and (ii) providing a rebate for all of a 
qualifying Member's orders that add liquidity in LEP Securities will 
incentivize Members to increase their participation on the Exchange in 
LEP Securities. Furthermore, the Exchange believes it is appropriate to 
incentivize Members to meet the Required Criteria in LEP Securities as 
such securities poses an enhanced risk to Members providing liquidity 
in those securities. Therefore, the proposal offers an incentive to 
Members providing liquidity in LEP Securities.
    The Exchange believes that such incentives will promote price 
discovery and market quality in such securities and, further, that the 
tightened spreads and increased liquidity from the proposal will 
benefit all investors by deepening the Exchange's liquidity pool, 
offering additional flexibility for all investors to enjoy cost 
savings, supporting the quality of price discovery, enhancing quoting 
competition across exchanges, promoting market transparency, and 
improving investor protection. Accordingly, the Exchange believes that 
the proposal is reasonable, equitably allocated, and non-discriminatory 
because it would apply uniformly to all Members and is consistent with 
the overall goals of enhancing market quality.
    The Exchange notes that the proposed pricing structure is not 
dissimilar from volume-based rebates and fees (``Volume Tiers'') that 
have been widely adopted by exchanges, including the Exchange, and are 
equitable and not unfairly discriminatory because they are open to all 
Members on an equal basis and provide higher rebates and lower fees 
that are reasonably related to the value to an exchange's market 
quality. Much like Volume Tiers are generally designed to incentivize 
higher levels of liquidity provision and/or growth patterns on the 
Exchange, the proposal is designed to incentivize enhanced market 
quality on the Exchange through tighter spreads, greater size at the 
inside, and greater quoting depth in LEP Securities by offering a 
rebate in LEP Securities. Such rebates will simultaneously incentivize 
higher levels of liquidity provision in all LEP Securities. 
Accordingly, the Exchange believes that the proposal will act to 
enhance liquidity and competition across exchanges in LEP Securities on 
the Exchange by providing a rebate reasonably related to such enhanced

[[Page 87479]]

market quality to the benefit of all investors, thereby promoting the 
principles discussed in Section 6(b)(5) of the Act.\20\
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    \20\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that the proposed definitions and name 
changes to existing Tiers under footnote 13 are reasonable, fair and 
equitable and non-discriminatory because it is designed to make sure 
that the fee schedule is as clear and easily understandable as 
possible.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
LEP Tier is available to all Members equally in that all Members are 
eligible for the proposed LEP Tier, have a reasonable opportunity to 
meet the LEP Tier's criteria and will receive the corresponding rebate 
if such criteria is met. Additionally, the proposed LEP Tier is 
designed to attract additional order flow to the Exchange. The Exchange 
believes that the proposed LEP Tier criteria would incentivize market 
participants to direct liquidity adding displayed order flow to the 
Exchange, bringing with it additional execution opportunities for 
market participants and improved price transparency. Greater overall 
order flow, trading opportunities, and pricing transparency benefits 
all market participants on the Exchange by enhancing market quality and 
continuing to encourage Members to send orders, thereby contributing 
towards a robust and well-balanced market ecosystem.
    Next, the Exchange believes the proposed rule change does not 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. As previously 
discussed, the Exchange operates in a highly competitive market. 
Members have numerous alternative venues that they may participate on 
and direct their order flow, including 15 other equities exchanges and 
off exchange venues and alternative trading systems. Additionally, the 
Exchange represents a small percentage of the overall market. Based on 
publicly available information, no single equities exchange has more 
than 17% \21\ of the market share. Therefore, no exchange possesses 
significant pricing power in the execution of order flow. Indeed, 
participants can readily choose to send their orders to other exchange 
and off-exchange venues if they deem fee levels at those other venues 
to be more favorable. Moreover, the Commission has repeatedly expressed 
its preference for competition over regulatory intervention in 
determining prices, products, and services in the securities markets. 
Specifically, in Regulation NMS, the Commission highlighted the 
importance of market forces in determining prices and SRO revenues and, 
also, recognized that current regulation of the market system ``has 
been remarkably successful in promoting market competition in its 
broader forms that are most important to investors and listed 
companies.'' \22\ The fact that this market is competitive has also 
long been recognized by the courts. In NetCoalition v. Securities and 
Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .''.\23\ Accordingly, the Exchange does not believe its 
proposed fee change imposes any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \21\ Supra note 6.
    \22\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \23\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\24\ and Rule 19b-4(f)(6) \25\ thereunder.
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \26\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\27\ the Commission 
may designate a shorter time of such action is consistent with the 
protection of investor and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative upon filing. The Exchange states that 
waiving the operative delay would allow market participants to realize 
the benefits of the proposal immediately and that such waiver is 
consistent with the protection of investors and the public interest 
because it would promote enhanced market quality and serve as an 
additional safeguard against extreme price dislocation. Based on the 
foregoing, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Therefore, the Commission hereby waives the operative delay 
and designates the proposal operative upon filing.\28\
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    \26\ 17 CFR 240.19b-4(f)(6).
    \27\ 17 CFR 240.19b-4(f)(6)(iii).
    \28\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 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.

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

[[Page 87480]]

     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2023-099 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-2023-099. 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-CboeBZX-2023-099 and should 
be submitted on or before January 8, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12), (59).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-27675 Filed 12-15-23; 8:45 am]
BILLING CODE 8011-01-P


