[Federal Register Volume 83, Number 249 (Monday, December 31, 2018)]
[Notices]
[Pages 67794-67801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-28396]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84928; File No. SR-CboeBZX-2018-092]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Adopt Definitions of Ports and Discontinue Bulk Order Functionality 
and Implement Bulk Message Functionality

December 21, 2018.
    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 18, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX Options'') 
proposes to adopt definitions of ports and discontinue bulk order 
functionality and implement bulk message functionality. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(``Cboe Global''), which is the parent company of Cboe Exchange, Inc. 
(``Cboe Options'') and Cboe C2 Exchange, Inc. (``C2''), acquired the 
Exchange, Cboe EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. 
(``EDGX or EDGX Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, 
together with C2, Cboe Options, the Exchange, EDGA, and EDGX, the 
``Cboe Affiliated Exchanges''). The Cboe Affiliated Exchanges are 
working to align certain system functionality, retaining only intended 
differences between the Cboe Affiliated Exchanges, in the context of a 
technology migration. Cboe Options intends to migrate its technology to 
the same trading platform used by the Exchange, C2, and EDGX Options in 
the fourth quarter of 2019. The proposals set forth below are intended 
to add certain functionality to the Exchange's System that is more 
similar to functionality offered by Cboe Options in order to ultimately 
provide a consistent technology offering for market participants who 
interact with the Cboe Affiliated Exchanges, as well as codify certain 
functionality. Although the Exchange intentionally offers certain 
features that differ from those offered by its affiliates and will 
continue to do so, the Exchange believes that offering similar 
functionality to the extent practicable will reduce potential confusion 
for Users.
Port Definitions
    The Exchange currently provides access to BZX Options to Users \3\ 
through various ports. These ports have been previously described in 
multiple filings submitted by the Exchange \4\ and are referenced on 
the Exchange's fee schedule. However, the Exchange has not previously 
maintained any language in its Rules related to such ports. The 
Exchange proposes to add language to Rule 21.1(l) to provide additional 
clarity

[[Page 67795]]

in the Exchange's Rules and to conform to the Rules of other Cboe 
Affiliated Exchanges that include definitions of ports.\5\
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    \3\ The term ``User'' means any Options Member or Sponsored 
Participant who is authorized to obtain access to the Exchange's 
System (as defined below) pursuant to Rule 11.3. See current Rule 
16.1(a)(63) (proposed subparagraph (64)).
    \4\ See Securities Exchange Act Release Nos. 82052 (November 9, 
2017), 82 FR 53547 (November 16, 2017) (SR-BatsBZX-2017-76) 
(modifying fees for physical ports on an immediately effective 
basis); and 61650 (March 4, 2010), 75 FR 11951 (March 12, 2010) (SR-
BATS-2010-005) (adopting initial fees for BZX Options, including 
description of logical and physical ports).
    \5\ See C2 Rule 1.1 (definition of port); and EDGX Options Rule 
21.1(j).
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    The Exchange proposes to define three different types of ports, 
specifically, physical ports, logical ports, and bulk ports. Currently, 
the Exchange also offers bulk order ports. However, as discussed below, 
the Exchange intends to enhance those ports with bulk message 
functionality and rename them as bulk ports, so the proposed rule 
change does not define bulk order port.
    The Exchange proposes to define a ``physical port'' as a port that 
provides a physical connection to the System. The Exchange also 
proposes to note that a physical port may provide access to multiple 
logical ports.\6\
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    \6\ See proposed Rule 21.1(l)(1).
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    The proposed rule change states that a ``logical port'' or 
``logical session'' provides Users with the ability within the System 
to accomplish a specific function through a connection, such as order 
entry, data receipt, or access to information.\7\
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    \7\ See proposed Rule 21.1(l)(2).
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Bulk Message Functionality
    Cboe Options currently offers quoting functionality to Market-
Makers, which permits Market-Makers to update their electronic quotes 
in block quantities.\8\ Quotes on Cboe Options do not route to other 
exchanges,\9\ and Market-Makers generally enter new quotes at the 
beginning of the trading day based on-then current market 
conditions.\10\ The Exchange currently offers bulk order functionality, 
which is intended to provide Users, and Market-Makers in particular, 
with a way to submit orders that simulate quoting functionality.\11\ 
However, while bulk order functionality simulates quoting 
functionality, bulk order functionality provides Users with a less 
efficient way to update multiple bids and offers. To update multiple 
bids and offers, a User must submit multiple messages at the same time, 
compared to quoting functionality, which generally permits a market 
participant to update multiple bids and offers in a single quote 
message. Specifically, a bulk order port is a dedicated logical port 
that provides Users with the ability to submit single and bulk order 
messages to enter, modify, or cancel orders designated as Post Only 
Orders \12\ with a Time-in-Force of Day \13\ or Good-til-Date (``GTD'') 
\14\ with an expiration time on that trading day. Like quotes, bulk 
order messages do not route to other exchanges because they include a 
Post Only instruction.\15\ Use of the Day or GTD Time-in-Force is 
consistent with Market-Maker's entry of new quotes at the beginning of 
each trading day.\16\ Unlike current Cboe Options quoting 
functionality, bulk order ports on the Exchange are available to all 
Users, not just Market-Makers. The Exchange makes bulk order ports 
available to all Users to encourage them to provide liquidity to the 
Exchange's market.
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    \8\ See Cboe Options Rule 1.1(ppp).
    \9\ See Cboe Options Rule 6.14B (which describes how the 
Exchange routes orders (specifically intermarket sweep orders) but 
not quotes route to other exchanges); see also Nyse Arca, LLC 
(``Arca'') Rule 6.37-O(a)(3)(D) (which states quotes do not route).
    \10\ The Exchange understands this is common practice by Market-
Makers throughout the industry, and is consistent with Cboe Options 
functionality, which cancels all unexecuted resting Market-Maker 
quotes at the close of each trading day. Additionally, it is 
consistent with Market-Makers' obligation to update market 
quotations in response to changed market conditions. See Rule 
22.5(a)(5); see also Cboe Options Rule 8.7(b)(iii).
    \11\ See Technical Specifications for binary order entry (BOE) 
available at http://markets.cboe.com/us/options/support/technical/. 
For instance, when initially adopted by the Exchange for its 
equities platform, bulk order entry was described as a ``bulk-
quoting interface'' and such functionality was limited to BZX market 
makers. See Securities Exchange Act Release No. 65133 (August 15, 
2011), 76 FR 52032 (August 19, 2011) (SR-BATS-2011-029). Bulk 
quoting was shortly thereafter expanded to be available to all 
participants on BZX Options but the focus remained on promoting 
liquidity provision on the Exchange, even though the types of 
messages permitted were not limited to liquidity providing orders. 
See Securities Exchange Act Release No. 65307 (September 9, 2011), 
76 FR 57092 (September 15, 2011) (SR-BATS-2011-034).
    \12\ See Rule 21.1(d)(8) for the definition of ``Post Only 
Orders.''
    \13\ See Rule 21.1(f)(3) for the definition of the ``Day'' Time-
in-Force.
    \14\ See Rule 21.1(f)(1) for the definition of the ``GTD'' Time-
in-Force.
    \15\ See Rule 21.1(d)(8), which provides that an order with a 
Post Only instruction may not route away to another exchange.
    \16\ See supra note 12.
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    The Exchange proposes to replace bulk order functionality with bulk 
message functionality substantially similar to the quoting 
functionality available on Cboe Options. The proposed bulk message 
functionality is similar to but more efficient than currently available 
bulk order functionality.\17\ A ``bulk port'' is a dedicated logical 
port that, as proposed, would provide Users with the ability to submit:
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    \17\ See supra note 13.
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    (1) bulk messages,\18\ subject to the following:
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    \18\ Proposed Rule 16.1(a)(4) defines a bulk message as a bid or 
offer included in a single electronic message a User submits to the 
Exchange in which the User may enter, modify, or cancel up to an 
Exchange-specified number of bids and offers (which number the 
Exchange will announce via Exchange notice or publicly available 
technical specifications). This is similar to Cboe Options Rule 
1.1(ppp), which provides that electronic quotes may be updated in 
block quantities. The limit on bids and offers per message is a 
reasonable measure for the Exchange to use to manage message traffic 
and activity to protect the integrity of the System. Proposed Rule 
16.1(a)(4) also states that a User may submit a bulk message through 
a bulk port as set forth in proposed Rule 21.1(l)(3), and that the 
System handles a bulk messages in the same manner as it handles an 
order or quote, unless the Rules specify otherwise. In other words, 
a bulk message will be treated as an order (or quote if submitted by 
a Market-Maker) pursuant to the Rules, including with respect to 
priority and allocation. The proposed rule change identifies the 
rule provisions pursuant to which bulk messages will be handled in a 
different manner. The proposed rule change also amends the paragraph 
numbering in Rule 16.1(a) to account for the addition of bulk 
messages in subparagraph (a)(4).
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    (a) a bulk message has a Time-in-Force of Day;
    (b) a Market-Maker with an appointment in a series may designate a 
bulk message for that series as Post Only or Book Only (which Post Only 
or Book Only designation, as applicable, applies to all bulk message 
bids and offers within a single message),\19\ and other Users must 
designate a bulk message for that series as Post Only;
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    \19\ In other words, for example, a Market-Maker cannot 
designate one bulk message bid within a single message as Post Only 
and designate another bulk message bid within the same message as 
Book Only.
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    (c) a User may establish a default Match Trade Prevention (``MTP'') 
Modifier of MTP Cancel Newest (``MCN''), MTP Cancel Oldest (``MCO''), 
or MTP Cancel Both (``MCB''), and a default value of Attributable or 
Non-Attributable, for a bulk port, each of which applies to all bulk 
messages submitted to the Exchange through that bulk port;
    (d) a User may designate a bulk message as ``Price Improving'' 
(which Price Improving designation applies to all bulk message bids and 
offers within a single message); \20\ and
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    \20\ See proposed change to Rule 21.1(d)(6).
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    (e) a bulk message is subject to the display-price sliding process 
in Rule 21.1(h) \21\; and
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    \21\ See proposed change to Rule 21.1(h), which provides that 
the display-price sliding process applies to orders and all bulk 
messages, except that a Post Only bulk message that locks or crosses 
a Protected Quotation displayed by the Exchange (unlike a Post Only 
order) upon entry will be cancelled, as further discussed below 
(proposed Rule 21.1(l)(3)(A)(vi) states the System cancels or 
rejects a Post Only bulk message bid (offer) with a price that locks 
or crosses the Exchange best bid (offer) or ABO (ABB)).
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    (2) single orders in the same manner as Users may submit orders to 
the Exchange through any type of port,\22\ including designated with 
any Order

[[Page 67796]]

Type and any Time-in-Force in Rule 21.1(d) and (f), respectively.
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    \22\ This is consistent with how Users may submit single orders 
to the Exchange through bulk order ports today, and thus the 
proposed rule change is merely codifying this functionality.
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    Proposed Rule 21.1(l)(3)(A)(i) states that bulk messages have a 
Time-in-Force of Day. As discussed above, this is consistent with 
current Cboe Options quoting functionality, which cancels all resting 
quotes at the close of the trading day.\23\ This is also consistent 
with a Market-Maker's obligation to update its quotations in response 
to changed market conditions in its appointed classes.\24\ Unlike 
current bulk orders, the GTD Time-in-Force with an expiration time on 
that trading day will not be available for bulk messages. Users will 
continue to have the ability to manually cancel bulk messages at any 
time during the trading day, they will just not be able to have bulk 
messages automatically cancel at a specific time on that trading day. 
Additionally, Users may apply the GTD Order Type to orders submitted 
through a bulk port (as further discussed below) or other type of port.
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    \23\ See supra note 12.
    \24\ See Rule 22.5(a)(5).
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    Unlike Cboe Options quoting functionality, which is only available 
to Cboe Options market-makers, the proposed bulk messages will be 
available to all Users (as bulk orders are today). While all Users will 
be able to use bulk messages (and may currently use bulk orders), the 
primary purpose of bulk orders and the proposed bulk messages has 
always been to encourage market-maker quoting on exchanges.\25\ The 
proposed rule change provides that a Market-Maker with an appointment 
in a series may designate a bulk message for that series as ``Post 
Only'' or ``Book Only.'' This will provide Exchange Market-Makers with 
functionality substantially similar to Cboe Options quoting 
functionality currently available to Cboe Options market-makers, which 
permits Market-Makers' incoming quotes to execute against resting 
orders and quotes.\26\ The Exchange believes permitting Market-Makers 
to use bulk messages to remove liquidity from the Book (if they so 
elect) will put Exchange Market-Makers on an even playing field as 
market-makers on other exchanges that offer quoting functionality. 
Additionally, Market-Makers are subject to various obligations, 
including obligations to provide two-sided quotes, to provide 
continuous quotes, and to trade at least 75% of its contracts each 
quarter in appointed classes. The Exchange believes providing Market-
Makers with flexibility to use the Post Only or Book Only instruction 
with respect to bulk messages will provide Market-Makers with 
additional tools to meet their obligations in a manner they deem 
appropriate. The Exchange further believes this may encourage liquidity 
providers to register as Market-Makers.
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    \25\ See supra note 13.
    \26\ Incoming market-maker quotes on some options exchanges may 
execute against interest resting in the book (see, e.g., Arca Rule 
6.37A-O(a)(3)), while on other options exchanges they may not (see, 
e.g., Box Options Exchange, LLC (``BOX'') Rule 8050, IM-8050-3).
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    The proposed rule change provides that other Users (i.e., non-
Market-Makers or Market-Makers without an appointment in a series) must 
designate a bulk message for that series as ``Post Only.'' This is 
consistent with current bulk orders available to these Users, and will 
continue to provide Users with flexibility to avoid incurring a take 
fee if their intent is to add liquidity to the Book. The Exchange notes 
these Users may apply the Book Only instruction to orders submitted to 
the Exchange through bulk ports or other ports. The proposed rule 
change also amends Rule 21.9 to make clear that bulk messages (like 
current bulk orders) are not eligible for routing (which is consistent 
with the Order Types of Post Only and Book Only, which do not route to 
other options markets).\27\
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    \27\ See also Cboe Options Rule 6.14B; and Arca Rule 6.37A-
O(a)(3)(D).
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    The proposed rule change also permits Users to establish a default 
MTP Modifier of MCN, MCO, or MCB that would apply to all bulk messages 
submitted through a bulk port. Cboe Options currently offers a Market-
Maker Trade Prevention Order, which would be cancelled if it would 
trade against a resting quote or order for the same Market-Maker, and 
also cancel the resting order or quote.\28\ This is equivalent to the 
MCB Modifier (except the MCB Modifier may be used by all Users rather 
than just Market-Makers). The proposed rule change provides Users with 
the ability to apply the same trade prevention designation that is 
available for quotes on Cboe Options to bulk messages (MCB), as well as 
two additional MTP options (MCN and MCO) (the Exchange notes there is 
currently no trade prevention functionality equivalent to MCN or MCO 
available on Cboe Options for quotes). Allowing three MTP designations 
for bulk messages will provide Users with additional control over the 
circumstances in which their bulk messages (and resting orders 
(including bulk messages)) will interact with each other. The Exchange 
does not believe there is demand by Users for the MDC and MCS modifies 
(which are available on the Exchange for orders) for bulk messages (the 
Exchange notes there is currently no trade prevention functionality 
equivalent to MDC or MCS available on Cboe Options for quotes). The 
Exchange notes all Users may continue to apply all MTP Modifiers to 
orders submitted through a bulk port (as further discussed below) or 
any other type of port.
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    \28\ See Cboe Options Rule 6.53(v).
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    The Exchange believes permitting Users to designate bulk messages 
as Price Improving and subjecting bulk messages to the display-price 
sliding process will encourage Users to submit aggressive bids and 
offers and will provide market participants with additional 
opportunities for execution and price improvement. Price Improving bulk 
messages will function in the same manner as Price Improving 
Orders,\29\ except all Price Improving bulk messages will be subject to 
the display-price sliding process. With respect to the display-price 
sliding process, bulk messages will be handled in the same manner as 
orders, except a Post Only bulk message that locks or crosses a 
Protected Quotation displayed by the Exchange upon entry will be 
cancelled.\30\ This is unlike a Post Only Order, which, if it locks or 
crosses a Protected Quotation displayed by the Exchange upon entry and 
is subject to the display-price sliding process, will execute against 
an order resting on the BZX Options Book if the value of price 
improvement associated with such execution equals or exceeds the sum of 
fees charged for such execution and the value of any rebate that would 
be provided if the order posted to the BZX Options Book and 
subsequently provided liquidity.\31\ The Exchange believes it is 
reasonable to cancel a Post Only bulk message, which will be subject to 
the display-price sliding process, rather than execute it if the price 
improvement value would exceed a rebate, because it is consistent with 
the purpose of a Post Only bulk message, which is to provide liquidity 
to the BZX Options Book.
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    \29\ Users may enter an instruction to not subject Price 
Improving Orders to the display-price sliding process. See Rule 
21.1(d)(6).
    \30\ See proposed Rule 21.1(h)(4); see also proposed Rule 
21.1(l)(3)(A)(vi).
    \31\ See Rule 21.1(d)(8).
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    Generally, the System will handle bulk messages in the same manner 
as it handles orders with the same Order Types and Times-in-Force that 
will be available for bulk messages, including prioritizing, 
displaying, and executing them pursuant to Rule 21.8. Proposed Rule 
21.1(l)(3)(A)(vi) and (vii) adds detail regarding how the System will 
handle bulk messages. Specifically, proposed subparagraph (A)(vi) 
states the

[[Page 67797]]

System will cancel or reject a Post Only bulk message bid (offer) with 
a price that locks or crosses the Exchange best offer (bid) or the ABO 
(ABB).\32\ This is consistent with how the System would handle a Post 
Only order not subject to the Price Adjust process.\33\ Pursuant to the 
Post Only instruction, an order (or bulk message as proposed) may not 
remove liquidity from the Book or route away to another Exchange 
(subject to certain exceptions).\34\ If a Post Only bulk message locked 
or crossed the best contra-side interest on the Exchange, the System 
would cancel it to prevent execution of the bulk message against the 
interest on the Exchange in accordance with the User's instructions and 
to prevent the Exchange from displaying a locked or crossed market.\35\ 
Similarly, if a Post Only bulk message locked or crossed an away 
market, the System would cancel it since it cannot route in accordance 
with the User's instructions and to prevent the Exchange's 
dissemination of a locked or crossed market.\36\
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    \32\ ``ABBO'' means the best bid (offer) disseminated by other 
exchanges.
    \33\ See Rule 21.1(i). Pursuant to the Price Adjust process, the 
System ranks and displays a buy (sell) order that, at the time of 
entry, would lock a Protected Quotation of the Exchange or another 
Exchange at one minimum price increment below (above) the current 
NBO (NBB). The System executes a Book Only order against orders and 
quotes and cancels any unexecuted portion if displaying the order on 
the Book would create violation of Rule 27.3, and the System rejects 
a Post Only order that locks or crosses the opposite side Exchange 
best bid or offer (``BBO'') or if displaying the order on the Book 
would create a violation of Rule 27.3. Bulk messages will not be 
eligible for the Price Adjust process, and thus will be handled 
similar to an order not subject to the Price Adjust process. See 
proposed Rule 21.1(i)(5) (which clarifies that the Price Adjust 
Process will not apply to bulk messages).
    \34\ See Rule 21.1(d)(8).
    \35\ See Chapter XXVII of the Rules; see also Options Order 
Protection and Locked/Crossed Market Plan (the ``Linkage Plan'').
    \36\ See id.
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    Similarly, proposed subparagraph (A)(vii) states the System will 
execute a Book Only bulk message bid (offer) that locks or crosses the 
ABO (ABB) against offers (bids) resting in the Book at prices the same 
as or better than the ABO (ABB) and then cancels the unexecuted portion 
of that bid (offer). This is consistent with how the System would 
handle a Book Only order not subject to the Price Adjust process. 
Pursuant to the Book Only instruction, an order (or bulk message as 
proposed) may not route away to another Exchange. If a Book Only bulk 
message locked or crossed an away market, the System would execute it 
to the extent it could against contra-side interest on the Exchange and 
then cancel it since it cannot route in accordance with the User's 
instructions and to prevent the Exchange's dissemination of a locked or 
crossed market.\37\ In addition to being similar to current Exchange 
Rules regarding the handling of Post Only and Book Only Orders not 
subject to the Price Adjust process, the Exchange notes that proposed 
subparagraphs (A)(vi) and (vii) are substantially the same as another 
exchange's handling rules applicable to quotes.\38\
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    \37\ See id.
    \38\ See Cboe Options Rule 6.14(b) (if Cboe Options is not at 
the NBBO, the System rejects a quote back to a Market-Maker if the 
quote locks or crosses the NBBO, which is the ABBO) and (c) (if the 
Cboe Options System accepts a quote that locks or crosses the NBBO, 
it executes the quote against quotes and orders in the Cboe Options 
Book at the price(s) that is the same or better than the best price 
disseminated by an away exchange(s) up to the size available on the 
Exchange and cancels the remaining size if the quote's price locks 
or crosses the ABBO or books any remaining size); see also Rule 
6.37A-O(a)(3).
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    Proposed Rule 21.6(a) provides that a User may enter only one bid 
and one offer for a series per Executing Firm ID (``EFID'') per bulk 
port. The Exchange believes this will encourage Users to submit their 
best bids and offers in series, and thus provide displayed liquidity to 
the market and contribute to public price discovery. Note firms may 
have multiple EFIDs and multiple bulk ports, and thus will have the 
ability through separate ports or EFIDs to submit additional bids and 
offers using bulk messages in the same series if they choose. This 
provision is consistent with the rule interpretation of another 
exchange.\39\
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    \39\ See Cboe Options Regulatory Circular RG18-008 (March 6, 
2018), which provides that each market-maker acronym may only have 
one quote (which is considered to be a two-sided quote) in each 
series at a time. An EFID is comparable to an acronym. Under Cboe 
Options rules, the term Market-Maker generally refers to an 
individual (and thus a person with a specific acronym), except as 
otherwise provided in the Rules. See, e.g., Cboe Options Rule 
8.7(d)(ii)(B) (which provides that market-maker continuous 
electronic quoting obligations may be satisfied by market-makers 
either individually or collectively with market-makers of the same 
TPH organization). The interpretation in the circular referenced 
above is consistent with this term and a Market-Maker's obligations 
set forth in Rule 8.7 (e.g. market-Makers must contribute to the 
maintenance of a fair and orderly market, including by competing to 
improve markets, update quotes in response to changed market 
conditions, and price options contracts fairly).
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    In addition to permitting Users to submit bulk orders (which 
functionality the Exchange will discontinue and replace with bulk 
message functionality), current bulk order ports permit Users to submit 
single orders to the Exchange. To encourage Users that may not have 
quoting systems to provide liquidity to the Exchange, the proposed rule 
change will permit Users to continue to submit single orders to the 
Exchange through these ports in the same manner as they do today, which 
are proposed to be renamed as bulk ports. Proposed Rule 21.1(l)(3)(B) 
will permit Users to designate these orders in the same manner Users 
may submit orders to the Exchange through any other type of port, 
including designated with any Order Type and any Time-in-Force in Rule 
21.1(d) and (f), respectively. This will provide Users with the same 
functionality that is available for single orders submitted through 
bulk ports today, and allow their liquidity to rest on the Exchange for 
multiple trading days, if Users so choose. This will also provide Users 
with additional control over the orders they use to provide liquidity 
to the Exchange through bulk ports.
    While liquidity providers are most commonly registered market-
makers, other professional traders also provide liquidity to the 
options market, which contributes to price discovery. As a result, 
unlike other exchanges that restrict quoting functionality to market-
makers, the Exchange believes it is appropriate to make bulk messages 
available to all Users to encourage them to provide liquidity, which is 
critical to the Exchange's market. Additionally, permitting orders to 
be submitted through bulk ports will continue to provide all liquidity 
providers with this functionality that is available today, as well as 
additional flexibility with respect to this functionality they may use 
to provide liquidity to the Exchange.
    The proposed rule change adds a price protection mechanism for bulk 
messages similar to the fat finger check the Exchange currently 
provides for orders. Proposed Rule 21.17(f) states the System cancels 
or rejects any bulk message bid (offer) above (below) the NBO (NBB) by 
more than a specified amount determined by the Exchange. This is 
similar to the fat finger check currently applicable to limit 
orders.\40\ Bulk messages that cross the NBBO by more than a specified 
amount are rejected as presumptively erroneous. This proposed check 
will not apply to bulk messages submitted prior to the conclusion of 
the Opening Process or when no NBBO is available. The Exchange believes 
it is appropriate to have the ability to not apply this check during 
the pre-open or opening rotation

[[Page 67798]]

so that the check does not impact the determination of the opening 
price. The Exchange also believes it is appropriate to not apply this 
check when there is no NBBO, as the Exchange believes that is the most 
reliable measure against which to compare the price of the bulk message 
to determine its reasonability. The proposed change is similar to a 
quote price protection mechanism available at other options 
exchanges.\41\
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    \40\ See Rule 21.17(b). Orders submitted through bulk ports will 
be subject to the current order price protection mechanisms, such as 
limit fat finger check in Rule 21.17. The proposed rule change 
amends Rule 21.17(a) through (e) (and the introductory language to 
that rule) to make clear that the price protections and risk 
controls in those paragraphs will not be applicable to bulk 
messages.
    \41\ See, e.g., Cboe Options Rule 6.14(a) and (b); Arca Rule 
6.37A-O(a)(3).
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    Proposed Rule 21.17(g) states if, pursuant to the Rules, the System 
cancels or rejects a bulk message bid (offer) to update a resting bulk 
message bid (offer) submitted for the same EFID and bulk port, the 
System also cancels the resting bulk message bid (offer). The Exchange 
currently offers Users similar functionality for orders, which is 
optional.\42\ Pursuant to the proposed rule change, the System will 
always apply this protection to bulk messages. The Exchange believes 
this will operate as an additional safeguard that causes liquidity 
providers to re-evaluate their bids and offers in a series before 
attempting to update them again. Additionally, when a User submits a 
new bulk message, it is implicitly instructing the Exchange to cancel 
any resting bulk message in the same series. Thus, even if the new bulk 
message is rejected as a result of this proposed check, the implicit 
instruction to cancel the resting bulk message remains valid 
nonetheless. The proposed rule change is substantially similar to a 
risk control applicable to quotes available at another options 
exchange.\43\
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    \42\ See ``cancel on reject'' functionality in technical 
specifications available at http://markets.cboe.com/us/options/support/technical/.
    \43\ See, e.g., Cboe Options Rule 6.14(b); Arca Rule 6.37A-
O(a)(3)(C).
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    The proposed rule change also amends Rule 21.1(d), (f), and (g) to 
provide that eligible Order Types, Times in Force, and MTP Modifiers, 
respectively, are subject to the proposed restrictions in Rule 21.1(l) 
with respect to bulk messages submitted through bulk ports. The 
proposed rule change also amends Rule 21.1(c), (d), (f), and (g) to 
clarify which Orders, Order Types, Times in Force, and MTP Modifiers, 
respectively, are available and not available for bulk messages, as 
described above, in accordance with proposed Rule 21.1(l)(3)(A).
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.\44\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \45\ 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) \46\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \44\ 15 U.S.C. 78f(b).
    \45\ 15 U.S.C. 78f(b)(5).
    \46\ Id.
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    In particular, the Exchange is promoting transparency by adopting 
definitions within Rule 21.1 to describe various ports used to access 
the Exchange that are currently described on the Exchange's fee 
schedule and in filings previously made by the Exchange.\47\ As noted 
above, the rules of EDGX Options and C2 include similar rules. As such, 
the proposed rule change would foster cooperation and coordination with 
persons engaged in facilitating transactions in securities and would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \47\ See supra note 13.
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    The proposed rule change regarding bulk messages will remove 
impediments to and perfect the mechanism of a free and open market 
because it provides Users, including Market-Makers and other liquidity 
providers, with enhanced functionality to allow them to provide 
liquidity to the market and update bids and offers in response to 
changed market conditions. While current bulk orders simulate quotes, 
Users must submit multiple messages in bulk to update bids and offers 
in multiple series. The proposed bulk messages will permit Users to 
update multiple bids and offers in a single message, which will permit 
them to update bids and offers (for example, in response to changing 
market conditions) in a more efficient manner. The proposed ability to 
update bids and offers in block quantities is similar to that available 
on another options exchange.\48\
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    \48\ See Cboe Options Rule 1.1(ppp), which provides that 
electronic quotes may be updated in block quantities.
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    With respect to all Users, the proposed bulk messages are 
substantially similar to the current bulk orders available through bulk 
order ports--Users will be able to submit bulk messages that are Day 
and Post Only. However, the proposed rule change will permit them to do 
so in a single bulk message rather than in multiple messages. While the 
use of the GTD Time-in-Force will not be permitted for bulk messages as 
it currently is for bulk orders, Users may achieve the same result as 
GTD for their bulk messages by manually cancelling a bulk message at a 
specified time during the trading day--the proposed rule change merely 
does not provide a means for automatic cancellation of bulk messages at 
a specific time during the trading day. Additionally, Users may 
continue to apply GTD to orders submitted to the Exchange through bulk 
ports and other ports.
    The Exchange believes the proposed rule change will permit 
liquidity providers to more efficiently update their resting bids and 
offers, which may help them manage their risk exposure when, for 
example, updating their bids and offers in response to changing market 
conditions. The Exchange believes this will continue to encourage all 
Users to provide liquidity on the Exchange and avoid incurring a taker 
fee if their intent is to submit bids and offers to add liquidity to 
the Book. Additionally, subjecting bulk messages to display-price 
sliding and permitting them to be designated as Price Improving may 
encourage Users to submit more aggressive bids and offers. As a result, 
this may increase liquidity, resulting in more trading opportunities 
and tighter spreads, which benefits all investors. The Exchange notes 
the proposed rule change provides Users with additional flexibility by 
permitting certain MTP Modifiers to be applied to bulk messages to 
prevent their orders and bulk messages from trading against each other. 
The MTP Modifiers not available for bulk messages will continue to be 
available for Users on orders submitted through bulk ports and other 
ports. Unlike other options exchanges that limit the use of quoting 
functionality to market-makers, the proposed rule change will permit 
all Users to submit bulk messages. Additionally, the proposed rule 
change to permit Users to continue to submit orders through bulk ports 
will

[[Page 67799]]

encourage Users that may not have quoting systems to provide liquidity 
to the Exchange by submitting single orders through bulk ports. This is 
also consistent with current bulk orders, which permits Users to submit 
both single and bulk orders through bulk order ports.
    The proposed rule change further removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system by providing appointed Market-Makers with the ability to submit 
Book Only bulk messages, because it will align functionality available 
to appointed Market-Makers on the Exchange with the quoting 
functionality available to market-makers on other options exchanges, 
including Cboe Options, which permit quotes to both add and remove 
liquidity.\49\ Market-Makers are critical to providing liquidity and 
price discovery on the Exchange, and are subject to various 
obligations, as discussed above. The Exchange notes all other Users may 
continue to use the Book Only instruction (or other instructions that 
permit execution against resting orders on the Book) on orders 
submitted through bulk ports and other ports, as they may do today. The 
Exchange believes providing Market-Makers with flexibility to use the 
Post Only or Book Only instruction with respect to bulk messages will 
provide them with additional tools to meet their obligations in a 
manner they deem appropriate and is reasonable given the critical role 
Market-Makers plan in the options market. The Exchange believes this 
may also encourage liquidity providers to register as Market-Makers.
---------------------------------------------------------------------------

    \49\ Other options exchanges only permit market-makers to submit 
quotes. See, e.g., Cboe Options Rules 1.1(ppp) and 8.3(c); Arca Rule 
6.37A-O(a)(1).
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    The proposed rule change provides Market-Makers with a combination 
of functionality available to market-makers on other exchanges, as some 
exchanges permit market-makers to remove liquidity and others only 
permit market-makers to post liquidity using quotes.\50\ As a result, 
the Exchange believes the proposed rule change will provide Market-
Makers with greater control over their interactions with contra-side 
liquidity and would increase opportunities for such interaction. The 
Exchange believes this will provide Market-Makers with a greater level 
of determinism, in terms of managing their exposure, which may 
encourage them to be more aggressive when providing liquidity. The 
Exchange believes this may result in more trading opportunities and 
tighter spreads, which contributes to price discovery. Ultimately, this 
may improve overall market quality and enhance competition on the 
Exchange, which benefits all investors.
---------------------------------------------------------------------------

    \50\ See id. and Box Options Exchange, LLC (``BOX'') Rule 8050, 
IM-8050-3.
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    The proposed handling of bulk messages to prevent the display of a 
locked or crossed market will perfect the mechanism of a free and open 
market and national market system, as it is consistent with the Linkage 
Plan and the Exchange's handling of orders with similar instructions. 
This proposed handling of bulk messages is also consistent with 
handling of quotes on other options exchanges.\51\ The proposed risk 
controls and price protection mechanisms that will apply to bulk 
messages promote just and equitable principles of trade and will 
protect investors by mitigating potential risks associated with Users 
submitting bulk messages at clearly unintended prices and trading at 
extreme and potentially erroneous prices. Additionally, the proposed 
rule change to cancel a User's resting bulk message when the System 
rejects a bulk message intended to update that resting bulk message 
provides Users with an additional safeguard that causes Users to 
reevaluate their bids and offers in the series before attempting to 
update them again. Additionally, when a User submits a new bulk 
message, it is implicitly instructing the Exchange to cancel any 
resting bulk message. Thus, even if the new bulk message is rejected, 
the Market-Maker's implicit instruction to cancel the resting bulk 
message remains valid nonetheless.
---------------------------------------------------------------------------

    \51\ See Cboe Options Rule 6.14(b) and (c); see also Rule 6.37A-
O(a)(3).
---------------------------------------------------------------------------

    The options markets are quote driven markets and thus dependent on 
liquidity providers, which are most commonly registered market-makers 
but also other professional traders, for liquidity and price discovery. 
The Exchange believes the proposed enhanced functionality, including 
the additional flexibility for Market-Makers to manage their risk 
exposure and provide additional control over interactions with contra-
side liquidity, for these liquidity providers to more efficiently enter 
and update bids and offers. This may encourage the provision of more 
aggressive liquidity, which may result in more trading opportunities 
and tighter spreads, which contributes to price discovery. This may 
improve overall market quality and enhance competition on the Exchange, 
which benefits all investors.
    The proposed rule change is generally intended to align system 
functionality currently offered by the Exchange with Cboe Options 
functionality in order to provide a consistent technology offering for 
the Cboe Affiliated Exchanges. A consistent technology offering, in 
turn, will simplify the technology implementation, changes, and 
maintenance by Users of the Exchange that are also participants on Cboe 
Affiliated Exchanges. The proposed rule change would also provide Users 
with access to functionality that is generally available on markets 
other than the Cboe Affiliated Exchanges, which may result in the 
efficient execution of quotes and orders and provide Users with 
additional flexibility and increased functionality on the Exchange's 
System.
    When Cboe Options migrates to the same technology as that of the 
Exchange and other Cboe Affiliated Exchanges, Users of the Exchange and 
other Cboe Affiliated Exchanges will have access to similar 
functionality on all Cboe Affiliated Exchanges. As such, the proposed 
rule change would foster cooperation and coordination with persons 
engaged in facilitating transactions in securities and would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system.

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. The Exchange does not 
believe 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, as the proposed bulk messages, like the current 
bulk orders, are optional for all Users. While only Market-Makers may 
submit Book Only bulk messages, the Exchange believes this is 
appropriate given the various obligations Market-Makers must satisfy 
under the Rules and the unique and critical role Market-Makers play in 
the options market, as discussed above. The Exchange believes providing 
Market-Makers with flexibility to use the Post Only or Book Only 
instruction with respect to bulk messages will provide Market-Makers 
with additional tools to meet their obligations in a manner they deem 
appropriate. The Exchange believes the proposed functionality for 
Market-Makers adds value to market-making on the Exchange and provides 
them with greater control over how their quotes interact with contra-
side liquidity both on the Exchange. The Exchange notes all other Users 
may continue to use the

[[Page 67800]]

Book Only instruction on orders submitted to the Exchange through bulk 
ports and other types of ports. The Post Only instruction for bulk 
messages will be available to all Users, and is substantially similar 
to the bulk orders currently available to all Users. Additionally, all 
Users may submit single orders with all Times-in-Force and Order Types 
not available for bulk messages through bulk ports, which may encourage 
Users that may not have quoting systems to provide liquidity to the 
Exchange.
    The proposed price protection mechanisms and risk controls 
applicable to bulk messages will apply in the same manner to all bulk 
messages submitted by market participants. The Exchange believes this 
protection for bulk messages provides liquidity providers with 
additional protection from anomalous or erroneous executions. 
Generally, once bulk messages are resting on the Book, the System will 
handle them no differently than resting orders--this includes how the 
System prioritizes orders and quotes when executing them against 
incoming orders or quotes. Bulk messages that are available to all 
Users will work in the same manner for all Users, and the additional 
bulk message functionality available to appointed Market-Makers will 
work in the same manner for all such Market-Makers. The Exchange 
believes it is reasonable to provide additional functionality to 
Market-Makers given their unique and critical role in the options 
market and the various obligations that Market-Makers must satisfy.
    The Exchange does not believe the propose rule change will impose 
any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, because it will 
provide Market-Makers with bulk message functionality that is similar 
to that quoting available to market-makers on other options exchanges. 
The Exchange believes the proposed functionality will permit the 
Exchange to operate on an even playing field relative to other 
exchanges that have similar functionality. As discussed above, the 
options markets are quote driven markets and thus dependent on 
liquidity providers, which are most commonly registered market-makers 
but also other professional traders, for liquidity and price discovery. 
The Exchange believes the proposed enhanced functionality, including 
the additional flexibility for Market-Makers to manage their risk 
exposure and provide additional control over interactions with contra-
side liquidity, for these liquidity providers to more efficiently enter 
and update bids and offers. This may encourage the provision of more 
aggressive liquidity, which may result in more trading opportunities 
and tighter spreads, which contributes to price discovery. This may 
improve overall market quality and enhance competition on the Exchange, 
which benefits all investors.
    The Exchange reiterates that the proposed rule change is being 
proposed in the context of the technology integration of the Cboe 
Affiliated Exchanges. Thus, the Exchange believes this proposed rule 
change permits fair competition among national securities exchanges. In 
addition, the Exchange believes the proposed rule change will benefit 
Exchange participants in that it will provide a consistent technology 
offering for Users by the Cboe Affiliated Exchanges.

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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \52\ and Rule 19b-4(f)(6) \53\ 
thereunder.
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78s(b)(3)(A).
    \53\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    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 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2018-092 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2018-092.This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2018-092 and should be submitted 
on or before January 22, 2019.
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    \54\ 17 CFR 200.30-3(a)(12).


[[Page 67801]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
Brent J. Fields,
Secretary.
[FR Doc. 2018-28396 Filed 12-28-18; 8:45 am]
 BILLING CODE 8011-01-P