[Federal Register Volume 84, Number 161 (Tuesday, August 20, 2019)]
[Notices]
[Pages 43233-43237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17861]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86667; File No. SR-CboeBZX-2019-069]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Introduce a Small Retail Broker Distribution Program
August 14, 2019.
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 1, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to introduce a Small Retail Broker Distribution
Program. The text of the proposed changes to the fee schedule are
enclosed [sic] as 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 purpose of the proposed rule change is to introduce a pricing
program that would allow small retail brokers that purchase top of book
market data from the Exchange to benefit from discounted fees for
access to such market data. The Small Retail Broker Distribution
Program (the ``Program'') would reduce the distribution and
consolidation fees paid by small broker-dealers that operate a retail
business. In turn, the Program may increase retail investor access to
real-time U.S. equity quote and trade information, and allow the
Exchange to better compete for this business with competitors that
offer similar optional products.
Current Fees
The Cboe One Summary Feed is a top of book data feed that provides
real-time U.S. equity quote and trade information to investors based on
equity orders submitted to the Exchange and its affiliated equities
exchanges--i.e., Cboe BYX Exchange, Inc., Cboe EDGX Exchange, Inc., and
Cboe EDGA Exchange, Inc. Specifically, the Cboe One Summary Feed is a
data feed that contains the aggregate best bid and offer of all
displayed orders for securities traded on the Exchange and its
affiliated exchanges. The Cboe One Summary Feed also contains the
individual last sale information for the Exchange and each of its
affiliated exchanges, and consolidated volume for all listed equity
securities. The fee for external distribution of the Cboe One Summary
Feed is $5,000 per month, and external distributors are also liable for
a Data Consolidation Fee of $1,000 per month, and User fees equal to
$10 per month for each Professional User, and $0.25 per month for each
Non-Professional User.\3\
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\3\ The Exchange also offers an Enterprise license for the Cboe
One Summary Feed at a cost of $50,000 per month. An Enterprise
license permits distribution to an unlimited number of Professional
and Non-Professional Users, keeping costs down for firms that
provide access to a large number of subscribers.
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Small Retail Broker Eligibility Requirements
The Exchange proposes to introduce a Program that would reduce
costs for small retail brokers that provide top of book data to their
clients. In order to be approved for the Small Retail Broker
Distribution Program, Distributors would have to provide Cboe One
Summary Feed Data to a limited number of clients with which the firm
has established a brokerage relationship, and would have to provide
such data primarily to Non-Professional Data Users. Specifically,
distributors would have to attest that they meet the following
criteria: (1) Distributor is a broker-dealer distributing Cboe One
Summary Feed Data to Non-Professional Data Users with whom the broker-
dealer has a brokerage relationship; (2) More than 50% of the
Distributor's total Data User population must consist of Non-
Professional Data Users, inclusive of those not receiving Cboe One
Summary Feed Data ; and (3) Distributor distributes Cboe One Summary
Feed Data to no more than 5,000 Non-Professional Data Users.
These proposed requirements for participating in the Program are
designed to ensure that the benefits provided by the Program inure to
the benefit of small retail brokers that provide Cboe One Summary Feed
Data to a limited number of subscribers. As explained later in this
filing,
[[Page 43234]]
distributors that provide BZX Exchange Data to a larger number of
subscribers can benefit from the current pricing structure through
scale, due to subscriber fees that are significantly lower than those
charged by the Exchange's competitors, and an Enterprise license that
caps the total fees to be paid by firms that distribute market data to
a sizeable customer base. The Exchange believes that offering similarly
attractive pricing to small retail brokers, including regional firms
both inside and outside of the U.S. that may not have the same
established client base as the larger retail brokers, would make the
Exchange's data a more competitive alternative for those firms, and
would help ensure that such information is widely available to a larger
number of retail investors globally. The Program would also be
available to retail brokers more generally, regardless of size, that
wish to trial the Cboe One Summary Feed with a limited number of
subscribers before potentially expanding distribution to additional
clients, potentially further increasing the accessibility of the
Exchange's market data to retail investors. The Program would be
exclusive to the Cboe One Summary Feed, which is a top of book
offering, as retail investors typically do not need or use depth of
book data to facilitate their equity investments, and their brokers
typically do purchase such market data on their behalf.
Discounted Fees
Distributors that participate in the Program would be liable for
lower distribution and consolidation fees for access to the Cboe One
Summary Data Feed.\4\ The distribution fee charged for the Cboe One
Summary Feed would be lowered by 30% from the current $5,000 per month
to $3,500 per month for distributors that meet the requirements of the
Program. In addition, the Data Consolidation Fee charged for the Cboe
One Summary Feed would be lowered by 65% from the current $1,000 per
month to $350 per month. User fees for any Professional or Non-
Professional Users that access Cboe One Summary Feed data from a
distributor that participates in the Program would remain at their
current levels as the current subscriber charges are already among the
most competitive in the industry.\5\
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\4\ New external distributors of the Cboe One Summary Feed are
not currently charged external distributor fees for their first
month of service. This would continue to be the case for external
distributors that participate in the Program.
\5\ By comparison, The Nasdaq Stock Market LLC (``Nasdaq'')
charges a subscriber fee for Nasdaq Basic that adds up to $26 per
month for Professional Subscribers and $1 per month for Non-
Professional Subscribers (Tapes A, B, and C). See Nasdaq Equity
Rules, Equity 7, Pricing Schedule, Section 147(b)(1).
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The Exchange believes that these fees, which represent a
significant cost savings for small retail brokers, would help ensure
that retail investors continue to have fair and efficient access to
U.S. equity market data. While retail investors normally pay a fixed
commission when buying or selling equities, and do not typically pay
separate fees for market data, the Exchange believes that the proposed
reduction in fees would make the Exchange's data more competitive with
other available alternatives, and may encourage retail brokers to make
such data more readily available to their clients. In sum, the Exchange
believes that the proposed fee reductions may facilitate more cost
effective access to top of book data that is purchased on a voluntary
basis by retail brokers and provided to their retail investor clients.
Market Background
The market for top of book data is highly competitive as national
securities exchanges compete both with each other and with the
securities information processors (``SIPs'') to provide efficient,
reliable, and low cost data to a wide range of investors and market
participants. In fact, Regulation NMS requires all U.S. equities
exchanges to provide their best bids and offers, and executed
transactions, to the two registered SIPs for dissemination to the
public. Top of book data is therefore widely available to investors
today at a relatively modest cost. National securities exchanges may
also disseminate their own top of book data, but no rule or regulation
of the Commission requires market participants to purchase top of book
data from an exchange.\6\ The Cboe One Summary Feed therefore competes
with the SIP and with similar products offered by other national
securities exchanges that offer their own competing top of book
products. In fact, there are ten competing top of book products offered
by other national securities exchanges today, not counting products
offered by the Exchange's affiliates.\7\ The purpose of the proposed
rule change is to further increase the competitiveness of the
Exchange's top of book market data products compared to competitor
offerings that may currently be cheaper for firms with a limited
subscriber base that do not yet have the scale to take advantage of the
lower subscriber fees offered by the Exchange. In turn, the Exchange
believes that this change may benefit market participants and investors
by spurring additional competition and increasing the accessibility of
the Exchange's top of book data.
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\6\ By contrast, Rule 603(c) of Regulation NMS (the ``Vendor
Display Rule'') effectively requires that SIP data or some other
consolidated display be utilized in any context in which a trading
or order-routing decision can be implemented.
\7\ Competing top of book products include, Nasdaq Basic, BX
Basic, PSX Basic, NYSE BQT, NYSE BBO/Trades, NYSE Arca BBO/Trades,
NYSE American BBO/Trades, NYSE Chicago BBO/Trades, and IEX TOPS.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\8\ in general, and
furthers the objectives of Section 6(b)(4),\9\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other recipients of
Exchange data.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(4).
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The Exchange also believes that the proposed rule change is
consistent with Section 11(A) of the Act.\10\ Specifically, the
proposed rule change supports (i) fair competition among brokers and
dealers, among exchange markets, and between exchange markets and
markets other than exchange markets, and (ii) the availability to
brokers, dealers, and investors of information with respect to
quotations for and transactions in securities. In addition, the
proposed rule change is consistent with Rule 603 of Regulation NMS,\11\
which provides that any national securities exchange that distributes
information with respect to quotations for or transactions in an NMS
stock do so on terms that are not unreasonably discriminatory.
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\10\ 15 U.S.C. 78k-1.
\11\ See 17 CFR 242.603.
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In adopting Regulation NMS, the Commission granted SROs and broker-
dealers increased authority and flexibility to offer new and unique
market data to the public. It was believed that this authority would
expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data. The
Exchange believes that the proposed fee change would further broaden
the availability of U.S. equity market data to investors, and in
particular retail investors, consistent with the principles of
Regulation NMS.
The Exchange operates in a highly competitive environment. Indeed,
there are thirteen registered national securities exchanges that trade
U.S. equities and offer associated top of book
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market data products to their customers. The national securities
exchanges also compete with the SIPs for market data customers. 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.'' \12\ The proposed fee change is a
result of the competitive environment, as the Exchange seeks to amend
its fees to attract additional subscribers for its proprietary top of
book data offerings.
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\12\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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The proposed fee change would reduce fees charged to small retail
brokers that provide access to the Cboe One Summary Feed. The Cboe One
Summary Feed is a competitively-priced alternative to top of book data
disseminated by SIPs, or similar data disseminated by other national
securities exchanges.\13\ It provides subscribers with consolidated top
of book quotes and trades from four Cboe U.S. equities markets, which
together account for about 17% of consolidated U.S. equities trading
volume.\14\ The Cboe One Summary Feed is purchased by a wide variety of
market participants and vendors, including data platforms, websites,
fintech firms, buy-side investors, retail brokers, regional banks, and
securities firms inside and outside of the U.S. that desire low cost,
high quality, real-time U.S. equity market data. By providing lower
cost access to U.S. equity market data, the Cboe One Summary Feed
benefits a wide range of investors that participate in the national
market system. Reducing fees for broker-dealers that represent retail
investors and that may have more limited resources than some of their
larger competitors would further increase access to such data and
facilitate a competitive market for U.S. equity securities, consistent
with the goals of the Act.
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\13\ See e.g., supra note 5 (discussing Nasdaq Basic).
\14\ Id.
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While the Exchange is not required to make any data, including top
of book data, available through its proprietary market data platform,
the Exchange believes that making such data available increases
investor choice, and contributes to a fair and competitive market.
Specifically, making such data publicly available through proprietary
data feeds allows investors to choose alternative, potentially less
costly, market data based on their business needs. While some market
participants that desire a consolidated display choose the SIP for
their top of book data needs, and in some cases are effectively
required to do so under the Vendor Display Rule, others may prefer to
purchase data directly from one or more national securities exchanges.
For example, a buy-side investor may choose to purchase the Cboe One
Summary Feed, or a similar product from another exchange, in order to
perform investment analysis. The Cboe One Summary Feed represents
quotes from four highly liquid equities markets. As a result, the Cboe
One Summary Feed is within 1% of the national best bid and offer
approximately 98% of the time,\15\ and therefore serves as a valuable
reference for investors that do not require a consolidated display that
contains quotations for all U.S. equities exchanges. Making alternative
products available to market participants ultimately ensures increased
competition in the marketplace, and constrains the ability of exchanges
to charge supracompetitive fees. In the event that a market participant
views one exchanges top of book data fees as more or less attractive
than the competition they can and frequently do switch between
competing products. In fact, the competiveness of the market for such
top of book data products is one of the primary factors animating this
proposed rule change, which is designed to allow the Exchange to
further compete for this business.
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\15\ See https://markets.cboe.com/us/equities/market_data_services/cboe_one/.
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The Exchange believes that the proposed fees are reasonable as they
represent a significant cost reduction for smaller, primarily regional,
retail brokers that provide top of book data from BZX and its
affiliated equities exchanges to their retail investor clients. The
market for top of book data is intensely competitive due to the
availability of substitutable products that can be purchased either
from other national securities exchanges, or from registered SIPs that
make such top of book data publicly available to investors at a modest
cost. The proposed fee reduction is being made to make the Exchange's
fees more competitive with such offerings for this segment of market
participants, thereby increasing the availability of the Exchange's
data products, and expanding the options available to firms making data
purchasing decisions based on their business needs. The Exchange
believes that this is consistent with the principles enshrined in
Regulation NMS to ``promote the wide availability of market data and to
allocate revenues to SROs that produce the most useful data for
investors.'' \16\
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\16\ See Regulation NMS Adopting Release, supra note 12, at
37503.
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Today, the Cboe One Summary Feed is among the most competitively
priced top of book offerings in the industry due to modest subscriber
fees, and a lower Enterprise cap, both of which keep fees at a
relatively modest level for larger firms that provide market data to a
sizeable number of Professional or Non-Professional Users. Distributors
with a smaller user base, however, may choose to use competitor
products that have a lower distribution fee and higher subscriber fees.
The Program would help the Exchange compete for this segment of the
market, and may broaden the reach of the Exchange's data products by
providing an additional low cost alternative to competitor products for
small retail brokers. While such firms may already utilize similar
market data products from other sources, the Exchange believes that
offering its own data to small retail brokers at lower distribution and
data consolidation costs has the potential to increase choice for
market participants, and ultimately increase the data available to
retail investors when coupled with the Exchange's lower subscriber
fees.
The Exchange also believes that the proposed fees are equitable and
not unfairly discriminatory as the proposed fee structure is designed
to decrease the price and increase the availability of U.S. equities
market data to retail investors. The Program is designed to reduce the
cost of top of book market data for broker-dealers that provide such
data to Non-Professional Data User clients that make up the majority of
the distributor's total subscriber population. As such, the Program
would be broadly available to a wide range of retail brokers that
either purchase the Cboe One Summary Feed today, or that may choose to
switch from competing products due to the potential cost savings.
Dozens of distributors that currently purchase top of book data from
one of the four Cboe U.S. equities exchanges, and many more prospective
customers, could benefit from the Program. Each of these current or
prospective retail broker customers would receive the same benefits in
terms of reduced distribution and
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consolidation fees based on the product that they purchase from the
Exchange.
The Commission has long stressed the need to ensure that the
equities markets are structured in a way that meets the needs of
ordinary investors. For example, the Commission's strategic plan for
fiscal years 2018-2022 touts ``focus on the long-term interests of our
Main Street investors'' as the Commission's number one strategic
goal.\17\ The Program would be consistent with the Commission's stated
goal of improving the retail investor experience in the public markets.
Furthermore, national securities exchanges commonly charge reduced fees
and offer market structure benefits to retail investors, and the
Commission has consistently held that such incentives are consistent
with the Act. The Exchange believes that the Program is consistent with
longstanding precedent indicating that it is consistent with the Act to
provide reasonable incentives to retail investors that rely on the
public markets for their investment needs.
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\17\ See U.S. Securities and Exchange Commission, Strategic
Plan, Fiscal Years 2018-2022, available at https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf.
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In addition, while the Program would be effectively limited to
smaller firms that distribute data to no more than 5,000 Non-
Professional Data Users, the Exchange does not believe that this
limitation makes the fees inequitable, unfairly discriminatory, or
otherwise contrary to the purposes of the Act. Large broker-dealers
and/or vendors that distribute the Exchange's data products to a
sizeable number of investors benefit from the current fee structure,
which includes lower subscriber fees and Enterprise licenses. Due to
lower subscriber fees, distributors that provide Cboe One Summary Feed
Data to more than 5,000 Non-Professional Data Users already enjoy cost
savings compared to competitor products. The Program would therefore
ensure that small retail brokers that distribute top of book data to
their retail investor customers could also benefit from reduced
pricing, and would aid in increasing the competitiveness of the
Exchange's data products for this key segment of the market.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
operates in a highly competitive environment, and its ability to price
these data products is constrained by: (i) Competition among exchanges
that offer similar data products to their customers; and (ii) the
existence of inexpensive real-time consolidated data disseminated by
the SIPs. Top of book data is disseminated by both the SIPs and the
thirteen equities exchanges. There are therefore a number of
alternative products available to market participants and investors. In
this competitive environment potential subscribers are free to choose
which competing product to purchase to satisfy their need for market
information. Often, the choice comes down to price, as broker-dealers
or vendors look to purchase the cheapest top of book data product, or
quality, as market participants seek to purchase data that represents
significant market liquidity. In order to better compete for this
segment of the market, the Exchange is proposing to reduce the cost of
top of book data provided by small retail brokers to their retail
investor clients. The Exchange believes that this would facilitate
greater access to such data, ultimately benefiting the retail investors
that are provided access to such market data.
The Exchange does not believe that this price reduction would cause
any unnecessary or inappropriate burden on intermarket competition as
other exchanges and data vendors are free to lower their prices to
better compete with the Exchange's offering. Indeed, as explained in
the basis section of this proposed rule change, the Exchange's decision
to lower its distribution and consolidation fees for small retail
brokers is itself a competitive response to different fee structures
available on competing markets. The Exchange therefore believes that
the proposed rule change is pro-competitive as it seeks to offer
pricing incentives to customers to better position the Exchange as it
competes to attract additional market data subscribers. The Exchange
also believes that the proposed reduction in fees for small retail
brokers would not cause any unnecessary or inappropriate burden on
intramarket competition. Although the proposed fee discount would be
largely limited to small retail broker subscribers, larger broker-
dealers and vendors can already purchase top of book data from the
Exchange at prices that represent a significant cost savings when
compared to competitor products that combine higher subscriber fees
with lower fees for distribution. In light of the benefits already
provided to this group of subscribers, the Exchange believes that
additional discounts to small retail brokers would increase rather than
decrease competition among broker-dealers that participate on the
Exchange. Furthermore, as discussed earlier in this proposed rule
change, the Exchange believes that offering pricing benefits to brokers
that represent retail investors facilitates the Commission's mission of
protecting ordinary investors, and is therefore consistent with the
Act.
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) of the Act \18\ and paragraph (f) of Rule 19b-4 \19\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2019-069 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-2019-069.
This file number should be included on the subject line if email is
used. To help the Commission process and review your
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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-2019-069 and should be submitted on or before September 10,
2019.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17861 Filed 8-19-19; 8:45 am]
BILLING CODE 8011-01-P