[Federal Register Volume 85, Number 13 (Tuesday, January 21, 2020)]
[Notices]
[Pages 3437-3440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00804]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87960; File No. SR-CboeBYX-2020-001]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fee Schedule

January 14, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on January 2, 2020, Cboe BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') filed with the Securities and Exchange Commission (the 
``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 BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend its fee schedule. 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/byx/), 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 to amend the rate 
for liquidity adding orders that yield fee code ``MM''.\3\ 
Additionally, the Exchange proposes to remove Non-Displayed Liquidity 
Incentives and replace them with Step-Up Tiers.
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    \3\ ``MM'' is appended to non-displayed orders that add 
liquidity using Mid-Point Peg.
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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 13 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,\4\ no single registered 
equities exchange has more than 16% 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.
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    \4\ See Cboe Global Markets, U.S. Equities Market Volume Summary 
(December 26, 2019), available at https://markets.cboe.com/us/equities/market_statistics/.
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    The Exchange in particular operates a ``Taker-Maker'' model whereby 
it pays credits to Members that remove liquidity and assesses fees to 
those that add liquidity. The Exchange's Fee Schedule sets forth the 
standard rebates and rates applied per share for orders that remove and 
provide liquidity, respectively. Particularly, for securities at or 
above $1.00, the Exchange provides a standard rebate of $0.0005 per 
share for orders that remove liquidity and assesses a fee of $0.0019 
per share for orders that add liquidity. The Exchange believes that the 
ever-shifting market share among the exchanges from month to month 
demonstrates that market participants can shift order flow, or 
discontinue to reduce use of certain categories of products, in 
response to fee changes. Accordingly, competitive forces constrain the 
Exchange's transaction fees, and market participants can readily trade 
on competing venues if they deem pricing levels at those other venues 
to be more favorable.
Proposed Change To Replace Non-Displayed Liquidity Incentives With 
Step-Up Tiers
    In response to the competitive environment, the Exchange 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 incremental incentives for 
Members to strive for higher or different tier levels by offering 
increasingly higher discounts or enhanced benefits for satisfying 
increasingly more stringent criteria or different criteria. For 
example, pursuant to footnote 2 of the Fee Schedule, the Exchange 
currently offers a Mid-Point Peg Tier that provides Members with a 
reduced fee of $0.0005 for liquidity adding orders that yield fee code 
``MM'', which generally has a fee of $0.0010. To qualify for the Mid-
Point Peg Tier, a Member must have an ADAV \5\ of greater than or equal 
to 0.30% of the TCV.\6\ Also pursuant to footnote 2 of the Fee 
Schedule, the Exchange offers a Non-Displayed Volume Tier that provides 
Members with a reduced fee of $0.0004 for liquidity adding orders that 
yield fee code ``HA'',\7\ which generally has a fee of $0.00240, or 
``MM'', which as noted above generally has a fee of $0.0010. To qualify 
for the Non-Displayed Volume Tier, a Member must have an ADAV of 
greater than or equal to 0.075% of the TCV as Non-Displayed Orders that 
yield fee codes ``HA'', ``HI'',\8\ or ``MM''. The aforementioned Non-
Displayed Liquidity Incentives are designed to encourage Members that 
provide non-displayed liquidity adding orders on the Exchange to 
increase their order flow, thereby contributing to a deeper and more 
liquid market to the benefit of all market participants.
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    \5\ ADAV means average daily volume calculated as the number of 
shares added per day. ADAV is calculated on a monthly basis.
    \6\ TCV means total consolidated volume calculated as the volume 
reported by all exchanges and trade reporting facilities to a 
consolidated transaction reporting plan for the month for which the 
fees apply.
    \7\ ``HA'' is appended to non-displayed orders that add 
liquidity.
    \8\ ``HI'' is appended to non-displayed orders that receive 
price improvement and add liquidity.
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    The Exchange now proposes to remove the existing tiers related to 
Non-Displayed Liquidity Incentives on the Exchange, and to instead 
offer ``Step-Up Tiers''. Specifically, the Exchange proposes to remove 
the Mid-Point Peg

[[Page 3438]]

Tier and Non-Displayed Volume Tier described above. In place of the 
existing Non-Displayed Liquidity Incentives, the Exchange proposes to 
offer Step-Up Tiers that will provide Members an opportunity to receive 
a discounted rate from the standard fee assessment for displayed 
liquidity adding orders that yield fee codes ``B'',\9\ ``V'',\10\ or 
``Y''.\11\ The Exchange proposes criteria under Tier 1 of the Step-Up 
Tiers that would offer a reduced fee of $0.0016 for liquidity adding 
orders that yield fee code ``B'', ``V'', or ``Y'', which generally have 
a fee of $0.0019. To qualify for proposed Tier 1, the Member must have 
a ``Step-Up Add TCV'' from December 2019 of greater than or equal to 
0.05%. The Exchange proposes to add a definition of ``Step-Up Add TCV'' 
to the Fee Schedule which would mean ADAV as a percentage of TCV in the 
relevant baseline month subtracted from current ADAV as a percentage of 
TCV. The Exchange notes that this definition is consistent with the 
definitions in the Fees Schedules of the Exchange's affiliated 
exchanges.\12\
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    \9\ ``B'' is appended to displayed orders that add liquidity to 
BYX (Tape B).
    \10\ ``V'' is appended to displayed orders that add liquidity to 
BYX (Tape A).
    \11\ ``Y'' is appended to displayed order that add liquidity to 
BYX (Tape C).
    \12\ See Cboe BZX U.S. Equities Exchange Fee Schedule, 
Definitions; Cboe EDGX U.S. Equities Exchange Fee Schedule, 
Definitions.
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    The proposed Tier 1 under the Step-Up Tiers is designed to provide 
Members that submit displayed liquidity on the Exchange a further 
incentive to contribute to a deeper, more liquid market, in turn, 
providing additional execution opportunities at transparent prices as a 
result of such increased, displayed liquidity. Further, while the 
Exchange proposes to eliminate the Non-Displayed Liquidity Incentives, 
as discussed in further detail below, the Exchange also proposes to 
reduce the current fee assessed to non-displayed liquidity adding 
orders yielding fee code ``MM''. Therefore, the Exchange will offer 
similarly reduced fees to orders yielding fee code ``MM'' under the 
proposed amendment as currently offered to such orders under the Non-
Displayed Liquidity Incentives. The Exchange believes that this 
benefits all Members by enhancing overall market quality and 
contributing towards a robust and well-balanced market ecosystem. The 
Exchange notes the proposed tier is available to all Members and is 
competitively achievable for all Members that submit displayed order 
flow, in that, all firms that submit the requisite displayed order flow 
could compete to meet the tier.
Proposed Change to Fee Code ``MM''
    As stated above, the Exchange currently charges fees for liquidity 
adding orders that yield fee code ``MM'' of $0.0010 in securities 
priced at or above $1.00. Orders yielding fee code ``MM'' in securities 
priced below $1.00 are not assessed a fee. The Exchange now proposes to 
reduce the current fee of $0.0010 per share to $0.0005 per share for 
orders yielding fee code ``MM'' in securities priced at or above $1.00. 
Orders yield fee code ``MM'' in securities priced below $1.00 would 
continue to be free. As the proposed fee for orders yielding fee code 
``MM'' is lower than the current fee for such orders, the Exchange 
believes the proposed amendment will encourage Members to increase 
their liquidity on the Exchange. Further, as ``MM'' orders would no 
longer be able to receive reduced fees under the Non-Displayed 
Liquidity Incentives, the proposed fee change to the ``MM'' fee code 
would offer another means for such orders to receive a similar fee 
reduction that would require no minimum ADAV. Therefore, ``MM'' orders 
would be eligible to receive a reduced fee of $0.0005 on a less 
stringent basis.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\13\ in general, and 
furthers the objectives of Section 6(b)(4),\14\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members and issuers and other persons 
using its facilities. The Exchange also 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. The 
proposed rule change reflects a competitive pricing structure designed 
to incentivize market participants to direct their order flow to the 
Exchange, which the Exchange believes would enhance market quality to 
the benefit of all Members.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
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    The Exchange 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. The proposed rule change reflects a 
competitive pricing structure designed to incentivize market 
participants to direct their order flow to the Exchange, which the 
Exchange believes would enhance market quality to the benefit of all 
Members.
    In particular, the Exchange believes the proposed amendment to 
replace the Non-Displayed Liquidity Incentives with Step-Up Tiers is 
reasonable because it provides an additional opportunity for Members to 
receive a discounted fee by means of liquidity-adding displayed orders. 
The Exchange notes that relative volume-based incentives and discounts 
have been widely adopted by other exchanges,\15\ and are reasonable, 
equitable and non-discriminatory because they are open to all members 
on an equal basis and provide additional benefits or discounts that are 
reasonably related to (i) the value of an exchange's market quality and 
(ii) associated higher levels of market activity, such as higher levels 
of liquidity provision and/or growth patterns. Additionally, as noted 
above, the Exchange operates in a highly competitive market. The 
Exchange is only one of several equity venues to which market 
participants may direct their order flow, and it represents a small 
percentage of the overall market. It is also only one of several taker-
maker exchanges. Competing equity exchanges offer similar tiered 
pricing structures to that of the Exchange, including schedules of 
rebates and fees that apply based upon members achieving certain volume 
and/or growth thresholds. These competing pricing schedules, moreover, 
are presently comparable to those that the Exchange provides, including 
the pricing of comparable tiers.\16\
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    \15\ See, e.g., Cboe BZX Equities Exchange Fee Schedule, 
Footnote 2, Step-Up Tiers, Tier 1, which offers an enhanced rebate 
for certain volume-adding orders; see also NYSE Arca Equities, Fees 
and Charges, Step Up Tiers.
    \16\ See e.g., NYSE Arca Equities, Fees and Charges, Step Up 
Tiers which offers rebates between $0.0022-$0.0034 per share if the 
corresponding required criteria per tier is met. NYSE Arca Equities' 
Step Up Tiers similarly require Members to increase their relative 
liquidity each month over a predetermined baseline.
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    Moreover, the Exchange believes the proposed Step-Up Tier is a 
reasonable means to encourage Members to increase their overall 
displayed order flow to the Exchange based on increasing their daily 
total added volume (ADAV) above a percentage of the total volume (TCV). 
Particularly, the Exchange believes that adopting a Step-Up Tier based 
on a Member's displayed adding orders will encourage displayed 
liquidity providing Members to provide for a deeper, more liquid 
market, and, as a result, increased execution opportunities at improved 
price levels and, thus, overall order flow. The Exchange believes that 
these increases

[[Page 3439]]

will benefit all Members by contributing towards a robust and well-
balanced market ecosystem. Increased overall order flow benefits all 
investors by deepening the Exchange's liquidity pool, providing greater 
execution incentives and opportunities, offering additional flexibility 
for all investors to enjoy cost savings, supporting the quality of 
price discovery, promoting market transparency and improving investor 
protection. The proposed discount (i.e., fee reduction) per share 
amount also does not represent a significant departure from the rebates 
currently offered, or required criteria, under the Exchange's existing 
tiers. For example, the fee assessed under the existing Mid-Point Peg 
Tier, for which, as stated, a Member must have a daily volume add 
(ADAV) of 0.30% or greater than the TCV, is $0.0005 per share. In other 
words, under this tier, Members receive a $0.0005 ``discount'' from the 
standard $0.0010 assessed fee for orders yielding fee code ``MM''. 
Orders yielding fee code ``B'', ``V'', and ``Y'' generally have a fee 
of $0.00190, and therefore the proposed discount offered under Tier 1 
(i.e., $0.0016) is comparable to the discount currently offered under 
the Mid-Point Peg Tier.
    The Exchange believes that the proposal represents an equitable 
allocation of fees and is not unfairly discriminatory because all 
Members are eligible for the proposed Step-Up Tiers, and would have the 
opportunity to meet the Tier 1 criteria and receive the proposed fee 
reduction if such criteria is met. The proposed tier is designed as an 
incentive to any and all Members interested in meeting the tier 
criteria to submit additional displayed order flow to achieve the 
proposed discount. 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 this tier. While the Exchange has no way of predicting 
with certainty how the proposed tier will impact Member activity, the 
Exchange anticipates that at up to ten Members will be able to compete 
for and reach the proposed tier. The Exchange anticipates that these 
will include multiple Member types, including liquidity providers and 
broker-dealers, each providing distinct types of order flow to the 
Exchange to the benefit of all market participants. For example, 
broker-dealer customer order flow provides more trading opportunities, 
which attracts Market Makers. Increased Market Maker activity 
facilitates tighter spreads, which potentially increases order flow 
from other market participants. The Exchange also notes that the 
proposed tier will not adversely impact any Member's pricing or their 
ability to qualify for other rebate tiers. Rather, should a Member not 
meet the proposed criteria, the Member will merely not receive a 
reduced fee. Furthermore, the proposed fee would uniformly apply to all 
Members that meet the required criteria under proposed Step-Up Tiers.

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 intramarket or intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. 
Rather, as discussed above, the Exchange believes that the proposed 
change would encourage the submission of additional displayed order 
flow to a public exchange, thereby promoting market depth, execution 
incentives and enhanced execution opportunities, as well as price 
discovery and transparency for all Members. As a result, the Exchange 
believes that the proposed change furthers the Commission's goal in 
adopting Regulation NMS of fostering competition among orders, which 
promotes ``more efficient pricing of individual stocks for all types of 
orders, large and small.'' \17\
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    \17\ Securities Exchange Act Release No. 51808, 70 FR 37495, 
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
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    The Exchange believes the proposed rule change does not impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Particularly, the proposed 
change applies to all Members equally in that all Members are eligible 
for the proposed tier, have a reasonable opportunity to meet the tier's 
criteria and will all receive the proposed fee rate if such criteria is 
met. Additionally the proposed change is designed to attract additional 
order flow to the Exchange. The Exchange believes that the modified 
tier criteria would incentivize market participants to direct displayed 
liquidity and, as a result, executable order flow and improved price 
transparency, to the Exchange. Greater overall order flow and pricing 
transparency benefits all market participants on the Exchange by 
providing more trading opportunities, enhancing market quality, and 
continuing to encourage Members to send orders, thereby contributing 
towards a robust and well-balanced market ecosystem, which benefits all 
market participants.
    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 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 16% of the market share.\18\ 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.'' \19\ 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' . . . .''.\20\ Accordingly, the Exchange does not believe its 
proposed fee change imposes any burden on competition that is not 
necessary or

[[Page 3440]]

appropriate in furtherance of the purposes of the Act.
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    \18\ See supra note 5 [sic].
    \19\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \20\ 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 has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from Members or other interested 
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \21\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \22\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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 under 
Section 19(b)(2)(B) \23\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \23\ 15 U.S.C. 78s(b)(2)(B).
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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 No. SR-CboeBYX-2020-001 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 No. SR-CboeBYX-2020-001. 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 No. SR-CboeBYX-2020-001, and should be submitted 
on or before February 11, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00804 Filed 1-17-20; 8:45 am]
 BILLING CODE 8011-01-P