[Federal Register Volume 85, Number 100 (Friday, May 22, 2020)]
[Notices]
[Pages 31246-31250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11042]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88898; File No. SR-CboeBZX-2020-040]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Certain Rules in Connection With the Exchange's Disciplinary Process

May 18, 2020.
    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 May 8, 2020, Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') 
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 Exchange filed the 
proposal as a ``non-controversial'' proposed rule change pursuant to 
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to 
amend certain rules in connection with the Exchange's disciplinary 
process. The text of the proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend Rule 8.8 in connection with the 
timing before which an offer of settlement becomes final, to amend Rule 
8.10 in connection with the Board's review of offers of settlement, and 
to amend Rule 8.11 to be consistent with the corresponding rules of the 
Exchange's affiliated exchanges, Cboe Exchange, Inc. (``Cboe Options'') 
and Cboe C2 Exchange, Inc. (``C2'').\5\
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    \5\ See Cboe Options Rule 13.11. The Exchange notes that C2 
incorporates Cboe Options Disciplinary rules by reference.

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[[Page 31247]]

    First, the Exchange proposes to amend Rule 8.8 which governs offers 
of settlement during a disciplinary proceeding pursuant to Chapter 8 
(Discipline). Specifically, it proposes to amend the timing for which 
the Chief Regulatory Officer's (``CRO'') decision regarding an offer 
shall become final pursuant to Rule 8.8(a). Rule 8.8(a) currently 
provides that a Respondent may submit to the CRO a written offer of 
settlement, and the CRO may accept an offer of settlement, and, in 
doing so, issues a decision, including findings and conclusions and 
imposing a penalty, consistent with the terms of such offer. Pursuant 
to Rule 8.8(a), the CRO may also reject an offer of settlement and the 
matter then proceeds as if such offer had not been made. According to 
Rule 8.8(a), a decision of the CRO issued upon acceptance of an offer 
of settlement as well as the determination of the CRO whether to accept 
or reject such an offer does not currently become final until 20 
business days after such decision is issued, and the Respondent may not 
seek review thereof.
    The Exchange proposes to eliminate the 20-business day timeframe 
before which the CRO's determination and decision in connection with an 
offer of settlement becomes final. This is consistent with the 
corresponding offer of settlement rules of the Exchange's affiliated 
exchanges, Cboe Options and C2,\6\ which do not have any such waiting 
period before which the CRO's acceptance (and accompanying decision) or 
rejection of an offer of settlement becomes final. In addition to 
providing consistency between the rules of the affiliated exchanges, 
the proposed rule change also removes a process that unnecessarily 
prolongs disciplinary proceedings. Where a matter could be either 
immediately closed or continued to the next steps of the proceedings 
upon the CRO's acceptance or rejection, respectively, of an offer of 
settlement, the current process unnecessarily leaves a matter open.
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    \6\ See Cboe Options Rule 13.8(a). The Exchange notes that C2 
incorporates Cboe Options Disciplinary rules by reference.
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    Second, and in line with the proposed rule change to Rule 8.8, the 
Exchange also proposes to remove Rule 8.8 offers of settlement from the 
list of certain procedural decisions in Rule 8.10 that may be reviewed 
by the Board on its own initiative within 20 business days after the 
issuance of the decision. This is also consistent with the 
corresponding disciplinary review rules of Cboe Options and C2, which 
do not include offers of settlement as decisions that the Board may 
review on its own initiative.\7\ The Exchange notes that the Board has 
not previously initiated a review of an offer of settlement. Therefore, 
the Exchange believes maintaining a 20-business day waiting period for 
a review that is not invoked is unnecessary and merely exhausts 
additional Exchange and Member resources in the time that a matter 
could have been resolved or have continued through proceedings. 
Allowing the CRO to accept or reject offers of settlement with finality 
will significantly expedite the settlement process while ensuring that 
the independence and integrity of the regulatory process is maintained, 
as the CRO's regulatory decision-making responsibilities are entirely 
separate from those responsible for the Exchange's business interests.
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    \7\ See Cboe Options Rule 13.10(c).
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    Finally, the Exchange proposes to amend Rule 8.11 to incorporate 
the Principal Considerations in Determining Sanctions (``Principal 
Considerations'') into proposed Rule 8.11(c), which are currently in 
corresponding Rule 13.11.01 of Cboe Options and C2, and the general 
provision regarding sanctions into proposed Rule 8.11(a), which are 
currently in corresponding Rule 13.11(a) of Cboe Options and C2, in 
order to promote consistency and uniformity across the affiliated 
exchanges in determining appropriate remedial sanctions.\8\ 
Particularly, the proposed rule change incorporates the general 
authority of the CRO, Hearing Panel, and committee of the Board \9\ to 
determine and apply sanctions, consistent with Cboe Options and C2 Rule 
13.11(a), into proposed Rule 8.11(a), which provides that Members and 
persons associated with Members shall (subject to any rule or order of 
the Securities and Exchange Commission) be appropriately disciplined by 
the CRO, Hearing Panel, or the committee of the Board, as applicable, 
for violations under these Rules by expulsion, suspension, limitation 
of activities, functions and operations, fine, censure, being suspended 
or barred from being associated with a Member, suspension or revocation 
of membership, or any other fitting sanction. This authority is already 
enumerated in Rule 8.1, however, the proposed provision provides 
consistency with the rules of the Exchange's affiliated options 
exchanges.\10\ As proposed in Rule 8.11(c), the Principal 
Considerations promote consistency and uniformity in the imposition of 
penalties, and should be considered in connection with the imposition 
of sanctions in all cases in determining appropriate remedial sanctions 
through the resolution of disciplinary matters through offers of 
settlement or after formal disciplinary hearings. The Principal 
Considerations include the following:
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    \8\ The Exchange notes that its other affiliated exchanges, Cboe 
BZX Exchange, Inc. (``BZX''), Cboe EDGX Exchange, Inc. (``EDGX''), 
and Cboe BYX Exchange, Inc. (``BYX''), also intend to incorporate 
these portions of Cboe Options and C2 Rule 13.11 into their Rule 
8.11.
    \9\ The Exchange notes that it maintains the inclusion of 
committee of the Board (along with the CRO and Hearing Panel) in 
connection with the imposition of sanctions throughout proposed 
Rules 8.11(a) and (c), which is currently a difference in text 
between Cboe Options and C2 Rule 13.11 and current Rule 8.11 and 
maintains consistency throughout current Rule 8.11.
    \10\ The proposed change also amends the current language under 
Rule 8.11 to be provided in paragraph (b), with a heading that reads 
``Effective Date of Judgment'', which is consistent with the 
corresponding heading in Cboe Options and C2 Rule 13.11. No changes 
are made to the current language. It also adds in the same header 
language for Rule 8.11 (``Judgment and Sanction'') as that of Cboe 
Options and C2 Rule 13.11.
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    (1) Disciplinary sanctions are remedial in nature. The CRO, Hearing 
Panel or committee of the Board \11\, as applicable, should design 
sanctions to prevent and deter future misconduct by wrongdoers, to 
discourage others from engaging in similar misconduct, and to improve 
overall business standards of Exchange Members. Pursuant to this Rule 
8.11, the CRO, Hearing Panel or committee of the Board, as applicable, 
may impose sanctions including expulsion, suspension, limitation of 
activities, fine, censure, suspension or revocation of one or more 
Members, or any other fitting sanction.
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    \11\ See supra note 9. The committee of the Board would, thus, 
also apply the Principal Considerations to any determinations made 
during a review related to sanctions.
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    (2) An important objective of the disciplinary process is to deter 
future misconduct by imposing progressively escalating sanctions on 
recidivists. The CRO, Hearing Panel or committee of the Board, as 
applicable, should consider a party's relevant disciplinary history in 
determining sanctions.
    (3) The CRO, Hearing Panel or committee of the Board, as 
applicable, should consider prior similar disciplinary decisions 
(relevant precedent) in determining an appropriate sanction and may 
consider relevant precedent from other self-regulatory organizations.
    (4) The CRO, Hearing Panel or committee of the Board, as 
applicable, should tailor sanctions to address the misconduct at issue. 
The CRO, Hearing Panel or committee of the Board, as applicable, should 
impose sanctions tailored to the misconduct at issue. For example, the 
CRO, Hearing Panel or

[[Page 31248]]

committee of the Board, as applicable, may require a Member \12\ to, 
among other things: retain a qualified independent consultant to 
improve future compliance with regulatory requirements; disclose 
disciplinary history to new and/or existing clients; implement 
heightened supervision of certain employees; or requalify by 
examination in any or all registered capacities.
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    \12\ The Exchange notes that, to the extent Cboe Options and C2 
Rule 13.11.01 state ``TPH and TPH organization'', the Exchange uses 
the term ``Member'', which, pursuant to its definition in Rule 
1.5(n), covers the same scope of exchange membership as the 
aforementioned language in Cboe Options and C2 Rule 13.11.01.
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    (5) Aggregation of violations may be appropriate in certain 
instances for purposes of determining sanctions. The CRO, Hearing Panel 
or committee of the Board, as applicable, may aggregate individual 
violations of particular rules and treat such violations as a single 
offense for purposes of determining sanctions. Aggregation may be 
appropriate when the Exchange utilizes a comprehensive surveillance 
program in the detection of potential rules violations. Aggregation may 
also be appropriate where the Exchange has reviewed activity over an 
extensive time period during the course of an investigation of matters 
disclosed either through a routine examination of the Member or as the 
result of a complaint. Similarly, where no exceptional circumstances 
are present, the Exchange may impose a fine based upon a determination 
that there exists a pattern or practice of violative conduct. The 
Exchange also may aggregate similar violations generally if the conduct 
was unintentional, there was no injury to public investors, or the 
violations resulted from a single systemic problem or cause that has 
been corrected.
    (6) The CRO, Hearing Panel or committee of the Board, as 
applicable, should evaluate appropriateness of disgorgement and/or 
restitution. The CRO, Hearing Panel or committee of the Board, as 
applicable, should evaluate the appropriateness of disgorgement and/or 
restitution in those cases where the amount of harm is quantifiable and 
the harmed party is identifiable.
    (7) The CRO, Hearing Panel or committee of the Board, as 
applicable, should consider contributions or settlements by a 
respondent or any related Member to the harmed party as it relates to 
the conduct that is the subject of the disciplinary matter.
    (8) The CRO, Hearing Panel or committee of the Board, as 
applicable, may consider a party's inability to pay in connection with 
the imposition of monetary sanctions.
    The Exchange notes that the CRO, Hearing Panel or committee of the 
Board, as applicable, already consider the above proposed Principal 
Considerations when determining appropriate remedial sanctions 
throughout the resolution of disciplinary matters. However, the 
Exchange now proposes to codify such considerations in order to ensure 
that the CRO, Hearing Panel or committee of the Board, as applicable, 
consider aggravating and/or mitigating factors in the same manner 
across each disciplinary matter which will, in turn, provide for 
consistency, fairness and that the most appropriate disciplinary 
measure is implemented during proceedings.
    The Exchange intends to announce the operative date of the updates 
to Rules 8.8, 8.10, and 8.11 at least 30 days in advance via a 
regulatory notice. To facilitate an orderly transition from the current 
rules to the proposed rules, the Exchange proposes to apply the current 
rules to all matters where a subject has received notice pursuant to 
Rule 8.2(d) prior to the operative date. As a consequence of this 
transition process, the Exchange will retain the existing processes 
during the transition period until such time that there are no longer 
any matters proceeding under the current rules. To facilitate this 
transition process, the Exchange will retain a transitional Chapter 8 
that will contain the Exchange's rules, as they are at the time this 
proposal is filed with the Commission. This transitional Chapter 8 will 
apply only to matters initiated prior to the operational date of the 
changes proposed herein and it will be posted to the Exchange's public 
rules website. When the transition is complete and there are no longer 
any Members or associated persons subject to current Chapter 8, the 
Exchange will remove the transitional Chapter 8 from its public rules 
website.
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.\13\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \14\ 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) \15\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
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    In particular, the proposed rule changes are designed to be 
consistent with the corresponding rules of its affiliated 
exchanges,\16\ which have been previously filed with the Commission. 
The Exchange believes that by providing consistent disciplinary rules 
across the affiliated exchanges 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 by 
increasing the understanding of the Exchange's disciplinary process for 
Members that participate across the affiliated exchanges, as well as 
result in greater uniformity, and less burdensome and more efficient 
regulatory processes. Moreover, the Exchange believes that removing an 
unnecessary waiting period in the disciplinary process, as well as a 
review provision that is not used, would serve to expedite the outcome 
of a matter or the progression of a matter through the next steps in 
the process, thereby protecting investors and the public interest by 
conserving Exchange and Member resources. The proposed rule change to 
remove the waiting period before an offer of settlement becomes final 
and the Board's initiative to review such will provide for a more 
efficient, streamlined disciplinary process as a matter would then be 
either immediately closed or continued to the next steps of the 
proceedings upon the CRO's acceptance or rejection, respectively, of an 
offer of settlement. Additionally, and as stated above, the CRO's 
regulatory decision-making responsibilities are entirely separate from 
those responsible for the Exchange's business interests, therefore, 
allowing the CRO to accept or reject offers of settlement with finality 
will significantly expedite the settlement process while ensuring that 
the

[[Page 31249]]

independence and integrity of the regulatory process is maintained. In 
light of these proposed changes, the Exchange notes that the proposed 
addition of the Principal Considerations will ensure that the CRO 
determines each offer of settlement using the same set of fair 
standards and factors, thereby protecting investors and the public 
interest throughout the disciplinary process.
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    \16\ See supra note 5.
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    In addition to this, the Exchange also believes that the proposed 
rule in consistent with Section 6(b)(6) of the Act,\17\ which requires 
the rules of an exchange provide that its members be appropriately 
disciplined for violations of the Act as well as the rules and 
regulations thereunder, or the rules of the Exchange, by expulsion, 
suspension, limitation of activities, functions, and operations, fine, 
censure, being suspended or barred from being associated with a member, 
or any other fitting sanction, as well as Section 6(b)(7) of the 
Act,\18\ in that it provides fair procedures for the disciplining of 
Members and persons associated with Members, the denial of Member 
status to any person seeking Membership therein, the barring of any 
person from becoming associated with a Member thereof, and the 
prohibition or limitation by the Exchange of any person with respect to 
access to services offered by the Exchange or a Member thereof. 
Specifically, the proposed rule change to incorporate Principal 
Considerations that the CRO, Hearing Panel or committee of the Board, 
as applicable, may take into consideration when determining 
disciplinary sanctions will ensure that the Exchange implements the 
most appropriate disciplinary mechanisms for violations and a fair 
process in determining such.
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    \17\ 15 U.S.C. 78f(b)(6).
    \18\ 15 U.S.C. 78f(b)(6).
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    Finally, the Exchange believes that its proposed transition plan 
would allow for a more orderly and less burdensome transition for the 
Exchange's Members. The proposed application of current rules to all 
matters where a subject has received notice pursuant to Rule 8.2(d) 
prior to the operative date provides a clear demarcation between 
matters that would proceed under the new rules and those that would be 
completed under the current rules.

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule changes 
are not intended to address competitive issues, but rather, are 
concerned with facilitating less burdensome regulatory compliance and 
processes and enhancing the quality of the regulatory processes. The 
Exchange believes the proposed rule changes would reduce the burdens 
within the disciplinary process, as well as move matters through the 
process expeditiously by providing for more efficient finality of 
offers of settlement, to the benefit of all Members. Moreover, the 
proposed Principal Considerations will apply to all remedial sanctions 
throughout the disciplinary process in the same manner, thereby equally 
benefitting all Members by providing for fair and consistent 
disciplinary determinations. Additionally, the proposed rule changes 
are consistent with the rules of the Exchange's affiliates, Cboe 
Options and C2, which have been previously filed with the 
Commission.\19\
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    \19\ See Cboe Options Rules 13.8, 13.10(c), 13.11(a), and 
13.11.01.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-
4(f)(6) thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of 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.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2020-040 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-2020-040. 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-2020-040 and should be submitted 
on or before June 12, 2020.


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11042 Filed 5-21-20; 8:45 am]
 BILLING CODE 8011-01-P