[Federal Register Volume 86, Number 28 (Friday, February 12, 2021)]
[Notices]
[Pages 9406-9410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02857]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91078; File No. SR-CboeEDGX-2021-009]


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

February 8, 2021.
    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 February 1, 2021, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``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 EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend the 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/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

[[Page 9407]]

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

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

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

1. Purpose
    The Exchange proposes to amend its fee schedule applicable to its 
equities trading platform (``EDGX Equities'') by amending its Add/
Remove Volume Tiers, effective February 1, 2021.
    The Exchange first notes that it operates in a highly competitive 
market in which market participants can readily direct order flow to 
competing venues if they deem fee levels at a particular venue to be 
excessive or incentives to be insufficient. More specifically, the 
Exchange is only one of 16 registered equities exchanges, as well as a 
number of alternative trading systems and other off-exchange venues 
that do not have similar self-regulatory responsibilities under the 
Exchange Act, to which market participants may direct their order flow. 
Based on publicly available information,\3\ 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. The Exchange in particular operates a ``Maker-Taker'' model 
whereby it pays credits to members that provide liquidity and assesses 
fees to those that remove liquidity. The Exchange's fee schedule sets 
forth the standard rebates and rates applied per share for orders that 
provide and remove liquidity, respectively. Currently, for orders 
priced at or above $1.00, the Exchange provides a standard rebate of 
$0.0016 per share for orders that add liquidity and assesses a fee of 
$0.0027 per share for orders that remove liquidity. For orders priced 
below $1.00, the Exchange [sic] a standard rebate of $0.00009 per share 
for orders that add liquidity and assesses a fee of 0.30% of Dollar 
Value for orders that remove liquidity. Additionally, in response to 
the competitive environment, the Exchange also offers tiered pricing 
which provides Members opportunities to qualify for higher rebates or 
reduced fees where certain volume criteria and thresholds are met. 
Tiered pricing provides an incremental incentive for Members to strive 
for higher tier levels, which provides increasingly higher benefits or 
discounts for satisfying increasingly more stringent criteria.
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    \3\ See Cboe Global Markets, U.S. Equities Market Volume 
Summary, Month-to-Date (January 25, 2021), available at https://markets.cboe.com/us/equities/market_statistics/.
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    Currently, the Exchange provides for certain Add/Remove Volume 
Tiers under footnote 1 of the Fee Schedule. More specifically, the Add/
Remove Volume Tiers provide for seven different volume tiers that offer 
enhanced rebates on Members' orders yielding fee codes ``B'' \4\, ``V'' 
\5\, ``Y'' \6\, ``3'' \7\ and ``4'' \8\, where a Member reaches certain 
volume-based criteria offered in each tier. Two of these tiers are 
``Growth Tiers'', which are designed to encourage growth in order flow 
by providing specific criteria in which Members must increase their 
relative liquidity each month over a predetermined baseline. Growth 
Tier 2, for example, provides an enhanced rebate of $0.0027 on 
qualifying orders (i.e., B, V, Y, 3 and 4) where a Member has a Retail 
Step-Up Add TCV \9\ (i.e., yielding fee code ZA) \10\ from May 2020 
that is greater than or equal to 0.10%. The Exchange now proposes to 
amend Growth Tier 2 to provide an increased enhanced rebated of $0.0030 
on qualifying orders where a Member: (1) Has a Step-Up Add TCV from 
January 2021 greater than or equal to 0.10%; (2) adds an ADV \11\ 
greater than or equal to 0.50% of the TCV; and (3) removes an ADV of 
greater than or equal to 0.80% of the TCV.
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    \4\ Appended to orders that add liquidity to EDGX (Tape B) and 
offers a rebate of $0.0016 per share.
    \5\ Appended to orders that add liquidity to EDGX (Tape A) and 
offers a rebate of $0.0016 per share.
    \6\ Appended to orders that add liquidity to EDGX (Tape C) and 
offers a rebate of $0.0016 per share.
    \7\ Appended to orders that add liquidity to EDGX pre and post 
market (Tape A or C) and offers a rebate of $0.0016 per share.
    \8\ Appended to orders that add liquidity to EDGX pre and post 
market (Tape B) and offers a rebate of $0.0016 per share.
    \9\ ``Step-Up Add TCV'' means ADAV as a percentage of TCV in the 
relevant baseline month subtracted from current ADAV as a percentage 
of TCV. ``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. ``ADAV'' means ADAV means average daily added volume 
calculated as the number of shares added per day. ADAV is calculated 
on a monthly basis.
    \10\ Appended to Retail Orders that add liquidity to EDGX and 
offers a rebate of $0.0032 per share.
    \11\ ``ADV'' means average daily volume calculated as the number 
of shares added to, removed from, or routed by, the Exchange, or any 
combination or subset thereof, per day. ADV is calculated on a 
monthly basis.
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    Additionally, under the Add/Remove Volume Tiers in footnote 1 of 
the Fee Schedule, the Exchange also provides for three Non-Displayed 
Add Volume Tiers, which offer enhanced rebates on Members' orders 
yielding fee codes ``DM'' \12\, ``HA'' \13\, ``MM'' \14\ and ``RP'' 
\15\ where a Member reaches certain required volume-based criteria 
offered in each tier. For example, Non-Displayed Add Volume Tier 3 
provides an enhanced rebated of $0.0025 on qualifying orders (i.e., DM, 
HA, MM and RP) where a Member has an ADAV \16\ of greater than or equal 
to 0.10% of TCV for Non-Displayed orders that yield fee codes DM, HA, 
HI, MM or RP. The Exchange now proposes to add a new Non-Displayed 
tier, specifically, a Non-Displayed Step-Up Tier, which provides an 
enhanced rebate of $0.0025 where a Member: (1) Has a Step-Up Add TCV 
from January 2021 greater than or equal to 0.10%; (2) adds an ADV 
greater than or equal to 0.50% of the TCV; and (3) removes an ADV of 
greater than or equal to 0.80% of the TCV.
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    \12\ Appended to orders that add liquidity using MidPoint 
Discretionary order within discretionary range and are provided a 
rebate of $0.00100.
    \13\ Appended to non-displayed orders that add liquidity and are 
provided a rebate of $0.00100.
    \14\ Appended to non-displayed orders that add liquidity using 
Mid-Point Peg and are provided a rebate of $0.00100.
    \15\ Appended to non-displayed orders that add liquidity using 
Supplemental Peg and are provided a rebate of $0.00100.
    \16\ ``ADAV'' means ADAV means average daily added volume 
calculated as the number of shares added per day. ADAV is calculated 
on a monthly basis.
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    Growth Tier 2, as amended, and the new Non-Displayed Step-Up Tier, 
both of which offer the same three-pronged criteria, are designed to 
incentivize overall order flow, particularly by offering enhanced 
rebates for both displayed (i.e., B, V, Y, 3 and 4) and non-displayed 
(DM, HA, MM and RP) orders if a Member meets the different, 
incrementally more difficult criteria as amended in Growth Tier 2 or 
the additional opportunity as provided in the proposed Non-Displayed 
Step-Up Tier. Specifically the proposed criteria will encourage a 
Member to: (1) Grow in overall order flow (by providing criteria in 
which a Member must increase relative overall order flow, not just 
retail order flow, each month over baseline liquidity in January 2021); 
(2) increase

[[Page 9408]]

liquidity adding volume; and (3) increase in liquidity removing volume, 
in order to receive the proposed enhanced rebates. Overall, the 
proposed criteria and enhanced rebates provide an additional 
opportunity for Members to submit more order flow inclusive of all 
orders, liquidity adding Members on the Exchange to contribute to a 
deeper, more liquid market, and liquidity executing Members on the 
Exchange to increase transactions and take execution opportunities 
provided by such increased liquidity, together providing for overall 
enhanced price discovery and price improvement opportunities on the 
Exchange. As such, increased overall order flow benefits all Members by 
contributing towards a robust and well-balanced market ecosystem.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\17\ in general, and 
furthers the objectives of Section 6(b)(4),\18\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its Members, issuers and other persons 
using its facilities. The Exchange also believes that the proposed rule 
change is consistent with the objectives of Section 6(b)(5) \19\ 
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, and, particularly, is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(4).
    \19\ 15 U.S.C. 78f.(b)(5).
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    As described above, 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 changes to 
Growth Tier 2 and the proposed new Non-Displayed Step-Up Tier are 
reasonable because they either amend an existing opportunity or provide 
an additional opportunity for Members to receive an enhanced rebate on 
qualifying orders by means of overall order flow, including both 
liquidity adding and removing orders. The Exchange notes that relative 
volume-based incentives and discounts have been widely adopted by 
exchanges,\20\ including the Exchange,\21\ 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 to 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 maker-
taker 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.\22\
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    \20\ See e.g., Nasdaq PSX Price List [sic], Rebate to Add 
Displayed Liquidity (Per Share Executed), and Rebate to Add Other 
Non-Displayed Liquidity, which provide rebates to members for adding 
displayed and non-displayed liquidity over certain thresholds of TCV 
ranging between $0.00075 and $0.00305, available at http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2; and Cboe BZX U.S. 
Equities Exchange Fee Schedule, Footnote 1, Add Volume Tiers, which 
provides similar incentives for displayed and non-displayed 
liquidity and offers rebates ranging between $0.0018 and $0.0031.
    \21\ See generally, Cboe EDGX U.S. Equities Exchange Fee 
Schedule, Footnote 1, Add Volume Tiers [sic].
    \22\ See supra note 20.
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    Moreover, the Exchange believes the two proposed tiers are a 
reasonable means to encourage overall growth in Members' overall order 
flow to the Exchange and to incentivize Members to continue to provide 
liquidity adding and liquidity removing to the Exchange by offering 
them a different or additional opportunity than those opportunities 
currently under the Add/Remove Volume Tiers to receive an enhanced 
rebate on qualifying orders. The Exchange believes that the proposed 
tiers, each based on a Member's overall growth in all order flow and 
their liquidity adding and removing orders, will generally benefit all 
market participants by incentivizing continuous liquidity and thus, 
deeper more liquid markets as well as increased execution 
opportunities. Indeed, the Exchange notes that greater add volume order 
flow may provide for deeper, more liquid markets and execution 
opportunities, and greater remove volume order flow may increase 
transactions on the Exchange, which the Exchange believes incentivizes 
liquidity providers to submit additional liquidity and execution 
opportunities, thus, providing an overall increase in price discovery 
and transparency on the Exchange.
    Further, the Exchange believes that the proposed rule changes are 
reasonable as they do not represent a significant departure from the 
current criteria or enhanced rebates currently offered in the Fee 
Schedule. First, the Exchange believes that modifying existing criteria 
in Growth Tier 2 is reasonably designed to be incrementally more 
difficult to achieve than the current criteria and therefore is 
commensurate with the proposed increased enhanced rebate. The Exchange 
also believes that the proposed criteria and enhanced rebate remains in 
line with the incremental increase in difficulty from Growth Tier 1. 
Growth Tier 1 may be met if a Member: (1) Adds an ADV greater than or 
equal to 0.20% of the TCV; and (2) has a Step-Up Add TCV from March 
2019 of greater than or equal to 0.10%., whereas proposed Growth Tier 2 
provides for an additional prong of criteria, as well as modestly 
increased percentages of ADV over TCV, that a Member must meet to 
receive an enhanced rebate. Second, the Exchange believes that the 
proposed criteria in the new Non-Displayed Step-Up Tier is of 
comparable difficulty to the criteria in Non-Displayed Add Volume Tier 
3, which offers the same enhanced rebate for the same qualifying orders 
if a Member has an ADAV greater than or equal to 0.10% of TCV for Non-
Displayed orders that yield fee codes DM, HA, HI, MM or RP. The 
Exchange notes that the sum of Non-Displayed orders only as an add-
volume (ADAV) percentage presents a more narrow, thus comparable in 
difficulty, type of order flow that a Member must submit to achieve the 
criteria in Non-Displayed Add Volume Tier 3, and therefore, the 
proposed enhanced rebate offered under the Non-Displayed Step-Up Tier 
is commensurate with the same enhanced

[[Page 9409]]

rebate offered under Non-Displayed Add Volume Tier 3.
    The Exchange believes that the proposal represents an equitable 
allocation of fees and rebates and is not unfairly discriminatory 
because all Members will continue to be eligible for Growth Tier 2, as 
amended, and all Members will be eligible for proposed Non-Displayed 
Step-Up Tier. All Members will have the opportunity to meet the two 
tiers' criteria and will receive the proposed corresponding enhanced 
rebates for their respective qualifying orders if they meet such 
criteria. Without having a view of activity on other markets and off-
exchange venues, the Exchange has no way of knowing whether this 
proposed rule change would definitely result in any Members qualifying 
for the proposed tiers. While the Exchange has no way of predicting 
with certainty how the proposed tier will impact Member activity, the 
Exchange anticipates that at least three Members will be able to 
compete for and reach the proposed criteria in Growth Tier 2 and the 
Non-Displayed Step-Up Tier. The Exchange anticipates that multiple 
Member types will compete to reach the proposed tiers, broker-dealers 
and liquidity providers, each providing distinct types of order flow to 
the Exchange to the benefit of all market participants. The Exchange 
also notes that proposed tiers will not adversely impact any Member's 
pricing or ability to qualify for other reduced fee or enhanced rebate 
tiers. Should a Member not meet the proposed criteria under either of 
the proposed tiers, the Member will merely not receive that 
corresponding enhanced rebate. Furthermore, the proposed enhanced 
rebates in Growth Tier 2 and the Non-Displayed Step-Up Tier will each 
automatically and uniformly apply to all Members' qualifying orders for 
all Members that meet the required criteria under the proposed tiers.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition 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 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.''
    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 Growth Tier and Non-Displayed Step-Up Tier, have a 
reasonable opportunity to meet the tiers' criteria and will all 
automatically and uniformly receive the corresponding enhanced rebate 
on their respective qualifying orders if such criteria is met. 
Additionally, the proposed tiers are designed to attract additional 
overall order flow to the Exchange. The Exchange believes that the 
amended and additional tier criteria would incentivize market 
participants to grow their overall order flow submitted to the 
Exchange, both liquidity adding and removing order flow, bringing with 
it improved price transparency. The Exchange believes 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.
    The Exchange believes the proposed rule change does not impose any 
burden on intermarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. As previously discussed, the 
Exchange operates in a highly competitive market. Members have numerous 
alternative venues that they may participate on and direct their order 
flow, including 15 other equities exchanges and off-exchange venues and 
alternative trading systems. Additionally, the Exchange represents a 
small percentage of the overall market. Based on publicly available 
information, no single equities exchange has more than 16% of the 
market share. Therefore, no exchange possesses significant pricing 
power in the execution of order flow. Indeed, participants can readily 
choose to send their orders to other exchange and off-exchange venues 
if they deem fee levels at those other venues to be more favorable. 
Moreover, the Commission has repeatedly expressed its preference for 
competition over regulatory intervention in determining prices, 
products, and services in the securities markets. Specifically, in 
Regulation NMS, the Commission highlighted the importance of market 
forces in determining prices and SRO revenues and, also, recognized 
that current regulation of the market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' 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'. . . .''. Accordingly, the Exchange 
does not believe its proposed fee change imposes any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \23\ and paragraph (f) of Rule 19b-4 \24\ 
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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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f).

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[[Page 9410]]

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-CboeEDGX-2021-009 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-CboeEDGX-2021-009. 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-CboeEDGX-2021-009 and should be 
submitted on or before March 5, 2021.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02857 Filed 2-11-21; 8:45 am]
BILLING CODE 8011-01-P