[Federal Register Volume 86, Number 137 (Wednesday, July 21, 2021)]
[Notices]
[Pages 38515-38518]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15441]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92420; File No. SR-CBOE-2021-040]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Rules Relating to Trading Halts During the Global Trading Hours 
Session

July 15, 2021.
    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 July 8, 2021, Cboe Exchange, Inc. (``Exchange'' or ``Cboe Options'') 
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 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend its rules relating to trading halts during the Global Trading 
Hours session. The text of the proposed rule change is provided in 
Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of the proposed rule change is to automate the 
Exchange's process for the halting and resumption of trading in certain 
circumstances during the Exchange's Global Trading Hours (``GTH'') 
session.
Background
    By way of background, Cboe Rule 5.20 describes the Exchange's 
process for determining if and when to halt trading in any security, 
including the process for the resumption of trading after a halt. Rule 
5.20(a) provides that any two Floor Officials, in consultation with a 
designated senior executive officer of the Exchange, may halt trading 
in any security in the interests of a fair and orderly market and to 
protect investors. Rule 5.20(a) also sets forth various factors that 
may be considered in making the forgoing determination, including 
whether there has been an activation of price limits on futures 
exchanges or the halt of trading in related futures with respect to 
index options.\5\ Additionally, Rule 5.20(b) provides that trading in a 
security that has been the subject of a halt under subparagraph (a) may 
be resumed as described in Rule 5.31(g) \6\ upon a determination by two 
Floor Officials, in consultation with a designated senior executive 
officer of the Exchange, that the interests of a fair and orderly 
market are best served by a resumption of trading. Among the factors to 
be considered in making this determination are whether the conditions 
which led to the halt are no longer present.
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    \5\ See Cboe Options Rule 5.20(a)(6).
    \6\ Cboe Options Rule 5.31(g) governs the opening auction 
process that follows a trading halt. Particularly, it provides that 
the Exchange will open series using the same opening auction process 
described in Rule 5.31 following a trading halt in the class 
declared by the Exchange pursuant to Rule 5.20, except: (1) The 
Queuing Period will begin immediately when the Exchange halts 
trading in the class; (2) if a User has orders or quotes resting on 
the Book at the time of a trading halt, the System queues those 
orders and quotes in the Queuing Book for participation in the 
opening rotation following the trading halt, unless the User entered 
instructions to cancel its resting orders and quotes; and (3) the 
System will initiate the opening rotation for a class upon the 
Exchange's determination to resume trading pursuant to Rule 5.20. 
See Cboe Options Rule 5.31(g).
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    By way of further background, the Chicago Mercantile Exchange 
(``CME'') recently amended its rules to (1) adopt Dynamic Special Price 
Fluctuation Limits and trading halt rules for certain CME equity index 
futures \7\ during CME's Overnight Trading Hours session (``OTH'' \8\) 
and (2) modify its hard OTH Price Limits.\9\ Specifically, CME amended 
its rules to provide that if a contract market moves beyond the lower 
or above the upper dynamic price fluctuation limit during OTH 
(currently set at 3.5%), CME will trigger a Dynamic Circuit Breaker and 
halt trading for two

[[Page 38516]]

(2) minutes.\10\ CME also amended its OTH Price Limits for certain CME 
equity index futures from 5% hard limits to 7% hard limits.\11\
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    \7\ See CME Rule 589, Special Price Fluctuation Limits and Daily 
Price Limits Table, which provides the Dynamic Price Fluctuation 
Limits apply to, among other products, S&P 500 Futures, E-mini S&P 
Futures, and Micro E-mini S&P 500 Index Futures.
    \8\ CME's current OTH hours are from 6:00 p.m.-9:30 a.m. EST.
    \9\ See CME Submission No. 20-392.
    \10\ Id. See also CME Rule 589.D (Dynamic Price Fluctuation 
Limits).
    \11\ See CME Submission No. 20-392.
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    Currently, the Exchange employs a manual process to initiate the 
halting or resumption of trading during GTH. This manual process 
requires personnel from the Exchange's Trade Desk to become aware of, 
and react to, any trading halts in related futures, including Dynamic 
Circuit Breaker-triggered halts, and activation of CME OTH Price 
Limits, as well as any determination to lift the trading halts in 
related futures or identify whether the futures are no longer in a 
limit state. Particularly, the Trade Desk performs proactive monitoring 
of halt notifications from CME and checks internal tools to identify 
whether future products have reached a limit state. If Trade Desk 
personnel become aware that a related future is halted by CME or if it 
reaches CME's prescribed OTH Price Limit (i.e., reaches a ``limit 
state'' \12\) during GTH, current practice is such that Trade Desk 
personnel would generally, upon determination by two Floor Officials in 
consultation with a designated senior executive officer, manually 
implement a trading halt pursuant to the authority provided under Rule 
5.20(a)(6). Similarly, Trade Desk personnel will monitor internal tools 
to identify whether CME has lifted the trading halt or whether the 
futures are no longer in a limit state. If such determination is made, 
Trade Desk personnel would generally, upon determination by two Floor 
Officials in consultation with a designated senior executive officer, 
manually initiate the reopening process to resume trading pursuant to 
the authority provided under Rule 5.20(b). Even with the proactive 
monitoring performed by the Trade Desk, there may be instances where 
the Exchange has not immediately identified a trading halt, activation 
of price limits, lifting of a trading halt or whether related futures 
are no longer in a limit state. As such, there may not be an immediate 
initiation of a trading halt or manual re-opening of a related index 
option in such cases. The Exchange believes an automated process would 
be more efficient than this current manual process and accordingly 
proposes to adopt an automated halt and reopening process, which would 
avoid the need for manual intervention by Exchange staff.
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    \12\ For purposes of this rule, CME futures are defined to be in 
a Limit State when CME futures reach the OTH Price Limits (currently 
7%) and are bid at their upper limit price or offered at their lower 
limit price. CME futures are not considered to be in a limit state 
if CME futures are trading at prices above their lower limit price 
or below their upper limit price.
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Proposal
    The proposed rule change would adopt new Rule 5.20(f) to implement 
an automated process for both the halting and resumption of trading 
during the GTH session if certain events transpire on CME. The Exchange 
notes the proposed automated process is consistent with authority the 
Exchange currently has today to halt or resume trading under its 
existing rules. Particularly, the proposed circumstances that will 
trigger an automated halt or resumption of trading are circumstances 
and factors that the Exchange already considers and acts upon today 
(albeit using a manual process). The Exchange believes automating these 
processes in these situations eliminates potential inefficiencies with 
the manual process, as well as provides further transparency in the 
rules. Particularly, the Exchange proposes to adopt an automated 
process for the halting and resumption of trading when (1) there is a 
halt of trading in related futures on CME during the CME OTH session 
due to the activation of a Dynamic Price Fluctuation Limit (i.e., 
whenever a ``Dynamic Circuit Breaker'' is triggered on CME during OTH) 
(proposed Rule 5.20(f)(1)) or (2) when a related future is in a limit 
state on CME due to an activation of the CME OTH Price Limit (proposed 
Rule 5.20(f)(2)), as further described below.
Dynamic Circuit Breakers
    With respect to a Dynamic Circuit Breaker, the Exchange proposes to 
specify that upon its System receiving notice from CME that a Dynamic 
Circuit Breaker has been triggered during OTH, the Exchange will 
automatically halt trading for two (2) minutes in the related index 
options. The proposed trading halt period would coincide with the 
trading halt period on CME that is triggered by the Dynamic Circuit 
Breaker.\13\ Particularly, the two-minute halt period on the Exchange 
would be triggered when the Exchange's system detects a halt message 
from CME. Once detected, the System will queue any orders or quotes 
resting on the Book at the time of a trading halt in the Queuing Book 
for participation in the opening rotation following the trading halt, 
unless the user entered instructions to cancel its resting orders and 
quotes.\14\ New orders/quotes, modifications to orders/quotes and 
cancellations for orders/quotes, would be accepted during the halt 
period.
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    \13\ If the lead contract month (as identified by CME) of the 
primary futures contract is traded, bid or offered on Globex at a 
price below the lower or above the upper dynamic price fluctuation 
limit, it is considered a triggering event which begins a two (2) 
minute temporary trading halt in all contract months of the primary 
futures contract and in all contract months of associated products 
of the primary futures contract as provided in the Special Price 
Fluctuation Limits and Daily Price Limits Table. If a non-lead 
contract month of the primary futures contract is traded, bid or 
offered on Globex at a price below the lower or above the upper 
dynamic price fluctuation limit, it shall be considered a triggering 
event which begins a two (2) minute temporary trading halt in that 
non-lead contract month of the primary futures contract. See CME 
Rule 589.D(b)(1).
    \14\ See Cboe Options Rule 5.31(g)(2).
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    The Exchange next proposes to provide that at the conclusion of the 
two-minute Dynamic Circuit Breaker-triggered halt, the Exchange would 
automatically resume trading as described in Rule 5.31(g). The proposed 
rule change results in the Exchange being able to re-open trading in 
the same manner that it is able to under Rule 5.31(g) today but enables 
the Exchange to not have to rely on manual procedures to do so.
CME OTH Price Limits
    With respect to activation of CME's OTH Price Limits (i.e., if the 
primary futures contract has reached a limit state), the Exchange 
proposes to specify that upon receiving notice from CME indicating a 
limit state condition or upon the Exchange's determination that CME 
futures are in a limit state, the Exchange will halt trading for ten 
(10) minutes in the related index options. Particularly, the Exchange's 
System will read CME data feed messages continuously during GTH hours 
and identify when CME futures are at a limit state. Alternatively, the 
Exchange's System may receive a message from CME indicating a limit 
state condition.\15\ Under either scenario, the Exchange would 
automatically halt trading, and the System will queue any orders or 
quotes resting on the Book at the time of a trading halt in the Queuing 
Book for participation in the opening rotation following the trading 
halt, unless the user entered instructions to cancel its resting orders 
and quotes.\16\ New orders/quotes, modifications to orders/quotes

[[Page 38517]]

and cancellations for orders/quotes, would be accepted during the halt 
period.
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    \15\ The Exchange notes that unlike the messages issued by CME 
relating to Dynamic Circuit Breaker-triggered halts, CME does not 
currently issue any messages that explicitly indicate that its 
futures have reached a limit state. However, should CME provide such 
notice in the future, the Exchange could determine to halt upon 
receipt of any such notice in addition to or in lieu of its own 
determination that CME futures have reached a limit state.
    \16\ See Cboe Options Rule 5.31(g)(2).
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    The Exchange next proposes to automate the process for resuming 
trading following a trading halt during CME futures reaching a limit 
state. Particularly, the Exchange shall resume trading as described in 
Rule 5.31(g) once the following two conditions have been satisfied: (1) 
The 10-minute halt period has passed and (2), the relate CME futures 
have not been in a limit state for the entirety of a rolling period of 
time (which the Exchange determines) which begins prior to the 
conclusion of the halt period.\17\ Resumption of trading will occur in 
the same manner that it is able to under Rule 5.31(g) today, but the 
Exchange would no longer have to rely on manual procedures for 
initiating the resumption of trading.
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    \17\ For example, if the Exchange determines that the period of 
consecutive time that CME futures must not be in a limit state is 
thirty consecutive seconds and the CME OTH Price Limit is activated 
at 4:00:00 a.m., then the Exchange shall initiate its reopening 
process at 4:10:00 a.m. so long as the futures were not in a limit 
state at any point during 4:09:30 and 4:10:00 a.m. Alternatively, 
for example, if the futures returned to a limit state at 4:09:45 
a.m., trading in the related index options shall remain halted until 
at least 4:10:15 a.m. or until such time thirty consecutive seconds 
have passed in which CME futures were off the limit price (e.g., if 
futures hit the limit price again at 4:09:55 a.m., then the earliest 
trading could resume is at 4:10:25 a.m.).
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Manual Determinations
    The Exchange notes that notwithstanding proposed Rules 5.20(f)(1) 
and (f)(2), the Exchange would retain the ability to manually resume 
trading at any time during a trading halt triggered by either a Dynamic 
Circuit Breaker or activation of CME OTH Price Limits at its discretion 
pursuant to current Rule 5.20(b) if it believes the interests of a fair 
and orderly market are best served by doing so. The Exchange also 
retains the ability to manually implement a trading halt at any time 
other than described under proposed paragraphs (f)(1) and (f)(2) if it 
is determined to be in the interests of a fair and orderly market and 
to protect investors pursuant to paragraph 5.20(a). To maintain clarity 
and transparency in the rules, the Exchange therefore also proposes to 
adopt Rule 5.20(f)(3) to directly reference this continuing authority 
to manually halt and resume trading during GTH, notwithstanding the 
proposed provisions under Rule 5.20(f)(1) and (f)(2).
    In sum, the Exchange believes a trading halt is generally necessary 
to maintain a fair and orderly market whenever there is a trading halt 
or activation of price limits in related futures products with respect 
to index options during GTH. Indeed, upon becoming aware of a halt of 
trading in related futures with respect to index options or activation 
of a OTH price limit, current practice is such that two Floor Officials 
in consultation with a designated senior executive officer of the 
Exchange would likely determine to halt trading in related index 
options, as permitted pursuant to current Rule 5.20(a)(6). Although the 
Exchange currently has discretion to halt trading in these 
circumstances, the Exchange wishes to automate this process and make it 
clear in the rules that a trading halt shall automatically be triggered 
in certain circumstances as detailed above. Similarly, for efficiency 
and transparency in the rules, the Exchange also wishes to specify when 
and how the Exchange shall automatically resume trading following a 
trading halt triggered by a Dynamic Circuit Breaker on CME or 
activation of a CME OTH Price Limit.\18\ As noted above, pursuant to 
Rule 5.20(b), when the conditions which led to the halt are no longer 
present, trading in a halted security may be resumed on the Exchange at 
its discretion. The Exchange notes that when a trading halt in related 
futures with respect to index options has ended, or a futures product 
is no longer in a limit state, the Exchange usually determines to 
resume trading. Accordingly, the Exchange believes its proposal to 
automatically halt trading when CME employs a Dynamic Circuit Breaker 
or there is an activation of CME OTH Price Limits is consistent with 
the Exchange's current authority to consider halting when there is a 
halt of trading or activation of price limits in related futures.\19\ 
The Exchange similarly believes the proposals relating to automatic 
resumption of trading following the two-minute Dynamic Circuit Breaker-
triggered halt or ten-minute limit state-triggered halt period is 
consistent with the Exchange's authority to consider resuming trading 
when the conditions that led to the halt are no longer present.\20\
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    \18\ The Exchange notes that notwithstanding the proposed 
automated procedures for reopening, the Exchange would retain the 
ability to manually resume trading prior to the end of either 
trading halt period at its discretion pursuant to current Rule 
5.20(b). Similarly, the Exchange retains the ability to manually 
extend the halting period pursuant to current Rule 5.20(a).
    \19\ See Cboe Options Rule 5.20(a)(6).
    \20\ See Cboe Options Rule 5.20(a)(6).
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Implementation Date
    The Exchange proposes to announce the implementation date of the 
proposed rule change in an Exchange Notice, to be published no later 
than sixty (60) days following the operative date. The implementation 
date will be no later than ninety (90) days following the operative 
date.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\21\ in general, and 
Section 6(b)(5) of the Act,\22\ in particular, in that it is designed 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest and not to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes its proposal is consistent 
with the Exchange's current authority to determine when to halt and 
resume trading pursuant to Rules 5.20(a) and (b). Today, two Floor 
Officials, in consultation with a designated senior executive officer 
of the Exchange, may halt trading in any security in the interests of a 
fair and orderly market and to protect investors. As discussed above, 
in making their determination, they may consider whether unusual 
conditions or circumstances are present, which may include the 
activation of price limits on futures exchanges or the halt of trading 
in related futures with respect to index options.\23\ Similarly, two 
Floor Officials, in consultation with a designated senior executive 
officer of the Exchange, may determine when in the interests of a fair 
and orderly market are best served by a resumption of trading. Among 
the factors to be considered in this determination are whether the 
conditions which led to the halt are no longer present.\24\ Although 
the Exchange's current rules provide the Exchange discretion to (i) 
halt trading when there is a halt of trading in related futures or 
activation of price limits and (2) resume when the conditions that led 
to a halt are no longer present, the Exchange historically was likely 
to halt and reopen in such situations. The Exchange believes that 
adopting an automated process in these situations would be more 
consistent and reliable for market participants and investors as such a 
process would be more efficient and not rely on manual processing by 
Exchange personnel. Moreover, the Exchange believes the proposed rule

[[Page 38518]]

change provides further transparency to investors with respect to the 
process the Exchange will use in the event the circumstances discussed 
above transpire.
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    \23\ See Rule 5.20(a)(6).
    \24\ See Rule 5.20(b).
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    The proposed rule change would promote the public interest and the 
protection of investors by eliminating the need for manual 
determinations and replacing it with a more consistent and transparent 
procedure that would be applied by the Exchange's trading systems on an 
automated basis. Indeed, instead of relying on Trade Desk staff to 
manually halt or re-open trading, the trading halt or resumption of 
trading would automatically take place in the manner detailed above. 
Additionally, notwithstanding the proposed automated processes, the 
Exchange would continue to have the authority to manually halt and 
resume trading outside of these processes if it's determined to be in 
the interests of a fair and orderly market or under other enumerated 
circumstances set forth under Rules 5.20(a) and (b).
    The Exchange believes the proposed rule change is designed to help 
ensure that halting and resumption of trading happens in an automated 
and efficient fashion, while also maintaining the important link 
between the trading of index options on the Exchange and the trading of 
related futures on CME during GTH.

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 change is 
designed to facilitate a more efficient and automated halting of 
trading and resumption of trading in limited circumstances during the 
Exchange's GTH session and is not designed to address any competitive 
issues. The Exchange therefore does not believe that the proposed rule 
change would have any significant impact on competition. Rather than 
impact the competitive environment, the proposed rule change would 
benefit members and investors by eliminating the need for manual 
processes under certain circumstances and provide further transparency 
in the rules.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received 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:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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 \25\ and 
Rule 19b-4(f)(6) \26\ 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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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(6).
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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-CBOE-2021-040 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-CBOE-2021-040. 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-CBOE-2021-040 and should be submitted on 
or before August 11, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15441 Filed 7-20-21; 8:45 am]
BILLING CODE 8011-01-P