[Federal Register Volume 88, Number 54 (Tuesday, March 21, 2023)]
[Notices]
[Pages 17065-17068]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05685]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97146; File No. SR-CboeBZX-2023-015]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Sponsored Participant Rules 11.3(a) and 11.3(b)(2)

March 15, 2023.
    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 28, 2023, 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 Exchange Rule 11.3(a)-(b) to: (1) define the term ``Sponsored 
Access''; (2) provide that the Sponsored Participant rules of the 
Exchange apply only to the trading of equities; and (3) to codify that 
the agreement required by and between the Sponsoring Member and 
Sponsored Participant must include a provision that any Sponsored 
Access relationship must follow the requirements of SEC Rule 15c3-5, 
the Market Access Rule (``MAR'').\5\ The text of the proposed rule 
change is provided below and in Exhibit 5.\6\
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    \5\ 17 CFR 240.15c3-5--Risk management controls for brokers or 
dealers with market access.
    \6\ The Exchange proposes to implement the proposed changes to 
Rule 11.3(a)-(b)(1)-(3) on a date that will be announced via Cboe 
Trade Desk, notifying both existing and prospective Sponsoring 
Members and Sponsored Participants, of the new rule language and 
required contractual provisions.
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    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of this filing is to amend Exchange Rule 11.3(a)-(b) 
to: (1) define the term ``Sponsored Access''; (2) provide that the 
Sponsored Participant rules of the Exchange apply only to the trading 
of equities; and (3) to codify that the agreement required by and 
between the Sponsoring Member and Sponsored Participant must include a 
provision that any Sponsored Access relationship must follow the 
requirements of the MAR.
Sponsored Access Definition
    Per current Exchange rules a ``Sponsored Participant'' \7\ may be a 
Member \8\ or non-Member of the Exchange whose direct electronic access 
to the Exchange is authorized by a Sponsoring Member \9\ pursuant to 
the requirements set forth in Exchange Rule 11.3(b)(1)-(3), ``Sponsored 
Participants''. The Exchange proposes to amend Rule 11.3(a) to include 
the following definition, ``Sponsored Access shall mean an arrangement 
whereby a Member permits its Sponsored Participants to enter orders 
into the Exchange's System that bypass the Member's trading system and 
are routed directly to the Exchange, including through a service bureau 
or other third-party technology provider.'' The Exchange notes that the 
proposed definition of Sponsored Access

[[Page 17066]]

definition is identical to that adopted \10\ by the Nasdaq Stock 
Market, LLC (``Nasdaq''), General 2 in Section 22, Sponsored 
Participants, of their General Equity and Options Rules.\11\ The 
Exchange believes defining Sponsored Access will provide Sponsoring 
Members with greater clarity in understanding which types of market 
access relationships are subject to Exchange Rule 11.3(a)-(b),\12\ and 
what obligations Sponsoring Members and Sponsored Participants must 
satisfy when establishing a Sponsored Access relationship.
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    \7\ The term ``Sponsored Participant'' shall mean a person which 
has entered into a sponsorship arrangement with a Sponsoring Member 
pursuant to Rule 11.3. See Exchange Rule 1.5(x), definition of 
``Sponsored Participant''.
    \8\ The term ``Member'' shall mean any registered broker or 
dealer that has been admitted to membership in the Exchange. A 
Member will have the status of a ``member'' of the Exchange as that 
term is defined in Section 3(a)(3) of the Act. Membership may be 
granted to a sole proprietor, partnership, corporation, limited 
liability company or other organization which is a registered broker 
or dealer pursuant to Section 15 of the Act, and which has been 
approved by the Exchange. See Exchange Rule 1.5(n), definition of 
``Member''.
    \9\ The term ``Sponsoring Member'' shall mean a broker-dealer 
that has been issued a membership by the Exchange who has been 
designated by a Sponsored Participant to execute, clear and settle 
transactions from the System. The Sponsoring Member shall be either 
(i) a clearing firm with membership in a clearing agency registered 
with the Commission that maintains facilities through which 
transactions may be cleared or (ii) a correspondent firm with a 
clearing arrangement with any such clearing firm. See Exchange Rule 
1.5(y), definition of ``Sponsoring Member''.
    \10\ See Securities and Exchange Act Release No. 34-76449) 
(November 27, 2015) 80 FR 73011 (November 23, 2015) (SR-NASDAQ-2015-
140) (Notice of Filing and Immediate Effectiveness of the Proposed 
Rule Change Relating to Sponsored Access) (``Sponsored Access shall 
mean an arrangement whereby a member permits its customers to enter 
orders into the Exchange's System that bypass the member's trading 
system and are routed directly to the Exchange, including routing 
through a service bureau or other third party technology 
provider.'')
    \11\ See General Equity and Options Rule, General 2: General 
Provisions, Section 22(a), available at: https://listingcenter.nasdaq.com/rulebook/Nasdaq/rules.
    \12\ Consistent with the proposed definition, such relationships 
generally include where a broker-dealer allows its customer--such as 
a hedge fund, mutual fund, bank or insurance company, an Exchange 
registered market maker, an individual, or another broker-dealer--to 
use the broker-dealer's market participant identifier (``MPID'') or 
other mechanism or mnemonic to enter orders into the Exchange's 
System that bypass the Sponsoring Member's order handling system and 
are electronically routed directly to the Exchange by the Sponsored 
Participant, including through a service bureau or other third-party 
technology provider. For the avoidance of doubt, in a scenario where 
a Sponsored Participant is also an Exchange Member (e.g., where a 
Sponsored Member provides market access to an Exchange Member Market 
Maker), (i) the Sponsored Participant will be subject to all 
Exchange rules and regulations applicable to Members acting in their 
own capacity, whether the Sponsored Participant accesses the 
Exchange via their own Membership or via a Sponsored Access 
arrangement; and (ii) the Sponsoring Member will be responsible for 
the Sponsored Participant activity just as it would for any other 
non-Member Sponsored Participant under Rule 11.3(b), including 
compliance with the MAR requirements and for compliance with the 
applicable Member-related activity electronically routed to the 
Exchange via the Sponsored Access arrangement (e.g., the Sponsoring 
Member would be required to hold appointments and would be subject 
to applicable requirements as an Exchange Market Maker in the 
products for which the Sponsored Participant Market Maker is 
registered and routes orders/quotes via the Sponsored Access 
arrangement).
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Sponsored Access--Equities Market Only
    Additionally, the Exchange seeks to amend Rule 11.3(a) to provide 
that the application of the Exchange's Sponsored Participant rule 
applies only to Sponsored Members of the Exchange's equities market and 
does not apply to Options Members \13\ of the Exchange's options 
market. The Exchange does not currently have any Options Members 
registered to act as Sponsoring Members for any Sponsored Participants 
who would electronically trade options and, to date, has not received 
such a request for an options-based Sponsoring Member-Sponsored 
Participant relationship. Accordingly, the Exchange believes it 
appropriate to provide that the Sponsored Access program will apply 
only to Sponsoring Members providing Sponsored Participants direct 
electronic access to the Exchange's equities market (not the Exchange's 
options market) and does not believe that making such change will 
result in unfair discrimination between equity Members and Options 
Members.
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    \13\ The term ``Options Members'' means a firm, or organization 
that is registered with the Exchange pursuant to Chapter XVII of 
these Rules for purposes of participating in options trading on BZX 
Options as an ``Options Order Entry Firm'' or ``Options Market-
Maker''. See Rule 16.1, definition of ``Options Member''.
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Market Access Rule
    The Exchange seeks to codify that the agreement currently required 
under Exchange Rule 11.3(b)(2), by and between the Sponsoring Member 
and Sponsored Participant, must include a provision that any Sponsored 
Access relationship must follow the requirements of the MAR. While 
Sponsoring Members have existing obligations under the MAR because they 
are providing market access to their Sponsored Participants, the 
Exchange believes the proposed amendment will help to reinforce such 
obligations. Sponsored Participants will now be required to 
contractually agree with their Sponsoring Members to follow the 
requirements of the MAR.
    The Exchange believes that the proposed addition of 11.3(b)(2)(J) 
will reinforce to Sponsoring Members that Sponsored Access 
relationships must comply with the SEC's MAR, as well as Exchange rules 
regarding the provision of market access. As noted above, such 
relationships generally include where a broker-dealer allows its 
customer to use the broker-dealer's market participant identifier 
(``MPID'') or other mechanism or mnemonic to enter orders into the 
Exchange's System that bypass the Sponsoring Member's order handling 
system and are electronically routed directly to the Exchange by the 
Sponsored Participant, including through a service bureau or other 
third-party technology provider.
    The Exchange notes further that the proposed addition of 
11.3(b)(2)(J) is non-substantive in nature for Sponsoring Members 
because as broker-dealers providing market access, Sponsoring Members 
are already required to comply with the MAR, as well as with existing 
Exchange Rules regarding market access. Indeed, per the Exchange's 
current Sponsored Participant rules the Sponsoring Member is already 
responsible for all its Sponsored Participant's activity on the 
Exchange \14\ and is required to comply with the Exchange's Certificate 
of Incorporation, By-Laws, Rules, and procedures.\15\ This includes 
compliance with Rule 2.2, which requires, among other things, 
compliance with the Act and the regulations thereunder, including the 
MAR.
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    \14\ See Rule 11.3(b)(2)(B)(1)-(2).
    \15\ See Rule 11.3(b)(2)(C).
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    The proposed addition of Rule 11.3(b)(2)(J) is potentially 
substantive in nature to Sponsored Participants in that the proposed 
amendment adds a requirement to the agreement by and between the 
Sponsoring Member and Sponsored Participant, requiring the Sponsored 
Participant to contractually agree to follow the requirements of the 
MAR. Importantly, as part of their obligation to comply with Exchange 
Rules and procedures, existing Sponsoring Members will be expected to 
amend any existing contractual arrangements with their Sponsored 
Participants to include the new contractual provision proposed by the 
Exchange.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\16\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \17\ 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) \18\ requirement that

[[Page 17067]]

the rules of an exchange not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ Id.
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Defining Sponsored Access
    As noted above, the Exchange believes that defining Sponsored 
Access will provide Sponsoring Members with greater clarity as to which 
types of market access relationships \19\ are subject to Exchange Rule 
11.3(a)-(b)(1)-(3), and what obligations Sponsoring Members and 
Sponsored Participants must satisfy when establishing a Sponsored 
Access relationship. As such, the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices and serves to 
promote just and equitable principles of trade.
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    \19\ Supra note 12.
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    The proposed change will also help to reduce confusion by codifying 
a definition for such activity on the Exchange that is consistent with 
other industry practices currently in place elsewhere. The Exchange 
further notes that the proposed Sponsored Access definition is 
reasonable and does not affect investor protection because the proposed 
change does not present any novel or unique issues, as the proposed 
Sponsored Access definition has previously been adopted by Nasdaq.\20\
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    \20\ Supra note 10.
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Sponsored Access--Equities Market Only
    Furthermore, the Exchange believes that limiting Exchange Rule 
11.3(a)-(b)(1)-(3) to Sponsoring Members providing direct electronic 
access to Sponsored Participants of the Exchange's equities market will 
contribute to the protection of investors and the public interest by 
simplifying the Exchange's rules and making them easier for Members and 
Options Members to understand, thus bolstering their collective 
understanding of the Exchange's rules. Moreover, as noted above, the 
Exchange currently has no Options Members registered as Sponsoring 
Members and has yet to receive a request from Options Members to 
establish a Sponsored Access relationship. Accordingly, the Exchange 
does not believe that this proposed rule change will significantly 
alter Options Members' relationship with the Exchange or impose upon 
them any new obligations, and no longer wishes to have its Sponsored 
Access program apply to its options market.
Market Access Rule
    As noted above, the proposed addition of 11.3(b)(2)(J) will 
reinforce to Sponsoring Members that Sponsored Access relationships 
must comply with the SEC's MAR, as well as Exchange Rules regarding the 
provision of market access. Also, by adding proposed paragraph 
11.3(b)(2)(J), Sponsored Participants are now required to contractually 
agree that their Sponsored Access to the Exchange must follow the 
requirements of the MAR.
    In this regard, the proposed amendment will help to ensure that by 
and between the Sponsoring Member and Sponsored Participant that all 
orders entered onto the Exchange pursuant to a Sponsored Access 
relationship will follow the requirements of the MAR. As discussed, the 
Exchange believes the proposed addition of 11.3(b)(2)(J) is non-
substantive in nature for Sponsoring Members because as broker-dealers 
providing market access, Sponsoring Members are already required to 
comply with the MAR, as well as with existing Exchange Rules regarding 
market access. The proposed addition of Rule 11.3(b)(2)(J) is 
potentially substantive in nature to Sponsored Participants in that the 
proposed amendment adds a new requirement to the relationship by and 
between the Sponsoring Member and Sponsored Participant, requiring the 
Sponsored Participant to contractually agree to follow the requirements 
of the MAR.
    Accordingly, the proposed rule change will help to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and national market system, and, in 
general to protect investors and the public interest.

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

    For the reasons noted below, the Exchange does not believe that the 
proposed rule change will impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
Defining Sponsored Access
    The proposed Sponsored Access definition does not impose any burden 
on intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed definition merely 
seeks to make clear to Sponsoring Members that Sponsored Access is a 
relationship subject to Exchange Rule 11.3(a)-(b)(1)-(3). Moreover, 
Sponsored Access is a voluntary arrangement that a Sponsoring Member 
voluntarily elects to enter with its Sponsoring Participant. A Member 
is not required to become a Sponsoring Member, and in fact, may decline 
to enter such a relationship with its customers.
Sponsored Access--Equities Market Only
    Moreover, providing that Exchange Rule 11.3(a)-(b)(1)-(3) will only 
apply to Sponsoring Members providing direct electronic access to 
Sponsored Participants to the Exchange's equities market does not 
unduly burden Options Members because as noted above, the Exchange is 
historically yet to receive any Sponsored Access registrations from 
Options Members, and there are currently no Options Members registered 
as Sponsoring Members.
Market Access Rule
    Additionally, the Exchange does not believe that the proposed rule 
change will impose any burden on intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. 
Notably, other exchanges have in place similar rules and documentation 
requirements applicable to sponsored participants and their sponsoring 
members.\21\ Moreover, the proposed Sponsored Access definition is 
identical to that adopted by Nasdaq \22\ and currently codified in 
their rulebook.\23\
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    \21\ Supra note 11.
    \22\ Supra note 10.
    \23\ Supra note 11.
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    The proposed rule change to explicitly cite the MAR in Rule 
11.3(b)(2)(J) does not impose any burden on intramarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. As noted above, this change is non-substantive as Sponsoring 
Members are currently responsible for complying with the MAR with 
respect to their provision of Sponsored Access to Sponsored 
Participants. While the proposed addition of Rule 11.3(b)(2)(J) is 
potentially substantive in nature to Sponsored Participants because it 
requires a Sponsored Participant to contractually agree with its 
Sponsoring Member to follow the requirements of the MAR, the Exchange 
notes the proposed contractual requirement also exists in the Nasdaq 
rulebook \24\ and as such, should not raise any new or novel issues for 
consideration by Sponsored Participants.
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    \24\ Id.

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[[Page 17068]]

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, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\25\ and Rule 19b-4(f)(6) \26\ thereunder.
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    \25\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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    A proposed rule change filed under Rule 19b-4(f)(6) \27\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\28\ the Commission 
may designate a shorter time of such action is consistent with the 
protection of investor and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative upon filing. The Exchange states that 
the proposed rule change could immediately benefit market participants 
by clarifying for Sponsoring Members which relationships are subject to 
the Exchange's Sponsored Access rules and promoting just and equitable 
principles of trade. The Exchange also states that the proposed rule 
change could immediately bolster Sponsoring Members and Options Members 
collective understanding of the Exchange's Sponsored Participant rules, 
thereby contributing to the protection of investors and public 
interest. The Exchange also states the proposed addition of 
11.3(b)(2)(J) is non-substantive in nature for Sponsoring Members 
because as broker-dealers providing market access, Sponsoring Members 
are already required to comply with the MAR, as well as with existing 
Exchange Rules regarding market access. Because the proposed rule 
change does not raise any novel regulatory issues, the Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Therefore, the 
Commission hereby waives the operative delay and designates the 
proposal operative upon filing.\29\
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    \27\ 17 CFR 240.19b-4(f)(6).
    \28\ 17 CFR 240.19b-4(f)(6)(iii).
    \29\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 will 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-2023-015 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-2023-015. 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 such 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-2023-015 and should be submitted 
on or before April 11, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12), (a)(59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05685 Filed 3-20-23; 8:45 am]
BILLING CODE 8011-01-P