[Federal Register Volume 89, Number 104 (Wednesday, May 29, 2024)]
[Notices]
[Pages 46428-46441]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10945]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100129; File No. SR-CboeBZX-2024-032]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Amend Rule 11.28(a) To Add Four Additional Market-on-Close Cut-off 
Times to Cboe Market Close

May 14, 2024.
    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 April 29, 2024, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. On May 13, 
2024, the Exchange filed Amendment No. 1, which supersedes the original 
filing in its entirety.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as modified by Amendment 
No. 1, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange (1) amended paragraph (b) 
of Rule 11.28 and Interpretations and Policies .02 of Rule 11.28 to 
conform the CMC procedures with the proposed additional MOC Cut-Off 
times and (2) provided additional justification and support for the 
proposal. The full text of Amendment No. 1 is available on the 
Commission's website at https://www.sec.gov/rules/sro/national-securities-exchanges?aId=&sro_organization=192731.
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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 Rule 11.28(a) to add four additional market-on-close (``MOC'') 
cut-off times (each a ``MOC Cut-Off Time'' and collectively ``MOC Cut-
Off Times'') To Cboe Market Close (``CMC'').
    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
    BZX proposes to amend Rule 11.28(a) to add four additional CMC MOC 
Cut-Off times. These MOC Cut-Off times would be in addition to the 
existing MOC Cut-Off time of 3:49 p.m. ET, for a total of five matching 
sessions: 3:15 p.m. ET (new), 3:30 p.m. ET (new), 3:49 p.m. ET 
(current), 3:54 p.m. ET (new), and 3:58 p.m. ET (new).\4\ These 
proposed MOC Cut-Off Times are based on Member feedback. Specifically, 
in response to CMC's noticeable increase in executed volume (discussed 
below), there has been heightened interest in CMC from both existing 
users, as well

[[Page 46429]]

as potential new users of CMC (collectively ``Members''). Collectively, 
these Members have requested certain enhancements to CMC that would 
encourage existing users to increase their utilization of CMC, as well 
encourage prospective users to begin using CMC. Namely, Members have 
expressed a desire for: (1) MOC Cut-Off Times earlier in the trading 
day, and prior to the current MOC Cut-Off Time of 3:49 p.m.; (2) a MOC 
Cut-Off Time closer to Nasdaq's MOC cut-off time of 3:55 p.m.; (3) a 
MOC Cut-Off Time Closer to the New York Stock Exchange's (``NYSE'') 
Closing-D Order cut-off time of 3:59:50; and (4) a MOC Cut-Off Time 
that is subsequent to the MOC cut-off times of the NYSE's and Nasdaq's 
MOC cut-off times, and just prior to the NYSE's Closing-D Order \5\ 
cut-off time of 3:59:50 p.m.
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    \4\ Hereinafter, all times referenced are in Eastern Time.
    \5\ See NYSE Rule 7.31 (c)(2)(``Closing-D Order''); see also 
``The Floor Broker's Modern Trading Tool'', available at: https://www.nyse.com/article/trading/d-order (``While D-Orders are available 
for use throughout the trading day, most executions occur in the 
closing auction, where they're known as Closing D Orders. At 3:55 
p.m., Closing D Order interest eligible to participate in the 
closing auction is added to the order imbalance feed at their 
discretionary price range. Closing D Orders can also be submitted, 
modified or cancelled up to 3:59:50 p.m. These distinct features of 
Closing D Orders are designed to facilitate the Floor Broker's 
traditional agency role on behalf of larger institutional interest, 
allowing Floor Brokers to work in conjunction with their customer to 
find larger liquidity opportunities.'').
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    Both the Exchange and its Members believe that these enhancements 
will help to position CMC as more viable alternative to the primary 
exchanges' closing auctions, NYSE's Closing D Order, and off-exchange 
closing price services. Additionally, multiple MOC Cut-Off Times will 
make CMC more appealing to a larger segment of market participants by 
providing Members with different trading strategies and technical and 
operational capabilities more flexibility in how they manage their 
market-on-close (``MOC'') and closing price orders.
Procedural Background
    On May 5, 2017, the Exchange filed a proposed rule change to adopt 
CMC, a match process for MOC orders in non-BZX listed securities and on 
December 1, 2017, filed Amendment No. 1 \6\ to that proposal (the 
``Original Proposal'').\7\ On January 17, 2018, the Commission, acting 
through authority delegated to the Division of Trading and Markets,\8\ 
approved the Original Proposal (``Approval Order'').\9\ On January 31, 
2018, NYSE Group, Inc. (``NYSE'') and the Nasdaq Stock Market LLC 
(``Nasdaq'') filed petitions for review of the Approval Order 
(``Petitions for Review''). Pursuant to Commission Rule of Practice 
431(e),\10\ the Approval Order was stayed by the filing with the 
Commission of a notice of intention to petition for review.\11\ On 
March 1, 2018, pursuant to Commission Rule of Practice 431, the 
Commission issued a scheduling order granting the Petitions of Review 
of the Approval Order, and provided until March 22, 2018, for any party 
or other person to file a written statement in support of, or in 
opposition to, the Approval Order.\12\ On April 12, 2018, NYSE and 
Nasdaq submitted written statements opposing the Approval Order and BZX 
submitted a statement in support of the Approval Order.\13\ On October 
4, 2018, BZX filed Amendment No. 2 \14\ to the Original Proposal.
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    \6\ The only change in Amendment No. 1 was to rename the 
proposed closing match process as Cboe Market Close. Per the 
Commission, because Amendment No. 1 was a technical amendment and 
did not materially alter the substance of the proposed rule change 
or raise unique or novel regulatory issues, Amendment No. 1 was not 
subject to notice and comment.
    \7\ See Securities Exchange Act Release No. 34-80683 (May 16, 
2017), 82 FR 23320 (May 22, 2017) (SR-Bats-BZX-2017-34) (Notice of 
Filing of a Proposed Rule Change to Introduce Bats Market Close, a 
Closing Match Process for Non-BZX Listed Securities Under New 
Exchange Rule 11.28).
    \8\ 17 CFR 200.30-3(a)(12).
    \9\ See Securities Exchange Act Release No. 34-82522 (January 
17, 2018), 83 FR 3205 (January 23, 2018) (SR-BatsBZX-2017-34) 
(Notice of Filing of Amendment No. 1 and Order Granting Approval of 
a Proposed Rule Change, as Modified by Amendment No. 1, To Introduce 
Cboe Market Close, a Closing Match Process for Non-BZX Listed 
Securities Under New Exchange Rule 11.28).
    \10\ 17 CFR 201.431(e).
    \11\ See Letter to Christopher Solgan, Assistant General 
Counsel, Cboe Global Markets, Inc. (Jan. 24, 2018) (providing notice 
of receipt of notices of intention to petition for review of 
delegated action and stay of order), available at: https://www.sec.gov/rules/sro/batsbzx/2018/sr-batsbzx-2017-34-letter-from-secretary-to-cboe.pdf.
    \12\ See Securities Exchange Act Release No. 82794, 83 FR 9561 
(Mar. 6, 2018). On March 16, 2018, the Office of the Secretary, 
acting by delegated authority, issued an order on behalf of the 
Commission granting a motion for an extension of time to file 
statements on or before April 12, 2018. See Securities Exchange Act 
Release No. 82896, 83 FR 12633 (Mar. 22, 2018).
    \13\ See Statement of NYSE Group, Inc., in Opposition to the 
Division's Order Approving a Rule to Introduce Cboe Market Close 
(``NYSE Statement''); Statement of the Nasdaq Stock Market LLC in 
Opposition to Order Granting Approval of a Proposed Rule Change, as 
Modified by Amendment No. 1, to Introduce Cboe Market Close 
(``Nasdaq Statement''); and Statement of Cboe BZX Exchange, Inc., in 
support of Commission Staff's Approval Order (``BZX Statement''), 
available at: https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734.htm.
    \14\ See Securities Exchange Act Release No. 34-84670 (November 
28, 2018), 83 FR 62646 (December 4, 2018) (SR-BatsBZX-2017-34) 
(``Notice of Filing of Amendment No. 2 to Proposed Rule Change to 
Introduce Cboe Market Close, a Closing Match Process for Non-BZX 
Listed Securities Under New Exchange Rule 11.28'').
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    The Commission conducted a de novo review of the CMC proposal and 
associated public record, including Amendment No. 2, the Petitions for 
Review, and all comments and statements submitted by certain exchanges, 
issuers, and other market participants,\15\ to determine whether the 
proposal was consistent with the requirements of the Act and the rules 
and regulations issued thereunder that are applicable to a national 
securities exchange.\16\ The Commission noted that under Rule 700(b)(3) 
of the Commission's Rule of Practice, the ``burden to demonstrate that 
a proposed rule change is consistent with the Exchange Act and the 
rules and regulations issued thereunder. . .is on the self-regulatory 
organization that proposed the rule change.'' \17\
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    \15\ See ``Statements on File No. SR-BatsBZX-2017-34'', 
available at: https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734.htm.
    \16\ See Securities Exchange Act Release No. 34-88008 (January 
21, 2020), 85 FR 4726 (January 27, 2020) (SR-BatsBZX-2017-34) 
(``Order Setting Aside Action by Delegated Authority and Approving a 
Proposed Rule Change, as Modified by Amendments No. 1 and 2, To 
Introduce Cboe Market Close, a Closing Match Process for Non-BZX 
Listed Securities Under New Exchange Rule 11.28'').
    \17\ Id.
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    Importantly, after reviewing the entire record, the Commission 
concluded that BZX met its burden to show that the proposed rule change 
was consistent with the Act, and pursuant to its January 21, 2020, 
order, set aside the Approval Order and approved BZX's CMC proposal, as 
amended (``Final Approval Order'').\18\ Notably, the Commission stated 
that the record ``demonstrate[d] that Cboe Market Close should 
introduce and promote competitive forces among national securities 
exchanges for the execution of MOC orders'' \19\ and that ``the record 
demonstrate[d] that Cboe Market Close should not disrupt the closing 
auction price discovery process nor should it materially increase the 
risk of manipulation of official closing prices''.\20\
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    \18\ Id.
    \19\ Id.
    \20\ Id.
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    Subsequently, on August 5, 2022, the Exchange filed a proposed rule 
change to amend Rule 11.28(a) to extend CMC's MOC Cut-Off Time from 
3:35 p.m. to 3:49 p.m. (``CMC Amendment'').\21\ On October 4, 2022, the 
Commission, acting through authority delegated to the Division of 
Trading and Markets, designated a longer period within which to take 
action on the Exchange's CMC

[[Page 46430]]

Amendment.\22\ Later, on November 11, 2022, BZX filed Amendment No. 1 
to its CMC Amendment, and the Commission instituted proceedings to 
determine whether to approve or disapprove the proposed rule change as 
modified by Amendment No. 1.\23\ Finally, on February, 9, 2023, the 
Commission, approved the proposed CMC Amendment (``CMC Amendment 
Approval Order'').\24\
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    \21\ See Securities Exchange Act Release No. 34-95529 (August 
17, 2020), 87 FR 52092 (August 24, 2022) (SR-CboeBZX-2022-038).
    \22\ See Securities Exchange Act Release No. 34-95967 (October 
4, 2022), 87 FR 61425 (October 11, 2022) (SR-CboeBZX-2022-038).
    \23\ See Securities Exchange Act Release No. 34-96359 (November 
18, 2022), 87 FR 72537 (November 25, 2022) (SR-CboeBZX-2022-038).
    \24\ See Securities Exchange Act Release No. 34-96861 (February 
9, 2023), 88 FR 9940 (February 15, 2023) (SR-CboeBZX-2022-038).
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    In approving the CMC Amendment, the Commission stated that the 
proposal was consistent with Section 6(b)(5) of the Act,\25\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, 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 not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers; as well as Section 
6(b)(8) of the Act,\26\ which requires that the rules of a national 
securities exchange not impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Act.
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    \25\ 15 U.S.C. 78f(b)(5).
    \26\ 15 U.S.C. 78f(b)(8).
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    For the reasons discussed more fully below, the Exchange believes 
that when applying the Commission's analysis in the Final Approval 
Order and the CMC Amendment Approval Order to the current proposal, 
such review would similarly conclude that this proposal is consistent 
with the Act.
Increased Volume and New Demand for CMC
    On March 10, 2023, the Exchange moved its MOC Cut-Off Time from 
3:35 p.m. to 3:49 p.m. As illustrated in Figure 1 below, since 
implementing the 3:49 p.m. MOC Cut-Off Time CMC has experienced 
noticeable growth in its trading volume, rising modestly beginning in 
May 2023 and more remarkably between September 2023 and November 2023, 
ultimately reaching a record-high of 155 million shares traded in 
December 2023. Based on CMC's growing usage, the Exchange has received 
various feedback from both existing CMC users and prospective CMC 
users. Collectively, these Members have requested certain enhancements 
to CMC that would encourage existing users to increase their 
utilization of CMC, as well encourage prospective users to begin using 
CMC. Namely, Members have expressed a desire for: (1) MOC Cut-Off Times 
earlier in the trading day, including prior to the current MOC Cut-Off 
Time of 3:49 p.m.; (2) a MOC Cut-Off Time closer to Nasdaq's MOC cut-
off time of 3:55 p.m.; (3) a MOC Cut-Off Time Closer to NYSE's Closing-
D Order cut-off time of 3:59:50; and (4) a MOC Cut-Off Time that is 
subsequent to the MOC cut-off times of the NYSE's and Nasdaq's MOC cut-
off times, and just prior to NYSE's Closing-D Order cut-off time of 
3:59:50 p.m.
    As noted, both the Exchange and its Members believe that these 
enhancements will help to position CMC as more viable alternative to 
the primary exchanges' closing auctions, NYSE's Closing-D Order, and 
off-exchange closing price services. Additionally, multiple MOC Cut-Off 
Times will make CMC more appealing to a larger segment of Members by 
providing Members with different trading strategies and technical and 
operational capabilities more flexibility in how they manage their MOC 
and closing price orders.
[GRAPHIC] [TIFF OMITTED] TN29MY24.037


[[Page 46431]]


Proposed Functionality
    Accordingly, BZX proposes to amend Rule 11.28(a) to add four CMC 
MOC Cut-Off times. These MOC Cut-Off times would be in addition to the 
existing MOC Cut-Off time of 3:49 p.m., for a total of five matching 
sessions: 3:15 p.m. (new), 3:30 p.m. (new), 3:49 p.m. (current), 3:54 
p.m. (new), and 3:58 p.m. (new). MOC orders may be entered for each 
matching session up to the relevant MOC Cut-Off Time, beginning each 
day at 6:00 a.m.\27\ Members will have the ability to specify on their 
order instructions which CMC session(s) they wish to participate in. 
For orders that specify they are willing to match in multiple matching 
sessions, any unfilled quantity from an earlier session will carry 
forward to the next session(s). Any unfilled quantity remaining after a 
Member's specified final matching session will be canceled back to the 
Member. To illustrate the proposed functionality, consider the 
following examples.
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    \27\ For instance, an MOC order specifying that it wishes to 
participate in the 3:15 MOC Cut-Off Time must be entered, cancelled, 
or replaced prior to 3:15 p.m. Similarly, a MOC order specified to 
participate in the 3:30 MOC Cut-Off Time may be entered, cancelled, 
or replaced anytime between 6:00 a.m. and 3:29:59 p.m.
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Example 1: Order indicates matching in a single session
Order 1: Buy 100 @ MKT--CMC Session: 3:49 p.m., Timestamp: 3:00:00 p.m.
Order 2: Sell 100 @ MKT--CMC Session: 3:15 p.m., 3:30 p.m., 3:49 p.m., 
Timestamp: 3:01:00 p.m.
Results:

     Order 1 will not match with Order 2 in the 3:15 p.m. or 
3:30 p.m. session. Order 2's unfilled quantity of 100 shares will first 
carry forward from the 3:15 session, then again from the 3:30 session, 
and finally to the 3:49 session.
     Order 1 and Order 2 match in the 3:49 p.m. session for 100 
shares at the closing price.
Example 2: Order indicates matching in multiple sessions
Order 1: Buy 500 @ MKT--CMC Session: 3:15 p.m., 3:30 p.m., 3:49 p.m., 
Timestamp: 3:00:00 p.m.
Order 2: Sell 100 @ MKT--CMC Session: 3:30 p.m., Timestamp: 3:01:00 
p.m.
Order 3: Sell 100 @ MKT--CMC Session: 3:15 p.m., Timestamp: 3:02:00 
p.m.
Order 4: Sell 100 @ MKT--CMC Session: 3:49 p.m., Timestamp: 3:03:00 
p.m.

Results:
     Order 1 and Order 3 match in the 3:15 p.m. session for 100 
shares at the closing price and Order 1's 400 remaining shares are 
carried over to the next session.
     Order 1 and Order 2 match in the 3:30 p.m. session for 100 
shares at the closing price and Order 1's 300 remaining shares are 
carried over to the next session.
     Order 1 and Order 4 match in the 3:49 p.m. session for 100 
shares at the closing price and Order 1's 200 remaining shares are 
canceled back.
Example 3: Order's unfilled quantity retains its original timestamp for 
priority purposes
Order 1: Buy 500 @MKT--CMC Session: 3:15 p.m., 3:30 p.m., Timestamp: 
3:00:00 p.m.
Order 2: Buy 100 @MKT--CMC Session: 3:30 p.m., Timestamp: 3:01:00 p.m.
Order 3: Sell 100 @MKT--CMC Session: 3:15 p.m., Timestamp: 3:02:00 p.m.
Order 4: Sell 100 @MKT--CMC Session: 3:30 p.m., Timestamp: 3:03:00 p.m.

Results:
     Order 1 and Order 3 match in the 3:15 p.m. session for 100 
shares at the closing price and Order 1's 400 remaining shares are 
carried over to the next session.
     Order 1 \28\ and Order 4 match in the 3:30 p.m. session 
for 100 shares at the closing price and Order 1's 300 remaining shares 
are canceled back.
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    \28\ Note that Order 1 in this scenario retains its priority 
over Order 2. Because Order 1 and Order 2 are both un-priced MOC 
orders, time priority takes precedent, with Order 1 maintaining its 
queue priority versus Order 2. See Rule 11.12, Priority of Orders, 
which provides that orders are ranked based on price, then time.
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     Order 2's 100 shares are unfilled and canceled back at 
3:30 p.m.
The Proposed 3:15 p.m. and 3:30 p.m. MOC Cut-Off Times
    Members requesting MOC Cut-Off Times earlier in the trading day 
have expressed that these additional MOC Cut-Off Times will provide 
them more flexibility in managing their MOC and closing price order 
flow. For instance, some Members maintain multiple internal trading 
desks, each managing different types of order flow and trading 
strategies. One trading desk may manage orders that its traders 
actively trade throughout the trading day leading up to the close, 
making MOC Cut-Off Times closer to 4:00 p.m. more valuable for that 
trading desk. Separately, one of the Member's other trading desks may 
typically execute orders guaranteeing the closing price or perhaps 
manage orders on behalf of index funds or ETF providers, that are often 
benchmarked to the official closing price. For this workflow, a Member 
may be agnostic as to when it commits MOC orders to CMC, a primary 
exchange's closing auction, or an off-exchange closing price service, 
and may view the ability to commit such order flow to CMC earlier in 
the trading day at 3:15 p.m. or 3:30 p.m. as a valuable tool to help 
them execute orders and de-risk their trading risk earlier in the 
trading day.
    Additionally, Members have indicated the proposed 3:15 p.m. and 
3:30 p.m. MOC Cut-Off Times will also assist them in managing any 
technological and operational risk associated with managing high 
volumes of order flow. Notional trading and trading volatility are 
typically at their highest towards the end of Regular Trading Hours. 
During this time, Members systems may be managing a significant number 
of MOC or closing price orders. Unless the Member is attempting to beat 
the closing price by trading such orders for as long as possible 
heading into the close, committing such orders to CMC earlier in the 
trading day will enable them to reduce the number of MOC and closing 
price orders their trading systems must manage. Notably, the Exchange 
noted in its CMC Amendment that today's market participants, including 
CMC's existing users, were technologically equipped \29\ to handle 
CMC's current 3:49 p.m. MOC Cut-Off Time. While this remains the case 
today, the recent growth in CMC's executed volume has attracted 
potential new users with trading strategies, and technological and 
operational capabilities, that have presented new use cases for CMC.
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    \29\ As a general matter, today's market participants, including 
CMC users, rely on electronic smart order routers, order management 
systems, and trading algorithms, which make routing and trading 
decisions on an automated basis, in times typically often measured 
in microseconds. See generally ``Staff Report on Algorithmic Trading 
in U.S. Capital Markets'' (August 5, 2020), available at https://www.sec.gov/tm/reports-and-publications/special-studies/algo_t_report_2020 (``Algorithmic Trading Report'') (``Over the past 
decade, the manual handling of institutional orders is increasingly 
rare and has been replaced by sophisticated institutional order 
execution algorithms and smart order routing systems.'') (``The 
secondary market for U.S.-listed equity securities that has 
developed within this structure is now primarily automated. The 
process of trading has changed dramatically primarily as a result of 
developments in technologies for generating, routing, and executing 
orders, as well as by the requirement imposed by law and 
regulation.'') (``Modern equity markets are connected in part by the 
data flowing between market centers. An enormous volume of data is 
available to market participants. In recent years, there has been an 
exponential growth in the amount of market data available, the speed 
with which it is disseminated, and the computer power used to 
analyze and react to price movements.'').

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[[Page 46432]]

    Overall, by having the ability to submit orders to the proposed 
3:15 p.m., 3:30 p.m., and 3:49 p.m. MOC Cut-Off Times, Members will 
have a greater opportunity of being matched earlier in the trading day 
before potentially needing to re-route their unmatched MOC orders to 
the primary exchanges or off-exchange closing price offerings. On high-
volume order days--e.g. Russell Rebalance Days where trading volume is 
high--the utility of being able to de-risk closing cross order volume 
earlier in the trading day is both a rational trading decision and a 
prudent way for Members to manage their operational and technological 
risk as such event days are marked by high volume and volatility that 
may utilize a significant portion of some Members' systems capacity.
The Proposed 3:54 p.m. and 3:58 p.m. MOC Cut-Off Times
    Members requesting the later MOC Cut-Off Time of 3:54 p.m. have 
indicated that these MOC Cut-Off Times will help to better align CMC 
with Nasdaq's MOC cut-off time of 3:55 p.m., thereby helping to make 
CMC a more viable alternative to Nasdaq's closing auction. Members 
requesting the later MOC Cut-Off Time of 3:58 p.m. have indicated that 
this MOC Cut-Off Time would provide Members with another option similar 
to NYSE's Closing D-Order, thereby enabling Members to achieve the 
official closing price where they may have traded beyond the primary 
exchanges' closing auction cut-off times as they attempt to trade as 
close to 4:00 p.m. as possible.
    Similar to the rationale for extending CMC's MOC Cut-Off Time from 
3:35 p.m. to 3:49 p.m., Members desire MOC Cut-Off Times that are 
closer to the end of Regular Trading Hours \30\ so that they may retain 
control of their trading for a longer period of time. By being able to 
trade closer to the end of Regular Trading Hours, Members have more 
opportunities to seek better priced liquidity for their orders in a 
variety of ways and reducing the size of their outstanding orders they 
may need to commit to CMC or the primary auctions, including but not 
limited to, finding contra-side liquidity in the marketplace and 
trading directly against such interest, or guaranteeing a customer 
order at a price better than the national best bid or offer by 
committing capital to an order and filling it in a principal capacity, 
as well as continuing to trade algorithmically into the close. By 
adding the MOC Cut-Off Times of 3:54 p.m. and 3:58 p.m., CMC will be 
better positioned to serve as a viable option for market participants 
to consider when deciding which venues to route their MOC orders or 
Closing-D Orders, thus enhancing intermarket competition.
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    \30\ The term ``Regular Trading Hours'' means the time between 
9:30 a.m. and 4:00 p.m. Eastern Time. See Rule 1.2 (w), definition 
of, ``Regular Trading Hours.''
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    In support of the above, Figure 2 shows the total average daily 
volume across all market centers, from 3:30 p.m. to 4:00 p.m. in 30-
seconds intervals, and includes labels for the different MOC cut-off 
times for CMC, NYSE, and Nasdaq. As illustrated, at NYSE's 3:50 p.m. 
MOC cut-off time, NYSE's 3:59:50 Closing-D Order cut-off time, Nasdaq's 
3:55 p.m. MOC cut-off time, and 4:00 p.m. market close, there is a 
noticeable increase in traded volume in the overall marketplace, with 
volume relatively flat in the overall marketplace prior to those times. 
This analysis supports the Exchange's assertion that certain market 
participants do indeed prefer cut-off times later in the trading day. 
Therefore, the Exchange now seeks to implement the MOC Cut-Off Times of 
3:54 p.m., and 3:58 p.m., to better align CMC with Nasdaq's 3:55 p.m. 
MOC cut-off time and NYSE's Closing-D Order cut-off time of 3:59:50. In 
doing so, the Exchange believes that CMC will be better positioned as a 
viable alternative to Nasdaq's closing auction, and as another option 
to NYSE's Closing D-Order, enabling Members to achieve the official 
closing price where they may have traded beyond the primary exchanges' 
closing auction cut-off times as they attempt to trade as close to 4:00 
p.m., thereby ``foster[ing] price competition and. . .decreas[ing] 
costs for market participants.'' \31\
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    \31\ Supra note 15.
    [GRAPHIC] [TIFF OMITTED] TN29MY24.048
    

[[Page 46433]]


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.\32\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \33\ 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 witht he 
Section 6(b)(5) \34\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78f(b).
    \33\ Supra note 25.
    \34\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the addition of the 
proposed MOC Cut-Off Times would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed times would offer CMC users increased flexibility 
in how to manage their MOC and closing price order flow and their 
associated trading, and their technological and operational risk, as 
well help to better position CMC to serve as a viable alternative to 
the primary exchanges' closing auctions, and off-exchange closing price 
mechanism. For instance, by having the option to allocate their MOC 
order flow across various MOC Cut-Off Times, Members will have the 
opportunity to receive matches earlier in the trading day, thereby 
reducing their trading risk, as well as the volume of orders their 
systems may need to handle at once, thereby reducing operational and 
technology risk. Furthermore, the proposed 3:54 p.m. MOC Cut-Off time 
will enable Members to actively trade orders in Nasdaq-listed 
securities for a longer period as they will no longer have to submit 
their MOC orders to CMC at 3:49 p.m.--i.e., six-minutes prior to 
Nasdaq's cut-off time. As discussed above, if a Member's MOC orders are 
not matched in CMC they will still have ample time to reroute any 
unmatched to CMC MOC orders to Nasdaq's closing auction, thereby making 
CMC a more comparable alternative to Nasdaq's closing auction.
    Additionally, the Exchange has received feedback from Members that 
while moving the single MOC Cut-Off Time from 3:35 p.m. to 3:49 p.m. 
(six-minutes prior to Nasdaq's cut-off time, and nearly eleven-minutes 
prior to NYSE's Closing-D Order cut-off time) has been helpful in 
managing their MOC and closing price order flow, Members desire later 
cut-off times that more closely align with the current Nasdaq cut-off 
time of 3:55 p.m., and a cut-off time closer to 4:00 p.m. As noted, the 
proposed 3:54 p.m. MOC Cut-Off Time will help make CMC a more practical 
alternative to the Nasdaq closing auction. Furthermore, the proposed 
MOC Cut-Off Time of 3:58 p.m. (i.e., closer to 4:00 p.m.) would be of 
great value to Members because it would enable them to trade closer to 
4:00 p.m.--i.e., past the primary exchanges' cut-off times--giving them 
control of their orders for a longer period of time and providing them 
with an option similar to NYSE's Closing-D Order. The Exchange notes 
that the market participants that would primarily use the later MOC 
Cut-Off Times are technologically equipped \35\ to handle the proposed 
3:54 p.m. and 3:58 p.m. MOC Cut-Off Times. Specifically, CMC's current 
users utilize third-party providers or broker-dealers \36\ that provide 
them with electronic trading technology enabling them to quickly react 
to market conditions and messages, such as the Cboe Auction Feed.\37\ 
Moreover, many market participants, including non-users of CMC, utilize 
electronic smart order routers, order management systems, and trading 
algorithms, which make routing and trading decisions on an automated 
basis in times often measured in microseconds. Therefore, the Exchange 
believes that both current users of CMC, as well as those that may 
utilize CMC following approval of this proposal, will be 
technologically equipped to efficiently respond to CMC's publication of 
matched shares and, should they so choose, reroute any unmatched MOC 
orders to Nasdaq's closing auction, utilize NYSE's Closing-D Order,\38\ 
or reroute to an off-exchange closing price offering.
---------------------------------------------------------------------------

    \35\ Supra note 28.
    \36\ As a general matter, third-party technology providers and 
broker-dealers with electronic trading offerings provide automated 
trading and routing products and services to market participants 
that may not possess their own proprietary technology, or simply 
choose to leverage third party solutions they deem superior to their 
own internal technology. By way of example, portfolio managers 
responsible for reweighting their managed funds may not possess 
internal automated routing and algorithmic trading capabilities, and 
instead utilize third-party solutions enabling them to trade on an 
automated basis. As such, the proposed MOC Cut-Off Times of 3:54 
p.m. and 3:58 p.m. are not likely to negatively impact market 
participants who may not possess the internal capabilities to 
reroute unmatched CMC MOC orders to the primary exchanges' closing 
auctions. The Exchange further notes that the utilization of third 
parties and broker-dealers for technological trading solutions was 
even noted by the Commission in its Algorithmic Trading Report. 
Supra note 28 (``Institutions that do not create their own 
algorithms generally use algorithms provided to them by 
institutional brokers.'') (``Brokers are tasked by their customers 
with finding liquidity in a complex, fragmented market, achieving 
best execution, and minimizing information leakage and other 
implicit costs. To try to meet these goals, brokers use, and offer 
to their customers, a wide range of execution algorithms.'').
    \37\ Per Rule 11.22(i), The Cboe Auction Feed is an uncompressed 
data product that provides information regarding the current status 
of price and size information related to auctions conducted by the 
Exchange as well as the total size of all buy and sell orders 
matched via Cboe Market Close described in Rule 11.28
    \38\ By way of background, CMC calculates the matched shares at 
the MOC Cut-Off Time (currently 3:49 p.m.) Importantly, the matching 
process happens quickly, and while the duration may vary, the total 
matching process typically takes a fraction of second (e.g., ~948 
microseconds), with the maximum being around 1-second. With these 
timeframes in mind, a user should in most instances, currently knows 
the paired CMC quantity no later than 3:49:01 p.m., leaving the user 
at least fifty-nine-seconds (59) to reroute any unpaired CMC MOC 
orders to the primary exchanges' closing auctions. Similarly, 
applying these timeframes to the proposed MOC Cut-Off Times, a user 
should in most instances know the pair paired CMC quantities no 
later than 3:15.01, 3:30.01, 3:54.01, and 3:58.01. As noted by the 
Exchange throughout this filing, the speed of today's trading 
technology is typically measured in microseconds, making fifty-nine-
seconds (59) a significant amount of time for a user to make an 
automated trading decision. For reference, a microsecond is 1-
millionth of a second.
---------------------------------------------------------------------------

    The Exchange also notes that as CMC volume has increased, 
prospective new users \39\ with different trading strategies and 
different technological and operational capabilities have expressed 
interest in utilizing CMC. This segment of Members has expressed a 
desire for earlier MOC Cut-Off Times, which they note will assist them 
in more efficiently managing their workflows and trading risk. For 
instance, some of these Members would prefer to commit certain of their 
closing price orders--e.g., guaranteed close orders--to a closing 
auction mechanism earlier in the trading day. By submitting such orders 
to CMC and potentially receiving a match, a Member can reduce its 
trading risk. Additionally, by having the ability to allocate MOC 
orders across

[[Page 46434]]

various MOC Cut-Off Times, Members can more capably manage their order 
volume and reduce the number of messages that their systems must manage 
and process heading into market close, where trading volume and 
volatility are typically highest. As such, Members will be better able 
to manage any operational or technology risk \40\ associated with a 
high order volume day such as index rebalance days (e.g., Russell or 
MSCI index rebalance days) or unexpected high volatility trading days, 
as well as better manage the number of MOC orders a Member may need to 
send to an exchange or off-exchange venue at any one time.\41\
---------------------------------------------------------------------------

    \39\ Prospective new users of CMC include both Members 
expressing interest in utilizing CMC for the first time, as well as 
new end-clients of Members that currently utilize CMC, and have 
inquired as to CMC's functionality, and the proposed enhancements.
    \40\ The Exchange notes that there are market participants that 
may not currently possess internal high-speed routing and trading 
technology. However, such market participants may, and likely 
already do, utilize routing and trading services offered by third-
party providers or broker-dealers to handle and execute their orders 
electronically. Additionally, CMC is entirely voluntary and Members 
that do not possess internal high-speed trading and routing 
technology, or utilize third-party broker-dealers, are not required 
to use CMC. Accordingly, the Exchange believes that the proposed MOC 
Cut-Off Time is not likely to result in disparate treatment amongst 
CMC users and other market participants.
    \41\ In this regard, the Exchange notes that some Members have 
expressed that while they have ample time to redirect any unmatched 
CMC orders to the primary exchanges, internal or external message 
rate checks (e.g., SEC Rule 15c3-5 risk checks or market center 
checks) may prohibit them from doing so if the Member is submitting 
a large volume of unmatched MOC orders at one time. In this regard, 
the proposed additional MOC Cut-Off Times may assist Members in 
allocating MOC orders across multiple CMC sessions, and should they 
be matched, reduce the volume of unmatched MOC orders the Member may 
have to submit to another market center.
---------------------------------------------------------------------------

    As noted in its CMC Amendment, the Exchange continues to believe 
that the extension of cut-off times by the primary exchanges since 
CMC's approval in 2020 as well as the growth of off-exchange venues 
\42\ with cut-off times in such close proximity to the end of Regular 
Trading Hours is indicative of Members' desires for such offerings. 
Logically, such a change in market structure would not have occurred if 
market participants did not already possess the operational and 
technological capabilities to effectively manage the multitude of cut-
off times offered by the exchanges and off-exchange venues.
---------------------------------------------------------------------------

    \42\ For example, JP Morgan Securities' ATS, JPB-X, offers Close 
Price Match. This functionality utilizes a conditional order process 
to match orders and crosses them at the security's official closing 
prices, as determined by the closing auction at the primary exchange 
for a security. The Close Price Match time for an NMS stock is 
currently 30-seconds before the MOC cut-off time for that stock's 
primary exchange. Additionally, Instinet, LLC's ATS, CBX provides 
for three MOC Crossing Sessions, which consist of: a cross for 
securities where the primary listing exchange is the Nasdaq 
(``Nasdaq Cross''), a cross for securities where the primary listing 
exchange is the NYSE Arca (``Arca Cross''), and a cross for 
securities where the primary listing exchange is the NYSE (``NYSE 
Cross'') (collectively, ``MOC Crosses''). Each MOC Cross occurs two 
minutes prior to the relevant exchange's cut-off time; i.e., the 
Nasdaq Cross currently occurs at or near 3:53 p.m., the NYSE Cross 
at or near 3:48 p.m., and the Arca Cross at or near 3:57 p.m. See 
Form ATS-N, JPB-X, available at: https://www.sec.gov/Archives/edgar/data/782124/000001961722000459/xslATS-N_X01/primary_doc.xml; see 
also Form ATS-N, Instinet, LLC's ATS, CBX, available at: https://www.sec.gov/Archives/edgar/data/310607/000031060722000009/xslATS-N_X01/primary_doc.xml . . should.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because adding the MOC Cut-Off 
Times of 3:54 p.m. and 3:58 p.m. would more closely align the CMC with 
the cut-off time in place for the Nasdaq closing auction, as well as 
provide market participants with a tool similar to NYSE's Closing D-
Order that enables them to trade closer to 4:00 p.m.\43\ By adding the 
3:54 p.m. and 3:58 p.m. MOC Cut-Off Times, CMC has the ability to 
become a more comparable alternative to Nasdaq's closing auction and 
another option similar to NYSE's Closing D Orders, thereby 
``foster[ing] price competition and . . . decreas[ing] costs for market 
participants.'' \44\
---------------------------------------------------------------------------

    \43\ As noted above, NYSE's Closing-D Order cut-off time is 3:50 
p.m., and Nasdaq's cut-off time is 3:55 p.m. Additionally, the 
Exchange notes that NYSE Arca's cut-off time for MOC orders is 3:59 
p.m. See ``Trading Information--Closing Auctions'', available at: 
https://www.nyse.com/markets/nyse-arca/trading-info.
    \44\ Supra note 15.
---------------------------------------------------------------------------

    The primary exchanges' cut-off times are beneficial to market 
participants because of their proximity to the closing auctions, which 
occur at 4:00 p.m. Trading later into the day provides market 
participants with more time to seek better-priced liquidity for their 
orders in a variety of ways and provides additional time to determine 
the size of their outstanding orders that they may decide to commit to 
CMC, the primary auctions, or services offered by off-exchange venues 
such as ATSs. In this regard, by having the option to trade past the 
primary exchanges' cut-off times and still potentially receive the 
official closing price by participating in CMC at 3:58 p.m., Members 
will have had additional time to actively trade orders and attempt to 
access better priced liquidity for their orders or their client orders.
    Importantly, even with the addition of the proposed MOC Cut-Off 
Times, CMC will remove any perceived impact on Nasdaq's or NYSE's 
closing auction by publishing the number of matched order shares, by 
security, in advance of Nasdaq's cut-off time and NYSE's Closing-D 
Order cut-off time. The total matched shares would still be 
disseminated by the Exchange free of charge via the Cboe Auction Feed, 
albeit at each of the newly proposed MOC Cut-Off Times. Because of the 
speeds and widespread use of market technology the market makers on the 
primary exchanges could, should they choose to do so, incorporate the 
Cboe Auction Feed information (including information about total 
matched shares in CMC) into their closing processes.\45\ Additionally, 
as discussed above, because of the market technology utilized by market 
participants in today's markets, those who choose to participate in CMC 
will still have ample time \46\ to reroute any MOC orders not matched 
via CMC to reach Nasdaq's closing auction or NYSE's Closing-D Order 
offering, to be included in the primary exchanges' closing auctions. 
Notably, market participants that do not possess internal high-speed 
trading and routing capabilities often rely on third-party providers or 
broker-dealers \47\ to handle and execute their orders electronically. 
Moreover, if market participants do not possess internal high-speed 
routing and trading technology, and do not utilize third-party 
solutions, the addition of the proposed MOC Cut-Off Times of 3:15 p.m. 
and 3:30 p.m. would allow such participants to try and receive CMC 
matches earlier in the day at 3:15 p.m.

[[Page 46435]]

or 3:30 p.m., rather than limiting themselves to the later MOC Cut-Off 
Times of 3:49 p.m., 3:54 p.m., and 3:58 p.m., and having less time to 
re-route their unmatched MOC orders to the primary exchanges or off-
exchange closing price mechanisms. Accordingly, the Exchange believes 
that the proposed MOC Cut-Off Times are not likely to result in 
disparate treatment amongst CMC users.
---------------------------------------------------------------------------

    \45\ In connection with its CMC Amendment filing, the Exchange 
spoke with four (4) designated market makers for the primary 
exchanges and confirmed that while they do not currently monitor the 
Cboe Auction Feed, they are technically equipped to do so.
    \46\ Supra note 28.
    \47\ As a general matter, third-party technology providers and 
broker-dealers with electronic trading offerings provide automated 
trading and routing products and services to market participants 
that may not possess their own proprietary technology, or simply 
choose to leverage third party solutions they deem superior to their 
own internal technology. By way of example, portfolio managers 
responsible for reweighting their managed funds may not possess 
internal automated routing and algorithmic trading capabilities, and 
instead utilize third-party solutions enabling them to trade on an 
automated basis. As such, the proposed MOC Cut-Off Times of 3:54 
p.m. and 3:58 p.m. are not likely to negatively impact market 
participants who may not possess the internal capabilities to 
reroute unmatched CMC MOC orders to the primary exchanges' closing 
auctions. The Exchange further notes that the utilization of third 
parties and broker-dealers for technological trading solutions was 
even noted by the Commission in its Algorithmic Trading Report. 
Supra note 28 (``Institutions that do not create their own 
algorithms generally use algorithms provided to them by 
institutional brokers.'') (``Brokers are tasked by their customers 
with finding liquidity in a complex, fragmented market, achieving 
best execution, and minimizing information leakage and other 
implicit costs. To try to meet these goals, brokers use, and offer 
to their customers, a wide range of execution algorithms.'')
---------------------------------------------------------------------------

    The proposed 3:58 p.m. MOC Cut-Off Time would also help to further 
align CMC's MOC Cut-Off Times with that of off-exchange venues that 
offer cut-off times that correspond with those currently offered by the 
primary exchanges, and as little as 30 seconds prior to market 
close.\48\ As such, the Exchange believes that the proposed rule change 
is supported by both ample precedent as well as current market 
structure, and should not present any new or novel issues that market 
participants must consider when managing their trading and determining 
which exchange or off-exchange venue to route their MOC orders.
---------------------------------------------------------------------------

    \48\ Supra note 41.
---------------------------------------------------------------------------

Price Discovery \49\
---------------------------------------------------------------------------

    \49\ As part of this proposed amendment, the Exchange is 
addressing several questions considered by the Commission in 
connection with the Exchange's Original Proposal, including price 
discovery and fragmentation, market complexity and operational risk, 
and manipulation. Importantly, in considering these questions, the 
Commission found that based on CMC's design and the record before 
the Commission, that the proposal was consistent with Section 
6(b)(5) of the Act. Supra note 15.
---------------------------------------------------------------------------

    As was the case with its CMC Amendment, the Exchange believes that 
the proposed rule change is consistent with the Section 6(b)(5) 
requirements.\50\ As previously noted by the Exchange,\51\ CMC accepts 
and matches only unpriced MOC orders. By matching only unpriced MOC 
orders, and not priced Limit-On-Close (``LOC'') orders and executing 
those matched MOC orders that naturally pair off with each other and 
effectively cancel each other out, CMC is designed to avoid impacting 
price discovery. The proposed rule change--i.e., the addition of 
additional MOC Cut-Off Times--does not change CMC's underlying 
functionality. As previously noted by the Exchange,\52\ matched MOC 
orders are merely recipients of price formation and do not directly 
contribute to the price formation process. Indeed, in its Final 
Approval Order for CMC, even the Commission noted that unpriced, 
paired-off MOC orders do not directly contribute to setting the 
official closing price of securities on the primary listing exchanges 
but, rather, are inherently the recipients of price formation 
information.\53\
---------------------------------------------------------------------------

    \50\ The Exchange notes that the Commission, in its Final 
Approval Order, carefully analyzed and considered CMC and its 
potential effects, if any, on the primary listing exchanges' closing 
auctions, including their price discovery functions. Importantly, 
the Commission found that, based on CMC's design, CMC should not 
disrupt the price discovery process in the closing auctions of the 
primary listing exchanges. Supra note 15.
    \51\ See Letter from Joanne Moffic-Silver, Executive Vice 
President, General Counsel, and Corporate Secretary, Bats Global 
Markets, Inc. (August 2, 2017), available at: https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734-2162452-157801.pdf; see 
also Letter from Joanne Moffic-Silver (October 11, 2017), available 
at: https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734-2634580-161229.pdf.
    \52\ Id.
    \53\ Supra note 15.
---------------------------------------------------------------------------

    Moreover, the Exchange believes that even if the addition of MOC 
Cut-Off Times reduces the number of MOC orders routed to a security's 
primary listing market, CMC is still designed to remove any perceived 
adverse impact on the primary listing markets' close because the total 
matched shares for each CMC session would still be disseminated by the 
Exchange free of charge via the Cboe Auction Feed prior to the primary 
exchanges' cut-off times. Additionally, even with the addition of the 
new MOC Cut-Off Times, because of the technological capabilities of 
today's market participants discussed more fully above, the market 
makers on the primary exchanges would still have the ability to 
incorporate the Cboe Auction Feed information, including information 
about total matched shares in CMC, into their closing processes.
    Furthermore, current users of CMC are either technologically 
equipped to manage the proposed CMC MOC-Cut Off Times or rely on third-
party solutions that provide them with the technological capability to 
appropriately manage the proposed MOC Cut-Off Times and timely re-route 
unmatched CMC orders participate in the primary exchanges' closing 
auctions. Similarly, given the widespread use of routing and trading 
technology in today's markets, it is likely that potential new CMC 
users already possess the technological capabilities to manage the 
proposed MOC Cut-Off Times, and if they do not, similarly rely on 
third-party providers with high-speed technology offerings. 
Alternatively, CMC users lacking high-speed trading and routing 
technology can simply utilize the earlier MOC Cut-Off Times of 3:15 
p.m. and 3:30 p.m., providing themselves more flexibility to reroute 
unmatched CMC orders to the primary exchanges.
Fragmentation \54\
---------------------------------------------------------------------------

    \54\ Supra note 49.
---------------------------------------------------------------------------

    Another matter addressed by the Commission in its review of the 
Original Proposal was fragmentation, and whether CMC would fragment the 
markets beyond what currently occurs through off-exchange close price 
matching venues offered by broker-dealers.\55\ While comparisons to 
off-exchange MOC activity may not be a perfect measure of the potential 
resulting effect of CMC market fragmentation,\56\ the proposed MOC Cut-
Off Times are designed to enable CMC to better compete with off-
exchange venues and for closing volume that is already executed away 
from the primary listing venues.
---------------------------------------------------------------------------

    \55\ Supra note 15.
    \56\ Id (``. . . [C]omparisons to off-exchange activity are not 
a perfect measure of the potential resulting effect of the [CMC] 
proposal because the structures of the many off-exchange mechanisms 
differ from the structure of Cboe Market Close.'').
---------------------------------------------------------------------------

    As illustrated in the first two charts below, a growing proportion 
of trading volume at the close occurs on off-exchange venues, where the 
TRF close volume, as a percent of Exchange close volume, has risen 
steadily since Q1 2019.\57\ In the third chart the Exchange also 
studied the top ten most actively traded securities during the same 
time period and found that a significant portion of the total closing 
volume is executed off-exchange, following the dissemination of the 
official closing price.
---------------------------------------------------------------------------

    \57\ The Exchange conducted an analysis of off-exchange/Trade 
Reporting Facility (``TRF'') closing volume that occurs after market 
close, 4:00 p.m. Eastern Time, where the price is equal to the 
closing price and for which such trades are reported with a Prior 
Reference Price (``PRP'') trade reporting modifier. The TRF is a 
trade reporting facility where FINRA members may report trades in 
Nasdaq-listed and other exchange-listed securities, that were 
executed otherwise than on an exchange. The first two charts 
represent TRF executed volume at the close with the ``PRP'' flag 
that equals the closing auction price, divided by total on exchange 
auction volume.

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[[Page 46436]]

[GRAPHIC] [TIFF OMITTED] TN29MY24.038

[GRAPHIC] [TIFF OMITTED] TN29MY24.039


[[Page 46437]]


[GRAPHIC] [TIFF OMITTED] TN29MY24.040

    Given the significant volume of off-exchange MOC activity already 
occurring, the Exchange believes that there is still ample opportunity 
for the proposed MOC Cut-Off Times to attract existing MOC volume that 
is already being executed away from CMC and the primary listing venues. 
As discussed above, market participants have expressed the value of 
being able to trade closer to 4:00 p.m. In this regard, the proposed 
MOC Cut-Off Times of 3:55 p.m. and 3:58 p.m. satisfy the needs of 
today's market participants, and enable CMC to better compete with off-
exchange venues, thereby ``foster[ing] price competition and . . . 
decreas[ing] costs for market participants.\58\ Members may prefer to 
execute their MOC orders via CMC rather than off-exchange venues for 
reasons such as the increased transparency and reliability that exists 
when investors execute their orders on public, well-regulated 
exchanges. Moreover, by attracting such order flow, CMC can help to 
increase the amount of volume at the close executed on systems subject 
to the resiliency requirements of Regulation SCI.\59\
---------------------------------------------------------------------------

    \58\ Supra note 15.
    \59\ See Letter from Joanne Moffic-Silver, Executive Vice 
President, General Counsel, and Corporate Secretary, Bats Global 
Markets, Inc., a Cboe Company (Oct. 11, 2017) (``Furthermore, [CMC] 
would operate on the Exchange's reliable SCI systems . . . 
significant MOC liquidity is conducted today by off-exchange venues. 
These venues are not SCI systems and, therefore, not subject to 
Regulation SCI's enhanced resiliency requirements. [CMC] could 
attract MOC orders from these off-exchange venues to the Exchange 
and its reliable SCI system, furthering the Commission's presumed 
desire for liquidity at the close to be conducted on SCI systems.'')
---------------------------------------------------------------------------

    Moreover, the Exchange's observations in Figure 5 below show that 
the closing auction volume on both NYSE and Nasdaq has increased 
despite the launch of CMC on March 6, 2020, and the subsequent 
implementation of the 3:49 p.m. MOC Cut-Off Time in 2023. Therefore, 
while the proposed amendment may lead to additional orders being routed 
to CMC rather than the primary exchanges' closing auctions, it cannot 
be said with certainty that such a change will cause additional 
fragmentation in the marketplace as it is possible that existing MOC 
order flow that already executes on off-exchange venues may in fact 
migrate to CMC. In other words, MOC orders that are already being 
executed and matched away from the primary exchanges will continue to 
match and execute on away venues, but rather would match and execute 
pursuant to CMC rather than on an unregulated, non-transparent venue. 
In fact, the Exchange believes the proposed additional MOC Cut-Off 
Times are not likely to materially increase market fragmentation and 
therefore have a negative impact on the market because data shows that 
even with the implementation of CMC, there is still a significant 
amount of volume executed on the primary exchanges' suggesting that 
market participants continue to utilize the primary closing auctions.

[[Page 46438]]

[GRAPHIC] [TIFF OMITTED] TN29MY24.041

Market Complexity and Operational Risk \60\
---------------------------------------------------------------------------

    \60\ Supra note 49.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is simple and 
straightforward, and as such will not significantly increase market 
complexity or operational risk. The Exchange already received approval 
to change its MOC Cut-Off Time from 3:35 p.m. to 3:49 p.m., which 
resulted in no increase in market complexity and operational risk. The 
Exchange now seeks only to offer additional MOC Cut-Off Times, none of 
which will increase market complexity or operational risk. Indeed, the 
3:15 p.m. and 3:30 p.m. MOC Cut-Off Times are designed to help aid 
Members in managing their MOC order flow, and actually mitigate their 
operational and technological risk. The proposed 3:54 p.m. and 3:58 
p.m. MOC Cut-Off Times--like the approved 3:49 p.m. MOC Cut-Off Time--
are intended only to help better align CMC with the cut-off times 
utilized by NYSE and Nasdaq for their Closing-D Orders and closing 
auction, respectively. While Members will now have the option to 
designate orders for participation in multiple MOC Cut-Off Times, and 
any unmatched quantities for such orders will carry forward to the next 
CMC session, the Exchange believes that Members are well equipped to 
manage any new workflow associated with these proposed enhancements. 
Indeed, the Exchange conferred with Members to discuss the proposed 
workflow prior to submitting this proposal, and Members indicated that 
such changes did not present new or novel issues for them to consider. 
In addition, as previously noted,\61\ both current CMC users and market 
participants in general, possess high-speed routing and order handling 
technology, that will enable them to efficiently manage the proposed 
changes to CMC. Members continuing to only participate in a single CMC 
session will not have to consider new operational requirements of 
monitoring and consuming a new data feed or consider the utilization of 
a new order type or implementation of new Exchange code, other than 
perhaps needing to monitor the Cboe Auction Feed for the publication of 
CMC information at a different MOC Cut-Off Time. While Members electing 
to participate in multiple CMC sessions will need to monitor the Cboe 
Auction Feed for CMC information at multiple MOC Cut-Off Times, Members 
have indicated that the operational and technological requirements to 
do so are not complex, and do not present any new or novel issues. In 
addition, as previously noted,\62\ market participants today utilize 
high-speed technology that enables to receive and process market data 
in sub-second latencies. As such, given that the proposed MOC Cut-Off 
Times are multiple minutes apart, the proposed MOC Cut-Off Times should 
not present any new or novel issues for Members.
---------------------------------------------------------------------------

    \61\ Supra. note 28.
    \62\ Id.
---------------------------------------------------------------------------

    Additionally, just as the Exchange did prior to proposing the 3:49 
p.m. MOC Cut-Off Time, the Exchange discussed this current proposal 
with CMC users and learned that CMC's current users are technologically 
equipped \63\ to manage the proposed 3:54 p.m. and 3:58 p.m. MOC Cut-
Off Times, and that they can respond to CMC's publication of matched 
shares and quickly reroute any unmatched MOC orders to the respective 
primary closing auction. Furthermore, the Exchange again notes that 
both off-exchange venues and other exchanges already offer MOC cut-off 
times that are closer in time to the end of Regular Trading Hours. 
Specifically, in 2018 Nasdaq received approval to move the cut-off 
times for the entry of MOC and Limit-On-Close (``LOC'') orders from 
3:50 to 3:55 p.m.\64\ Similarly, in 2018 NYSE received approval from 
the SEC to extend cut-off times for order entry and cancellation

[[Page 46439]]

for participation in its closing auction, from 3:45 p.m. to 3:50 
p.m.\65\ NYSE also offers discretionary-orders, which unlike MOC/LOC 
orders subject to NYSE's 3:50 p.m. cut-off, may be entered for 
participation in the closing auction until 3:59:50.\66\ Additionally, 
market participants may enter MOC orders for participation in NYSE 
Arca's closing auction up to 3:59 p.m.\67\ Finally, various off-
exchange venues offer closing match processes with cut-off times 
aligned with those of the primary exchanges, and even as close to 30-
seconds before market close, 4:00 p.m.\68\
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    \63\ Id.
    \64\ See Securities Exchange Act Release No. 34-84454 (October 
19, 2018), 83 FR 53923 (October 25, 2018) (SR-Nasdaq-2018-068) 
(Order approving a rule change by Nasdaq) (The Commission approved a 
rule change by Nasdaq to move the cut-off times for the entry of MOC 
and LOC orders from 3:50 p.m. to 3:55 p.m.); see also Securities 
Exchange Act Release No. 34-85021 (January 31, 2019) (SR-NYSE-2018-
58) (Order approving a rule change by NYSE) (The Commission approved 
a rule change by the NYSE to amend Rule 123C to extend the cut-off 
times for order entry and cancellation for participation in the 
closing auction, from 3:45 p.m. to 3:50 p.m.).
    \65\ Id.
    \66\ Supra note 4.
    \67\ See ``Closing Auction Timeline'', available at: https://www.nyse.com/markets/nyse-arca/trading-info.
    \68\ Supra note 41.
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    Moreover, the proposed 3:15 p.m. and 3:30 p.m. MOC Cut-Off Times 
will also enable new and existing CMC users that may not have high-
speed trading and routing infrastructure, to still utilize CMC and not 
rely on high-speed technology to reroute unmatched CMC orders from the 
3:49 p.m., 3:54 p.m., or 3:58 p.m. MOC Cut-Off Times. The Exchange also 
notes that CMC is a voluntary offering, and Members may freely decide 
whether to participate.
    Accordingly, the Exchange believes that market participants are 
well accustomed to managing the various cut-off times in today's 
marketplace, and in incorporating these timelines into their trading 
decisions. The number of exchanges and off-exchange venues with 
extended cut-off times indicates that market participants find value in 
their ability to retain control of their trading heading into the end 
of Regular Trading Hours, and the primary exchanges and off-exchange 
venues have responded to such demand. Certainly, market participants 
would not desire cut-off times closer to the end of Regular Trading 
Hours if they could not technologically and operationally manage their 
trading accordingly. Therefore, the additional, later CMC MOC Cut-Off 
Times should not present market participants with any novel operational 
or technological complexities.
Manipulation \69\
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    \69\ Supra note 49.
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    In its CMC Amendment the Exchange noted that the value of the 3:49 
p.m. MOC Cut-Off Time was not the proximity of CMC's matched share 
message to the cut-off times of the primary exchanges, but rather the 
ability of users to trade their orders for a longer period of time 
before deciding whether to commit their MOC orders to CMC. The Exchange 
further stated that it did not expect that the proposed extension of 
the MOC Cut-Off Time to 3:49 p.m. would result in an increase in 
manipulative activity due to information asymmetries, or that it raised 
any unique manipulation concerns relative to how CMC existed with a MOC 
Cut-Off Time of 3:35 p.m. Importantly, the Exchange believes that this 
rationale also applies to the current proposal, and that the SEC should 
dismiss any manipulation concerns regarding this proposal, just as it 
did with the Original Proposal and CMC Amendment.
    Here, the Exchange notes that the mere existence of multiple MOC 
Cut-Off Times does not make any information CMC participants may be 
able to glean from their paired-off MOC orders any more valuable. 
Rather, the value of any information learned by CMC participants is 
still limited in nature. For instance, any information that CMC 
participants may learn from receiving match MOC order messages is 
indeed limited in nature because the CMC participant would still only 
know the unexecuted size of its own order.\70\ Even if a Member 
participated in all five CMC sessions--3:15 p.m., 3:30 p.m., 3:49 p.m., 
3:54 p.m., and 3:58 p.m.--and received messages regarding matched MOC 
orders, the proposed MOC Cut-Off Times are many minutes apart, during 
which time new MOC orders may be entered, rendering useless any 
information a Member may have gleaned regarding an imbalance in the 
prior session. Moreover, even if a Member chose to participate in CMC 
only to gather information about the direction of an imbalance and use 
such information to manipulate the closing price, the Member's orders 
were still eligible for execution subjecting the Member to economic 
risk.
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    \70\ The Exchange notes that in its Final Approval Order, even 
the Commission noted that, ``In particular, a market participant 
would only be able to determine the direction of the imbalance and 
would have difficulty determining the magnitude of any imbalance, as 
it would only know the unexecuted size of its own order. In 
addition, the information would only be with regard to the pool of 
liquidity on BZX and would provide no insight into imbalances on the 
primary listing exchange, competing auctions, ATSs, or other off-
exchange matching services which, as described above, can represent 
a significant portion of trading volume at the close.'' Supra note 
15.
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    While this proposal would result in the total shares for buy and 
sell orders in CMC being disseminated several times during the last 
hour of trading, and with three MOC Cut-Off Times in close proximity to 
the primary exchanges' cut-off times, these changes do not suddenly 
make such information more valuable or useful in terms of enhancing 
opportunities for gaming and manipulating the official closing price. 
The 3:49 p.m. and 3:54 p.m. MOC Cut-Off Times are one-minute prior to 
NYSE's and Nasdaq's MOC cut-off times, and the 3:58 p.m. MOC Cut-Off 
Time is one-minute prior to NYSE's Closing-D Order cut-off time. As 
noted throughout, today's markets are marked by technological solutions 
which typically operate in durations of microseconds. In this context, 
the separation between the CMC MOC Cut-Off Times and that of NYSE's and 
Nasdaq's is a substantial duration of time, during which much can 
change in the marketplace, thus limiting the value of information, if 
any, that can be gleaned from CMC's dissemination of matched shares at 
these times.
    Moreover, the 3:15 p.m. MOC Cut-Off Time is thirty-five-minutes 
prior to NYSE's MOC cut-off time, forty-four-minutes and fifty-seconds 
prior to NYSE's Closing-D Order cut-off time, and forty-minutes prior 
to Nasdaq's MOC cut-off time. Similarly, the 3:30 p.m. MOC Cut-Off Time 
is twenty-minutes prior to the NYSE's MOC cut-off time, twenty-nine-
minutes and fifty-seconds prior to NYSE's Closing-D Order cut-off time, 
and twenty-five-minutes prior to the Nasdaq MOC cut-off time. These 
proposed MOC Cut-Off Times are even further from the primary exchanges' 
cut-off times than the current CMC MOC Cut-Off Time, during which the 
marketplace and CMC will experience significant change, even further 
limiting the value of information, if any, that a Member may glean from 
the dissemination of matched shares.
    Furthermore, as with the current MOC Cut-Off Time, the proposed MOC 
Cut-off Times do not present any information asymmetries that do not 
already exist in today's markets, as the very nature of trading creates 
short term asymmetries of information to those who are parties to a 
trade.\71\ Indeed, as noted by the Commission, any party to a trade 
gains valuable insight regarding the depth of the market when an order 
is executed or partially executed.\72\ Additionally, NYSE imbalance 
information is already disseminated to

[[Page 46440]]

NYSE floor brokers, who are permitted to share with their customers 
specific data from the imbalance feed.\73\ Even in this case, though, 
the Commission stated that the value of such information is limited 
because the imbalance information does not represent overall supply and 
demand for a security, is subject to change, and is only one relevant 
piece of information.\74\ Similarly, because any information gleaned by 
a CMC participant is limited only to the unexecuted size of their 
order, and relative to the depth of only the BZX pool of liquidity, the 
Exchange believes that the proposed extension of the MOC Cut-Off Time 
does not create an increased risk of manipulative trading activity.
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    \71\ The Exchange also notes that in its Final Approval Order, 
even the Commission noted that, ``Further, the Commission believes 
information asymmetries as those described by commenters exist today 
and are inherent in trading, including with respect to closing 
auctions. For example, any party to a trade gains valuable insight 
regarding the depth of the market when an order is executed or 
partially executed.'' Id.
    \72\ Id.
    \73\ Id.
    \74\ Id.
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    Moreover, there are currently controls and processes in place to 
monitor for manipulative trading activity, such as the supervisory 
responsibilities and capabilities of exchanges and the expansive cross 
market surveillance conducted by FINRA. Following approval of this 
proposal, the Exchange, FINRA and others will continue to surveil for 
potential manipulative activity and when appropriate, bring enforcement 
actions against market participants engaged in manipulative trading 
activity.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed amendment 
applies equally to all Members, and is intended to offer additional MOC 
Cut-Off Times, enabling a broader segment of Members to utilize CMC at 
times that better accommodate different trading strategies, and 
Members' technological and operational capabilities. Similar to how 
current CMC users are technologically equipped to participate in CMC at 
3:49 p.m. and timely reroute any unmatched CMC MOC orders to the NYSE 
or Nasdaq closing auction, today's CMC users will be able to utilize 
the 3:54 p.m. MOC Cut-Off Time and still have time to re-route any 
unmatched MOC orders to the Nasdaq closing auction. Similarly, Members 
are also technologically equipped to utilize the 3:58 p.m. MOC Cut-Off 
Times and still have time to re-route their orders as NYSE Closing-D 
Orders.. Members that may lack internal high-speed routing and trading 
technology may utilize third-party providers (discussed above) should 
they desire to make use of the 3:54 p.m. and 3:58 p.m. MOC Cut-Off 
Times.
    Alternatively, the proposed MOC Cut-Off Times of 3:15 p.m. and 3:30 
p.m. will allow CMC users that may lack high-speed trading and routing 
infrastructure to utilize CMC without having to quickly re-route 
unmatched CMC orders to the primary exchanges just prior to their cut-
off times, as well as attract new users who may desire a mechanism that 
allows them to match their MOC orders earlier in the trading day. 
Moreover, CMC is a voluntary closing match process, and Members are not 
required to participate in CMC.
    The Exchange also does not believe that the proposed rule change 
will impose any burden on intramarket competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. As noted 
above, the proposed rule change more closely aligns the CMC MOC Cut-Off 
Times to the cut-off times of other exchanges, while still providing 
CMC participants with an opportunity to reroute any of their unpaired 
MOC orders to the primary exchanges. In this regard, the proposed rule 
change may make CMC a more viable alternative to the primary auctions 
and ``should foster price competition and thereby decrease costs for 
market participants.'' \75\ Additionally, the proposed MOC Cut-Off 
Times of 3:15 p.m. and 3:30 p.m. will help make CMC a more attractive 
alternative to market participants that may not feel comfortable 
attempting to match in CMC at 3:49 p.m. and still have time to re-route 
unmatched CMC orders to NYSE and Nasdaq, as well as market participants 
that simply wish to reduce their MOC trading obligations earlier in the 
trading day by attempting to match in CMC. Collectively, the proposed 
MOC Cut-Off Times will enable the Exchange to compete with the primary 
exchanges more effectively, as well as with off-exchange venues that 
have cut-off times much closer in time to the market close and comprise 
a growing percentage of closing volume.
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    \75\ Supra note 15.
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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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By Order Approve or Disapprove Such Proposed Rule Change, as 
Modified by Amendment No. 1, or
    B. Institute proceedings to determine whether the proposed rule 
change, as modified by Amendment No. 1, should be 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, as modified by Amendment No. 1, is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2024-032 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-2024-032. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions;

[[Page 46441]]

you should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number SR-CboeBZX-2024-032 and 
should be submitted on or before June 20, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\76\
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    \76\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10945 Filed 5-28-24; 8:45 am]
BILLING CODE 8011-01-P