[Federal Register Volume 89, Number 137 (Wednesday, July 17, 2024)]
[Notices]
[Pages 58201-58204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15665]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100494; File No. SR-CboeEDGX-2024-040]


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

July 11, 2024.
    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 June 28, 2024, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'') 
proposes to amend its Fee Schedule. The text of the proposed rule 
change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend its fee schedule for its equity 
options platform (``EDGX Options'') relating to logical connectivity 
fees.\3\
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    \3\ The Exchange initially filed the proposed fee change on 
January 2, 2024 (SR-CboeEDGX-2024-006). On March 1, 2024, the 
Exchange withdrew that filing and submitted SR-CboeEDGX-2024-017. On 
April 30, 2024, the Exchange withdrew that filing and submitted SR-
CboeEDGX-2024-023. On June 28, 2024, the Exchange will be 
withdrawing that filing and submitting this filing.
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    By way of background, the Exchange offers a variety of logical 
ports, which provide users with the ability within the Exchange's 
System to accomplish a specific function through a connection, such as 
order entry, data receipt or access to information. The Exchange 
currently assesses, among other things, the following logical port 
connectivity fees on a monthly basis: $500 per port for Logical Ports; 
\4\ $500 per port for Multicast PITCH Spin Server Ports

[[Page 58202]]

(``Spin Ports'') and GRP Ports; \5\ and $600 per port for Ports with 
Bulk Quoting Capabilities \6\ (``Bulk Ports''). The Exchange proposes 
to increase the monthly fees for the forgoing ports to the following 
rates: $750 per port for Logical Ports, Spin Ports and GRP Ports and 
$1,000 per port for Bulk Ports. The Exchange notes the proposed fee 
change better enables it to continue to maintain and improve its market 
technology and services and also notes that the proposed fee amount, 
even as amended, continues to be in line with, or even lower than, 
amounts assessed by other exchanges for similar connections, including 
the Exchange's affiliated options exchanges.\7\
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    \4\ Logical Ports include FIX and BOE ports (used for order 
entry), drop logical port (which grants users the ability to receive 
and/or send drop copies) and ports that are used for receipt of 
certain market data feeds.
    \5\ Spin Ports and GRP Ports are used to request and receive a 
retransmission of data from the Exchange's Multicast PITCH data 
feeds.
    \6\ Bulk Quoting Capabilities Ports provide users with the 
ability to submit and update multiple bids and offers in one message 
through logical ports enabled for bulk-quoting.
    \7\ See, e.g., Cboe C2 Options Exchange Fee Schedule, Options 
Logical Port Fees, Cboe BZX Options Exchange Fee Schedule, Options 
Logical Port Fees and Cboe Exchange Fees Schedule, Logical 
Connectivity Fees; see also The Nasdaq Stock Market Options Pricing 
Schedule, Section 3 Nasdaq Options Market--Ports and Other Services.
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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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange also believes the proposed rule 
change is consistent with Section 6(b)(4) \11\ of the Act, which 
requires that Exchange rules provide for the equitable allocation of 
reasonable dues, fees, and other charges among its Members and other 
persons using its facilities.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes the proposed fee is reasonable as it is still 
in line with, or even lower than, amounts assessed by other exchanges 
for similar connections.\12\ Indeed, the Exchange believes assessing 
fees that are a lower rate than fees assessed by other exchanges for 
analogous connectivity (which were similarly adopted via the rule 
filing process and filed with the Commission) is reasonable. 
Additionally, the Exchange believes the proposed fee increase is 
reasonable in light of recent and anticipated connectivity-related 
upgrades and changes. The Exchange and its affiliated exchanges 
recently launched a multi-year initiative to improve Cboe Exchange 
Platform performance and capacity requirements, including for its U.S. 
options markets, to increase competitiveness, support growth and 
advance a consistent world class platform. The goal of the project, 
among other things, is to provide faster and more consistent order 
handling and matching performance for options, while ensuring quicker 
processing time and supporting increasing volumes. For example, the 
Exchange is currently performing order handler and matching engine 
hardware upgrades across its markets to advance this goal. The Exchange 
anticipates that upgrades to its matching engines may result in a 
latency reduction up to 40% to 50% on the Exchange and that upgrades to 
its order handlers may offer lower variability in the processing of 
message, which can reduce the time a message takes to get to the 
matching engine. The Exchange expended, and will continue to expend, 
resources to innovate and modernize technology so that it may benefit 
its Members and continue to compete among other options markets. The 
Exchange also notes that neither it--nor its options exchange 
affiliates--have passed through or offset current or projected costs 
associated with these upgrades. The ability to continue to innovate 
with technology and offer new products to market participants allows 
the Exchange to remain competitive in the options space which currently 
has 17 options markets and potential new entrants. The Exchange also 
notes market participants may continue to choose the method of 
connectivity based on their specific needs, and no broker-dealer is 
required to become a Member of, let alone connect directly to, the 
Exchange. There is also no regulatory requirement that any market 
participant connect to any one particular exchange. Market participants 
may voluntarily choose to become a member of one or more of a number of 
different exchanges, of which, the Exchange is but one choice. 
Additionally, any Exchange member that is dissatisfied with the 
proposal is free to choose not to be a member of the Exchange and send 
order flow to another exchange. Moreover, direct connectivity is not a 
requirement to participate on the Exchange. The Exchange also believes 
substitutable products and services are available to market 
participants, including, among other things, other options exchanges to 
which a market participant may connect in lieu of the Exchange and/or 
trading of any options product, such as within the Over-the-Counter 
(OTC) markets, which do not require connectivity to the Exchange. 
Indeed, there are currently 17 registered options exchanges that trade 
options (13 of which are not affiliated with Cboe), some of which have 
similar or lower connectivity fees.\13\ Based on publicly available 
information, no single options exchange has more than approximately 17% 
of the market share.\14\ Further, low barriers to entry mean that new 
exchanges may rapidly enter the market and offer additional substitute 
platforms to further compete with the Exchange and the products it 
offers. For example, there are 4 exchanges that have been added in the 
U.S. options markets in the last 5 years (i.e., Nasdaq MRX, LLC, MIAX 
Pearl, LLC, MIAX Emerald LLC, and most recently MEMX LLC), with a fifth 
options exchange anticipated to added in 2024 (MIAX Sapphire, LLC).
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    \12\ See, e.g., Cboe C2 Options Exchange Fee Schedule, Options 
Logical Port Fees, Cboe BZX Options Exchange Fee Schedule, Options 
Logical Port Fees and Cboe Exchange Fees Schedule, Logical 
Connectivity Fees; see also The Nasdaq Stock Market Options Pricing 
Schedule, Section 3 Nasdaq Options Market--Ports and Other Services.
    \13\ Id.
    \14\ See Cboe Global Markets U.S. Options Market Volume Summary 
(June 21, 2024), available at https://markets.cboe.com/us/options/market_statistics/.
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    As for market participants that determine to continue to maintain 
membership or to join the Exchange for business purposes, those 
business reasons presumably result in revenue capable of covering the 
proposed fee. Further, for such market participants that choose to 
connect to the Exchange, the Exchange believes the proposed fees 
continue to provide flexibility with respect to how to connect to the 
Exchange based on each market participants' respective business needs. 
For example, the amount and type of

[[Page 58203]]

logical ports are determined by factors relevant and specific to each 
market participant, including its business model, costs of 
connectivity, how its business is segmented and allocated and volume of 
messages sent to the Exchange. Moreover, the Exchange notes that it 
does not have unlimited system capacity and the proposed fees are also 
designed to encourage market participants to be efficient with their 
respective logical port usage and discourage the purchasing of large 
amounts of superfluous ports. There is also no requirement that any 
market participant maintain a specific number of logical ports and a 
market participant may choose to maintain as many or as few of such 
ports as each deems appropriate. Further, market participants may 
reduce or discontinue use of these ports in response to the proposed 
fees. Indeed, when the Exchange last increased pricing for logical 
ports in 2018, the Exchange observed within the first two months that 
market participants did in fact reduce the number of logical ports they 
maintained. Particularly, Logical Port quantities were reduced by 
approximately 20%. The Exchange similarly saw a decline in logical port 
quantities after the current proposed rate change in January 2024. 
Specifically, as of May 2024, Logical Port quantities have been reduced 
by approximately 8% since the announcement of the proposed fee change. 
This demonstrates that market participants can and do choose to 
disconnect, or reduce, their connectivity from the Exchange, including 
in response to fee increases. The Exchange also does not assess any 
termination fee for a market participant to drop its connectivity or 
membership, nor is the Exchange aware of any other costs that would be 
incurred by a market participant to do so.
    As noted above, there is no regulatory requirement that any market 
participant connect to any one options exchange, nor that any market 
participant connect at a particular connection speed or act in a 
particular capacity on the Exchange, or trade any particular product 
offered on an exchange. Moreover, membership is not a requirement to 
participate on the Exchange. Indeed, the Exchange is unaware of any one 
options exchange whose membership includes every registered broker-
dealer. By way of example, while the Exchange has 51 members that trade 
options, Cboe BZX has 61 members that trade options, and Cboe C2 has 52 
Trading Permit Holders (``TPHs'') (i.e., members). There is also no 
firm that is a Member of EDGX Options only. Further, based on 
previously publicly available information regarding a sample of the 
Exchange's competitors, NYSE American Options has 71 members,\15\ and 
NYSE Arca Options has 69 members,\16\ MIAX Options has 46 members \17\ 
and MIAX Pearl Options has 40 members.\18\ Accordingly, excessive fees 
would simply serve to reduce demand for these products, which market 
participants are under no regulatory obligation to utilize.
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    \15\ See https://www.nyse.com/markets/american-options/membership#directory.
    \16\ See https://www.nyse.com/markets/arca-options/membership#directory.
    \17\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Options_Exchange_Members_April_2023_04282023.pdf.
    \18\ See https://www.miaxglobal.com/sites/default/files/page-files/MIAX_Pearl_Exchange_Members_01172023_0.pdf.
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    The Exchange lastly notes that it is not required by the Exchange 
Act, nor any other rule or regulation, to undertake a cost-of-service 
or rate-making approach with respect to fee proposals. Moreover, 
Congress's intent in enacting the 1975 Amendments to the Act was to 
enable competition--rather than government order--to determine prices. 
The principal purpose of the amendments was to facilitate the creation 
of a national market system for the trading of securities. Congress 
intended that this ``national market system evolve through the 
interplay of competitive forces as unnecessary regulatory restrictions 
are removed.'' \19\ Other provisions of the Act confirm that intent. 
For example, the Act provides that an exchange must design its rules 
``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.'' \20\ Likewise, the Act grants the 
Commission authority to amend or repeal ``[t]he rules of [an] exchange 
[that] impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of this chapter.'' \21\ In short, the 
promotion of free and open competition was a core congressional 
objective in creating the national market system.\22\ Indeed, the 
Commission has historically interpreted that mandate to promote 
competitive forces to determine prices whenever compatible with a 
national market system. Accordingly, the Exchange believes it has met 
its burden to demonstrate that its proposed fee change is reasonable 
and consistent with the immediate filing process chosen by Congress, 
which created a system whereby market forces determine access fees in 
the vast majority of cases, subject to oversight only in particular 
cases of abuse or market failure. The Exchange also believes that, even 
if it were possible as a matter of economic theory, cost-based pricing 
for the proposed fee would be so complicated that it could not be done 
practically. Indeed, the Exchange believes that classification of costs 
could likely not be done without on-going debate over formulas for 
allocation,\23\ continual auditing, and considerable expense. The 
Exchange also believes cost-based analysis could create disincentives 
to reduce costs through efficient operation or innovation. Moreover, 
the industry could experience frequent rate increases based on 
escalating expense levels. The Exchange lastly cautions that as 
disputes arise regarding the appropriate measure and calculation of 
relevant costs and allocation of common costs, the Commission could 
find itself engaging in the kind of rigid ratemaking not contemplated 
by Section 11A of the Exchange Act and which the Commission has 
historically sought to avoid.
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    \19\ See H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.) 
(emphasis added).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ 15 U.S.C. 78f(8).
    \22\ See also 15 U.S.C. 78k-l(a)(1)(C)(ii) (purposes of Exchange 
Act include to promote ``fair competition among brokers and dealers, 
among exchange markets, and between exchange markets and markets 
other than exchange markets''); Order, 73 FR at 74781 (``The 
Exchange Act and its legislative history strongly support the 
Commission's reliance on competition, whenever possible, in meeting 
its regulatory responsibilities for overseeing the SROs and the 
national market system.'').
    \23\ See, e.g., letter from Brian Sopinsky, General Counsel, 
Susquehanna International Group, LLP (``SIG''), to Vanessa 
Countryman, Secretary, Commission, dated February 7, 2023, letters 
from Gerald D. O'Connell, SIG, to Vanessa Countryman, Secretary, 
Commission, dated March 21, 2023, May 24, 2023, July 24, 2023 and 
September 18, 2023, and letters from John C. Pickford, SIG, to 
Vanessa Countryman, Secretary, Commission, dated January 4, 2024, 
and March 1, 2024 and letters from Thomas M. Merritt, Deputy General 
Counsel, Virtu Financial, Inc. (``Virtu''), to Vanessa Countryman, 
Secretary, Commission, dated November 8, 2023 and January 2, 2024. 
See also Securities Exchange Act Release No. 93883 (December 30, 
2021), 87 FR 523 (January 5, 2022) (SR-IEX-2021-14) (Suspension of 
and Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change To Amend Its Fee Schedule for 
Market Data Fees) and Securities Exchange Act Release No. 94888 (May 
11, 2022), 87 FR 29892 (May 17, 2022) (SR-PEARL-2022-18) (Notice of 
Filing of a Proposed Rule Change To Amend the MIAX PEARL Options Fee 
Schedule To Increase Certain Connectivity Fees and To Increase the 
Monthly Fees for MIAX Express Network Full Service Port; Suspension 
of and Order Instituting Proceedings To Determine Whether To Approve 
or Disapprove the Proposed Rule Change).
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    The Exchange also believes that the proposed fee change is not 
unfairly

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discriminatory because it would be assessed uniformly across all market 
participants that purchase the respective logical ports. All Members 
have the option to select any connectivity option, and there is no 
differentiation among Members with regard to the fees charged for the 
services offered by the Exchange.

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 Exchange believes the 
proposed fee change will not impact intramarket competition because it 
will apply to all similarly situated market participants equally (i.e., 
all market participants that choose to purchase the relevant logical 
ports).
    The Exchange believes the proposed fees will not impact intermarket 
competition because they are also in line with, or even lower than some 
fees for similar connectivity on other exchanges, and therefore may 
stimulate intermarket competition by attracting additional firms to 
connect to the Exchange or at least should not deter interested 
participants from connecting directly to the Exchange. Further, if the 
changes proposed herein are unattractive to market participants, the 
Exchange can, and likely will, see a decline in usage of these ports as 
a result. The Exchange operates in a highly competitive market in which 
market participants can determine whether or not to connect directly to 
the Exchange based on the value received compared to the cost of doing 
so. Indeed, market participants have numerous alternative venues that 
they may participate on and direct their order flow, including 13 (soon 
to be 14) non-Cboe affiliated options markets, as well as off-exchange 
venues, where competitive products are available for trading. Moreover, 
the Commission has repeatedly expressed its preference for competition 
over regulatory intervention in determining prices, products, and 
services in the securities markets. Specifically, in Regulation NMS, 
the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \24\ The fact that this 
market is competitive has also long been recognized by the courts. In 
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit 
stated as follows: ``[n]o one disputes that competition for order flow 
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .''.\25\ Accordingly, the Exchange 
does not believe its proposed change imposes any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.
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    \24\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005).
    \25\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \26\ and paragraph (f) of Rule 19b-4 \27\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeEDGX-2024-040 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-CboeEDGX-2024-040. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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; 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-CboeEDGX-2024-040 and should 
be submitted on or before August 7, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15665 Filed 7-16-24; 8:45 am]
BILLING CODE 8011-01-P