[Federal Register Volume 90, Number 89 (Friday, May 9, 2025)]
[Notices]
[Pages 19741-19744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-08120]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102991; File No. SR-CboeBZX-2025-059]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change Related to the 2x Long VIX Futures ETF
(``UVIX'') and the -1x Short VIX Futures ETF (``SVIX'')
May 5, 2025.
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 March 21, 2025, Cboe BZX Exchange, Inc. (``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared by the Exchange. The 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 BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposed rule change related to the 2x Long VIX Futures ETF
(``UVIX'') and the -1x Short VIX Futures ETF (``SVIX'') (each a
``Fund'' and, collectively, the ``Funds''), shares of which have been
approved by the Commission to list and trade on the Exchange as Trust
Issued Receipts pursuant to BZX Rule 14.11(f)(4), in order to amend
certain representations from the original filings.
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Commission issued final approval of the rule filings proposing
to list and trade shares of SVIX (the ``SVIX Filing'') \3\ and UVIX
(the ``UVIX Filing,'' \4\ and collectively with the SVIX Filing, the
``Filings'') on the Exchange pursuant to Exchange Rule 14.11(f)(4),
Trust Issued Receipts, on October 1, 2021.\5\
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\3\ See Securities Exchange Act Release Nos 91264 (March 5,
2021) 86 FR 13939 (March 11, 2021) (SR-CboeBZX-2020-070) (Notice of
Filing of Amendment Nos. 1 and 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1
and 3, To List and Trade Shares of the -1x Short VIX Futures ETF
Under BZX Rule 14.11(f)(4) (Trust Issued Receipts)) (the ``SVIX
Notice and Approval Order'').
\4\ See Securities Exchange Act Release Nos 91265 (March 5,
2021) 86 FR 13922 (March 11, 2021) (SR-CboeBZX-2020-053) (Notice of
Filing of Amendment Nos. 2 and 4 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2
and 4, To List and Trade Shares of the 2x Long VIX Futures ETF Under
BZX Rule 14.11(f)(4) (Trust Issued Receipts)) (the ``UVIX Notice and
Approval Order'').
\5\ See Securities Exchange Act Release Nos. 93230 (October 1,
2021) 89 FR 2387 (January 12, 2024) (SR-CboeBZX-2020-070) (Order
Setting Aside Action by Delegated Authority and Approving a Proposed
Rule Change, as Modified by Amendment Nos. 1 and 3, To List and
Trade Shares of the -1x Short VIX Futures ETF Under BZX Rule
14.11(f)(4) (Trust Issued Receipts)) (the ``SVIX Order Setting Aside
Action''); and 93229 (October 1, 2021) 89 FR 3008 (January 17, 2024)
(SR-CboeBZX-2020-053) (Order Setting Aside Action by Delegated
Authority and Approving a Proposed Rule Change, as Modified by
Amendment Nos. 2 and 4, To List and Trade Shares of the 2x Long VIX
Futures ETF Under BZX Rule 14.11(f)(4) (Trust Issued Receipts)) (the
``UVIX Order Setting Aside Action'').
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Both Filings include representations that limit the Funds
participation in Cboe Volatility Index (``VIX'') futures contracts
traded on the Cboe Futures Exchange, Inc. (``CFE'') (hereinafter
referred to as ``VIX Futures Contracts'') to no more than ten percent
(10%) during any ``Rebalance Period,'' defined as any fifteen minute
period of continuous market trading.\6\ The Exchange is not aware of
any existing comparable restrictions on market participation for: (i)
any other single exchange-traded investment product not registered
under the Investment Company Act of 1940 (the ``Investment Company
Act'') (``ETP''); (ii) any exchange-traded note (``ETN''); or (iii)
[[Page 19742]]
any exchange-traded fund registered under the Investment Company Act
(``ETF''), regardless of underlying or reference asset by way of an
exchange rule filing, and especially not across numerous existing and
future products as is the case under the Approval Orders. More
importantly, no competitor ETP, ETN, or ETF nor any sponsor or
investment adviser of any such ETP, ETN, or ETF that would or could
invest in VIX Futures Contracts, are subject to similar restrictions on
VIX Futures Contracts participation.
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\6\ This restriction applies ``across all exchange traded
products based on VIX Futures Contracts (``VIX ETPs'') that
Volatility Shares LLC (the ``Sponsor'') sponsors.'' See note 21 and
accompanying text of the Approval Orders.
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By way of example, the equivalent rule filings for ProShares Ultra
VIX Short-Term Futures ETF (``UVXY''),\7\ ProShares Short VIX Short-
Term Futures ETF (``SVXY''),\8\ ProShares VIX Mid-Term Futures ETF
(``VIXM''), and ProShares VIX Short-Term Futures ETF (``VIXY'') were
approved with no comparable restrictions on market participation,
either on a per Fund basis, collective Fund basis or sponsor-wide
basis.
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\7\ See Securities Exchange Act Nos. 90685 (December 16, 2020)
85 FR 83650 (December 22, 2020) (SR-CboeBZX-2020-092) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To List
and Trade Shares of the ProShares VIX Short-Term Futures ETF and the
ProShares VIX Mid-Term Futures ETF, Each a Series of ProShares Trust
II, Under Rule 14.11(f)(4) (Trust Issued Receipts); 63317 (November
16, 2010) 75 FR 71158 (November 22, 2010) (SR-NYSEArca-2010-101)
(Proposal to list and trade Shares of the ProShares VIX Short-Term
Futures ETF and the ProShares VIX Mid-Term Futures ETF); 63610
(December 27, 2010) 76 FR 199 (January 3, 2011) (SR-NYSEArca-2010-
101) (Order approving the listing and trading of the ProShares VIX
Short-Term Futures ETF and the ProShares VIX Mid-Term Futures ETF).
\8\ See Securities Exchange Act No. 90691 (December 16, 2020) 85
FR 83643 (December 22, 2020) (SR-CboeBZX-2020-093) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To List and
Trade Shares of the ProShares Short VIX Short-Term Futures ETF and
the ProShares Ultra VIX Short-Term Futures ETF, Each a Series of
ProShares Trust II, Under Rule 14.11(f)(4), Trust Issued Receipts).
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UVXY seeks leveraged results of 1.5x whereas UVIX seeks leveraged
results of 2x, and that SVXY seeks inverse results of -0.5x whereas
SVIX seeks inverse results of -1x. However, it is critical to note
that, from a futures market impact perspective, a $100 million fund
with a 1.5x objective will have substantially the same market impact as
a $75 million fund with a 2x objective. Similarly, a $100 million fund
with a -0.5x objective will have substantially the same market impact
as a $50 million fund with a -1x objective. Although asset levels of
UVXY and SVXY, when compared with those of UVIX and SVIX, have varied
over time, there are periods--including recent periods--when UVXY and
SVXY have had larger market impacts on the VIX Futures Contracts market
than UVIX and SVIX, respectively. The Exchange notes that VIXY and VIXM
also, though not leveraged or inverse products, buy and sell VIX
futures contracts and, therefore, impact those markets.
In addition, ETFs listed generically do not typically require
exchange rule filings to list and trade. For example, the Simplify
Volatility Premium ETF, which operates pursuant to Rule 6c-11 under the
Investment Company Act can operate and approach any size without the
kind of participation restrictions imposed by the Notice and Approval
Orders. Similarly, ETNs also do not require separate listing rules, and
so ETNs such as the iPath Series B S&P 500 VIX Mid-Term Futures ETN,
iPath Series B S&P 500 Short-Term Futures ETN, and JP Morgan Chase's
Inverse VIX Short-Term Futures ETN also can operate and approach any
size without participation restrictions.\9\
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\9\ ETNs are not pooled investment vehicles, but rather debt
instruments issued by large financial services companies, and,
therefore, do not directly invest in reference assets. However, the
issuer of the ETN often will hedge its exposure to the underlying
asset referenced by the ETN by purchasing and selling such
underlying reference assets. Accordingly, that activity may not only
have market impacts but also potential impacts on the market price
of the ETN itself. See e.g., Pricing Supplement dated February 26,
2025 of iPath Series B S&P 500 VIX Short-Term Futures ETN, at page
PS-21; available at https://ipathetn.cib.barclays/ipath/details/341408/download-content/7824661.
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As a result, the Approval Orders have created an unfair playing
field by applying restrictions to the Funds and their Sponsor but no
other ETP, ETN, or ETF that references or invests in VIX Futures
Contracts, or any of their sponsors. The Exchange also believes that
these restrictions create potential negative outcomes for the Funds,
their shareholders and the Funds' sponsor, Volatility Shares LLC (the
``Sponsor''). For example, since the imposition of the market
participation restrictions, the Sponsor has received multiple
communications from potential investors and existing shareholders
stating that the imposition of the participation limits creates
inferior products due to the lack of certainty and confidence in Fund
performance at times when the 10% threshold is approached or exceeded.
These potential investors and existing shareholders have also stated
that they will look to other products for investment instead of the
Funds.
Therefore, the Exchange is proposing to modify the following
paragraphs from each Notice and Approval Order that prohibits each
Fund's participation in VIX Futures Contracts during the Rebalance
Period.
Specifically, the UVIX Notice and Approval Order stated: \10\
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\10\ See UVIX Approval Order at 13924. See also UVIX Order
Setting Aside Action at 55874.
The time and manner in which the Fund will rebalance its
portfolio is defined by the Index methodology but may vary from the
Index methodology depending upon market conditions and other
circumstances including the potential impact of the rebalance on the
price of the VIX Futures Contracts. The Sponsor will seek to
minimize the market impact of rebalances across all Funds \11\ on
the price of VIX Futures Contracts by limiting the Funds'
participation, on any given day, in VIX Futures Contracts to no more
than ten percent (10%) of the VIX Futures Contracts traded on Cboe
Futures Exchange, Inc. (``CFE'') during any ``Rebalance Period,''
defined as any fifteen minute period of continuous market
trading.\12\ To limit participation during periods of market
illiquidity, the Sponsor, on any given day, may vary the manner and
period over which all funds it sponsors are rebalanced, and as such,
the manner and period over which the Fund is rebalanced. The Sponsor
believes that the Fund will enter an Extended Rebalance Period most
often during periods of extraordinary market conditions or
illiquidity in VIX Futures Contracts. In the event that the Fund
participates in an Extended Rebalance Period, the Fund represents
that it will notify the Exchange and the Commission of such
participation as soon as practicable, but no later than 9:00 a.m.
E.T. on the trading day following the event.
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\11\ For purposes of the filing, the Exchange states that the
Funds include the Fund and the -1x Short VIX Futures ETF as proposed
in SR-CboeBZX-2020-070, but may in the future include additional VIX
ETPs sponsored by the Sponsor or its affiliates. See Securities
Exchange Act Release No. 89901 (September 17, 2020), 85 FR 59843
(September 23, 2020).
\12\ In the event that the Funds expect to hit the ten percent
threshold during the primary Rebalance Period from 3:45 p.m. to 4:00
p.m. E.T., the Funds will extend their respective rebalances into
additional Rebalance Periods and the TAS market. It is expected that
this extension will provide the Funds with the flexibility to: begin
rebalancing in an earlier period, end rebalancing in a later period,
and execute contracts in TAS (each an ``Extended Rebalance Period''
and collectively the ``Extended Rebalance Period'') while remaining
below the ten percent cap during any fifteen minute period of
continuous market trading. The Funds will be allocated executions
based on their percentage of notional transaction volume required.
The Exchange proposes to replace the above paragraph with the
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following:
The time and manner in which the Fund will rebalance its
portfolio is defined by the Index methodology but may vary from the
Index methodology depending upon market conditions and other
circumstances including the potential impact of the rebalance on the
price of the VIX Futures Contracts. To limit participation during
periods of market illiquidity, the Sponsor, on any given day, may
vary the manner and period over which all funds it sponsors are
rebalanced, and as such, the manner and
[[Page 19743]]
period over which the Fund is rebalanced. The Sponsor believes that
the Fund will enter an Extended Rebalance Period most often during
periods of extraordinary market conditions or illiquidity in VIX
Futures Contracts.
Similarly, the SVIX Notice and Approval Order stated: \13\
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\13\ See SVIX Approval Order at 13941. See also SVIX Order
Setting Aside Action at 55882-55883.
The time and manner in which the Fund will rebalance its
portfolio is defined by the Index methodology but may vary from the
Index methodology depending upon market conditions and other
circumstances including the potential impact of the rebalance on the
price of the VIX Futures Contracts. The Sponsor will seek to
minimize the market impact of rebalances across all exchange traded
products based on VIX Futures Contracts (``VIX ETPs'') that it
sponsors (``Funds'') \14\ on the price of VIX Futures Contracts by
limiting the Funds' participation, on any given day, in VIX Futures
Contracts to no more than 10% of the VIX Futures Contracts traded on
Cboe Futures Exchange, Inc. (``CFE'') during any ``Rebalance
Period,'' defined as any fifteen minute period of continuous market
trading.\15\ To limit participation during periods of market
illiquidity, the Sponsor, on any given day, may vary the manner and
period over which all funds it sponsors are rebalanced, and as such,
the manner and period over which the Fund is rebalanced. The Sponsor
believes that the Fund will enter an Extended Rebalance Period most
often during periods of extraordinary market conditions or
illiquidity in VIX Futures Contracts. In the event that the Fund
participates in an Extended Rebalance Period, the Fund represents
that it will notify the Exchange and the Commission of such
participation as soon as practicable, but no later than 9:00 a.m.
E.T. on the trading day following the event.
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\14\ For purposes of the filing, the Exchange states that the
Funds include the Fund and the 2x Long VIX Futures ETF (``Long
Fund''), but may in the future include additional VIX ETPs sponsored
by the Sponsor or its affiliates. See Securities Exchange Act
Release No. 93229 (Oct. 1, 2021) (SR-CboeBZX-2020-053) (``Long VIX
Approval'').
\15\ In the event that the Funds expect to hit the 10% threshold
during the primary Rebalance Period from 3:45 p.m. to 4:00 p.m. ET,
the Funds will extend their respective rebalances into additional
Rebalance Periods and the Trade at Settlement (``TAS'') market. It
is expected that this extension will provide the Funds with the
flexibility to: begin rebalancing in an earlier period, end
rebalancing in a later period, and execute contracts in TAS (each
``an Extended Rebalance Period'' and collectively ``the Extended
Rebalance Period'') while remaining below the 10% cap during any 15-
minute period of continuous market trading.
The Exchange proposes to replace the above paragraph with the
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following:
The time and manner in which the Fund will rebalance its
portfolio is defined by the Index methodology but may vary from the
Index methodology depending upon market conditions and other
circumstances including the potential impact of the rebalance on the
price of the VIX Futures Contracts. To limit participation during
periods of market illiquidity, the Sponsor, on any given day, may
vary the manner and period over which all funds it sponsors are
rebalanced, and as such, the manner and period over which the Fund
is rebalanced. The Sponsor believes that the Fund will enter an
Extended Rebalance Period most often during periods of extraordinary
market conditions or illiquidity in VIX Futures Contracts.
The Sponsor will continue to operate each Fund in a manner that
seeks to minimize market impact across the Funds. For example, the
Sponsor's products already differ from previous and existing VIX ETPs
in their approach to mitigating market impact by using a valuation
method that is an average price over a longer time period instead of
exclusively at the 4:00 p.m. ET settlement price. The Sponsor owes the
Funds a fiduciary duty and operates the Funds accordingly.\16\
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\16\ The Sponsor, as a commodity pool operator (``CPO'') owes a
fiduciary duty to the commodity pools it operates, i.e., the Funds.
The U.S. Commodity Futures Trading Commission has recognized that
CPOs hold fiduciary relationships in soliciting and advising
commodity clients and in handling the funds of commodity pool
participants. See generally, Weinberg v. NFA, CFTC Dkt. Nos. CRAA
86-1 & CRAA 86-2 (June 6, 1986) (stating that commodity pool
operators ``held fiduciary relationships in soliciting and advising
commodity clients and in handling the money of commodity pool
participants'').
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\17\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \18\ 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.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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As noted above, the Exchange is not aware of any comparable
restrictions on market participation for any single ETP, ETN, or ETF
regardless of underlying asset that has been implemented by way of an
exchange rule filing and especially not across numerous products as is
the case for the Funds. More importantly, competitor ETPs, ETNs, or
ETFs, or their sponsors or advisers, are not subject to these same
restrictions on participation.\19\ First, this creates an unfair
playing field for the Funds and, by arbitrarily singling out only the
Funds and the Sponsor, creates a competitive advantage for their
competitors. Second, the cap applying only to the Funds and the Sponsor
does not actually provide any of the potential protections that the cap
was perhaps intended to provide--regardless of how much and when the
Funds are able to execute trades, competitors remain free to execute
trades during whichever periods and at whatever size they deem
appropriate. The result is that competitors operate with a competitive
advantage which potentially leads to greater assets under management
than the Funds, which, in turn, results in more volume needing to be
executed in a way that is not subject to the caps. Finally, these anti-
competitive and ineffective restrictions on executions actually could
lead to negative impacts on investors. For example, in a scenario where
a rebalance needed to be extended so as not to exceed 10% cap, the
investor is likely to experience a deviation from the Funds' investment
objectives.
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\19\ See supra notes 8 and 9.
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Based on the foregoing, the Exchange believes that the proposal is
consistent with the Act as it would eliminate the status quo--the caps
restrict free competition among issuers, cannot accomplish their
supposed policy goals because they do not apply uniformly, and
ultimately leave investors exposed to potentially negative outcomes.
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. As noted above, the proposed
amendment is intended to allow the Funds to better compete in the
marketplace and to operate more efficiently.
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.
[[Page 19744]]
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, or
B. institute proceedings to determine whether the proposed rule
change 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 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-2025-059 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-2025-059. 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-CboeBZX-2025-059 and should
be submitted on or before May 30, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-08120 Filed 5-8-25; 8:45 am]
BILLING CODE 8011-01-P