Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the Principal Morley Short Duration Index ETF Under Rule 14.11(c)(4), 20892-20898 [2018-09692]

Download as PDF sradovich on DSK3GMQ082PROD with NOTICES 20892 Federal Register / Vol. 83, No. 89 / Tuesday, May 8, 2018 / Notices the analyst’s personal views and whether or not the research analyst received or will receive any compensation in connection with the views or recommendations expressed in the research report. Regulation AC also requires broker-dealers to, on a quarterly basis, make, keep, and maintain records of research analyst statements regarding whether the views expressed in public appearances accurately reflected the analyst’s personal views, and whether any part of the analyst’s compensation is related to the specific recommendations or views expressed in the public appearance. Regulation AC also requires that research prepared by foreign persons be presented to U.S. persons pursuant to Securities Exchange Act Rule 15a–6 and that broker-dealers notify associated persons if they would be covered by the regulation. Regulation AC excludes the news media from its coverage. The Commission estimates that Regulation AC imposes an aggregate annual time burden of approximately 25,844 hours on 5,186 respondents, or approximately 5 hours per respondent. The Commission estimates that the total annual internal cost of compliance for the 25,844 hours is approximately $12,452,349, or approximately $2,401 per respondent, annually. Written comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission’s estimates of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to: Pamela Dyson, Director/Chief Information Officer, Securities and Exchange Commission, c/o Remi PavlikSimon, 100 F Street NE, Washington, DC 20549, or send an email to: PRA_ Mailbox@sec.gov. VerDate Sep<11>2014 18:41 May 07, 2018 Jkt 244001 Dated: May 1, 2018. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–09691 Filed 5–7–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83152; File No. SR– CboeBZX–2018–018] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the Principal Morley Short Duration Index ETF Under Rule 14.11(c)(4) May 2, 2018. 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 April 23, 2018, Cboe BZX Exchange, Inc. (‘‘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. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to list and trade under BZX Rule 14.11(c)(4) the shares of the Principal Morley Short Duration Index ETF (the ‘‘Fund’’) of Principal Exchange-Traded Funds (the ‘‘Trust’’). The text of the proposed rule change is available at the Exchange’s website at www.markets.cboe.com, at the principal office of the Exchange, 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 parts of such statements. 1 15 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00106 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list and trade shares of the Fund (‘‘Shares’’) under BZX Rule 14.11(c)(4),3 which governs the listing and trading of index fund shares based on fixed income securities indexes.4 The Shares will be offered by the Trust, which was established as a Delaware statutory trust on March 05, 2013. The Trust is registered with the Commission as an open-end investment company and has filed a registration statement on behalf of the Fund on Form N–1A (‘‘Registration Statement’’) with the Commission.5 All statements and 3 The Commission approved BZX Rule 14.11(c) in Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 (September 6, 2011) (SR– BATS–2011–018). 4 The Commission previously has approved proposed rule changes relating to listing and trading of funds based on municipal bond indexes. See Securities Exchange Act Release Nos. 78329 (July 14, 2016), 81 FR 47217 (July 20, 2016) (SR– BatsBZX–2016–01) (order approving the listing and trading of the following series of VanEck Vectors ETF Trust: VanEck Vectors AMT-Free 6–8 Year Municipal Index ETF; VanEck Vectors AMT-Free 8– 12 Year Municipal Index ETF; and VanEck Vectors AMT-Free 12–17 Year Municipal Index ETF); 67985 (October 4, 2012), 77 FR 61804 (October 11, 2012) (SR–NYSEArca–2012–92) (order approving proposed rule change relating to the listing and trading of iShares 2018 S&P AMT-Free Municipal Series and iShares 2019 S&P AMT-Free Municipal Series under NYSE Arca, Inc. (‘‘NYSE Arca’’) Rule 5.2(j)(3), Commentary .02); 72523 (July 2, 2014), 79 FR 39016 (July 9, 2014) (SR–NYSEArca–2014–37) (order approving proposed rule change relating to the listing and trading of iShares 2020 S&P AMTFree Municipal Series under NYSE Arca Rule 5.2(j)(3), Commentary .02); and 75468 (July 16, 2015), 80 FR 43500 (July 22, 2015) (SR–NYSEArca– 2015–25) (order approving proposed rule change relating to the listing and trading of the iShares iBonds Dec 2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022 AMT-Free Muni Bond ETF under NYSE Arca Rule 5.2(j)(3), Commentary .02). The Commission also has issued a notice of filing and immediate effectiveness of a proposed rule change relating to listing and trading on NYSE Arca of the iShares Taxable Municipal Bond Fund. See Securities Exchange Act Release No. 63176 (October 25, 2010), 75 FR 66815 (October 29, 2010) (SR–NYSEArca–2010–94). The Commission has approved two actively managed funds of the PIMCO ETF Trust that hold municipal bonds. See Securities Exchange Act Release No. 60981 (November 10, 2009), 74 FR 59594 (November 18, 2009) (SR–NYSEArca–2009–79) (order approving listing and trading of PIMCO ShortTerm Municipal Bond Strategy Fund and PIMCO Intermediate Municipal Bond Strategy Fund, among others). The Commission also has approved listing and trading of the SPDR Nuveen S&P High Yield Municipal Bond Fund. See Securities Exchange Act Release No.63881 (February 9, 2011), 76 FR 9065 (February 16, 2011) (SR–NYSEArca–2010–120). 5 See Registration Statement on Form N–1A for the Trust, dated September 1, 2017 (File Nos. 333– 201935 and 811–23029). The descriptions of the Fund and the Shares contained herein are based, in part, on information in the Registration Statement. E:\FR\FM\08MYN1.SGM 08MYN1 Federal Register / Vol. 83, No. 89 / Tuesday, May 8, 2018 / Notices representations made in this filing regarding the index composition, the description of the portfolio or reference assets, limitations on portfolio holdings or reference assets, dissemination and availability of index, reference asset, and intraday indicative values, and the applicability of Exchange rules specified in this filing shall constitute continued listing requirements for the Fund. sradovich on DSK3GMQ082PROD with NOTICES Description of the Shares and the Fund Principal Global Investors, LLC will be the investment adviser (the ‘‘Adviser’’) to the Fund and Morley Capital Management will be the subadviser (the ‘‘Sub-Adviser’’) to the Fund.6 The Adviser will serve as the administrator for the Fund (the ‘‘Administrator’’). The State Street Bank and Trust Company will serve as the custodian (‘‘Custodian’’), transfer agent (‘‘Transfer Agent’’) and subadministrator (‘‘Sub-Administrator) for the Fund. ALPS Distributors, Inc. (the ‘‘Distributor’’) will be the distributor of the Shares. Neither the Adviser nor the Sub-Adviser is registered as a brokerdealer, but they are affiliated with broker-dealers, [sic] Both the Advisor and Sub-Advisor has [sic] implemented and will maintain a fire wall with respect to such broker-dealer affiliates regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material non-public information The Commission has issued an order granting certain exemptive relief to the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a– 1) (‘‘1940 Act’’) (the ‘‘Exemptive Order’’). See Investment Company Act Release No. 31872 (October 19, 2015) (File No. 812–14509). 6 An investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’). As a result, the Adviser and its related personnel are subject to the provisions of Rule 204A–1 under the Advisers Act relating to codes of ethics. This Rule requires investment advisers to adopt a code of ethics that reflects the fiduciary nature of the relationship to clients as well as compliance with all applicable securities laws. Accordingly, procedures designed to prevent the communication and misuse of non-public information by an investment adviser must be consistent with Rule 204A–1 under the Advisers Act. In addition, Rule 206(4)–7 under the Advisers Act makes it unlawful for an investment adviser to provide investment advice to clients unless such investment adviser has (i) adopted and implemented written policies and procedures reasonably designed to prevent violation, by the investment adviser and its supervised persons, of the Advisers Act and the Commission rules adopted thereunder; (ii) implemented, at a minimum, an annual review regarding the adequacy of the policies and procedures established pursuant to subparagraph (i) above and the effectiveness of their implementation; and (iii) designated an individual (who is a supervised person) responsible for administering the policies and procedures adopted under subparagraph (i) above. VerDate Sep<11>2014 18:41 May 07, 2018 Jkt 244001 regarding such portfolio. Adviser and Sub-Adviser personnel who make decisions regarding the Fund’s portfolio are subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the Fund’s portfolio. In the event that (a) the Adviser or SubAdviser becomes registered as a brokerdealer or newly affiliated with a brokerdealer; or (b) any new adviser or subadviser is a registered broker-dealer or becomes affiliated with a broker-dealer; the Adviser and Sub-Adviser will implement a fire wall with respect to relevant personnel or such broker-dealer affiliate, as applicable, regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding such portfolio. The ICE BofA Merrill Lynch Low Duration U.S. ABS & CMBS Equal Par Index The Fund seeks to provide investment results that seek to replicate, before expenses, to [sic] the performance of The ICE BofA Merrill Lynch Low Duration U.S. ABS & CMBS Equal Par Index (the ‘‘Index’’). The Index is designed to provide exposure to investment-grade securitized products issued in the U.S., including ABS 7 and CMBS.8 To qualify for inclusion in the Index, eligible securities must be a component of the The ICE BofA Merrill Lynch US ABS & CMBS Index (the ‘‘Feeder Index’’). Such securities are then selected and weighted based upon the Index methodology discussed below. Feeder Index In order to be included in the Feeder Index, a security (whether ABS or CMBS) must meet the following criteria (the ‘‘Basic Criteria’’): • be rated investment-grade (based on an average of Moody’s, S&P Global, and Fitch); • have a term of at least one year remaining until final stated maturity; and have at least one month to the last expected cash flow; and • inverse floating rate, interest only, and principal only securities are excluded. In addition to the Basic Criteria, an ABS must meet the following criteria: 7 For purposes of this filing, the term ‘‘ABS’’ shall mean fixed and floating rate debt securities secured by non-mortgage assets. 8 For purposes of this filing, the term ‘‘CMBS’’ shall mean fixed rate debt securities secured by first mortgages on commercial real estate. PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 20893 • must issue a fixed or floating rate coupon; • must have an original deal size for the collateral group 9 of at least $250 million; • must have a current outstanding deal size for the collateral group greater than or equal to 10% of the original deal size; and • a minimum current outstanding tranche size of $50 million for senior tranches and $10 million current amount outstanding for mezzanine and subordinated tranches. In addition to the Basic Criteria, a CMBS (which may include U.S. agency CMBS) must also meet the following criteria: • must issue a fixed coupon schedule; • must have an original deal size for the collateral group of at least $250 million; • must have a current outstanding deal size for the collateral group that is greater than or equal to 10% of the original deal size; and • must have a minimum outstanding tranche size of $50 million for senior tranches and $10 million for mezzanine and subordinated tranches. Index Methodology All securities in the Feeder Index are screened for inclusion/exclusion in the Index based on the following criteria: • ABS related to home equity and manufactured housing are excluded; • CMBS securities that are rated less than AAA credit quality (based on an average of Moody’s, S&P Global and Fitch) are excluded; • CMBS securities that are issued prior to December 31, 2010 are excluded; • Securities must have a modified duration to worst that is less than or equal to 5 years for intial [sic] inclusion in the Index, although once included, the security remains in the Index provided the remaining criteria are met. The qualifying securities are assigned equal par amounts with a 70% allocation given to ABS securities and a 30% allocation given to CMBS securities. The Index rebalances on a monthly basis. The Exchange is submitting this proposed rule change because the Index for the Fund does not meet all of the ‘‘generic’’ listing requirements of Rule 14.11(c)(4) applicable to the listing of index fund shares based on fixed 9 A collateral group describes the assets (receivables) that are held by the special purpose vehicle (‘‘SPV’’) issuing the ABS securities. The collateral group provides the source of payment for the SPV’s liabilities (i.e. ABS securities). Typically, an SPV will include assets greater than its liabilities as a form of credit enhancement. E:\FR\FM\08MYN1.SGM 08MYN1 20894 Federal Register / Vol. 83, No. 89 / Tuesday, May 8, 2018 / Notices income securities indexes. The Index meets all such requirements except for those set forth in Rule 14.11(c)(4)(B)(i)(b) 10 and 14.11(c)(4)(B)(i)(f).11 Specifically, as of February 22, 2018, 57.9% of the weight of the Index components have a minimum original principal amount outstanding of $100 million or more and 68.0% of the weight of the Index components met the requirements of Rule 14.11(c)(4)(B)(i)(f). As of February 22, 2018, there were 2,693 constituents in the Index. Principal Morley Short Duration Index ETF According to the Registration Statement, the Fund will seek to provide investment results that closely correspond, before expenses, to the performance of the Index. Under Normal Market Conditions,12 the Fund will invest at least 80% of its net assets, plus any borrowings for investment purposes, in ABS and CMBS that compose the Index at the time of purchase. sradovich on DSK3GMQ082PROD with NOTICES Other Portfolio Holdings While the Fund normally will invest at least 80% of its net assets, plus any borrowings for investment purposes, in ABS and CMBS that compose the Index, as described above, the Fund may invest its remaining assets in securities not included in the Index including only the following instruments: ABS and CMBS not included in the Index; cash and cash equivalents; 13 Treasury 10 Rule 14.11(c)(4)(B)(i)(b) provides that components that in the aggregate account for at least 75% of the weight of the index or portfolio each shall have a minimum original principal amount outstanding of $100 million or more. 11 Rule 14.11(c)(4)(B)(i)(f) provides that component securities that in aggregate account for at least 90% of the Fixed Income Securities portion of the weight of the index or portfolio must be either: (1) from issuers that are required to file reports pursuant to Sections 13 and 15(d) of the Act; (2) from issuers that have a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more; (3) from issuers that have outstanding securities that are notes, bonds, debentures, or evidence of indebtedness having a total remaining principal amount of at least $1 billion; (4) exempted securities as defined in section 3(a)(12) of the Act; or (5) from issuers that are a government of a foreign country or a political subdivision of a foreign country. 12 The term ‘‘Normal Market Conditions’’ includes, but is not limited to, the absence of trading halts in the applicable financial markets generally; operational issues causing dissemination of inaccurate market information or system failures; or force majeure type events such as natural or manmade disaster, act of God, armed conflict, act of terrorism, riot or labor disruption, or any similar intervening circumstance. 13 For purposes of this filing, cash equivalents are short-term instruments with maturities of less than three months, including: (i) U.S. Government VerDate Sep<11>2014 18:41 May 07, 2018 Jkt 244001 Securities with a maturity of three months or greater; centrally cleared, index-based credit default swaps; 14 and, to the extent permitted by the 1940 Act, other exchange-traded funds (‘‘ETFs’’).15 Discussion The Exchange is submitting this proposed rule change because the Index for the Fund does not meet all of the ‘‘generic’’ listing requirements of Rule 14.11(c)(4) applicable to the listing of index fund shares based on fixed income securities indexes. The Index meets all such requirements except for those set forth in Rule 14.11(c)(4)(B)(i)(b) 16 and 14.11(c)(4)(B)(i)(f).17 Specifically, as of February 22, 2018, 57.9% of the weight of the Index components have a minimum original principal amount outstanding of $100 million or more and securities, including bills, notes, and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities; (ii) certificates of deposit issued against funds deposited in a bank or savings and loan association; (iii) bankers acceptances, which are short-term credit instruments used to finance commercial transactions; (iv) repurchase agreements and reverse repurchase agreements; (v) bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest; (vi) commercial paper, which are short-term unsecured promissory notes; and (vii) money market funds. 14 Centrally cleared swaps are cleared through a central clearinghouse and, as such, the counterparty risk traditionally associated with over-the-counter swaps is eliminated. 15 For purposes of this filing, ETFs include Index Fund Shares (as described in Rule 14.11(c)); Portfolio Depositary Receipts (as described in Rule 14.11(b)); and Managed Fund Shares (as described in Rule 14.11(i)). The ETFs all will be listed and traded in the U.S. on registered exchanges. The Fund may invest in the securities of ETFs registered under the 1940 Act consistent with the requirements of Section 12(d)(1) of the 1940 Act, or any rule, regulation or order of the Commission or interpretation thereof. The Fund will not invest in leveraged or inverse leveraged (e.g., 2X, –2X, 3X or –3X) ETFs. 16 Rule 14.11(c)(4)(B)(i)(b) provides that components that in the aggregate account for at least 75% of the weight of the index or portfolio each shall have a minimum original principal amount outstanding of $100 million or more. 17 Rule 14.11(c)(4)(B)(i)(f) provides that component securities that in aggregate account for at least 90% of the Fixed Income Securities portion of the weight of the index or portfolio must be either: (1) From issuers that are required to file reports pursuant to Sections 13 and 15(d) of the Act; (2) from issuers that have a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more; (3) from issuers that have outstanding securities that are notes, bonds, debentures, or evidence of indebtedness having a total remaining principal amount of at least $1 billion; (4) exempted securities as defined in section 3(a)(12) of the Act; or (5) from issuers that are a government of a foreign country or a political subdivision of a foreign country. PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 68.0% of the weight of the Index components met the requirements of Rule 14.11(c)(4)(B)(i)(f). The Exchange notes that at least 90% of the weight of the Index will be comprised of securities that have a minimum par amount of $10 million and were a constituent of an offering where the original deal size was at least $250 million. While the Index will not meet certain provisions of Rule 14.11(c)(4), as described above, the Exchange believes that the policy issues which such provisions are intended to address are otherwise mitigated. Specifically, the concerns around the size and manipulability of the underlying Fixed Income Securities that Rule 14.11(c)(4)(B)(i)(b) is intended to address are mitigated by the fact that at least 90% of the weight of the Index will be comprised of securities that have a minimum par amount of $10 million and were a constituent of an offering where the original deal size was at least $250 million. Similar standards have been applied for other comparably situated funds and the Exchange believes that there is no reason that this standard should not be applied for the Fund.18 Further, the concerns around the availability of information that Rule 14.11(c)(4)(B)(i)(f) is intended to address are also mitigated as it relates to the ABS and CMBS that populate the Index. While only 68.0% of the weight of the portfolio meets the requirements of Rule 14.11(c)(4)(B)(i)(f), the Index’s inability to meet the 90% threshold is largely based on a technicality in the rule text. Part (1) of the Rule includes in the calculation of percentage ‘‘issuers that are required [emphasis added] to file reports pursuant to Sections 13 and 15(d) of the Act.’’ The technicality is that, while only certain registered issuances of ABS and CMBS are required to file reports pursuant to Sections 13 or 15(d) of the Act, many ABS and CMBS issuances include in the bond indenture a requirement that the issuer make a public disclosure of a Statement to Noteholders. To this point, the Fund will only hold ABS and CMBS 18 The Commission has previously approved a proposed rule change relating to the listing and trading of twelve series of Index Fund Shares based on municipal bond indexes that did not satisfy the requirement that component fixed income securities that, in the aggregate, account for at least 75% of the weight of the index or portfolio have a minimum principal amount outstanding of $100 million or more, provided that such municipal bond index contained at least 500 component securities on a continuous basis. See Securities Exchange Act Release No. 82295 (December 12, 2017), 82 FR 60056 (December 18, 2017) (SR– NYSEArca–2017–56). E:\FR\FM\08MYN1.SGM 08MYN1 Federal Register / Vol. 83, No. 89 / Tuesday, May 8, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES for which the bond indenture requires the public disclosure of a Statement to Noteholders on a no less frequent than quarterly basis.19 As such, while the Fund will not technically meet the requirements of Rule 14.11(c)(4)(B)(i)(f)(1), the policy concerns related to the transparency and availability of information regarding the Fixed Income Securities held by a fund that the Rule is intended to address are otherwise mitigated. Further, the Index is broad-based and currently includes 2,693 component securities. Whereas the generic listing rules permit a single component security to represent up to 30% of the weight of an index and the top five component securities to, in aggregate, represent up to 65% of the weight of an index, the largest component security in the Underyling Index only constitutes 0.044% of the weight of the Index and the largest five component securities represent 0.22% of the weight of the Index. The Exchange believes that this significant diversification and the lack of concentration among constituent securities provides a strong degree of protection against index manipulation. On a continuous basis, the Index will (i) contain at least 500 component securities and (ii) comply with the 19 A Statement to Noteholders generally includes the same pieces of information about an issuer and issuance of ABS or CMBS that would be included in Form 10D. All ABS and CMBS held by the Fund will issue Statements to Noteholders that will include, at a minimum, a remittance report that will show monthly or quarterly cash flows of the assets and liabilities for the issuance. Statements to Noteholders also typically include the following types of information: (1) The amount of the distribution(s) allocable to interest on the notes; (2) the amount of the distribution(s) allocable to principal of the notes; (3) the note balance, after taking into account all payments to be made on such distribution date; (4) the servicing fee paid and/or due but unpaid as of such distribution date; (5) the pool balance and required overcollateralization amount as of the close of business on the last day of the related collection period; (6) the reserve fund amount, the reserve fund required amount and the reserve fund draw amount; (7) the amount of the aggregate realized losses on the loans, if any, for the preceding collection period and the cumulative default ratio; (8) whether an amortization event will exist as of such distribution date; (9) the aggregate repurchase prices for loans, if any, that were repurchased by the seller during the related collection period; (10) the amount of fees payable to all parties pursuant to the indenture; (11) any and all other fees, expenses, indemnities or taxes payable by the issuer or the grantor trust (including reserved amounts for payments required to be made before the next distribution date); (12) the payments to the certificate holders; and (13) during a pre-funding period, the amount on deposit in the pre-funding account as of the close of business on the last day of the related collection period, and the pool balance of subsequent loans purchased during the related collection period, and following the prefunding period, the amount of principal payments made on each class of notes from amounts on deposit in the pre-funding account. VerDate Sep<11>2014 18:41 May 07, 2018 Jkt 244001 index methodology description provided above. Additional Information The Index value, calculated and disseminated at least once daily, as well as the components of the Index and their percentage weighting, will be available from major market data vendors. In addition, the portfolio of securities held by the Fund will be disclosed on the Fund’s website at www.PrincipalETFs.com. The Exchange represents that: (1) Except as described above, the Index currently satisfies and will continue to satisfy all of the generic listing standards under Rule 14.11(c)(4); (2) the continued listing standards under BZX Rule 14.11(c) applicable to index fund shares shall apply to the Shares of the Fund; and (3) the Trust is required to comply with Rule 10A–3 20 under the Act for the initial and continued listing of the Shares of the Fund. In addition, the Exchange represents that the Shares of the Fund will comply with all other requirements applicable to index fund shares including, but not limited to, requirements relating to the dissemination of key information such as the value of the Index and the Intraday Indicative Value (‘‘IIV’’), rules governing the trading of equity securities, trading hours, trading halts, surveillance, and the information circular, as set forth in Exchange rules applicable to index fund shares and the orders approving such rules. Availability of Information The Fund’s website, which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Fund that may be downloaded. The website will include additional quantitative information updated on a daily basis, including, for the Fund: (1) The prior business day’s reported NAV, daily trading volume, and a calculation of the premium and discount of the Bid/Ask Price against the NAV; and (2) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. Daily trading volume information for the Fund will also be available in the financial section of newspapers, through subscription services such as Bloomberg, Thomson Reuters, and International Data Corporation, which can be accessed by authorized participants and other investors, as well as through other 20 See PO 00000 17 CFR 240.10A–3. Frm 00109 Fmt 4703 Sfmt 4703 20895 electronic services, including major public websites. On each business day, before commencement of trading in Shares during Regular Trading Hours 21 on the Exchange, the Fund will disclose on its website the identities and quantities of the portfolio of securities and other assets in the portfolio held by the Fund that will form the basis for the Fund’s calculation of NAV at the end of the business day. The portfolio description will include, as applicable: The ticker symbol; CUSIP number or other identifier, if any; a description of the holding (including the type of holding, such as the type of swap); the identity of the security, index or other asset or instrument underlying the holding, if any; for options, the option strike price; quantity held (as measured by, for example, par value, notional value or number of shares, contracts, or units); maturity date, if any; coupon rate, if any; effective date, if any; market value of the holding; and the percentage weighting of the holding in the Fund’s portfolio. The website and information will be publicly available at no charge. The value, components, and percentage weightings of the Index will be calculated and disseminated at least once daily and will be available from major market data vendors. Rules governing the Index are available on the Index Provider’s website and in the Fund’s prospectus. In addition, an estimated value, defined in BZX Rule 14.11(c)(6)(A) as the ‘‘Intraday Indicative Value,’’ that reflects an estimated intraday value of the Fund’s portfolio, will be disseminated. Moreover, the Intraday Indicative Value will be based upon the current value for the components of the daily disclosed portfolio and will be updated and widely disseminated by one or more major market data vendors at least every 15 seconds during the Exchange’s Regular Trading Hours.22 In addition, the quotations of certain of the Fund’s holdings may not be updated during U.S. trading hours if updated prices cannot be ascertained. The dissemination of the Intraday Indicative Value, together with the daily disclosed portfolio, will allow investors to determine the value of the underlying portfolio of the Fund on a daily basis and provide a close estimate of that value throughout the trading day. Quotation and last sale information for the Shares of the Fund will be 21 Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern Time. 22 Currently, it is the Exchange’s understanding that several major market data vendors display and/ or make widely available Intraday Indicative Values published via the Consolidated Tape Association (‘‘CTA’’) or other data feeds. E:\FR\FM\08MYN1.SGM 08MYN1 20896 Federal Register / Vol. 83, No. 89 / Tuesday, May 8, 2018 / Notices available via the CTA high speed line. Price information regarding ABS, CMBS, and other non-exchange traded assets, including the types of swaps held by the Fund, cash and cash equivalents, and other Treasury Securities, is available from third party pricing services and major market data vendors. For exchange-traded assets, including ETFs, such intraday information is available directly from the applicable listing exchange. Initial and Continued Listing The Shares of the Fund will conform to the initial and continued listing criteria under BZX Rule 14.11(c)(4), except as described above. The Exchange represents that, for initial and/or continued listing, the Fund and the Trust must be in compliance with Rule 10A–3 under the Act.23 A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares that the NAV per Share for the Fund will be calculated daily and will be made available to all market participants at the same time. sradovich on DSK3GMQ082PROD with NOTICES Trading Halts With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund. The Exchange will halt trading in the Shares under the conditions specified in BZX Rule 11.18. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments composing the daily disclosed portfolio of the Fund; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Trading in the Shares also will be subject to Rule 14.11(c)(1)(B)(iv), which sets forth circumstances under which Shares of the Fund may be halted. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. The Exchange will allow trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time and has the appropriate rules to facilitate transactions in the Shares during all 23 See 17 CFR 240.10A–3. VerDate Sep<11>2014 18:41 May 07, 2018 Jkt 244001 trading sessions. As provided in BZX Rule 11.11(a), the minimum price variation for quoting and entry of orders in securities traded on the Exchange is $0.01, with the exception of securities that are priced less than $1.00, for which the minimum price variation for order entry is $0.0001. Surveillance The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. Trading of the Shares through the Exchange will be subject to the Exchange’s surveillance procedures for derivative products, including Index Fund Shares. The issuer has represented to the Exchange that it will advise the Exchange of any failure by the Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Exchange Act, the Exchange will surveil for compliance with the continued listing requirements. FINRA conducts certain cross-market surveillances on behalf of the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. If the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Exchange Rule 14.12. The Exchange, or FINRA on behalf of the Exchange, may obtain information regarding trading in the Shares and the underlying shares in exchange traded equity securities, including ETFs, via the ISG, from other exchanges that are members or affiliates of the ISG, and the Exchange may obtain such information from markets with which the Exchange has entered into a comprehensive surveillance sharing agreement.24 In addition, the Exchange, or FINRA on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income instruments reported to FINRA’s Trade Reporting and Compliance Engine (‘‘TRACE’’). The Exchange prohibits the distribution of material non-public information by its employees. 2. Statutory Basis The Exchange believes that the proposal is consistent with Section 6(b) 24 For a list of the current members of ISG, see www.isgportal.org. The Exchange notes that not all components of the portfolio for the Fund may trade on markets that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 of the Act 25 in general and Section 6(b)(5) of the Act 26 in particular in that it is 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 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. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the shares of the Fund will be listed and traded on the Exchange pursuant to the initial and continued listing criteria for Index Fund Shares based on a fixed income index in Rule 14.11(c)(4), except for the requirements of Rule 14.11(c)(4)(B)(i)(b) and Rule 14.11(c)(4)(B)(i)(f). The Exchange represents that trading in the shares of the Fund will be subject to the existing trading surveillances administered by the Exchange as well as cross-market surveillances administered by the FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange. The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the shares of the Fund in all trading sessions and to deter and detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange. The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the shares of the Fund with other markets that are members of the ISG. In addition, the Exchange will communicate as needed regarding trading in the shares of the Fund with other markets that are members of the ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income securities held by the Fund reported to TRACE. Further, the Index is broad-based and currently includes 2,693 component securities. Whereas the generic listing rules permit a single component security to represent up to 30% of the weight of an index and the top five component securities to, in aggregate, represent up to 65% of the weight of an index, the largest component security in the Underyling Index only constitutes 25 15 26 15 E:\FR\FM\08MYN1.SGM U.S.C. 78f. U.S.C. 78f(b)(5). 08MYN1 Federal Register / Vol. 83, No. 89 / Tuesday, May 8, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES 0.044% of the weight of the Index and the largest five component securities represent 0.22% of the weight of the Index. The Exchange believes that this significant diversification and the lack of concentration among constituent securities provides a strong degree of protection against index manipulation. On a continuous basis, the Index will (i) contain at least 500 component securities and (ii) comply with the index methodology description provided above. As of February 22, 2018, 57.9% of the weight of the Index components have a minimum original principal amount outstanding of $100 million or more and 68.0% of the weight of the Index components met the requirements of Rule 14.11(c)(4)(B)(i)(f). The Exchange notes that at least 90% of the weight of the Index will be comprised of securities that have a minimum par amount of $25 million and were a constituent of an offering where the original deal size was at least $250 million. While the Index will not meet certain provisions of Rule 14.11(c)(4), as described above, the Exchange believes that the policy issues which such provisions are intended to address are otherwise mitigated. Specifically, the concerns around the size and manipulability of the underlying Fixed Income Securities that Rule 14.11(c)(4)(B)(i)(b) is intended to address are mitigated by the fact that at least 90% of the weight of the Index will be comprised of securities that have a minimum par amount of $25 million and were a constituent of an offering where the original deal size was at least $250 million. Similar standards have been applied for other comparably situated funds and the Exchange believes that there is no reason that this standard should not be applied for the Fund.27 Further, the concerns around the availability of information that Rule 14.11(c)(4)(B)(i)(f) is intended to address are also mitigated as it relates to the ABS and CMBS that populate the Index. While only 68.0% of the weight of the portfolio meets the requirements of Rule 27 The Commission has previously approved a proposed rule change relating to the listing and trading of twelve series of Index Fund Shares based on municipal bond indexes that did not satisfy the requirement that component fixed income securities that, in the aggregate, account for at least 75% of the weight of the index or portfolio have a minimum principal amount outstanding of $100 million or more, provided that such municipal bond index contained at least 500 component securities on a continuous basis. See Securities Exchange Act Release No. 82295 (December 12, 2017), 82 FR 60056 (December 18, 2017) (SR– NYSEArca–2017–56). VerDate Sep<11>2014 18:41 May 07, 2018 Jkt 244001 14.11(c)(4)(B)(i)(f), the Index’s inability to meet the 90% threshold is largely based on a technicality in the rule text. Part (1) of the Rule includes in the calculation of percentage ‘‘issuers that are required [emphasis added] to file reports pursuant to Sections 13 and 15(d) of the Act.’’ The technicality is that, while only certain registered issuances of ABS and CMBS are required to file reports pursuant to Sections 13 or 15(d) of the Act, many ABS and CMBS issuances include in the bond indenture a requirement that the issuer make a public disclosure of a Statement to Noteholders.28 To this point, the Fund will only hold ABS and CMBS for which the bond indenture requires the public disclosure of a Statement to Noteholders on a no less frequent than quarterly basis. As such, while the Fund will not technically meet the requirements of Rule 14.11(c)(4)(B)(i)(f)(1), the policy concerns related to the transparency and availability of information regarding the Fixed Income Securities held by a fund that the Rule is intended to address are otherwise mitigated. The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that a large amount of 28 A Statement to Noteholders generally includes the same pieces of information about an issuer and issuance of ABS or CMBS that would be included in Form 10D. All Statements to Noteholders issued by ABS and CMBS held by the Fund will include, at a minimum, a remittance report that will show monthly or quarterly cash flows of the assets and liabilities for the issuance. Statements to Noteholders also typically include the following types of information: (1) The amount of the distribution(s) allocable to interest on the notes; (2) the amount of the distribution(s) allocable to principal of the notes; (3) the note balance, after taking into account all payments to be made on such distribution date; (4) the servicing fee paid and/or due but unpaid as of such distribution date; (5) the pool balance and required overcollateralization amount as of the close of business on the last day of the related collection period; (6) the reserve fund amount, the reserve fund required amount and the reserve fund draw amount; (7) the amount of the aggregate realized losses on the loans, if any, for the preceding collection period and the cumulative default ratio; (8) whether an amortization event will exist as of such distribution date; (9) the aggregate repurchase prices for loans, if any, that were repurchased by the seller during the related collection period; (10) the amount of fees payable to all parties pursuant to the indenture; (11) any and all other fees, expenses, indemnities or taxes payable by the issuer or the grantor trust (including reserved amounts for payments required to be made before the next distribution date); (12) the payments to the certificate holders; and (13) during a pre-funding period, the amount on deposit in the pre-funding account as of the close of business on the last day of the related collection period, and the pool balance of subsequent loans purchased during the related collection period, and following the prefunding period, the amount of principal payments made on each class of notes from amounts on deposit in the pre-funding account. PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 20897 information is publicly available regarding the Funds, thereby promoting market transparency. The Fund’s portfolio holdings will be disclosed on the Fund’s website daily after the close of trading on the Exchange and prior to the opening of trading on the Exchange the following day. Moreover, the IIV for shares of the Fund will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Exchange’s Regular Trading Hours. The current value of the Index will be disseminated by one or more major market data vendors at least once per day. Information regarding market price and trading volume of the shares of the Fund will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services, and quotation and last sale information will be available via the CTA high-speed line. The website for the Fund will include the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. If the Exchange becomes aware that the Fund’s NAV is not being disseminated to all market participants at the same time, it will halt trading in the shares of the Fund until such time as the NAV is available to all market participants. With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the shares of the Fund. Trading also may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the shares the Fund inadvisable. If the IIV and index value are not being disseminated for the Fund as required, the Exchange may halt trading during the day in which the interruption to the dissemination of the IIV or index value occurs. If the interruption to the dissemination of an IIV or index value persists past the trading day in which it occurred, the Exchange will halt trading. The Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund. The Exchange will halt trading in the Shares under the conditions specified in BZX Rule 11.18. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments composing the daily disclosed portfolio of the Funds; or (2) whether other unusual conditions or circumstances detrimental to the E:\FR\FM\08MYN1.SGM 08MYN1 20898 Federal Register / Vol. 83, No. 89 / Tuesday, May 8, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES maintenance of a fair and orderly market are present. Trading in the Shares also will be subject to Rule 14.11(c)(1)(B)(iv), which sets forth circumstances under which Shares of a Fund may be halted. In addition, investors will have ready access to information regarding the applicable IIV, and quotation and last sale information for the shares of the Fund. All statements and representations made in this filing regarding the index composition, the description of the portfolio or reference assets, limitations on portfolio holdings or reference assets, dissemination and availability of index, reference asset, and intraday indicative values (as applicable), or the applicability of Exchange listing rules shall constitute continued listing requirements for listing the Shares on the Exchange. The issuer is required to advise the Exchange of any failure by the Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements. If the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Rule 14.12. The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of an exchange-traded product that principally holds ABS and CMBS and that will enhance competition among market participants, to the benefit of investors and the marketplace. The Exchange has in place surveillance procedures relating to trading in the shares of the Fund and may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, investors will have ready access to information regarding the IIV and quotation and last sale information for the shares of the Fund. For the above reasons, the Exchange believes that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act. 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 purpose of the Act. The Exchange notes that the proposed rule change will facilitate the listing and trading of an VerDate Sep<11>2014 18:41 May 07, 2018 Jkt 244001 additional exchange-traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written 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 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 self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CboeBZX–2018–018 and should be submitted on or before May 29, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Eduardo A. Aleman, Assistant Secretary. 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: [FR Doc. 2018–09692 Filed 5–7–18; 8:45 am] Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– CboeBZX–2018–018 on the subject line. Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736. 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–2018–018. 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 PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request Extension: Rule 17a–6; SEC File No. 270–433, OMB Control No. 3235–0489. Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) is soliciting comments on the collection of information provided for in Rule 17a–6 (17 CFR 240.17a–6) under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). The Commission plans to submit this existing collection of information to the Office of Management and Budget (‘‘OMB’’) for extension and approval. Rule 17a–6 permits national securities exchanges, national securities associations, registered clearing agencies, and the Municipal Securities Rulemaking Board (‘‘MSRB’’) (collectively, ‘‘SROs’’) to destroy or 29 17 E:\FR\FM\08MYN1.SGM CFR 200.30–3(a)(12). 08MYN1

Agencies

[Federal Register Volume 83, Number 89 (Tuesday, May 8, 2018)]
[Notices]
[Pages 20892-20898]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09692]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83152; File No. SR-CboeBZX-2018-018]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the 
Principal Morley Short Duration Index ETF Under Rule 14.11(c)(4)

May 2, 2018.
    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 April 23, 2018, Cboe BZX Exchange, Inc. (``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. 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

    The Exchange filed a proposal to list and trade under BZX Rule 
14.11(c)(4) the shares of the Principal Morley Short Duration Index ETF 
(the ``Fund'') of Principal Exchange-Traded Funds (the ``Trust'').
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, 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 parts 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 list and trade shares of the Fund 
(``Shares'') under BZX Rule 14.11(c)(4),\3\ which governs the listing 
and trading of index fund shares based on fixed income securities 
indexes.\4\ The Shares will be offered by the Trust, which was 
established as a Delaware statutory trust on March 05, 2013. The Trust 
is registered with the Commission as an open-end investment company and 
has filed a registration statement on behalf of the Fund on Form N-1A 
(``Registration Statement'') with the Commission.\5\ All statements and

[[Page 20893]]

representations made in this filing regarding the index composition, 
the description of the portfolio or reference assets, limitations on 
portfolio holdings or reference assets, dissemination and availability 
of index, reference asset, and intraday indicative values, and the 
applicability of Exchange rules specified in this filing shall 
constitute continued listing requirements for the Fund.
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    \3\ The Commission approved BZX Rule 14.11(c) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \4\ The Commission previously has approved proposed rule changes 
relating to listing and trading of funds based on municipal bond 
indexes. See Securities Exchange Act Release Nos. 78329 (July 14, 
2016), 81 FR 47217 (July 20, 2016) (SR-BatsBZX-2016-01) (order 
approving the listing and trading of the following series of VanEck 
Vectors ETF Trust: VanEck Vectors AMT-Free 6-8 Year Municipal Index 
ETF; VanEck Vectors AMT-Free 8-12 Year Municipal Index ETF; and 
VanEck Vectors AMT-Free 12-17 Year Municipal Index ETF); 67985 
(October 4, 2012), 77 FR 61804 (October 11, 2012) (SR-NYSEArca-2012-
92) (order approving proposed rule change relating to the listing 
and trading of iShares 2018 S&P AMT-Free Municipal Series and 
iShares 2019 S&P AMT-Free Municipal Series under NYSE Arca, Inc. 
(``NYSE Arca'') Rule 5.2(j)(3), Commentary .02); 72523 (July 2, 
2014), 79 FR 39016 (July 9, 2014) (SR-NYSEArca-2014-37) (order 
approving proposed rule change relating to the listing and trading 
of iShares 2020 S&P AMT-Free Municipal Series under NYSE Arca Rule 
5.2(j)(3), Commentary .02); and 75468 (July 16, 2015), 80 FR 43500 
(July 22, 2015) (SR-NYSEArca-2015-25) (order approving proposed rule 
change relating to the listing and trading of the iShares iBonds Dec 
2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022 AMT-Free 
Muni Bond ETF under NYSE Arca Rule 5.2(j)(3), Commentary .02). The 
Commission also has issued a notice of filing and immediate 
effectiveness of a proposed rule change relating to listing and 
trading on NYSE Arca of the iShares Taxable Municipal Bond Fund. See 
Securities Exchange Act Release No. 63176 (October 25, 2010), 75 FR 
66815 (October 29, 2010) (SR-NYSEArca-2010-94). The Commission has 
approved two actively managed funds of the PIMCO ETF Trust that hold 
municipal bonds. See Securities Exchange Act Release No. 60981 
(November 10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-
2009-79) (order approving listing and trading of PIMCO ShortTerm 
Municipal Bond Strategy Fund and PIMCO Intermediate Municipal Bond 
Strategy Fund, among others). The Commission also has approved 
listing and trading of the SPDR Nuveen S&P High Yield Municipal Bond 
Fund. See Securities Exchange Act Release No.63881 (February 9, 
2011), 76 FR 9065 (February 16, 2011) (SR-NYSEArca-2010-120).
    \5\ See Registration Statement on Form N-1A for the Trust, dated 
September 1, 2017 (File Nos. 333-201935 and 811-23029). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement. The 
Commission has issued an order granting certain exemptive relief to 
the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a-1) 
(``1940 Act'') (the ``Exemptive Order''). See Investment Company Act 
Release No. 31872 (October 19, 2015) (File No. 812-14509).
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Description of the Shares and the Fund
    Principal Global Investors, LLC will be the investment adviser (the 
``Adviser'') to the Fund and Morley Capital Management will be the sub-
adviser (the ``Sub-Adviser'') to the Fund.\6\ The Adviser will serve as 
the administrator for the Fund (the ``Administrator''). The State 
Street Bank and Trust Company will serve as the custodian 
(``Custodian''), transfer agent (``Transfer Agent'') and sub-
administrator (``Sub-Administrator) for the Fund. ALPS Distributors, 
Inc. (the ``Distributor'') will be the distributor of the Shares. 
Neither the Adviser nor the Sub-Adviser is registered as a broker-
dealer, but they are affiliated with broker-dealers, [sic] Both the 
Advisor and Sub-Advisor has [sic] implemented and will maintain a fire 
wall with respect to such broker-dealer affiliates regarding access to 
information concerning the composition and/or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio. Adviser and Sub-Adviser personnel who make decisions 
regarding the Fund's portfolio are subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the Fund's portfolio. In the event that (a) the Adviser or 
Sub-Adviser becomes registered as a broker-dealer or newly affiliated 
with a broker-dealer; or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes affiliated with a broker-dealer; 
the Adviser and Sub-Adviser will implement a fire wall with respect to 
relevant personnel or such broker-dealer affiliate, as applicable, 
regarding access to information concerning the composition and/or 
changes to the portfolio, and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with all applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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The ICE BofA Merrill Lynch Low Duration U.S. ABS & CMBS Equal Par Index
    The Fund seeks to provide investment results that seek to 
replicate, before expenses, to [sic] the performance of The ICE BofA 
Merrill Lynch Low Duration U.S. ABS & CMBS Equal Par Index (the 
``Index''). The Index is designed to provide exposure to investment-
grade securitized products issued in the U.S., including ABS \7\ and 
CMBS.\8\ To qualify for inclusion in the Index, eligible securities 
must be a component of the The ICE BofA Merrill Lynch US ABS & CMBS 
Index (the ``Feeder Index''). Such securities are then selected and 
weighted based upon the Index methodology discussed below.
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    \7\ For purposes of this filing, the term ``ABS'' shall mean 
fixed and floating rate debt securities secured by non-mortgage 
assets.
    \8\ For purposes of this filing, the term ``CMBS'' shall mean 
fixed rate debt securities secured by first mortgages on commercial 
real estate.
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Feeder Index
    In order to be included in the Feeder Index, a security (whether 
ABS or CMBS) must meet the following criteria (the ``Basic Criteria''):
     be rated investment-grade (based on an average of Moody's, 
S&P Global, and Fitch);
     have a term of at least one year remaining until final 
stated maturity; and have at least one month to the last expected cash 
flow; and
     inverse floating rate, interest only, and principal only 
securities are excluded.
    In addition to the Basic Criteria, an ABS must meet the following 
criteria:
     must issue a fixed or floating rate coupon;
     must have an original deal size for the collateral group 
\9\ of at least $250 million;
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    \9\ A collateral group describes the assets (receivables) that 
are held by the special purpose vehicle (``SPV'') issuing the ABS 
securities. The collateral group provides the source of payment for 
the SPV's liabilities (i.e. ABS securities). Typically, an SPV will 
include assets greater than its liabilities as a form of credit 
enhancement.
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     must have a current outstanding deal size for the 
collateral group greater than or equal to 10% of the original deal 
size; and
     a minimum current outstanding tranche size of $50 million 
for senior tranches and $10 million current amount outstanding for 
mezzanine and subordinated tranches.
    In addition to the Basic Criteria, a CMBS (which may include U.S. 
agency CMBS) must also meet the following criteria:
     must issue a fixed coupon schedule;
     must have an original deal size for the collateral group 
of at least $250 million;
     must have a current outstanding deal size for the 
collateral group that is greater than or equal to 10% of the original 
deal size; and
     must have a minimum outstanding tranche size of $50 
million for senior tranches and $10 million for mezzanine and 
subordinated tranches.
Index Methodology
    All securities in the Feeder Index are screened for inclusion/
exclusion in the Index based on the following criteria:
     ABS related to home equity and manufactured housing are 
excluded;
     CMBS securities that are rated less than AAA credit 
quality (based on an average of Moody's, S&P Global and Fitch) are 
excluded;
     CMBS securities that are issued prior to December 31, 2010 
are excluded;
     Securities must have a modified duration to worst that is 
less than or equal to 5 years for intial [sic] inclusion in the Index, 
although once included, the security remains in the Index provided the 
remaining criteria are met.

The qualifying securities are assigned equal par amounts with a 70% 
allocation given to ABS securities and a 30% allocation given to CMBS 
securities. The Index rebalances on a monthly basis.
    The Exchange is submitting this proposed rule change because the 
Index for the Fund does not meet all of the ``generic'' listing 
requirements of Rule 14.11(c)(4) applicable to the listing of index 
fund shares based on fixed

[[Page 20894]]

income securities indexes. The Index meets all such requirements except 
for those set forth in Rule 14.11(c)(4)(B)(i)(b) \10\ and 
14.11(c)(4)(B)(i)(f).\11\ Specifically, as of February 22, 2018, 57.9% 
of the weight of the Index components have a minimum original principal 
amount outstanding of $100 million or more and 68.0% of the weight of 
the Index components met the requirements of Rule 14.11(c)(4)(B)(i)(f).
---------------------------------------------------------------------------

    \10\ Rule 14.11(c)(4)(B)(i)(b) provides that components that in 
the aggregate account for at least 75% of the weight of the index or 
portfolio each shall have a minimum original principal amount 
outstanding of $100 million or more.
    \11\ Rule 14.11(c)(4)(B)(i)(f) provides that component 
securities that in aggregate account for at least 90% of the Fixed 
Income Securities portion of the weight of the index or portfolio 
must be either: (1) from issuers that are required to file reports 
pursuant to Sections 13 and 15(d) of the Act; (2) from issuers that 
have a worldwide market value of its outstanding common equity held 
by non-affiliates of $700 million or more; (3) from issuers that 
have outstanding securities that are notes, bonds, debentures, or 
evidence of indebtedness having a total remaining principal amount 
of at least $1 billion; (4) exempted securities as defined in 
section 3(a)(12) of the Act; or (5) from issuers that are a 
government of a foreign country or a political subdivision of a 
foreign country.
---------------------------------------------------------------------------

    As of February 22, 2018, there were 2,693 constituents in the 
Index.
Principal Morley Short Duration Index ETF
    According to the Registration Statement, the Fund will seek to 
provide investment results that closely correspond, before expenses, to 
the performance of the Index. Under Normal Market Conditions,\12\ the 
Fund will invest at least 80% of its net assets, plus any borrowings 
for investment purposes, in ABS and CMBS that compose the Index at the 
time of purchase.
---------------------------------------------------------------------------

    \12\ The term ``Normal Market Conditions'' includes, but is not 
limited to, the absence of trading halts in the applicable financial 
markets generally; operational issues causing dissemination of 
inaccurate market information or system failures; or force majeure 
type events such as natural or man-made disaster, act of God, armed 
conflict, act of terrorism, riot or labor disruption, or any similar 
intervening circumstance.
---------------------------------------------------------------------------

Other Portfolio Holdings
    While the Fund normally will invest at least 80% of its net assets, 
plus any borrowings for investment purposes, in ABS and CMBS that 
compose the Index, as described above, the Fund may invest its 
remaining assets in securities not included in the Index including only 
the following instruments: ABS and CMBS not included in the Index; cash 
and cash equivalents; \13\ Treasury Securities with a maturity of three 
months or greater; centrally cleared, index-based credit default swaps; 
\14\ and, to the extent permitted by the 1940 Act, other exchange-
traded funds (``ETFs'').\15\
---------------------------------------------------------------------------

    \13\ For purposes of this filing, cash equivalents are short-
term instruments with maturities of less than three months, 
including: (i) U.S. Government securities, including bills, notes, 
and bonds differing as to maturity and rates of interest, which are 
either issued or guaranteed by the U.S. Treasury or by U.S. 
Government agencies or instrumentalities; (ii) certificates of 
deposit issued against funds deposited in a bank or savings and loan 
association; (iii) bankers acceptances, which are short-term credit 
instruments used to finance commercial transactions; (iv) repurchase 
agreements and reverse repurchase agreements; (v) bank time 
deposits, which are monies kept on deposit with banks or savings and 
loan associations for a stated period of time at a fixed rate of 
interest; (vi) commercial paper, which are short-term unsecured 
promissory notes; and (vii) money market funds.
    \14\ Centrally cleared swaps are cleared through a central 
clearinghouse and, as such, the counterparty risk traditionally 
associated with over-the-counter swaps is eliminated.
    \15\ For purposes of this filing, ETFs include Index Fund Shares 
(as described in Rule 14.11(c)); Portfolio Depositary Receipts (as 
described in Rule 14.11(b)); and Managed Fund Shares (as described 
in Rule 14.11(i)). The ETFs all will be listed and traded in the 
U.S. on registered exchanges. The Fund may invest in the securities 
of ETFs registered under the 1940 Act consistent with the 
requirements of Section 12(d)(1) of the 1940 Act, or any rule, 
regulation or order of the Commission or interpretation thereof. The 
Fund will not invest in leveraged or inverse leveraged (e.g., 2X, -
2X, 3X or -3X) ETFs.
---------------------------------------------------------------------------

Discussion
    The Exchange is submitting this proposed rule change because the 
Index for the Fund does not meet all of the ``generic'' listing 
requirements of Rule 14.11(c)(4) applicable to the listing of index 
fund shares based on fixed income securities indexes. The Index meets 
all such requirements except for those set forth in Rule 
14.11(c)(4)(B)(i)(b) \16\ and 14.11(c)(4)(B)(i)(f).\17\ Specifically, 
as of February 22, 2018, 57.9% of the weight of the Index components 
have a minimum original principal amount outstanding of $100 million or 
more and 68.0% of the weight of the Index components met the 
requirements of Rule 14.11(c)(4)(B)(i)(f). The Exchange notes that at 
least 90% of the weight of the Index will be comprised of securities 
that have a minimum par amount of $10 million and were a constituent of 
an offering where the original deal size was at least $250 million.
---------------------------------------------------------------------------

    \16\ Rule 14.11(c)(4)(B)(i)(b) provides that components that in 
the aggregate account for at least 75% of the weight of the index or 
portfolio each shall have a minimum original principal amount 
outstanding of $100 million or more.
    \17\ Rule 14.11(c)(4)(B)(i)(f) provides that component 
securities that in aggregate account for at least 90% of the Fixed 
Income Securities portion of the weight of the index or portfolio 
must be either: (1) From issuers that are required to file reports 
pursuant to Sections 13 and 15(d) of the Act; (2) from issuers that 
have a worldwide market value of its outstanding common equity held 
by non-affiliates of $700 million or more; (3) from issuers that 
have outstanding securities that are notes, bonds, debentures, or 
evidence of indebtedness having a total remaining principal amount 
of at least $1 billion; (4) exempted securities as defined in 
section 3(a)(12) of the Act; or (5) from issuers that are a 
government of a foreign country or a political subdivision of a 
foreign country.
---------------------------------------------------------------------------

    While the Index will not meet certain provisions of Rule 
14.11(c)(4), as described above, the Exchange believes that the policy 
issues which such provisions are intended to address are otherwise 
mitigated. Specifically, the concerns around the size and 
manipulability of the underlying Fixed Income Securities that Rule 
14.11(c)(4)(B)(i)(b) is intended to address are mitigated by the fact 
that at least 90% of the weight of the Index will be comprised of 
securities that have a minimum par amount of $10 million and were a 
constituent of an offering where the original deal size was at least 
$250 million. Similar standards have been applied for other comparably 
situated funds and the Exchange believes that there is no reason that 
this standard should not be applied for the Fund.\18\
---------------------------------------------------------------------------

    \18\ The Commission has previously approved a proposed rule 
change relating to the listing and trading of twelve series of Index 
Fund Shares based on municipal bond indexes that did not satisfy the 
requirement that component fixed income securities that, in the 
aggregate, account for at least 75% of the weight of the index or 
portfolio have a minimum principal amount outstanding of $100 
million or more, provided that such municipal bond index contained 
at least 500 component securities on a continuous basis. See 
Securities Exchange Act Release No. 82295 (December 12, 2017), 82 FR 
60056 (December 18, 2017) (SR-NYSEArca-2017-56).
---------------------------------------------------------------------------

    Further, the concerns around the availability of information that 
Rule 14.11(c)(4)(B)(i)(f) is intended to address are also mitigated as 
it relates to the ABS and CMBS that populate the Index. While only 
68.0% of the weight of the portfolio meets the requirements of Rule 
14.11(c)(4)(B)(i)(f), the Index's inability to meet the 90% threshold 
is largely based on a technicality in the rule text. Part (1) of the 
Rule includes in the calculation of percentage ``issuers that are 
required [emphasis added] to file reports pursuant to Sections 13 and 
15(d) of the Act.'' The technicality is that, while only certain 
registered issuances of ABS and CMBS are required to file reports 
pursuant to Sections 13 or 15(d) of the Act, many ABS and CMBS 
issuances include in the bond indenture a requirement that the issuer 
make a public disclosure of a Statement to Noteholders. To this point, 
the Fund will only hold ABS and CMBS

[[Page 20895]]

for which the bond indenture requires the public disclosure of a 
Statement to Noteholders on a no less frequent than quarterly 
basis.\19\ As such, while the Fund will not technically meet the 
requirements of Rule 14.11(c)(4)(B)(i)(f)(1), the policy concerns 
related to the transparency and availability of information regarding 
the Fixed Income Securities held by a fund that the Rule is intended to 
address are otherwise mitigated.
---------------------------------------------------------------------------

    \19\ A Statement to Noteholders generally includes the same 
pieces of information about an issuer and issuance of ABS or CMBS 
that would be included in Form 10D. All ABS and CMBS held by the 
Fund will issue Statements to Noteholders that will include, at a 
minimum, a remittance report that will show monthly or quarterly 
cash flows of the assets and liabilities for the issuance. 
Statements to Noteholders also typically include the following types 
of information: (1) The amount of the distribution(s) allocable to 
interest on the notes; (2) the amount of the distribution(s) 
allocable to principal of the notes; (3) the note balance, after 
taking into account all payments to be made on such distribution 
date; (4) the servicing fee paid and/or due but unpaid as of such 
distribution date; (5) the pool balance and required 
overcollateralization amount as of the close of business on the last 
day of the related collection period; (6) the reserve fund amount, 
the reserve fund required amount and the reserve fund draw amount; 
(7) the amount of the aggregate realized losses on the loans, if 
any, for the preceding collection period and the cumulative default 
ratio; (8) whether an amortization event will exist as of such 
distribution date; (9) the aggregate repurchase prices for loans, if 
any, that were repurchased by the seller during the related 
collection period; (10) the amount of fees payable to all parties 
pursuant to the indenture; (11) any and all other fees, expenses, 
indemnities or taxes payable by the issuer or the grantor trust 
(including reserved amounts for payments required to be made before 
the next distribution date); (12) the payments to the certificate 
holders; and (13) during a pre-funding period, the amount on deposit 
in the pre-funding account as of the close of business on the last 
day of the related collection period, and the pool balance of 
subsequent loans purchased during the related collection period, and 
following the pre-funding period, the amount of principal payments 
made on each class of notes from amounts on deposit in the pre-
funding account.
---------------------------------------------------------------------------

    Further, the Index is broad-based and currently includes 2,693 
component securities. Whereas the generic listing rules permit a single 
component security to represent up to 30% of the weight of an index and 
the top five component securities to, in aggregate, represent up to 65% 
of the weight of an index, the largest component security in the 
Underyling Index only constitutes 0.044% of the weight of the Index and 
the largest five component securities represent 0.22% of the weight of 
the Index. The Exchange believes that this significant diversification 
and the lack of concentration among constituent securities provides a 
strong degree of protection against index manipulation. On a continuous 
basis, the Index will (i) contain at least 500 component securities and 
(ii) comply with the index methodology description provided above.
Additional Information
    The Index value, calculated and disseminated at least once daily, 
as well as the components of the Index and their percentage weighting, 
will be available from major market data vendors. In addition, the 
portfolio of securities held by the Fund will be disclosed on the 
Fund's website at www.PrincipalETFs.com.
    The Exchange represents that: (1) Except as described above, the 
Index currently satisfies and will continue to satisfy all of the 
generic listing standards under Rule 14.11(c)(4); (2) the continued 
listing standards under BZX Rule 14.11(c) applicable to index fund 
shares shall apply to the Shares of the Fund; and (3) the Trust is 
required to comply with Rule 10A-3 \20\ under the Act for the initial 
and continued listing of the Shares of the Fund. In addition, the 
Exchange represents that the Shares of the Fund will comply with all 
other requirements applicable to index fund shares including, but not 
limited to, requirements relating to the dissemination of key 
information such as the value of the Index and the Intraday Indicative 
Value (``IIV''), rules governing the trading of equity securities, 
trading hours, trading halts, surveillance, and the information 
circular, as set forth in Exchange rules applicable to index fund 
shares and the orders approving such rules.
---------------------------------------------------------------------------

    \20\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Availability of Information
    The Fund's website, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Fund that may be downloaded. The website will include additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior business day's reported NAV, daily trading volume, 
and a calculation of the premium and discount of the Bid/Ask Price 
against the NAV; and (2) data in chart format displaying the frequency 
distribution of discounts and premiums of the daily Bid/Ask Price 
against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. Daily trading volume information for the 
Fund will also be available in the financial section of newspapers, 
through subscription services such as Bloomberg, Thomson Reuters, and 
International Data Corporation, which can be accessed by authorized 
participants and other investors, as well as through other electronic 
services, including major public websites. On each business day, before 
commencement of trading in Shares during Regular Trading Hours \21\ on 
the Exchange, the Fund will disclose on its website the identities and 
quantities of the portfolio of securities and other assets in the 
portfolio held by the Fund that will form the basis for the Fund's 
calculation of NAV at the end of the business day. The portfolio 
description will include, as applicable: The ticker symbol; CUSIP 
number or other identifier, if any; a description of the holding 
(including the type of holding, such as the type of swap); the identity 
of the security, index or other asset or instrument underlying the 
holding, if any; for options, the option strike price; quantity held 
(as measured by, for example, par value, notional value or number of 
shares, contracts, or units); maturity date, if any; coupon rate, if 
any; effective date, if any; market value of the holding; and the 
percentage weighting of the holding in the Fund's portfolio. The 
website and information will be publicly available at no charge. The 
value, components, and percentage weightings of the Index will be 
calculated and disseminated at least once daily and will be available 
from major market data vendors. Rules governing the Index are available 
on the Index Provider's website and in the Fund's prospectus.
---------------------------------------------------------------------------

    \21\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
---------------------------------------------------------------------------

    In addition, an estimated value, defined in BZX Rule 14.11(c)(6)(A) 
as the ``Intraday Indicative Value,'' that reflects an estimated 
intraday value of the Fund's portfolio, will be disseminated. Moreover, 
the Intraday Indicative Value will be based upon the current value for 
the components of the daily disclosed portfolio and will be updated and 
widely disseminated by one or more major market data vendors at least 
every 15 seconds during the Exchange's Regular Trading Hours.\22\ In 
addition, the quotations of certain of the Fund's holdings may not be 
updated during U.S. trading hours if updated prices cannot be 
ascertained.
---------------------------------------------------------------------------

    \22\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Intraday Indicative Values published via the Consolidated Tape 
Association (``CTA'') or other data feeds.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the daily disclosed portfolio, will allow investors to determine the 
value of the underlying portfolio of the Fund on a daily basis and 
provide a close estimate of that value throughout the trading day.
    Quotation and last sale information for the Shares of the Fund will 
be

[[Page 20896]]

available via the CTA high speed line. Price information regarding ABS, 
CMBS, and other non-exchange traded assets, including the types of 
swaps held by the Fund, cash and cash equivalents, and other Treasury 
Securities, is available from third party pricing services and major 
market data vendors. For exchange-traded assets, including ETFs, such 
intraday information is available directly from the applicable listing 
exchange.
Initial and Continued Listing
    The Shares of the Fund will conform to the initial and continued 
listing criteria under BZX Rule 14.11(c)(4), except as described above. 
The Exchange represents that, for initial and/or continued listing, the 
Fund and the Trust must be in compliance with Rule 10A-3 under the 
Act.\23\ A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share for 
the Fund will be calculated daily and will be made available to all 
market participants at the same time.
---------------------------------------------------------------------------

    \23\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. The Exchange will halt trading in 
the Shares under the conditions specified in BZX Rule 11.18. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the daily 
disclosed portfolio of the Fund; or (2) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present. Trading in the Shares also will be 
subject to Rule 14.11(c)(1)(B)(iv), which sets forth circumstances 
under which Shares of the Fund may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. The Exchange will 
allow trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time 
and has the appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in BZX Rule 11.11(a), the 
minimum price variation for quoting and entry of orders in securities 
traded on the Exchange is $0.01, with the exception of securities that 
are priced less than $1.00, for which the minimum price variation for 
order entry is $0.0001.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Index Fund Shares. The 
issuer has represented to the Exchange that it will advise the Exchange 
of any failure by the Fund to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Exchange Act, the Exchange will surveil for compliance with the 
continued listing requirements. FINRA conducts certain cross-market 
surveillances on behalf of the Exchange pursuant to a regulatory 
services agreement. The Exchange is responsible for FINRA's performance 
under this regulatory services agreement. If the Fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures under Exchange Rule 14.12. The Exchange, 
or FINRA on behalf of the Exchange, may obtain information regarding 
trading in the Shares and the underlying shares in exchange traded 
equity securities, including ETFs, via the ISG, from other exchanges 
that are members or affiliates of the ISG, and the Exchange may obtain 
such information from markets with which the Exchange has entered into 
a comprehensive surveillance sharing agreement.\24\ In addition, the 
Exchange, or FINRA on behalf of the Exchange, is able to access, as 
needed, trade information for certain fixed income instruments reported 
to FINRA's Trade Reporting and Compliance Engine (``TRACE''). The 
Exchange prohibits the distribution of material non-public information 
by its employees.
---------------------------------------------------------------------------

    \24\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
portfolio for the Fund may trade on markets that are members of ISG 
or with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \25\ in general and Section 6(b)(5) of the Act \26\ in 
particular in that it is 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 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.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f.
    \26\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
shares of the Fund will be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria for Index Fund Shares 
based on a fixed income index in Rule 14.11(c)(4), except for the 
requirements of Rule 14.11(c)(4)(B)(i)(b) and Rule 
14.11(c)(4)(B)(i)(f). The Exchange represents that trading in the 
shares of the Fund will be subject to the existing trading 
surveillances administered by the Exchange as well as cross-market 
surveillances administered by the FINRA on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange. The Exchange 
represents that these procedures are adequate to properly monitor 
Exchange trading of the shares of the Fund in all trading sessions and 
to deter and detect violations of Exchange rules and federal securities 
laws applicable to trading on the Exchange. The Exchange or FINRA, on 
behalf of the Exchange, or both, will communicate as needed regarding 
trading in the shares of the Fund with other markets that are members 
of the ISG. In addition, the Exchange will communicate as needed 
regarding trading in the shares of the Fund with other markets that are 
members of the ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. FINRA, on behalf of the 
Exchange, is able to access, as needed, trade information for certain 
fixed income securities held by the Fund reported to TRACE.
    Further, the Index is broad-based and currently includes 2,693 
component securities. Whereas the generic listing rules permit a single 
component security to represent up to 30% of the weight of an index and 
the top five component securities to, in aggregate, represent up to 65% 
of the weight of an index, the largest component security in the 
Underyling Index only constitutes

[[Page 20897]]

0.044% of the weight of the Index and the largest five component 
securities represent 0.22% of the weight of the Index. The Exchange 
believes that this significant diversification and the lack of 
concentration among constituent securities provides a strong degree of 
protection against index manipulation. On a continuous basis, the Index 
will (i) contain at least 500 component securities and (ii) comply with 
the index methodology description provided above.
    As of February 22, 2018, 57.9% of the weight of the Index 
components have a minimum original principal amount outstanding of $100 
million or more and 68.0% of the weight of the Index components met the 
requirements of Rule 14.11(c)(4)(B)(i)(f). The Exchange notes that at 
least 90% of the weight of the Index will be comprised of securities 
that have a minimum par amount of $25 million and were a constituent of 
an offering where the original deal size was at least $250 million.
    While the Index will not meet certain provisions of Rule 
14.11(c)(4), as described above, the Exchange believes that the policy 
issues which such provisions are intended to address are otherwise 
mitigated. Specifically, the concerns around the size and 
manipulability of the underlying Fixed Income Securities that Rule 
14.11(c)(4)(B)(i)(b) is intended to address are mitigated by the fact 
that at least 90% of the weight of the Index will be comprised of 
securities that have a minimum par amount of $25 million and were a 
constituent of an offering where the original deal size was at least 
$250 million. Similar standards have been applied for other comparably 
situated funds and the Exchange believes that there is no reason that 
this standard should not be applied for the Fund.\27\
---------------------------------------------------------------------------

    \27\ The Commission has previously approved a proposed rule 
change relating to the listing and trading of twelve series of Index 
Fund Shares based on municipal bond indexes that did not satisfy the 
requirement that component fixed income securities that, in the 
aggregate, account for at least 75% of the weight of the index or 
portfolio have a minimum principal amount outstanding of $100 
million or more, provided that such municipal bond index contained 
at least 500 component securities on a continuous basis. See 
Securities Exchange Act Release No. 82295 (December 12, 2017), 82 FR 
60056 (December 18, 2017) (SR-NYSEArca-2017-56).
---------------------------------------------------------------------------

    Further, the concerns around the availability of information that 
Rule 14.11(c)(4)(B)(i)(f) is intended to address are also mitigated as 
it relates to the ABS and CMBS that populate the Index. While only 
68.0% of the weight of the portfolio meets the requirements of Rule 
14.11(c)(4)(B)(i)(f), the Index's inability to meet the 90% threshold 
is largely based on a technicality in the rule text. Part (1) of the 
Rule includes in the calculation of percentage ``issuers that are 
required [emphasis added] to file reports pursuant to Sections 13 and 
15(d) of the Act.'' The technicality is that, while only certain 
registered issuances of ABS and CMBS are required to file reports 
pursuant to Sections 13 or 15(d) of the Act, many ABS and CMBS 
issuances include in the bond indenture a requirement that the issuer 
make a public disclosure of a Statement to Noteholders.\28\ To this 
point, the Fund will only hold ABS and CMBS for which the bond 
indenture requires the public disclosure of a Statement to Noteholders 
on a no less frequent than quarterly basis. As such, while the Fund 
will not technically meet the requirements of Rule 
14.11(c)(4)(B)(i)(f)(1), the policy concerns related to the 
transparency and availability of information regarding the Fixed Income 
Securities held by a fund that the Rule is intended to address are 
otherwise mitigated.
---------------------------------------------------------------------------

    \28\ A Statement to Noteholders generally includes the same 
pieces of information about an issuer and issuance of ABS or CMBS 
that would be included in Form 10D. All Statements to Noteholders 
issued by ABS and CMBS held by the Fund will include, at a minimum, 
a remittance report that will show monthly or quarterly cash flows 
of the assets and liabilities for the issuance. Statements to 
Noteholders also typically include the following types of 
information: (1) The amount of the distribution(s) allocable to 
interest on the notes; (2) the amount of the distribution(s) 
allocable to principal of the notes; (3) the note balance, after 
taking into account all payments to be made on such distribution 
date; (4) the servicing fee paid and/or due but unpaid as of such 
distribution date; (5) the pool balance and required 
overcollateralization amount as of the close of business on the last 
day of the related collection period; (6) the reserve fund amount, 
the reserve fund required amount and the reserve fund draw amount; 
(7) the amount of the aggregate realized losses on the loans, if 
any, for the preceding collection period and the cumulative default 
ratio; (8) whether an amortization event will exist as of such 
distribution date; (9) the aggregate repurchase prices for loans, if 
any, that were repurchased by the seller during the related 
collection period; (10) the amount of fees payable to all parties 
pursuant to the indenture; (11) any and all other fees, expenses, 
indemnities or taxes payable by the issuer or the grantor trust 
(including reserved amounts for payments required to be made before 
the next distribution date); (12) the payments to the certificate 
holders; and (13) during a pre-funding period, the amount on deposit 
in the pre-funding account as of the close of business on the last 
day of the related collection period, and the pool balance of 
subsequent loans purchased during the related collection period, and 
following the pre- funding period, the amount of principal payments 
made on each class of notes from amounts on deposit in the pre-
funding account.
---------------------------------------------------------------------------

    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that a large amount of information is publicly available regarding the 
Funds, thereby promoting market transparency. The Fund's portfolio 
holdings will be disclosed on the Fund's website daily after the close 
of trading on the Exchange and prior to the opening of trading on the 
Exchange the following day. Moreover, the IIV for shares of the Fund 
will be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Exchange's Regular Trading Hours. The 
current value of the Index will be disseminated by one or more major 
market data vendors at least once per day. Information regarding market 
price and trading volume of the shares of the Fund will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services, and quotation and last sale 
information will be available via the CTA high-speed line. The website 
for the Fund will include the prospectus for the Fund and additional 
data relating to NAV and other applicable quantitative information.
    If the Exchange becomes aware that the Fund's NAV is not being 
disseminated to all market participants at the same time, it will halt 
trading in the shares of the Fund until such time as the NAV is 
available to all market participants. With respect to trading halts, 
the Exchange may consider all relevant factors in exercising its 
discretion to halt or suspend trading in the shares of the Fund. 
Trading also may be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the shares the Fund 
inadvisable. If the IIV and index value are not being disseminated for 
the Fund as required, the Exchange may halt trading during the day in 
which the interruption to the dissemination of the IIV or index value 
occurs. If the interruption to the dissemination of an IIV or index 
value persists past the trading day in which it occurred, the Exchange 
will halt trading. The Exchange may consider all relevant factors in 
exercising its discretion to halt or suspend trading in the Shares of 
the Fund. The Exchange will halt trading in the Shares under the 
conditions specified in BZX Rule 11.18. Trading may be halted because 
of market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities and/or the 
financial instruments composing the daily disclosed portfolio of the 
Funds; or (2) whether other unusual conditions or circumstances 
detrimental to the

[[Page 20898]]

maintenance of a fair and orderly market are present. Trading in the 
Shares also will be subject to Rule 14.11(c)(1)(B)(iv), which sets 
forth circumstances under which Shares of a Fund may be halted. In 
addition, investors will have ready access to information regarding the 
applicable IIV, and quotation and last sale information for the shares 
of the Fund.
    All statements and representations made in this filing regarding 
the index composition, the description of the portfolio or reference 
assets, limitations on portfolio holdings or reference assets, 
dissemination and availability of index, reference asset, and intraday 
indicative values (as applicable), or the applicability of Exchange 
listing rules shall constitute continued listing requirements for 
listing the Shares on the Exchange. The issuer is required to advise 
the Exchange of any failure by the Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Fund is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under Rule 14.12.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an exchange-traded product that principally holds ABS and CMBS and that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. The Exchange has in place surveillance 
procedures relating to trading in the shares of the Fund and may obtain 
information via ISG from other exchanges that are members of ISG or 
with which the Exchange has entered into a comprehensive surveillance 
sharing agreement. In addition, investors will have ready access to 
information regarding the IIV and quotation and last sale information 
for the shares of the Fund.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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 purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional exchange-traded product that will enhance competition among 
market participants, to the benefit of investors and the marketplace.

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

    The Exchange has neither solicited nor received written 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 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 self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the 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-2018-018 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-2018-018. 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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2018-018 and should be submitted 
on or before May 29, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09692 Filed 5-7-18; 8:45 am]
 BILLING CODE 8011-01-P


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