Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Adopt BZX Rule 14.11(k) To Permit the Listing and Trading of Managed Portfolio Shares and To List and Trade Shares of the ClearBridge Appreciation ETF, ClearBridge Large Cap ETF, ClearBridge Mid Cap Growth ETF, ClearBridge Select ETF, and ClearBridge All Cap Value ETF, 24367-24372 [2018-11223]
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Federal Register / Vol. 83, No. 102 / Friday, May 25, 2018 / Notices
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 rule-comments@
sec.gov. Please include File Number SR–
Phlx–2018–39 on the subject line.
Paper Comments
amozie on DSK3GDR082PROD with NOTICES1
• 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–Phlx–2018–39. 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–Phlx–2018–39 and should
be submitted on or before June 15, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–11225 Filed 5–24–18; 8:45 am]
BILLING CODE 8011–01–P
29 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83293; File No. SR–
CboeBZX–2018–010]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To Adopt BZX Rule
14.11(k) To Permit the Listing and
Trading of Managed Portfolio Shares
and To List and Trade Shares of the
ClearBridge Appreciation ETF,
ClearBridge Large Cap ETF,
ClearBridge Mid Cap Growth ETF,
ClearBridge Select ETF, and
ClearBridge All Cap Value ETF
May 21, 2018.
On February 5, 2018, Cboe BZX
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Exchange
Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to adopt BZX Rule
14.11(k) to permit the listing and trading
of Managed Portfolio Shares, and to list
and trade shares (‘‘Shares’’) of the
ClearBridge Appreciation ETF,
ClearBridge Large Cap ETF, ClearBridge
Mid Cap Growth ETF, ClearBridge
Select ETF, and ClearBridge All Cap
Value ETF under proposed BZX Rule
14.11(k). The proposed rule change was
published for comment in the Federal
Register on February 20, 2018.3 On
April 3, 2018, pursuant to Section
19(b)(2) of the Exchange Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 The Commission
has received four comment letters on
the proposed rule change.6 This order
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 82705
(February 13, 2018), 83 FR 7256 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 82984,
83 FR 15181 (April 9, 2018). The Commission
designated May 21, 2018, as the date by which the
Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 See letters to Brent J. Fields, Secretary,
Commission, from: (1) Todd J. Broms, Chief
Executive Officer, Broms & Company LLC, dated
March 13, 2018 (‘‘Broms Letter’’); (2) Simon P.
Goulet, Co-Founder, Blue Tractor Group, LLC,
dated March 19, 2018 (‘‘Blue Tractor Letter I’’); (3)
Terence W. Norman, Founder, Blue Tractor Group,
LLC, dated March 20, 2018 (‘‘Blue Tractor Letter
II’’); and (4) Terence W. Norman, Founder, Blue
Tractor Group, LLC, dated May 8, 2018 (‘‘Blue
Tractor Letter III’’). The comment letters are
2 17
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24367
institutes proceedings under Section
19(b)(2)(B) of the Exchange Act 7 to
determine whether to approve or
disapprove the proposed rule change.
I. Summary of the Exchange’s
Description of the Proposed Rule
Change 8
The Exchange proposes to adopt BZX
Rule 14.11(k), which would govern the
listing and trading of Managed Portfolio
Shares.9 The Exchange also proposes to
list and trade Shares of the ClearBridge
Appreciation ETF, ClearBridge Large
Cap ETF, ClearBridge Mid Cap Growth
ETF, ClearBridge Select ETF, and
ClearBridge All Cap Value ETF under
proposed BZX Rule 14.11(k) (each a
‘‘Fund,’’ and collectively the ‘‘Funds’’).
A. Description of the Funds
The portfolio for each Fund will
consist primarily of long and/or short
positions in U.S. exchange-listed
securities and shares issued by other
U.S. exchange-listed exchange-traded
funds (‘‘ETFs’’).10 All exchange-listed
equity securities in which the Funds
will invest will be listed and traded on
U.S. national securities exchanges.
1. ClearBridge Appreciation ETF
The ClearBridge Appreciation ETF
will seek to provide long-term
appreciation of shareholders’ capital.
available at https://www.sec.gov/comments/srcboebzx-2018-010/cboebzx2018010.htm.
7 15 U.S.C. 78s(b)(2)(B).
8 For a complete description of the Exchange’s
proposal, including a description of the Precidian
ETF Trust II (‘‘Trust’’), see Notice, supra note 3.
9 Proposed BZX Rule 14.11(k)(3)(A) defines the
term ‘‘Managed Portfolio Share’’ as a security that
(a) represents an interest in a registered investment
company (‘‘Investment Company’’) organized as an
open-end management investment company or
similar entity, that invests in a portfolio of
securities selected by the Investment Company’s
investment adviser consistent with the Investment
Company’s investment objectives and policies; (b)
is issued in a specified aggregate minimum number
of shares equal to a Creation Unit (as defined in
proposed BZX Rule 14.11(k)(3)(C)), or multiples
thereof, in return for a designated portfolio of
securities (and/or an amount of cash) with a value
equal to the next determined net asset value
(‘‘NAV’’); and (c) when aggregated in the same
specified aggregate number of shares equal to a
Redemption Unit (as defined in proposed BZX Rule
14.11(k)(3)(D)), or multiples thereof, may be
redeemed at the request of an authorized
participant, which authorized participant will be
paid through a confidential account established for
its benefit (‘‘Confidential Account’’) a portfolio of
securities and/or cash with a value equal to the next
determined NAV.
10 The Exchange represents that, for purposes of
describing the holdings of the Funds, ETFs include
Portfolio Depository Receipts (as described in BZX
Rule 14.11(b)); Index Fund Shares (as described in
BZX Rule 14.11(c)); and Managed Fund Shares (as
described in BZX Rule 14.11(i)). The ETFs in which
a Fund will invest all will be listed and traded on
national securities exchanges. While the Funds may
invest in inverse ETFs, the Funds will not invest
in leveraged (e.g., 2X, –2X, 3X, or –3X) ETFs.
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The Fund will seek to achieve its
investment objective by investing
primarily in U.S. exchange-listed equity
securities. The Fund will typically
invest in medium and large
capitalization companies, but may also
invest in small capitalization
companies.
2. ClearBridge Large Cap ETF
The ClearBridge Large Cap ETF will
seek long-term capital appreciation. The
Fund will seek to achieve its investment
objective by taking long and possibly
short positions in equity securities or
groups of equities that the portfolio
managers believe will provide long term
capital appreciation. The Fund will
normally invest at least 80% of its net
assets (plus borrowings for investment
purposes) in stocks included in the
Russell 1000 Index and ETFs that
primarily invest in stocks in the Russell
1000 Index. The Fund will purchase
securities that ClearBridge Investments,
LLC (‘‘Sub-Adviser’’) believes are
undervalued, and sell short securities
that it believes are overvalued.
3. ClearBridge Mid Cap Growth ETF
The ClearBridge Mid Cap Growth ETF
will seek long-term growth of capital.
The Fund will seek to achieve its
investment objective by investing
primarily in U.S. exchange-listed,
publicly traded equity and equityrelated securities of U.S. companies or
other instruments with similar
economic characteristics. The Fund may
invest in securities of issuers of any
market capitalization.
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4. ClearBridge Select ETF
The ClearBridge Select ETF will seek
to provide long-term growth of capital.
The Fund will seek to achieve its
investment objective by investing
primarily in U.S. exchange-listed,
publicly traded equity and equityrelated securities of U.S. companies or
other instruments with similar
economic characteristics. The Fund may
invest in securities of issuers of any
market capitalization.
5. ClearBridge All Cap Value ETF
The ClearBridge All Cap Value ETF
will seek long-term capital growth with
current income as a secondary
consideration. The Fund will seek to
achieve its investment objective by
investing primarily in common stocks
and common stock equivalents, such as
preferred stocks and securities
convertible into common stocks, of
companies the Sub-Adviser believes are
undervalued in the marketplace. The
Fund may invest up to 25% of its net
assets in equity securities of foreign
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issuers through U.S. exchange-listed
depositary receipts.
6. Other Investments
While each Fund, under normal
market conditions,11 will invest
primarily in U.S. exchange-listed
securities, as described above, each
Fund may invest its remaining assets in
other securities and financial
instruments, as described below.
Each Fund may enter into repurchase
agreements. It will be the policy of the
Trust to enter into repurchase
agreements only with recognized
securities dealers, banks, and the Fixed
Income Clearing Corporation, a
securities clearing agency registered
with the Commission.
Each Fund may invest up to 5% of its
total assets in warrants, rights, and
options.
Each Fund may invest a portion of its
assets in cash or cash equivalents.12
Each Fund may invest in the
securities of other investment
companies (including money market
funds) to the extent allowed by law.
7. Investment Restrictions
Each Fund may invest up to an
aggregate amount of 15% of its net
assets in illiquid assets (calculated at
the time of investment),13 consistent
with Commission guidance. Each Fund
will monitor its portfolio liquidity on an
11 Proposed BZX Rule 14.11(k)(3)(F) defines the
term ‘‘normal market conditions’’ as including, but
not limited to, the absence of trading halts in the
applicable financial markets generally; operational
issues (e.g., systems failure) causing dissemination
of inaccurate market information; 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.
12 For purposes of this filing, cash equivalents
include short-term instruments (instruments with
maturities of less than 3 months) of the following
types: (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.
13 In reaching liquidity decisions, the Adviser
may consider the following factors: The frequency
of trades and quotes for the security; the number of
dealers wishing to purchase or sell the security and
the number of other potential purchasers; dealer
undertakings to make a market in the security; and
the nature of the security and the nature of the
marketplace in which it trades (e.g., the time
needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer).
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ongoing basis to determine whether, in
light of current circumstances, an
adequate level of liquidity is being
maintained, and will consider taking
appropriate steps in order to maintain
adequate liquidity if, through a change
in values, net assets, or other
circumstances, more than 15% of the
Fund’s net assets are invested in illiquid
assets. Illiquid assets include securities
subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.
Each Fund will seek to qualify for
treatment as a Regulated Investment
Company under the Internal Revenue
Code.14
The Funds will not invest in
securities listed on non-U.S. exchanges.
The Funds also will not invest in
futures, forwards, or swaps.
Each Fund’s investments will be
consistent with its investment objective
and will not be used to enhance
leverage. While a Fund may invest in
inverse ETFs, a Fund will not invest in
leveraged (e.g., 2X, –2X, 3X, or –3X)
ETFs.
B. Key Features of Managed Portfolio
Shares
According to the Exchange, while
funds issuing Managed Portfolio Shares
would be actively-managed, and in that
respect would be similar to Managed
Fund Shares,15 Managed Portfolio
Shares would differ from Managed Fund
Shares in the following respects:
• First, issues of Managed Fund
Shares are required to disseminate their
‘‘Disclosed Portfolio’’ at least once
daily.16 By contrast, the portfolio for an
issue of Managed Portfolio Shares
would be disclosed only quarterly.
• Second, in connection with the
creation of shares in Creation Unit size
or the redemption of shares in
Redemption Unit size, the delivery or
receipt of any portfolio securities in
kind would be effected through an agent
(‘‘AP Representative’’) in a Confidential
Account established for the benefit of
the creating or redeeming authorized
participant without disclosing the
14 26
U.S.C. 851.
Fund Shares are shares of activelymanaged funds listed and traded under BZX Rule
14.11(i).
16 BZX Rule 14.11(i)(3)(B) defines the term
‘‘Disclosed Portfolio’’ as the identities and
quantities of the securities and other assets held by
the Investment Company that will form the basis for
the Investment Company’s calculation of NAV at
the end of the business day. BZX Rule
14.11(i)(4)(B)(ii)(a) requires that, for Managed Fund
Shares, the Disclosed Portfolio be disseminated at
least once daily and be made available to all market
participants at the same time.
15 Managed
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identity of the securities to the
authorized participant.
• Third, for each series of Managed
Portfolio Shares, a Verified Intraday
Indicative Value (‘‘VIIV’’) would be
widely disseminated by the Reporting
Authority (as defined in proposed BZX
Rule 14.11(k)(3)(E)) and/or by one or
more major market data vendors every
second during the Exchange’s Regular
Trading Hours (between 9:30 a.m. and
4:00 p.m. Eastern Time).17 The
Exchange states that the dissemination
of the VIIV will allow investors to
determine the estimated intraday value
of the underlying portfolio of a series of
Managed Portfolio Shares and will
provide a close estimate of that value
throughout the trading day.18
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C. Arbitrage of Managed Portfolio
Shares
The Exchange asserts that market
makers will be able to make efficient
and liquid markets in the Shares priced
near the VIIV as long as the VIIV is
disseminated every second and market
makers employ market making
techniques such as ‘‘statistical
arbitrage,’’ including correlation
hedging, beta hedging, and dispersion
trading, which the Exchange represents
is currently used throughout the
financial services industry, to make
efficient markets in exchange-traded
products.19 According to the Exchange,
17 Proposed BZX Rule 14.11(k)(3)(B) defines the
VIIV as the estimated indicative value of a Managed
Portfolio Share based on all of the holdings of a
series of Managed Portfolio Shares as of the close
of business on the prior business day, and, for
corporate actions, based on the applicable holdings
as of the opening of business on the current
business day, priced and disseminated in one
second intervals during Regular Trading Hours.
18 According to the Exchange, the VIIV should not
be viewed as a ‘‘real-time’’ update of the NAV,
because the VIIV may not be calculated in the same
manner as the NAV, which will be computed once
a day.
19 According to the Exchange, statistical arbitrage
enables a trader to construct an accurate proxy for
another instrument, allowing it to hedge the other
instrument or buy or sell the instrument when it is
cheap or expensive in relation to the proxy. The
Exchange states that statistical analysis permits
traders to discover correlations, based purely on
trading data without regard to other fundamental
drivers. The Exchange also states that these
correlations are a function of differentials, over
time, between one instrument or group of
instruments and one or more other instruments, and
that once the nature of these price deviations have
been quantified, a universe of securities is searched
in an effort to, in the case of a hedging strategy,
minimize the differential. In addition, the Exchange
states that, once a suitable hedging proxy has been
identified, a trader can minimize portfolio risk by
executing the hedging basket. According to the
Exchange, the trader then can monitor the
performance of this hedge throughout the trade
period, making correction where warranted. The
Exchange states that, in the case of correlation
hedging, the analysis seeks to find a proxy that
matches the pricing behavior of a Fund, and that
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24369
if an authorized participant believes that
the Shares are trading at a price that is
higher than the value of the underlying
portfolio—for example, if the market
price for the Shares is higher than the
VIIV—then the authorized participant
may sell the Shares short and purchase
securities that the authorized
participant believes will track the
movements of the Shares. When the
spread narrows, the authorized
participant would execute offsetting
orders or enter an order with its AP
Representative to create Shares.
According to the Exchange, the AP
Representative’s execution of a Creation
Unit in a Confidential Account,
combined with the sale of the Shares,
may create downward pressure on the
price of the Shares and/or upward
pressure on the price of the portfolio
securities, bringing the market price of
the Shares and the value of a Fund’s
portfolio securities closer together.
Similarly, according to the Exchange,
an authorized participant could buy the
Shares and instruct the AP
Representative to redeem them and then
sell the underlying portfolio securities
from its Confidential Account when the
Shares trade at a discount to the
portfolio securities. According to the
Exchange, the authorized participant’s
purchase of the Shares in the secondary
market, combined with the sale of the
portfolio securities from its Confidential
Account, may create upward pressure
on the price of the Shares and/or
downward pressure on the price of
portfolio securities, driving the market
price of the Shares and the value of a
Fund’s portfolio securities closer
together. The Exchange states that,
according to Precidian Funds LLC, the
investment adviser to the Trust
(‘‘Adviser’’), this process is identical to
how many authorized participants
currently arbitrage existing traditional
ETFs, except for the use of the
Confidential Account.
and shareholders redeeming their
Shares will receive an in-kind transfer
of specified instruments (‘‘Redemption
Instruments’’) in their Confidential
Account through an AP Representative.
On any given business day, the names
and quantities of the instruments that
constitute the Deposit Instruments and
the names and quantities of the
instruments that constitute the
Redemption Instruments will be
identical, and these instruments may be
referred to, in the case of either a
purchase or redemption, as the
‘‘Creation Basket.’’
In the case of a redemption, the
authorized participant will enter into an
irrevocable redemption order and then
immediately instruct the AP
Representative to sell the underlying
basket of securities that it will receive
in the redemption. After receipt of a
redemption order, a Fund’s custodian
(‘‘Custodian’’) will typically deliver
securities to the Confidential Account
on a pro rata basis with a value
approximately equal to the value of the
Shares tendered for redemption at the
order cut-off time established by the
Fund. The Custodian will make delivery
of the securities by appropriate entries
on its books and records, transferring
ownership of the securities to the
authorized participant’s Confidential
Account, subject to delivery of the
Shares redeemed. The AP
Representative will in turn liquidate the
securities based on instructions from the
authorized participant.20 The AP
Representative will pay the liquidation
proceeds net of expenses, plus or minus
any cash balancing amount, to the
authorized participant through the
Depository Trust Company.21 The
redemption securities that the
Confidential Account receives are
expected to mirror the portfolio
holdings of a Fund pro rata.
In the case of a creation, the
authorized participant will enter into an
D. The Creation and Redemption
Procedures
20 The Exchange represents that an authorized
participant will issue execution instructions to the
AP Representative and be responsible for all
associated profit or losses. Like a traditional ETF,
the authorized participant has the ability to sell the
basket securities at any point during normal trading
hours.
21 According to the Exchange, under applicable
provisions of the Internal Revenue Code, the
authorized participant is expected to be deemed a
‘‘substantial owner’’ of the Confidential Account
because it receives distributions from the
Confidential Account. As a result, the Exchange
states, all income, gain, or loss realized by the
Confidential Account will be directly attributed to
the authorized participant. The Exchange also states
that, in a redemption, the authorized participant
will have a basis in the distributed securities equal
to the fair market value at the time of the
distribution, and any gain or loss realized on the
sale of those Shares will be taxable income to the
authorized participant.
The Exchange states that, generally,
the Shares will be purchased and
redeemed on an in-kind basis, so that,
except where the purchase or
redemption would include cash under
the circumstances described in the
applicable Fund’s registration
statement, purchasers will be required
to purchase Creation Units by making
an in-kind deposit of specified
instruments (‘‘Deposit Instruments’’),
in the case of beta hedging, the analysis seeks to
determine the relationship between the price
movement over time of a Fund and that of another
stock.
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irrevocable creation order with the Fund
and then direct the AP Representative to
purchase the necessary basket of
portfolio securities. The AP
Representative will then purchase the
necessary securities in the Confidential
Account. Once the necessary basket of
securities has been acquired, the
purchased securities held in the
Confidential Account will be
contributed in-kind to the Fund.
The Exchange states that, in
purchasing the necessary securities for
creation purposes, and, conversely, in
selling the portfolio securities for
redemption purposes, the AP
Representative will be required, by the
terms of the Confidential Account
agreement, to obfuscate the trades by
use of tactics such as breaking the trades
into multiple purchases or sales and
transacting in multiple marketplaces.
E. Availability of Information
Each Fund will be required to file
with the Commission its complete
portfolio schedules for the second and
fourth fiscal quarters on Form N–CSR
under the Investment Company Act of
1940 (‘‘1940 Act’’), and to file its
complete portfolio schedules for the
first and third fiscal quarters on Form
N–Q under the 1940 Act, within 60 days
of the end of the quarter. Form N–Q
requires funds to file the same
schedules of investments that are
required in annual and semi-annual
reports to shareholders. The Trust’s SAI
and each Fund’s shareholder reports
will be available free upon request from
the Trust. These documents and forms
may be viewed on-screen or
downloaded from the Commission’s
website at www.sec.gov.
In addition, the VIIV will be widely
disseminated by the Reporting
Authority and/or one or more major
market data vendors every second
during the Exchange’s Regular Trading
Hours. According to the Exchange, the
VIIV will include all accrued income
and expenses of a Fund, and any
extraordinary expenses booked during
the day that would be taken into
account in calculating the Fund’s NAV
will also be taken into account in
calculating the VIIV.
For purposes of the VIIV, securities
held by a Fund will be valued
throughout the day based on the midpoint between the disseminated current
national best bid and offer.22 According
to the Exchange, by utilizing mid-point
pricing for purposes of VIIV calculation,
stale prices are eliminated and a more
22 If the Adviser determines that the mid-point of
the bid/ask spread is inaccurate, a Fund will use
fair value pricing.
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accurate representation of the real-time
value of the underlying securities is
provided to the market. Specifically,
according to the Exchange, quotations
based on the mid-point of bid/ask
spreads more accurately reflect current
market sentiment by providing real time
information on where market
participants are willing to buy or sell
securities at that point in time. The
Exchange also believes that the use of
quotations will dampen the impact of
any momentary spikes in the price of a
portfolio security.
According to the Exchange, each
Fund will utilize two separate pricing
feeds to provide two separate sources of
pricing information. Each Fund will
also utilize a ‘‘Pricing Verification
Agent’’ and establish a computer-based
protocol that will permit the Pricing
Verification Agent to continuously
compare the multiple intraday
indicative values on a real time basis.23
A single VIIV will be disseminated
publicly for each Fund; however, the
Pricing Verification Agent will
continuously compare the public VIIV
against a non-public alternative intraday
indicative value to which the Pricing
Verification Agent has access. Upon
notification to the Exchange by the
issuer of a series of Managed Portfolio
Shares, or its agent, that the public VIIV
and non-public alternative intraday
indicative value differ by more than 25
basis points for 60 seconds, the
Exchange will halt trading as soon as
practicable in the Shares until the
discrepancy is resolved.24 Each Fund’s
board of directors will review the
procedures used to calculate the VIIV
and maintain its accuracy as
appropriate, but not less than annually.
The specific methodology for
calculating the VIIV will be disclosed on
each Fund’s website.
F. Surveillance
The Exchange represents that trading
in the Shares will be subject to the
23 The Exchange states that a Fund’s Custodian
will provide, on a daily basis, the identities and
quantities of portfolio securities that will form the
basis for a Fund’s calculation of NAV at the end of
the business day, plus any cash in the portfolio, to
the Pricing Verification Agent for purposes of
pricing. According to the Exchange, the Pricing
Verification Agent will utilize at least two separate
calculation engines to calculate intraday indicative
values, based on the mid-point between the
disseminated current national best bid and offer, to
provide the real-time value on a per Share basis of
each Fund’s holdings every second during Regular
Trading Hours.
24 According to the Exchange, a continuous
deviation for 60 seconds could indicate an error in
the feed or in a calculation engine used to calculate
the intraday indicative values. The Exchange states
that the Trust reserves the right to change these
thresholds to the extent deemed appropriate and
approved by a Fund’s board of directors.
PO 00000
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Fmt 4703
Sfmt 4703
Exchange’s surveillance procedures for
derivative products. The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and
applicable federal securities laws.25
The Exchange represents that the
Adviser will make available daily to
FINRA and the Exchange the portfolio
holdings of each Fund in order to
facilitate the performance of the
surveillances. In addition, the Exchange
states that it has a general policy
prohibiting the distribution of material,
non-public information by its
employees.
II. Summary of Comment Letters
The Commission has received four
comment letters on the proposed rule
change, each of which expresses
opposition to the proposed rule
change.26 As of the date of this order
instituting proceedings, the Exchange
has not submitted a response to the
comments.
A. Broms Letter.27 The commenter
opposes the proposed rule change and
raises the following concerns: 28
• Selective disclosure of confidential
portfolio information to AP
Representatives for trading on behalf of
authorized participants violates federal
securities law and facilitates illegal
insider trading;
• The portfolio holdings can be
reverse engineered, resulting in harm to
the Funds’ shareholders;
25 The Exchange represents that the Exchange or
the Financial Industry Regulatory Authority
(‘‘FINRA’’), on behalf of the Exchange, or both, will
communicate as needed regarding trading in the
Shares, underlying stocks, ETFs, and exchangelisted options with other markets and other entities
that are members of the Intermarket Surveillance
Group (‘‘ISG’’), and the Exchange or FINRA, on
behalf of the Exchange, or both, may obtain trading
information regarding such securities from such
markets and other entities. In addition, the
Exchange may obtain information regarding trading
in the Shares, underlying stocks, ETFs, and
exchange-listed options from markets and other
entities that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
26 See supra note 6.
27 The Broms Letter is available at https://
www.sec.gov/comments/sr-cboebzx-2018-010/
cboebzx2018010-3254113-162031.pdf.
28 The commenter also generally references
concerns that it raised in its comment letter related
to a similar, previous proposal filed by the
Exchange to list and trade Managed Portfolio
Shares, which the Exchange withdrew. See
Securities Exchange Act Release No. 80911 (June
13, 2017), 82 FR 27925 (June 19, 2017) (SR–
BatsBZX–2017–30) (‘‘Prior Proposal’’); and letter to
Brent J. Fields, Secretary, Commission, from Todd
J. Broms, Chief Executive Officer, Broms &
Company LLC, dated July 10, 2017, available at
https://www.sec.gov/comments/sr-batsbzx-2017-30/
batsbzx201730-1842158-155104.pdf.
E:\FR\FM\25MYN1.SGM
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Federal Register / Vol. 83, No. 102 / Friday, May 25, 2018 / Notices
amozie on DSK3GDR082PROD with NOTICES1
• The Funds would serve no useful
public purpose without clear
protections against reverse engineering
and every other plausible means by
which confidential portfolio holdings
information could be used by other
market participants to harm the Funds’
shareholders; and
• Authorized participants and other
market makers cannot engage in bona
fide arbitrage, and the Shares will not
trade efficiently without an effective
arbitrage mechanism, with particularly
poor trading performance to be expected
during periods of market stress and
volatility.
B. Blue Tractor Letter I.29 The
commenter opposes the proposed rule
change and expresses concern that the
Funds can be reverse engineered to
determine their composition and trading
strategies, and that ‘‘predatory traders’’
can use such information in order to
front run the Funds.
C. Blue Tractor Letter II.30 The
commenter opposes the proposed rule
change and raises the following
concerns: 31
• Under the proposal, market
participants will not be able to engage
in bona fide arbitrage or efficient
statistical arbitrage to keep the price of
Shares close to a Fund’s NAV; 32
29 The Blue Tractor Letter I is available at https://
www.sec.gov/comments/sr-cboebzx-2018-010/
cboebzx2018010-3287448-162066.pdf.
30 The Blue Tractor Letter II is available at https://
www.sec.gov/comments/sr-cboebzx-2018-010/
cboebzx2018010-3294085-162071.pdf.
31 Although the commenter purports to comment
on the Notice, the comments are more directly
related to the Trust’s December 4, 2017, exemptive
application. See Fifth Amended and Restated
Application for an Order under Section 6(c) of the
1940 Act for exemptions from various provisions of
the 1940 Act and rules thereunder (File No. 812–
14405), dated December 4, 2017. The commenter
also references concerns that it raised in its
comment letters related to the Prior Proposal. See
letters to Brent J. Fields, Secretary, Commission,
from Terence W. Norman, Founder, Blue Tractor
Group, LLC, dated August 1, 2017, available at
https://www.sec.gov/comments/sr-batsbzx-2017-30/
batsbzx201730-2161995-157800.pdf and Terence
W. Norman, Founder, Blue Tractor Group, LLC,
dated December 5, 2017, available at https://
www.sec.gov/comments/sr-batsbzx-2017-30/batsb
zx201730-2755179-161594.pdf.
32 The commenter also notes that market makers
will not be able to construct optimized tracking
portfolios using the proposed fund structure and
cites to comment letters that it submitted in
response to a proposal filed by NYSE Arca, Inc. to
list and trade Managed Portfolio Shares, which was
withdrawn. See Securities Exchange Act Release
No. 80553 (April 28, 2017), 82 FR 20932 (May 4,
2017) (SR–NYSEArca–2017–36); and letters to Brent
J. Fields, Secretary, Commission, from Simon P.
Goulet, Co-Founder, Blue Tractor Group, LLC,
dated November 22, 2017, available at https://
www.sec.gov/comments/sr-nyseArca-2017-36/
nysearca201736-2735961-161533.pdf and Terence
W. Norman, Founder, Blue Tractor Group, LLC,
dated October 31, 2017, available at https://
www.sec.gov/comments/sr-nyseArca-2017-36/
nysearca201736-2659706-161420.pdf.
VerDate Sep<11>2014
18:28 May 24, 2018
Jkt 241001
• Funds can be reverse engineered to
determine the composition of the
portfolio securities, which will make the
Funds susceptible to front-running;
• The proposed fund structure will
result in asymmetric disclosure of
confidential portfolio information to
selected parties;
• Details regarding the VIIV
generation process, as well as
calculation engine verification
procedures, are inadequate for market
participants and market makers;
• One second dissemination of VIIVs
in a high frequency trading environment
is inadequate for authorized participants
and market makers and not of value to
retail investors; and
• Requiring AP Representatives to
obfuscate trades for creation and
redemption purposes in an effort to
keep portfolio composition confidential
will delay execution and increase costs
for authorized participants.
D. Blue Tractor Letter III.33 The
commenter reiterates that the Funds
will be susceptible to reverse
engineering resulting in predatory frontrunning, and will not have efficient
primary and secondary market trading.
The commenter again requests that the
Commission include in its deliberation
the comment letters it submitted on the
Prior Proposal.
III. Proceedings To Determine Whether
To Approve or Disapprove SR–
CboeBZX–2018–010 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act 34 to
determine whether the proposed rule
change should be approved or
disapproved. Institution of such
proceedings is appropriate at this time
in view of the legal and policy issues
raised by the proposed rule change.
Institution of proceedings does not
indicate that the Commission has
reached any conclusions with respect to
any of the issues involved. Rather, as
described below, the Commission seeks
and encourages interested persons to
provide comments on the proposed rule
change.
Pursuant to Section 19(b)(2)(B) of the
Exchange Act,35 the Commission is
providing notice of the grounds for
disapproval under consideration. The
Commission is instituting proceedings
to allow for additional analysis of the
proposed rule change’s consistency with
33 The Blue Tractor Letter III is available at
https://www.sec.gov/comments/sr-cboebzx-2018010/cboebzx2018010-3604029-162352.pdf.
34 15 U.S.C. 78s(b)(2)(B).
35 Id.
PO 00000
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Fmt 4703
Sfmt 4703
24371
Section 6(b)(5) of the Exchange Act,
which requires, among other things, that
the rules of a national securities
exchange be ‘‘designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, . . . to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.’’ 36
IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the
Exchange Act, or the rules and
regulations thereunder. Although there
do not appear to be any issues relevant
to approval or disapproval that would
be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4 under the Exchange Act,37
any request for an opportunity to make
an oral presentation.38
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by June 15, 2018. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by June 29, 2018.
The Commission asks that
commenters address the sufficiency of
the Exchange’s statements in support of
the proposal, which are set forth in the
Notice,39 the issues raised by the
commenters, and any other issues raised
by the proposed rule change under the
Exchange Act. In particular, the
Commission seeks commenters’ views
regarding the concerns raised with
respect to selective disclosure of
confidential portfolio information,
36 15
U.S.C. 78f(b)(5).
CFR 240.19b–4.
38 Section 19(b)(2) of the Exchange Act, as
amended by the Securities Acts Amendments of
1975, Public Law 94–29 (June 4, 1975), grants the
Commission flexibility to determine what type of
proceeding—either oral or notice and opportunity
for written comments—is appropriate for
consideration of a particular proposal by a selfregulatory organization. See Securities Acts
Amendments of 1975, Senate Comm. on Banking,
Housing & Urban Affairs, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
39 See supra note 3.
37 17
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Federal Register / Vol. 83, No. 102 / Friday, May 25, 2018 / Notices
namely, whether such disclosure is
consistent with the requirement of
Section 6(b)(5) that the rules of the
exchange be designed to prevent
fraudulent and manipulative acts and
practices. The Commission also seeks
commenters’ views regarding the
various concerns raised about how the
Shares may trade in the secondary
market, including the calculation engine
verification and trading halt procedures
and the potential for poor trading
performance during times of market
stress and volatility. In this regard, the
Commission specifically seeks
commenters’ views on whether the
proposal is consistent with the
maintenance of a fair and orderly
market.
Comments may be submitted by any
of the following methods:
amozie on DSK3GDR082PROD with NOTICES1
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–2018–010 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–2018–010. 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
VerDate Sep<11>2014
18:28 May 24, 2018
Jkt 241001
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2018–010 and
should be submitted by June 15, 2018.
Rebuttal comments should be submitted
by June 29, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–11223 Filed 5–24–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83292; File No. SR–CBOE–
2018–040]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 5.3,
Criteria for Underlying Securities
May 21, 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 May 7,
2018, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Exchange filed the proposal as a
‘‘non-controversial’’ proposed rule
change pursuant to Section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 5.3, Interpretation and Policy .01.
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Cboe Exchange, Inc.
Rules
*
*
*
*
*
40 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
PO 00000
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Fmt 4703
Sfmt 4703
Rule 5.3. Criteria for Underlying
Securities
(a)–(b) (No change).
. . . Interpretations and Policies:
.01 The Board of Directors has
established guidelines to be considered
by the Exchange in evaluating potential
underlying securities for Exchange
option transactions. Absent exceptional
circumstances with respect to
Paragraphs (a)(1) or (2), or (b)(1) or (2)
listed below, at the time the Exchange
selects an underlying security for
Exchange option transactions, the
following guidelines with respect to the
issuer shall be met.
(a) (No change).
(b) Guidelines applicable to the
market for the security are:
(1) (No change).
(2)
(A) If the underlying security is a
‘‘covered security’’ as defined under
Section 18(b)(1)(A) of the Securities Act
of 1933, the market price per share of
the underlying security has been at least
$3.00 for the previous [five]three
consecutive business days preceding the
date on which the Exchange submits a
certificate to the Options Clearing
Corporation for listing and trading. For
purposes of this Interpretation
.01(b)(2)(A), the market price of such
underlying security is measured by the
closing price reported in the primary
market in which the underlying security
is traded.
(B) (No change).
(c) (No change).
.02–.13 (No change).
*
*
*
*
*
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/About
CBOE/CBOELegalRegulatory
Home.aspx), at the Exchange’s Office of
the Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
E:\FR\FM\25MYN1.SGM
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]]>Agencies
[Federal Register Volume 83, Number 102 (Friday, May 25, 2018)]
[Notices]
[Pages 24367-24372]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-11223]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83293; File No. SR-CboeBZX-2018-010]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Adopt BZX Rule 14.11(k) To Permit the Listing
and Trading of Managed Portfolio Shares and To List and Trade Shares of
the ClearBridge Appreciation ETF, ClearBridge Large Cap ETF,
ClearBridge Mid Cap Growth ETF, ClearBridge Select ETF, and ClearBridge
All Cap Value ETF
May 21, 2018.
On February 5, 2018, Cboe BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt BZX Rule 14.11(k) to
permit the listing and trading of Managed Portfolio Shares, and to list
and trade shares (``Shares'') of the ClearBridge Appreciation ETF,
ClearBridge Large Cap ETF, ClearBridge Mid Cap Growth ETF, ClearBridge
Select ETF, and ClearBridge All Cap Value ETF under proposed BZX Rule
14.11(k). The proposed rule change was published for comment in the
Federal Register on February 20, 2018.\3\ On April 3, 2018, pursuant to
Section 19(b)(2) of the Exchange Act,\4\ the Commission designated a
longer period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change.\5\ The
Commission has received four comment letters on the proposed rule
change.\6\ This order institutes proceedings under Section 19(b)(2)(B)
of the Exchange Act \7\ to determine whether to approve or disapprove
the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 82705 (February 13,
2018), 83 FR 7256 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 82984, 83 FR 15181
(April 9, 2018). The Commission designated May 21, 2018, as the date
by which the Commission shall approve or disapprove, or institute
proceedings to determine whether to disapprove, the proposed rule
change.
\6\ See letters to Brent J. Fields, Secretary, Commission, from:
(1) Todd J. Broms, Chief Executive Officer, Broms & Company LLC,
dated March 13, 2018 (``Broms Letter''); (2) Simon P. Goulet, Co-
Founder, Blue Tractor Group, LLC, dated March 19, 2018 (``Blue
Tractor Letter I''); (3) Terence W. Norman, Founder, Blue Tractor
Group, LLC, dated March 20, 2018 (``Blue Tractor Letter II''); and
(4) Terence W. Norman, Founder, Blue Tractor Group, LLC, dated May
8, 2018 (``Blue Tractor Letter III''). The comment letters are
available at https://www.sec.gov/comments/sr-cboebzx-2018-010/cboebzx2018010.htm.
\7\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
I. Summary of the Exchange's Description of the Proposed Rule Change 8
---------------------------------------------------------------------------
\8\ For a complete description of the Exchange's proposal,
including a description of the Precidian ETF Trust II (``Trust''),
see Notice, supra note 3.
---------------------------------------------------------------------------
The Exchange proposes to adopt BZX Rule 14.11(k), which would
govern the listing and trading of Managed Portfolio Shares.\9\ The
Exchange also proposes to list and trade Shares of the ClearBridge
Appreciation ETF, ClearBridge Large Cap ETF, ClearBridge Mid Cap Growth
ETF, ClearBridge Select ETF, and ClearBridge All Cap Value ETF under
proposed BZX Rule 14.11(k) (each a ``Fund,'' and collectively the
``Funds'').
---------------------------------------------------------------------------
\9\ Proposed BZX Rule 14.11(k)(3)(A) defines the term ``Managed
Portfolio Share'' as a security that (a) represents an interest in a
registered investment company (``Investment Company'') organized as
an open-end management investment company or similar entity, that
invests in a portfolio of securities selected by the Investment
Company's investment adviser consistent with the Investment
Company's investment objectives and policies; (b) is issued in a
specified aggregate minimum number of shares equal to a Creation
Unit (as defined in proposed BZX Rule 14.11(k)(3)(C)), or multiples
thereof, in return for a designated portfolio of securities (and/or
an amount of cash) with a value equal to the next determined net
asset value (``NAV''); and (c) when aggregated in the same specified
aggregate number of shares equal to a Redemption Unit (as defined in
proposed BZX Rule 14.11(k)(3)(D)), or multiples thereof, may be
redeemed at the request of an authorized participant, which
authorized participant will be paid through a confidential account
established for its benefit (``Confidential Account'') a portfolio
of securities and/or cash with a value equal to the next determined
NAV.
---------------------------------------------------------------------------
A. Description of the Funds
The portfolio for each Fund will consist primarily of long and/or
short positions in U.S. exchange-listed securities and shares issued by
other U.S. exchange-listed exchange-traded funds (``ETFs'').\10\ All
exchange-listed equity securities in which the Funds will invest will
be listed and traded on U.S. national securities exchanges.
---------------------------------------------------------------------------
\10\ The Exchange represents that, for purposes of describing
the holdings of the Funds, ETFs include Portfolio Depository
Receipts (as described in BZX Rule 14.11(b)); Index Fund Shares (as
described in BZX Rule 14.11(c)); and Managed Fund Shares (as
described in BZX Rule 14.11(i)). The ETFs in which a Fund will
invest all will be listed and traded on national securities
exchanges. While the Funds may invest in inverse ETFs, the Funds
will not invest in leveraged (e.g., 2X, -2X, 3X, or -3X) ETFs.
---------------------------------------------------------------------------
1. ClearBridge Appreciation ETF
The ClearBridge Appreciation ETF will seek to provide long-term
appreciation of shareholders' capital.
[[Page 24368]]
The Fund will seek to achieve its investment objective by investing
primarily in U.S. exchange-listed equity securities. The Fund will
typically invest in medium and large capitalization companies, but may
also invest in small capitalization companies.
2. ClearBridge Large Cap ETF
The ClearBridge Large Cap ETF will seek long-term capital
appreciation. The Fund will seek to achieve its investment objective by
taking long and possibly short positions in equity securities or groups
of equities that the portfolio managers believe will provide long term
capital appreciation. The Fund will normally invest at least 80% of its
net assets (plus borrowings for investment purposes) in stocks included
in the Russell 1000 Index and ETFs that primarily invest in stocks in
the Russell 1000 Index. The Fund will purchase securities that
ClearBridge Investments, LLC (``Sub-Adviser'') believes are
undervalued, and sell short securities that it believes are overvalued.
3. ClearBridge Mid Cap Growth ETF
The ClearBridge Mid Cap Growth ETF will seek long-term growth of
capital. The Fund will seek to achieve its investment objective by
investing primarily in U.S. exchange-listed, publicly traded equity and
equity-related securities of U.S. companies or other instruments with
similar economic characteristics. The Fund may invest in securities of
issuers of any market capitalization.
4. ClearBridge Select ETF
The ClearBridge Select ETF will seek to provide long-term growth of
capital. The Fund will seek to achieve its investment objective by
investing primarily in U.S. exchange-listed, publicly traded equity and
equity-related securities of U.S. companies or other instruments with
similar economic characteristics. The Fund may invest in securities of
issuers of any market capitalization.
5. ClearBridge All Cap Value ETF
The ClearBridge All Cap Value ETF will seek long-term capital
growth with current income as a secondary consideration. The Fund will
seek to achieve its investment objective by investing primarily in
common stocks and common stock equivalents, such as preferred stocks
and securities convertible into common stocks, of companies the Sub-
Adviser believes are undervalued in the marketplace. The Fund may
invest up to 25% of its net assets in equity securities of foreign
issuers through U.S. exchange-listed depositary receipts.
6. Other Investments
While each Fund, under normal market conditions,\11\ will invest
primarily in U.S. exchange-listed securities, as described above, each
Fund may invest its remaining assets in other securities and financial
instruments, as described below.
---------------------------------------------------------------------------
\11\ Proposed BZX Rule 14.11(k)(3)(F) defines the term ``normal
market conditions'' as including, but not limited to, the absence of
trading halts in the applicable financial markets generally;
operational issues (e.g., systems failure) causing dissemination of
inaccurate market information; 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.
---------------------------------------------------------------------------
Each Fund may enter into repurchase agreements. It will be the
policy of the Trust to enter into repurchase agreements only with
recognized securities dealers, banks, and the Fixed Income Clearing
Corporation, a securities clearing agency registered with the
Commission.
Each Fund may invest up to 5% of its total assets in warrants,
rights, and options.
Each Fund may invest a portion of its assets in cash or cash
equivalents.\12\
---------------------------------------------------------------------------
\12\ For purposes of this filing, cash equivalents include
short-term instruments (instruments with maturities of less than 3
months) of the following types: (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.
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Each Fund may invest in the securities of other investment
companies (including money market funds) to the extent allowed by law.
7. Investment Restrictions
Each Fund may invest up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),\13\
consistent with Commission guidance. Each Fund will monitor its
portfolio liquidity on an ongoing basis to determine whether, in light
of current circumstances, an adequate level of liquidity is being
maintained, and will consider taking appropriate steps in order to
maintain adequate liquidity if, through a change in values, net assets,
or other circumstances, more than 15% of the Fund's net assets are
invested in illiquid assets. Illiquid assets include securities subject
to contractual or other restrictions on resale and other instruments
that lack readily available markets as determined in accordance with
Commission staff guidance.
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\13\ In reaching liquidity decisions, the Adviser may consider
the following factors: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer).
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Each Fund will seek to qualify for treatment as a Regulated
Investment Company under the Internal Revenue Code.\14\
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\14\ 26 U.S.C. 851.
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The Funds will not invest in securities listed on non-U.S.
exchanges. The Funds also will not invest in futures, forwards, or
swaps.
Each Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage. While a Fund may
invest in inverse ETFs, a Fund will not invest in leveraged (e.g., 2X,
-2X, 3X, or -3X) ETFs.
B. Key Features of Managed Portfolio Shares
According to the Exchange, while funds issuing Managed Portfolio
Shares would be actively-managed, and in that respect would be similar
to Managed Fund Shares,\15\ Managed Portfolio Shares would differ from
Managed Fund Shares in the following respects:
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\15\ Managed Fund Shares are shares of actively-managed funds
listed and traded under BZX Rule 14.11(i).
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First, issues of Managed Fund Shares are required to
disseminate their ``Disclosed Portfolio'' at least once daily.\16\ By
contrast, the portfolio for an issue of Managed Portfolio Shares would
be disclosed only quarterly.
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\16\ BZX Rule 14.11(i)(3)(B) defines the term ``Disclosed
Portfolio'' as the identities and quantities of the securities and
other assets held by the Investment Company that will form the basis
for the Investment Company's calculation of NAV at the end of the
business day. BZX Rule 14.11(i)(4)(B)(ii)(a) requires that, for
Managed Fund Shares, the Disclosed Portfolio be disseminated at
least once daily and be made available to all market participants at
the same time.
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Second, in connection with the creation of shares in
Creation Unit size or the redemption of shares in Redemption Unit size,
the delivery or receipt of any portfolio securities in kind would be
effected through an agent (``AP Representative'') in a Confidential
Account established for the benefit of the creating or redeeming
authorized participant without disclosing the
[[Page 24369]]
identity of the securities to the authorized participant.
Third, for each series of Managed Portfolio Shares, a
Verified Intraday Indicative Value (``VIIV'') would be widely
disseminated by the Reporting Authority (as defined in proposed BZX
Rule 14.11(k)(3)(E)) and/or by one or more major market data vendors
every second during the Exchange's Regular Trading Hours (between 9:30
a.m. and 4:00 p.m. Eastern Time).\17\ The Exchange states that the
dissemination of the VIIV will allow investors to determine the
estimated intraday value of the underlying portfolio of a series of
Managed Portfolio Shares and will provide a close estimate of that
value throughout the trading day.\18\
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\17\ Proposed BZX Rule 14.11(k)(3)(B) defines the VIIV as the
estimated indicative value of a Managed Portfolio Share based on all
of the holdings of a series of Managed Portfolio Shares as of the
close of business on the prior business day, and, for corporate
actions, based on the applicable holdings as of the opening of
business on the current business day, priced and disseminated in one
second intervals during Regular Trading Hours.
\18\ According to the Exchange, the VIIV should not be viewed as
a ``real-time'' update of the NAV, because the VIIV may not be
calculated in the same manner as the NAV, which will be computed
once a day.
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C. Arbitrage of Managed Portfolio Shares
The Exchange asserts that market makers will be able to make
efficient and liquid markets in the Shares priced near the VIIV as long
as the VIIV is disseminated every second and market makers employ
market making techniques such as ``statistical arbitrage,'' including
correlation hedging, beta hedging, and dispersion trading, which the
Exchange represents is currently used throughout the financial services
industry, to make efficient markets in exchange-traded products.\19\
According to the Exchange, if an authorized participant believes that
the Shares are trading at a price that is higher than the value of the
underlying portfolio--for example, if the market price for the Shares
is higher than the VIIV--then the authorized participant may sell the
Shares short and purchase securities that the authorized participant
believes will track the movements of the Shares. When the spread
narrows, the authorized participant would execute offsetting orders or
enter an order with its AP Representative to create Shares. According
to the Exchange, the AP Representative's execution of a Creation Unit
in a Confidential Account, combined with the sale of the Shares, may
create downward pressure on the price of the Shares and/or upward
pressure on the price of the portfolio securities, bringing the market
price of the Shares and the value of a Fund's portfolio securities
closer together.
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\19\ According to the Exchange, statistical arbitrage enables a
trader to construct an accurate proxy for another instrument,
allowing it to hedge the other instrument or buy or sell the
instrument when it is cheap or expensive in relation to the proxy.
The Exchange states that statistical analysis permits traders to
discover correlations, based purely on trading data without regard
to other fundamental drivers. The Exchange also states that these
correlations are a function of differentials, over time, between one
instrument or group of instruments and one or more other
instruments, and that once the nature of these price deviations have
been quantified, a universe of securities is searched in an effort
to, in the case of a hedging strategy, minimize the differential. In
addition, the Exchange states that, once a suitable hedging proxy
has been identified, a trader can minimize portfolio risk by
executing the hedging basket. According to the Exchange, the trader
then can monitor the performance of this hedge throughout the trade
period, making correction where warranted. The Exchange states that,
in the case of correlation hedging, the analysis seeks to find a
proxy that matches the pricing behavior of a Fund, and that in the
case of beta hedging, the analysis seeks to determine the
relationship between the price movement over time of a Fund and that
of another stock.
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Similarly, according to the Exchange, an authorized participant
could buy the Shares and instruct the AP Representative to redeem them
and then sell the underlying portfolio securities from its Confidential
Account when the Shares trade at a discount to the portfolio
securities. According to the Exchange, the authorized participant's
purchase of the Shares in the secondary market, combined with the sale
of the portfolio securities from its Confidential Account, may create
upward pressure on the price of the Shares and/or downward pressure on
the price of portfolio securities, driving the market price of the
Shares and the value of a Fund's portfolio securities closer together.
The Exchange states that, according to Precidian Funds LLC, the
investment adviser to the Trust (``Adviser''), this process is
identical to how many authorized participants currently arbitrage
existing traditional ETFs, except for the use of the Confidential
Account.
D. The Creation and Redemption Procedures
The Exchange states that, generally, the Shares will be purchased
and redeemed on an in-kind basis, so that, except where the purchase or
redemption would include cash under the circumstances described in the
applicable Fund's registration statement, purchasers will be required
to purchase Creation Units by making an in-kind deposit of specified
instruments (``Deposit Instruments''), and shareholders redeeming their
Shares will receive an in-kind transfer of specified instruments
(``Redemption Instruments'') in their Confidential Account through an
AP Representative. On any given business day, the names and quantities
of the instruments that constitute the Deposit Instruments and the
names and quantities of the instruments that constitute the Redemption
Instruments will be identical, and these instruments may be referred
to, in the case of either a purchase or redemption, as the ``Creation
Basket.''
In the case of a redemption, the authorized participant will enter
into an irrevocable redemption order and then immediately instruct the
AP Representative to sell the underlying basket of securities that it
will receive in the redemption. After receipt of a redemption order, a
Fund's custodian (``Custodian'') will typically deliver securities to
the Confidential Account on a pro rata basis with a value approximately
equal to the value of the Shares tendered for redemption at the order
cut-off time established by the Fund. The Custodian will make delivery
of the securities by appropriate entries on its books and records,
transferring ownership of the securities to the authorized
participant's Confidential Account, subject to delivery of the Shares
redeemed. The AP Representative will in turn liquidate the securities
based on instructions from the authorized participant.\20\ The AP
Representative will pay the liquidation proceeds net of expenses, plus
or minus any cash balancing amount, to the authorized participant
through the Depository Trust Company.\21\ The redemption securities
that the Confidential Account receives are expected to mirror the
portfolio holdings of a Fund pro rata.
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\20\ The Exchange represents that an authorized participant will
issue execution instructions to the AP Representative and be
responsible for all associated profit or losses. Like a traditional
ETF, the authorized participant has the ability to sell the basket
securities at any point during normal trading hours.
\21\ According to the Exchange, under applicable provisions of
the Internal Revenue Code, the authorized participant is expected to
be deemed a ``substantial owner'' of the Confidential Account
because it receives distributions from the Confidential Account. As
a result, the Exchange states, all income, gain, or loss realized by
the Confidential Account will be directly attributed to the
authorized participant. The Exchange also states that, in a
redemption, the authorized participant will have a basis in the
distributed securities equal to the fair market value at the time of
the distribution, and any gain or loss realized on the sale of those
Shares will be taxable income to the authorized participant.
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In the case of a creation, the authorized participant will enter
into an
[[Page 24370]]
irrevocable creation order with the Fund and then direct the AP
Representative to purchase the necessary basket of portfolio
securities. The AP Representative will then purchase the necessary
securities in the Confidential Account. Once the necessary basket of
securities has been acquired, the purchased securities held in the
Confidential Account will be contributed in-kind to the Fund.
The Exchange states that, in purchasing the necessary securities
for creation purposes, and, conversely, in selling the portfolio
securities for redemption purposes, the AP Representative will be
required, by the terms of the Confidential Account agreement, to
obfuscate the trades by use of tactics such as breaking the trades into
multiple purchases or sales and transacting in multiple marketplaces.
E. Availability of Information
Each Fund will be required to file with the Commission its complete
portfolio schedules for the second and fourth fiscal quarters on Form
N-CSR under the Investment Company Act of 1940 (``1940 Act''), and to
file its complete portfolio schedules for the first and third fiscal
quarters on Form N-Q under the 1940 Act, within 60 days of the end of
the quarter. Form N-Q requires funds to file the same schedules of
investments that are required in annual and semi-annual reports to
shareholders. The Trust's SAI and each Fund's shareholder reports will
be available free upon request from the Trust. These documents and
forms may be viewed on-screen or downloaded from the Commission's
website at www.sec.gov.
In addition, the VIIV will be widely disseminated by the Reporting
Authority and/or one or more major market data vendors every second
during the Exchange's Regular Trading Hours. According to the Exchange,
the VIIV will include all accrued income and expenses of a Fund, and
any extraordinary expenses booked during the day that would be taken
into account in calculating the Fund's NAV will also be taken into
account in calculating the VIIV.
For purposes of the VIIV, securities held by a Fund will be valued
throughout the day based on the mid-point between the disseminated
current national best bid and offer.\22\ According to the Exchange, by
utilizing mid-point pricing for purposes of VIIV calculation, stale
prices are eliminated and a more accurate representation of the real-
time value of the underlying securities is provided to the market.
Specifically, according to the Exchange, quotations based on the mid-
point of bid/ask spreads more accurately reflect current market
sentiment by providing real time information on where market
participants are willing to buy or sell securities at that point in
time. The Exchange also believes that the use of quotations will dampen
the impact of any momentary spikes in the price of a portfolio
security.
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\22\ If the Adviser determines that the mid-point of the bid/ask
spread is inaccurate, a Fund will use fair value pricing.
---------------------------------------------------------------------------
According to the Exchange, each Fund will utilize two separate
pricing feeds to provide two separate sources of pricing information.
Each Fund will also utilize a ``Pricing Verification Agent'' and
establish a computer-based protocol that will permit the Pricing
Verification Agent to continuously compare the multiple intraday
indicative values on a real time basis.\23\ A single VIIV will be
disseminated publicly for each Fund; however, the Pricing Verification
Agent will continuously compare the public VIIV against a non-public
alternative intraday indicative value to which the Pricing Verification
Agent has access. Upon notification to the Exchange by the issuer of a
series of Managed Portfolio Shares, or its agent, that the public VIIV
and non-public alternative intraday indicative value differ by more
than 25 basis points for 60 seconds, the Exchange will halt trading as
soon as practicable in the Shares until the discrepancy is
resolved.\24\ Each Fund's board of directors will review the procedures
used to calculate the VIIV and maintain its accuracy as appropriate,
but not less than annually. The specific methodology for calculating
the VIIV will be disclosed on each Fund's website.
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\23\ The Exchange states that a Fund's Custodian will provide,
on a daily basis, the identities and quantities of portfolio
securities that will form the basis for a Fund's calculation of NAV
at the end of the business day, plus any cash in the portfolio, to
the Pricing Verification Agent for purposes of pricing. According to
the Exchange, the Pricing Verification Agent will utilize at least
two separate calculation engines to calculate intraday indicative
values, based on the mid-point between the disseminated current
national best bid and offer, to provide the real-time value on a per
Share basis of each Fund's holdings every second during Regular
Trading Hours.
\24\ According to the Exchange, a continuous deviation for 60
seconds could indicate an error in the feed or in a calculation
engine used to calculate the intraday indicative values. The
Exchange states that the Trust reserves the right to change these
thresholds to the extent deemed appropriate and approved by a Fund's
board of directors.
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F. Surveillance
The Exchange represents that trading in the Shares will be subject
to the Exchange's surveillance procedures for derivative products. The
Exchange represents that these procedures are adequate to properly
monitor Exchange trading of the Shares in all trading sessions and to
deter and detect violations of Exchange rules and applicable federal
securities laws.\25\
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\25\ The Exchange represents that the Exchange or the Financial
Industry Regulatory Authority (``FINRA''), on behalf of the
Exchange, or both, will communicate as needed regarding trading in
the Shares, underlying stocks, ETFs, and exchange-listed options
with other markets and other entities that are members of the
Intermarket Surveillance Group (``ISG''), and the Exchange or FINRA,
on behalf of the Exchange, or both, may obtain trading information
regarding such securities from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in
the Shares, underlying stocks, ETFs, and exchange-listed options
from markets and other entities that are members of ISG or with
which the Exchange has in place a comprehensive surveillance sharing
agreement.
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The Exchange represents that the Adviser will make available daily
to FINRA and the Exchange the portfolio holdings of each Fund in order
to facilitate the performance of the surveillances. In addition, the
Exchange states that it has a general policy prohibiting the
distribution of material, non-public information by its employees.
II. Summary of Comment Letters
The Commission has received four comment letters on the proposed
rule change, each of which expresses opposition to the proposed rule
change.\26\ As of the date of this order instituting proceedings, the
Exchange has not submitted a response to the comments.
---------------------------------------------------------------------------
\26\ See supra note 6.
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A. Broms Letter.\27\ The commenter opposes the proposed rule change
and raises the following concerns: \28\
---------------------------------------------------------------------------
\27\ The Broms Letter is available at https://www.sec.gov/comments/sr-cboebzx-2018-010/cboebzx2018010-3254113-162031.pdf.
\28\ The commenter also generally references concerns that it
raised in its comment letter related to a similar, previous proposal
filed by the Exchange to list and trade Managed Portfolio Shares,
which the Exchange withdrew. See Securities Exchange Act Release No.
80911 (June 13, 2017), 82 FR 27925 (June 19, 2017) (SR-BatsBZX-2017-
30) (``Prior Proposal''); and letter to Brent J. Fields, Secretary,
Commission, from Todd J. Broms, Chief Executive Officer, Broms &
Company LLC, dated July 10, 2017, available at https://www.sec.gov/comments/sr-batsbzx-2017-30/batsbzx201730-1842158-155104.pdf.
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Selective disclosure of confidential portfolio information
to AP Representatives for trading on behalf of authorized participants
violates federal securities law and facilitates illegal insider
trading;
The portfolio holdings can be reverse engineered,
resulting in harm to the Funds' shareholders;
[[Page 24371]]
The Funds would serve no useful public purpose without
clear protections against reverse engineering and every other plausible
means by which confidential portfolio holdings information could be
used by other market participants to harm the Funds' shareholders; and
Authorized participants and other market makers cannot
engage in bona fide arbitrage, and the Shares will not trade
efficiently without an effective arbitrage mechanism, with particularly
poor trading performance to be expected during periods of market stress
and volatility.
B. Blue Tractor Letter I.\29\ The commenter opposes the proposed
rule change and expresses concern that the Funds can be reverse
engineered to determine their composition and trading strategies, and
that ``predatory traders'' can use such information in order to front
run the Funds.
---------------------------------------------------------------------------
\29\ The Blue Tractor Letter I is available at https://www.sec.gov/comments/sr-cboebzx-2018-010/cboebzx2018010-3287448-162066.pdf.
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C. Blue Tractor Letter II.\30\ The commenter opposes the proposed
rule change and raises the following concerns: \31\
---------------------------------------------------------------------------
\30\ The Blue Tractor Letter II is available at https://www.sec.gov/comments/sr-cboebzx-2018-010/cboebzx2018010-3294085-162071.pdf.
\31\ Although the commenter purports to comment on the Notice,
the comments are more directly related to the Trust's December 4,
2017, exemptive application. See Fifth Amended and Restated
Application for an Order under Section 6(c) of the 1940 Act for
exemptions from various provisions of the 1940 Act and rules
thereunder (File No. 812-14405), dated December 4, 2017. The
commenter also references concerns that it raised in its comment
letters related to the Prior Proposal. See letters to Brent J.
Fields, Secretary, Commission, from Terence W. Norman, Founder, Blue
Tractor Group, LLC, dated August 1, 2017, available at https://www.sec.gov/comments/sr-batsbzx-2017-30/batsbzx201730-2161995-157800.pdf and Terence W. Norman, Founder, Blue Tractor Group, LLC,
dated December 5, 2017, available at https://www.sec.gov/comments/sr-batsbzx-2017-30/batsbzx201730-2755179-161594.pdf.
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Under the proposal, market participants will not be able
to engage in bona fide arbitrage or efficient statistical arbitrage to
keep the price of Shares close to a Fund's NAV; \32\
---------------------------------------------------------------------------
\32\ The commenter also notes that market makers will not be
able to construct optimized tracking portfolios using the proposed
fund structure and cites to comment letters that it submitted in
response to a proposal filed by NYSE Arca, Inc. to list and trade
Managed Portfolio Shares, which was withdrawn. See Securities
Exchange Act Release No. 80553 (April 28, 2017), 82 FR 20932 (May 4,
2017) (SR-NYSEArca-2017-36); and letters to Brent J. Fields,
Secretary, Commission, from Simon P. Goulet, Co-Founder, Blue
Tractor Group, LLC, dated November 22, 2017, available at https://www.sec.gov/comments/sr-nyseArca-2017-36/nysearca201736-2735961-161533.pdf and Terence W. Norman, Founder, Blue Tractor Group, LLC,
dated October 31, 2017, available at https://www.sec.gov/comments/sr-nyseArca-2017-36/nysearca201736-2659706-161420.pdf.
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Funds can be reverse engineered to determine the
composition of the portfolio securities, which will make the Funds
susceptible to front-running;
The proposed fund structure will result in asymmetric
disclosure of confidential portfolio information to selected parties;
Details regarding the VIIV generation process, as well as
calculation engine verification procedures, are inadequate for market
participants and market makers;
One second dissemination of VIIVs in a high frequency
trading environment is inadequate for authorized participants and
market makers and not of value to retail investors; and
Requiring AP Representatives to obfuscate trades for
creation and redemption purposes in an effort to keep portfolio
composition confidential will delay execution and increase costs for
authorized participants.
D. Blue Tractor Letter III.\33\ The commenter reiterates that the
Funds will be susceptible to reverse engineering resulting in predatory
front-running, and will not have efficient primary and secondary market
trading. The commenter again requests that the Commission include in
its deliberation the comment letters it submitted on the Prior
Proposal.
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\33\ The Blue Tractor Letter III is available at https://www.sec.gov/comments/sr-cboebzx-2018-010/cboebzx2018010-3604029-162352.pdf.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2018-010 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \34\ to determine whether the proposed
rule change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Exchange Act,\35\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of the proposed rule change's consistency with
Section 6(b)(5) of the Exchange Act, which requires, among other
things, that the rules of a national securities exchange be ``designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, . . . to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest.'' \36\
---------------------------------------------------------------------------
\35\ Id.
\36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Exchange
Act, or the rules and regulations thereunder. Although there do not
appear to be any issues relevant to approval or disapproval that would
be facilitated by an oral presentation of views, data, and arguments,
the Commission will consider, pursuant to Rule 19b-4 under the Exchange
Act,\37\ any request for an opportunity to make an oral
presentation.\38\
---------------------------------------------------------------------------
\37\ 17 CFR 240.19b-4.
\38\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Acts Amendments of 1975, Public Law 94-29 (June 4, 1975),
grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Acts Amendments of
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by June 15, 2018. Any person who wishes to file a rebuttal
to any other person's submission must file that rebuttal by June 29,
2018.
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in the Notice,\39\ the issues raised by the commenters, and any other
issues raised by the proposed rule change under the Exchange Act. In
particular, the Commission seeks commenters' views regarding the
concerns raised with respect to selective disclosure of confidential
portfolio information,
[[Page 24372]]
namely, whether such disclosure is consistent with the requirement of
Section 6(b)(5) that the rules of the exchange be designed to prevent
fraudulent and manipulative acts and practices. The Commission also
seeks commenters' views regarding the various concerns raised about how
the Shares may trade in the secondary market, including the calculation
engine verification and trading halt procedures and the potential for
poor trading performance during times of market stress and volatility.
In this regard, the Commission specifically seeks commenters' views on
whether the proposal is consistent with the maintenance of a fair and
orderly market.
---------------------------------------------------------------------------
\39\ See supra note 3.
---------------------------------------------------------------------------
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-2018-010 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-2018-010. 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-2018-010 and should be submitted
by June 15, 2018. Rebuttal comments should be submitted by June 29,
2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
---------------------------------------------------------------------------
\40\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-11223 Filed 5-24-18; 8:45 am]
BILLING CODE 8011-01-P
