Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade Shares of the Principal Morley Short Duration Index ETF Under Rule 14.11(c)(4), 39486-39488 [2018-17008]

Download as PDF sradovich on DSK3GMQ082PROD with NOTICES 39486 Federal Register / Vol. 83, No. 154 / Thursday, August 9, 2018 / Notices in 2010 in connection with rule 206(4)– 5, specify that solicitation activities involving a government entity, as defined in rule 206(4)–5, are subject to the additional limitations of rule 206(4)–5. The information rule 206(4)– 3 requires is necessary to inform advisory clients about the nature of the solicitor’s financial interest in the recommendation so the prospective clients may consider the solicitor’s potential bias, and to protect clients against solicitation activities being carried out in a manner inconsistent with the adviser’s fiduciary duty to clients. Rule 206(4)–3 is applicable to all Commission registered investment advisers. The Commission believes that approximately 4,395 of these advisers have cash referral fee arrangements. The rule requires approximately 7.04 burden hours per year per adviser and results in a total of approximately 30,941 total burden hours (7.04 × 4,395) for all advisers. The disclosure requirements of rule 206(4)–3 do not require recordkeeping or record retention. The collections of information requirements under the rules are mandatory. Information subject to the disclosure requirements of rule 206(4)–3 is not submitted to the Commission. The disclosures pursuant to the rule are not kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The public may view the background documentation for this information collection at the following website, www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: Shagufta_ Ahmed@omb.eop.gov; and (ii) Pamela Dyson, Director/Chief Information Officer, Securities and Exchange Commission, c/o Candace Kenner, 100 F Street NE, Washington, DC 20549 or send an email to: PRA_Mailbox@ sec.gov. Comments must be submitted to OMB within 30 days of this notice. Dated: August 3, 2018. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–17000 Filed 8–8–18; 8:45 am] BILLING CODE 8011–01–P VerDate Sep<11>2014 18:11 Aug 08, 2018 Jkt 244001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83775; File No. SR– CboeBZX–2018–018] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade Shares of the Principal Morley Short Duration Index ETF Under Rule 14.11(c)(4) August 3, 2018. I. Introduction On April 23, 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 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of the Principal Morley Short Duration Index ETF (‘‘Fund’’). The proposed rule change was published for comment in the Federal Register on May 8, 2018.3 On June 20, 2018, 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 approve or disapprove the proposed rule change.4 The Commission has received no comment letters on the proposed rule change. This order institutes proceedings under Section 19(b)(2)(B) of the Act 5 to determine whether to approve or disapprove the proposed rule change. II. Description of the Proposed Rule Change The Exchange proposes to list and trade the Shares pursuant to BZX Rule 14.11(c)(4), which governs the listing and trading of index fund shares based on fixed income securities indexes. The Fund would seek to provide investment results that replicate, before expenses, the performance of The ICE BofA Merrill Lynch Low Duration U.S. ABS & CMBS Equal Par Index (‘‘Index’’).6 1 15 U.S.C.78s(b)(1). CFR 240.19b–4. Securities Exchange Act Release No. 83152 (May 2, 2018), 83 FR 20892. 4 See Securities Exchange Act Release No. 83479, 83 FR 29838 (June 26, 2018). The Commission designated August 6, 2018 as the date by which the Commission shall approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change. 5 15 U.S.C. 78s(b)(2)(B). 6 The Index value, calculated and disseminated at least once daily, as well as the components of the Index and their percentage weighting, will be available from major market data vendors. 2 17 3 See PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 A. The Exchange’s Description of the Index The Index is designed to provide exposure to investment-grade securitized products issued in the U.S., including ABS 7 and CMBS.8 To qualify for inclusion in the Index, eligible securities must be a component of The ICE BofA Merrill Lynch US ABS & CMBS Index (‘‘Feeder Index’’). Such securities are then selected and weighted based upon the Index methodology discussed below. 1. The Feeder Index’s Methodology In order to be included in the Feeder Index, a security (whether ABS or CMBS) must meet the following criteria (‘‘Basic Criteria’’): • Be rated investment-grade (based on an average of Moody’s, S&P Global, and Fitch); • have a term of at least one year remaining until final stated maturity; and have at least one month to the last expected cash flow; and • inverse floating rate, interest only, and principal only securities are excluded. In addition to the Basic Criteria, an ABS must meet the following criteria: • Must issue a fixed or floating rate coupon; • must have an original deal size for the collateral group 9 of at least $250 million; • must have a current outstanding deal size for the collateral group greater than or equal to 10% of the original deal size; and • a minimum current outstanding tranche size of $50 million for senior tranches and $10 million current amount outstanding for mezzanine and subordinated tranches. In addition to the Basic Criteria, a CMBS (which may include U.S. agency CMBS) must also meet the following criteria: • Must issue a fixed coupon schedule; • must have an original deal size for the collateral group of at least $250 million; • must have a current outstanding deal size for the collateral group that is greater than or equal to 10% of the original deal size; and 7 ‘‘ABS’’ means fixed and floating rate debt securities secured by non-mortgage assets. 8 ‘‘CMBS’’ means fixed rate debt securities secured by first mortgages on commercial real estate. 9 A collateral group describes the assets (receivables) that are held by the special purpose vehicle (‘‘SPV’’) issuing the ABS securities. The collateral group provides the source of payment for the SPV’s liabilities (i.e., ABS securities). Typically, an SPV will include assets greater than its liabilities as a form of credit enhancement. E:\FR\FM\09AUN1.SGM 09AUN1 Federal Register / Vol. 83, No. 154 / Thursday, August 9, 2018 / Notices • must have a minimum outstanding tranche size of $50 million for senior tranches and $10 million for mezzanine and subordinated tranches. 2. The Index’s Methodology Securities in the Feeder Index are screened for inclusion/exclusion in the Index based on the following criteria: • ABS related to home equity and manufactured housing are excluded; • CMBS securities that are rated less than AAA credit quality (based on an average of Moody’s, S&P Global and Fitch) are excluded; • CMBS securities that are issued prior to December 31, 2010 are excluded; and • Securities must have a modified duration to worst that is less than or equal to 5 years for initial inclusion in the Index, although once included, the security remains in the Index provided the remaining criteria are met. The qualifying securities are assigned equal par amounts with a 70% allocation given to ABS securities and a 30% allocation given to CMBS securities. The Index rebalances on a monthly basis. B. The Exchange’s Description of the Fund sradovich on DSK3GMQ082PROD with NOTICES Under Normal Market Conditions,10 the Fund will invest at least 80% of its net assets, plus any borrowings for investment purposes, in ABS and CMBS that compose the Index at the time of purchase. While the Fund normally will invest at least 80% of its net assets, plus any borrowings for investment purposes, in ABS and CMBS that compose the Index, as described above, the Fund may invest its remaining assets in securities not included in the Index including only the following instruments: ABS and CMBS not included in the Index; cash and cash equivalents; 11 Treasury 10 The term ‘‘Normal Market Conditions’’ includes, but is not limited to, the absence of trading halts in the applicable financial markets generally; operational issues causing dissemination of inaccurate market information or system failures; or force majeure type events such as natural or manmade disaster, act of God, armed conflict, act of terrorism, riot or labor disruption, or any similar intervening circumstance. 11 Cash equivalents are short-term instruments with maturities of less than three months, including: (i) U.S. Government securities, including bills, notes, and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities; (ii) certificates of deposit issued against funds deposited in a bank or savings and loan association; (iii) bankers acceptances, which are short-term credit instruments used to finance commercial transactions; (iv) repurchase agreements and reverse repurchase agreements; (v) bank time deposits, which are monies kept on deposit with banks or VerDate Sep<11>2014 18:11 Aug 08, 2018 Jkt 244001 Securities with a maturity of three months or greater; centrally cleared, index-based credit default swaps; 12 and, to the extent permitted by the 1940 Act, other exchange-traded funds (‘‘ETFs’’).13 The portfolio of securities held by the Fund will be disclosed on the Fund’s website at www.PrincipalETFs.com. C. Exchange’s Policy Discussion The Exchange believes that while the proposed rule change does not satisfy all of the ‘‘generic’’ listing requirements of Rule 14.11(c)(4), in particular Rules 14.11(c)(4)(B)(i)(b) 14 and 14.11(c)(4)(B)(i)(f),15 the policy issues that such provisions are intended to address are otherwise mitigated. The Exchange believes that Rule 14.11(c)(4)(B)(i)(b) is intended to address concerns around the size and manipulability of the Index’s components. The exchange believes that these policy concerns would be mitigated by the fact that at least 90% of the weight of the Index will be comprised of securities that have a minimum par amount of $10 million 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. 12 Centrally cleared swaps are cleared through a central clearinghouse and, as such, the counterparty risk traditionally associated with over-the-counter swaps is eliminated. 13 ETFs include Index Fund Shares (as described in Rule 14.11(c)); Portfolio Depositary Receipts (as described in Rule 14.11(b)); and Managed Fund Shares (as described in Rule 14.11(i)). The ETFs all will be listed and traded in the U.S. on registered exchanges. The Fund may invest in the securities of ETFs registered under the 1940 Act consistent with the requirements of Section 12(d)(1) of the 1940 Act, or any rule, regulation or order of the Commission or interpretation thereof. The Fund will not invest in leveraged or inverse leveraged (e.g., 2X, ¥2X, 3X or ¥3X) ETFs. 14 Rule 14.11(c)(4)(B)(i)(b) requires that components that in the aggregate account for at least 75% of the weight of the index or portfolio each have a minimum original principal amount outstanding of $100 million or more. As of February 22, 2018, only 57.9% of the weight of the Index components had a minimum original principal amount outstanding of $100 million or more. 15 Rule 14.11(c)(4)(B)(i)(f) requires that component securities that in aggregate account for at least 90% of the Fixed Income Securities portion of the weight of the index or portfolio must be either: (1) From issuers that are required to file reports pursuant to Sections 13 and 15(d) of the Act; (2) from issuers that have a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more; (3) from issuers that have outstanding securities that are notes, bonds, debentures, or evidence of indebtedness having a total remaining principal amount of at least $1 billion; (4) exempted securities as defined in section 3(a)(12) of the Act; or (5) from issuers that are a government of a foreign country or a political subdivision of a foreign country. According to the Exchange, as of February 22, 2018, only 68.0% of the weight of the Index components met the requirements of Rule 14.11(c)(4)(B)(i)(f). PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 39487 and were a constituent of an offering where the original deal size was at least $250 million.16 The Exchange also believes that the availability of information regarding the ABS and CMBS that comprise the Index that Rule 14.11(c)(4)(B)(i)(f) is intended to address would also be mitigated by the fact that the Fund will only hold ABS and CMBS for which the bond indenture requires the public disclosure of a statement to noteholders on a no less frequent than quarterly basis. III. Proceedings To Determine Whether To Approve or Disapprove SR– CboeBZX–2018–018 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act 17 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 Act,18 the Commission is providing notice of the grounds for disapproval under consideration. The Commission is instituting proceedings to allow for additional analysis of the proposal’s consistency with Section 6(b)(5) of the 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, and to protect investors and the public interest.19 Specifically, in light of the Index’s composition of ABS and CMBS and the proposed continued listing criteria regarding the availability of public information applicable to the Shares, the Commission seeks commenters’ views on whether the 16 The Exchange notes that similar standards have been applied to other comparable funds, and cites to Securities Exchange Act Release No. 82295 (December 12, 2017), 82 FR 60056 (December 18, 2017) (SR–NYSEArca–2017–56). Further, according to the Exchange, the Index is broad-based and currently includes 2,693 component securities. The Exchange also states that, on a continuous basis, the Index will contain at least 500 component securities and comply with the index methodology description provided above. 17 15 U.S.C. 78s(b)(2)(B). 18 Id. 19 15 U.S.C. 78f(b)(5). E:\FR\FM\09AUN1.SGM 09AUN1 39488 Federal Register / Vol. 83, No. 154 / Thursday, August 9, 2018 / Notices information provided in the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act. IV. Procedure: Request for Written Comments Interested persons are invited to submit written views, data, and arguments concerning the foregoing, including whether the proposed rule change is consistent with Section 6(b)(5) or any other provision of the 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, any request for an opportunity to make an oral presentation.20 Interested persons are invited to submit written data, views, and arguments regarding whether the proposal should be approved or disapproved by August 30, 2018. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by September 13, 2018. 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– CboeBZX–2018–018 on the subject line. sradovich on DSK3GMQ082PROD with NOTICES Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–CboeBZX–2018–018. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule 20 Section 19(b)(2) of the 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). VerDate Sep<11>2014 18:11 Aug 08, 2018 Jkt 244001 change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CboeBZX–2018–018 and should be submitted on or before August 30, 2018. Rebuttal comments should be submitted by September 13, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–17008 Filed 8–8–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83768; File No. SR–NYSE– 2018–26] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1, Amending the Exchange’s Rules Relating to Reserve Orders, Primary Pegged Orders, and Setter Priority for UTP Securities Trading on the Exchange’s Pillar Platform August 3, 2018. I. Introduction On June 1, 2018, New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend NYSE rules 21 17 CFR 200.30–3(a)(57). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 concerning Reserve Orders,3 Primary Pegged Orders,4 and setter priority.5 On June 8, 2018, the Exchange filed Amendment No. 1 to the proposed rule change, which replaced and superseded the proposed rule change in its entirety.6 The proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register on June 20, 2018.7 The Commission has received no comments on the proposed rule change. This order approves the proposed rule change, as modified by Amendment No. 1. II. Description of the Proposed Rule Change, as Modified by Amendment No. 1 The Exchange proposes several changes to the Reserve Order and the Primary Pegged Order, as set forth in NYSE Rule 7.31. The Exchange also proposes changes to the setter priority, as set forth in NYSE Rule 7.36(h). A. Reserve Orders The Exchange proposes several changes to the rules for Reserve Orders, in order to reduce the number of child orders associated with each Reserve Order, to codify existing functionality, and provide more clarity to existing Exchange rules. A ‘‘Reserve Order’’ is a limit order with a quantity displayed, ranked Priority 2—Display Orders, and a non-displayed quantity held in reserve, ranked Priority 3—NonDisplayed.8 Both the display quantity and the reserve interest of an arriving marketable Reserve Order are eligible to trade with resting interest in the Exchange Book or to route to an Away Market.9 First, the Exchange proposes to change how the displayed quantity is replenished. Currently, the display 3 See NYSE Rule 7.31(d)(1). NYSE Rule 7.31(h)(2). 5 See NYSE Rule 7.36(h) for the rules concerning setter priority. 6 In Amendment No. 1, among other changes, the Exchange revised proposed Section 7.31(d)(1)(B) to clarify that the term ‘‘child’’ order refers to each display quantity with a different working time. Amendment No. 1 was reflected in the notice of filing of proposed rule change that was published in the Federal Register. See infra note 7. 7 See Securities Exchange Act Release No. 83432 (Jun. 14, 2018), 83 FR 28701 (Jun. 20, 2018) (‘‘Notice’’). 8 See Section II.C. infra for a description of the Exchange’s setter priority. 9 See NYSE Rule 7.31(d)(1). The term ‘‘Exchange Book’’ is defined in NYSE Rule 1.1(a) as the Exchange’s electronic file of orders, containing all orders on the Exchange. The term ‘‘Away Market’’ is defined in NYSE Rule 1.1(ff) as any exchange, alternative trading systems or other broker-dealer with which the Exchange maintains an electronic linkage and that provides instantaneous responses to orders routed from the Exchange. The Exchange will designate from time to time those ATSs or other broker-dealers that qualify as Away Markets. 4 See E:\FR\FM\09AUN1.SGM 09AUN1

Agencies

[Federal Register Volume 83, Number 154 (Thursday, August 9, 2018)]
[Notices]
[Pages 39486-39488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17008]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83775; File No. SR-CboeBZX-2018-018]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To List and Trade Shares of the Principal Morley 
Short Duration Index ETF Under Rule 14.11(c)(4)

August 3, 2018.

I. Introduction

    On April 23, 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 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
Principal Morley Short Duration Index ETF (``Fund''). The proposed rule 
change was published for comment in the Federal Register on May 8, 
2018.\3\ On June 20, 2018, 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 
approve or disapprove the proposed rule change.\4\ The Commission has 
received no comment letters on the proposed rule change. This order 
institutes proceedings under Section 19(b)(2)(B) of the Act \5\ 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. 83152 (May 2, 2018), 
83 FR 20892.
    \4\ See Securities Exchange Act Release No. 83479, 83 FR 29838 
(June 26, 2018). The Commission designated August 6, 2018 as the 
date by which the Commission shall approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to approve or disapprove the proposed rule change.
    \5\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares pursuant to BZX 
Rule 14.11(c)(4), which governs the listing and trading of index fund 
shares based on fixed income securities indexes. The Fund would seek to 
provide investment results that replicate, before expenses, the 
performance of The ICE BofA Merrill Lynch Low Duration U.S. ABS & CMBS 
Equal Par Index (``Index'').\6\
---------------------------------------------------------------------------

    \6\ The Index value, calculated and disseminated at least once 
daily, as well as the components of the Index and their percentage 
weighting, will be available from major market data vendors.
---------------------------------------------------------------------------

A. The Exchange's Description of the Index

    The Index is designed to provide exposure to investment-grade 
securitized products issued in the U.S., including ABS \7\ and CMBS.\8\
---------------------------------------------------------------------------

    \7\ ``ABS'' means fixed and floating rate debt securities 
secured by non-mortgage assets.
    \8\ ``CMBS'' means fixed rate debt securities secured by first 
mortgages on commercial real estate.
---------------------------------------------------------------------------

    To qualify for inclusion in the Index, eligible securities must be 
a component of The ICE BofA Merrill Lynch US ABS & CMBS Index (``Feeder 
Index''). Such securities are then selected and weighted based upon the 
Index methodology discussed below.
1. The Feeder Index's Methodology
    In order to be included in the Feeder Index, a security (whether 
ABS or CMBS) must meet the following criteria (``Basic Criteria''):
     Be rated investment-grade (based on an average of Moody's, 
S&P Global, and Fitch);
     have a term of at least one year remaining until final 
stated maturity; and have at least one month to the last expected cash 
flow; and
     inverse floating rate, interest only, and principal only 
securities are excluded.
    In addition to the Basic Criteria, an ABS must meet the following 
criteria:
     Must issue a fixed or floating rate coupon;
     must have an original deal size for the collateral group 
\9\ of at least $250 million;
---------------------------------------------------------------------------

    \9\ A collateral group describes the assets (receivables) that 
are held by the special purpose vehicle (``SPV'') issuing the ABS 
securities. The collateral group provides the source of payment for 
the SPV's liabilities (i.e., ABS securities). Typically, an SPV will 
include assets greater than its liabilities as a form of credit 
enhancement.
---------------------------------------------------------------------------

     must have a current outstanding deal size for the 
collateral group greater than or equal to 10% of the original deal 
size; and
     a minimum current outstanding tranche size of $50 million 
for senior tranches and $10 million current amount outstanding for 
mezzanine and subordinated tranches.
    In addition to the Basic Criteria, a CMBS (which may include U.S. 
agency CMBS) must also meet the following criteria:
     Must issue a fixed coupon schedule;
     must have an original deal size for the collateral group 
of at least $250 million;
     must have a current outstanding deal size for the 
collateral group that is greater than or equal to 10% of the original 
deal size; and

[[Page 39487]]

     must have a minimum outstanding tranche size of $50 
million for senior tranches and $10 million for mezzanine and 
subordinated tranches.
2. The Index's Methodology
    Securities in the Feeder Index are screened for inclusion/exclusion 
in the Index based on the following criteria:
     ABS related to home equity and manufactured housing are 
excluded;
     CMBS securities that are rated less than AAA credit 
quality (based on an average of Moody's, S&P Global and Fitch) are 
excluded;
     CMBS securities that are issued prior to December 31, 2010 
are excluded; and
     Securities must have a modified duration to worst that is 
less than or equal to 5 years for initial inclusion in the Index, 
although once included, the security remains in the Index provided the 
remaining criteria are met.
    The qualifying securities are assigned equal par amounts with a 70% 
allocation given to ABS securities and a 30% allocation given to CMBS 
securities. The Index rebalances on a monthly basis.

B. The Exchange's Description of the Fund

    Under Normal Market Conditions,\10\ the Fund will invest at least 
80% of its net assets, plus any borrowings for investment purposes, in 
ABS and CMBS that compose the Index at the time of purchase.
---------------------------------------------------------------------------

    \10\ The term ``Normal Market Conditions'' includes, but is not 
limited to, the absence of trading halts in the applicable financial 
markets generally; operational issues causing dissemination of 
inaccurate market information or system failures; or force majeure 
type events such as natural or man-made disaster, act of God, armed 
conflict, act of terrorism, riot or labor disruption, or any similar 
intervening circumstance.
---------------------------------------------------------------------------

    While the Fund normally will invest at least 80% of its net assets, 
plus any borrowings for investment purposes, in ABS and CMBS that 
compose the Index, as described above, the Fund may invest its 
remaining assets in securities not included in the Index including only 
the following instruments: ABS and CMBS not included in the Index; cash 
and cash equivalents; \11\ Treasury Securities with a maturity of three 
months or greater; centrally cleared, index-based credit default swaps; 
\12\ and, to the extent permitted by the 1940 Act, other exchange-
traded funds (``ETFs'').\13\
---------------------------------------------------------------------------

    \11\ Cash equivalents are short-term instruments with maturities 
of less than three months, including: (i) U.S. Government 
securities, including bills, notes, and bonds differing as to 
maturity and rates of interest, which are either issued or 
guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities; (ii) certificates of deposit issued against funds 
deposited in a bank or savings and loan association; (iii) bankers 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; (iv) repurchase agreements and reverse 
repurchase agreements; (v) bank time deposits, which are monies kept 
on deposit with banks or savings and loan associations for a stated 
period of time at a fixed rate of interest; (vi) commercial paper, 
which are short-term unsecured promissory notes; and (vii) money 
market funds.
    \12\ Centrally cleared swaps are cleared through a central 
clearinghouse and, as such, the counterparty risk traditionally 
associated with over-the-counter swaps is eliminated.
    \13\ ETFs include Index Fund Shares (as described in Rule 
14.11(c)); Portfolio Depositary Receipts (as described in Rule 
14.11(b)); and Managed Fund Shares (as described in Rule 14.11(i)). 
The ETFs all will be listed and traded in the U.S. on registered 
exchanges. The Fund may invest in the securities of ETFs registered 
under the 1940 Act consistent with the requirements of Section 
12(d)(1) of the 1940 Act, or any rule, regulation or order of the 
Commission or interpretation thereof. The Fund will not invest in 
leveraged or inverse leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
---------------------------------------------------------------------------

    The portfolio of securities held by the Fund will be disclosed on 
the Fund's website at www.PrincipalETFs.com.

C. Exchange's Policy Discussion

    The Exchange believes that while the proposed rule change does not 
satisfy all of the ``generic'' listing requirements of Rule 
14.11(c)(4), in particular Rules 14.11(c)(4)(B)(i)(b) \14\ and 
14.11(c)(4)(B)(i)(f),\15\ the policy issues that such provisions are 
intended to address are otherwise mitigated. The Exchange believes that 
Rule 14.11(c)(4)(B)(i)(b) is intended to address concerns around the 
size and manipulability of the Index's components. The exchange 
believes that these policy concerns would be mitigated by the fact that 
at least 90% of the weight of the Index will be comprised of securities 
that have a minimum par amount of $10 million and were a constituent of 
an offering where the original deal size was at least $250 million.\16\
---------------------------------------------------------------------------

    \14\ Rule 14.11(c)(4)(B)(i)(b) requires that components that in 
the aggregate account for at least 75% of the weight of the index or 
portfolio each have a minimum original principal amount outstanding 
of $100 million or more. As of February 22, 2018, only 57.9% of the 
weight of the Index components had a minimum original principal 
amount outstanding of $100 million or more.
    \15\ Rule 14.11(c)(4)(B)(i)(f) requires that component 
securities that in aggregate account for at least 90% of the Fixed 
Income Securities portion of the weight of the index or portfolio 
must be either: (1) From issuers that are required to file reports 
pursuant to Sections 13 and 15(d) of the Act; (2) from issuers that 
have a worldwide market value of its outstanding common equity held 
by non-affiliates of $700 million or more; (3) from issuers that 
have outstanding securities that are notes, bonds, debentures, or 
evidence of indebtedness having a total remaining principal amount 
of at least $1 billion; (4) exempted securities as defined in 
section 3(a)(12) of the Act; or (5) from issuers that are a 
government of a foreign country or a political subdivision of a 
foreign country. According to the Exchange, as of February 22, 2018, 
only 68.0% of the weight of the Index components met the 
requirements of Rule 14.11(c)(4)(B)(i)(f).
    \16\ The Exchange notes that similar standards have been applied 
to other comparable funds, and cites to Securities Exchange Act 
Release No. 82295 (December 12, 2017), 82 FR 60056 (December 18, 
2017) (SR-NYSEArca-2017-56). Further, according to the Exchange, the 
Index is broad-based and currently includes 2,693 component 
securities. The Exchange also states that, on a continuous basis, 
the Index will contain at least 500 component securities and comply 
with the index methodology description provided above.
---------------------------------------------------------------------------

    The Exchange also believes that the availability of information 
regarding the ABS and CMBS that comprise the Index that Rule 
14.11(c)(4)(B)(i)(f) is intended to address would also be mitigated by 
the fact that the Fund will only hold ABS and CMBS for which the bond 
indenture requires the public disclosure of a statement to noteholders 
on a no less frequent than quarterly basis.

III. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2018-018 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \17\ 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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\18\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposal's consistency with Section 6(b)(5) of the 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, 
and to protect investors and the public interest.\19\ Specifically, in 
light of the Index's composition of ABS and CMBS and the proposed 
continued listing criteria regarding the availability of public 
information applicable to the Shares, the Commission seeks commenters' 
views on whether the

[[Page 39488]]

information provided in the proposed rule change is consistent with the 
requirements of Section 6(b)(5) of the Act.
---------------------------------------------------------------------------

    \18\ Id.
    \19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

    Interested persons are invited to submit written views, data, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with Section 6(b)(5) or any other provision of the 
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, any request for 
an opportunity to make an oral presentation.\20\
---------------------------------------------------------------------------

    \20\ Section 19(b)(2) of the 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).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by August 30, 2018. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
September 13, 2018.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2018-018 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CboeBZX-2018-018. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2018-018 and should be submitted 
on or before August 30, 2018. Rebuttal comments should be submitted by 
September 13, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17008 Filed 8-8-18; 8:45 am]
 BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.