Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To Establish How the BZX Official Closing Price Would Be Determined for BZX-Listed Securities, 55435-55438 [2018-24067]

Download as PDF Federal Register / Vol. 83, No. 214 / Monday, November 5, 2018 / Notices III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments 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–NASDAQ–2018–080, and should be submitted on or before November 26, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.122 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–24068 Filed 11–2–18; 8:45 am] Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–84507; File No. SR– CboeBZX–2018–079] • 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– NASDAQ–2018–080 on the subject line. Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To Establish How the BZX Official Closing Price Would Be Determined for BZX-Listed Securities Paper Comments October 30, 2018. • 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–NASDAQ–2018–080. 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 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 October 18, 2018, Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) 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.3 The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons. VerDate Sep<11>2014 18:38 Nov 02, 2018 Jkt 247001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes a rule change to establish how the BZX Official Closing Price would be determined for BZX-listed securities. The text of the proposed rule change is also available on the Exchange’s 122 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 On October 29, 2018, the Exchange filed Amendment No. 1 to the proposed rule change to specify the date upon which the Exchange’s President (or designee) approved the proposed rule change, pursuant to delegated authority. 1 15 PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 55435 website (https://markets.cboe.com/us/ equities/regulation/rule_filings/bzx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend BZX Rule 11.23, Auctions, to amend how the BZX Official Closing Price 4 would be determined for any BZX-listed security that is not a corporate security (a ‘‘Derivative Securities Product’’) 5 if the Exchange does not conduct a Closing Auction or if a Closing Auction trade is less than a round lot (collectively, an ‘‘Illiquid Auction’’). Rule 11.23(c)(2)(B) currently provides how the Exchange determines the price of the Closing Auction and the BZX Official Closing Price. This proposed functionality is very similar to functionality that has already been approved by the Commission and is operational on NYSE Arca, Inc. (‘‘Arca’’) (the ‘‘Arca Rule’’) 6 and the Exchange believes that it raises no new 4 As defined in Rule 11.23(a)(3), the term ‘‘BZX Official Closing Price’’ shall mean the price disseminated to the consolidated tape as the market center closing trade. 5 With respect to equities traded on the Exchange, the term ‘‘new derivative securities product’’ means a security that meets the definition of ‘‘new derivative securities product’’ in Rule 19b–4(e) under the Securities Exchange Act of 1934. See BZX Rule 14.11(j). For purposes of Rule 19b–4(e), a ‘‘new derivative securities product’’ means any type of option, warrant, hybrid securities product or any other security, other than a single equity option or a security futures product, whose value is based, in whole or in part, upon the performance of, or interest, in, an underlying instrument. 17 CFR 240.19b–4(e). 6 See Securities Exchange Act Release No. 82907 (March 20, 2018), 83 FR 12980 (March 26, 2018) (SR–NYSEArca–2018–08) (order approving proposed changes to Arca Rule 1.1(ll) related to determining an Official Closing Price). E:\FR\FM\05NON1.SGM 05NON1 55436 Federal Register / Vol. 83, No. 214 / Monday, November 5, 2018 / Notices substantive issues for the Commission to review. Current Rule 11.23(c)(2)(B) outlines the process for determining the price level at which the Closing Auction will occur 7 and provides that the Closing Auction price will be the BZX Official Closing Price or, in the event that there is no Closing Auction for an issue, the BZX Official Closing Price will be the price of the Final Last Sale Eligible Trade.8 The Exchange proposes to amend Rule 11.23(c)(2)(B) in order to change how the BZX Official Closing Price for an Exchange-listed security that is a Derivative Securities Product would be determined in the event of an Illiquid Auction. The proposed rule change is intended to make the BZX Official Closing Price more reflective of the value of such a Derivative Securities Product. Specifically, if a security is thinly traded or generally illiquid, it’s currently possible that the BZX Official Closing Price for such Derivatives Securities Product will be based on a Final Last Sale Eligible Trade that may be hours, days, or even months old and therefore not necessarily reflect the true and current value of the security. The Exchange believes that an execution that qualifies as a Final Last Sale Eligible Trade that occurs in the last five minutes of trading during Regular Trading Hours 9 is sufficiently recent as to be reflective of the current market value of a Derivative Securities Product and, in the event of an Illiquid Auction, should be used as the BZX Official Closing Price. Where no such execution occurs, however, the Exchange believes that a time-weighted value based on the midpoint of the NBBO 10 leading into the close is likely to be more indicative of the true and current value of the security than a Final Last Sale Eligible Trade that occurred more than five minutes prior to the close. As such, in the event that 7 The Exchange notes that it is not proposing to make changes to the process for determining the price level at which the Closing Auction will occur. 8 As defined in Rule 11.23(a)(9), the term ‘‘Final Last Sale Eligible Trade’’ shall mean the last trade occurring during Regular Trading Hours on the Exchange if the trade was executed within the last one second prior to either the Closing Auction or, for Halt Auctions, trading in the security being halted. Where the trade was not executed within the last one second, the last trade reported to the consolidated tape received by BZX Exchange during Regular Trading Hours and, where applicable, prior to trading in the security being halted will be used. If there is no qualifying trade for the current day, the BZX Official Closing Price from the previous trading day will be used. 9 As defined in Rule 1.5(w), the term ‘‘Regular Trading Hours’’ means the time between 9:30 a.m. and 4:00 p.m. Eastern Time. 10 As defined in Rule 1.5(o), the term ‘‘NBBO’’ shall mean the national best bid or offer. VerDate Sep<11>2014 18:38 Nov 02, 2018 Jkt 247001 there is an Illiquid Auction in a BZXlisted Derivative Securities Product, the Exchange proposes that the BZX Official Closing Price would be the timeweighted average price of the midpoint of the NBBO over the last five minutes of trading before the end of Regular Trading Hours (the ‘‘TWAP’’). Based on the foregoing, the Exchange notes that it is proposing to use only the Final Last Sale Eligible Trade or the TWAP and not any weighting or combination of the two. In order to implement these proposed changes, the Exchange is proposing to amend Rule 11.23(c)(2)(B) to make clear that for a BZX-listed corporate security, the Closing Auction price will be the BZX Official Closing Price, which is consistent with current functionality. The Exchange is further proposing to amend Rule 11.23(c)(2)(B) in order to add a three part test for determining the BZX Official Closing Price for Derivative Securities Products, as follows. Proposed new Rule 11.23(c)(2)(B)(i) would provide that where at least one round lot is executed in the Closing Auction, the Closing Auction price will be the BZX Official Closing Price. Proposed new Rule 11.23(c)(2)(B)(ii) would provide that in the event that the BZX Official Closing Price for an issue that is a Derivative Securities Product cannot be determined under paragraph (B)(i) of this Rule, the BZX Official Closing Price for such security will depend on when the last Final Last Sale Eligible Trade occurs. If a trade that would qualify as a Final Last Sale Eligible Trade occurred: (a) Within the final five minutes before the end of Regular Trading Hours, the Final Last Sale Eligible Trade will be the BZX Official Closing Price; or (b) prior to five minutes before the end of Regular Trading Hours, the time-weighted average price of the NBBO midpoint measured over the last 5 minutes before the end Regular Trading Hours will be the BZX Official Closing Price. Proposed new Rule 11.23(c)(2)(B)(iii) would provide that if the BZX Official Closing Price cannot be determined under proposed paragraphs (B)(i) or (B)(ii) of this Rule, the Final Last Sale Eligible Trade will be the BZX Official Closing Price. As noted above, the Exchange believes that the proposed functionality is very similar to the Arca Rule and does not raise any substantive issues not already considered by the Commission. The only substantive difference between the proposal and the Arca Rule relates to the Exchange proposing only to use one of the TWAP or the Final Last Sale Eligible Trade for the BZX Official Closing Price and to exclude, contrary to PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 the Arca Rule, any scenarios that would result in a blended price by changing the weight of the TWAP and the Final Last Sale Eligible Trade depending on how many minutes prior to the end of the trading day such Final Last Sale Eligible Trade occurs. There are also two differences that the Exchange believes are non-substantive. First, the Exchange’s proposed functionality for determining the BZX Official Closing Price applies to all securities listed on the Exchange that are not corporate securities, while the Arca Rule applies to all ‘‘derivative securities products.’’ 11 Substantively, however, there is no practical difference between these definitions because the Exchange only offers listing of corporate securities (which it has excluded from the proposed new functionality) and products that would fall under the definition of derivative securities products. Second, the Arca Rule references the ‘‘consolidated last-sale eligible trade’’ in several instances where the Exchange proposed rule references the Final Last Sale Eligible Trade. The only difference between the definition of the consolidated last-sale eligible trade and the Final Last Sale Eligible Trade for purposes of this application is that the value of the Final Last Sale Eligible Trade will default to any execution on the Exchange that occurs within the last one second prior to the Closing Auction. For purposes of this proposal, the definitions are otherwise identical. The Exchange does not believe that this is a substantive difference because it is unlikely that securities for which this functionality is intended to improve a BZX Official Closing Price because of a lack of trading activity will have trading activity in the final second prior to the Closing Auction. Implementation The Exchange will implement the proposed rule change for determining the BZX Official Closing Price as soon as is practicable after the approval date of this proposed rule change and will announce the implementation date via Trade Desk Notice. 11 The term ‘‘Derivative Securities Product’’ as used in Arca’s rules means a security that meets the definition of ‘‘derivative securities product’’ in Rule 19b–4(e) under the Securities Exchange Act of 1934. See Arca Rule 1.1(k). For purposes of Rule 19b–4(e), a ‘‘derivative securities product’’ means any type of option, warrant, hybrid securities product or any other security, other than a single equity option or a security futures product, whose value is based, in whole or in part, upon the performance of, or interest, in, an underlying instrument. 17 CFR 240.19b–4(e). E:\FR\FM\05NON1.SGM 05NON1 Federal Register / Vol. 83, No. 214 / Monday, November 5, 2018 / Notices 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,12 in general, and furthers the objectives of Section 6(b)(5) of the Act,13 in particular, in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange believes that the proposed rule change would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would provide for a method of determining the BZX Official Closing Price in an Exchange-listed security that is a Derivative Securities Product if there is no Closing Auction or if a Closing Auction trade is less than a round lot on a trading day. More specifically, the Exchange believes the proposed methodology for determining the BZX Official Closing Price would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would provide for a more up-to-date indication of the value of such a security if there have not been any Final Last Sale Eligible Trades leading in to the close of trading. The Exchange believes the proposed BZX Official Closing Price calculation would also provide a closing price that more accurately reflects the most recent and reliable market information possible. The Exchange further believes that the proposed TWAP calculation would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would provide for a more robust mechanism to determine the value of an affected security for purposes of determining a BZX Official Closing Price. By using either the price of a Final Last Sale Eligible Trade that occurs within five minutes of the close or a time-weighted calculation based on the midpoint of the NBBO over the last five minutes of trading leading into the close, the Exchange believes that the proposed calculation would result in a BZX Official Closing Price that is more reflective of the true and current value of such security on that trading day than 12 15 13 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Sep<11>2014 18:38 Nov 02, 2018 Jkt 247001 would otherwise occur under the current Closing Auction mechanism. The Exchange also believes that the proposed methodology for determining a BZX Official Closing Price would be appropriate for Derivative Securities Products because if such securities are thinly traded, the price of the Final Last Sale Eligible Trade that occurred earlier in a trading day or even from a prior trading day may no longer be reflective of the value of such product, which should be priced relative to the value of the components of such security. In such case, either a more recent execution (in the last five minutes of Regular Trading Hours) or recent quoting activity will likely be more reflective of the value of the security. As such, the Exchange is proposing to use the TWAP in order to measure such quoting activity in order to avoid overly weighting a potentially stale quote that may occur leading into the close, which the Exchange believes would provide a greater indication of the value of such securities. Finally, the Exchange believes that the proposed functionality does not raise any substantive issues not already considered by the Commission in approving the Arca Rule. For the above reasons, the Exchange believes that the proposal is consistent with the requirements of Section 6(b)(5) of the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is designed to provide for how the Exchange would determine the BZX Official Closing Price for Exchange-listed securities that are Derivative Securities Products if there is no Closing Auction or if a Closing Auction trade is less than a round lot on a trading day, which will help it better compete as a listing venue. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 55437 designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: A. By order approve or disapprove such proposed rule change, or B. institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– CboeBZX–2018–079 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–2018–079. 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 E:\FR\FM\05NON1.SGM 05NON1 55438 Federal Register / Vol. 83, No. 214 / Monday, November 5, 2018 / Notices to make available publicly. All submissions should refer to File Number SR–CboeBZX–2018–079, and should be submitted on or before November 26, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–24067 Filed 11–2–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 33285; 812–14945] Cushing Asset Management, LP and Cushing ETF Trust October 30, 2018. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice. AGENCY: Notice of an application under section 6(c) of the Investment Company Act of 1940 (‘‘Act’’) for an exemption from section 15(a) of the Act and rule 18f–2 under the Act, as well as from certain disclosure requirements in rule 20a–1 under the Act, Item 19(a)(3) of Form N–1A, Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A under the Securities Exchange Act of 1934, and Sections 6–07(2)(a), (b), and (c) of Regulation S–X (‘‘Disclosure Requirements’’). The requested exemption would permit an investment adviser to hire and replace certain subadvisers without shareholder approval and grant relief from the Disclosure Requirements as they relate to fees paid to the sub-advisers. APPLICANTS: Cushing ETF Trust (the ‘‘Trust’’), a Delaware statutory trust registered under the Act as an open-end management investment company with multiple series, and Cushing Asset Management, LP (the ‘‘Initial Adviser’’), a Texas limited partnership registered as an investment adviser under the Investment Advisers Act of 1940. FILING DATES: The application was filed on August 31, 2018. HEARING OR NOTIFICATION OF HEARING: An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission’s Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission 14 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:38 Nov 02, 2018 Jkt 247001 by 5:30 p.m. on November 26, 2018, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to rule 0–5 under the Act, hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. Applicants: Cushing Asset Management, LP and Cushing ETF Trust, 8117 Preston Road, Suite 440, Dallas, TX 75225. FOR FURTHER INFORMATION CONTACT: Rachel Loko, Senior Counsel, at (202) 551–6883, or Aaron Gilbride, Branch Chief, at (202) 551–6906 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s website by searching for the file number, or for an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. Summary of the Application 1. The Initial Adviser is the investment adviser to the Cushing Energy & MLP ETF, Cushing Utility & MLP ETF, Cushing Transportation & MLP ETF and Cushing Energy Supply Chain & MLP ETF (together, the ‘‘Initial Funds’’), each a series of the Trust, pursuant to an investment management agreement with the Trust (‘‘Investment Management Agreement’’).1 Under the terms of the Investment Management 1 Applicants request relief with respect to the Initial Funds, as well as to any future series of the Trust and any other existing or future registered open-end management investment company or series thereof that, in each case, is advised by the Initial Adviser or any entity controlling, controlled by, or under common control with, the Initial Adviser or its successors (each, also an ‘‘Adviser’’), uses the multi-manager structure described in the application, and complies with the terms and conditions set forth in the application (each, a ‘‘Subadvised Fund’’). For purposes of the requested order, ‘‘successor’’ is limited to an entity that results from a reorganization into another jurisdiction or a change in the type of business organization. Future Subadvised Funds may be operated as a master-feeder structure pursuant to section 12(d)(1)(E) of the Act. In such a structure, certain series of the Trust (each, a ‘‘Feeder Fund’’) may invest substantially all of their assets in a Subadvised Fund (a ‘‘Master Fund’’) pursuant to section 12(d)(1)(E) of the Act. No Feeder Fund will engage any sub-advisers other than through approving the engagement of one or more of the Master Fund’s sub-advisers. PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 Agreement, the Adviser, subject to the supervision of the board of trustees of the Trust (‘‘Board’’), provides continuous investment management of the assets of each Subadvised Fund. Consistent with the terms of the Investment Management Agreement, the Adviser may, subject to the approval of the Board, delegate portfolio management responsibilities of all or a portion of the assets of a Subadvised Fund to one or more Sub-Advisers.2 The Adviser will continue to have overall responsibility for the management and investment of the assets of each Subadvised Fund. The Adviser will evaluate, select, and recommend SubAdvisers to manage the assets of a Subadvised Fund and will oversee, monitor and review the Sub-Advisers and their performance and recommend the removal or replacement of SubAdvisers. 2. Applicants request an order to permit the Adviser, subject to the approval of the Board, to enter into investment sub-advisory agreements with the Sub-Advisers (each, a ‘‘SubAdvisory Agreement’’) and materially amend such Sub-Advisory Agreements without obtaining the shareholder approval required under section 15(a) of the Act and rule 18f–2 under the Act.3 Applicants also seek an exemption from the Disclosure Requirements to permit a Subadvised Fund to disclose (as both a dollar amount and a percentage of the Subadvised Fund’s net assets): (a) The aggregate fees paid to the Adviser and any Wholly-Owned Sub-Adviser; (b) the aggregate fees paid to Non-Affiliated Sub-Advisers; and (c) the fee paid to each Affiliated Sub-Adviser (collectively, Aggregate Fee Disclosure’’).4 2 As used herein, a ‘‘Sub-Adviser’’ for a Subadvised Fund is (1) an indirect or direct ‘‘wholly owned subsidiary’’ (as such term is defined in the Act) of the Adviser for that Subadvised Fund, or (2) a sister company of the Adviser for that Subadvised Fund that is an indirect or direct ‘‘wholly-owned subsidiary’’ of the same company that, indirectly or directly, wholly owns the Adviser (each of (1) and (2) a ‘‘Wholly-Owned Sub-Adviser’’ and collectively, the ‘‘Wholly-Owned SubAdvisers’’), or (3) not an ‘‘affiliated person’’ (as such term is defined in section 2(a)(3) of the Act) of the Subadvised Fund, any Feeder Fund invested in a Master Fund, the Trust, or the Adviser, except to the extent that an affiliation arises solely because the Sub-Adviser serves as a sub-adviser to a Subadvised Fund (‘‘Non-Affiliated Sub-Advisers’’). 3 The requested relief will not extend to any subadviser, other than a Wholly-Owned Sub-Adviser, who is an affiliated person, as defined in section 2(a)(3) of the Act, of the Subadvised Fund, of any Feeder Fund, or of the Adviser, other than by reason of serving as a sub-adviser to one or more of the Subadvised Funds (‘‘Affiliated SubAdviser’’). 4 For any Subadvised Fund that is a Master Fund, the relief would also permit any Feeder Fund E:\FR\FM\05NON1.SGM 05NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 214 (Monday, November 5, 2018)]
[Notices]
[Pages 55435-55438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24067]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84507; File No. SR-CboeBZX-2018-079]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Establish How the BZX Official Closing Price Would Be Determined for 
BZX-Listed Securities

October 30, 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 October 18, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment No. 1, from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On October 29, 2018, the Exchange filed Amendment No. 1 to 
the proposed rule change to specify the date upon which the 
Exchange's President (or designee) approved the proposed rule 
change, pursuant to delegated authority.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes a rule change to establish how the BZX 
Official Closing Price would be determined for BZX-listed securities.
    The text of the proposed rule change is also available on the 
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend BZX Rule 11.23, Auctions, to amend 
how the BZX Official Closing Price \4\ would be determined for any BZX-
listed security that is not a corporate security (a ``Derivative 
Securities Product'') \5\ if the Exchange does not conduct a Closing 
Auction or if a Closing Auction trade is less than a round lot 
(collectively, an ``Illiquid Auction''). Rule 11.23(c)(2)(B) currently 
provides how the Exchange determines the price of the Closing Auction 
and the BZX Official Closing Price. This proposed functionality is very 
similar to functionality that has already been approved by the 
Commission and is operational on NYSE Arca, Inc. (``Arca'') (the ``Arca 
Rule'') \6\ and the Exchange believes that it raises no new

[[Page 55436]]

substantive issues for the Commission to review.
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    \4\ As defined in Rule 11.23(a)(3), the term ``BZX Official 
Closing Price'' shall mean the price disseminated to the 
consolidated tape as the market center closing trade.
    \5\ With respect to equities traded on the Exchange, the term 
``new derivative securities product'' means a security that meets 
the definition of ``new derivative securities product'' in Rule 19b-
4(e) under the Securities Exchange Act of 1934. See BZX Rule 
14.11(j). For purposes of Rule 19b-4(e), a ``new derivative 
securities product'' means any type of option, warrant, hybrid 
securities product or any other security, other than a single equity 
option or a security futures product, whose value is based, in whole 
or in part, upon the performance of, or interest, in, an underlying 
instrument. 17 CFR 240.19b-4(e).
    \6\ See Securities Exchange Act Release No. 82907 (March 20, 
2018), 83 FR 12980 (March 26, 2018) (SR-NYSEArca-2018-08) (order 
approving proposed changes to Arca Rule 1.1(ll) related to 
determining an Official Closing Price).
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    Current Rule 11.23(c)(2)(B) outlines the process for determining 
the price level at which the Closing Auction will occur \7\ and 
provides that the Closing Auction price will be the BZX Official 
Closing Price or, in the event that there is no Closing Auction for an 
issue, the BZX Official Closing Price will be the price of the Final 
Last Sale Eligible Trade.\8\
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    \7\ The Exchange notes that it is not proposing to make changes 
to the process for determining the price level at which the Closing 
Auction will occur.
    \8\ As defined in Rule 11.23(a)(9), the term ``Final Last Sale 
Eligible Trade'' shall mean the last trade occurring during Regular 
Trading Hours on the Exchange if the trade was executed within the 
last one second prior to either the Closing Auction or, for Halt 
Auctions, trading in the security being halted. Where the trade was 
not executed within the last one second, the last trade reported to 
the consolidated tape received by BZX Exchange during Regular 
Trading Hours and, where applicable, prior to trading in the 
security being halted will be used. If there is no qualifying trade 
for the current day, the BZX Official Closing Price from the 
previous trading day will be used.
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    The Exchange proposes to amend Rule 11.23(c)(2)(B) in order to 
change how the BZX Official Closing Price for an Exchange-listed 
security that is a Derivative Securities Product would be determined in 
the event of an Illiquid Auction. The proposed rule change is intended 
to make the BZX Official Closing Price more reflective of the value of 
such a Derivative Securities Product. Specifically, if a security is 
thinly traded or generally illiquid, it's currently possible that the 
BZX Official Closing Price for such Derivatives Securities Product will 
be based on a Final Last Sale Eligible Trade that may be hours, days, 
or even months old and therefore not necessarily reflect the true and 
current value of the security.
    The Exchange believes that an execution that qualifies as a Final 
Last Sale Eligible Trade that occurs in the last five minutes of 
trading during Regular Trading Hours \9\ is sufficiently recent as to 
be reflective of the current market value of a Derivative Securities 
Product and, in the event of an Illiquid Auction, should be used as the 
BZX Official Closing Price. Where no such execution occurs, however, 
the Exchange believes that a time-weighted value based on the midpoint 
of the NBBO \10\ leading into the close is likely to be more indicative 
of the true and current value of the security than a Final Last Sale 
Eligible Trade that occurred more than five minutes prior to the close. 
As such, in the event that there is an Illiquid Auction in a BZX-listed 
Derivative Securities Product, the Exchange proposes that the BZX 
Official Closing Price would be the time-weighted average price of the 
midpoint of the NBBO over the last five minutes of trading before the 
end of Regular Trading Hours (the ``TWAP''). Based on the foregoing, 
the Exchange notes that it is proposing to use only the Final Last Sale 
Eligible Trade or the TWAP and not any weighting or combination of the 
two.
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    \9\ As defined in Rule 1.5(w), the term ``Regular Trading 
Hours'' means the time between 9:30 a.m. and 4:00 p.m. Eastern Time.
    \10\ As defined in Rule 1.5(o), the term ``NBBO'' shall mean the 
national best bid or offer.
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    In order to implement these proposed changes, the Exchange is 
proposing to amend Rule 11.23(c)(2)(B) to make clear that for a BZX-
listed corporate security, the Closing Auction price will be the BZX 
Official Closing Price, which is consistent with current functionality. 
The Exchange is further proposing to amend Rule 11.23(c)(2)(B) in order 
to add a three part test for determining the BZX Official Closing Price 
for Derivative Securities Products, as follows.
    Proposed new Rule 11.23(c)(2)(B)(i) would provide that where at 
least one round lot is executed in the Closing Auction, the Closing 
Auction price will be the BZX Official Closing Price.
    Proposed new Rule 11.23(c)(2)(B)(ii) would provide that in the 
event that the BZX Official Closing Price for an issue that is a 
Derivative Securities Product cannot be determined under paragraph 
(B)(i) of this Rule, the BZX Official Closing Price for such security 
will depend on when the last Final Last Sale Eligible Trade occurs. If 
a trade that would qualify as a Final Last Sale Eligible Trade 
occurred: (a) Within the final five minutes before the end of Regular 
Trading Hours, the Final Last Sale Eligible Trade will be the BZX 
Official Closing Price; or (b) prior to five minutes before the end of 
Regular Trading Hours, the time-weighted average price of the NBBO 
midpoint measured over the last 5 minutes before the end Regular 
Trading Hours will be the BZX Official Closing Price.
    Proposed new Rule 11.23(c)(2)(B)(iii) would provide that if the BZX 
Official Closing Price cannot be determined under proposed paragraphs 
(B)(i) or (B)(ii) of this Rule, the Final Last Sale Eligible Trade will 
be the BZX Official Closing Price.
    As noted above, the Exchange believes that the proposed 
functionality is very similar to the Arca Rule and does not raise any 
substantive issues not already considered by the Commission. The only 
substantive difference between the proposal and the Arca Rule relates 
to the Exchange proposing only to use one of the TWAP or the Final Last 
Sale Eligible Trade for the BZX Official Closing Price and to exclude, 
contrary to the Arca Rule, any scenarios that would result in a blended 
price by changing the weight of the TWAP and the Final Last Sale 
Eligible Trade depending on how many minutes prior to the end of the 
trading day such Final Last Sale Eligible Trade occurs.
    There are also two differences that the Exchange believes are non-
substantive. First, the Exchange's proposed functionality for 
determining the BZX Official Closing Price applies to all securities 
listed on the Exchange that are not corporate securities, while the 
Arca Rule applies to all ``derivative securities products.'' \11\ 
Substantively, however, there is no practical difference between these 
definitions because the Exchange only offers listing of corporate 
securities (which it has excluded from the proposed new functionality) 
and products that would fall under the definition of derivative 
securities products. Second, the Arca Rule references the 
``consolidated last-sale eligible trade'' in several instances where 
the Exchange proposed rule references the Final Last Sale Eligible 
Trade. The only difference between the definition of the consolidated 
last-sale eligible trade and the Final Last Sale Eligible Trade for 
purposes of this application is that the value of the Final Last Sale 
Eligible Trade will default to any execution on the Exchange that 
occurs within the last one second prior to the Closing Auction. For 
purposes of this proposal, the definitions are otherwise identical. The 
Exchange does not believe that this is a substantive difference because 
it is unlikely that securities for which this functionality is intended 
to improve a BZX Official Closing Price because of a lack of trading 
activity will have trading activity in the final second prior to the 
Closing Auction.
---------------------------------------------------------------------------

    \11\ The term ``Derivative Securities Product'' as used in 
Arca's rules means a security that meets the definition of 
``derivative securities product'' in Rule 19b-4(e) under the 
Securities Exchange Act of 1934. See Arca Rule 1.1(k). For purposes 
of Rule 19b-4(e), a ``derivative securities product'' means any type 
of option, warrant, hybrid securities product or any other security, 
other than a single equity option or a security futures product, 
whose value is based, in whole or in part, upon the performance of, 
or interest, in, an underlying instrument. 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------

Implementation
    The Exchange will implement the proposed rule change for 
determining the BZX Official Closing Price as soon as is practicable 
after the approval date of this proposed rule change and will announce 
the implementation date via Trade Desk Notice.

[[Page 55437]]

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\12\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\13\ in particular, in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would provide for a method of 
determining the BZX Official Closing Price in an Exchange-listed 
security that is a Derivative Securities Product if there is no Closing 
Auction or if a Closing Auction trade is less than a round lot on a 
trading day. More specifically, the Exchange believes the proposed 
methodology for determining the BZX Official Closing Price would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would provide for a more up-to-date 
indication of the value of such a security if there have not been any 
Final Last Sale Eligible Trades leading in to the close of trading. The 
Exchange believes the proposed BZX Official Closing Price calculation 
would also provide a closing price that more accurately reflects the 
most recent and reliable market information possible.
    The Exchange further believes that the proposed TWAP calculation 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because it would provide for a 
more robust mechanism to determine the value of an affected security 
for purposes of determining a BZX Official Closing Price. By using 
either the price of a Final Last Sale Eligible Trade that occurs within 
five minutes of the close or a time-weighted calculation based on the 
midpoint of the NBBO over the last five minutes of trading leading into 
the close, the Exchange believes that the proposed calculation would 
result in a BZX Official Closing Price that is more reflective of the 
true and current value of such security on that trading day than would 
otherwise occur under the current Closing Auction mechanism.
    The Exchange also believes that the proposed methodology for 
determining a BZX Official Closing Price would be appropriate for 
Derivative Securities Products because if such securities are thinly 
traded, the price of the Final Last Sale Eligible Trade that occurred 
earlier in a trading day or even from a prior trading day may no longer 
be reflective of the value of such product, which should be priced 
relative to the value of the components of such security. In such case, 
either a more recent execution (in the last five minutes of Regular 
Trading Hours) or recent quoting activity will likely be more 
reflective of the value of the security. As such, the Exchange is 
proposing to use the TWAP in order to measure such quoting activity in 
order to avoid overly weighting a potentially stale quote that may 
occur leading into the close, which the Exchange believes would provide 
a greater indication of the value of such securities.
    Finally, the Exchange believes that the proposed functionality does 
not raise any substantive issues not already considered by the 
Commission in approving the Arca Rule.
    For the above reasons, the Exchange believes that the proposal is 
consistent with the requirements of Section 6(b)(5) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
designed to provide for how the Exchange would determine the BZX 
Official Closing Price for Exchange-listed securities that are 
Derivative Securities Products if there is no Closing Auction or if a 
Closing Auction trade is less than a round lot on a trading day, which 
will help it better compete as a listing venue.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2018-079 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-2018-079. 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

[[Page 55438]]

to make available publicly. All submissions should refer to File Number 
SR-CboeBZX-2018-079, and should be submitted on or before November 26, 
2018.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-24067 Filed 11-2-18; 8:45 am]
 BILLING CODE 8011-01-P

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