Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change Amend Exchange Rule 14.11(c), Index Fund Shares, To Adopt Generic Listing Standards for Index Fund Shares Based on an Index of Municipal Bond Securities, 16753-16758 [2019-07982]
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Federal Register / Vol. 84, No. 77 / Monday, April 22, 2019 / Notices
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Dated: April 17, 2019.
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[FR Doc. 2019–08037 Filed 4–19–19; 8:45 am]
BILLING CODE 8011–01–P
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change Amend
Exchange Rule 14.11(c), Index Fund
Shares, To Adopt Generic Listing
Standards for Index Fund Shares
Based on an Index of Municipal Bond
Securities
April 16, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 3,
2019, 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. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
amozie on DSK9F9SC42PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Exchange Rule 14.11(c) (‘‘Index Fund
Shares’’) to adopt generic listing
standards for Index Fund Shares based
on an index of municipal bond
securities.
The text of the proposed rule change
is also available on the Exchange’s
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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.
1. Purpose
[Release No. 34–85656; File No. SR–
CboeBZX–2019–023]
2 17
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
1 15
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.
Rule 14.11(c) permits the Exchange to
list a series of Index Fund Shares based
on an index or portfolio of underlying
securities. Currently, Rule 14.11(c)
includes generic listing standards for
Index Fund Shares based on an index or
portfolio of equity or fixed income
securities or a combination thereof. The
Exchange proposes to amend Rule
14.11(c) to add a new Rule
14.11(c)(4)(B)(ii) to provide quantitative
generic listing standards for Index Fund
Shares based on an index or portfolio of
Municipal Securities 3 that do not meet
the generic listing standards under Rule
14.11(c)(4)(B)(i).4 All other standards
not included in Rule 14.11(c)(4)(B)(i)
applicable to series of Index Fund
Shares based on an index composed of
fixed income securities will continue to
apply to a series of Index Fund Shares
based on an index or portfolio of
Municipal Securities listed pursuant to
Rule 14.11(c)(4)(B)(ii).
An index of Municipal Securities
typically does not meet the generic
listing requirements for Index Fund
Shares based on an index of fixed
income securities.5 Nonetheless, the
3 The term ‘‘Municipal Securities’’ has the
definition given to it in Section 3(a)(29) of the Act.
4 The Exchange notes that this proposal is
substantively identical to a proposal recently
submitted by NYSE Arca, Inc. See Securities
Exchange Act Release No. 85170 (February 21,
2019), 84 FR 6451 (February 27, 2019) (SR–
NYSEArca–2019–04).
5 See Exchange Rule 14.11(c)(4)(A)(ii). Municipal
Securities are typically issued in with individual
maturities of relatively small size, although they
generally are constituents of a much larger
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16753
Commission has previously approved
proposed rule changes relating to listing
and trading on the Exchange of Index
Fund Shares based on an index of
Municipal Securities.6 Given the large
number of prior approvals by the
Commission, the Exchange now
municipal bond offering. Therefore, an index of
Municipal Securities will typically be unable to
satisfy the requirement that component fixed
income securities that, in the aggregate, account for
at least 75% of the weight of the index each shall
have a minimum principal amount outstanding of
$100 million or more.
6 The Exchange notes that the Commission has
approved or published immediately effective filings
allowing the listing and trading of a large number
of series of Index Fund Shares based on Municipal
Securities. See Securities Exchange Act Release
Nos. 84107 (September 13, 2018), 83 FR 47210
(September 18, 2018) (SR–CboeBZX–2018–070)
(Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To List and Trade Shares of
the iShares iBonds Dec 2025 Term Muni Bond ETF
of iShares Trust Under BZX Rule 14.11(c)(4) (Index
Fund Shares)); 79381 (November 22, 2016), 81 FR
86044 (November 29, 2016) (SR–BatsBZX–2016–48)
(Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendments No. 1 and No. 2 Thereto, To List and
Trade Shares of the iShares iBonds Dec 2023 Term
Muni Bond ETF and iShares iBonds Dec 2024 Term
Muni Bond ETF of the iShares U.S. ETF Trust
Pursuant to BZX Rule 14.11(c)(4); 67985 (October
4, 2012), 77 FR 61804 (October 11, 2012) (SR–
NYSEArca–2012–92) (order approving proposed
rule change relating to the listing and trading of
iShares 2018 S&P AMT-Free Municipal Series and
iShares 2019 S&P AMT-Free Municipal Series
under NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02); 67729 (August 24, 2012), 77 FR
52776 (August 30, 2012) (SR–NYSEArca–2012–92)
(notice of proposed rule change relating to the
listing and trading of iShares 2018 S&P AMT-Free
Municipal Series and iShares 2019 S&P AMT-Free
Municipal Series under NYSE Arca Equities Rule
5.2(j)(3), Commentary .02); 72523, (July 2, 2014), 79
FR 39016 (July 9, 2014) (SR–NYSEArca–2014–37)
(order approving proposed rule change relating to
the listing and trading of iShares 2020 S&P AMTFree Municipal Series under NYSE Arca Equities
Rule 5.2(j)(3), Commentary.02); 72172 (May 15,
2014), 79 FR 29241 (May 21, 2014) (SR–NYSEArca–
2014–37) (notice of proposed rule change relating
to the listing and trading of iShares 2020 S&P AMTFree Municipal Series under NYSE Arca Equities
Rule 5.2(j)(3), Commentary.02); 72464 (June 25,
2014), 79 FR 37373 (July 1, 2014) (File No. SR–
NYSEArca–2014–45) (order approving proposed
rule change governing the continued listing and
trading of shares of the PowerShares Insured
California Municipal Bond Portfolio, PowerShares
Insured National Municipal Bond Portfolio, and
PowerShares Insured New York Municipal Bond
Portfolio); 75468 (July 16, 2015), 80 FR 43500 (July
22, 2015) (SR–NYSEArca–2015–25) (order
approving proposed rule change relating to the
listing and trading of iShares iBonds Dec 2021
AMT-Free Muni Bond ETF and iShares iBonds
Dec2022 AMT-Free Muni Bond ETF under NYSE
Arca Equities Rule 5.2(j)(3)); 74730 (April 15, 2015),
76 [sic] FR 22234 (April 21, 2015) (notice of
proposed rule change relating to the listing and
trading of iShares iBonds Dec 2021 AMT-Free Muni
Bond ETF and iShares iBonds Dec 2022 AMT-Free
Muni Bond ETF under NYSE Arca Equities Rule
5.2(j)(3), Commentary .02); 74730 75376 (July 7,
2015), 80 FR 40113 (July 13, 2015) (SR–NYSEArca–
2015–18) (order approving proposed rule change
relating to the listing and trading of Vanguard TaxExempt Bond Index Fund under NYSE Arca
Equities Rule 5.2(j)(3)).
E:\FR\FM\22APN1.SGM
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Federal Register / Vol. 84, No. 77 / Monday, April 22, 2019 / Notices
proposes to adopt generic listing
standards for Index Fund Shares based
on an index of Municipal Securities that
do not meet the generic listing standards
for Index Fund Shares based on an
index of fixed income securities.
In the Exchange’s experience, indices
of Municipal Securities are able to
satisfy all of the generic listing
requirements applicable to fixed income
indices contained in Rule 14.11(c)(4)
except the requirement that component
securities in an index have a minimum
original principal amount outstanding.
Specifically, Municipal Securities are
generally issued with individual
maturities of relatively small size,
although they generally are constituents
of a much larger municipal bond
offering. Therefore, Municipal
Securities are unable to satisfy the rule’s
requirement that ‘‘at least 75% of the
Fixed Income Securities portion of the
weight of the index or portfolio each
shall have a minimum original principal
amount outstanding of $100 million or
more.’’ Notwithstanding the inability of
a Municipal Securities index to meet
this aspect of the generic listing
standards, the Commission has
previously approved for listing and
trading a series of Index Fund Shares
based on such indices where the
Exchange has demonstrated an index is
not susceptible to manipulation.7
The Exchange would apply existing
Rule 14.11(c)(4) and proposed Rule
14.11(c)(4)(B)(ii) in a ‘‘waterfall’’
manner. Specifically, every series of
Index Fund Shares based on an index of
fixed income securities and cash
(including an index that contains
Municipal Securities) would initially be
evaluated against the generic listing
standards of Rule 14.11(c)(4)(b)(i). If the
index underlying a series of Index Fund
Shares satisfied the existing criteria of
Rule 14.11(c)(4)(b)(i), the Exchange
would proceed with listing the Index
Fund Shares. The Exchange would
apply proposed Rule 14.11(c)(4)(B)(ii)
only if: (i) An index did not meet the
requirements of Rule 14.11(c)(4)(b)(i);
and (ii) such index contained only
Municipal Securities and cash.
The Exchange believes that if an
index of fixed income securities and
cash (including one that contains
Municipal Securities) satisfies the
existing requirements of Rule
14.11(c)(4)(B)(i), its constituent
securities are sufficiently liquid to deter
manipulation of the index. Further, the
proposed alternative listing standard,
which would only be applicable to an
index consisting entirely of Municipal
Securities and cash, includes many
requirements that are more stringent
than those applicable to an index of
fixed income securities and cash. The
Exchange believes these heightened
requirements would deter potential
manipulation of such Municipal
Securities indices even though the
index may include securities that have
smaller original principal amounts
outstanding.
Comparison of Existing Quantitative
Requirements for Fixed Income Indices
vs. Proposed Quantitative Requirements
for Municipal Securities Indices
Below is a comparison of the existing
quantitative requirements for Index
Fund Shares based on an index of fixed
income securities versus the Exchange’s
proposed alternative quantitative
requirements for Index Fund Shares
based on an index of Municipal
Securities:
ORIGINAL PRINCIPAL AMOUNT OUTSTANDING
Existing Requirement for
Fixed Income Securities.
Proposed Requirement for
Municipal Securities.
Fixed Income Security components that in aggregate account for at least 75% of the Fixed Income Securities
portion of the weight of the index or portfolio each shall have a minimum original principal amount outstanding
of $100 million or more.
Municipal Security components that in aggregate account for at least 90% of the Municipal Securities portion of
the weight of the index or portfolio each shall have a minimum original principal amount outstanding of at least
$5 million and have been issued as part of a transaction of at least $20 million.
As discussed above, Municipal
Securities are typically issued with
individual maturities of relatively small
size, although they generally are
constituents of a much larger municipal
bond offering. In recognition of these
smaller offering sizes, the Exchange
proposes to reduce the minimum
original principal amount outstanding
requirement for component securities to
at least $5 million. Further, the
Exchange proposes that qualifying
securities must have been issued as part
of a transaction of at least $20 million.
Lastly, the Exchange proposes to
increase the percentage weight of an
7 See
supra note 6.
Commission approved BZX Rule 14.11(c) in
Securities Exchange Act Release No. 65225 (August
30, 2011), 76 FR 55148 (September 6, 2011) (SR–
BATS–2011–018).
9 See Letter from Samara Cohen, Managing
Director, U.S. Head of iShares Capital Markets,
Joanne Medero, Managing Director, Government
Relations & Public Policy, and Deepa Damre,
Managing Director, Legal & Compliance, BlackRock,
Inc., to Brent J. Fields, Secretary, Commission,
dated October 18, 2017 in support of the Exchange’s
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8 The
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index that must satisfy the original
principal amount outstanding
requirement from 75% to 90%.
The Exchange does not believe that
reducing the minimum original
principal amount outstanding
requirement for component securities
will make an index more susceptible to
manipulation. The Exchange believes
that the requirement that component
securities in a fixed income index have
a minimum principal amount
outstanding, in concert with the other
requirements of Rule 14.11(c)(4)(B)(i), is
to ensure that such index is sufficiently
broad-based in scope as to minimize
potential manipulation of the index.8
However, based on empirical analysis,
the Exchange does not believe that an
index of Municipal Securities with
lower original principal amounts
outstanding is necessarily more
susceptible to manipulation.9 In 2016,
Blackrock, Inc. analyzed the potential
manipulation of Municipal Securities
and found that such manipulation ‘‘may
be uneconomical and is unsupported in
practice.’’ 10 In addition, the Exchange
believes that its proposal to require that
90% of the weight of a Municipal
Securities index meet the original
principal amount outstanding
proposal to facilitate the listing and trading of Index
Fund Shares listed pursuant to NYSE Arca Rule
5.2–E(j)(3) (SR–NYSEArca–2017–56).
10 See Id. at 3 and accompanying Footnote 11.
Blackrock stated ‘‘Our empirical analysis indicated
that: (1) Given the over-the-counter dealer-centric
market for municipal bonds, the bid-ask spread
decreases with trade size; therefore, trading many
small lots to move matrix prices is likely to be
costly; (2) large trades move prices significantly and
this effect is incorporated into prices quickly; for
manipulation to work by affecting bond prices, the
trades must be large, implying greater dollar cost
and more likelihood of detection even if markets
were segmented; (3) while pricing agents apply
matrix pricing techniques to value non-traded
bonds, the effect is likely too small to permit price
manipulation of the corresponding index or ETF;
and (4) market participants will use all intraday
data to come up with their own valuations
independently of pricing providers; ultimately, the
price of an ETF at a point in time reflects these
estimates in a manner that balances supply and
demand.’’
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Federal Register / Vol. 84, No. 77 / Monday, April 22, 2019 / Notices
requirement (as opposed to 75% for
fixed income indices) will further deter
potential manipulation by ensuring that
a greater portion of the index meet this
minimum size requirement.
The Exchange notes that the
Commission has previously approved
the listing and trading of several series
of Index Fund Shares where the
underlying Municipal Securities index
required that component securities
16755
representing at least 90% of the weight
of the index have a minimum original
principal amount outstanding of at least
$5 million and have been issued as part
of a transaction of at least $20 million.11
MAXIMUM WEIGHT OF COMPONENT SECURITIES
Existing Requirement for
Fixed Income Securities.
Proposed Requirement for
Municipal Securities.
No component fixed income security (excluding Treasury Securities and GSE Securities) shall represent more
than 30% of the Fixed Income Securities portion of the weight of the index or portfolio, and the five most heavily weighted component fixed income securities in the index or portfolio shall not in the aggregate account for
more than 65% of the Fixed Income Securities portion of the weight of the index or portfolio.
No component Municipal Security shall represent more than 10% of the Municipal Securities portion of the weight
of the index or portfolio, and the five most heavily weighted component Municipal Securities in the index or
portfolio shall not in the aggregate account for more than 30% of the Municipal Securities portion of the weight
of the index or portfolio.
account for up to 30% of the weight of
such index and the top-five weighted
component securities to account for up
to 65% of the weight of such index. The
Exchange proposes to reduce these
metrics to 10% for individual Municipal
Securities and 30% for the top-weighted
Municipal Securities in an index.
The Exchange proposes to
substantially reduce the maximum
weight that any individual Municipal
Security, or group of five Municipal
Securities, can have in a Municipal
Securities index. The current generic
listing rules for Index Fund Shares
based on a fixed income index permit
individual component securities to
The Exchange believes that its
proposal will reduce the likelihood that
a Municipal Securities index underlying
a series of Index Fund Shares could be
subject to manipulation by ensuring that
no individual Municipal Security, or
group of five Municipal Securities,
represents an outsized weight of a
Municipal Securities index.
DIVERSIFICATION OF ISSUERS
Existing Requirement for
Fixed Income Securities.
Proposed Requirement for
Municipal Securities.
An underlying index or portfolio (excluding one consisting entirely of exempted securities) must include a minimum of 13 non-affiliated issuers.
An underlying index or portfolio must include a minimum of 13 non-affiliated issuers.
The current generic listing rules for
Index Fund Shares based on an index of
fixed income securities require that
such index must include securities from
at least thirteen non-affiliated 12 issuers.
Notably, the current rules exempt
indices consisting entirely of exempted
securities from complying with this
diversification requirement. Municipal
Securities are included in the definition
of exempted securities.13 Therefore, an
index of Municipal Securities that
otherwise met the requirements of Rule
14.11(c)(4) would not be required to
satisfy any minimum issuer
diversification requirement.
Nonetheless, the Exchange proposes
that a Municipal Securities index be
required to include securities from at
least 13 non-affiliated issuers. The
Exchange believes that requiring such
diversification will reduce the
likelihood that an index can be
manipulated by ensuring that securities
from a variety of issuers are represented
in an index of Municipal Securities.
NUMBER OF COMPONENTS
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Existing Requirement for Fixed Income Securities .......................................................................................................
Proposed Requirement for Municipal Securities ...........................................................................................................
Thirteen.
Five Hundred.
The current generic listing rules for
Index Fund Shares based on an index of
fixed income securities do not have an
explicit requirement that an index
contain a minimum number of
securities. However, given that such
rules require an index to contain
securities from at least thirteen nonaffiliated issuers, there is a de facto
requirement that an index of fixed
income securities contain at least
thirteen component securities. As
described above, a fixed income index
comprised entirely of exempted
securities (including Municipal
Securities) is not required to satisfy the
issuer diversification test, thereby
allowing it to have no minimum number
of component securities.
The Exchange proposes to require that
a Municipal Securities index contain at
least 500 component securities. The
Exchange believes that such
requirement will ensure that a
Municipal Securities index is
sufficiently broad-based and diversified
to make it less susceptible to
manipulation.
11 See, e.g., Securities Exchange Act Release No.
84049 (September 6, 2018), 83 FR 46228 (September
12, 2018) (SR–NYSEArca–2018–38) (order
approving, among other things, revisions to the
continued listing criteria applicable to the iShares
New York AMT-Free Muni Bond ETF).
12 Rule 405 under the Securities Act of 1933
defines an affiliate as a person that directly, or
indirectly through one or more intermediaries,
controls or is controlled by, or is under common
control with such person. Control, for this purpose,
is the possession, direct or indirect, of the power
to direct or cause the direction of the management
and policies of a person, whether through the
ownership of voting securities, by contract, or
otherwise.
13 See Section 3(a)(12) of the Act.
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Federal Register / Vol. 84, No. 77 / Monday, April 22, 2019 / Notices
The Exchange proposes that the
quantitative requirements described
above would apply to a Municipal
Securities index underlying a series of
Index Fund Shares on both an initial
and continued basis.
The Exchange proposes to amend
Exchange Rule 14.11(c)(5) to specify
that the Exchange may approve a series
of Index Fund Shares for listing based
on a combination of indexes, including
an index of Municipal Securities. To the
extent that an index of Municipal
Securities is included in a combination,
amended Rule 14.11(c)(5) will specify
that the Municipal Securities index
must meet all requirements of Rule
14.11(c)(4)(B)(ii). In addition, amended
Rule 14.11(c)(5) will specify that
requirements related to index
dissemination and related continued
listing standards will apply to indexes
of Municipal Securities. The Exchange
notes that a combination index that
includes an index of Municipal
Securities will not be permitted to seek
to provide investment results in a
multiple of the direct or inverse
performance of such combination index.
Additional Requirements
As noted above, the Exchange
proposes that existing rules applicable
to Index Fund Shares based on fixed
income securities will continue to apply
to any series of Index Fund Shares listed
pursuant to Rule 14.11(c)(4)(B)(ii),
including: (i) Index methodology and
calculation; 14 (ii) dissemination of
information; 15 (iii) initial shares
outstanding; 16 (iv) hours of trading; 17
(v) surveillance procedures; 18 and (vi)
all continued listing requirements under
Rule 14.11(c)(9)(B).
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2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities the Act and the rules and
regulations thereunder applicable to the
Exchange and, in particular, the
requirements of Section 6(b) of the
Act.19 Specifically, the Exchange
believes the proposed rule change is
consistent with the Section 6(b)(5) 20
requirements that the rules of an
exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
14 See
Rule 14.11(c)(4)(C).
Rule 14.11(c)(6)(A).
16 See Rule 14.11(c)(6)(B).
17 See Rule 14.11(c)(7).
18 See Rule 14.11(c)(6)(C).
19 15 U.S.C. 78f(b).
20 15 U.S.C. 78f(b)(5).
15 See
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17:22 Apr 19, 2019
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 21 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that the proposed rule change is
designed to prevent fraudulent and
manipulative acts and practices in that
Index Fund Shares listed pursuant to
proposed Exchange Rule
14.11(c)(4)(B)(ii) will be subject to the
existing trading surveillances,
administered by FINRA on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws. The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
FINRA, on behalf of the Exchange, will
communicate as needed regarding
trading in the Shares with other markets
that are members of the ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement. FINRA also can access data
obtained from the MSRB relating to
municipal bond trading activity for
surveillance purposes in connection
with trading in the Shares. FINRA, on
behalf of the Exchange, is able to access,
as needed, trade information for certain
fixed income securities held by a Fund
reported to FINRA’s TRACE.
The Exchange believes that the
proposed listing standard will ensure
that indices underlying a series of Index
Fund Shares are sufficiently welldiversified to protect against index
manipulation. On an initial and
continuous basis, each index will
contain at least 500 component
securities. In addition, on an initial and
continued basis, at least 90% of the
Municipal Securities portion of the
weight of the index or portfolio each
shall have a minimum original principal
amount outstanding of at least $5
million and have been issued as part of
a transaction of at least $20 million.
Further, on an initial and continued
basis, no component Municipal Security
shall represent more than 10% of the
Municipal Securities portion of the
weight of the index or portfolio, and the
21 Id.
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five most heavily weighted component
Municipal Securities in an index or
portfolio shall not in the aggregate
account for more than 30% of the
Municipal Securities portion of the
weight of such index or portfolio.
Lastly, on an initial and continued
basis, an underlying index or portfolio
must include a minimum of 13 nonaffiliated issuers. The Exchange believes
that this significant diversification and
the lack of concentration among
constituent securities provides [sic] a
strong degree of protection against index
manipulation.
In addition, the Exchange represents
that Index Fund Shares listed to the
proposed generic listing rule will
comply with all other requirements
applicable to Index Fund Shares
including, but not limited to, the
applicable rules governing the trading of
equity securities, trading hours, trading
halts, surveillance, information barriers
and the Information Circular to
Members, as set forth in Exchange rules
applicable to Index Fund Shares.
The Exchange believes that its
proposed amendments to Rule
14.11(c)(5) are consistent with the Act
because any index of Municipal
Securities included in a combination
index will be required to meet the
requirements of proposed Rule
14.11(c)(4)(B)(ii). In addition, such
index will be required to meet the index
dissemination and continued listing
requirements of Rule 14.11(c)(5). Lastly,
a combination index that includes an
index of Municipal Securities will not
be permitted to seek to provide
investment results in a multiple of the
direct or inverse performance of such
combination index.
As described above, the Exchange
notes that the Commission has
previously approved the listing and
trading of several series of Index Fund
Shares where the underlying Municipal
Securities index required that
component securities representing at
least 90% of the weight of the index
have a minimum original principal
amount outstanding of at least $5
million and have been issued as part of
a transaction of at least $20 million.
Further, the Exchange notes that the
other elements of the proposed rule are
each the same or more restrictive than
the generic listing rules applicable to
Index Fund Shares based on an index of
fixed income securities. The Exchange,
therefore, believes that indices
underlying a series of Index Fund
Shares listed pursuant to the proposed
generic rules will be sufficiently broadbased to deter potential manipulation.
The proposed rule change is designed
to promote just and equitable principles
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of trade and to protect investors and the
public interest. The Exchange believes
that a large amount of information will
be publicly available regarding Index
Fund Shares listed pursuant to the
proposed rule, thereby promoting
market transparency. As described
above, the Intraday Indicative Value (the
‘‘IIV’’) will be widely disseminated by
one or more major market data vendors
at least every 15 seconds during the
Exchange’s Regular Trading Hours. The
current value of an index underlying a
series of Index Fund Shares will be
disseminated by one or more major
market data vendors at least once per
day. Information regarding market price
and trading volume of the Index Fund
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services, and quotation and
last sale information will be available
via the CTA high-speed line. Prior to the
commencement of trading, the Exchange
will inform its Members in an
Information Circular of the special
characteristics and risks associated with
trading the Index Fund Shares. If the
Exchange becomes aware that the net
asset value of a series of Index Fund
Shares (the ‘‘NAV’’) is not being
disseminated to all market participants
at the same time, it will halt trading in
the Index Fund Shares until such time
as the NAV is available to all market
participants. With respect to trading
halts, the Exchange may consider all
relevant factors in exercising its
discretion to halt or suspend trading in
the Index Fund Shares. Trading also
may be halted because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Index Fund Shares inadvisable. If
the IIV or the index values are not being
disseminated as required, the Exchange
may halt trading during the day in
which the interruption to the
dissemination of the applicable IIV or
an index value occurs. If the
interruption to the dissemination of the
applicable IIV or an index value persists
past the trading day in which it
occurred, the Exchange will halt
trading. Trading in Shares of the Funds
will be halted if the circuit breaker
parameters in Exchange Rule 11.18 have
been reached or because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Index Fund Shares inadvisable. In
addition, investors will have ready
access to information regarding the IIV,
and quotation and last sale information
for the Index Fund Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
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17:22 Apr 19, 2019
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open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of additional types of exchange-traded
products based on municipal bond
indexes that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
The Exchange has in place surveillance
procedures relating to trading in the
Index Fund Shares and may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement. In addition,
investors will have ready access to
information regarding the IIV and
quotation and last sale information for
the Index Fund Shares. Trade price and
other information relating to municipal
bonds is available through the MSRB’s
EMMA system.
As required under Rule
14.11(c)(4)(C)(i) and (iii), if the index is
maintained by a broker-dealer or fund
advisor, the broker-dealer or fund
advisor shall erect and maintain a
‘‘firewall’’ around the personnel who
have access to information concerning
changes and adjustments to the index.
Further, any advisory committee,
supervisory board, or similar entity that
advises a Reporting Authority or that
makes decisions on the index
composition, methodology and related
matters, must implement and maintain,
or be subject to, procedures designed to
prevent the use and dissemination of
material non-public information
regarding the applicable index.
Further, the index value of a series of
Index Fund Shares listed pursuant to
proposed Rule 14.11(c)(4)(B)(ii) will be
widely disseminated by one or more
major market data vendors at least once
per day and if the index value does not
change during some or all of the period
when trading is occurring on the
Exchange, the last official calculated
index value must remain available
throughout Exchange trading hours. In
addition, the IIV for the Index Fund
Shares will be disseminated by one or
more major market data vendors,
updated at least every 15 seconds
during the Exchange’s Regular Trading
Hours as required under Rule
14.11(c)(4)(C)(ii).
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
Exchange notes that the proposed rule
change will facilitate the listing and
PO 00000
Frm 00121
Fmt 4703
Sfmt 4703
16757
trading of Index Fund Shares based on
an index of Municipal Securities which
will enhance competition among market
participants, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received 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 rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2019–023 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–2019–023. 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
E:\FR\FM\22APN1.SGM
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Federal Register / Vol. 84, No. 77 / Monday, April 22, 2019 / Notices
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–2019–023, and
should be submitted on or before May
13, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–07982 Filed 4–19–19; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice: 10744]
Certification Pursuant to Section
7041(a)(1) of the Department of State,
Foreign Operations, and Related
Programs Appropriations Act, 2019
(Div. K, Pub. L. 116–6)
amozie on DSK9F9SC42PROD with NOTICES
By virtue of the authority vested in
me as Secretary of State pursuant to
section 7041(a)(1) of the Department of
State, Foreign Operations, and Related
Programs Appropriations Act, 2019
(Div. K, Pub. L. 116–6), I hereby certify
that the Government of Egypt is
sustaining the strategic relationship
with the United States and meeting its
obligations under the 1979 Egypt-Israel
Peace Treaty.
This determination shall be published
in the Federal Register and, along with
the accompanying Memorandum of
Justification, shall be reported to
Congress.
Dated: March 11, 2019.
Michael R. Pompeo,
Secretary of State.
[FR Doc. 2019–08060 Filed 4–19–19; 8:45 am]
BILLING CODE 4710–31–P
22 17
CFR 200.30–3(a)(12).
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DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
[Docket No. FAA–2019–0291]
Agency Information Collection
Activities: Requests for Comments;
Clearance of Renewed Approval of
Information Collection: Notice of
Proposed Construction or Alteration,
Notice of Actual Construction or
Alteration
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice and request for
comments.
AGENCY:
In accordance with the
Paperwork Reduction Act of 1995, FAA
invites public comments about our
intention to request the Office of
Management and Budget (OMB)
approval to renew an information
collection. The FAA uses the
information collected on form 7460–1 to
determine the effect a proposed
construction or alteration would have
on air navigation and the National
Airspace System (NAS) and the
information collected on form 7460–2 to
measure the progress of actual
construction.
DATES: Written comments should be
submitted by June 21, 2019.
ADDRESSES: Please send written
comments:
By Electronic Docket:
www.regulations.gov (Enter docket
number into search field).
By mail: Obstruction Evaluation
Group, ATTN: Dave Maddox, Federal
Aviation Administration, 800
Independence Ave. SW, Room 400 East,
Washington, DC 20591.
FOR FURTHER INFORMATION CONTACT:
Dave Maddox by email at:
david.maddox@faa.gov; phone: 202–
267–4525.
SUPPLEMENTARY INFORMATION:
Public Comments Invited: You are
asked to comment on any aspect of this
information collection, including (a)
whether the proposed collection of
information is necessary for FAA’s
performance; (b) the accuracy of the
estimated burden; (c) ways for FAA to
enhance the quality, utility and clarity
of the information collection; and (d)
ways that the burden could be
minimized without reducing the quality
of the collected information. The agency
will summarize and/or include your
comments in the request for OMB’s
clearance of this information collection.
OMB Control Number: 2120–0001.
Title: Notice of Proposed Construction
or Alteration, Notice of Actual
Construction or Alteration.
SUMMARY:
PO 00000
Frm 00122
Fmt 4703
Sfmt 4703
Form Numbers: FAA Forms 7460–1
and 7460–2.
Type of Review: Renewal of an
information collection.
Background: 49 U.S.C Section 44718
states that the Secretary of
Transportation shall require notice of
structures that may affect navigable
airspace, air commerce, or air capacity.
These notice requirements are contained
in 14 CFR 77. The information is
collected via FAA Forms 7460–1 and
7460–2.
Respondents: 85,000.
Frequency: Information is collected
on occasion.
Estimated Average Burden per
Response: Approximately 15 Minutes.
Estimated Total Annual Burden:
70,075 hours.
Issued in Washington, DC, on April 16,
2019.
Michael Helvey,
Manager, Obstruction Evaluation Group,
AJV–15.
[FR Doc. 2019–08011 Filed 4–19–19; 8:45 am]
BILLING CODE 4910–13–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
Notice of Opportunity for Public
Comment To Dispose of 0.76 Acres of
Airport Land at T.F. Green Airport,
Warwick, RI
Federal Aviation
Administration (FAA), DOT.
ACTION: Request for public comments.
AGENCY:
Notice is being given that the
FAA is considering a request from the
Rhode Island Airport Corporation
(RIAC) to dispose of 0.76 acres of land.
The parcel, made up of five smaller
parcels, was acquired as part of Airport
Improvement Program Grant 3–44–
0003–01 and is located to the northwest
of Runway 16. The parcel is no longer
needed for airport purposes. Prior to
and as part of the disposal, the buyer
must rezone the property for
commercial use and an avigation
easement will be required for the
property to ensure compatible land use
with the airport. RIAC will obtain fair
market value for the disposal of the land
and the income derived from this
disposal will be reinvested in a future
AIP funded project for the airport.
DATES: Comments must be received on
or before May 22, 2019.
ADDRESSES: You may send comments
using any of the following methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov, and follow
SUMMARY:
E:\FR\FM\22APN1.SGM
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]]>Agencies
[Federal Register Volume 84, Number 77 (Monday, April 22, 2019)]
[Notices]
[Pages 16753-16758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07982]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85656; File No. SR-CboeBZX-2019-023]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change Amend Exchange Rule 14.11(c), Index
Fund Shares, To Adopt Generic Listing Standards for Index Fund Shares
Based on an Index of Municipal Bond Securities
April 16, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 3, 2019, 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. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Exchange Rule 14.11(c) (``Index Fund
Shares'') to adopt generic listing standards for Index Fund Shares
based on an index of municipal bond 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
Rule 14.11(c) permits the Exchange to list a series of Index Fund
Shares based on an index or portfolio of underlying securities.
Currently, Rule 14.11(c) includes generic listing standards for Index
Fund Shares based on an index or portfolio of equity or fixed income
securities or a combination thereof. The Exchange proposes to amend
Rule 14.11(c) to add a new Rule 14.11(c)(4)(B)(ii) to provide
quantitative generic listing standards for Index Fund Shares based on
an index or portfolio of Municipal Securities \3\ that do not meet the
generic listing standards under Rule 14.11(c)(4)(B)(i).\4\ All other
standards not included in Rule 14.11(c)(4)(B)(i) applicable to series
of Index Fund Shares based on an index composed of fixed income
securities will continue to apply to a series of Index Fund Shares
based on an index or portfolio of Municipal Securities listed pursuant
to Rule 14.11(c)(4)(B)(ii).
---------------------------------------------------------------------------
\3\ The term ``Municipal Securities'' has the definition given
to it in Section 3(a)(29) of the Act.
\4\ The Exchange notes that this proposal is substantively
identical to a proposal recently submitted by NYSE Arca, Inc. See
Securities Exchange Act Release No. 85170 (February 21, 2019), 84 FR
6451 (February 27, 2019) (SR-NYSEArca-2019-04).
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An index of Municipal Securities typically does not meet the
generic listing requirements for Index Fund Shares based on an index of
fixed income securities.\5\ Nonetheless, the Commission has previously
approved proposed rule changes relating to listing and trading on the
Exchange of Index Fund Shares based on an index of Municipal
Securities.\6\ Given the large number of prior approvals by the
Commission, the Exchange now
[[Page 16754]]
proposes to adopt generic listing standards for Index Fund Shares based
on an index of Municipal Securities that do not meet the generic
listing standards for Index Fund Shares based on an index of fixed
income securities.
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\5\ See Exchange Rule 14.11(c)(4)(A)(ii). Municipal Securities
are typically issued in with individual maturities of relatively
small size, although they generally are constituents of a much
larger municipal bond offering. Therefore, an index of Municipal
Securities will typically be unable to satisfy the requirement that
component fixed income securities that, in the aggregate, account
for at least 75% of the weight of the index each shall have a
minimum principal amount outstanding of $100 million or more.
\6\ The Exchange notes that the Commission has approved or
published immediately effective filings allowing the listing and
trading of a large number of series of Index Fund Shares based on
Municipal Securities. See Securities Exchange Act Release Nos. 84107
(September 13, 2018), 83 FR 47210 (September 18, 2018) (SR-CboeBZX-
2018-070) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To List and Trade Shares of the iShares iBonds
Dec 2025 Term Muni Bond ETF of iShares Trust Under BZX Rule
14.11(c)(4) (Index Fund Shares)); 79381 (November 22, 2016), 81 FR
86044 (November 29, 2016) (SR-BatsBZX-2016-48) (Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendments No. 1 and No. 2 Thereto, To List and Trade Shares of the
iShares iBonds Dec 2023 Term Muni Bond ETF and iShares iBonds Dec
2024 Term Muni Bond ETF of the iShares U.S. ETF Trust Pursuant to
BZX Rule 14.11(c)(4); 67985 (October 4, 2012), 77 FR 61804 (October
11, 2012) (SR-NYSEArca-2012-92) (order approving proposed rule
change relating to the listing and trading of iShares 2018 S&P AMT-
Free Municipal Series and iShares 2019 S&P AMT-Free Municipal Series
under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02); 67729
(August 24, 2012), 77 FR 52776 (August 30, 2012) (SR-NYSEArca-2012-
92) (notice of proposed rule change relating to the listing and
trading of iShares 2018 S&P AMT-Free Municipal Series and iShares
2019 S&P AMT-Free Municipal Series under NYSE Arca Equities Rule
5.2(j)(3), Commentary .02); 72523, (July 2, 2014), 79 FR 39016 (July
9, 2014) (SR-NYSEArca-2014-37) (order approving proposed rule change
relating to the listing and trading of iShares 2020 S&P AMT-Free
Municipal Series under NYSE Arca Equities Rule 5.2(j)(3),
Commentary.02); 72172 (May 15, 2014), 79 FR 29241 (May 21, 2014)
(SR-NYSEArca-2014-37) (notice of proposed rule change relating to
the listing and trading of iShares 2020 S&P AMT-Free Municipal
Series under NYSE Arca Equities Rule 5.2(j)(3), Commentary.02);
72464 (June 25, 2014), 79 FR 37373 (July 1, 2014) (File No. SR-
NYSEArca-2014-45) (order approving proposed rule change governing
the continued listing and trading of shares of the PowerShares
Insured California Municipal Bond Portfolio, PowerShares Insured
National Municipal Bond Portfolio, and PowerShares Insured New York
Municipal Bond Portfolio); 75468 (July 16, 2015), 80 FR 43500 (July
22, 2015) (SR-NYSEArca-2015-25) (order approving proposed rule
change relating to the listing and trading of iShares iBonds Dec
2021 AMT-Free Muni Bond ETF and iShares iBonds Dec2022 AMT-Free Muni
Bond ETF under NYSE Arca Equities Rule 5.2(j)(3)); 74730 (April 15,
2015), 76 [sic] FR 22234 (April 21, 2015) (notice of proposed rule
change relating to the listing and trading of iShares iBonds Dec
2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022 AMT-Free
Muni Bond ETF under NYSE Arca Equities Rule 5.2(j)(3), Commentary
.02); 74730 75376 (July 7, 2015), 80 FR 40113 (July 13, 2015) (SR-
NYSEArca-2015-18) (order approving proposed rule change relating to
the listing and trading of Vanguard Tax-Exempt Bond Index Fund under
NYSE Arca Equities Rule 5.2(j)(3)).
---------------------------------------------------------------------------
In the Exchange's experience, indices of Municipal Securities are
able to satisfy all of the generic listing requirements applicable to
fixed income indices contained in Rule 14.11(c)(4) except the
requirement that component securities in an index have a minimum
original principal amount outstanding. Specifically, Municipal
Securities are generally issued with individual maturities of
relatively small size, although they generally are constituents of a
much larger municipal bond offering. Therefore, Municipal Securities
are unable to satisfy the rule's requirement that ``at least 75% of the
Fixed Income Securities portion of the weight of the index or portfolio
each shall have a minimum original principal amount outstanding of $100
million or more.'' Notwithstanding the inability of a Municipal
Securities index to meet this aspect of the generic listing standards,
the Commission has previously approved for listing and trading a series
of Index Fund Shares based on such indices where the Exchange has
demonstrated an index is not susceptible to manipulation.\7\
---------------------------------------------------------------------------
\7\ See supra note 6.
---------------------------------------------------------------------------
The Exchange would apply existing Rule 14.11(c)(4) and proposed
Rule 14.11(c)(4)(B)(ii) in a ``waterfall'' manner. Specifically, every
series of Index Fund Shares based on an index of fixed income
securities and cash (including an index that contains Municipal
Securities) would initially be evaluated against the generic listing
standards of Rule 14.11(c)(4)(b)(i). If the index underlying a series
of Index Fund Shares satisfied the existing criteria of Rule
14.11(c)(4)(b)(i), the Exchange would proceed with listing the Index
Fund Shares. The Exchange would apply proposed Rule 14.11(c)(4)(B)(ii)
only if: (i) An index did not meet the requirements of Rule
14.11(c)(4)(b)(i); and (ii) such index contained only Municipal
Securities and cash.
The Exchange believes that if an index of fixed income securities
and cash (including one that contains Municipal Securities) satisfies
the existing requirements of Rule 14.11(c)(4)(B)(i), its constituent
securities are sufficiently liquid to deter manipulation of the index.
Further, the proposed alternative listing standard, which would only be
applicable to an index consisting entirely of Municipal Securities and
cash, includes many requirements that are more stringent than those
applicable to an index of fixed income securities and cash. The
Exchange believes these heightened requirements would deter potential
manipulation of such Municipal Securities indices even though the index
may include securities that have smaller original principal amounts
outstanding.
Comparison of Existing Quantitative Requirements for Fixed Income
Indices vs. Proposed Quantitative Requirements for Municipal Securities
Indices
Below is a comparison of the existing quantitative requirements for
Index Fund Shares based on an index of fixed income securities versus
the Exchange's proposed alternative quantitative requirements for Index
Fund Shares based on an index of Municipal Securities:
Original Principal Amount Outstanding
------------------------------------------------------------------------
------------------------------------------------------------------------
Existing Requirement for Fixed Income Security components that in
Fixed Income Securities. aggregate account for at least 75% of
the Fixed Income Securities portion of
the weight of the index or portfolio
each shall have a minimum original
principal amount outstanding of $100
million or more.
Proposed Requirement for Municipal Security components that in
Municipal Securities. aggregate account for at least 90% of
the Municipal Securities portion of the
weight of the index or portfolio each
shall have a minimum original principal
amount outstanding of at least $5
million and have been issued as part of
a transaction of at least $20 million.
------------------------------------------------------------------------
As discussed above, Municipal Securities are typically issued with
individual maturities of relatively small size, although they generally
are constituents of a much larger municipal bond offering. In
recognition of these smaller offering sizes, the Exchange proposes to
reduce the minimum original principal amount outstanding requirement
for component securities to at least $5 million. Further, the Exchange
proposes that qualifying securities must have been issued as part of a
transaction of at least $20 million. Lastly, the Exchange proposes to
increase the percentage weight of an index that must satisfy the
original principal amount outstanding requirement from 75% to 90%.
The Exchange does not believe that reducing the minimum original
principal amount outstanding requirement for component securities will
make an index more susceptible to manipulation. The Exchange believes
that the requirement that component securities in a fixed income index
have a minimum principal amount outstanding, in concert with the other
requirements of Rule 14.11(c)(4)(B)(i), is to ensure that such index is
sufficiently broad-based in scope as to minimize potential manipulation
of the index.\8\ However, based on empirical analysis, the Exchange
does not believe that an index of Municipal Securities with lower
original principal amounts outstanding is necessarily more susceptible
to manipulation.\9\ In 2016, Blackrock, Inc. analyzed the potential
manipulation of Municipal Securities and found that such manipulation
``may be uneconomical and is unsupported in practice.'' \10\ In
addition, the Exchange believes that its proposal to require that 90%
of the weight of a Municipal Securities index meet the original
principal amount outstanding
[[Page 16755]]
requirement (as opposed to 75% for fixed income indices) will further
deter potential manipulation by ensuring that a greater portion of the
index meet this minimum size requirement.
---------------------------------------------------------------------------
\8\ The Commission approved BZX Rule 14.11(c) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
\9\ See Letter from Samara Cohen, Managing Director, U.S. Head
of iShares Capital Markets, Joanne Medero, Managing Director,
Government Relations & Public Policy, and Deepa Damre, Managing
Director, Legal & Compliance, BlackRock, Inc., to Brent J. Fields,
Secretary, Commission, dated October 18, 2017 in support of the
Exchange's proposal to facilitate the listing and trading of Index
Fund Shares listed pursuant to NYSE Arca Rule 5.2-E(j)(3) (SR-
NYSEArca-2017-56).
\10\ See Id. at 3 and accompanying Footnote 11. Blackrock stated
``Our empirical analysis indicated that: (1) Given the over-the-
counter dealer-centric market for municipal bonds, the bid-ask
spread decreases with trade size; therefore, trading many small lots
to move matrix prices is likely to be costly; (2) large trades move
prices significantly and this effect is incorporated into prices
quickly; for manipulation to work by affecting bond prices, the
trades must be large, implying greater dollar cost and more
likelihood of detection even if markets were segmented; (3) while
pricing agents apply matrix pricing techniques to value non-traded
bonds, the effect is likely too small to permit price manipulation
of the corresponding index or ETF; and (4) market participants will
use all intraday data to come up with their own valuations
independently of pricing providers; ultimately, the price of an ETF
at a point in time reflects these estimates in a manner that
balances supply and demand.''
---------------------------------------------------------------------------
The Exchange notes that the Commission has previously approved the
listing and trading of several series of Index Fund Shares where the
underlying Municipal Securities index required that component
securities representing at least 90% of the weight of the index have a
minimum original principal amount outstanding of at least $5 million
and have been issued as part of a transaction of at least $20
million.\11\
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\11\ See, e.g., Securities Exchange Act Release No. 84049
(September 6, 2018), 83 FR 46228 (September 12, 2018) (SR-NYSEArca-
2018-38) (order approving, among other things, revisions to the
continued listing criteria applicable to the iShares New York AMT-
Free Muni Bond ETF).
Maximum Weight of Component Securities
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Existing Requirement for No component fixed income security
Fixed Income Securities. (excluding Treasury Securities and GSE
Securities) shall represent more than
30% of the Fixed Income Securities
portion of the weight of the index or
portfolio, and the five most heavily
weighted component fixed income
securities in the index or portfolio
shall not in the aggregate account for
more than 65% of the Fixed Income
Securities portion of the weight of the
index or portfolio.
Proposed Requirement for No component Municipal Security shall
Municipal Securities. represent more than 10% of the Municipal
Securities portion of the weight of the
index or portfolio, and the five most
heavily weighted component Municipal
Securities in the index or portfolio
shall not in the aggregate account for
more than 30% of the Municipal
Securities portion of the weight of the
index or portfolio.
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The Exchange proposes to substantially reduce the maximum weight
that any individual Municipal Security, or group of five Municipal
Securities, can have in a Municipal Securities index. The current
generic listing rules for Index Fund Shares based on a fixed income
index permit individual component securities to account for up to 30%
of the weight of such index and the top-five weighted component
securities to account for up to 65% of the weight of such index. The
Exchange proposes to reduce these metrics to 10% for individual
Municipal Securities and 30% for the top-weighted Municipal Securities
in an index.
The Exchange believes that its proposal will reduce the likelihood
that a Municipal Securities index underlying a series of Index Fund
Shares could be subject to manipulation by ensuring that no individual
Municipal Security, or group of five Municipal Securities, represents
an outsized weight of a Municipal Securities index.
Diversification of Issuers
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Existing Requirement for An underlying index or portfolio
Fixed Income Securities. (excluding one consisting entirely of
exempted securities) must include a
minimum of 13 non-affiliated issuers.
Proposed Requirement for An underlying index or portfolio must
Municipal Securities. include a minimum of 13 non-affiliated
issuers.
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The current generic listing rules for Index Fund Shares based on an
index of fixed income securities require that such index must include
securities from at least thirteen non-affiliated \12\ issuers. Notably,
the current rules exempt indices consisting entirely of exempted
securities from complying with this diversification requirement.
Municipal Securities are included in the definition of exempted
securities.\13\ Therefore, an index of Municipal Securities that
otherwise met the requirements of Rule 14.11(c)(4) would not be
required to satisfy any minimum issuer diversification requirement.
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\12\ Rule 405 under the Securities Act of 1933 defines an
affiliate as a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under
common control with such person. Control, for this purpose, is the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether
through the ownership of voting securities, by contract, or
otherwise.
\13\ See Section 3(a)(12) of the Act.
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Nonetheless, the Exchange proposes that a Municipal Securities
index be required to include securities from at least 13 non-affiliated
issuers. The Exchange believes that requiring such diversification will
reduce the likelihood that an index can be manipulated by ensuring that
securities from a variety of issuers are represented in an index of
Municipal Securities.
Number of Components
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Existing Requirement for Fixed Income Securities Thirteen.
Proposed Requirement for Municipal Securities... Five Hundred.
------------------------------------------------------------------------
The current generic listing rules for Index Fund Shares based on an
index of fixed income securities do not have an explicit requirement
that an index contain a minimum number of securities. However, given
that such rules require an index to contain securities from at least
thirteen non-affiliated issuers, there is a de facto requirement that
an index of fixed income securities contain at least thirteen component
securities. As described above, a fixed income index comprised entirely
of exempted securities (including Municipal Securities) is not required
to satisfy the issuer diversification test, thereby allowing it to have
no minimum number of component securities.
The Exchange proposes to require that a Municipal Securities index
contain at least 500 component securities. The Exchange believes that
such requirement will ensure that a Municipal Securities index is
sufficiently broad-based and diversified to make it less susceptible to
manipulation.
[[Page 16756]]
The Exchange proposes that the quantitative requirements described
above would apply to a Municipal Securities index underlying a series
of Index Fund Shares on both an initial and continued basis.
The Exchange proposes to amend Exchange Rule 14.11(c)(5) to specify
that the Exchange may approve a series of Index Fund Shares for listing
based on a combination of indexes, including an index of Municipal
Securities. To the extent that an index of Municipal Securities is
included in a combination, amended Rule 14.11(c)(5) will specify that
the Municipal Securities index must meet all requirements of Rule
14.11(c)(4)(B)(ii). In addition, amended Rule 14.11(c)(5) will specify
that requirements related to index dissemination and related continued
listing standards will apply to indexes of Municipal Securities. The
Exchange notes that a combination index that includes an index of
Municipal Securities will not be permitted to seek to provide
investment results in a multiple of the direct or inverse performance
of such combination index.
Additional Requirements
As noted above, the Exchange proposes that existing rules
applicable to Index Fund Shares based on fixed income securities will
continue to apply to any series of Index Fund Shares listed pursuant to
Rule 14.11(c)(4)(B)(ii), including: (i) Index methodology and
calculation; \14\ (ii) dissemination of information; \15\ (iii) initial
shares outstanding; \16\ (iv) hours of trading; \17\ (v) surveillance
procedures; \18\ and (vi) all continued listing requirements under Rule
14.11(c)(9)(B).
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\14\ See Rule 14.11(c)(4)(C).
\15\ See Rule 14.11(c)(6)(A).
\16\ See Rule 14.11(c)(6)(B).
\17\ See Rule 14.11(c)(7).
\18\ See Rule 14.11(c)(6)(C).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities the Act and the rules and regulations thereunder
applicable to the Exchange and, in particular, the requirements of
Section 6(b) of the Act.\19\ Specifically, the Exchange believes the
proposed rule change is consistent with the Section 6(b)(5) \20\
requirements that the rules of an exchange be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. Additionally, the Exchange
believes the proposed rule change is consistent with the Section
6(b)(5) \21\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
\21\ Id.
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In particular, the Exchange believes that the proposed rule change
is designed to prevent fraudulent and manipulative acts and practices
in that Index Fund Shares listed pursuant to proposed Exchange Rule
14.11(c)(4)(B)(ii) will be subject to the existing trading
surveillances, administered by FINRA on behalf of the Exchange, which
are designed to detect violations of Exchange rules and applicable
federal securities laws. The Exchange represents that these procedures
are adequate to properly monitor Exchange trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and applicable federal securities laws. FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in the Shares
with other markets that are members of the ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
FINRA also can access data obtained from the MSRB relating to municipal
bond trading activity for surveillance purposes in connection with
trading in the Shares. FINRA, on behalf of the Exchange, is able to
access, as needed, trade information for certain fixed income
securities held by a Fund reported to FINRA's TRACE.
The Exchange believes that the proposed listing standard will
ensure that indices underlying a series of Index Fund Shares are
sufficiently well-diversified to protect against index manipulation. On
an initial and continuous basis, each index will contain at least 500
component securities. In addition, on an initial and continued basis,
at least 90% of the Municipal Securities portion of the weight of the
index or portfolio each shall have a minimum original principal amount
outstanding of at least $5 million and have been issued as part of a
transaction of at least $20 million. Further, on an initial and
continued basis, no component Municipal Security shall represent more
than 10% of the Municipal Securities portion of the weight of the index
or portfolio, and the five most heavily weighted component Municipal
Securities in an index or portfolio shall not in the aggregate account
for more than 30% of the Municipal Securities portion of the weight of
such index or portfolio. Lastly, on an initial and continued basis, an
underlying index or portfolio must include a minimum of 13 non-
affiliated issuers. The Exchange believes that this significant
diversification and the lack of concentration among constituent
securities provides [sic] a strong degree of protection against index
manipulation.
In addition, the Exchange represents that Index Fund Shares listed
to the proposed generic listing rule will comply with all other
requirements applicable to Index Fund Shares including, but not limited
to, the applicable rules governing the trading of equity securities,
trading hours, trading halts, surveillance, information barriers and
the Information Circular to Members, as set forth in Exchange rules
applicable to Index Fund Shares.
The Exchange believes that its proposed amendments to Rule
14.11(c)(5) are consistent with the Act because any index of Municipal
Securities included in a combination index will be required to meet the
requirements of proposed Rule 14.11(c)(4)(B)(ii). In addition, such
index will be required to meet the index dissemination and continued
listing requirements of Rule 14.11(c)(5). Lastly, a combination index
that includes an index of Municipal Securities will not be permitted to
seek to provide investment results in a multiple of the direct or
inverse performance of such combination index.
As described above, the Exchange notes that the Commission has
previously approved the listing and trading of several series of Index
Fund Shares where the underlying Municipal Securities index required
that component securities representing at least 90% of the weight of
the index have a minimum original principal amount outstanding of at
least $5 million and have been issued as part of a transaction of at
least $20 million. Further, the Exchange notes that the other elements
of the proposed rule are each the same or more restrictive than the
generic listing rules applicable to Index Fund Shares based on an index
of fixed income securities. The Exchange, therefore, believes that
indices underlying a series of Index Fund Shares listed pursuant to the
proposed generic rules will be sufficiently broad-based to deter
potential manipulation.
The proposed rule change is designed to promote just and equitable
principles
[[Page 16757]]
of trade and to protect investors and the public interest. The Exchange
believes that a large amount of information will be publicly available
regarding Index Fund Shares listed pursuant to the proposed rule,
thereby promoting market transparency. As described above, the Intraday
Indicative Value (the ``IIV'') will be widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Exchange's Regular Trading Hours. The current value of an index
underlying a series of Index Fund Shares will be disseminated by one or
more major market data vendors at least once per day. Information
regarding market price and trading volume of the Index Fund Shares will
be continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services, and quotation
and last sale information will be available via the CTA high-speed
line. Prior to the commencement of trading, the Exchange will inform
its Members in an Information Circular of the special characteristics
and risks associated with trading the Index Fund Shares. If the
Exchange becomes aware that the net asset value of a series of Index
Fund Shares (the ``NAV'') is not being disseminated to all market
participants at the same time, it will halt trading in the Index Fund
Shares until such time as the NAV is available to all market
participants. With respect to trading halts, the Exchange may consider
all relevant factors in exercising its discretion to halt or suspend
trading in the Index Fund Shares. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Index Fund Shares inadvisable. If the IIV or the
index values are not being disseminated as required, the Exchange may
halt trading during the day in which the interruption to the
dissemination of the applicable IIV or an index value occurs. If the
interruption to the dissemination of the applicable IIV or an index
value persists past the trading day in which it occurred, the Exchange
will halt trading. Trading in Shares of the Funds will be halted if the
circuit breaker parameters in Exchange Rule 11.18 have been reached or
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Index Fund Shares inadvisable. In
addition, investors will have ready access to information regarding the
IIV, and quotation and last sale information for the Index Fund Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of exchange-traded products based on municipal bond
indexes that will enhance competition among market participants, to the
benefit of investors and the marketplace. The Exchange has in place
surveillance procedures relating to trading in the Index Fund Shares
and may obtain information via ISG from other exchanges that are
members of ISG or with which the Exchange has entered into a
comprehensive surveillance sharing agreement. In addition, investors
will have ready access to information regarding the IIV and quotation
and last sale information for the Index Fund Shares. Trade price and
other information relating to municipal bonds is available through the
MSRB's EMMA system.
As required under Rule 14.11(c)(4)(C)(i) and (iii), if the index is
maintained by a broker-dealer or fund advisor, the broker-dealer or
fund advisor shall erect and maintain a ``firewall'' around the
personnel who have access to information concerning changes and
adjustments to the index. Further, any advisory committee, supervisory
board, or similar entity that advises a Reporting Authority or that
makes decisions on the index composition, methodology and related
matters, must implement and maintain, or be subject to, procedures
designed to prevent the use and dissemination of material non-public
information regarding the applicable index.
Further, the index value of a series of Index Fund Shares listed
pursuant to proposed Rule 14.11(c)(4)(B)(ii) will be widely
disseminated by one or more major market data vendors at least once per
day and if the index value does not change during some or all of the
period when trading is occurring on the Exchange, the last official
calculated index value must remain available throughout Exchange
trading hours. In addition, the IIV for the Index Fund Shares will be
disseminated by one or more major market data vendors, updated at least
every 15 seconds during the Exchange's Regular Trading Hours as
required under Rule 14.11(c)(4)(C)(ii).
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 Exchange notes that the
proposed rule change will facilitate the listing and trading of Index
Fund Shares based on an index of Municipal Securities which will
enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received 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-2019-023 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-2019-023. 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
[[Page 16758]]
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-2019-023, and should be submitted on or before May 13, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07982 Filed 4-19-19; 8:45 am]
BILLING CODE 8011-01-P
