Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To List And Trade Under BZX Rule 14.11(c)(4) the Shares of the iShares iBonds 2021 Term High Yield and Income ETF, iShares iBonds 2022 Term High Yield and Income ETF, iShares iBonds 2023 Term High Yield and Income ETF, iShares iBonds 2024 Term High Yield and Income ETF, and iShares iBonds 2025 Term High Yield and Income ETF of iShares Trust, 21375-21382 [2019-09860]
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Federal Register / Vol. 84, No. 93 / Tuesday, May 14, 2019 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2019–22 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–85804; File No. SR–
CboeBZX–2019–035]
• 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–MIAX–2019–22. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–MIAX–2019–22 and should
be submitted on or before June 4, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–09859 Filed 5–13–19; 8:45 am]
khammond on DSKBBV9HB2PROD with NOTICES
BILLING CODE 8011–01–P
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To List And
Trade Under BZX Rule 14.11(c)(4) the
Shares of the iShares iBonds 2021
Term High Yield and Income ETF,
iShares iBonds 2022 Term High Yield
and Income ETF, iShares iBonds 2023
Term High Yield and Income ETF,
iShares iBonds 2024 Term High Yield
and Income ETF, and iShares iBonds
2025 Term High Yield and Income ETF
of iShares Trust
May 8, 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 26,
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 and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade under BZX Rule 14.11(c)(4) the
shares of the iShares iBonds 2021 Term
High Yield and Income ETF (the ‘‘2021
Fund’’), iShares iBonds 2022 Term High
Yield and Income ETF (the ‘‘2022
Fund’’), iShares iBonds 2023 Term High
Yield and Income ETF (the ‘‘2023
Fund’’), iShares iBonds 2024 Term High
Yield and Income ETF (the ‘‘2024
Fund’’), and iShares iBonds 2025 Term
High Yield and Income ETF (the ‘‘2025
Fund’’, each a ‘‘Fund’’ and, collectively,
the ‘‘Funds’’) of iShares Trust (the
‘‘Trust’’).
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,
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
17 17
CFR 200.30–3(a)(12).
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21375
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 list and
trade shares (‘‘Shares’’) of the Funds
under BZX Rule 14.11(c)(4),5 which
governs the listing and trading of index
fund shares based on fixed income
securities indexes. The Shares will be
offered by the Trust, which was
established as a Delaware statutory trust
on December 16, 1999. The Trust is
registered with the Commission as an
open-end investment company and has
filed a registration statement on behalf
of the Funds on Form N–1A
(‘‘Registration Statement’’) with the
Commission.6
The Exchange notes that the
Underlying Indexes, as defined below,
currently meet the requirements of Rule
14.11(c)(4)(B)(i)(f) (the ‘‘90% Rule’’),7
5 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).
6 See Registration Statement on Form N–1A for
the Trust, dated February 7, 2019 (File Nos. 333–
92935 and 811–09729). The descriptions of the
Funds and the Shares contained herein are based,
in part, on information in the Registration
Statement. The Commission has issued an order
granting certain exemptive relief to the Trust under
the Investment Company Act of 1940 (15 U.S.C.
80a–1) (‘‘1940 Act’’) (the ‘‘Exemptive Order’’). See
Investment Company Act Release No. 27661
(January 17, 2007) (File No. 812–13208).
7 Rule 14.11(c)(4)(B)(i)(f) provides that
‘‘component securities that in aggregate account for
at least 90% of the Fixed Income Securities portion
of the weight of the index or portfolio must be
either: (1) From issuers that are required to file
reports pursuant to Sections 13 and 15(d) of the
Act; (2) from issuers that have a worldwide market
value of its outstanding common equity held by
non-affiliates of $700 million or more; (3) from
issuers that have outstanding securities that are
notes, bonds, debentures, or evidence of
indebtedness having a total remaining principal
amount of at least $1 billion; (4) exempted
Continued
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Federal Register / Vol. 84, No. 93 / Tuesday, May 14, 2019 / Notices
but the Exchange submits this proposal
because, the Underlying Indexes may
not meet this requirement in the future.8
As such, the Exchange is proposing to
instead require that component
securities that in aggregate account for
at least 85% of the fixed income weight
of the portfolio fall into at least one of
five of the categories included in the
90% Rule. The Underlying Indexes
currently meet and will continue to
meet all other requirements of Rule
14.11(c)(4).9 If a Fund or the related
Shares are not in compliance with the
applicable listing requirements, then,
with respect to such Fund or Shares, the
Exchange will commence delisting
procedures under Exchange Rule 14.12.
Description of the Shares and the Funds
BlackRock Fund Advisors (‘‘BFA’’) is
the investment adviser to the Funds.10
State Street Bank and Trust Company is
the administrator, custodian, and
transfer agent for the Trust. Bloomberg
Index Services Limited is the index
provider (the ‘‘Index Provider’’ or
‘‘Bloomberg’’) for the Funds. BlackRock
Investments, LLC serves as the
distributor for the Trust.
khammond on DSKBBV9HB2PROD with NOTICES
Bloomberg Barclays 2021 Term High
Yield and Income Index
According to the Registration
Statement, the 2021 Fund will seek to
track the investment results, before fees
securities as defined in Section 3(a)(12) of the Act;
or (5) from issuers that are a government of a foreign
country or a political subdivision of a foreign
country.’’ The Exchange instead is proposing that
at least 85% of the fixed income weight of each
portfolio will satisfy at least one of parts (1) through
(5) described above.
8 As of January 31, 2019, the following
percentages of the Fixed Income Securities portion
of the weight of each respective Underlying Index
satisfied the criteria of Rule 14.11(c)(4)(B)(i)(f):
91.24% of the 2021 Index; 91.03% of the 2022
Index; 93.55% of the 2023 Index; 96.22% of the
2024 Index; and 92.69% of the 2025 Index.
9 The Exchange notes that the Commission has
recently approved a proposal to list and trade a
series of Managed Fund Shares that would not
comply with the equivalent of the 90% Rule for
Managed Fund Shares, which is substantively
identical to the 90% Rule. Specifically, that series
was approved to list and trade on Nasdaq Stock
Market LLC as long as the fund’s fixed income
holdings that are not ABS and private MBS met the
equivalent of the 90% Rule. The fund was allowed
to hold up to 20% of the weight of the fixed income
portion of the portfolio in ABS and private MBS,
effectively reducing the threshold for compliance
with the equivalent to the 90% Rule to 70%. Here,
the Exchange is proposing only to reduce the
compliance threshold for the 90% Rule to 85% and
further believes that there are additional factors that
further mitigate the policy concerns underlying the
90% Rule, as further discussed below. See
Securities Exchange Act Release No. 84047
(September 6, 2018), 83 FR 46200 (September 12,
2018) (SR–NASDAQ–2017–128) (the ‘‘Approval
Order’’).
10 BFA is an indirect wholly owned subsidiary of
BlackRock, Inc.
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and expenses, of the Bloomberg
Barclays 2021 Term High Yield and
Income Index (the ‘‘2021 Index’’), which
is rebalanced monthly and composed of
U.S. dollar-denominated, high yield and
other income generating corporate
bonds maturing in 2021.
The 2021 Index is composed of U.S.
dollar-denominated, taxable, fixed-rate,
high yield and BBB or equivalently
rated (as determined by the Index
Provider) corporate bonds scheduled to
mature after December 31, 2020 and
before December 15, 2021.
The bonds in the 2021 Index have
$250 million or more of outstanding
face value at the time of inclusion. The
non-U.S. corporate issuers included in
the 2021 Index consist primarily of
corporate bonds issued by companies
domiciled in developed countries. The
2021 Fund will invest in non-U.S.
issuers to the extent necessary for it to
track the 2021 Index. Each bond
included in the 2021 Index must be
registered with the SEC, have been
exempt from registration at issuance, or
have been offered pursuant to Rule
144A under the Securities Act of 1933,
as amended (the ‘‘1933 Act’’).
The 2021 Index consists of bonds
chosen from two sub-indices, the
Bloomberg Barclays U.S. High Yield
Index (the ‘‘High Yield Index’’) and the
Bloomberg Barclays U.S. Corporate
Index (the ‘‘Corporate Index’’), both of
which are stripped of securities
maturing outside of the maturity range
defined above. BBB-rated bonds from
the Corporate Index will be introduced
to the 2021 Index under the following
conditions occurring at rebalance: (1) In
the last 2.5 years but before the last 6
months of the 2021 Index’s term, the
2021 Index will add BBB-rated bonds as
constituent high yield bonds are called,
no longer qualify for inclusion, or
decline in value compared to a reference
point set at 2.5 years from the 2021
Index’s term or (2) if, prior to the last
2.5 years remaining in the 2021 Index’s
term, the market value of the high yield
bonds in the 2021 Index declines below
$30 billion, the 2021 Index will add
BBB-rated bonds to maintain a $30
billion minimum market value for the
2021 Index. In the final year of the 2021
Index’s term, any principal and interest
paid by index constituents is treated as
follows: (1) During the first six months
of the final year, the 2021 Index
reinvests proceeds pro-rata into the
remaining bonds in the 2021 Index, and
(2) during the last six months of the
final year, proceeds are not reinvested
and are presumed to be held in cash
while earning no interest.
PO 00000
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Bloomberg Barclays 2022 Term High
Yield and Income Index
According to the Registration
Statement, the 2022 Fund will seek to
track the investment results, before fees
and expenses, of the Bloomberg
Barclays 2022 Term High Yield and
Income Index (the ‘‘2022 Index’’), which
is rebalanced monthly and composed of
U.S. dollar-denominated, high yield and
other income generating corporate
bonds maturing in 2022.
The 2022 Index is composed of U.S.
dollar-denominated, taxable, fixed-rate,
high yield and BBB or equivalently
rated (as determined the by Index
Provider) corporate bonds scheduled to
mature after December 31, 2021 and
before December 15, 2022.
The bonds in the 2022 Index have
$250 million or more of outstanding
face value at the time of inclusion. The
non-U.S. corporate issuers included in
the 2022 Index consist primarily of
corporate bonds issued by companies
domiciled in developed countries. The
2022 Fund will invest in non-U.S.
issuers to the extent necessary for it to
track the 2022 Index. Each bond
included in the 2022 Index must be
registered with the SEC, have been
exempt from registration at issuance, or
have been offered pursuant to Rule
144A under the 1933 Act.
The 2022 Index consists of bonds
chosen from two sub-indices, the High
Yield Index and the Corporate Index,
both of which are stripped of securities
maturing outside of the maturity range
defined above. BBB-rated bonds from
the Corporate Index will be introduced
to the 2022 Index under the following
conditions occurring at rebalance: (1) In
the last 2.5 years but before the last 6
months of the 2022 Index’s term, the
2022 Index will add BBB-rated bonds as
constituent high yield bonds are called,
no longer qualify for inclusion, or
decline in value compared to a reference
point set at 2.5 years from the 2022
Index’s term or (2) if, prior to the last
2.5 years remaining in the 2022 Index’s
term, the market value of the high yield
bonds in the 2022 Index declines below
$30 billion, the 2022 Index will add
BBB-rated bonds to maintain a $30
billion minimum market value for the
2022 Index. In the final year of the 2022
Index’s term, any principal and interest
paid by index constituents is treated as
follows: (1) During the first six months
of the final year, the 2022 Index
reinvests proceeds pro-rata into the
remaining bonds in the 2022 Index, and
(2) during the last six months of the
final year, proceeds are not reinvested
and are presumed to be held in cash
while earning no interest.
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Federal Register / Vol. 84, No. 93 / Tuesday, May 14, 2019 / Notices
Bloomberg Barclays 2023 Term High
Yield and Income Index
According to the Registration
Statement, the 2023 Fund will seek to
track the investment results, before fees
and expenses, of the Bloomberg
Barclays 2023 Term High Yield and
Income Index (the ‘‘2023 Index’’), which
is rebalanced monthly and composed of
U.S. dollar-denominated, high yield and
other income generating corporate
bonds maturing in 2023.
The 2023 Index is composed of U.S.
dollar-denominated, taxable, fixed-rate,
high yield and BBB or equivalently
rated (as determined by the Index
Provider) corporate bonds scheduled to
mature after December 31, 2022 and
before December 15, 2023.
The bonds in the 2023 Index have
$250 million or more of outstanding
face value at the time of inclusion. The
non-U.S. corporate issuers included in
the 2023 Index consist primarily of
corporate bonds issued by companies
domiciled in developed countries. The
2023 Fund will invest in non-U.S.
issuers to the extent necessary for it to
track the 2023 Index. Each bond
included in the 2023 Index must be
registered with the SEC, have been
exempt from registration at issuance, or
have been offered pursuant to Rule
144A under the 1933 Act.
The 2023 Index consists of bonds
chosen from two sub-indices, the High
Yield Index and the Corporate Index,
both of which are stripped of securities
maturing outside of the maturity range
defined above. BBB-rated bonds from
the Corporate Index will be introduced
to the 2023 Index under the following
conditions occurring at rebalance: (1) In
the last 2.5 years but before the last 6
months of the 2023 Index’s term, the
2023 Index will add BBB-rated bonds as
constituent high yield bonds are called,
no longer qualify for inclusion, or
decline in value compared to a reference
point set at 2.5 years from the 2023
Index’s term or (2) if, prior to the last
2.5 years remaining in the 2023 Index’s
term, the market value of the high yield
bonds in the 2023 Index declines below
$30 billion, the 2023 Index will add
BBB-rated bonds to maintain a $30
billion minimum market value for the
2023 Index. In the final year of the 2023
Index’s term, any principal and interest
paid by index constituents is treated as
follows: (1) During the first six months
of the final year, the 2023 Index
reinvests proceeds pro-rata into the
remaining bonds in the 2023 Index, and
(2) during the last six months of the
final year, proceeds are not reinvested
and are presumed to be held in cash
while earning no interest.
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Bloomberg Barclays 2024 Term High
Yield and Income Index
According to the Registration
Statement, the 2024 Fund will seek to
track the investment results, before fees
and expenses, of the Bloomberg
Barclays 2024 Term High Yield and
Income Index (the ‘‘2024 Index’’), which
is rebalanced monthly and composed of
U.S. dollar-denominated, high yield and
other income generating corporate
bonds maturing in 2024.
The 2024 Index is composed of U.S.
dollar-denominated, taxable, fixed-rate,
high yield and BBB or equivalently
rated (as determined by the Index
Provider) corporate bonds scheduled to
mature after December 31, 2023 and
before December 15, 2024.
The bonds in the 2024 Index have
$250 million or more of outstanding
face value at the time of inclusion. The
non-U.S. corporate issuers included in
the 2024 Index consist primarily of
corporate bonds issued by companies
domiciled in developed countries. The
2024 Fund will invest in non-U.S.
issuers to the extent necessary for it to
track the 2024 Index. Each bond
included in the 2024 Index must be
registered with the SEC, have been
exempt from registration at issuance, or
have been offered pursuant to Rule
144A under the 1933 Act.
The 2024 Index consists of bonds
chosen from two sub-indices, the High
Yield Index and the Corporate Index,
both of which are stripped of securities
maturing outside of the maturity range
defined above. BBB-rated bonds from
the Corporate Index will be introduced
to the 2024 Index under the following
conditions occurring at rebalance: (1) In
the last 2.5 years but before the last 6
months of the 2024 Index’s term, the
2024 Index will add BBB-rated bonds as
constituent high yield bonds are called,
no longer qualify for inclusion, or
decline in value compared to a reference
point set at 2.5 years from the 2024
Index’s term or (2) if, prior to the last
2.5 years remaining in the 2024 Index’s
term, the market value of the high yield
bonds in the 2024 Index declines below
$30 billion, the 2024 Index will add
BBB-rated bonds to maintain a $30
billion minimum market value for the
2024 Index. In the final year of the 2024
Index’s term, any principal and interest
paid by index constituents is treated as
follows: (1) During the first six months
of the final year, the 2024 Index
reinvests proceeds pro-rata into the
remaining bonds in the 2024 Index, and
(2) during the last six months of the
final year, proceeds are not reinvested
and are presumed to be held in cash
while earning no interest.
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21377
Bloomberg Barclays 2025 Term High
Yield and Income Index
According to the Registration
Statement, the 2025 Fund will seek to
track the investment results, before fees
and expenses, of the Bloomberg
Barclays 2025 Term High Yield and
Income Index (the ‘‘2025 Index’’ and,
collectively with the 2021 Index, the
2022 Index, the 2023 Index, and the
2024 Index, the ‘‘Underlying Indexes’’),
which is rebalanced monthly and
composed of U.S. dollar-denominated,
high yield and other income generating
corporate bonds maturing in 2025.
The 2025 Index is composed of U.S.
dollar-denominated, taxable, fixed-rate,
high yield and BBB or equivalently
rated (as determined by the Index
Provider) corporate bonds scheduled to
mature after December 31, 2024 and
before December 15, 2025.
The bonds in the 2025 Index have
$250 million or more of outstanding
face value at the time of inclusion. The
non-U.S. corporate issuers included in
the 2025 Index consist primarily of
corporate bonds issued by companies
domiciled in developed countries. The
2025 Fund will invest in non-U.S.
issuers to the extent necessary for it to
track the 2025 Index. Each bond
included in the 2025 Index must be
registered with the SEC, have been
exempt from registration at issuance, or
have been offered pursuant to Rule
144A under the 1933 Act.
The 2025 Index consists of bonds
chosen from two sub-indices, the High
Yield Index and the Corporate Index,
both of which are stripped of securities
maturing outside of the maturity range
defined above. BBB-rated bonds from
the Corporate Index will be introduced
to the 2025 Index under the following
conditions occurring at rebalance: (1) In
the last 2.5 years but before the last 6
months of the 2025 Index’s term, the
2025 Index will add BBB-rated bonds as
constituent high yield bonds are called,
no longer qualify for inclusion, or
decline in value compared to a reference
point set at 2.5 years from the 2025
Index’s term or (2) if, prior to the last
2.5 years remaining in the 2025 Index’s
term, the market value of the high yield
bonds in the 2025 Index declines below
$30 billion, the 2025 Index will add
BBB-rated bonds to maintain a $30
billion minimum market value for the
2025 Index. In the final year of the 2025
Index’s term, any principal and interest
paid by index constituents is treated as
follows: (1) During the first six months
of the final year, the 2025 Index
reinvests proceeds pro-rata into the
remaining bonds in the 2025 Index, and
(2) during the last six months of the
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final year, proceeds are not reinvested
and are presumed to be held in cash
while earning no interest.
khammond on DSKBBV9HB2PROD with NOTICES
Portfolio Holdings
According to the Registration
Statement, under Normal Market
Conditions,11 each Fund generally will
invest at least 90% of its assets in the
component securities of its respective
Underlying Index, except during the last
months of the Fund’s operations, as
described below. A Fund may also
invest in other ETFs in order to obtain
indirect exposure to such component
securities.12 A Fund may also invest up
to 10% of its respective assets in certain
listed derivatives, including futures,
options and swap contracts,13 U.S.
government securities, short-term paper,
cash and cash equivalents, including
shares of money market funds advised
by BFA or its affiliates, cash and cash
equivalents, as well as in securities not
included in the Underlying Index, but
which BFA believes will help the Fund
track the Underlying Index.
From time to time when conditions
warrant, however, a Fund may invest at
least 80% of its assets in the component
securities of its respective Underlying
Index. In the last months of a Fund’s
operation, as the bonds held by the
Fund mature, the proceeds will not be
reinvested by the Fund in bonds but
instead will be held in cash and cash
equivalents. By December 15 of each
Fund’s respective expiration year, the
Fund’s Underlying Index is expected to
consist almost entirely of cash earned in
this manner. Around the same time, the
Fund will wind up and terminate, and
its net assets will be distributed to thencurrent shareholders pursuant to a plan
of liquidation.
11 For purposes of this proposal and consistent
with the definition in Rule 14.11(i)(3)(E) applicable
to Managed Fund Shares, the term ‘‘Normal Market
Conditions’’ includes, but is not limited to, the
absence of trading halts in the applicable financial
markets generally; operational issues causing
dissemination of inaccurate market information or
system failures; or force majeure type events such
as natural or man-made disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption, or
any similar intervening circumstance.
12 For purposes of this proposal, the term ETF
means Portfolio Depositary Receipts, Index Fund
Shares, and Managed Fund Shares as defined in
Rule 14.11(b), 14.11(c), and 14.11(i), respectively,
and their equivalents on other national securities
exchanges.
13 Such futures, options and swap contracts will
include only the following: Interest rate futures,
interest rate options, and interest rate swaps. The
derivatives will be centrally cleared and they will
be collateralized. At least 90% of the Fund’s net
assets that are invested in listed derivatives will be
invested in instruments that trade in markets that
are members or affiliates of members of the
Intermarket Surveillance Group (‘‘ISG’’) or are
parties to a comprehensive surveillance sharing
with the Exchange.
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16:57 May 13, 2019
Jkt 247001
Discussion
Based on the characteristics of the
Underlying Indexes and the
representations made in the
Requirements for Index Constituents
sections above, the Exchange believes it
is appropriate to allow the listing and
trading of the Shares. The Underlying
Indexes and Funds each currently
satisfy all of the generic listing
requirements for Index Fund Shares
based on a fixed income index. The
Underyling Indexes and the Funds will
also continue to satisfy all such generic
listing requirements, with the possible
exception to the 90% Rule. In the event
that an Underlying Index no longer
satisfies the 90% Rule, the Exchange is
only requesting that the threshold
applicable to the 90% Rule be lowered
from 90% to 85% and will commence
delisting procedures under Rule 14.12
for a Fund for which less than 85% of
the weight of its respective Underlying
Index satisfies one of the five applicable
categories under the 90% Rule. Further,
if a Fund or the related Shares are not
in compliance with the applicable
listing requirements under Rule
14.11(c)(4), then, with respect to such
Fund or Shares, the Exchange will
commence delisting procedures under
Exchange Rule 14.12.
As such, the Exchange believes that
this proposed limited exception to the
90% Rule is consistent with the Act for
several reasons. Specifically, the
Exchange believes that the limited
nature of the proposed exception
combined with the minimum size
requirements applicable to each
Underlying Index (a minimum
outstanding face value of $250 million
at the time of inclusion) act to mitigate
the policy concerns which the 90% Rule
is intended to address. With a minimum
outstanding face value of $250 million,
the issuances included in the
Underlying Indexes will be large enough
that such the types of instruments
included in the Index will be more
liquid and less susceptible to
manipulation than smaller issuances
that could otherwise be allowed under
the generic listing standards. Further,
this proposal is only seeking to reduce
the possible weight of index
constituents that meet the 90% Rule
from 90% to 85%. Combining this
minimal exception with the additional
liquidity and lower likelihood of
manipulation associated with the
increased minimum outstanding face
value of the issuance, the Exchange
firmly believes that the concerns related
to manipulation that underly the generic
listing standards are sufficiently
mitigated.
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Further, the Exchange believes that
this proposal is designed to address a
near-miss of the generic listing
standards because under current market
conditions each of the Underlying
Indexes meet the generic listing
standards under Rule 14.11(c), and this
proposed limited exception to the 90%
Rule is designed to ensure that the
Underlying Indexes would continue to
meet the applicable continued listing
standards under a broader array of
possible future market conditions.
Similarly, because the Funds could
today (and potentially indefinitely into
the future) be listed on the Exchange
pursuant to the generic listing
standards, such a limited exception
provides investors with certainty as to
whether the Funds will continue to be
listed on the Exchange going forward.
Finally, the Exchange is only proposing
a reduction of the applicable standard
from 90% to 85%, as noted above.
In addition, the Exchange represents
that: (1) Except for Rule
14.11(c)(4)(B)(i)(b), each Underyling
Index currently satisfies all of the
generic listing standards under Rule
14.11(c)(4); (2) the continued listing
standards under Rule 14.11(c), as
applicable to Index Fund Shares based
on fixed income securities, will apply to
the Shares; and (3) the issuer of the
Funds is required to comply with Rule
10A–3 14 under the Act for the initial
and continued listing of the Shares. In
addition, the Exchange represents that
each Fund will comply with all other
requirements applicable to Index Fund
Shares, including, but not limited to,
requirements relating to the
dissemination of key information such
as the value of the Underlying Indexes
and the Intraday Indicative Value
(‘‘IIV’’),15 rules governing the trading of
equity securities, trading hours, trading
halts, surveillance, information barriers
and the Information Circular, as set
forth in the Exchange rules applicable to
Index Fund Shares and prior
Commission orders approving the
generic listing rules applicable to the
listing and trading of Index Fund
Shares.
The current value of each Underlying
Index will be widely disseminated by
one or more major market data vendors
at least once per day, as required by
Rule 14.11(c)(4)(C)(ii). The portfolio of
14 17
CFR 240.10A–3.
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. Currently, it is the Exchange’s
understanding that several major market data
vendors display and/or make widely available IIVs
taken from the Consolidated Tape Association
(‘‘CTA’’) or other data feeds.
15 The
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securities and other assets held by each
Fund will be disclosed daily on its
respective website at www.ishares.com.
Further, each Fund’s website will
contain the Fund’s prospectus and
additional data relating to net asset
value (‘‘NAV’’) and other applicable
quantitative information. The issuer has
represented that the NAV of each Fund
will be calculated daily and will be
made available to all market
participants at the same time. The Index
Provider is not a broker-dealer and is
not affiliated with a broker-dealer. To
the extent that the Index Provider
becomes a broker-dealer or becomes
affiliated with a broker-dealer, the Index
Provider will implement and will
maintain a ‘‘fire wall’’ around the
personnel who have access to
information concerning changes and
adjustments to each Underlying Index
and each Underlying Index shall be
calculated by a third party who is not
a broker-dealer or fund advisor. In
addition, any advisory committee,
supervisory board or similar entity that
advises the Index Provider or that makes
decisions on each Index, methodology
and related matters, will implement and
maintain, or be subject to, procedures
designed to prevent the use and
dissemination of material non-public
information regarding the Underlying
Indexes.
The Exchange’s existing rules require
that the issuer of the Funds notify the
Exchange of any material change to the
methodology used to determine the
composition of an Underlying Index
and, therefore, if the methodology of an
Underlying Index was to be changed in
a manner that would materially alter its
existing composition, the Exchange
would have advance notice and would
evaluate the modifications to determine
whether that Underyling Index
remained sufficiently broad-based and
well diversified.
Availability of Information
The Funds’ website, which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Funds that may
be downloaded. The website will
include additional quantitative
information updated on a daily basis,
including, for each Fund: (1) The prior
business day’s reported NAV, daily
trading volume, and a calculation of the
premium and discount of the Bid/Ask
Price against the NAV; and (2) data in
chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. Daily trading volume
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information for the Shares will also be
available in the financial section of
newspapers, through subscription
services such as Bloomberg, Thomson
Reuters, and International Data
Corporation, which can be accessed by
authorized participants and other
investors, as well as through other
electronic services, including major
public websites. On each business day,
each Fund will disclose on its website
the identities and quantities of the
portfolio of securities and other assets in
the daily disclosed portfolio held by the
Fund that formed the basis for the
Fund’s calculation of NAV at the end of
the previous business day. The daily
disclosed portfolio will include, as
applicable: The ticker symbol; CUSIP
number or other identifier, if any; a
description of the holding (including
the type of holding, such as the type of
swap); the identity of the security, index
or other asset or instrument underlying
the holding, if any; for options, the
option strike price; quantity held (as
measured by, for example, par value,
notional value or number of shares,
contracts, or units); maturity date, if
any; coupon rate, if any; effective date,
if any; market value of the holding; and
the percentage weighting of the holding
in each Fund’s portfolio. The website
and information will be publicly
available at no charge. The value,
components, and percentage weightings
of each Underlying Index will be
calculated and disseminated at least
once daily and will be available from
major market data vendors. Rules
governing each Fund’s respective
Underlying Indexes are available on
Bloomberg’s website and in the
applicable Fund’s prospectus.
In addition, an estimated value,
defined in BZX Rule 14.11(c)(6)(A) as
the IIV that reflects an estimated
intraday value of each Fund’s portfolio,
will be disseminated. Moreover, the IIV
will be based upon the current value for
the components of the daily disclosed
portfolio and will be updated and
widely disseminated by one or more
major market data vendors at least every
15 seconds during the Exchange’s
Regular Trading Hours.16 In addition,
the quotations of certain of a Fund’s
holdings may not be updated during
U.S. trading hours if updated prices
cannot be ascertained.
The dissemination of the IIV, together
with the daily disclosed portfolio, will
allow investors to determine the value
of the underlying portfolio of each Fund
16 Currently,
it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available IIVs published via the
CTA or other data feeds.
PO 00000
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21379
on a daily basis and provide a close
estimate of that value throughout the
trading day.
Quotation and last sale information
for the Shares will be available via the
CTA high speed line. Price information
regarding corporate bonds and other
non-exchange traded assets including
certain derivatives, money market funds
and other instruments, and repurchase
agreements is available from third party
pricing services and major market data
vendors. For exchange-traded assets,
including futures, and certain options,
such intraday information is available
directly from the applicable listing
exchange. In addition, price information
for U.S. exchange-traded options will be
available from the Options Price
Reporting Authority.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange, or by regulatory
staff 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 federal
securities laws applicable to trading on
the Exchange.17
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares with other markets
and other entities that are members of
the ISG, and the Exchange or FINRA, on
behalf of the Exchange, or both, may
obtain trading information regarding
trading in the Shares from such markets
and other entities. In addition, the
Exchange may obtain information
regarding trading in the Shares from
markets and other entities that are
members of ISG or with which the
17 FINRA conducts cross-market surveillances on
behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
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Exchange has in place a comprehensive
surveillance sharing agreement. In
addition, FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixed
income securities held by the Funds
reported to FINRA’s Trade Reporting
and Compliance Engine (‘‘TRACE’’).
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 18 in general and Section
6(b)(5) of the Act 19 in particular in that
it is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria for Index Fund Shares
based on a fixed income index in Rule
14.11(c)(4), with the possible exception
of the 90% Rule. In the event that an
Underlying Index no longer satisfies the
90% Rule, the Exchange is only
requesting that the threshold applicable
to the 90% Rule be lowered from 90%
to 85% and will commence delisting
procedures under Rule 14.12 for a Fund
for which less than 85% of the weight
of its respective Underlying Index
satisfies one of the five applicable
categories under the 90% Rule.
As such, the Exchange believes that
this proposed limited exception to the
90% Rule is consistent with the Act for
several reasons. Specifically, the
Exchange believes that the limited
nature of the proposed exception
combined with the minimum size
requirements applicable to each
Underlying Index (a minimum
outstanding face value of $250 million
at the time of inclusion) act to mitigate
the policy concerns which the 90% Rule
is intended to address. With a minimum
outstanding face value of $250 million,
the issuances included in the
Underlying Indexes will each be at least
2.5 times as large as the threshold
provided in Rule 14.11(c)(4)(B)(i)(b),
generally making such issuances more
liquid and less susceptible to
manipulation than smaller issuances
18 15
19 15
U.S.C. 78f.
U.S.C. 78f(b)(5).
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16:57 May 13, 2019
Jkt 247001
that would be allowed under the generic
listing standards. Further, this proposal
is only seeking to reduce the possible
weight of index constituents that meet
the 90% Rule from 90% to 85%.
Combining this minimal exception with
the additional liquidity and lower
likelihood of manipulation associated
with the increased minimum
outstanding face value of the issuance,
the Exchange firmly believes that the
concerns related to manipulation that
underly the generic listing standards are
sufficiently mitigated.
Further, under current market
conditions each of the Underlying
Indexes meet the generic listing
standards under Rule 14.11(c), and this
proposed limited exception to the 90%
Rule is designed to ensure that the
Underlying Indexes would continue to
meet the applicable continued listing
standards under a broader array of
possible future market conditions.
Similarly, because the Funds could
today (and potentially indefinitely into
the future) be listed on the Exchange
pursuant to the generic listing
standards, allowing such a limited
exception provides investors with
certainty as to whether the Funds will
continue to be listed on the Exchange
going forward. Finally, the Exchange is
only proposing a reduction of the
applicable standard from 90% to 85%,
as noted above.
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances
administered by the Exchange as well as
cross-market surveillances administered
by the FINRA on behalf of the Exchange,
which are designed to detect violations
of Exchange rules and federal securities
laws applicable to trading on the
Exchange. The Exchange represents that
these procedures are adequate to
properly monitor Exchange trading of
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and federal securities laws
applicable to trading on the Exchange.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares with other markets
that are members of the ISG. In addition,
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, on behalf of
the Exchange, is able to access, as
needed, trade information for certain
fixed income securities held by the
Funds reported to TRACE.
The proposed rule change is designed
to promote just and equitable principles
PO 00000
Frm 00067
Fmt 4703
Sfmt 4703
of trade and to protect investors and the
public interest in that a large amount of
information is publicly available
regarding each Fund, thereby promoting
market transparency. Each Fund’s
portfolio holdings will be disclosed on
its respective website daily after the
close of trading on the Exchange.
Moreover, the IIV for the Shares 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 each Underlying Index will be
disseminated by one or more major
market data vendors at least once per
day. Information regarding market price
and trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services, and quotation and last sale
information will be available via the
CTA high-speed line. The website for
the Funds will include the prospectus
for each Fund and additional data
relating to NAV and other applicable
quantitative information.
If the Exchange becomes aware that a
Fund’s NAV is not being disseminated
to all market participants at the same
time, it will halt trading in the
applicable Fund’s 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 Shares. Trading
also may be halted because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable. If the IIV and
index value are not being disseminated
for a Fund as required, the Exchange
may halt trading during the day in
which the interruption to the
dissemination of the IIV or index value
occurs. If the interruption to the
dissemination of an IIV or index value
persists past the trading day in which it
occurred, the Exchange will halt
trading. The Exchange may consider all
relevant factors in exercising its
discretion to halt or suspend trading in
the Shares. The Exchange will halt
trading in the Shares under the
conditions specified in BZX Rule 11.18.
Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the financial instruments composing the
daily disclosed portfolio of a Fund; or
(2) whether other unusual conditions or
circumstances detrimental to the
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maintenance of a fair and orderly
market are present. In addition,
investors will have ready access to
information regarding the applicable
IIV, and quotation and last sale
information for the Shares.
All statements and representations
made in this filing regarding the
composition of the Underlying Indexes,
the description of the portfolio or
reference assets, limitations on portfolio
holdings or reference assets,
dissemination and availability of index,
reference asset, and IIV, or the
applicability of Exchange listing rules
shall constitute continued listing
requirements for listing the Shares on
the Exchange. The issuer is required to
advise the Exchange of any failure by a
Fund to comply with the continued
listing requirements, and, pursuant to
its obligations under Section 19(g)(1) of
the Act, the Exchange will monitor for
compliance with the continued listing
requirements. If a Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
Rule 14.12.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of several new exchange-traded
products that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
The Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, investors will
have ready access to information
regarding the IIV and quotation and last
sale information for the Shares.
For the above reasons, the Exchange
believes that the proposed rule change
is consistent with the requirements of
Section 6(b)(5) of the Act.
khammond on DSKBBV9HB2PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the listing and trading of three
additional exchange-traded products
that will enhance competition among
market participants, to the benefit of
investors and the marketplace.
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16:57 May 13, 2019
Jkt 247001
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 20 and Rule 19b–
4(f)(6) thereunder.21
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 22 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 23
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has
requested that the Commission waive
the 30-day operative delay so that the
proposed rule change may become
operative upon filing. The Exchange
asserts that the limited extent of the
Funds’ deviation from the generic
listing standards’ 90% Rule, combined
with the Funds’ holdings having a
minimum outstanding face value that is
2.5 times larger than the threshold in
the generic listing standards,
sufficiently mitigates concerns related to
manipulation. Further, according to the
Exchange, waiver of the 30-day
operative delay would facilitate the
listing and trading of additional
exchange-traded products that will
enhance competition among market
participants, to the benefit of investors
and the marketplace. For those reasons,
the Exchange asserts that waiver of the
operative delay would be consistent
with the protection of investors and the
public interest. The Commission
believes that the proposal raises no new
or substantive issues and that waiver of
20 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
22 17 CFR 240.19b–4(f)(6).
23 17 CFR 240.19b–4(f)(6)(iii).
21 17
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21381
the 30-day operative delay is consistent
with the protection of investors and the
public interest. The Commission hereby
waives the operative delay and
designates the proposed rule change
operative upon filing.24
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
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–2019–035 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–2019–035. 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
24 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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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–2019–035 and
should be submitted on or before June
4, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–09860 Filed 5–13–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85803; File No. SR–BOX–
2019–16]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Adopt BOX Rule 7620
(Accommodation Transactions)
Establishing Cabinet Trading on the
Exchange’s Trading Floor
May 8, 2019.
khammond on DSKBBV9HB2PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 25,
2019, BOX Exchange LLC (‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to establish
BOX Rule 7620 (Accommodation
Transactions) which provides for
cabinet trading on the Exchange’s
25 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
VerDate Sep<11>2014
16:57 May 13, 2019
Jkt 247001
Trading Floor. The text of the proposed
rule change is available from the
principal office of the Exchange, at the
Commission’s Public Reference Room
and also on the Exchange’s internet
website at https://boxoptions.com.
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
self-regulatory organization 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 self-regulatory organization 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
The Exchange proposes to establish
BOX Rule 7620 (Accommodation
Transactions) which provides for
cabinet trading 3 on the Exchange’s
Trading Floor. The Exchange notes that
the proposed rule is substantially
similar to a rule on another exchange.4
Proposed Rule 7620 defines the term
‘‘cabinet order’’ as a closing limit order
at a price of $1 per option contract for
the account of a customer or Floor
Market Maker. Rule 7620 also states that
an opening order is not a ‘‘cabinet
order’’ but may in certain cases be
matched with a cabinet order pursuant
to subsection proposed Rule 7620(c) and
(d). For purposes of this rule filing, the
Exchange specifies that an ‘‘opening
order’’ is a contra-side opening order in
response to a Customer who submits a
closing order to clear their position. The
rule further states that only Floor
Brokers may represent cabinet orders.
Further, under proposed Rule 7620,
cabinet trading shall be available for
each series of options open for trading
3 An ‘‘accommodation’’ or ‘‘cabinet’’ trade refers
to trades in listed options on the Exchange that are
worthless or not actively traded, often times
conducted to establish tax losses. Cabinet or
accommodation trading of option contracts is
intended to accommodate persons wishing to effect
closing transactions in those series of options dealt
in on the Exchange for which there is no auction
market. A cabinet trade is a transaction in which
the per-contract value of the cabinet trade is less
than the per-contract value of a trade at the
specified minimum increment for the option
contract.
4 See Nasdaq Phlx Rule 1059 (allowing for
accommodation trades).
PO 00000
Frm 00069
Fmt 4703
Sfmt 4703
on the Exchange under the following
terms and conditions (a) trading shall be
conducted in accordance with other
Exchange rules except as otherwise
provided herein or unless the context
otherwise requires; and (b) cabinet
orders may be submitted to Floor
Brokers. Floor Brokers must use the
designated cabinet transaction forms
provided by the Exchange to document
receipt of a cabinet order and the
execution of a cabinet transaction.
Further, the proposed rule states that
Rule 7580(e)(1) shall not apply to orders
placed in the cabinet or executed in the
cabinet.5
The Exchange also proposes to add
Rule 7620(c), (d), and (e) which
specifies the procedures to be followed
by the Floor Broker and other trading
crowd participants to execute cabinet
orders in two different scenarios. In
each case, the Floor Broker would be
required to act in the presence of at least
one Market Maker and Options
Exchange Official.
Proposed Rule 7620(c) governs cases
where a Floor Broker holds a cabinet
order but does not also hold contra-side
interest. In that case, the Floor Broker
shall announce the terms of the cabinet
order to the trading crowd to solicit
interest to participate on the closing
position. All matching cabinet orders
shall be assigned priority based upon
the sequence in which such orders are
received by the Floor Broker. If there is
no matching cabinet order, the Floor
Broker may match the cabinet order
with a matching opening buy or sell
limit order priced at $1 per option
contract. If there is no matching cabinet
order or opening order, the Floor Broker
may seek matching bids or offers for
accounts of Floor Participants. Floor
Participants can only participate after
all other orders have been matched.
Rule 7620(d) governs cases where a
Floor Broker holds a cabinet order and
also a contra-side cabinet order. In that
situation, the Floor Broker is required to
announce the terms of the cabinet
orders to the trading crowd. The cabinet
orders shall then be immediately
crossed by the Floor Broker.
Finally, proposed Rule 7620(e)
applies where a Floor Broker holds both
a cabinet order and a contra-side
opening order. In that situation, the
Floor Broker is required to announce the
terms of the cabinet order to the trading
crowd. If there is a matching cabinet
order, the Floor Broker shall match the
two cabinet orders. If there is no
5 Rule 7580(e)(1) provides for the use on the
trading floor of the Floor Broker’s order entry
mechanism to record all options orders represented
by such Floor Broker.
E:\FR\FM\14MYN1.SGM
14MYN1
]]>Agencies
[Federal Register Volume 84, Number 93 (Tuesday, May 14, 2019)]
[Notices]
[Pages 21375-21382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09860]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85804; File No. SR-CboeBZX-2019-035]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To List
And Trade Under BZX Rule 14.11(c)(4) the Shares of the iShares iBonds
2021 Term High Yield and Income ETF, iShares iBonds 2022 Term High
Yield and Income ETF, iShares iBonds 2023 Term High Yield and Income
ETF, iShares iBonds 2024 Term High Yield and Income ETF, and iShares
iBonds 2025 Term High Yield and Income ETF of iShares Trust
May 8, 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 26, 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 and II
below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade under BZX Rule 14.11(c)(4)
the shares of the iShares iBonds 2021 Term High Yield and Income ETF
(the ``2021 Fund''), iShares iBonds 2022 Term High Yield and Income ETF
(the ``2022 Fund''), iShares iBonds 2023 Term High Yield and Income ETF
(the ``2023 Fund''), iShares iBonds 2024 Term High Yield and Income ETF
(the ``2024 Fund''), and iShares iBonds 2025 Term High Yield and Income
ETF (the ``2025 Fund'', each a ``Fund'' and, collectively, the
``Funds'') of iShares Trust (the ``Trust'').
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 list and trade shares (``Shares'') of the
Funds under BZX Rule 14.11(c)(4),\5\ which governs the listing and
trading of index fund shares based on fixed income securities indexes.
The Shares will be offered by the Trust, which was established as a
Delaware statutory trust on December 16, 1999. The Trust is registered
with the Commission as an open-end investment company and has filed a
registration statement on behalf of the Funds on Form N-1A
(``Registration Statement'') with the Commission.\6\
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\5\ 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).
\6\ See Registration Statement on Form N-1A for the Trust, dated
February 7, 2019 (File Nos. 333-92935 and 811-09729). The
descriptions of the Funds and the Shares contained herein are based,
in part, on information in the Registration Statement. The
Commission has issued an order granting certain exemptive relief to
the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a-1)
(``1940 Act'') (the ``Exemptive Order''). See Investment Company Act
Release No. 27661 (January 17, 2007) (File No. 812-13208).
---------------------------------------------------------------------------
The Exchange notes that the Underlying Indexes, as defined below,
currently meet the requirements of Rule 14.11(c)(4)(B)(i)(f) (the ``90%
Rule''),\7\
[[Page 21376]]
but the Exchange submits this proposal because, the Underlying Indexes
may not meet this requirement in the future.\8\ As such, the Exchange
is proposing to instead require that component securities that in
aggregate account for at least 85% of the fixed income weight of the
portfolio fall into at least one of five of the categories included in
the 90% Rule. The Underlying Indexes currently meet and will continue
to meet all other requirements of Rule 14.11(c)(4).\9\ If a Fund or the
related Shares are not in compliance with the applicable listing
requirements, then, with respect to such Fund or Shares, the Exchange
will commence delisting procedures under Exchange Rule 14.12.
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\7\ Rule 14.11(c)(4)(B)(i)(f) provides that ``component
securities that in aggregate account for at least 90% of the Fixed
Income Securities portion of the weight of the index or portfolio
must be either: (1) From issuers that are required to file reports
pursuant to Sections 13 and 15(d) of the Act; (2) from issuers that
have a worldwide market value of its outstanding common equity held
by non-affiliates of $700 million or more; (3) from issuers that
have outstanding securities that are notes, bonds, debentures, or
evidence of indebtedness having a total remaining principal amount
of at least $1 billion; (4) exempted securities as defined in
Section 3(a)(12) of the Act; or (5) from issuers that are a
government of a foreign country or a political subdivision of a
foreign country.'' The Exchange instead is proposing that at least
85% of the fixed income weight of each portfolio will satisfy at
least one of parts (1) through (5) described above.
\8\ As of January 31, 2019, the following percentages of the
Fixed Income Securities portion of the weight of each respective
Underlying Index satisfied the criteria of Rule
14.11(c)(4)(B)(i)(f): 91.24% of the 2021 Index; 91.03% of the 2022
Index; 93.55% of the 2023 Index; 96.22% of the 2024 Index; and
92.69% of the 2025 Index.
\9\ The Exchange notes that the Commission has recently approved
a proposal to list and trade a series of Managed Fund Shares that
would not comply with the equivalent of the 90% Rule for Managed
Fund Shares, which is substantively identical to the 90% Rule.
Specifically, that series was approved to list and trade on Nasdaq
Stock Market LLC as long as the fund's fixed income holdings that
are not ABS and private MBS met the equivalent of the 90% Rule. The
fund was allowed to hold up to 20% of the weight of the fixed income
portion of the portfolio in ABS and private MBS, effectively
reducing the threshold for compliance with the equivalent to the 90%
Rule to 70%. Here, the Exchange is proposing only to reduce the
compliance threshold for the 90% Rule to 85% and further believes
that there are additional factors that further mitigate the policy
concerns underlying the 90% Rule, as further discussed below. See
Securities Exchange Act Release No. 84047 (September 6, 2018), 83 FR
46200 (September 12, 2018) (SR-NASDAQ-2017-128) (the ``Approval
Order'').
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Description of the Shares and the Funds
BlackRock Fund Advisors (``BFA'') is the investment adviser to the
Funds.\10\ State Street Bank and Trust Company is the administrator,
custodian, and transfer agent for the Trust. Bloomberg Index Services
Limited is the index provider (the ``Index Provider'' or ``Bloomberg'')
for the Funds. BlackRock Investments, LLC serves as the distributor for
the Trust.
---------------------------------------------------------------------------
\10\ BFA is an indirect wholly owned subsidiary of BlackRock,
Inc.
---------------------------------------------------------------------------
Bloomberg Barclays 2021 Term High Yield and Income Index
According to the Registration Statement, the 2021 Fund will seek to
track the investment results, before fees and expenses, of the
Bloomberg Barclays 2021 Term High Yield and Income Index (the ``2021
Index''), which is rebalanced monthly and composed of U.S. dollar-
denominated, high yield and other income generating corporate bonds
maturing in 2021.
The 2021 Index is composed of U.S. dollar-denominated, taxable,
fixed-rate, high yield and BBB or equivalently rated (as determined by
the Index Provider) corporate bonds scheduled to mature after December
31, 2020 and before December 15, 2021.
The bonds in the 2021 Index have $250 million or more of
outstanding face value at the time of inclusion. The non-U.S. corporate
issuers included in the 2021 Index consist primarily of corporate bonds
issued by companies domiciled in developed countries. The 2021 Fund
will invest in non-U.S. issuers to the extent necessary for it to track
the 2021 Index. Each bond included in the 2021 Index must be registered
with the SEC, have been exempt from registration at issuance, or have
been offered pursuant to Rule 144A under the Securities Act of 1933, as
amended (the ``1933 Act'').
The 2021 Index consists of bonds chosen from two sub-indices, the
Bloomberg Barclays U.S. High Yield Index (the ``High Yield Index'') and
the Bloomberg Barclays U.S. Corporate Index (the ``Corporate Index''),
both of which are stripped of securities maturing outside of the
maturity range defined above. BBB-rated bonds from the Corporate Index
will be introduced to the 2021 Index under the following conditions
occurring at rebalance: (1) In the last 2.5 years but before the last 6
months of the 2021 Index's term, the 2021 Index will add BBB-rated
bonds as constituent high yield bonds are called, no longer qualify for
inclusion, or decline in value compared to a reference point set at 2.5
years from the 2021 Index's term or (2) if, prior to the last 2.5 years
remaining in the 2021 Index's term, the market value of the high yield
bonds in the 2021 Index declines below $30 billion, the 2021 Index will
add BBB-rated bonds to maintain a $30 billion minimum market value for
the 2021 Index. In the final year of the 2021 Index's term, any
principal and interest paid by index constituents is treated as
follows: (1) During the first six months of the final year, the 2021
Index reinvests proceeds pro-rata into the remaining bonds in the 2021
Index, and (2) during the last six months of the final year, proceeds
are not reinvested and are presumed to be held in cash while earning no
interest.
Bloomberg Barclays 2022 Term High Yield and Income Index
According to the Registration Statement, the 2022 Fund will seek to
track the investment results, before fees and expenses, of the
Bloomberg Barclays 2022 Term High Yield and Income Index (the ``2022
Index''), which is rebalanced monthly and composed of U.S. dollar-
denominated, high yield and other income generating corporate bonds
maturing in 2022.
The 2022 Index is composed of U.S. dollar-denominated, taxable,
fixed-rate, high yield and BBB or equivalently rated (as determined the
by Index Provider) corporate bonds scheduled to mature after December
31, 2021 and before December 15, 2022.
The bonds in the 2022 Index have $250 million or more of
outstanding face value at the time of inclusion. The non-U.S. corporate
issuers included in the 2022 Index consist primarily of corporate bonds
issued by companies domiciled in developed countries. The 2022 Fund
will invest in non-U.S. issuers to the extent necessary for it to track
the 2022 Index. Each bond included in the 2022 Index must be registered
with the SEC, have been exempt from registration at issuance, or have
been offered pursuant to Rule 144A under the 1933 Act.
The 2022 Index consists of bonds chosen from two sub-indices, the
High Yield Index and the Corporate Index, both of which are stripped of
securities maturing outside of the maturity range defined above. BBB-
rated bonds from the Corporate Index will be introduced to the 2022
Index under the following conditions occurring at rebalance: (1) In the
last 2.5 years but before the last 6 months of the 2022 Index's term,
the 2022 Index will add BBB-rated bonds as constituent high yield bonds
are called, no longer qualify for inclusion, or decline in value
compared to a reference point set at 2.5 years from the 2022 Index's
term or (2) if, prior to the last 2.5 years remaining in the 2022
Index's term, the market value of the high yield bonds in the 2022
Index declines below $30 billion, the 2022 Index will add BBB-rated
bonds to maintain a $30 billion minimum market value for the 2022
Index. In the final year of the 2022 Index's term, any principal and
interest paid by index constituents is treated as follows: (1) During
the first six months of the final year, the 2022 Index reinvests
proceeds pro-rata into the remaining bonds in the 2022 Index, and (2)
during the last six months of the final year, proceeds are not
reinvested and are presumed to be held in cash while earning no
interest.
[[Page 21377]]
Bloomberg Barclays 2023 Term High Yield and Income Index
According to the Registration Statement, the 2023 Fund will seek to
track the investment results, before fees and expenses, of the
Bloomberg Barclays 2023 Term High Yield and Income Index (the ``2023
Index''), which is rebalanced monthly and composed of U.S. dollar-
denominated, high yield and other income generating corporate bonds
maturing in 2023.
The 2023 Index is composed of U.S. dollar-denominated, taxable,
fixed-rate, high yield and BBB or equivalently rated (as determined by
the Index Provider) corporate bonds scheduled to mature after December
31, 2022 and before December 15, 2023.
The bonds in the 2023 Index have $250 million or more of
outstanding face value at the time of inclusion. The non-U.S. corporate
issuers included in the 2023 Index consist primarily of corporate bonds
issued by companies domiciled in developed countries. The 2023 Fund
will invest in non-U.S. issuers to the extent necessary for it to track
the 2023 Index. Each bond included in the 2023 Index must be registered
with the SEC, have been exempt from registration at issuance, or have
been offered pursuant to Rule 144A under the 1933 Act.
The 2023 Index consists of bonds chosen from two sub-indices, the
High Yield Index and the Corporate Index, both of which are stripped of
securities maturing outside of the maturity range defined above. BBB-
rated bonds from the Corporate Index will be introduced to the 2023
Index under the following conditions occurring at rebalance: (1) In the
last 2.5 years but before the last 6 months of the 2023 Index's term,
the 2023 Index will add BBB-rated bonds as constituent high yield bonds
are called, no longer qualify for inclusion, or decline in value
compared to a reference point set at 2.5 years from the 2023 Index's
term or (2) if, prior to the last 2.5 years remaining in the 2023
Index's term, the market value of the high yield bonds in the 2023
Index declines below $30 billion, the 2023 Index will add BBB-rated
bonds to maintain a $30 billion minimum market value for the 2023
Index. In the final year of the 2023 Index's term, any principal and
interest paid by index constituents is treated as follows: (1) During
the first six months of the final year, the 2023 Index reinvests
proceeds pro-rata into the remaining bonds in the 2023 Index, and (2)
during the last six months of the final year, proceeds are not
reinvested and are presumed to be held in cash while earning no
interest.
Bloomberg Barclays 2024 Term High Yield and Income Index
According to the Registration Statement, the 2024 Fund will seek to
track the investment results, before fees and expenses, of the
Bloomberg Barclays 2024 Term High Yield and Income Index (the ``2024
Index''), which is rebalanced monthly and composed of U.S. dollar-
denominated, high yield and other income generating corporate bonds
maturing in 2024.
The 2024 Index is composed of U.S. dollar-denominated, taxable,
fixed-rate, high yield and BBB or equivalently rated (as determined by
the Index Provider) corporate bonds scheduled to mature after December
31, 2023 and before December 15, 2024.
The bonds in the 2024 Index have $250 million or more of
outstanding face value at the time of inclusion. The non-U.S. corporate
issuers included in the 2024 Index consist primarily of corporate bonds
issued by companies domiciled in developed countries. The 2024 Fund
will invest in non-U.S. issuers to the extent necessary for it to track
the 2024 Index. Each bond included in the 2024 Index must be registered
with the SEC, have been exempt from registration at issuance, or have
been offered pursuant to Rule 144A under the 1933 Act.
The 2024 Index consists of bonds chosen from two sub-indices, the
High Yield Index and the Corporate Index, both of which are stripped of
securities maturing outside of the maturity range defined above. BBB-
rated bonds from the Corporate Index will be introduced to the 2024
Index under the following conditions occurring at rebalance: (1) In the
last 2.5 years but before the last 6 months of the 2024 Index's term,
the 2024 Index will add BBB-rated bonds as constituent high yield bonds
are called, no longer qualify for inclusion, or decline in value
compared to a reference point set at 2.5 years from the 2024 Index's
term or (2) if, prior to the last 2.5 years remaining in the 2024
Index's term, the market value of the high yield bonds in the 2024
Index declines below $30 billion, the 2024 Index will add BBB-rated
bonds to maintain a $30 billion minimum market value for the 2024
Index. In the final year of the 2024 Index's term, any principal and
interest paid by index constituents is treated as follows: (1) During
the first six months of the final year, the 2024 Index reinvests
proceeds pro-rata into the remaining bonds in the 2024 Index, and (2)
during the last six months of the final year, proceeds are not
reinvested and are presumed to be held in cash while earning no
interest.
Bloomberg Barclays 2025 Term High Yield and Income Index
According to the Registration Statement, the 2025 Fund will seek to
track the investment results, before fees and expenses, of the
Bloomberg Barclays 2025 Term High Yield and Income Index (the ``2025
Index'' and, collectively with the 2021 Index, the 2022 Index, the 2023
Index, and the 2024 Index, the ``Underlying Indexes''), which is
rebalanced monthly and composed of U.S. dollar-denominated, high yield
and other income generating corporate bonds maturing in 2025.
The 2025 Index is composed of U.S. dollar-denominated, taxable,
fixed-rate, high yield and BBB or equivalently rated (as determined by
the Index Provider) corporate bonds scheduled to mature after December
31, 2024 and before December 15, 2025.
The bonds in the 2025 Index have $250 million or more of
outstanding face value at the time of inclusion. The non-U.S. corporate
issuers included in the 2025 Index consist primarily of corporate bonds
issued by companies domiciled in developed countries. The 2025 Fund
will invest in non-U.S. issuers to the extent necessary for it to track
the 2025 Index. Each bond included in the 2025 Index must be registered
with the SEC, have been exempt from registration at issuance, or have
been offered pursuant to Rule 144A under the 1933 Act.
The 2025 Index consists of bonds chosen from two sub-indices, the
High Yield Index and the Corporate Index, both of which are stripped of
securities maturing outside of the maturity range defined above. BBB-
rated bonds from the Corporate Index will be introduced to the 2025
Index under the following conditions occurring at rebalance: (1) In the
last 2.5 years but before the last 6 months of the 2025 Index's term,
the 2025 Index will add BBB-rated bonds as constituent high yield bonds
are called, no longer qualify for inclusion, or decline in value
compared to a reference point set at 2.5 years from the 2025 Index's
term or (2) if, prior to the last 2.5 years remaining in the 2025
Index's term, the market value of the high yield bonds in the 2025
Index declines below $30 billion, the 2025 Index will add BBB-rated
bonds to maintain a $30 billion minimum market value for the 2025
Index. In the final year of the 2025 Index's term, any principal and
interest paid by index constituents is treated as follows: (1) During
the first six months of the final year, the 2025 Index reinvests
proceeds pro-rata into the remaining bonds in the 2025 Index, and (2)
during the last six months of the
[[Page 21378]]
final year, proceeds are not reinvested and are presumed to be held in
cash while earning no interest.
Portfolio Holdings
According to the Registration Statement, under Normal Market
Conditions,\11\ each Fund generally will invest at least 90% of its
assets in the component securities of its respective Underlying Index,
except during the last months of the Fund's operations, as described
below. A Fund may also invest in other ETFs in order to obtain indirect
exposure to such component securities.\12\ A Fund may also invest up to
10% of its respective assets in certain listed derivatives, including
futures, options and swap contracts,\13\ U.S. government securities,
short-term paper, cash and cash equivalents, including shares of money
market funds advised by BFA or its affiliates, cash and cash
equivalents, as well as in securities not included in the Underlying
Index, but which BFA believes will help the Fund track the Underlying
Index.
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\11\ For purposes of this proposal and consistent with the
definition in Rule 14.11(i)(3)(E) applicable to Managed Fund Shares,
the term ``Normal Market Conditions'' includes, but is not limited
to, the absence of trading halts in the applicable financial markets
generally; operational issues causing dissemination of inaccurate
market information or system failures; or force majeure type events
such as natural or man-made disaster, act of God, armed conflict,
act of terrorism, riot or labor disruption, or any similar
intervening circumstance.
\12\ For purposes of this proposal, the term ETF means Portfolio
Depositary Receipts, Index Fund Shares, and Managed Fund Shares as
defined in Rule 14.11(b), 14.11(c), and 14.11(i), respectively, and
their equivalents on other national securities exchanges.
\13\ Such futures, options and swap contracts will include only
the following: Interest rate futures, interest rate options, and
interest rate swaps. The derivatives will be centrally cleared and
they will be collateralized. At least 90% of the Fund's net assets
that are invested in listed derivatives will be invested in
instruments that trade in markets that are members or affiliates of
members of the Intermarket Surveillance Group (``ISG'') or are
parties to a comprehensive surveillance sharing with the Exchange.
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From time to time when conditions warrant, however, a Fund may
invest at least 80% of its assets in the component securities of its
respective Underlying Index. In the last months of a Fund's operation,
as the bonds held by the Fund mature, the proceeds will not be
reinvested by the Fund in bonds but instead will be held in cash and
cash equivalents. By December 15 of each Fund's respective expiration
year, the Fund's Underlying Index is expected to consist almost
entirely of cash earned in this manner. Around the same time, the Fund
will wind up and terminate, and its net assets will be distributed to
then-current shareholders pursuant to a plan of liquidation.
Discussion
Based on the characteristics of the Underlying Indexes and the
representations made in the Requirements for Index Constituents
sections above, the Exchange believes it is appropriate to allow the
listing and trading of the Shares. The Underlying Indexes and Funds
each currently satisfy all of the generic listing requirements for
Index Fund Shares based on a fixed income index. The Underyling Indexes
and the Funds will also continue to satisfy all such generic listing
requirements, with the possible exception to the 90% Rule. In the event
that an Underlying Index no longer satisfies the 90% Rule, the Exchange
is only requesting that the threshold applicable to the 90% Rule be
lowered from 90% to 85% and will commence delisting procedures under
Rule 14.12 for a Fund for which less than 85% of the weight of its
respective Underlying Index satisfies one of the five applicable
categories under the 90% Rule. Further, if a Fund or the related Shares
are not in compliance with the applicable listing requirements under
Rule 14.11(c)(4), then, with respect to such Fund or Shares, the
Exchange will commence delisting procedures under Exchange Rule 14.12.
As such, the Exchange believes that this proposed limited exception
to the 90% Rule is consistent with the Act for several reasons.
Specifically, the Exchange believes that the limited nature of the
proposed exception combined with the minimum size requirements
applicable to each Underlying Index (a minimum outstanding face value
of $250 million at the time of inclusion) act to mitigate the policy
concerns which the 90% Rule is intended to address. With a minimum
outstanding face value of $250 million, the issuances included in the
Underlying Indexes will be large enough that such the types of
instruments included in the Index will be more liquid and less
susceptible to manipulation than smaller issuances that could otherwise
be allowed under the generic listing standards. Further, this proposal
is only seeking to reduce the possible weight of index constituents
that meet the 90% Rule from 90% to 85%. Combining this minimal
exception with the additional liquidity and lower likelihood of
manipulation associated with the increased minimum outstanding face
value of the issuance, the Exchange firmly believes that the concerns
related to manipulation that underly the generic listing standards are
sufficiently mitigated.
Further, the Exchange believes that this proposal is designed to
address a near-miss of the generic listing standards because under
current market conditions each of the Underlying Indexes meet the
generic listing standards under Rule 14.11(c), and this proposed
limited exception to the 90% Rule is designed to ensure that the
Underlying Indexes would continue to meet the applicable continued
listing standards under a broader array of possible future market
conditions. Similarly, because the Funds could today (and potentially
indefinitely into the future) be listed on the Exchange pursuant to the
generic listing standards, such a limited exception provides investors
with certainty as to whether the Funds will continue to be listed on
the Exchange going forward. Finally, the Exchange is only proposing a
reduction of the applicable standard from 90% to 85%, as noted above.
In addition, the Exchange represents that: (1) Except for Rule
14.11(c)(4)(B)(i)(b), each Underyling Index currently satisfies all of
the generic listing standards under Rule 14.11(c)(4); (2) the continued
listing standards under Rule 14.11(c), as applicable to Index Fund
Shares based on fixed income securities, will apply to the Shares; and
(3) the issuer of the Funds is required to comply with Rule 10A-3 \14\
under the Act for the initial and continued listing of the Shares. In
addition, the Exchange represents that each Fund will comply with all
other requirements applicable to Index Fund Shares, including, but not
limited to, requirements relating to the dissemination of key
information such as the value of the Underlying Indexes and the
Intraday Indicative Value (``IIV''),\15\ rules governing the trading of
equity securities, trading hours, trading halts, surveillance,
information barriers and the Information Circular, as set forth in the
Exchange rules applicable to Index Fund Shares and prior Commission
orders approving the generic listing rules applicable to the listing
and trading of Index Fund Shares.
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\14\ 17 CFR 240.10A-3.
\15\ 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. Currently, it is the Exchange's understanding
that several major market data vendors display and/or make widely
available IIVs taken from the Consolidated Tape Association
(``CTA'') or other data feeds.
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The current value of each Underlying Index will be widely
disseminated by one or more major market data vendors at least once per
day, as required by Rule 14.11(c)(4)(C)(ii). The portfolio of
[[Page 21379]]
securities and other assets held by each Fund will be disclosed daily
on its respective website at www.ishares.com. Further, each Fund's
website will contain the Fund's prospectus and additional data relating
to net asset value (``NAV'') and other applicable quantitative
information. The issuer has represented that the NAV of each Fund will
be calculated daily and will be made available to all market
participants at the same time. The Index Provider is not a broker-
dealer and is not affiliated with a broker-dealer. To the extent that
the Index Provider becomes a broker-dealer or becomes affiliated with a
broker-dealer, the Index Provider will implement and will maintain a
``fire wall'' around the personnel who have access to information
concerning changes and adjustments to each Underlying Index and each
Underlying Index shall be calculated by a third party who is not a
broker-dealer or fund advisor. In addition, any advisory committee,
supervisory board or similar entity that advises the Index Provider or
that makes decisions on each Index, methodology and related matters,
will implement and maintain, or be subject to, procedures designed to
prevent the use and dissemination of material non-public information
regarding the Underlying Indexes.
The Exchange's existing rules require that the issuer of the Funds
notify the Exchange of any material change to the methodology used to
determine the composition of an Underlying Index and, therefore, if the
methodology of an Underlying Index was to be changed in a manner that
would materially alter its existing composition, the Exchange would
have advance notice and would evaluate the modifications to determine
whether that Underyling Index remained sufficiently broad-based and
well diversified.
Availability of Information
The Funds' website, which will be publicly available prior to the
public offering of Shares, will include a form of the prospectus for
the Funds that may be downloaded. The website will include additional
quantitative information updated on a daily basis, including, for each
Fund: (1) The prior business day's reported NAV, daily trading volume,
and a calculation of the premium and discount of the Bid/Ask Price
against the NAV; and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. Daily trading volume information for the
Shares will also be available in the financial section of newspapers,
through subscription services such as Bloomberg, Thomson Reuters, and
International Data Corporation, which can be accessed by authorized
participants and other investors, as well as through other electronic
services, including major public websites. On each business day, each
Fund will disclose on its website the identities and quantities of the
portfolio of securities and other assets in the daily disclosed
portfolio held by the Fund that formed the basis for the Fund's
calculation of NAV at the end of the previous business day. The daily
disclosed portfolio will include, as applicable: The ticker symbol;
CUSIP number or other identifier, if any; a description of the holding
(including the type of holding, such as the type of swap); the identity
of the security, index or other asset or instrument underlying the
holding, if any; for options, the option strike price; quantity held
(as measured by, for example, par value, notional value or number of
shares, contracts, or units); maturity date, if any; coupon rate, if
any; effective date, if any; market value of the holding; and the
percentage weighting of the holding in each Fund's portfolio. The
website and information will be publicly available at no charge. The
value, components, and percentage weightings of each Underlying Index
will be calculated and disseminated at least once daily and will be
available from major market data vendors. Rules governing each Fund's
respective Underlying Indexes are available on Bloomberg's website and
in the applicable Fund's prospectus.
In addition, an estimated value, defined in BZX Rule 14.11(c)(6)(A)
as the IIV that reflects an estimated intraday value of each Fund's
portfolio, will be disseminated. Moreover, the IIV will be based upon
the current value for the components of the daily disclosed portfolio
and will be updated and widely disseminated by one or more major market
data vendors at least every 15 seconds during the Exchange's Regular
Trading Hours.\16\ In addition, the quotations of certain of a Fund's
holdings may not be updated during U.S. trading hours if updated prices
cannot be ascertained.
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\16\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IIVs
published via the CTA or other data feeds.
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The dissemination of the IIV, together with the daily disclosed
portfolio, will allow investors to determine the value of the
underlying portfolio of each Fund on a daily basis and provide a close
estimate of that value throughout the trading day.
Quotation and last sale information for the Shares will be
available via the CTA high speed line. Price information regarding
corporate bonds and other non-exchange traded assets including certain
derivatives, money market funds and other instruments, and repurchase
agreements is available from third party pricing services and major
market data vendors. For exchange-traded assets, including futures, and
certain options, such intraday information is available directly from
the applicable listing exchange. In addition, price information for
U.S. exchange-traded options will be available from the Options Price
Reporting Authority.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, or
by regulatory staff 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 federal securities
laws applicable to trading on the Exchange.\17\
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\17\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares from such markets
and other entities. In addition, the Exchange may obtain information
regarding trading in the Shares from markets and other entities that
are members of ISG or with which the
[[Page 21380]]
Exchange has in place a comprehensive surveillance sharing agreement.
In addition, FINRA, on behalf of the Exchange, is able to access, as
needed, trade information for certain fixed income securities held by
the Funds reported to FINRA's Trade Reporting and Compliance Engine
(``TRACE'').
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \18\ in general and Section 6(b)(5) of the Act \19\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
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\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria for Index Fund Shares based on a
fixed income index in Rule 14.11(c)(4), with the possible exception of
the 90% Rule. In the event that an Underlying Index no longer satisfies
the 90% Rule, the Exchange is only requesting that the threshold
applicable to the 90% Rule be lowered from 90% to 85% and will commence
delisting procedures under Rule 14.12 for a Fund for which less than
85% of the weight of its respective Underlying Index satisfies one of
the five applicable categories under the 90% Rule.
As such, the Exchange believes that this proposed limited exception
to the 90% Rule is consistent with the Act for several reasons.
Specifically, the Exchange believes that the limited nature of the
proposed exception combined with the minimum size requirements
applicable to each Underlying Index (a minimum outstanding face value
of $250 million at the time of inclusion) act to mitigate the policy
concerns which the 90% Rule is intended to address. With a minimum
outstanding face value of $250 million, the issuances included in the
Underlying Indexes will each be at least 2.5 times as large as the
threshold provided in Rule 14.11(c)(4)(B)(i)(b), generally making such
issuances more liquid and less susceptible to manipulation than smaller
issuances that would be allowed under the generic listing standards.
Further, this proposal is only seeking to reduce the possible weight of
index constituents that meet the 90% Rule from 90% to 85%. Combining
this minimal exception with the additional liquidity and lower
likelihood of manipulation associated with the increased minimum
outstanding face value of the issuance, the Exchange firmly believes
that the concerns related to manipulation that underly the generic
listing standards are sufficiently mitigated.
Further, under current market conditions each of the Underlying
Indexes meet the generic listing standards under Rule 14.11(c), and
this proposed limited exception to the 90% Rule is designed to ensure
that the Underlying Indexes would continue to meet the applicable
continued listing standards under a broader array of possible future
market conditions. Similarly, because the Funds could today (and
potentially indefinitely into the future) be listed on the Exchange
pursuant to the generic listing standards, allowing such a limited
exception provides investors with certainty as to whether the Funds
will continue to be listed on the Exchange going forward. Finally, the
Exchange is only proposing a reduction of the applicable standard from
90% to 85%, as noted above.
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances administered by the Exchange as
well as cross-market surveillances administered by the FINRA on behalf
of the Exchange, which are designed to detect violations of Exchange
rules and federal securities laws applicable to trading on the
Exchange. The Exchange represents that these procedures are adequate to
properly monitor Exchange trading of the Shares in all trading sessions
and to deter and detect violations of Exchange rules and federal
securities laws applicable to trading on the Exchange. The Exchange or
FINRA, on behalf of the Exchange, or both, will communicate as needed
regarding trading in the Shares with other markets that are members of
the ISG. In addition, 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, on behalf of the Exchange, is able to access,
as needed, trade information for certain fixed income securities held
by the Funds reported to TRACE.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that a large amount of information is publicly available regarding each
Fund, thereby promoting market transparency. Each Fund's portfolio
holdings will be disclosed on its respective website daily after the
close of trading on the Exchange. Moreover, the IIV for the Shares 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 each Underlying Index will be disseminated by one or
more major market data vendors at least once per day. Information
regarding market price and trading volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services, and quotation
and last sale information will be available via the CTA high-speed
line. The website for the Funds will include the prospectus for each
Fund and additional data relating to NAV and other applicable
quantitative information.
If the Exchange becomes aware that a Fund's NAV is not being
disseminated to all market participants at the same time, it will halt
trading in the applicable Fund's 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 Shares. Trading also may
be halted because of market conditions or for reasons that, in the view
of the Exchange, make trading in the Shares inadvisable. If the IIV and
index value are not being disseminated for a Fund as required, the
Exchange may halt trading during the day in which the interruption to
the dissemination of the IIV or index value occurs. If the interruption
to the dissemination of an IIV or index value persists past the trading
day in which it occurred, the Exchange will halt trading. The Exchange
may consider all relevant factors in exercising its discretion to halt
or suspend trading in the Shares. The Exchange will halt trading in the
Shares under the conditions specified in BZX Rule 11.18. Trading may be
halted because of market conditions or for reasons that, in the view of
the Exchange, make trading in the Shares inadvisable. These may
include: (1) The extent to which trading is not occurring in the
securities and/or the financial instruments composing the daily
disclosed portfolio of a Fund; or (2) whether other unusual conditions
or circumstances detrimental to the
[[Page 21381]]
maintenance of a fair and orderly market are present. In addition,
investors will have ready access to information regarding the
applicable IIV, and quotation and last sale information for the Shares.
All statements and representations made in this filing regarding
the composition of the Underlying Indexes, the description of the
portfolio or reference assets, limitations on portfolio holdings or
reference assets, dissemination and availability of index, reference
asset, and IIV, or the applicability of Exchange listing rules shall
constitute continued listing requirements for listing the Shares on the
Exchange. The issuer is required to advise the Exchange of any failure
by a Fund to comply with the continued listing requirements, and,
pursuant to its obligations under Section 19(g)(1) of the Act, the
Exchange will monitor for compliance with the continued listing
requirements. If a Fund is not in compliance with the applicable
listing requirements, the Exchange will commence delisting procedures
under Rule 14.12.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
several new exchange-traded products that will enhance competition
among market participants, to the benefit of investors and the
marketplace. The Exchange has in place surveillance procedures relating
to trading in the Shares and may obtain information via ISG from other
exchanges that are members of ISG or with which the Exchange has
entered into a comprehensive surveillance sharing agreement. In
addition, investors will have ready access to information regarding the
IIV and quotation and last sale information for the Shares.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of three
additional exchange-traded products that will enhance competition among
market participants, to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-
4(f)(6) thereunder.\21\
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \22\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \23\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposed rule change may become operative upon filing. The
Exchange asserts that the limited extent of the Funds' deviation from
the generic listing standards' 90% Rule, combined with the Funds'
holdings having a minimum outstanding face value that is 2.5 times
larger than the threshold in the generic listing standards,
sufficiently mitigates concerns related to manipulation. Further,
according to the Exchange, waiver of the 30-day operative delay would
facilitate the listing and trading of additional exchange-traded
products that will enhance competition among market participants, to
the benefit of investors and the marketplace. For those reasons, the
Exchange asserts that waiver of the operative delay would be consistent
with the protection of investors and the public interest. The
Commission believes that the proposal raises no new or substantive
issues and that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest. The Commission
hereby waives the operative delay and designates the proposed rule
change operative upon filing.\24\
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\22\ 17 CFR 240.19b-4(f)(6).
\23\ 17 CFR 240.19b-4(f)(6)(iii).
\24\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
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-2019-035 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-2019-035. 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
[[Page 21382]]
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-2019-035 and should be submitted on or before June 4, 2019.
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\25\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09860 Filed 5-13-19; 8:45 am]
BILLING CODE 8011-01-P
