Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Shares of the Clearbridge Small Cap Value ETF Under Currently Proposed Rule 14.11(k), 55608-55616 [2019-22600]

Download as PDF 55608 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices participants on the Exchange by providing more trading opportunities and encourages ETP Holders, to send orders, thereby contributing to robust levels of liquidity, which benefits all market participants. The proposed volume requirements would be applicable to all similarly-situated market participants, and, as such, the proposed change would not impose a disparate burden on competition among market participants on the Exchange. Intermarket Competition. The Exchange operates in a highly competitive market in which market participants can readily choose to send their orders to other exchange and offexchange venues if they deem fee levels at those other venues to be more favorable. As noted, the Exchange’s market share of intraday trading (i.e., excluding auctions) was 8.2% in August 2019. In such an environment, the Exchange must continually adjust its fees and rebates to remain competitive with other exchanges and with offexchange venues. Because competitors are free to modify their own fees and credits in response, and because market participants may readily adjust their order routing practices, the Exchange does not believe its proposed fee change can impose any burden on intermarket competition. The Exchange believes that the proposed change could promote competition between the Exchange and other execution venues, including those that currently offer similar order types and comparable transaction pricing, by encouraging additional orders to be sent to the Exchange for execution. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A) 30 of the Act and subparagraph (f)(2) of Rule 19b–4 31 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such U.S.C. 78s(b)(3)(A). 31 17 CFR 240.19b-4(f)(2). 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 shall institute proceedings under Section 19(b)(2)(B) 32 of the Act 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– NYSEArca–2019–70 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–NYSEArca-2019–70. 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 offices 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 30 15 VerDate Sep<11>2014 17:26 Oct 16, 2019 comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSEArca–2019–70, and should be submitted on or before November 7, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.33 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–22700 Filed 10–16–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87286; File No. SR– CboeBZX–2019–076] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Shares of the Clearbridge Small Cap Value ETF Under Currently Proposed Rule 14.11(k) October 10, 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 September 26, 2019, Cboe BZX Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change, and on October 9, 2019, the Exchange filed Amendment No. 1 to the proposed rule change, which amended and replaced the proposed rule change in its entirety. The proposed rule change, as modified by Amendment No. 1, is described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes a rule change to list and trade shares of the Clearbridge Small Cap Value ETF under currently proposed Rule 14.11(k). 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, 33 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 32 15 Jkt 250001 PO 00000 U.S.C. 78s(b)(2)(B). Frm 00069 Fmt 4703 Sfmt 4703 E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose This Amendment No. 1 to SR– CboeBZX–2019–076 amends and replaces in its entirety the proposal as originally submitted on September 26, 2019. The Exchange submits this Amendment No. 1 in order to clarify certain points and add additional details to the proposal. The Exchange has submitted a proposal and two subsequent amendments to add new Rule 14.11(k) for the purpose of permitting the listing and trading of Managed Portfolio Shares, which are securities issued by an actively managed open-end management investment company.3 Proposed Rule 14.11(k)(2)(A) would require the Exchange to file separate proposals under Section 19(b) of the Act before listing and trading any series of 3 As proposed, the term ‘‘Managed Portfolio Share’’ means a security that (a) represents an interest in an investment company registered under the Investment Company Act of 1940 (‘‘Investment Company’’) organized as an open-end management investment company, that invests in a portfolio of securities selected by the Investment Company’s investment adviser consistent with the Investment Company’s investment objectives and policies; (b) is issued in a Creation Unit, or multiples thereof, in return for a designated portfolio of instruments (and/or an amount of cash) with a value equal to the next determined net asset value and delivered to the Authorized Participant (as defined in the Investment Company’s Form N–1A filed with the SEC) through a Confidential Account; (c) when aggregated into a Redemption Unit, or multiples thereof, may be redeemed for a designated portfolio of instruments (and/or an amount of cash) with a value equal to the next determined net asset value delivered to the Confidential Account for the benefit of the Authorized Participant; and (d) the portfolio holdings for which are disclosed within at least 60 days following the end of every calendar quarter. See Securities Exchange Act Release No. 86157 (June 19, 2019), 84 FR 29892 (June 25, 2019) and 87062 (September 23, 2019) (SR–CboeBZX– 2019–047) (the ‘‘Proposal’’). VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 Managed Portfolio Shares on the Exchange. As such, the Exchange is submitting this proposal in order to list and trade shares of the Clearbridge Small Cap Value Fund (the ‘‘Fund’’) under proposed Rule 14.11(k). Description of the Fund and the Trust The shares of the Fund (the ‘‘Shares’’) will be issued by Precidian ETF Trust II (the ‘‘Trust’’), a statutory trust organized under the laws of the State of Delaware and registered with the Commission as an open-end management investment company.4 The investment adviser to the Trust will be Precidian Funds LLC (the ‘‘Adviser’’). The Sub-Adviser to the Fund will be ClearBridge Investments, LLC (the ‘‘Sub-Adviser’’ or ‘‘ClearBridge’’). Legg Mason Investor Services, LLC (the ‘‘Distributor’’) will serve as the distributor of the Fund’s Shares. All statements and representations made in this filing regarding the description of the portfolio or reference assets, limitations on portfolio holdings or reference assets, dissemination and availability of the Verified Intraday Indicative Value (‘‘VIIV’’),5 reference assets, and intraday indicative values, and the applicability of Exchange rules shall constitute continued listing requirements for listing the Shares on the Exchange, as provided under proposed Rule 14.11(a). Proposed Rule 14.11(k)(2)(D) provides that if the investment adviser to the Investment Company issuing Managed Portfolio Shares is registered as a broker-dealer or is affiliated with a broker-dealer, such investment adviser 4 The Trust is registered under the 1940 Act. The Trust plans to file a registration statement on Form N–1A relating to the Fund (the ‘‘Registration Statement’’). An order granting exemptive relief to the Trust was issued on May 20, 2019 (File No. 812–14405) (the ‘‘Exemptive Order’’). Investments made by the Fund will comply with the conditions set forth in the Exemptive Order. The description of the operation of the Trust and the Fund herein is based, in part, on the Exemptive Order. The Exemptive Order specifically notes that ‘‘granting the requested exemptions is appropriate in and consistent with the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. It is further found that the terms of the proposed transactions, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned, and that the proposed transactions are consistent with the policy of each registered investment company concerned and with the general purposes of the Act.’’ See Investment Company Act Release Nos. 33440 and 33477. 5 Proposed Rule 14.11(k)(3)(B) defines the term VIIV as the indicative value of a Managed Portfolio Share based on all of the holdings of a series of Managed Portfolio Shares as of the close of business on the prior business day and, for corporate actions, based on the applicable holdings as of the opening of business on the current business day, priced and disseminated in one second intervals during Regular Trading Hours by the Reporting Authority. PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 55609 will erect and maintain a ‘‘fire wall’’ between the investment adviser and personnel of the broker-dealer or brokerdealer affiliate, as applicable, with respect to access to information concerning the composition and/or changes to such Investment Company portfolio and/or Creation Basket.6 Any person related to the investment adviser or Investment Company who makes decisions pertaining to the Investment Company’s portfolio composition or has access to information regarding the Investment Company’s portfolio composition, Creation Basket, or changes thereto, must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable Investment Company portfolio or Creation Basket.7 Proposed Rule 14.11(k)(2)(D) is similar to Rule 14.11(c)(5)(A)(i), related to Index Fund Shares, except that proposed Rule 14.11(k)(2)(D) relates to the establishment of a ‘‘fire wall’’ between the investment adviser and the brokerdealer as applicable to an Investment Company’s portfolio and Creation Basket, not an underlying benchmark index, as is the case with index-based funds. Proposed Rule 14.11(k)(2)(D) is also similar to Rule 14.11(i)(7), related 6 Proposed Rule 14.11(k)(3)(E) defines the term ‘‘Creation Basket’’ as on any given business day the names and quantities of the specified instruments that are required for an AP Representative to deposit in-kind on behalf of an Authorized Participant in exchange for a Creation Unit and the names and quantities of the specified instruments that will be transferred in-kind to an AP Representative on behalf of an Authorized Participant in exchange for a Redemption Unit, which will be identical and will be transmitted to each AP Representative before the commencement of trading. 7 An investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’). As a result, the Adviser, the Sub-Adviser, and their respective related personnel will be subject to the provisions of Rule 204A–1 under the Advisers Act relating to codes of ethics. This Rule requires investment advisers to adopt a code of ethics that reflects the fiduciary nature of the relationship to clients as well as compliance with other applicable securities laws. Accordingly, procedures designed to prevent the communication and misuse of nonpublic information by an investment adviser must be consistent with Rule 204A–1 under the Advisers Act. In addition, Rule 206(4)–7 under the Advisers Act makes it unlawful for an investment adviser to provide investment advice to clients unless such investment adviser has (i) adopted and implemented written policies and procedures reasonably designed to prevent violations, by the investment adviser and its supervised persons, of the Advisers Act and the Commission rules adopted thereunder; (ii) implemented, at a minimum, an annual review regarding the adequacy of the policies and procedures established pursuant to subparagraph (i) above and the effectiveness of their implementation; and (iii) designated an individual (who is a supervised person) responsible for administering the policies and procedures adopted under subparagraph (i) above. E:\FR\FM\17OCN1.SGM 17OCN1 55610 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices to Managed Fund Shares, except that proposed Rule 14.11(k)(2)(D) relates to the establishment of a ‘‘fire wall’’ between the investment adviser and the broker-dealer as applicable to an Investment Company’s portfolio and Creation Basket, and not just the underlying portfolio, as is the case with Managed Fund Shares. The Adviser is not registered as a broker-dealer or affiliated with a broker-dealer. The SubAdviser is not registered as a brokerdealer, but is affiliated with a brokerdealer and has implemented and will maintain a ‘‘fire wall’’ with respect to such broker-dealer regarding access to information concerning the composition and/or changes to the Fund’s portfolio and Creation Basket. In the event (a) the Adviser or SubAdviser becomes registered as a brokerdealer or becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser is a registered brokerdealer or becomes affiliated with a broker-dealer, it will implement and maintain a fire wall with respect to its relevant personnel or its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio and the Creation Basket, and will be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding such portfolio or Creation Basket. Further, proposed Rule 14.11(k)(2)(E) requires that any person or entity, including an AP Representative, custodian, pricing verification agent, reporting authority, distributor, or administrator, who has access to information regarding the Investment Company’s portfolio composition, the Creation Basket, or changes thereto, must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable Investment Company portfolio or Creation Basket. Moreover, if any such person or entity is registered as a broker-dealer or affiliated with a broker-dealer, such person or entity will erect and maintain a ‘‘fire wall’’ between the person or entity and the broker-dealer with respect to access to information concerning the composition and/or changes to such Investment Company portfolio or Creation Basket. The portfolio for the Fund will consist primarily of U.S. exchange-listed equity securities and shares issued by other U.S. exchange-listed ETFs. All exchange-listed equity securities in which the Fund will invest will be listed and traded on U.S. national securities exchanges. VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 Description of the Fund Clearbridge Small Cap Value ETF The Fund seeks long-term capital growth. Under Normal Market Conditions 8 the Fund will invest at least 80% of its net assets, plus borrowings for investment purposes, in U.S. exchange-listed common stocks and other equity securities of small capitalization U.S. companies or in other U.S. exchange-listed investments with similar economic characteristics, including only the following U.S. exchange-listed securities: Common stocks, preferred securities, securities of other investment companies and of real estate investment companies (‘‘REITs’’), and warrants and rights. The portfolio managers use quantitative parameters to select a universe of smaller capitalized companies that fit the Fund’s general investment criteria. In selecting individual securities from within this range, the portfolio managers look for ‘‘value’’ attributes, such as low stock price relative to earnings, book value and cash flow and high return on invested capital. The portfolio managers also use quantitative methods to identify catalysts and trends that might influence the Fund’s industry or sector focus, or the portfolio managers’ individual security selection. In addition, the Fund may also invest up to 20% of its net assets, plus borrowings for investment purposes, in common stocks, preferred securities, and warrants and rights of U.S. exchange-listed companies with larger market capitalizations, U.S. ETFs,9 U.S. exchange-listed ADRs, U.S. exchangelisted equity futures contracts, and U.S. exchange-listed equity index futures contracts. The Fund may also hold cash without limitation. The Exchange notes that the Fund’s holdings will meet the generic listing standards applicable to series of Managed Fund Shares under Rule 14.11(i)(4)(C). While such standards do not apply directly to series of Managed 8 Proposed Rule 14.11(k)(3)(I) defines the term ‘‘Normal Market Conditions’’ as including, but not limited to, the absence of trading halts in the applicable financial markets generally; operational issues (e.g., systems failure) causing dissemination of inaccurate market information; or force majeure type events such as natural or manmade disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance. 9 For purposes of describing the holdings of the Fund, ETFs include Portfolio Depository Receipts (as described in Rule 14.11(b)); Index Fund Shares (as described in Rule 14.11(c)); and Managed Fund Shares (as described in Rule 14.11(i)). The ETFs in which the Fund may invest all will be listed and traded on U.S. national securities exchanges. While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, –2X, 3X or –3X) ETFs. PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 Portfolio Shares, the Exchange believes that the overarching policy issues related to liquidity, market cap, diversity, and concentration of portfolio holdings that Rule 14.11(i)(4)(C) is intended to address are equally applicable to series of Managed Portfolio Shares. Investment Restrictions The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets.10 Illiquid securities and other illiquid assets include those subject to contractual or other restrictions on resale and other instruments or assets that lack readily available markets as determined in accordance with Commission staff guidance.11 The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of liquidity is being maintained, and will consider taking appropriate steps in order to maintain adequate liquidity. In any event, the Fund will not purchase any securities that are illiquid investments at the time of purchase. According to the Registration Statement, the Fund will seek to qualify for treatment as a Regulated Investment Company (‘‘RIC’’) under the Internal Revenue Code.12 The Shares of the Fund will conform to the initial and continued listing criteria under proposed Rule 14.11(k). The Fund’s holdings will be limited to and consistent with what is permissible under the Exemptive Order and described herein. The Fund’s investments will be consistent with its investment objective 10 See Rule 22e–4(b)(1)(iv), which prohibits a fund from acquiring any illiquid investment if, immediately after the acquisition, the fund would have invested more than 15% of its net assets in illiquid investments that are assets. See Investment Company Act Release No. 32315 (Oct. 13, 2016), 81 FR 82142 (Nov. 18, 2016) (adopting Rule 22e–4 under the 1940 Act). Prior to the adoption of Rule 22e–4 in 2016, the Commission had long-standing guidelines that required open-end funds to hold no more than 15% of their net assets in illiquid securities and other illiquid assets. See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 14618 (March 18, 2008), FN 34. See also Investment Company Act Release Nos. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) (Statement Regarding ‘‘Restricted Securities’’); and 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) (Revisions of Guidelines to Form N–1A). 11 A fund’s portfolio security is illiquid if it cannot be disposed of in the ordinary course of business within seven days at approximately the value ascribed to it by the fund. See Investment Company Act Release Nos. 14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a–7 under the 1940 Act); and 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the Securities Act of 1933). 12 26 U.S.C. 851. E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices and will not be used to enhance leverage. While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, –2X, 3X or –3X) ETFs. Creations and Redemptions of Shares Creations and redemptions of the Shares will occur as described in the Proposal. More specifically, in connection with the creation and redemption of Creation Units 13 and Redemption Units,14 the delivery or receipt of any portfolio securities inkind will be required to be effected through a separate confidential brokerage account (a ‘‘Confidential Account’’).15 Authorized Participants (as defined in the Fund’s Registration Statement, ‘‘AP’’) will sign an agreement with an AP Representative 16 establishing the Confidential Account for the benefit of the AP. AP Representatives will be broker-dealers. An AP must be a Depository Trust Company (‘‘DTC’’) Participant that has executed a ‘‘Participant Agreement’’ with the Distributor with respect to the creation and redemption of Creation Units and Redemption Units and formed a Confidential Account for its benefit in accordance with the terms of the Participant Agreement. For purposes of creations or redemptions, all transactions will be effected through the respective AP’s Confidential Account, for the benefit of the AP without 13 Proposed Rule 14.11(k)(3)(F) defines the term ‘‘Creation Unit’’ as a specified minimum number of Managed Portfolio Shares issued by an Investment Company at the request of an Authorized Participant in return for a designated portfolio of instruments and/or cash. 14 Proposed Rule 14.11(k)(3)(G) defines the term ‘‘Redemption Unit’’ as a specified minimum number of Managed Portfolio Shares that may be redeemed to an Investment Company at the request of an Authorized Participant in return for a portfolio of instruments and/or cash. 15 Proposed Rule 14.11(k)(3)(D) defines the term ‘‘Confidential Account’’ as an account owned by an Authorized Participant and held with an AP Representative on behalf of the Authorized Participant. The account will be established and governed by contractual agreement between the AP Representative and the Authorized Participant solely for the purposes of creation and redemption, while keeping confidential the Creation Basket constituents of each series of Managed Portfolio Shares, including from the Authorized Participant. The books and records of the Confidential Account will be maintained by the AP Representative on behalf of the Authorized Participant. 16 Proposed Rule 14.11(k)(3)(C) defines the term ‘‘AP Representative’’ as an unaffiliated brokerdealer with which an Authorized Participant has signed an agreement to establish a Confidential Account for the benefit of such Authorized Participant that will deliver or receive all consideration to or from the Investment Company in a creation or redemption. An AP Representative will be restricted from disclosing the Creation Basket. Each AP shall enter into its own separate Confidential Account agreement (‘‘Confidential Account Agreement’’) with an AP Representative. VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 disclosing the identity of such securities to the AP. Each AP Representative will be given, before the commencement of trading each Business Day (defined below), the Creation Basket for that day. This information will permit an AP that has established a Confidential Account with an AP Representative, to instruct the AP Representative to buy and sell positions in the portfolio securities to permit creation and redemption of Creation Units and Redemption Units. Shares of the Fund will be issued and redeemed in Creation Units and Redemption Units of 5,000 or more Shares. The Fund will offer and redeem Creation Units and Redemption Units on a continuous basis at the net asset value (the ‘‘NAV’’) per share next determined after receipt of an order in proper form. The NAV per share of the Fund will be determined as of the close of regular trading on the Exchange on each day that the Exchange is open (a ‘‘Business Day’’). The Fund will sell and redeem Creation Units and Redemption Units only on Business Days. The Adviser anticipates that the initial price of a share will range from $20 to $60, and that the price of a Creation Unit will be at least $100,000. To keep costs low and permit the Fund to be as fully invested as possible, Shares will be purchased and redeemed in Creation Units and Redemption Units and generally on an in-kind basis. Accordingly, except where the purchase or redemption will include cash under the circumstances described in the Registration Statement, APs will be required to purchase Creation Units by making an in-kind deposit of specified instruments (‘‘Deposit Instruments’’), and APs redeeming their Shares will receive an in-kind transfer of specified instruments (‘‘Redemption Instruments’’) through the AP Representative in their Confidential Account.17 Placement of Purchase Orders The Fund will issue Shares through the Distributor on a continuous basis at NAV. The Exchange represents that the issuance of Shares will operate in a manner similar to that of other ETFs. The Fund will issue Shares only at the NAV per share next determined after an order in proper form is received. In the case of a creation, the AP would enter an irrevocable creation order with the Fund and direct the AP 17 The Fund must comply with the federal securities laws in accepting Deposit Instruments and satisfying redemptions with Redemption Instruments, including that the Deposit Instruments and Redemption Instruments are sold in transactions that would be exempt from registration under the 1933 Act. PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 55611 Representative to purchase the Creation Basket. The AP Representative would then purchase the necessary securities in the Confidential Account. In purchasing the necessary securities, the AP Representative will use methods, such as breaking the transaction into multiple transactions and transacting in multiple marketplaces, to avoid revealing the composition of the Creation Basket. Once the Creation Basket has been acquired in the Confidential Account, the AP Representative would contribute the Creation Basket in-kind to the Fund. The Distributor will furnish acknowledgements to those placing such orders that the orders have been accepted, but the Distributor may reject any order which is not submitted in proper form, as described in the Fund’s prospectus or Statement of Additional Information (‘‘SAI’’). The NAV of the Fund is expected to be determined once each Business Day at a time determined by the Trust’s Board of Trustees (‘‘Board’’), currently anticipated to be as of the close of the regular trading session on the Exchange (ordinarily 4:00 p.m. E.T.) (the ‘‘Valuation Time’’). The Fund will establish a cut-off time (‘‘Order Cut-Off Time’’) for purchase orders in proper form. Such Order CutOff Time will be provided in the Registration Statement. To initiate a purchase of Shares, an AP must submit to the Distributor an irrevocable order to purchase such Shares after the most recent prior Valuation Time. All orders to purchase Creation Units must be received by the Distributor no later than the Order Cut-Off Time in each case on the date such order is placed (‘‘Transmittal Date’’) for the AP to receive the NAV per share determined on the Transmittal Date.18 Purchases of Shares will be settled inkind and/or cash for an amount equal to the applicable NAV per share purchased plus applicable ‘‘Transaction Fees,’’ as discussed below. While the Fund will generally receive securities in-kind, the Adviser may determine from time to time that it is not in the Fund’s best interests to receive securities in-kind, but rather to receive cash. Authorized Participant Redemption The Shares may be redeemed to the Fund in Redemption Unit size or multiples thereof as described below. Redemption orders of Redemption Units must be placed by an AP (‘‘AP Redemption Order’’). The Fund will 18 To the extent that the Fund allows creations or redemptions to be conducted in cash, such transactions will be effected in the same manner for all APs. E:\FR\FM\17OCN1.SGM 17OCN1 55612 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices establish in its Registration Statement an Order Cut-Off Time for redemption orders of Redemption Units in proper form. Redemption Units of the Fund will be redeemable at their NAV per share next determined after receipt of a request for redemption by the Trust in the manner specified below before the Order Cut-Off Time. To initiate an AP Redemption Order, an AP must submit to the Distributor an irrevocable order to redeem such Redemption Unit after the most recent prior Valuation Time, but not later than the Order Cut-Off Time. In the case of a redemption, the AP would enter into an irrevocable redemption order, and then immediately instruct the AP Representative to sell the Creation Basket that it will receive in the redemption. As with the purchase of securities, the AP Representative will use methods, such as breaking the transaction into multiple transactions and transacting in multiple marketplaces, to avoid revealing the composition of the Creation Basket. Consistent with the provisions of Section 22(e) of the 1940 Act and Rule 22e–2 thereunder, the right to redeem will not be suspended, nor payment upon redemption delayed, except for: (1) Any period during which the Exchange is closed other than customary weekend and holiday closings, (2) any period during which trading on the Exchange is restricted, (3) any period during which an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund to determine its NAV, and (4) for such other periods as the Commission may by order permit for the protection of shareholders. Redemptions will occur primarily inkind, although redemption payments may also be made partly or wholly in cash.19 The Participant Agreement signed by each AP will require establishment of a Confidential Account to receive distributions of securities inkind upon redemption. Each AP will be required to open a Confidential Account with an AP Representative in order to facilitate orderly processing of redemptions. While the Fund will generally distribute securities in-kind, the Adviser may determine from time to time that it is not in the Fund’s best interests to distribute securities in-kind, but rather to sell securities and/or distribute cash. For example, the Adviser may distribute cash to facilitate orderly portfolio management in 19 The value of any positions not susceptible to in-kind settlement may be paid in cash. VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 connection with rebalancing or transitioning a portfolio in line with its investment objective, or if there is substantially more creation than redemption activity during the period immediately preceding a redemption request, or as necessary or appropriate in accordance with applicable laws and regulations.20 Net Asset Value The NAV per share of the Fund will be computed by dividing the value of the net assets of the Fund (i.e., the value of its total assets less total liabilities) by the total number of Shares of the Fund outstanding, rounded to the nearest cent. Expenses and fees, including, without limitation, the management, administration and distribution fees, will be accrued daily and taken into account for purposes of determining NAV. Interest and investment income on the Trust’s assets accrue daily and will be included in the Fund’s total assets. The NAV per share for the Fund will be calculated by the Fund’s administrator and determined as of the close of the regular trading session on the Exchange (ordinarily 4:00 p.m., E.T.) on each day that the Exchange is open. Shares of U.S. exchange-listed equity securities, including common stocks, preferred securities, securities of other investment companies and of REITs, and warrants and rights, as well as ETFs, exchange-listed ADRs, and U.S. exchange-listed futures will be valued at market value, which will generally be determined using the last reported official closing or last trading price on the exchange or market on which the securities are primarily traded at the time of valuation. Availability of Information The Fund’s website (www.PrecidianFunds.com), which will be publicly available prior to the listing and trading of Shares, will include a form of the prospectus for the Fund that may be downloaded. The Fund’s website will include additional quantitative information updated on a daily basis, including, for the Fund, (1) the prior Business Day’s NAV, market closing price or mid-point of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/Ask Price’’),21 and a calculation of the premium and 20 To the extent that the Fund allows creations or redemptions to be conducted in cash, such transactions will be effected in the same manner for all APs. 21 The Bid/Ask Price of the Fund will be determined using the mid-point between the current NBB and NBO as of the time of calculation of the Fund’s NAV. The records relating to Bid/Ask Prices will be retained by the Fund and its service providers. PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 discount of the market closing price or 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. The website and information will be publicly available at no charge. The Trust’s SAI and the Fund’s shareholder reports will be available free upon request from the Trust. These documents and forms may be viewed on-screen or downloaded from the Commission’s website at www.sec.gov. 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. Quotation and last sale information for the Shares will be available via the Consolidated Tape Association (‘‘CTA’’) high-speed line. In addition, the VIIV, as defined in proposed Rule 14.11(k)(3)(B) and as described further below, will be widely disseminated by the Reporting Authority 22 and/or one or more major market data vendors in one-second intervals during Regular Trading Hours. Dissemination of the VIIV With respect to trading of the Shares, the ability of market participants to buy and sell Shares at prices near the VIIV is dependent upon their assessment that the VIIV is a reliable, indicative realtime value for the Fund’s underlying holdings. Market participants are expected to accept the VIIV as a reliable, indicative real-time value because (1) the VIIV will be calculated and disseminated based on the Fund’s actual portfolio holdings, (2) the securities in which the Fund plans to invest are generally highly liquid and actively traded and therefore generally have accurate real time pricing available, and (3) market participants will have a daily opportunity to evaluate whether the VIIV at or near the close of trading is indeed predictive of the actual NAV. The VIIV for the Fund will be 22 Proposed Rule 14.11(k)(3)(H) defines the term ‘‘Reporting Authority’’ in respect of a particular series of Managed Portfolio Shares means the Exchange, the exchange that lists a particular series of Managed Portfolio Shares (if the Exchange is trading such series pursuant to unlisted trading privileges), an institution, or a reporting service designated by the Investment Company as the official source for calculating and reporting information relating to such series, including, the net asset value, the Verified Intraday Indicative Value, or other information relating to the issuance, redemption or trading of Managed Portfolio Shares. A series of Managed Portfolio Shares may have more than one Reporting Authority, each having different functions. E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices disseminated by the Reporting Authority and/or one or more major market data vendors in one-second intervals during Regular Trading Hours. If the Adviser determines that a portfolio security does not have a readily available market quotation, that fact will be disclosed as soon as practicable on the Fund’s website, including the identity and weighting of that security in the Fund’s portfolio, and the impact of that security on VIIV calculation, including the price for that security being used for the calculation of that day’s VIIV. Trading Halts With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund. 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, including whether unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Trading in the Shares also will be subject to proposed Rule 14.11(k)(4)(B)(iii)(a) and (b) in the Proposal, which set forth circumstances under which trading in the Shares of the Fund will be halted. Specifically, Proposed Rule 14.11(k)(4)(B)(iii)(a) provides that, upon notification to the Exchange by the Investment Company or its agent of the existence of any condition or set of conditions specified in any currently applicable exemptive order or no-action relief granted by the Commission or Commission staff that would require the Investment Company’s investment adviser to request that the Exchange halt trading in the Managed Portfolio Shares, the Exchange shall halt trading in the Managed Portfolio Shares as soon as practicable. Such halt in trading shall continue until the Investment Company or its agent notifies the Exchange that the condition or conditions necessary for the resumption of trading have been met.23 The Adviser has represented to 23 As provided in the Exemptive Order, such conditions would exist where either: (i) The intraday indicative values calculated by the pricing verification agent(s) differ by more than 25 basis points for 60 seconds in connection with pricing of the Verified Intraday Indicative Value; or (ii) holdings representing 10% or more of the Fund’s portfolio have become subject to a trading halt or otherwise do not have readily available market quotations. The Exchange shall halt trading in the Shares as soon as practicable after receipt of notification of the existence of such conditions. Such halt in trading shall continue until the VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 the Exchange that it will provide the Exchange with prompt notification upon the existence of any such condition or set of conditions. Proposed Rule 14.11(k)(4)(B)(iii)(b) provides that, if the Exchange becomes aware that: (i) The Fund’s VIIV is not being calculated or disseminated in one second intervals, as required; (ii) the Fund’s NAV is not disseminated to all market participants at the same time; (iii) the Fund’s holdings are not made available on at least a quarterly basis as required under the 1940 Act; or (iv) such holdings are not made available to all market participants at the same time, it will halt trading in such series until such time as the VIIV, the NAV, or the holdings are available to all market participants as required. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. Shares will trade on the Exchange only during Regular Trading Hours as provided in proposed Rule 14.11(k)(2)(B). As provided in BZX Rule 11.11(a), the minimum price variation for quoting and entry of orders in securities traded on the Exchange is $0.01, with the exception of securities that are priced less than $1.00, for which the minimum price variation for order entry is $0.0001. The Shares will conform to the initial and continued listing criteria under Rule 14.11(k) as well as all terms in the Exemptive Order. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 under the Act.24 A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares of the Fund that the NAV per share of the Fund will be calculated daily and will be made available to all market participants at the same time. Surveillance The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. Trading of the Shares through the Exchange will be subject to the Exchange’s surveillance procedures for Adviser or its agent notifies the Exchange that these conditions no longer exist. 24 See 17 CFR 240.10A–3. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 55613 derivative products, including Managed Portfolio Shares. As part of these surveillance procedures and consistent with proposed Rule 14.11(k)(2)(C), the Adviser will upon request make available to the Exchange and/or FINRA, on behalf of the Exchange, the daily portfolio holdings of the Fund. The issuer has represented to the Exchange that it will advise the Exchange of any failure by the Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Exchange Act, the Exchange will surveil for compliance with the continued listing requirements. If the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Exchange Rule 14.12. The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares, underlying equity securities and U.S. exchange-listed futures with other markets and other entities that are members of the Intermarket Surveillance Group (‘‘ISG’’), and the Exchange or FINRA, on behalf of the Exchange, or both, may obtain trading information regarding trading such securities from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, underlying equity securities and U.S. exchange-listed futures from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.25 In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. Information Circular Prior to the commencement of trading, the Exchange will inform its members in an Information Circular (‘‘Circular’’) of the special characteristics and risks associated with trading the Shares. Specifically, the Circular will discuss the following: (1) The procedures for purchases and redemptions of Shares; (2) BZX Rule 3.7, which imposes suitability obligations on Exchange members with respect to recommending transactions in the Shares to customers; (3) how information regarding the VIIV is disseminated; (4) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the 25 For a list of the current members of ISG, see www.isgportal.org. E:\FR\FM\17OCN1.SGM 17OCN1 55614 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices confirmation of a transaction; (5) trading information; and (6) that the portfolio holdings will be disclosed within at least 60 days following the end of every calendar quarter. In addition, the Circular will reference that the Fund is subject to various fees and expenses described in the Registration Statement. The Circular will discuss any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the Act. The Circular will also disclose that the NAV for the Shares will be calculated after 4:00 p.m., E.T. each trading day. 2. Statutory Basis The Exchange believes that this proposal is consistent with Section 6(b) of the Act 26 in general and Section 6(b)(5) of the Act 27 in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange believes that, to the extent that the Proposal and, thus proposed Rule 14.11(k), is approved by the Commission, this proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Fund would meet each of the rules relating to listing and trading of Managed Portfolio Shares and, to the extent that the Fund is not in compliance with such rules, the Exchange would either prevent the Fund from listing and trading if it hadn’t started trading on the Exchange or would commence delisting procedures under Exchange Rule 14.12. More specifically, the Exchange will consider the suspension of trading in, and will commence delisting proceedings under Rule 14.12 for, the Fund under any of the following circumstances: (a) If, following the initial twelve-month period after commencement of trading on the Exchange of the Fund, there are fewer than 50 beneficial holders of the Fund; (b) if the value of the VIIV is no longer calculated or available to all market participants at the same time; (c) if the holdings of a series of the Fund are not made available on a quarterly basis as required under the 1940 Act or are not made available to all market participants at the same time; (d) if the Investment Company issuing the Fund has failed to file any filings required by 26 15 27 15 U.S.C. 78f. U.S.C. 78f(b)(5). VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 the Commission or if the Exchange is aware that the Investment Company is not in compliance with the conditions of any exemptive order or no-action relief granted by the Commission to the Investment Company with respect to the Fund; (e) if any of the continued listing requirements set forth in Rule 14.11(k) are not continuously maintained; (f) if any of the applicable Continued Listing Representations for the issue of Managed Fund Shares are not continuously met; or (g) if such other event shall occur or condition exists which, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. The Adviser is not registered as a broker-dealer or affiliated with a brokerdealer. The Sub-Adviser is not registered as a broker-dealer, but is affiliated with a broker-dealer and has implemented and will maintain a ‘‘fire wall’’ with respect to such broker-dealer regarding access to information concerning the composition and/or changes to the Fund’s portfolio and Creation Basket. In the event (a) the Adviser or SubAdviser becomes registered as a brokerdealer or becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser is a registered brokerdealer or becomes affiliated with a broker-dealer, it will implement and maintain a fire wall with respect to its relevant personnel or its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio and Creation Basket, and will be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding such portfolio or Creation Basket. Further, proposed Rule 14.11(k)(2)(E) requires that any person or entity, including an AP Representative, custodian, pricing verification agent, reporting authority, distributor, or administrator, who has access to information regarding the Investment Company’s portfolio composition, the Creation Basket, or changes thereto, must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable Investment Company portfolio or Creation Basket. Moreover, if any such person or entity is registered as a broker-dealer or affiliated with a broker-dealer, such person or entity will erect and maintain a ‘‘fire wall’’ between the person or entity and the broker-dealer with respect to access to information concerning the composition and/or changes to such Investment Company portfolio or Creation Basket. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 The Exchange further believes that the proposed rules are designed to prevent fraudulent and manipulative acts and practices related to the listing and trading of Managed Portfolio Shares because they provide meaningful requirements about both the data that will be made publicly available about the Shares as well as the information that will only be available to certain parties and the controls on such information. Specifically, the Exchange believes that the requirements related to information protection enumerated under proposed Rule 14.11(k)(2)(E) 28 will act as a strong safeguard against misuse and improper dissemination of information related to the Fund’s portfolio composition, the Creation Basket, or changes thereto. The requirement that any person or entity implement procedures to prevent the use and dissemination of material nonpublic information regarding the portfolio or Creation Basket will act to prevent any individual or entity from sharing such information externally and the internal ‘‘fire wall’’ requirements applicable where an entity is a registered broker-dealer or affiliated with a broker-dealer will act to make sure that no entity will be able to misuse the data for their own purposes. As such, the Exchange believes that this proposal is designed to prevent fraudulent and manipulative acts and practices. The Exchange further believes that the proposal is designed to prevent fraudulent and manipulative acts and practices related to the listing and trading of Managed Portfolio Shares and to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange would halt trading under certain circumstances under which trading in the Shares may be inadvisable. Specifically, trading in the Shares will be subject to proposed Rule 14.11(k)(4)(B)(iii)(a), which provides that, upon notification to the Exchange by the Investment Company or its agent 28 As described above, proposed Rule 14.11(k)(2)(E) provides that any person or entity, including an AP Representative, custodian, pricing verification agent, reporting authority, distributor, or administrator, who has access to information regarding the Investment Company’s portfolio composition, the Creation Basket, or changes thereto, must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable Investment Company portfolio or Creation Basket. Moreover, if any such person or entity is registered as a broker-dealer or affiliated with a broker-dealer, such person or entity will erect and maintain a ‘‘fire wall’’ between the person or entity and the brokerdealer with respect to access to information concerning the composition and/or changes to such Investment Company portfolio or Creation Basket. E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices of the existence of any condition or set of conditions specified in any currently applicable exemptive order or no-action relief granted by the Commission or Commission staff that would require the Investment Company’s investment adviser to request that the Exchange halt trading in the Managed Portfolio Shares, the Exchange shall halt trading in the Managed Portfolio Shares as soon as practicable. Such halt in trading shall continue until the Investment Company or its agent notifies the Exchange that the condition or conditions necessary for the resumption of trading have been met.29 The Adviser has represented to the Exchange that it will provide the Exchange with prompt notification upon the existence of any such condition or set of conditions. Trading in the Shares will also be subject to proposed Rule 14.11(k)(4)(B)(iii)(b), which provides that, if the Exchange becomes aware that: (i) The Fund’ VIIV is not being calculated or disseminated in one second intervals, as required; (ii) the Fund’s NAV is not disseminated to all market participants at the same time; (iii) the Fund’s holdings are not made available on at least a quarterly basis as required under the 1940 Act; or (iv) such holdings are not made available to all market participants at the same time, it will halt trading in such series until such time as the VIIV, the NAV, or the holdings are available to all market participants as required. With respect to the proposed listing and trading of Shares of the Fund, 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 in Rule 14.11(k). The Fund will invest at least 80% of its net assets, plus borrowings for investment purposes, in common stocks and other equity securities of small capitalization U.S. companies or in other U.S. exchange-listed investments with similar economic characteristics, including only the following U.S. exchange-listed securities: Common stocks, preferred securities, securities of 29 As provided in the Exemptive Order, such conditions would exist where either: (i) The intraday indicative values calculated by the pricing verification agent(s) differ by more than 25 basis points for 60 seconds in connection with pricing of the Verified Intraday Indicative Value; or (ii) holdings representing 10% or more of the Fund’s portfolio have become subject to a trading halt or otherwise do not have readily available market quotations. The Exchange shall halt trading in the Shares as soon as practicable after receipt of notification of the existence of such conditions. Such halt in trading shall continue until the Adviser or its agent notifies the Exchange that these conditions no longer exist. VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 other investment companies and of REITs, and warrants and rights. All equity securities in which the Fund will invest will be listed and traded on U.S. national securities exchanges. Price information for the U.S. exchange-listed equity securities held by the Fund will be available through major market data vendors or securities exchanges listing and trading such securities. Price information for any other U.S. exchange-listed instruments held by the Fund will be available through major market data vendors or exchanges listing and trading such instruments. The Fund’s investments will be consistent with its investment objective and will not be used to enhance leverage. The Fund will not invest in non-U.S. exchange-listed securities. All futures held by the Fund will be listed on U.S. futures exchanges. The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares, underlying equity securities and U.S. exchange-listed futures 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 such securities from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, underlying equity securities, and U.S. exchange-listed futures from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. With respect to trading of the Shares, the ability of market participants to buy and sell Shares at prices near the VIIV is dependent upon their assessment that the VIIV is a reliable, indicative realtime value for the Fund’s underlying holdings. Market participants are expected to accept the VIIV as a reliable, indicative real-time value because (1) the VIIV will be calculated and disseminated based on the Fund’s actual portfolio holdings, (2) the securities in which the Fund plans to invest are generally highly liquid and actively traded and therefore generally have accurate real time pricing available, and (3) market participants will have a daily opportunity to evaluate whether the VIIV at or near the close of trading is indeed predictive of the actual NAV.30 The proposed rule change is designed to promote just and equitable principles 30 The statements in the Statutory Basis section of this filing relating to pricing efficiency, arbitrage, and activities of market participants, including market makers and APs, are based on statements in the Exemptive Order, representations by Precidian, and review by the Exchange. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 55615 of trade and to protect investors and the public interest in that the Exchange will obtain a representation that the NAV per share of the Fund will be calculated daily and that the NAV will be made available to all market participants at the same time. Investors can also obtain the Fund’s SAI, shareholder reports, Form N–CEN, Form N–CSR, and Form N–PORT. The Fund’s SAI and shareholder reports will be available free upon request from the applicable fund, and those documents and the Form N–CSR and Form N–PORT may be viewed on-screen or downloaded from the Commission’s website. In addition, with respect to the Fund, a large amount of information will be publicly available regarding the Fund and the Shares, thereby promoting market transparency. Quotation and last sale information for the Shares will be available via the CTA high-speed line. Information regarding the VIIV will be widely disseminated every second throughout Regular Trading Hours by the Reporting Authority and/or one or more major market data vendors. The website for the Fund will include a prospectus for the Fund that may be downloaded, and additional data relating to NAV and other applicable quantitative information, updated on a daily basis. Moreover, prior to the commencement of trading, the Exchange will inform its members in a Circular of the special characteristics and risks associated with trading the Shares. The Exchange will halt trading in the Shares under the conditions specified in BZX Rule 11.18 or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. Trading in the Shares will be subject to proposed Rule 14.11(k)(4)(B)(iii)(a) and (b), which set forth circumstances under which Shares of the Fund will be halted. In addition, as noted above, investors will have ready access to the VIIV, and quotation and last sale information for the Shares. The Shares will conform to the initial and continued listing criteria under proposed Rule 14.11(k). The Fund’s holdings will be limited to and consistent with what is permissible under the Exemptive Order and described herein. The Fund’s investments will be consistent with its investment objective and will not be used to enhance leverage. While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, –2X, 3X or –3X) ETFs. 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 an actively-managed exchange-traded E:\FR\FM\17OCN1.SGM 17OCN1 55616 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices product that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, 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, as noted above, investors will have ready access to information regarding the VIIV 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, rather will facilitate the listing and trading of actively-managed exchangetraded products that will enhance competition among both market participants and listing venues, 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: A. By order approve or disapprove such proposed rule change, or B. institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as modified by Amendment No. 1, is consistent with the Act. Comments VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION 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–2019–076 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–2019–076. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CboeBZX–2019–076 and should be submitted on or before November 7, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.31 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–22600 Filed 10–16–19; 8:45 am] [Release No. 34–87293; File No. SR– CboeEDGX–2019–060] Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule To Institute a Derived Data API Service October 11, 2019. 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 October 1, 2019, Cboe EDGX Exchange, Inc. (‘‘Exchange’’ or ‘‘EDGX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe EDGX Exchange, Inc. (‘‘EDGX’’ or the ‘‘Exchange’’) is filing with the Securities and Exchange Commission (the ‘‘Commission’’) a proposed rule change to amend the fee schedule to institute a Derived Data API Service. The text of the proposed rule change is attached as Exhibit 5 [sic]. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ options/regulation/rule_filings/edgx/), 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. BILLING CODE 8011–01–P 1 15 31 17 PO 00000 CFR 200.30–3(a)(12). Frm 00077 Fmt 4703 Sfmt 4703 2 17 E:\FR\FM\17OCN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 17OCN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 84, Number 201 (Thursday, October 17, 2019)]
[Notices]
[Pages 55608-55616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22600]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87286; File No. SR-CboeBZX-2019-076]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To 
List and Trade Shares of the Clearbridge Small Cap Value ETF Under 
Currently Proposed Rule 14.11(k)

October 10, 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 September 26, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change, and on October 9, 2019, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
amended and replaced the proposed rule change in its entirety. The 
proposed rule change, as modified by Amendment No. 1, is described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change, as modified by Amendment No. 1, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes a rule change to list and trade shares of the 
Clearbridge Small Cap Value ETF under currently proposed Rule 14.11(k).
    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,

[[Page 55609]]

and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    This Amendment No. 1 to SR-CboeBZX-2019-076 amends and replaces in 
its entirety the proposal as originally submitted on September 26, 
2019. The Exchange submits this Amendment No. 1 in order to clarify 
certain points and add additional details to the proposal.
    The Exchange has submitted a proposal and two subsequent amendments 
to add new Rule 14.11(k) for the purpose of permitting the listing and 
trading of Managed Portfolio Shares, which are securities issued by an 
actively managed open-end management investment company.\3\ Proposed 
Rule 14.11(k)(2)(A) would require the Exchange to file separate 
proposals under Section 19(b) of the Act before listing and trading any 
series of Managed Portfolio Shares on the Exchange. As such, the 
Exchange is submitting this proposal in order to list and trade shares 
of the Clearbridge Small Cap Value Fund (the ``Fund'') under proposed 
Rule 14.11(k).
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    \3\ As proposed, the term ``Managed Portfolio Share'' means a 
security that (a) represents an interest in an investment company 
registered under the Investment Company Act of 1940 (``Investment 
Company'') organized as an open-end management investment company, 
that invests in a portfolio of securities selected by the Investment 
Company's investment adviser consistent with the Investment 
Company's investment objectives and policies; (b) is issued in a 
Creation Unit, or multiples thereof, in return for a designated 
portfolio of instruments (and/or an amount of cash) with a value 
equal to the next determined net asset value and delivered to the 
Authorized Participant (as defined in the Investment Company's Form 
N-1A filed with the SEC) through a Confidential Account; (c) when 
aggregated into a Redemption Unit, or multiples thereof, may be 
redeemed for a designated portfolio of instruments (and/or an amount 
of cash) with a value equal to the next determined net asset value 
delivered to the Confidential Account for the benefit of the 
Authorized Participant; and (d) the portfolio holdings for which are 
disclosed within at least 60 days following the end of every 
calendar quarter. See Securities Exchange Act Release No. 86157 
(June 19, 2019), 84 FR 29892 (June 25, 2019) and 87062 (September 
23, 2019) (SR-CboeBZX-2019-047) (the ``Proposal'').
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Description of the Fund and the Trust
    The shares of the Fund (the ``Shares'') will be issued by Precidian 
ETF Trust II (the ``Trust''), a statutory trust organized under the 
laws of the State of Delaware and registered with the Commission as an 
open-end management investment company.\4\ The investment adviser to 
the Trust will be Precidian Funds LLC (the ``Adviser''). The Sub-
Adviser to the Fund will be ClearBridge Investments, LLC (the ``Sub-
Adviser'' or ``ClearBridge''). Legg Mason Investor Services, LLC (the 
``Distributor'') will serve as the distributor of the Fund's Shares. 
All statements and representations made in this filing regarding the 
description of the portfolio or reference assets, limitations on 
portfolio holdings or reference assets, dissemination and availability 
of the Verified Intraday Indicative Value (``VIIV''),\5\ reference 
assets, and intraday indicative values, and the applicability of 
Exchange rules shall constitute continued listing requirements for 
listing the Shares on the Exchange, as provided under proposed Rule 
14.11(a).
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    \4\ The Trust is registered under the 1940 Act. The Trust plans 
to file a registration statement on Form N-1A relating to the Fund 
(the ``Registration Statement''). An order granting exemptive relief 
to the Trust was issued on May 20, 2019 (File No. 812-14405) (the 
``Exemptive Order''). Investments made by the Fund will comply with 
the conditions set forth in the Exemptive Order. The description of 
the operation of the Trust and the Fund herein is based, in part, on 
the Exemptive Order. The Exemptive Order specifically notes that 
``granting the requested exemptions is appropriate in and consistent 
with the public interest and consistent with the protection of 
investors and the purposes fairly intended by the policy and 
provisions of the Act. It is further found that the terms of the 
proposed transactions, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and that the proposed transactions 
are consistent with the policy of each registered investment company 
concerned and with the general purposes of the Act.'' See Investment 
Company Act Release Nos. 33440 and 33477.
    \5\ Proposed Rule 14.11(k)(3)(B) defines the term VIIV as the 
indicative value of a Managed Portfolio Share based on all of the 
holdings of a series of Managed Portfolio Shares as of the close of 
business on the prior business day and, for corporate actions, based 
on the applicable holdings as of the opening of business on the 
current business day, priced and disseminated in one second 
intervals during Regular Trading Hours by the Reporting Authority.
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    Proposed Rule 14.11(k)(2)(D) provides that if the investment 
adviser to the Investment Company issuing Managed Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition and/or changes to such Investment Company 
portfolio and/or Creation Basket.\6\ Any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's portfolio composition or has access to 
information regarding the Investment Company's portfolio composition, 
Creation Basket, or changes thereto, must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the applicable Investment Company portfolio or 
Creation Basket.\7\ Proposed Rule 14.11(k)(2)(D) is similar to Rule 
14.11(c)(5)(A)(i), related to Index Fund Shares, except that proposed 
Rule 14.11(k)(2)(D) relates to the establishment of a ``fire wall'' 
between the investment adviser and the broker-dealer as applicable to 
an Investment Company's portfolio and Creation Basket, not an 
underlying benchmark index, as is the case with index-based funds. 
Proposed Rule 14.11(k)(2)(D) is also similar to Rule 14.11(i)(7), 
related

[[Page 55610]]

to Managed Fund Shares, except that proposed Rule 14.11(k)(2)(D) 
relates to the establishment of a ``fire wall'' between the investment 
adviser and the broker-dealer as applicable to an Investment Company's 
portfolio and Creation Basket, and not just the underlying portfolio, 
as is the case with Managed Fund Shares. The Adviser is not registered 
as a broker-dealer or affiliated with a broker-dealer. The Sub-Adviser 
is not registered as a broker-dealer, but is affiliated with a broker-
dealer and has implemented and will maintain a ``fire wall'' with 
respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the Fund's portfolio and 
Creation Basket.
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    \6\ Proposed Rule 14.11(k)(3)(E) defines the term ``Creation 
Basket'' as on any given business day the names and quantities of 
the specified instruments that are required for an AP Representative 
to deposit in-kind on behalf of an Authorized Participant in 
exchange for a Creation Unit and the names and quantities of the 
specified instruments that will be transferred in-kind to an AP 
Representative on behalf of an Authorized Participant in exchange 
for a Redemption Unit, which will be identical and will be 
transmitted to each AP Representative before the commencement of 
trading.
    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser, the Sub-Adviser, and their 
respective related personnel will be subject to the provisions of 
Rule 204A-1 under the Advisers Act relating to codes of ethics. This 
Rule requires investment advisers to adopt a code of ethics that 
reflects the fiduciary nature of the relationship to clients as well 
as compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violations, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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    In the event (a) the Adviser or Sub-Adviser becomes registered as a 
broker-dealer or becomes newly affiliated with a broker-dealer, or (b) 
any new adviser or sub-adviser is a registered broker-dealer or becomes 
affiliated with a broker-dealer, it will implement and maintain a fire 
wall with respect to its relevant personnel or its broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio and the Creation Basket, and will be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding such portfolio or Creation 
Basket.
    Further, proposed Rule 14.11(k)(2)(E) requires that any person or 
entity, including an AP Representative, custodian, pricing verification 
agent, reporting authority, distributor, or administrator, who has 
access to information regarding the Investment Company's portfolio 
composition, the Creation Basket, or changes thereto, must be subject 
to procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable Investment Company 
portfolio or Creation Basket. Moreover, if any such person or entity is 
registered as a broker-dealer or affiliated with a broker-dealer, such 
person or entity will erect and maintain a ``fire wall'' between the 
person or entity and the broker-dealer with respect to access to 
information concerning the composition and/or changes to such 
Investment Company portfolio or Creation Basket.
    The portfolio for the Fund will consist primarily of U.S. exchange-
listed equity securities and shares issued by other U.S. exchange-
listed ETFs. All exchange-listed equity securities in which the Fund 
will invest will be listed and traded on U.S. national securities 
exchanges.
Description of the Fund
Clearbridge Small Cap Value ETF
    The Fund seeks long-term capital growth. Under Normal Market 
Conditions \8\ the Fund will invest at least 80% of its net assets, 
plus borrowings for investment purposes, in U.S. exchange-listed common 
stocks and other equity securities of small capitalization U.S. 
companies or in other U.S. exchange-listed investments with similar 
economic characteristics, including only the following U.S. exchange-
listed securities: Common stocks, preferred securities, securities of 
other investment companies and of real estate investment companies 
(``REITs''), and warrants and rights. The portfolio managers use 
quantitative parameters to select a universe of smaller capitalized 
companies that fit the Fund's general investment criteria. In selecting 
individual securities from within this range, the portfolio managers 
look for ``value'' attributes, such as low stock price relative to 
earnings, book value and cash flow and high return on invested capital. 
The portfolio managers also use quantitative methods to identify 
catalysts and trends that might influence the Fund's industry or sector 
focus, or the portfolio managers' individual security selection.
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    \8\ Proposed Rule 14.11(k)(3)(I) defines the term ``Normal 
Market Conditions'' as including, but not limited to, the absence of 
trading halts in the applicable financial markets generally; 
operational issues (e.g., systems failure) causing dissemination of 
inaccurate market information; or force majeure type events such as 
natural or manmade disaster, act of God, armed conflict, act of 
terrorism, riot or labor disruption or any similar intervening 
circumstance.
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    In addition, the Fund may also invest up to 20% of its net assets, 
plus borrowings for investment purposes, in common stocks, preferred 
securities, and warrants and rights of U.S. exchange-listed companies 
with larger market capitalizations, U.S. ETFs,\9\ U.S. exchange-listed 
ADRs, U.S. exchange-listed equity futures contracts, and U.S. exchange-
listed equity index futures contracts. The Fund may also hold cash 
without limitation.
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    \9\ For purposes of describing the holdings of the Fund, ETFs 
include Portfolio Depository Receipts (as described in Rule 
14.11(b)); Index Fund Shares (as described in Rule 14.11(c)); and 
Managed Fund Shares (as described in Rule 14.11(i)). The ETFs in 
which the Fund may invest all will be listed and traded on U.S. 
national securities exchanges. While the Fund may invest in inverse 
ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -
3X) ETFs.
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    The Exchange notes that the Fund's holdings will meet the generic 
listing standards applicable to series of Managed Fund Shares under 
Rule 14.11(i)(4)(C). While such standards do not apply directly to 
series of Managed Portfolio Shares, the Exchange believes that the 
overarching policy issues related to liquidity, market cap, diversity, 
and concentration of portfolio holdings that Rule 14.11(i)(4)(C) is 
intended to address are equally applicable to series of Managed 
Portfolio Shares.
Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets.\10\ Illiquid securities and other illiquid 
assets include those subject to contractual or other restrictions on 
resale and other instruments or assets that lack readily available 
markets as determined in accordance with Commission staff guidance.\11\ 
The Fund will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity. In any event, the Fund 
will not purchase any securities that are illiquid investments at the 
time of purchase.
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    \10\ See Rule 22e-4(b)(1)(iv), which prohibits a fund from 
acquiring any illiquid investment if, immediately after the 
acquisition, the fund would have invested more than 15% of its net 
assets in illiquid investments that are assets. See Investment 
Company Act Release No. 32315 (Oct. 13, 2016), 81 FR 82142 (Nov. 18, 
2016) (adopting Rule 22e-4 under the 1940 Act). Prior to the 
adoption of Rule 22e-4 in 2016, the Commission had long-standing 
guidelines that required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), FN 34. See also Investment Company Act 
Release Nos. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); and 18612 
(March 12, 1992), 57 FR 9828 (March 20, 1992) (Revisions of 
Guidelines to Form N-1A).
    \11\ A fund's portfolio security is illiquid if it cannot be 
disposed of in the ordinary course of business within seven days at 
approximately the value ascribed to it by the fund. See Investment 
Company Act Release Nos. 14983 (March 12, 1986), 51 FR 9773 (March 
21, 1986) (adopting amendments to Rule 2a-7 under the 1940 Act); and 
17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 
144A under the Securities Act of 1933).
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    According to the Registration Statement, the Fund will seek to 
qualify for treatment as a Regulated Investment Company (``RIC'') under 
the Internal Revenue Code.\12\
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    \12\ 26 U.S.C. 851.
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    The Shares of the Fund will conform to the initial and continued 
listing criteria under proposed Rule 14.11(k). The Fund's holdings will 
be limited to and consistent with what is permissible under the 
Exemptive Order and described herein.
    The Fund's investments will be consistent with its investment 
objective

[[Page 55611]]

and will not be used to enhance leverage. While the Fund may invest in 
inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 3X 
or -3X) ETFs.
Creations and Redemptions of Shares
    Creations and redemptions of the Shares will occur as described in 
the Proposal. More specifically, in connection with the creation and 
redemption of Creation Units \13\ and Redemption Units,\14\ the 
delivery or receipt of any portfolio securities in-kind will be 
required to be effected through a separate confidential brokerage 
account (a ``Confidential Account'').\15\ Authorized Participants (as 
defined in the Fund's Registration Statement, ``AP'') will sign an 
agreement with an AP Representative \16\ establishing the Confidential 
Account for the benefit of the AP. AP Representatives will be broker-
dealers. An AP must be a Depository Trust Company (``DTC'') Participant 
that has executed a ``Participant Agreement'' with the Distributor with 
respect to the creation and redemption of Creation Units and Redemption 
Units and formed a Confidential Account for its benefit in accordance 
with the terms of the Participant Agreement. For purposes of creations 
or redemptions, all transactions will be effected through the 
respective AP's Confidential Account, for the benefit of the AP without 
disclosing the identity of such securities to the AP.
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    \13\ Proposed Rule 14.11(k)(3)(F) defines the term ``Creation 
Unit'' as a specified minimum number of Managed Portfolio Shares 
issued by an Investment Company at the request of an Authorized 
Participant in return for a designated portfolio of instruments and/
or cash.
    \14\ Proposed Rule 14.11(k)(3)(G) defines the term ``Redemption 
Unit'' as a specified minimum number of Managed Portfolio Shares 
that may be redeemed to an Investment Company at the request of an 
Authorized Participant in return for a portfolio of instruments and/
or cash.
    \15\ Proposed Rule 14.11(k)(3)(D) defines the term 
``Confidential Account'' as an account owned by an Authorized 
Participant and held with an AP Representative on behalf of the 
Authorized Participant. The account will be established and governed 
by contractual agreement between the AP Representative and the 
Authorized Participant solely for the purposes of creation and 
redemption, while keeping confidential the Creation Basket 
constituents of each series of Managed Portfolio Shares, including 
from the Authorized Participant. The books and records of the 
Confidential Account will be maintained by the AP Representative on 
behalf of the Authorized Participant.
    \16\ Proposed Rule 14.11(k)(3)(C) defines the term ``AP 
Representative'' as an unaffiliated broker-dealer with which an 
Authorized Participant has signed an agreement to establish a 
Confidential Account for the benefit of such Authorized Participant 
that will deliver or receive all consideration to or from the 
Investment Company in a creation or redemption. An AP Representative 
will be restricted from disclosing the Creation Basket. Each AP 
shall enter into its own separate Confidential Account agreement 
(``Confidential Account Agreement'') with an AP Representative.
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    Each AP Representative will be given, before the commencement of 
trading each Business Day (defined below), the Creation Basket for that 
day. This information will permit an AP that has established a 
Confidential Account with an AP Representative, to instruct the AP 
Representative to buy and sell positions in the portfolio securities to 
permit creation and redemption of Creation Units and Redemption Units. 
Shares of the Fund will be issued and redeemed in Creation Units and 
Redemption Units of 5,000 or more Shares. The Fund will offer and 
redeem Creation Units and Redemption Units on a continuous basis at the 
net asset value (the ``NAV'') per share next determined after receipt 
of an order in proper form. The NAV per share of the Fund will be 
determined as of the close of regular trading on the Exchange on each 
day that the Exchange is open (a ``Business Day''). The Fund will sell 
and redeem Creation Units and Redemption Units only on Business Days. 
The Adviser anticipates that the initial price of a share will range 
from $20 to $60, and that the price of a Creation Unit will be at least 
$100,000.
    To keep costs low and permit the Fund to be as fully invested as 
possible, Shares will be purchased and redeemed in Creation Units and 
Redemption Units and generally on an in-kind basis. Accordingly, except 
where the purchase or redemption will include cash under the 
circumstances described in the Registration Statement, APs will be 
required to purchase Creation Units by making an in-kind deposit of 
specified instruments (``Deposit Instruments''), and APs redeeming 
their Shares will receive an in-kind transfer of specified instruments 
(``Redemption Instruments'') through the AP Representative in their 
Confidential Account.\17\
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    \17\ The Fund must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the 1933 Act.
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Placement of Purchase Orders
    The Fund will issue Shares through the Distributor on a continuous 
basis at NAV. The Exchange represents that the issuance of Shares will 
operate in a manner similar to that of other ETFs. The Fund will issue 
Shares only at the NAV per share next determined after an order in 
proper form is received.
    In the case of a creation, the AP would enter an irrevocable 
creation order with the Fund and direct the AP Representative to 
purchase the Creation Basket. The AP Representative would then purchase 
the necessary securities in the Confidential Account. In purchasing the 
necessary securities, the AP Representative will use methods, such as 
breaking the transaction into multiple transactions and transacting in 
multiple marketplaces, to avoid revealing the composition of the 
Creation Basket. Once the Creation Basket has been acquired in the 
Confidential Account, the AP Representative would contribute the 
Creation Basket in-kind to the Fund.
    The Distributor will furnish acknowledgements to those placing such 
orders that the orders have been accepted, but the Distributor may 
reject any order which is not submitted in proper form, as described in 
the Fund's prospectus or Statement of Additional Information (``SAI''). 
The NAV of the Fund is expected to be determined once each Business Day 
at a time determined by the Trust's Board of Trustees (``Board''), 
currently anticipated to be as of the close of the regular trading 
session on the Exchange (ordinarily 4:00 p.m. E.T.) (the ``Valuation 
Time''). The Fund will establish a cut-off time (``Order Cut-Off 
Time'') for purchase orders in proper form. Such Order Cut-Off Time 
will be provided in the Registration Statement. To initiate a purchase 
of Shares, an AP must submit to the Distributor an irrevocable order to 
purchase such Shares after the most recent prior Valuation Time. All 
orders to purchase Creation Units must be received by the Distributor 
no later than the Order Cut-Off Time in each case on the date such 
order is placed (``Transmittal Date'') for the AP to receive the NAV 
per share determined on the Transmittal Date.\18\
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    \18\ To the extent that the Fund allows creations or redemptions 
to be conducted in cash, such transactions will be effected in the 
same manner for all APs.
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    Purchases of Shares will be settled in-kind and/or cash for an 
amount equal to the applicable NAV per share purchased plus applicable 
``Transaction Fees,'' as discussed below. While the Fund will generally 
receive securities in-kind, the Adviser may determine from time to time 
that it is not in the Fund's best interests to receive securities in-
kind, but rather to receive cash.
Authorized Participant Redemption
    The Shares may be redeemed to the Fund in Redemption Unit size or 
multiples thereof as described below. Redemption orders of Redemption 
Units must be placed by an AP (``AP Redemption Order''). The Fund will

[[Page 55612]]

establish in its Registration Statement an Order Cut-Off Time for 
redemption orders of Redemption Units in proper form. Redemption Units 
of the Fund will be redeemable at their NAV per share next determined 
after receipt of a request for redemption by the Trust in the manner 
specified below before the Order Cut-Off Time. To initiate an AP 
Redemption Order, an AP must submit to the Distributor an irrevocable 
order to redeem such Redemption Unit after the most recent prior 
Valuation Time, but not later than the Order Cut-Off Time.
    In the case of a redemption, the AP would enter into an irrevocable 
redemption order, and then immediately instruct the AP Representative 
to sell the Creation Basket that it will receive in the redemption. As 
with the purchase of securities, the AP Representative will use 
methods, such as breaking the transaction into multiple transactions 
and transacting in multiple marketplaces, to avoid revealing the 
composition of the Creation Basket.
    Consistent with the provisions of Section 22(e) of the 1940 Act and 
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor 
payment upon redemption delayed, except for: (1) Any period during 
which the Exchange is closed other than customary weekend and holiday 
closings, (2) any period during which trading on the Exchange is 
restricted, (3) any period during which an emergency exists as a result 
of which disposal by the Fund of securities owned by it is not 
reasonably practicable or it is not reasonably practicable for the Fund 
to determine its NAV, and (4) for such other periods as the Commission 
may by order permit for the protection of shareholders.
    Redemptions will occur primarily in-kind, although redemption 
payments may also be made partly or wholly in cash.\19\ The Participant 
Agreement signed by each AP will require establishment of a 
Confidential Account to receive distributions of securities in-kind 
upon redemption. Each AP will be required to open a Confidential 
Account with an AP Representative in order to facilitate orderly 
processing of redemptions. While the Fund will generally distribute 
securities in-kind, the Adviser may determine from time to time that it 
is not in the Fund's best interests to distribute securities in-kind, 
but rather to sell securities and/or distribute cash. For example, the 
Adviser may distribute cash to facilitate orderly portfolio management 
in connection with rebalancing or transitioning a portfolio in line 
with its investment objective, or if there is substantially more 
creation than redemption activity during the period immediately 
preceding a redemption request, or as necessary or appropriate in 
accordance with applicable laws and regulations.\20\
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    \19\ The value of any positions not susceptible to in-kind 
settlement may be paid in cash.
    \20\ To the extent that the Fund allows creations or redemptions 
to be conducted in cash, such transactions will be effected in the 
same manner for all APs.
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Net Asset Value
    The NAV per share of the Fund will be computed by dividing the 
value of the net assets of the Fund (i.e., the value of its total 
assets less total liabilities) by the total number of Shares of the 
Fund outstanding, rounded to the nearest cent. Expenses and fees, 
including, without limitation, the management, administration and 
distribution fees, will be accrued daily and taken into account for 
purposes of determining NAV. Interest and investment income on the 
Trust's assets accrue daily and will be included in the Fund's total 
assets. The NAV per share for the Fund will be calculated by the Fund's 
administrator and determined as of the close of the regular trading 
session on the Exchange (ordinarily 4:00 p.m., E.T.) on each day that 
the Exchange is open.
    Shares of U.S. exchange-listed equity securities, including common 
stocks, preferred securities, securities of other investment companies 
and of REITs, and warrants and rights, as well as ETFs, exchange-listed 
ADRs, and U.S. exchange-listed futures will be valued at market value, 
which will generally be determined using the last reported official 
closing or last trading price on the exchange or market on which the 
securities are primarily traded at the time of valuation.
Availability of Information
    The Fund's website (www.PrecidianFunds.com), which will be publicly 
available prior to the listing and trading of Shares, will include a 
form of the prospectus for the Fund that may be downloaded. The Fund's 
website will include additional quantitative information updated on a 
daily basis, including, for the Fund, (1) the prior Business Day's NAV, 
market closing price or mid-point of the bid/ask spread at the time of 
calculation of such NAV (the ``Bid/Ask Price''),\21\ and a calculation 
of the premium and discount of the market closing price or 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. The website and information will be 
publicly available at no charge.
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    \21\ The Bid/Ask Price of the Fund will be determined using the 
mid-point between the current NBB and NBO as of the time of 
calculation of the Fund's NAV. The records relating to Bid/Ask 
Prices will be retained by the Fund and its service providers.
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    The Trust's SAI and the Fund's shareholder reports will be 
available free upon request from the Trust. These documents and forms 
may be viewed on-screen or downloaded from the Commission's website at 
www.sec.gov.
    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. Quotation 
and last sale information for the Shares will be available via the 
Consolidated Tape Association (``CTA'') high-speed line. In addition, 
the VIIV, as defined in proposed Rule 14.11(k)(3)(B) and as described 
further below, will be widely disseminated by the Reporting Authority 
\22\ and/or one or more major market data vendors in one-second 
intervals during Regular Trading Hours.
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    \22\ Proposed Rule 14.11(k)(3)(H) defines the term ``Reporting 
Authority'' in respect of a particular series of Managed Portfolio 
Shares means the Exchange, the exchange that lists a particular 
series of Managed Portfolio Shares (if the Exchange is trading such 
series pursuant to unlisted trading privileges), an institution, or 
a reporting service designated by the Investment Company as the 
official source for calculating and reporting information relating 
to such series, including, the net asset value, the Verified 
Intraday Indicative Value, or other information relating to the 
issuance, redemption or trading of Managed Portfolio Shares. A 
series of Managed Portfolio Shares may have more than one Reporting 
Authority, each having different functions.
---------------------------------------------------------------------------

Dissemination of the VIIV
    With respect to trading of the Shares, the ability of market 
participants to buy and sell Shares at prices near the VIIV is 
dependent upon their assessment that the VIIV is a reliable, indicative 
real-time value for the Fund's underlying holdings. Market participants 
are expected to accept the VIIV as a reliable, indicative real-time 
value because (1) the VIIV will be calculated and disseminated based on 
the Fund's actual portfolio holdings, (2) the securities in which the 
Fund plans to invest are generally highly liquid and actively traded 
and therefore generally have accurate real time pricing available, and 
(3) market participants will have a daily opportunity to evaluate 
whether the VIIV at or near the close of trading is indeed predictive 
of the actual NAV. The VIIV for the Fund will be

[[Page 55613]]

disseminated by the Reporting Authority and/or one or more major market 
data vendors in one-second intervals during Regular Trading Hours. If 
the Adviser determines that a portfolio security does not have a 
readily available market quotation, that fact will be disclosed as soon 
as practicable on the Fund's website, including the identity and 
weighting of that security in the Fund's portfolio, and the impact of 
that security on VIIV calculation, including the price for that 
security being used for the calculation of that day's VIIV.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. 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, including 
whether unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Trading in the 
Shares also will be subject to proposed Rule 14.11(k)(4)(B)(iii)(a) and 
(b) in the Proposal, which set forth circumstances under which trading 
in the Shares of the Fund will be halted.
    Specifically, Proposed Rule 14.11(k)(4)(B)(iii)(a) provides that, 
upon notification to the Exchange by the Investment Company or its 
agent of the existence of any condition or set of conditions specified 
in any currently applicable exemptive order or no-action relief granted 
by the Commission or Commission staff that would require the Investment 
Company's investment adviser to request that the Exchange halt trading 
in the Managed Portfolio Shares, the Exchange shall halt trading in the 
Managed Portfolio Shares as soon as practicable. Such halt in trading 
shall continue until the Investment Company or its agent notifies the 
Exchange that the condition or conditions necessary for the resumption 
of trading have been met.\23\ The Adviser has represented to the 
Exchange that it will provide the Exchange with prompt notification 
upon the existence of any such condition or set of conditions.
---------------------------------------------------------------------------

    \23\ As provided in the Exemptive Order, such conditions would 
exist where either: (i) The intraday indicative values calculated by 
the pricing verification agent(s) differ by more than 25 basis 
points for 60 seconds in connection with pricing of the Verified 
Intraday Indicative Value; or (ii) holdings representing 10% or more 
of the Fund's portfolio have become subject to a trading halt or 
otherwise do not have readily available market quotations. The 
Exchange shall halt trading in the Shares as soon as practicable 
after receipt of notification of the existence of such conditions. 
Such halt in trading shall continue until the Adviser or its agent 
notifies the Exchange that these conditions no longer exist.
---------------------------------------------------------------------------

    Proposed Rule 14.11(k)(4)(B)(iii)(b) provides that, if the Exchange 
becomes aware that: (i) The Fund's VIIV is not being calculated or 
disseminated in one second intervals, as required; (ii) the Fund's NAV 
is not disseminated to all market participants at the same time; (iii) 
the Fund's holdings are not made available on at least a quarterly 
basis as required under the 1940 Act; or (iv) such holdings are not 
made available to all market participants at the same time, it will 
halt trading in such series until such time as the VIIV, the NAV, or 
the holdings are available to all market participants as required.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the Exchange only during Regular Trading Hours as provided in proposed 
Rule 14.11(k)(2)(B). As provided in BZX Rule 11.11(a), the minimum 
price variation for quoting and entry of orders in securities traded on 
the Exchange is $0.01, with the exception of securities that are priced 
less than $1.00, for which the minimum price variation for order entry 
is $0.0001.
    The Shares will conform to the initial and continued listing 
criteria under Rule 14.11(k) as well as all terms in the Exemptive 
Order. The Exchange represents that, for initial and/or continued 
listing, the Fund will be in compliance with Rule 10A-3 under the 
Act.\24\ A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares of the Fund that the NAV 
per share of the Fund will be calculated daily and will be made 
available to all market participants at the same time.
---------------------------------------------------------------------------

    \24\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Portfolio Shares. 
As part of these surveillance procedures and consistent with proposed 
Rule 14.11(k)(2)(C), the Adviser will upon request make available to 
the Exchange and/or FINRA, on behalf of the Exchange, the daily 
portfolio holdings of the Fund. The issuer has represented to the 
Exchange that it will advise the Exchange of any failure by the Fund to 
comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Exchange Act, the Exchange 
will surveil for compliance with the continued listing requirements. If 
the Fund is not in compliance with the applicable listing requirements, 
the Exchange will commence delisting procedures under Exchange Rule 
14.12.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares, underlying 
equity securities and U.S. exchange-listed futures with other markets 
and other entities that are members of the Intermarket Surveillance 
Group (``ISG''), and the Exchange or FINRA, on behalf of the Exchange, 
or both, may obtain trading information regarding trading such 
securities from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in the Shares, 
underlying equity securities and U.S. exchange-listed futures from 
markets and other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.\25\
---------------------------------------------------------------------------

    \25\ For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular (``Circular'') of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Circular will discuss the following: (1) The 
procedures for purchases and redemptions of Shares; (2) BZX Rule 3.7, 
which imposes suitability obligations on Exchange members with respect 
to recommending transactions in the Shares to customers; (3) how 
information regarding the VIIV is disseminated; (4) the requirement 
that members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the

[[Page 55614]]

confirmation of a transaction; (5) trading information; and (6) that 
the portfolio holdings will be disclosed within at least 60 days 
following the end of every calendar quarter.
    In addition, the Circular will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Circular will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Circular will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m., E.T. each trading day.
2. Statutory Basis
    The Exchange believes that this proposal is consistent with Section 
6(b) of the Act \26\ in general and Section 6(b)(5) of the Act \27\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f.
    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that, to the extent that the Proposal and, 
thus proposed Rule 14.11(k), is approved by the Commission, this 
proposed rule change is designed to prevent fraudulent and manipulative 
acts and practices in that the Fund would meet each of the rules 
relating to listing and trading of Managed Portfolio Shares and, to the 
extent that the Fund is not in compliance with such rules, the Exchange 
would either prevent the Fund from listing and trading if it hadn't 
started trading on the Exchange or would commence delisting procedures 
under Exchange Rule 14.12. More specifically, the Exchange will 
consider the suspension of trading in, and will commence delisting 
proceedings under Rule 14.12 for, the Fund under any of the following 
circumstances: (a) If, following the initial twelve-month period after 
commencement of trading on the Exchange of the Fund, there are fewer 
than 50 beneficial holders of the Fund; (b) if the value of the VIIV is 
no longer calculated or available to all market participants at the 
same time; (c) if the holdings of a series of the Fund are not made 
available on a quarterly basis as required under the 1940 Act or are 
not made available to all market participants at the same time; (d) if 
the Investment Company issuing the Fund has failed to file any filings 
required by the Commission or if the Exchange is aware that the 
Investment Company is not in compliance with the conditions of any 
exemptive order or no-action relief granted by the Commission to the 
Investment Company with respect to the Fund; (e) if any of the 
continued listing requirements set forth in Rule 14.11(k) are not 
continuously maintained; (f) if any of the applicable Continued Listing 
Representations for the issue of Managed Fund Shares are not 
continuously met; or (g) if such other event shall occur or condition 
exists which, in the opinion of the Exchange, makes further dealings on 
the Exchange inadvisable.
    The Adviser is not registered as a broker-dealer or affiliated with 
a broker-dealer. The Sub-Adviser is not registered as a broker-dealer, 
but is affiliated with a broker-dealer and has implemented and will 
maintain a ``fire wall'' with respect to such broker-dealer regarding 
access to information concerning the composition and/or changes to the 
Fund's portfolio and Creation Basket.
    In the event (a) the Adviser or Sub-Adviser becomes registered as a 
broker-dealer or becomes newly affiliated with a broker-dealer, or (b) 
any new adviser or sub-adviser is a registered broker-dealer or becomes 
affiliated with a broker-dealer, it will implement and maintain a fire 
wall with respect to its relevant personnel or its broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio and Creation Basket, and will be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding such portfolio or Creation 
Basket.
    Further, proposed Rule 14.11(k)(2)(E) requires that any person or 
entity, including an AP Representative, custodian, pricing verification 
agent, reporting authority, distributor, or administrator, who has 
access to information regarding the Investment Company's portfolio 
composition, the Creation Basket, or changes thereto, must be subject 
to procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable Investment Company 
portfolio or Creation Basket. Moreover, if any such person or entity is 
registered as a broker-dealer or affiliated with a broker-dealer, such 
person or entity will erect and maintain a ``fire wall'' between the 
person or entity and the broker-dealer with respect to access to 
information concerning the composition and/or changes to such 
Investment Company portfolio or Creation Basket.
    The Exchange further believes that the proposed rules are designed 
to prevent fraudulent and manipulative acts and practices related to 
the listing and trading of Managed Portfolio Shares because they 
provide meaningful requirements about both the data that will be made 
publicly available about the Shares as well as the information that 
will only be available to certain parties and the controls on such 
information. Specifically, the Exchange believes that the requirements 
related to information protection enumerated under proposed Rule 
14.11(k)(2)(E) \28\ will act as a strong safeguard against misuse and 
improper dissemination of information related to the Fund's portfolio 
composition, the Creation Basket, or changes thereto. The requirement 
that any person or entity implement procedures to prevent the use and 
dissemination of material nonpublic information regarding the portfolio 
or Creation Basket will act to prevent any individual or entity from 
sharing such information externally and the internal ``fire wall'' 
requirements applicable where an entity is a registered broker-dealer 
or affiliated with a broker-dealer will act to make sure that no entity 
will be able to misuse the data for their own purposes. As such, the 
Exchange believes that this proposal is designed to prevent fraudulent 
and manipulative acts and practices.
---------------------------------------------------------------------------

    \28\ As described above, proposed Rule 14.11(k)(2)(E) provides 
that any person or entity, including an AP Representative, 
custodian, pricing verification agent, reporting authority, 
distributor, or administrator, who has access to information 
regarding the Investment Company's portfolio composition, the 
Creation Basket, or changes thereto, must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the applicable Investment Company portfolio or 
Creation Basket. Moreover, if any such person or entity is 
registered as a broker-dealer or affiliated with a broker-dealer, 
such person or entity will erect and maintain a ``fire wall'' 
between the person or entity and the broker-dealer with respect to 
access to information concerning the composition and/or changes to 
such Investment Company portfolio or Creation Basket.
---------------------------------------------------------------------------

    The Exchange further believes that the proposal is designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Managed Portfolio Shares and to promote just and 
equitable principles of trade and to protect investors and the public 
interest in that the Exchange would halt trading under certain 
circumstances under which trading in the Shares may be inadvisable. 
Specifically, trading in the Shares will be subject to proposed Rule 
14.11(k)(4)(B)(iii)(a), which provides that, upon notification to the 
Exchange by the Investment Company or its agent

[[Page 55615]]

of the existence of any condition or set of conditions specified in any 
currently applicable exemptive order or no-action relief granted by the 
Commission or Commission staff that would require the Investment 
Company's investment adviser to request that the Exchange halt trading 
in the Managed Portfolio Shares, the Exchange shall halt trading in the 
Managed Portfolio Shares as soon as practicable. Such halt in trading 
shall continue until the Investment Company or its agent notifies the 
Exchange that the condition or conditions necessary for the resumption 
of trading have been met.\29\ The Adviser has represented to the 
Exchange that it will provide the Exchange with prompt notification 
upon the existence of any such condition or set of conditions. Trading 
in the Shares will also be subject to proposed Rule 
14.11(k)(4)(B)(iii)(b), which provides that, if the Exchange becomes 
aware that: (i) The Fund' VIIV is not being calculated or disseminated 
in one second intervals, as required; (ii) the Fund's NAV is not 
disseminated to all market participants at the same time; (iii) the 
Fund's holdings are not made available on at least a quarterly basis as 
required under the 1940 Act; or (iv) such holdings are not made 
available to all market participants at the same time, it will halt 
trading in such series until such time as the VIIV, the NAV, or the 
holdings are available to all market participants as required.
---------------------------------------------------------------------------

    \29\ As provided in the Exemptive Order, such conditions would 
exist where either: (i) The intraday indicative values calculated by 
the pricing verification agent(s) differ by more than 25 basis 
points for 60 seconds in connection with pricing of the Verified 
Intraday Indicative Value; or (ii) holdings representing 10% or more 
of the Fund's portfolio have become subject to a trading halt or 
otherwise do not have readily available market quotations. The 
Exchange shall halt trading in the Shares as soon as practicable 
after receipt of notification of the existence of such conditions. 
Such halt in trading shall continue until the Adviser or its agent 
notifies the Exchange that these conditions no longer exist.
---------------------------------------------------------------------------

    With respect to the proposed listing and trading of Shares of the 
Fund, 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 in Rule 14.11(k). The Fund will 
invest at least 80% of its net assets, plus borrowings for investment 
purposes, in common stocks and other equity securities of small 
capitalization U.S. companies or in other U.S. exchange-listed 
investments with similar economic characteristics, including only the 
following U.S. exchange-listed securities: Common stocks, preferred 
securities, securities of other investment companies and of REITs, and 
warrants and rights. All equity securities in which the Fund will 
invest will be listed and traded on U.S. national securities exchanges. 
Price information for the U.S. exchange-listed equity securities held 
by the Fund will be available through major market data vendors or 
securities exchanges listing and trading such securities. Price 
information for any other U.S. exchange-listed instruments held by the 
Fund will be available through major market data vendors or exchanges 
listing and trading such instruments. The Fund's investments will be 
consistent with its investment objective and will not be used to 
enhance leverage. The Fund will not invest in non-U.S. exchange-listed 
securities. All futures held by the Fund will be listed on U.S. futures 
exchanges. The Exchange or FINRA, on behalf of the Exchange, or both, 
will communicate as needed regarding trading in the Shares, underlying 
equity securities and U.S. exchange-listed futures 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 such securities from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares, underlying equity securities, and U.S. 
exchange-listed futures from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
    With respect to trading of the Shares, the ability of market 
participants to buy and sell Shares at prices near the VIIV is 
dependent upon their assessment that the VIIV is a reliable, indicative 
real-time value for the Fund's underlying holdings. Market participants 
are expected to accept the VIIV as a reliable, indicative real-time 
value because (1) the VIIV will be calculated and disseminated based on 
the Fund's actual portfolio holdings, (2) the securities in which the 
Fund plans to invest are generally highly liquid and actively traded 
and therefore generally have accurate real time pricing available, and 
(3) market participants will have a daily opportunity to evaluate 
whether the VIIV at or near the close of trading is indeed predictive 
of the actual NAV.\30\
---------------------------------------------------------------------------

    \30\ The statements in the Statutory Basis section of this 
filing relating to pricing efficiency, arbitrage, and activities of 
market participants, including market makers and APs, are based on 
statements in the Exemptive Order, representations by Precidian, and 
review by the Exchange.
---------------------------------------------------------------------------

    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation that the NAV per share 
of the Fund will be calculated daily and that the NAV will be made 
available to all market participants at the same time. Investors can 
also obtain the Fund's SAI, shareholder reports, Form N-CEN, Form N-
CSR, and Form N-PORT. The Fund's SAI and shareholder reports will be 
available free upon request from the applicable fund, and those 
documents and the Form N-CSR and Form N-PORT may be viewed on-screen or 
downloaded from the Commission's website. In addition, with respect to 
the Fund, a large amount of information will be publicly available 
regarding the Fund and the Shares, thereby promoting market 
transparency. Quotation and last sale information for the Shares will 
be available via the CTA high-speed line. Information regarding the 
VIIV will be widely disseminated every second throughout Regular 
Trading Hours by the Reporting Authority and/or one or more major 
market data vendors. The website for the Fund will include a prospectus 
for the Fund that may be downloaded, and additional data relating to 
NAV and other applicable quantitative information, updated on a daily 
basis.
    Moreover, prior to the commencement of trading, the Exchange will 
inform its members in a Circular of the special characteristics and 
risks associated with trading the Shares. The Exchange will halt 
trading in the Shares under the conditions specified in BZX Rule 11.18 
or for reasons that, in the view of the Exchange, make trading in the 
Shares inadvisable. Trading in the Shares will be subject to proposed 
Rule 14.11(k)(4)(B)(iii)(a) and (b), which set forth circumstances 
under which Shares of the Fund will be halted.
    In addition, as noted above, investors will have ready access to 
the VIIV, and quotation and last sale information for the Shares. The 
Shares will conform to the initial and continued listing criteria under 
proposed Rule 14.11(k). The Fund's holdings will be limited to and 
consistent with what is permissible under the Exemptive Order and 
described herein. The Fund's investments will be consistent with its 
investment objective and will not be used to enhance leverage. While 
the Fund may invest in inverse ETFs, the Fund will not invest in 
leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
    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 
an actively-managed exchange-traded

[[Page 55616]]

product that will enhance competition among market participants, to the 
benefit of investors and the marketplace. As noted above, 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, as noted 
above, investors will have ready access to information regarding the 
VIIV 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, rather will facilitate the listing and trading of 
actively-managed exchange-traded products that will enhance competition 
among both market participants and listing venues, 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

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

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Amendment No. 1, 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-2019-076 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-2019-076. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2019-076 and should be submitted 
on or before November 7, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22600 Filed 10-16-19; 8:45 am]
 BILLING CODE 8011-01-P

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