Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Adopt BZX Rule 14.11(l) To Permit the Listing and Trading of Exchange-Traded Fund Shares That Are Permitted To Operate in Reliance on Rule 6c-11 Under the Investment Company Act of 1940, 64607-64616 [2019-25317]
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Federal Register / Vol. 84, No. 226 / Friday, November 22, 2019 / Notices
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 12 and Rule 19b–
4(f)(6) thereunder.13
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 14 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 15
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay. The Exchange believes
that waiver of the operative delay is
appropriate because, as the Exchange
discussed above, excluding Stop-Limit
orders from the fat finger check, which
would currently cancel/reject a StopLimit order if its buy (sell) limit price
was above (below) the NBO (NBB) upon
activation of its stop limit price, will
benefit market participants by ensuring
that they are able to use Stop-Limit
orders to achieve their intended
purpose. Thus, the Exchange believes
that the proposed rule change is
designed to protect investors by
allowing their Stop-Limit orders to
execute as intended without being
canceled or rejected due to the
application of the fat finger check
provision.
The Commission believes that waiver
of the 30-day operative delay is
consistent with the protection of
investors and the public interest
because the proposal will permit StopLimit orders to execute as intended and
not be inadvertently cancelled in certain
situation, as discussed above, by the fat
finger check provision. Therefore, the
Commission hereby waives the
operative delay and designates the
proposal as operative upon filing.16
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
12 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
14 17 CFR 240.19b–4(f)(6).
15 17 CFR 240.19b–4(f)(6)(iii).
16 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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13 17
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it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
C2–2019–024 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–C2–2019–024. 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
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to make available publicly. All
submissions should refer to File
Number SR–C2–2019–024 and should
be submitted on or before December 13,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–25319 Filed 11–21–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87560; File No. SR–
CboeBZX–2019–097]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To Adopt
BZX Rule 14.11(l) To Permit the Listing
and Trading of Exchange-Traded Fund
Shares That Are Permitted To Operate
in Reliance on Rule 6c–11 Under the
Investment Company Act of 1940
November 18, 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 November
15, 2019 Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes a rule change
to adopt BZX Rule 14.11(l) to permit the
listing and trading of Exchange-Traded
Fund Shares that are permitted to
operate in reliance on Rule 6c–11 under
the Investment Company Act of 1940.
The Exchange is also proposing to
discontinue the quarterly reports
required with respect to Managed Fund
Shares listed on the Exchange pursuant
to the generic listing standards under
Rule 14.11(i).
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,
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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
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1. Purpose
The Exchange proposes to add new
Rule 14.11(l) 3 for the purpose of
permitting the generic listing and
trading, or trading pursuant to unlisted
trading privileges, of Exchange-Traded
Fund Shares 4 that are permitted to
operate in reliance on Rule 6c–11 (‘‘Rule
6c–11’’) under the Investment Company
Act of 1940 (the ‘‘1940 Act’’).5 The
Exchange is also proposing to
discontinue the quarterly reports
required with respect to Managed Fund
Shares listed on the Exchange pursuant
to the generic listing standards under
Rule 14.11(i).
The Commission recently adopted
Rule 6c–11 to permit exchange-traded
funds (‘‘ETFs’’) that satisfy certain
conditions to operate without obtaining
an exemptive order from the
Commission under the 1940 Act.6 Since
the first ETF was approved by the
Commission in 1992, the Commission
has routinely granted exemptive orders
3 The Exchange notes that it is proposing new
Rule 14.11(l) because it has also proposed a new
Rule 14.11(k) as part of another proposal. See
Securities Exchange Act Release No. 87062
(September 23, 2019), 84 FR 51193 (September 27,
2019) (SR–CboeBZX–2019–047).
4 As provided below, proposed Rule 14.11(l)(3)(A)
provides that the term ‘‘ETF Shares’’ shall mean the
shares issued by a registered open-end management
investment company that: (i) Is eligible to operate
in reliance on Rule 6c–11 under the Investment
Company Act of 1940; (ii) issues (and redeems)
creation units to (and from) authorized participants
in exchange for a basket and a cash balancing
amount (if any); and (iii) issues shares that it
intends to list or are listed on a national securities
exchange and traded at market-determined prices.
5 15 U.S.C. 80a–1.
6 See Release Nos. 33–10695; IC–33646; File No.
S7–15–18 (Exchange-Traded Funds) (September 25,
2019), 84 FR 57162 (October 24, 2019) (the ‘‘Rule
6c–11 Release’’).
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permitting ETFs to operate under the
1940 Act because there was no ETF
specific rule in place and they have
characteristics that distinguish them
from the types of structures
contemplated and included in the 1940
Act. After such an extended period
operating without a specific rule set and
only under exemptive relief, Rule 6c–11
is designed to provide a consistent,
transparent, and efficient regulatory
framework for ETFs.7 Exchange listing
standards applicable to ETFs have been
similarly adopted and tweaked over the
years and the Exchange believes that,
just as the Commission has undertaken
a review of the 1940 Act as it is
applicable to ETFs, it is appropriate to
perform a similar holistic review and
overhaul of Exchange listing rules. With
this in mind, the Exchange submits this
proposal to add new Rule 14.11(l) and
certain corresponding rule changes
because it believes that this proposal
similarly promotes consistency,
transparency, and efficiency
surrounding the exchange listing
process for ETF Shares in a manner that
is consistent with the Act, as further
described below.
Consistent with Index Fund Shares
and Managed Fund Shares listed under
the generic listing standards in Rules
14.11(c) and 14.11(i), respectively,
series of Exchange-Traded Fund Shares
that are permitted to operate in reliance
on Rule 6c–11 would be permitted to be
listed and traded on the Exchange
without a prior Commission approval
order or notice of effectiveness pursuant
to Section 19(b) of the Act.8
7 In approving the rule, the Commission stated
that the ‘‘rule will modernize the regulatory
framework for ETFs to reflect our more than two
decades of experience with these investment
products. The rule is designed to further important
Commission objectives, including establishing a
consistent, transparent, and efficient regulatory
framework for ETFs and facilitating greater
competition and innovation among ETFs.’’ Rule 6c–
11 Release, at 57163. The Commission also stated
the following regarding the rule’s impact: ‘‘We
believe rule 6c–11 will establish a regulatory
framework that: (1) Reduces the expense and delay
currently associated with forming and operating
certain ETFs unable to rely on existing orders; and
(2) creates a level playing field for ETFs that can
rely on the rule. As such, the rule will enable
increased product competition among certain ETF
providers, which can lead to lower fees for
investors, encourage financial innovation, and
increase investor choice in the ETF market.’’ Rule
6c–11 Release, at 57204.
8 Rule 19b–4(e)(1) provides that the listing and
trading of a new derivative securities product by a
self-regulatory organization (‘‘SRO’’) is not deemed
a proposed rule change, pursuant to paragraph
(c)(1) of Rule 19b–4, if the Commission has
approved, pursuant to Section 19(b) of the Act, the
SRO’s trading rules, procedures and listing
standards for the product class that would include
the new derivative securities product and the SRO
has a surveillance program for the product class. As
contemplated by this Rule, the Exchange proposes
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Proposed Listing Rules
Proposed Rule 14.11(l)(1) provides
that the Exchange will consider for
trading, whether by listing or pursuant
to unlisted trading privileges, the shares
of Exchange-Traded Funds (‘‘ETF
Shares’’) that meet the criteria of this
Rule.
Proposed Rule 14.11(l)(2) provides
that the proposed rule would be
applicable only to ETF Shares. Except to
the extent inconsistent with this Rule,
or unless the context otherwise requires,
the rules and procedures of the Board of
Directors shall be applicable to the
trading on the Exchange of such
securities. ETF Shares are included
within the definition of ‘‘security’’ or
‘‘securities’’ as such terms are used in
the Rules of the Exchange.
Proposed Rule 14.11(l)(2) further
provides that: (A) Transactions in ETF
Shares will occur throughout the
Exchange’s trading hours; (B) the
minimum price variation for quoting
and entry of orders in ETF Shares is
$0.01; and (C) the Exchange will
implement and maintain written
surveillance procedures for ETF Shares.
Proposed Rule 14.11(l)(3)(A) provides
that the term ‘‘ETF Shares’’ shall mean
the shares issued by a registered openend management investment company
that: (i) Is eligible to operate in reliance
on Rule 6c–11 under the Investment
Company Act of 1940; 9 (ii) issues (and
redeems) creation units to (and from)
authorized participants in exchange for
a basket and a cash balancing amount (if
any); and (iii) issues shares that it
intends to list or are listed on a national
securities exchange and traded at
market-determined prices.10
Proposed Rule 14.11(l)(3)(B) provides
that the term ‘‘Reporting Authority’’ in
respect of a particular series of ETF
Shares means the Exchange, an
institution, or a reporting service
designated by the Exchange or by the
exchange that lists a particular series of
ETF Shares (if the Exchange is trading
such series pursuant to unlisted trading
privileges) as the official source for
new Rule 14.11(l) to establish generic listing
standards for ETFs that are permitted to operate in
reliance on Rule 6c–11. An ETF listed under
proposed Rule 14.11(l) would therefore not need a
separate proposed rule change pursuant to Rule
19b–4 before it can be listed and traded on the
Exchange.
9 The Exchange notes that certain types of ETFs,
such as leveraged ETFs, are not eligible to operate
in reliance on Rule 6c–11 and therefore would not
be eligible to list under this proposed Rule 14.11(l).
Such ETFs could, however, be listed pursuant to
Rule 14.11(c) or 14.11(i).
10 The Exchange notes that this definition is
substantially similar to the definition under Rule
6c–11 except that the proposed definition includes
in the definition of ETF Shares those shares that it
intends to list on a national securities exchange.
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calculating and reporting information
relating to such series, including, but
not limited to, the amount of any cash
distribution to holders of ETF Shares,
net asset value, or other information
relating to the issuance, redemption or
trading of ETF Shares. A series of ETF
Shares may have more than one
Reporting Authority, each having
different functions.
Proposed Rule 14.11(l)(4) provides
that the Exchange may approve ETF
Shares for listing and/or trading
(including pursuant to unlisted trading
privileges) on the Exchange pursuant to
Rule 19b–4(e) under the Act so long as
such series of ETF Shares is eligible to
operate in reliance on Rule 6c–11 under
the Investment Company Act of 1940
and meets all applicable requirements
under such Rule 6c–11 upon initial
listing and on a continuing basis. ETF
Shares will be listed and traded on the
Exchange subject to application of the
following criteria.
Proposed Rule 14.11(l)(4)(A) provides
that each series of ETF Shares will be
listed and traded on the Exchange
subject to application of the following
initial listing criteria: (i) For each series,
the Exchange will establish a minimum
number of ETF Shares required to be
outstanding at the time of
commencement of trading on the
Exchange; and (ii) the Exchange will
obtain a representation from the issuer
of each series of ETF Shares stating that
the disclosures required under Rule 6c–
11 of the Investment Company Act of
1940 will be made available on a daily
basis in compliance with Rule 6c–11
and that the issuer will notify the
Exchange of any failure to do so.
Proposed Rule 14.11(l)(4)(B) provides
that each series of ETF Shares will be
listed and traded on the Exchange
subject to application of the following
continued listing criteria.
Proposed Rule 14.11(l)(4)(B)(i)
provides that the Exchange will
consider the suspension of trading in,
and will commence delisting
proceedings under Rule 14.12 for, a
series of ETF Shares under any of the
following circumstances: (a) If the issuer
of the ETF Shares has failed to file any
filings required by the Commission or if
the Exchange is aware that the issuer is
not in compliance with the
requirements of Rule 6c–11 of the
Investment Company Act of 1940; (b) if
any of the other listing requirements set
forth in this Rule 14.11(l) are not
continuously maintained; or (c) if such
other event shall occur or condition
exists which, in the opinion of the
Exchange, makes further dealings on the
Exchange inadvisable.
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Proposed Rule 14.11(l)(4)(B)(ii)
provides that the Exchange may
consider all relevant factors in
exercising its discretion to halt or
suspend trading in a series of ETF
Shares. Trading may be halted because
of market conditions or for reasons that,
in the view of the Exchange, make
trading in the Shares inadvisable. These
may include: (1) The extent to which
certain information about the ETF
Shares that is required to be disclosed
under Rule 6c–11 of the Investment
Company Act of 1940 is not being made
available; or (2) whether other unusual
conditions or circumstances detrimental
to the maintenance of a fair and orderly
market are present.
Proposed Rule 14.11(l)(4)(B)(iii)
provides that upon termination of an
investment company, the Exchange
requires that ETF Shares issued in
connection with such entity be removed
from Exchange listing.
Proposed Rule 14.11(l)(5) provides
that neither the Exchange, the Reporting
Authority, nor any agent of the
Exchange shall have any liability for
damages, claims, losses or expenses
caused by any errors, omissions, or
delays in calculating or disseminating
any current index or portfolio value; the
current value of the portfolio of
securities required to be deposited to
the open-end management investment
company in connection with issuance of
ETF Shares; the amount of any dividend
equivalent payment or cash distribution
to holders of ETF Shares; net asset
value; or other information relating to
the purchase, redemption, or trading of
ETF Shares, resulting from any
negligent act or omission by the
Exchange, the Reporting Authority, or
any agent of the Exchange, or any act,
condition, or cause beyond the
reasonable control of the Exchange, its
agent, or the Reporting Authority,
including, but not limited to, an act of
God; fire; flood; extraordinary weather
conditions; war; insurrection; riot;
strike; accident; action of government;
communications or power failure;
equipment or software malfunction; or
any error, omission, or delay in the
reports of transactions in one or more
underlying securities.
Proposed Rule 14.11(l)(6) provides
that the provisions of this subparagraph
apply only to series of ETF Shares that
are the subject of an order by the
Securities and Exchange Commission
exempting such series from certain
prospectus delivery requirements under
Section 24(d) of the Investment
Company Act of 1940 and are not
otherwise subject to prospectus delivery
requirements under the Securities Act of
1933. The Exchange will inform its
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64609
Members regarding application of this
subparagraph to a particular series of
ETF Shares by means of an information
circular prior to commencement of
trading in such series. The Exchange
requires that members provide to all
purchasers of a series of ETF Shares a
written description of the terms and
characteristics of those securities, in a
form prepared by the open-end
management investment company
issuing such securities, not later than
the time a confirmation of the first
transaction in such series is delivered to
such purchaser. In addition, members
shall include such a written description
with any sales material relating to a
series of ETF Shares that is provided to
customers or the public. Any other
written materials provided by a member
to customers or the public making
specific reference to a series of ETF
Shares as an investment vehicle must
include a statement in substantially the
following form: ‘‘A circular describing
the terms and characteristics of (the
series of ETF Shares) has been prepared
by the (open-end management
investment company name) and is
available from your broker. It is
recommended that you obtain and
review such circular before purchasing
(the series of ETF Shares).’’ A member
carrying an omnibus account for a nonmember broker-dealer is required to
inform such non-member that execution
of an order to purchase a series of ETF
Shares for such omnibus account will be
deemed to constitute agreement by the
non-member to make such written
description available to its customers on
the same terms as are directly applicable
to members under this rule. Upon
request of a customer, a member shall
also provide a prospectus for the
particular series of ETF Shares.
The Exchange is also proposing to
make two non-substantive amendments
to include ETF Shares in other
Exchange rules. Specifically, the
Exchange is also proposing: (i) To
amend Rule 14.10(e)(1)(E) in order to
add ETF Shares to a list of product types
listed on the Exchange, including Index
Fund Shares and Managed Fund Shares,
that are exempted from the Audit
Committee requirements set forth in
Rule 14.10(c)(3), except for the
applicable requirements of SEC Rule
10A–3; and (ii) to amend Rule
14.11(c)(3)(A)(i)(a) in order to include
ETF Shares in the definition of
Derivative Securities Products.
Discussion
Proposed Rule 14.11(l) is based in
large part on Rules 14.11(c) and (i)
related to the listing and trading of
Index Fund Shares and Managed Fund
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Shares on the Exchange, respectively,
both of which are issued under the 1940
Act and would qualify as ETF Shares
after Rule 6c–11 is effective. Rule
14.11(c) and 14.11(i) are very similar,
their primary difference being that
Index Fund Shares are designed to track
an underlying index and Managed Fund
Shares are based on an actively
managed portfolio that is not designed
to track an index. As such, the Exchange
believes that using Rules 14.11(c) and (i)
(collectively, the ‘‘Current ETF
Standards’’) as the basis for proposed
Rule 14.11(l) is appropriate because
they are generally designed to address
the issues associated with ETF Shares.
The only substantial differences
between proposed Rule 14.11(l) and the
Current ETF Standards that are not
otherwise required under Rule 6c–11
are as follows: (i) Proposed Rule 14.11(l)
does not include the quantitative
standards applicable to a fund or an
index that are included in the Current
ETF Standards; (ii) proposed Rule
14.11(l) does not include any
requirements related to the
dissemination of a fund’s Intraday
Indicative Value; 11 (iii) and proposed
Rule 14.11(l) does not include any
specific requirements related to
‘‘firewalls’’ that need to be in place
between certain parties associated with
a fund and their affiliates. These
differences are discussed below.
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Quantitative Standards
The Exchange believes that the
proposal is designed to prevent
fraudulent and manipulative acts and
practices because the Exchange will
perform ongoing surveillance of ETF
Shares listed on the Exchange in order
to ensure compliance with Rule 6c–11
and the 1940 Act on an ongoing basis.
While proposed Rule 14.11(l) does not
include the quantitative requirements
applicable to an ETF or an ETF’s
holdings or underlying index that are
included in Rules 14.(c) and 14.11(i),12
the Exchange believes that the
manipulation concerns that such
standards are intended to address are
otherwise mitigated by a combination of
11 For purposes of this filing, the term ‘‘Intraday
Indicative Value’’ or ‘‘IIV’’ shall mean an intraday
estimate of the value of a share of each series of
either Index Fund Shares or Managed Fund Shares.
12 The Exchange notes that Rules 14.11(c) and (i)
include certain quantitative standards related to the
size, trading volume, concentration, and diversity of
the holdings of a series of Index Fund Shares or
Managed Fund Shares (the ‘‘Holdings Standards’’)
as well as related to the minimum number of
beneficial holders of a fund (the ‘‘Distribution
Standards’’). The Exchange believes that to the
extent that manipulation concerns are mitigated
based on the factors described herein, such
concerns are mitigated both as it relates to the
Holdings Standards and the Distribution Standards.
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16:57 Nov 21, 2019
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the Exchange’s surveillance procedures,
the Exchange’s ability to halt trading
under the proposed Rule
14.11(l)(4)(B)(ii), and the Exchange’s
ability to suspend trading and
commence delisting proceedings under
proposed Rule 14.11(l)(4)(B)(i). The
Exchange also believes that such
concerns are further mitigated by
enhancements to the arbitrage
mechanism that will come from Rule
6c–11, specifically the additional
flexibility provided to issuers of ETF
Shares through the use of custom
baskets for creations and redemptions
and the additional information made
available to the public through the
additional Disclosure Obligations.13 The
Exchange believes that the combination
of these factors will act to keep ETF
Shares trading near the value of their
underlying holdings and further
mitigate concerns around manipulation
of ETF Shares on the Exchange without
the inclusion of quantitative
standards.14 The Exchange will monitor
for compliance with the 1940 Act
generally as well as Rule 6c–11
specifically in order to ensure that the
continued listing standards are being
met. Specifically, the Exchange plans to
review the website of series of ETF
Shares in order to ensure that the
disclosure requirements of Rule 6c–11
are being met and to review the
portfolio underlying series of ETF
Shares listed on the Exchange in order
to ensure that certain investment
requirements and limitations under the
1940 Act are being met. The Exchange
will also employ numerous intraday
alerts that will notify Exchange
personnel of trading activity throughout
the day that is potentially indicative of
certain disclosures not being made
accurately or the presence of other
unusual conditions or circumstances
that could be detrimental to the
maintenance of a fair and orderly
market. As a backstop to the
surveillances described above, the
Exchange also notes that Rule 14.11(a)
and proposed Rule 14.11(l)(4)(A)(ii)
would require an issuer of ETF Shares
to notify the Exchange of any failure to
comply with Rule 6c–11 or the 1940
Act.
To the extent that any of the
requirements under Rule 6c–11 or the
1940 Act are not being met, the
Exchange may halt trading in a series of
13 The Exchange notes that the Commission came
to a similar conclusion in several places in the Rule
6c–11 Release. See Rule 6c–11 Release at 15–18;
60–61; 69–70; 78–79; 82–84; and 95–96.
14 The Exchange believes that this applies to all
quantitative standards, whether applicable to the
portfolio holdings of a series of ETF Shares or the
distribution of the ETF Shares.
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ETF Shares as provided in proposed
Rule 14.11(l)(4)(B)(ii).15 Further, the
Exchange may also suspend trading in
and commence delisting proceedings for
a series of ETF Shares where such series
is not in compliance with the applicable
listing standards or where the Exchange
believes that further dealings on the
Exchange are inadvisable.16
Further, the Exchange also represents
that its surveillance procedures are
adequate to properly monitor the
trading of the ETF Shares in all trading
sessions and to deter and detect
violations of Exchange rules and
applicable federal securities laws.
Specifically, the Exchange intends to
utilize its existing surveillance
procedures applicable to derivative
products, which are currently
applicable to Index Fund Shares and
Managed Fund Shares, among other
product types, to monitor trading in ETF
Shares. The Exchange or the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’), on behalf of the Exchange,
will communicate as needed regarding
trading in ETF Shares and certain of
their applicable underlying components
with other markets that are members of
the Intermarket Surveillance Group
(‘‘ISG’’) or with which the Exchange has
in place a comprehensive surveillance
sharing agreement. In addition, the
Exchange may obtain information
regarding trading in ETF Shares and
certain of their applicable underlying
components from markets and other
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement. Additionally, FINRA, on
behalf of the Exchange, is able to access,
as needed, trade information for certain
15 Specifically, proposed Rule 14.11(l)(4)(B)(ii)
states that the Exchange may consider all relevant
factors in exercising its discretion to halt or
suspend trading in a series of ETF Shares. Trading
may be halted because of market conditions or for
reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may
include: (1) The extent to which certain information
about the ETF Shares that is required to be
disclosed under Rule 6c–11 of the Investment
Company Act of 1940 is not being made available;
or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a
fair and orderly market are present.
16 Specifically, proposed Rule 14.11(l)(4)(B)(i),
provides that if a series of ETF Shares is not in
compliance with the applicable listing
requirements, including: (a) If the issuer of the ETF
Shares has failed to file any filings required by the
Commission or if the Exchange is aware that the
issuer is not in compliance with the requirements
of Rule 6c–11 of the Investment Company Act of
1940; (b) if any of the other listing requirements set
forth in this Rule 14.11(l) are not continuously
maintained; or (c) if such other event shall occur
or condition exists which, in the opinion of the
Exchange, makes further dealings on the Exchange
inadvisable, the Exchange will commence delisting
procedures under Rule 14.12.
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fixed income securities that may be held
by a series of ETF Shares reported to
FINRA’s Trade Reporting and
Compliance Engine (‘‘TRACE’’). FINRA
also can access data obtained from the
Municipal Securities Rulemaking
Board’s (‘‘MSRB’’) Electronic Municipal
Market Access (‘‘EMMA’’) system
relating to municipal bond trading
activity for surveillance purposes in
connection with trading in a series of
ETF Shares, to the extent that a series
of ETF Shares holds municipal
securities. Finally, as noted above, the
issuer of a series of ETF Shares will be
required to comply with Rule 10A–3
under the Act for the initial and
continued listing of Exchange-Traded
Fund Shares, as provided under Rule
14.10(e)(1)(E).
Intraday Indicative Value
As described above, proposed Rule
14.11(l) does not include any
requirements related to the
dissemination of an Intraday Indicative
Value. Both Rule 14.11(c) and Rule
14.11(i) include the requirement that a
series of Index Fund Shares and
Managed Fund Shares, respectively,
disseminate and update an Intraday
Indicative Value at least every 15
seconds.17 Historically (and
theoretically), the IIV could provide
valuable information about an ETF that
would not otherwise be available or
easily calculable. However, as
consistently highlighted in the Rule 6c–
11 Release, that is not reflective of the
current marketplace and the
Commission has expressed concerns
regarding the accuracy of IIV estimates
for certain ETFs. Specifically, the
Commission noted that an IIV may not
accurately reflect the value of an ETF
that holds securities that trade less
frequently as such IIV can be stale or
inaccurate.18 Additionally, the
Commission indicated that even in
circumstances when an IIV may be
reliable, retail investors do not have
easy access to free, publicly available
IIV information.19 Further, in instances
when IIV may be free and publicly
available, it can be delayed by up to 45
minutes.20
Aside from the fact that the
disseminated IIV may provide investors
with stale or misleading data, the
Commission also stated that market
makers and authorized participants
17 See Rules 14.11(c)(3)(C), 14.11(c)(6)(A), and
14.11(c)(9)(B)(e) related to Index Fund Shares and
Rules 14.11(i)(3)(C), 14.11(i)(4)(B)(i),
14.11(i)(4)(B)(iii)(b), and 14.11(i)(4)(B)(iv) related to
Managed Fund Shares.
18 See Rule 6c–11 Release at 62.
19 See Id., at 66.
20 See Id.
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typically calculate their own intraday
value of an ETF’s portfolio with
proprietary algorithms that use an ETF’s
daily portfolio disclosure and available
pricing information.21 Such information
allows those market participants to
support the arbitrage mechanism for
ETFs. Therefore, as market participants
who engage in arbitrage typically
calculate their own intraday value of an
ETF’s portfolio based on the ETF’s daily
portfolio disclosure and pricing
information and use an IIV only as a
secondary check to their own
calculation,22 the Commission noted
that IIV was not necessary to support
the arbitrage mechanism.23 Given this,
combined with potential shortcomings
of the IIV noted above, the Commission
concluded that ETFs will not be
required to disseminate an IIV under
Rule 6c–11.24
The Exchange generally agrees with
the limitations and shortcomings of IIV
described in the Rule 6c–11 Release.
The Exchange further agrees with the
conclusion of the Adopting Release that
the ‘‘IIV is not necessary to support the
arbitrage mechanism for ETFs that
provide daily portfolio holdings
disclosure.’’ The transparency that
comes from daily portfolio holdings
disclosure as required under Rule 6c–11
provides market participants with
sufficient information to facilitate the
intraday valuation of ETF Shares. The
Exchange notes that it is not proposing
to prohibit the dissemination of an IIV
for a series of ETF Shares and believes
that there are certain instances in which
the dissemination of an IIV could
provide valuable information to the
investing public. The Exchange is
simply not proposing to require the
dissemination of such information.
As such, the Exchange believes that it
is appropriate and consistent with the
Act to not include a requirement for the
dissemination of an IIV for a series of
ETF Shares to be listed on the Exchange.
Firewalls
Both Rule 14.11(c) and Rule 14.11(i)
require under certain circumstances the
implementation of firewalls between
certain affiliates and related employees
as well as policies and procedures
designed to prevent the dissemination
of material non-public information.25
The Exchange fully supports the
rationale underlying these rules, but
generally agrees with the sentiment
21 See
Id., at 63.
Id., at 63.
23 See Id., at 65.
24 See Id., at 61.
25 See Rules 14.11(c)(3)(B)(i) and (iii), Rules
14.11(c)(4)(C)(i) and (iii), Rules 14.11(c)(5)(A)(i) and
(iii), and Rule 14.11(7).
22 See
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expressed by the Commission in the
Rule 6c–11 Release that existing federal
securities laws adequately address
concerns about dissemination and
misuse of material non-public
information.26 The Exchange also
further agrees that issuers of ETF Shares
are likely to be in a position to best
understand the circumstances and
relationships that could give rise to
misuse of material non-public
information and can develop
appropriate measures to address them.27
As such, the Exchange is not proposing
to include firewall or material nonpublic information policies and
procedures requirements in the generic
listing standards for ETF Shares because
it believes that such issues are
sufficiently addressed by existing
federal securities laws.
Discontinuing Quarterly Reporting for
Managed Fund Shares
Finally, the Exchange is proposing to
eliminate certain quarterly reporting
obligations related to the listing and
trading of Managed Fund Shares on the
Exchange. In the order approving the
Exchange’s proposal to adopt generic
listing standards for Managed Fund
Shares,28 the Commission noted that the
Exchange had represented that ‘‘on a
quarterly basis, the Exchange will
provide a report to the Commission staff
that contains, for each ETF whose
shares are generically listed and traded
under BATS Rule 14.11(i): (a) Symbol
and date of listing; (b) the number of
active authorized participants (‘‘APs’’)
and a description of any failure by
either a fund or an AP to deliver
promised baskets of shares, cash, or
26 See 17 CFR 270.38a–1 (Rule 38a–1 under the
1940 Act) (requiring funds to adopt policies and
procedures reasonably designed to prevent
violation of federal securities laws); 17 CFR
270.17j–1(c)(1) (Rule 17j–1(c)(1) under the 1940
Act) (requiring funds to adopt a code of ethics
containing provisions designed to prevent certain
fund personnel (‘‘access persons’’) from misusing
information regarding fund transactions); Section
204A of the Investment Advisers Act of 1940
(‘‘Advisers Act’’) (15 U.S.C. 80b–204A) (requiring
an adviser to adopt policies and procedures that are
reasonably designed, taking into account the nature
of its business, to prevent the misuse of material,
non-public information by the adviser or any
associated person, in violation of the Advisers Act
or the Act, or the rules or regulations thereunder);
Section 15(g) of the Act (15 U.S.C. 78o(f)) (requiring
a registered broker or dealer to adopt policies and
procedures reasonably designed, taking into
account the nature of the broker’s or dealer’s
business, to prevent the misuse of material,
nonpublic information by the broker or dealer or
any person associated with the broker or dealer, in
violation of the Exchange Act or the rules or
regulations thereunder).
27 See Rule 6c–11 Release at 25.
28 See Securities Exchange Act Release No. 78396
(July 22, 2016), 81 FR 49698 (July 28, 2016) (SR–
BATS–2015–100) (the ‘‘MFS Approval Order’’).
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cash and instruments in connection
with creation or redemption orders; and
(c) a description of any failure by an
ETF to comply with BATS Rule
14.11(i).’’ 29 This reporting requirement
is not specifically enumerated in Rule
14.11(i).
The Exchange has provided such
information to the Commission on a
quarterly basis since the MFS Approval
Order was issued in 2016. The type of
information provided in the reports was
created to provide a window into the
creation and redemption process for
Managed Fund Shares in order to ensure
that the arbitrage mechanism would
work as expected for products that were
listed pursuant to the newly approved
generic listing standards. In the Rule
6c–11 Release, the Commission
concluded that ‘‘the arbitrage
mechanism for existing actively
managed ETFs has worked effectively
with small deviations between market
price and NAV per share.’’ 30 The
Exchange generally agrees with this
conclusion and, while such quarterly
reports were useful when Managed
Fund Shares were first able to be listed
pursuant to generic listing standards,
the Exchange believes that such a
window into the creation and
redemption process for Managed Fund
Shares no longer provides useful
information related to the prevention of
manipulation or protection of investors
which it was originally designed to
provide. Further, because the same
general types of information provided in
those reports will be made available
under Rule 6c–11 directly from the
issuers of such securities the Exchange
also believes that it is consistent with
the Act to remove this reporting
obligation because it will be duplicative
and no longer necessary.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 31 in general and Section
6(b)(5) of the Act 32 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 proposed
Rule 14.11(l) is designed to prevent
fraudulent and manipulative acts and
practices in that the proposed rules
29 See
MFS Approval Order at footnote 14.
Rule 6c–11 Release at 23.
31 15 U.S.C. 78f.
32 15 U.S.C. 78f(b)(5).
30 See
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relating to listing and trading ETF
Shares on the Exchange provide specific
initial and continued listing criteria
required to be met by such securities.
Proposed Rule 14.11(l)(4) sets forth
initial and continued listing criteria
applicable to ETF Shares, specifically
providing that the Exchange may
approve ETF Shares for listing and/or
trading (including pursuant to unlisted
trading privileges) on the Exchange
pursuant to Rule 19b–4(e) under the Act
so long as such series of ETF Shares is
eligible to operate in reliance on Rule
6c–11 and meets all applicable
requirements under such Rule 6c–11
upon initial listing and on a continuing
basis. Proposed Rule 14.11(l)(4)(A)(i)
provides that the Exchange will
establish for each series of ETF Shares
a minimum number of shares required
to be outstanding at the time of
commencement of trading on the
Exchange. Proposed Rule
14.11(l)(4)(A)(i) provides that the
Exchange will obtain a representation
from the issuer of each series of ETF
Shares stating that the disclosures
required under Rule 6c–11 of the
Investment Company Act of 1940 will
be made available on a daily basis in
compliance with Rule 6c–11 and that
the issuer will notify the Exchange of
any failure to do so.
Proposed Rule 14.11(l)(4)(B)(i)
provides that the Exchange will
consider the suspension of trading in,
and will commence delisting
proceedings under Rule 14.12 for, a
series of ETF Shares under any of the
following circumstances: (a) If the issuer
of the ETF Shares has failed to file any
filings required by the Commission or if
the Exchange is aware that the issuer is
not in compliance with the
requirements of Rule 6c–11 of the
Investment Company Act of 1940; (b) if
any of the other listing requirements set
forth in this Rule 14.11(l) are not
continuously maintained; or (c) if such
other event shall occur or condition
exists which, in the opinion of the
Exchange, makes further dealings on the
Exchange inadvisable. Proposed Rule
14.11(l)(4)(B)(ii) provides that the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in a series of
ETF Shares. Trading may be halted
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. These may include: (1) The
extent to which certain information
about the ETF Shares that is required to
be disclosed under Rule 6c–11 is not
being made available; or (2) whether
other unusual conditions or
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circumstances detrimental to the
maintenance of a fair and orderly
market are present. Finally, proposed
Rule 14.11(l)(4)(B)(iii) provides that,
upon termination of an investment
company, the Exchange requires that
ETF Shares issued in connection with
such entity be removed from Exchange
listing.
The Exchange further believes that
proposed Rule 14.11(l) is designed to
prevent fraudulent and manipulative
acts and practices because of the robust
surveillances in place on the Exchange
as required under proposed Rule
14.11(l)(2)(C) along with the similarities
of proposed Rule 14.11(l) to the rules
related to other securities that are
already listed and traded on the
Exchange and which would qualify as
ETF Shares. Proposed Rule 14.11(l) is
based in large part on Rules 14.11(c) and
(i) related to the listing and trading of
Index Fund Shares and Managed Fund
Shares on the Exchange, respectively,
both of which are issued under the 1940
Act and would qualify as ETF Shares
after Rule 6c–11 is effective. Rule
14.11(c) and 14.11(i) are very similar,
their primary difference being that
Index Fund Shares are designed to track
an underlying index and Managed Fund
Shares are based on an actively
managed portfolio that is not designed
to track an index. As such, the Exchange
believes that using the Current ETF
Standards as the basis for proposed Rule
14.11(l) is appropriate because they are
generally designed to address the issues
associated with ETF Shares. The only
substantial differences between
proposed Rule 14.11(l) and the Current
ETF Standards that are not otherwise
required under Rule 6c–11 are as
follows: (i) proposed Rule 14.11(l) does
not include the quantitative standards
applicable to a fund or an index that are
included in the Current ETF Standards;
(ii) proposed Rule 14.11(l) does not
include any requirements related to the
dissemination of a fund’s Intraday
Indicative Value; 33 (iii) and proposed
Rule 14.11(l) does not include any
specific requirements related to
‘‘firewalls’’ that need to be in place
between certain parties associated with
a fund and their affiliates.
Quantitative Standards
The Exchange believes that the
proposal is designed to prevent
fraudulent and manipulative acts and
practices because the Exchange will
perform ongoing surveillance of ETF
33 For purposes of this filing, the term ‘‘Intraday
Indicative Value’’ or ‘‘IIV’’ shall mean an intraday
estimate of the value of a share of each series of
either Index Fund Shares or Managed Fund Shares.
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Shares listed on the Exchange in order
to ensure compliance with Rule 6c–11
and the 1940 Act on an ongoing basis.
While proposed Rule 14.11(l) does not
include the quantitative requirements
applicable to a fund and a fund’s
holdings or underlying index that are
included in Rules 14.(c) and 14.11(i),34
the Exchange believes that the
manipulation concerns that such
standards are intended to address are
otherwise mitigated by a combination of
the Exchange’s surveillance procedures,
the Exchange’s ability to halt trading
under the proposed Rule
14.11(l)(4)(B)(ii), and the Exchange’s
ability to suspend trading and
commence delisting proceedings under
proposed Rule 14.11(l)(4)(B)(i). The
Exchange also believes that such
concerns are further mitigated by
enhancements to the arbitrage
mechanism that will come from Rule
6c–11, specifically the additional
flexibility provided to issuers of ETF
Shares through the use of custom
baskets for creations and redemptions
and the additional information made
available to the public through the
additional Disclosure Obligations.35 The
Exchange believes that the combination
of these factors will act to keep ETF
Shares trading near the value of their
underlying holdings and further
mitigate concerns around manipulation
of ETF Shares on the Exchange without
the inclusion of quantitative
standards.36 The Exchange will monitor
for compliance with the 1940 Act
generally as well as Rule 6c–11
specifically in order to ensure that the
continued listing standards are being
met. Specifically, the Exchange plans to
review the website of series of ETF
Shares in order to ensure that the
disclosure requirements of Rule 6c–11
are being met and to review the
portfolio underlying series of ETF
Shares listed on the Exchange in order
to ensure that certain investment
requirements and limitations under the
34 The Exchange notes that Rules 14.11(c) and (i)
include certain quantitative standards related to the
size, trading volume, concentration, and diversity of
the holdings of a series of Index Fund Shares or
Managed Fund Shares (the ‘‘Holdings Standards’’)
as well as related to the minimum number of
beneficial holders of a fund (the ‘‘Distribution
Standards’’). The Exchange believes that to the
extent that manipulation concerns are mitigated
based on the factors described herein, such
concerns are mitigated both as it relates to the
Holdings Standards and the Distribution Standards.
35 The Exchange notes that the Commission came
to a similar conclusion in several places in the Rule
6c–11 Release. See Rule 6c–11 Release at 15–18;
60–61; 69–70; 78–79; 82–84; and 95–96.
36 The Exchange believes that this applies to all
quantitative standards, whether applicable to the
portfolio holdings of a series of ETF Shares or the
distribution of the ETF Shares.
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1940 Act are being met. The Exchange
will also employ numerous intraday
alerts that will notify Exchange
personnel of trading activity throughout
the day that is potentially indicative of
certain disclosures not being made
accurately or the presence of other
unusual conditions or circumstances
that could be detrimental to the
maintenance of a fair and orderly
market. As a backstop to the
surveillances described above, the
Exchange also notes that Rule 14.11(a)
and proposed Rule 14.11(l)(4)(A)(ii)
would require an issuer of ETF Shares
to notify the Exchange of any failure to
comply with Rule 6c–11 or the 1940
Act.
To the extent that any of the
requirements under Rule 6c–11 or the
1940 Act are not being met, the
Exchange may halt trading in a series of
ETF Shares as provided in proposed
Rule 14.11(l)(4)(B)(ii).37 Further, the
Exchange may also suspend trading in
and commence delisting proceedings for
a series of ETF Shares where such series
is not in compliance with the applicable
listing standards or where the Exchange
believes that further dealings on the
Exchange are inadvisable.38
Further, the Exchange also represents
that its surveillance procedures are
adequate to properly monitor the
trading of the ETF Shares in all trading
sessions and to deter and detect
violations of Exchange rules.
Specifically, the Exchange intends to
utilize its existing surveillance
procedures applicable to derivative
products, which are currently
applicable to Index Fund Shares and
Managed Fund Shares, among other
product types, to monitor trading in ETF
37 Specifically, proposed Rule 14.11(l)(4)(B)(ii)
states that the Exchange may consider all relevant
factors in exercising its discretion to halt or
suspend trading in a series of ETF Shares. Trading
may be halted because of market conditions or for
reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may
include: (1) The extent to which certain information
about the ETF Shares that is required to be
disclosed under Rule 6c–11 of the Investment
Company Act of 1940 is not being made available;
or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a
fair and orderly market are present.
38 Specifically, proposed Rule 14.11(l)(4)(B)(i),
provides that if a series of ETF Shares is not in
compliance with the applicable listing
requirements, including: (a) If the issuer of the ETF
Shares has failed to file any filings required by the
Commission or if the Exchange is aware that the
issuer is not in compliance with the requirements
of Rule 6c–11 of the Investment Company Act of
1940; (b) if any of the other listing requirements set
forth in this Rule 14.11(l) are not continuously
maintained; or (c) if such other event shall occur
or condition exists which, in the opinion of the
Exchange, makes further dealings on the Exchange
inadvisable, the Exchange will commence delisting
procedures under Rule 14.12.
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64613
Shares. The Exchange or FINRA, on
behalf of the Exchange, will
communicate as needed regarding
trading in ETF Shares and certain of
their applicable underlying components
with other markets that are members of
the ISG or with which the Exchange has
in place a comprehensive surveillance
sharing agreement. In addition, the
Exchange may obtain information
regarding trading in ETF Shares and
certain of their applicable underlying
components from markets and other
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement. Additionally, FINRA, on
behalf of the Exchange, is able to access,
as needed, trade information for certain
fixed income securities that may be held
by a series of ETF Shares reported to
FINRA’s TRACE. FINRA also can access
data obtained from the MSRB’s EMMA
system relating to municipal bond
trading activity for surveillance
purposes in connection with trading in
a series of ETF Shares, to the extent that
a series of ETF Shares holds municipal
securities. Finally, as noted above, the
issuer of a series of ETF Shares will be
required to comply with Rule 10A–3
under the Act for the initial and
continued listing of Exchange-Traded
Fund Shares, as provided under Rule
14.10(e)(1)(E).
Intraday Indicative Value
As described above, proposed Rule
14.11(l) does not include any
requirements related to the
dissemination of an Intraday Indicative
Value. Both Rule 14.11(c) and Rule
14.11(i) include the requirement that a
series of Index Fund Shares and
Managed Fund Shares, respectively,
disseminate and update an Intraday
Indicative Value at least every 15
seconds.39 Historically (and
theoretically), the IIV could provide
valuable information about an ETF that
would not otherwise be available or
easily calculable. However, as
consistently highlighted in the Rule 6c–
11 Release, that is not reflective of the
current marketplace and the
Commission has expressed concerns
regarding the accuracy of IIV estimates
for certain ETFs. Specifically, the
Commission noted that an IIV may not
accurately reflect the value of an ETF
that holds securities that trade less
frequently as such IIV can be stale or
39 See Rules 14.11(c)(3)(C), 14.11(c)(6)(A), and
14.11(c)(9)(B)(e) related to Index Fund Shares and
Rules 14.11(i)(3)(C), 14.11(i)(4)(B)(i),
14.11(i)(4)(B)(iii)(b), and 14.11(i)(4)(B)(iv) related to
Managed Fund Shares.
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inaccurate.40 Additionally, the
Commission indicated that even in
circumstances when an IIV may be
reliable, retail investors do not have
easy access to free, publicly available
IIV information.41 Further, in instances
when IIV may be free and publicly
available, it can be delayed by up to 45
minutes.42
Aside from the fact that the
disseminated IIV may provide investors
with stale or misleading data, the
Commission also stated that market
makers and authorized participants
typically calculate their own intraday
value of an ETF’s portfolio with
proprietary algorithms that use an ETF’s
daily portfolio disclosure and available
pricing information.43 Such information
allows those market participants to
support the arbitrage mechanism for
ETFs. Therefore, as market participants
who engage in arbitrage typically
calculate their own intraday value of an
ETF’s portfolio based on the ETF’s daily
portfolio disclosure and pricing
information and use an IIV only as a
secondary check to their own
calculation,44 the Commission noted
that IIV was not necessary to support
the arbitrage mechanism.45 Given this,
combined with potential shortcomings
of the IIV noted above, the Commission
concluded that ETFs will not be
required to disseminate an IIV under
Rule 6c–11.46
The Exchange generally agrees with
the limitations and shortcomings of IIV
described in the Rule 6c–11 Release.
The Exchange further agrees with the
conclusion of the Adopting Release that
the ‘‘IIV is not necessary to support the
arbitrage mechanism for ETFs that
provide daily portfolio holdings
disclosure.’’ The transparency that
comes from daily portfolio holdings
disclosure as required under Rule 6c–11
provides market participants with
sufficient information to facilitate the
intraday valuation of ETF Shares. The
Exchange notes that it is not proposing
to prohibit the dissemination of an IIV
for a series of ETF Shares and believes
that there are certain instances in which
the dissemination of an IIV could
provide valuable information to the
investing public. The Exchange is
simply not proposing to require the
dissemination of such information.
As such, the Exchange believes that it
is appropriate and consistent with the
40 See
Rule 6c–11 Release at 62.
Id., at 66.
42 See Id.
43 See Id., at 63.
44 See Id., at 63.
45 See Id., at 65.
46 See Id., at 61.
41 See
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Act to not include a requirement for the
dissemination of an IIV for a series of
ETF Shares to be listed on the Exchange.
Firewalls
Both Rule 14.11(c) and Rule 14.11(i)
require under certain circumstances the
implementation of firewalls between
certain affiliates and related employees
as well as policies and procedures
designed to prevent the dissemination
of material non-public information.47
The Exchange fully supports the
rationale underlying these rules, but
generally agrees with the sentiment
expressed by the Commission in the
Rule 6c–11 Release that existing federal
securities laws adequately address
concerns about dissemination and
misuse of material non-public
information.48 The Exchange also
further agrees that issuers of ETF Shares
are likely to be in a position to best
understand the circumstances and
relationships that could give rise to
misuse of material non-public
information and can develop
appropriate measures to address them.49
As such, the Exchange is not proposing
to include firewall or material nonpublic information policies and
procedures requirements in the generic
listing standards for ETF Shares because
it believes that such issues are
sufficiently addressed by existing
federal securities laws. With this in
mind, the Exchange further believes that
proposed Rule 14.11(l) is consistent
with the Act and is designed to prevent
fraudulent and manipulative acts and
practices.
The Exchange also believes that the
proposed rule change is designed to
47 See Rules 14.11(c)(3)(B)(i) and (iii), Rules
14.11(c)(4)(C)(i) and (iii), Rules 14.11(c)(5)(A)(i) and
(iii), and Rule 14.11(7).
48 See 17 CFR 270.38a–1 (Rule 38a–1 under the
1940 Act) (requiring funds to adopt policies and
procedures reasonably designed to prevent
violation of federal securities laws); 17 CFR
270.17j–1(c)(1) (Rule 17j–1(c)(1) under the 1940
Act) (requiring funds to adopt a code of ethics
containing provisions designed to prevent certain
fund personnel (‘‘access persons’’) from misusing
information regarding fund transactions); Section
204A of the Investment Advisers Act of 1940
(‘‘Advisers Act’’) (15 U.S.C. 80b–204A) (requiring
an adviser to adopt policies and procedures that are
reasonably designed, taking into account the nature
of its business, to prevent the misuse of material,
non-public information by the adviser or any
associated person, in violation of the Advisers Act
or the Act, or the rules or regulations thereunder);
Section 15(g) of the Act (15 U.S.C. 78o(f)) (requiring
a registered broker or dealer to adopt policies and
procedures reasonably designed, taking into
account the nature of the broker’s or dealer’s
business, to prevent the misuse of material,
nonpublic information by the broker or dealer or
any person associated with the broker or dealer, in
violation of the Exchange Act or the rules or
regulations thereunder).
49 See Rule 6c–11 Release at 25.
PO 00000
Frm 00162
Fmt 4703
Sfmt 4703
promote just and equitable principles of
trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of each series of ETF Shares stating that
the Disclosure Requirements under Rule
6c–11 of the Investment Company Act
of 1940 will be made available on a
daily basis in compliance with Rule 6c–
11 and that the issuer will notify the
Exchange of any failure to do so. In
addition, a large amount of information
will be publicly available regarding the
Funds and the Shares, thereby
promoting market transparency.
Quotation and last sale information for
ETF Shares will be available via the
CTA high-speed line. The website for
each series of ETF Shares will include
a form of the 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 in the
series of ETF Shares. As noted above,
series of ETF Shares will not be required
to publicly disseminate an IIV. The
Exchange continues to believe that this
proposal is consistent with the Act and
is designed to promote just and
equitable principles of trade and to
protect investors and the public interest
because the transparency that comes
from daily portfolio holdings disclosure
as required under Rule 6c–11 provides
market participants with sufficient
information to facilitate the intraday
valuation of ETF Shares, rendering the
dissemination of the IIV unnecessary.
The Exchange notes that it is not
proposing to prohibit the dissemination
of an IIV for a series of ETF Shares and
believes that there could be certain
instances in which the dissemination of
an IIV could provide valuable
information to the investing public. The
Exchange proposes to leave that
decision to an issuer of ETF Shares and
is simply not proposing to require the
dissemination of an IIV.
Based on the foregoing discussion
regarding proposed Rule 14.11(l) and its
similarities to and differences between
the Current ETF Standards, the
Exchange believes that the proposal is
consistent with the Act and is designed
to prevent fraudulent and manipulative
transactions and that the manipulation
concerns that the quantitative standards,
the IIV, and the firewall requirements
are designed to address are otherwise
mitigated by the proposal and the new
Disclosure Obligations and flexibility
under Rule 6c–11.
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Federal Register / Vol. 84, No. 226 / Friday, November 22, 2019 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
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 ETF Shares in a manner that will
enhance competition among market
participants, to the benefit of investors
and the marketplace. The Exchange
believes that approval of this proposal
will streamline current procedures,
reduce the costs and timeline associated
with bringing ETFs to market, and
provide significantly greater regulatory
certainty to potential issuers
considering bringing ETF Shares to
market, thereby enhancing competition
among ETF issuers and reducing costs
for investors.50
The Exchange also believes that the
non-substantive change to amend Rule
14.10(e)(1)(E) in order to add ETF
Shares to a list of product types listed
on the Exchange, including Index Fund
Shares and Managed Fund Shares, that
are exempted from the Audit Committee
requirements set forth in Rule
14.10(c)(3), except for the applicable
requirements of SEC Rule 10A–3
because it is a non-substantive change
meant only to subject ETF Shares to the
same corporate governance
requirements currently applicable to
Index Fund Shares and Managed Fund
Shares. The Exchange also believes that
the non-substantive change to amend
Rule 14.11(c)(3)(A)(i)(a) in order to
include ETF Shares in the definition of
Derivative Securities Products is also a
non-substantive change because it is just
intended to add ETF Shares to a
definition that includes Index Fund
Shares and Managed Fund Shares in
order to make sure that ETF Shares are
treated consistently with Index Fund
Shares and Managed Fund Shares
throughout the Exchange’s rules.
Finally, the Exchange believes that
eliminating the quarterly reporting
requirement for Managed Fund Shares
50 In approving the rule, the Commission stated
that the ‘‘rule will modernize the regulatory
framework for ETFs to reflect our more than two
decades of experience with these investment
products. The rule is designed to further important
Commission objectives, including establishing a
consistent, transparent, and efficient regulatory
framework for ETFs and facilitating greater
competition and innovation among ETFs.’’ Rule 6c–
11 Release, at 57163. The Commission also stated
the following regarding the rule’s impact: ‘‘We
believe rule 6c–11 will establish a regulatory
framework that: (1) Reduces the expense and delay
currently associated with forming and operating
certain ETFs unable to rely on existing orders; and
(2) creates a level playing field for ETFs that can
rely on the rule. As such, the rule will enable
increased product competition among certain ETF
providers, which can lead to lower fees for
investors, encourage financial innovation, and
increase investor choice in the ETF market.’’ Rule
6c–11 Release, at 57204.
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16:57 Nov 21, 2019
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64615
is designed to prevent fraudulent and
manipulative acts and practices and, in
general, to protect investors and the
public interest because the report no
longer serves the purpose for which it
was originally intended. The type of
information provided in the reports was
created to provide a window into the
creation and redemption process for
Managed Fund Shares in order to ensure
that the arbitrage mechanism would
work as expected for products that were
listed pursuant to the newly approved
generic listing standards. In the Rule
6c–11 Release, the Commission
concluded that ‘‘the arbitrage
mechanism for existing actively
managed ETFs has worked effectively
with small deviations between market
price and NAV per share.’’ 51 The
Exchange generally agrees with this
conclusion and, while such quarterly
reports were useful when Managed
Fund Shares were first able to be listed
pursuant to generic listing standards,
the Exchange believes that such a
window into the creation and
redemption process for Managed Fund
Shares no longer provides useful
information related to the prevention of
manipulation or protection of investors
which it was originally designed to
provide. Further, because the same
general types of information provided in
those reports will be made available
under Rule 6c–11 directly from the
issuers of such securities the Exchange
also believes that it is consistent with
the Act to remove this reporting
obligation because it will be duplicative
and no longer necessary.
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.
by ensuring the application of uniform
listing standards.
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. To the
contrary, the Exchange believes that the
proposed rule change would enhance
competition by streamlining current
procedures, reducing the costs and
timeline associated with bringing ETFs
to market, and providing significantly
greater regulatory certainty to potential
issuers considering bringing ETF Shares
to market, all of which the Exchange
believes would enhance competition
among ETF issuers and reduce costs for
investors. The Exchange also believes
that the proposed change would make
enhance competition among ETF Shares
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–2019–097. 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
51 See
PO 00000
Rule 6c–11 Release at 23.
Frm 00163
Fmt 4703
Sfmt 4703
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. By order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2019–097 on the subject line.
E:\FR\FM\22NON1.SGM
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64616
Federal Register / Vol. 84, No. 226 / Friday, November 22, 2019 / Notices
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–2019–097, and
should be submitted on or before
December 13, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.52
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–25317 Filed 11–21–19; 8:45 am]
BILLING CODE 8011–01–P
SURFACE TRANSPORTATION BOARD
[Docket No. FD 36346]
The Board will institute an exemption
proceeding pursuant to 49 U.S.C.
10502(b). A procedural schedule will be
set as noted below, consistent with the
reply and response deadlines WCL
requested.
All pleadings, referring to Docket No.
FD 36346, must be filed with the
Surface Transportation Board either via
e-filing or in writing addressed to 395 E
Street, SW, Washington, DC 20423–
0001. In addition, a copy of each
pleading must be served on WCL’s
representative: Thomas J. Litwiler,
Fletcher & Sippel LLC, 29 North Wacker
Drive, Suite 800, Chicago, IL 60606–
3208.
Board decisions and notices are
available at www.stb.gov.
It is ordered:
1. An exemption proceeding is
instituted under 49 U.S.C. 10502(b).
2. Replies to WCL’s petition are due
by December 13, 2019.
3. WCL’s response to any replies is
due by January 2, 2020.
4. Notice of this decision will be
published in the Federal Register.
5. This decision is effective on its date
of service.
Decided: November 18, 2019.
By the Board, Scott M. Zimmerman, Acting
Director, Office of Proceedings.
Kenyatta Clay,
Clearance Clerk.
[FR Doc. 2019–25334 Filed 11–21–19; 8:45 am]
khammond on DSKJM1Z7X2PROD with NOTICES
Wisconsin Central Ltd.—Operation
Exemption—Hallett Dock No. 5 in
Duluth, Minn.
BILLING CODE 4915–01–P
Wisconsin Central Ltd. (WCL), a rail
carrier,1 filed a petition seeking an
exemption under 49 U.S.C. 10502 from
the prior approval requirements of 49
U.S.C. 10901 to operate a rail/water
dock facility in Duluth, Minn., known
as Hallett Dock No. 5 (the Dock), after
WCL acquires the Dock from its current
noncarrier owner, Hallett Dock
Company. The Dock is an
approximately 100-acre, ground-level
rail/water bulk commodity transfer and
storage dock facility that includes a
2,400-foot vessel berth, two ship
loaders, a railcar unloader, dry storage
building, approximately 9,000 feet of
rail trackage on the dock, and
approximately 6,300 feet of adjacent
railcar holding tracks along the shore
line.
In an accompanying petition to set a
procedural schedule, WCL requests that
replies to the petition for exemption be
due by December 13, 2019, and WCL’s
response by January 2, 2020.
CFR 200.30–3(a)(12).
is an indirect subsidiary of Canadian
National Railway Company.
SURFACE TRANSPORTATION BOARD
[Docket No. FD 36365]
3i RR Holdings GP LLC, 3i Holdings
Partnership L.P., 3i RR LLC, Regional
Rail Holdings, LLC, and Regional Rail,
LLC—Control Exemption—Florida
Central Railroad Company, Inc.,
Florida Midland Railroad Company,
Inc., and Florida Northern Railroad
Company, Inc.
3i RR Holdings GP LLC, 3i Holdings
Partnership L.P., 3i RR LLC, and
Regional Rail Holdings, LLC
(collectively, 3i RR), and Regional Rail,
LLC (Regional Rail), all noncarriers,
have filed a verified notice of exemption
under 49 CFR 1180.2(d)(2) to acquire
from Pinsly Railroad Company control
of Florida Central Railroad Company,
Inc. (Central), Florida Midland Railroad
Company, Inc. (Midland), and Florida
Northern Railroad Company, Inc.
(Northern) (collectively, the Florida
Railroads), all Class III rail carriers
operating in Florida.1 According to the
52 17
1 WCL
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16:57 Nov 21, 2019
Jkt 250001
1 The verified notice states that Central operates
between Umatilla and Orlando, with branch lines
PO 00000
Frm 00164
Fmt 4703
Sfmt 4703
verified notice, the proposed transaction
will allow Regional Rail to acquire
direct control, and 3i RR to acquire
indirect control, of the Florida
Railroads.
The earliest this transaction may be
consummated is December 6, 2019, the
effective date of the exemption (30 days
after the verified notice was filed). The
verified notice states that the parties
intend to consummate the transaction
on or after January 3, 2020.2
According to the verified notice, 3i RR
Holdings GP LLC controls 3i Holdings
Partnership L.P., which controls 3i RR
LLC, which controls Regional Rail
Holdings, LLC, which controls Regional
Rail. Regional Rail Holdings, LLC, is a
holding company that directly controls
the following three Class III rail carriers:
(1) East Penn Railroad, LLC, which
operates in Delaware and Pennsylvania;
(2) Middletown & New Jersey Railroad,
LLC, which operates in New York; and
(3) Tyburn Railroad LLC, which
operates in Pennsylvania (collectively,
the Subsidiary Railroads).3
The verified notice states that: (1) The
Florida Railroads do not connect with
each other or with the Subsidiary
Railroads; (2) the acquisition of control
of the Florida Railroads is not intended
to connect them to any other railroads
in 3i RR’s corporate family; and (3) the
proposed transaction does not involve a
Class I rail carrier. The proposed
transaction is therefore exempt from the
prior approval requirements of 49 U.S.C.
11323. See 49 CFR 1180.2(d)(2).
Under 49 U.S.C. 10502(g), the Board
may not use its exemption authority to
relieve a rail carrier of its statutory
obligation to protect the interests of its
employees. However, 49 U.S.C. 11326(c)
does not provide for labor protection for
transactions under 49 U.S.C. 11324 and
11325 that involve only Class III rail
carriers. Because this transaction
involves Class III rail carriers only, the
Board, under the statute, may not
impose labor protective conditions for
this transaction.
between Toronto and Winter Garden and between
Tavares and Sorrento; Midland operates between
Frostproof and West Lake Wales and between
Gordonville and Winter Haven; and Northern
operates between Red Level Jct. and north of
Newberry and between Candler and Lowell.
2 On November 6, 2019, 3i RR and Regional Rail
filed a motion for protective order under 49 CFR
1104.14(b), which will be addressed in a separate
decision.
3 In Regional Rail Holdings, LLC—Acquisition of
Control Exemption—Regional Rail, LLC, FD 35945
(STB served Aug. 7, 2015), Regional Rail Holdings,
LLC, acquired control of the Subsidiary Railroads.
In 3i RR Holdings GP LLC—Control Exemption—
Regional Rail Holdings, LLC, FD 36289 (STB served
Apr. 19, 2019), 3i RR Holdings GP LLC, 3i Holdings
Partnership L.P., and 3i RR LLC, acquired direct
control of Regional Rail Holdings, LLC, and indirect
control of the Subsidiary Railroads.
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]]>Agencies
[Federal Register Volume 84, Number 226 (Friday, November 22, 2019)]
[Notices]
[Pages 64607-64616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25317]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87560; File No. SR-CboeBZX-2019-097]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Adopt BZX Rule 14.11(l) To Permit
the Listing and Trading of Exchange-Traded Fund Shares That Are
Permitted To Operate in Reliance on Rule 6c-11 Under the Investment
Company Act of 1940
November 18, 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 November 15, 2019 Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes a rule change to adopt BZX Rule 14.11(l) to
permit the listing and trading of Exchange-Traded Fund Shares that are
permitted to operate in reliance on Rule 6c-11 under the Investment
Company Act of 1940. The Exchange is also proposing to discontinue the
quarterly reports required with respect to Managed Fund Shares listed
on the Exchange pursuant to the generic listing standards under Rule
14.11(i).
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 64608]]
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
The Exchange proposes to add new Rule 14.11(l) \3\ for the purpose
of permitting the generic listing and trading, or trading pursuant to
unlisted trading privileges, of Exchange-Traded Fund Shares \4\ that
are permitted to operate in reliance on Rule 6c-11 (``Rule 6c-11'')
under the Investment Company Act of 1940 (the ``1940 Act'').\5\ The
Exchange is also proposing to discontinue the quarterly reports
required with respect to Managed Fund Shares listed on the Exchange
pursuant to the generic listing standards under Rule 14.11(i).
---------------------------------------------------------------------------
\3\ The Exchange notes that it is proposing new Rule 14.11(l)
because it has also proposed a new Rule 14.11(k) as part of another
proposal. See Securities Exchange Act Release No. 87062 (September
23, 2019), 84 FR 51193 (September 27, 2019) (SR-CboeBZX-2019-047).
\4\ As provided below, proposed Rule 14.11(l)(3)(A) provides
that the term ``ETF Shares'' shall mean the shares issued by a
registered open-end management investment company that: (i) Is
eligible to operate in reliance on Rule 6c-11 under the Investment
Company Act of 1940; (ii) issues (and redeems) creation units to
(and from) authorized participants in exchange for a basket and a
cash balancing amount (if any); and (iii) issues shares that it
intends to list or are listed on a national securities exchange and
traded at market-determined prices.
\5\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------
The Commission recently adopted Rule 6c-11 to permit exchange-
traded funds (``ETFs'') that satisfy certain conditions to operate
without obtaining an exemptive order from the Commission under the 1940
Act.\6\ Since the first ETF was approved by the Commission in 1992, the
Commission has routinely granted exemptive orders permitting ETFs to
operate under the 1940 Act because there was no ETF specific rule in
place and they have characteristics that distinguish them from the
types of structures contemplated and included in the 1940 Act. After
such an extended period operating without a specific rule set and only
under exemptive relief, Rule 6c-11 is designed to provide a consistent,
transparent, and efficient regulatory framework for ETFs.\7\ Exchange
listing standards applicable to ETFs have been similarly adopted and
tweaked over the years and the Exchange believes that, just as the
Commission has undertaken a review of the 1940 Act as it is applicable
to ETFs, it is appropriate to perform a similar holistic review and
overhaul of Exchange listing rules. With this in mind, the Exchange
submits this proposal to add new Rule 14.11(l) and certain
corresponding rule changes because it believes that this proposal
similarly promotes consistency, transparency, and efficiency
surrounding the exchange listing process for ETF Shares in a manner
that is consistent with the Act, as further described below.
---------------------------------------------------------------------------
\6\ See Release Nos. 33-10695; IC-33646; File No. S7-15-18
(Exchange-Traded Funds) (September 25, 2019), 84 FR 57162 (October
24, 2019) (the ``Rule 6c-11 Release'').
\7\ In approving the rule, the Commission stated that the ``rule
will modernize the regulatory framework for ETFs to reflect our more
than two decades of experience with these investment products. The
rule is designed to further important Commission objectives,
including establishing a consistent, transparent, and efficient
regulatory framework for ETFs and facilitating greater competition
and innovation among ETFs.'' Rule 6c-11 Release, at 57163. The
Commission also stated the following regarding the rule's impact:
``We believe rule 6c-11 will establish a regulatory framework that:
(1) Reduces the expense and delay currently associated with forming
and operating certain ETFs unable to rely on existing orders; and
(2) creates a level playing field for ETFs that can rely on the
rule. As such, the rule will enable increased product competition
among certain ETF providers, which can lead to lower fees for
investors, encourage financial innovation, and increase investor
choice in the ETF market.'' Rule 6c-11 Release, at 57204.
---------------------------------------------------------------------------
Consistent with Index Fund Shares and Managed Fund Shares listed
under the generic listing standards in Rules 14.11(c) and 14.11(i),
respectively, series of Exchange-Traded Fund Shares that are permitted
to operate in reliance on Rule 6c-11 would be permitted to be listed
and traded on the Exchange without a prior Commission approval order or
notice of effectiveness pursuant to Section 19(b) of the Act.\8\
---------------------------------------------------------------------------
\8\ Rule 19b-4(e)(1) provides that the listing and trading of a
new derivative securities product by a self-regulatory organization
(``SRO'') is not deemed a proposed rule change, pursuant to
paragraph (c)(1) of Rule 19b-4, if the Commission has approved,
pursuant to Section 19(b) of the Act, the SRO's trading rules,
procedures and listing standards for the product class that would
include the new derivative securities product and the SRO has a
surveillance program for the product class. As contemplated by this
Rule, the Exchange proposes new Rule 14.11(l) to establish generic
listing standards for ETFs that are permitted to operate in reliance
on Rule 6c-11. An ETF listed under proposed Rule 14.11(l) would
therefore not need a separate proposed rule change pursuant to Rule
19b-4 before it can be listed and traded on the Exchange.
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Proposed Listing Rules
Proposed Rule 14.11(l)(1) provides that the Exchange will consider
for trading, whether by listing or pursuant to unlisted trading
privileges, the shares of Exchange-Traded Funds (``ETF Shares'') that
meet the criteria of this Rule.
Proposed Rule 14.11(l)(2) provides that the proposed rule would be
applicable only to ETF Shares. Except to the extent inconsistent with
this Rule, or unless the context otherwise requires, the rules and
procedures of the Board of Directors shall be applicable to the trading
on the Exchange of such securities. ETF Shares are included within the
definition of ``security'' or ``securities'' as such terms are used in
the Rules of the Exchange.
Proposed Rule 14.11(l)(2) further provides that: (A) Transactions
in ETF Shares will occur throughout the Exchange's trading hours; (B)
the minimum price variation for quoting and entry of orders in ETF
Shares is $0.01; and (C) the Exchange will implement and maintain
written surveillance procedures for ETF Shares.
Proposed Rule 14.11(l)(3)(A) provides that the term ``ETF Shares''
shall mean the shares issued by a registered open-end management
investment company that: (i) Is eligible to operate in reliance on Rule
6c-11 under the Investment Company Act of 1940; \9\ (ii) issues (and
redeems) creation units to (and from) authorized participants in
exchange for a basket and a cash balancing amount (if any); and (iii)
issues shares that it intends to list or are listed on a national
securities exchange and traded at market-determined prices.\10\
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\9\ The Exchange notes that certain types of ETFs, such as
leveraged ETFs, are not eligible to operate in reliance on Rule 6c-
11 and therefore would not be eligible to list under this proposed
Rule 14.11(l). Such ETFs could, however, be listed pursuant to Rule
14.11(c) or 14.11(i).
\10\ The Exchange notes that this definition is substantially
similar to the definition under Rule 6c-11 except that the proposed
definition includes in the definition of ETF Shares those shares
that it intends to list on a national securities exchange.
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Proposed Rule 14.11(l)(3)(B) provides that the term ``Reporting
Authority'' in respect of a particular series of ETF Shares means the
Exchange, an institution, or a reporting service designated by the
Exchange or by the exchange that lists a particular series of ETF
Shares (if the Exchange is trading such series pursuant to unlisted
trading privileges) as the official source for
[[Page 64609]]
calculating and reporting information relating to such series,
including, but not limited to, the amount of any cash distribution to
holders of ETF Shares, net asset value, or other information relating
to the issuance, redemption or trading of ETF Shares. A series of ETF
Shares may have more than one Reporting Authority, each having
different functions.
Proposed Rule 14.11(l)(4) provides that the Exchange may approve
ETF Shares for listing and/or trading (including pursuant to unlisted
trading privileges) on the Exchange pursuant to Rule 19b-4(e) under the
Act so long as such series of ETF Shares is eligible to operate in
reliance on Rule 6c-11 under the Investment Company Act of 1940 and
meets all applicable requirements under such Rule 6c-11 upon initial
listing and on a continuing basis. ETF Shares will be listed and traded
on the Exchange subject to application of the following criteria.
Proposed Rule 14.11(l)(4)(A) provides that each series of ETF
Shares will be listed and traded on the Exchange subject to application
of the following initial listing criteria: (i) For each series, the
Exchange will establish a minimum number of ETF Shares required to be
outstanding at the time of commencement of trading on the Exchange; and
(ii) the Exchange will obtain a representation from the issuer of each
series of ETF Shares stating that the disclosures required under Rule
6c-11 of the Investment Company Act of 1940 will be made available on a
daily basis in compliance with Rule 6c-11 and that the issuer will
notify the Exchange of any failure to do so.
Proposed Rule 14.11(l)(4)(B) provides that each series of ETF
Shares will be listed and traded on the Exchange subject to application
of the following continued listing criteria.
Proposed Rule 14.11(l)(4)(B)(i) provides that the Exchange will
consider the suspension of trading in, and will commence delisting
proceedings under Rule 14.12 for, a series of ETF Shares under any of
the following circumstances: (a) If the issuer of the ETF Shares has
failed to file any filings required by the Commission or if the
Exchange is aware that the issuer is not in compliance with the
requirements of Rule 6c-11 of the Investment Company Act of 1940; (b)
if any of the other listing requirements set forth in this Rule
14.11(l) are not continuously maintained; or (c) if such other event
shall occur or condition exists which, in the opinion of the Exchange,
makes further dealings on the Exchange inadvisable.
Proposed Rule 14.11(l)(4)(B)(ii) provides that the Exchange may
consider all relevant factors in exercising its discretion to halt or
suspend trading in a series of ETF Shares. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(1) The extent to which certain information about the ETF Shares that
is required to be disclosed under Rule 6c-11 of the Investment Company
Act of 1940 is not being made available; or (2) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present.
Proposed Rule 14.11(l)(4)(B)(iii) provides that upon termination of
an investment company, the Exchange requires that ETF Shares issued in
connection with such entity be removed from Exchange listing.
Proposed Rule 14.11(l)(5) provides that neither the Exchange, the
Reporting Authority, nor any agent of the Exchange shall have any
liability for damages, claims, losses or expenses caused by any errors,
omissions, or delays in calculating or disseminating any current index
or portfolio value; the current value of the portfolio of securities
required to be deposited to the open-end management investment company
in connection with issuance of ETF Shares; the amount of any dividend
equivalent payment or cash distribution to holders of ETF Shares; net
asset value; or other information relating to the purchase, redemption,
or trading of ETF Shares, resulting from any negligent act or omission
by the Exchange, the Reporting Authority, or any agent of the Exchange,
or any act, condition, or cause beyond the reasonable control of the
Exchange, its agent, or the Reporting Authority, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission, or delay in the reports of
transactions in one or more underlying securities.
Proposed Rule 14.11(l)(6) provides that the provisions of this
subparagraph apply only to series of ETF Shares that are the subject of
an order by the Securities and Exchange Commission exempting such
series from certain prospectus delivery requirements under Section
24(d) of the Investment Company Act of 1940 and are not otherwise
subject to prospectus delivery requirements under the Securities Act of
1933. The Exchange will inform its Members regarding application of
this subparagraph to a particular series of ETF Shares by means of an
information circular prior to commencement of trading in such series.
The Exchange requires that members provide to all purchasers of a
series of ETF Shares a written description of the terms and
characteristics of those securities, in a form prepared by the open-end
management investment company issuing such securities, not later than
the time a confirmation of the first transaction in such series is
delivered to such purchaser. In addition, members shall include such a
written description with any sales material relating to a series of ETF
Shares that is provided to customers or the public. Any other written
materials provided by a member to customers or the public making
specific reference to a series of ETF Shares as an investment vehicle
must include a statement in substantially the following form: ``A
circular describing the terms and characteristics of (the series of ETF
Shares) has been prepared by the (open-end management investment
company name) and is available from your broker. It is recommended that
you obtain and review such circular before purchasing (the series of
ETF Shares).'' A member carrying an omnibus account for a non-member
broker-dealer is required to inform such non-member that execution of
an order to purchase a series of ETF Shares for such omnibus account
will be deemed to constitute agreement by the non-member to make such
written description available to its customers on the same terms as are
directly applicable to members under this rule. Upon request of a
customer, a member shall also provide a prospectus for the particular
series of ETF Shares.
The Exchange is also proposing to make two non-substantive
amendments to include ETF Shares in other Exchange rules. Specifically,
the Exchange is also proposing: (i) To amend Rule 14.10(e)(1)(E) in
order to add ETF Shares to a list of product types listed on the
Exchange, including Index Fund Shares and Managed Fund Shares, that are
exempted from the Audit Committee requirements set forth in Rule
14.10(c)(3), except for the applicable requirements of SEC Rule 10A-3;
and (ii) to amend Rule 14.11(c)(3)(A)(i)(a) in order to include ETF
Shares in the definition of Derivative Securities Products.
Discussion
Proposed Rule 14.11(l) is based in large part on Rules 14.11(c) and
(i) related to the listing and trading of Index Fund Shares and Managed
Fund
[[Page 64610]]
Shares on the Exchange, respectively, both of which are issued under
the 1940 Act and would qualify as ETF Shares after Rule 6c-11 is
effective. Rule 14.11(c) and 14.11(i) are very similar, their primary
difference being that Index Fund Shares are designed to track an
underlying index and Managed Fund Shares are based on an actively
managed portfolio that is not designed to track an index. As such, the
Exchange believes that using Rules 14.11(c) and (i) (collectively, the
``Current ETF Standards'') as the basis for proposed Rule 14.11(l) is
appropriate because they are generally designed to address the issues
associated with ETF Shares. The only substantial differences between
proposed Rule 14.11(l) and the Current ETF Standards that are not
otherwise required under Rule 6c-11 are as follows: (i) Proposed Rule
14.11(l) does not include the quantitative standards applicable to a
fund or an index that are included in the Current ETF Standards; (ii)
proposed Rule 14.11(l) does not include any requirements related to the
dissemination of a fund's Intraday Indicative Value; \11\ (iii) and
proposed Rule 14.11(l) does not include any specific requirements
related to ``firewalls'' that need to be in place between certain
parties associated with a fund and their affiliates. These differences
are discussed below.
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\11\ For purposes of this filing, the term ``Intraday Indicative
Value'' or ``IIV'' shall mean an intraday estimate of the value of a
share of each series of either Index Fund Shares or Managed Fund
Shares.
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Quantitative Standards
The Exchange believes that the proposal is designed to prevent
fraudulent and manipulative acts and practices because the Exchange
will perform ongoing surveillance of ETF Shares listed on the Exchange
in order to ensure compliance with Rule 6c-11 and the 1940 Act on an
ongoing basis. While proposed Rule 14.11(l) does not include the
quantitative requirements applicable to an ETF or an ETF's holdings or
underlying index that are included in Rules 14.(c) and 14.11(i),\12\
the Exchange believes that the manipulation concerns that such
standards are intended to address are otherwise mitigated by a
combination of the Exchange's surveillance procedures, the Exchange's
ability to halt trading under the proposed Rule 14.11(l)(4)(B)(ii), and
the Exchange's ability to suspend trading and commence delisting
proceedings under proposed Rule 14.11(l)(4)(B)(i). The Exchange also
believes that such concerns are further mitigated by enhancements to
the arbitrage mechanism that will come from Rule 6c-11, specifically
the additional flexibility provided to issuers of ETF Shares through
the use of custom baskets for creations and redemptions and the
additional information made available to the public through the
additional Disclosure Obligations.\13\ The Exchange believes that the
combination of these factors will act to keep ETF Shares trading near
the value of their underlying holdings and further mitigate concerns
around manipulation of ETF Shares on the Exchange without the inclusion
of quantitative standards.\14\ The Exchange will monitor for compliance
with the 1940 Act generally as well as Rule 6c-11 specifically in order
to ensure that the continued listing standards are being met.
Specifically, the Exchange plans to review the website of series of ETF
Shares in order to ensure that the disclosure requirements of Rule 6c-
11 are being met and to review the portfolio underlying series of ETF
Shares listed on the Exchange in order to ensure that certain
investment requirements and limitations under the 1940 Act are being
met. The Exchange will also employ numerous intraday alerts that will
notify Exchange personnel of trading activity throughout the day that
is potentially indicative of certain disclosures not being made
accurately or the presence of other unusual conditions or circumstances
that could be detrimental to the maintenance of a fair and orderly
market. As a backstop to the surveillances described above, the
Exchange also notes that Rule 14.11(a) and proposed Rule
14.11(l)(4)(A)(ii) would require an issuer of ETF Shares to notify the
Exchange of any failure to comply with Rule 6c-11 or the 1940 Act.
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\12\ The Exchange notes that Rules 14.11(c) and (i) include
certain quantitative standards related to the size, trading volume,
concentration, and diversity of the holdings of a series of Index
Fund Shares or Managed Fund Shares (the ``Holdings Standards'') as
well as related to the minimum number of beneficial holders of a
fund (the ``Distribution Standards''). The Exchange believes that to
the extent that manipulation concerns are mitigated based on the
factors described herein, such concerns are mitigated both as it
relates to the Holdings Standards and the Distribution Standards.
\13\ The Exchange notes that the Commission came to a similar
conclusion in several places in the Rule 6c-11 Release. See Rule 6c-
11 Release at 15-18; 60-61; 69-70; 78-79; 82-84; and 95-96.
\14\ The Exchange believes that this applies to all quantitative
standards, whether applicable to the portfolio holdings of a series
of ETF Shares or the distribution of the ETF Shares.
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To the extent that any of the requirements under Rule 6c-11 or the
1940 Act are not being met, the Exchange may halt trading in a series
of ETF Shares as provided in proposed Rule 14.11(l)(4)(B)(ii).\15\
Further, the Exchange may also suspend trading in and commence
delisting proceedings for a series of ETF Shares where such series is
not in compliance with the applicable listing standards or where the
Exchange believes that further dealings on the Exchange are
inadvisable.\16\
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\15\ Specifically, proposed Rule 14.11(l)(4)(B)(ii) states that
the Exchange may consider all relevant factors in exercising its
discretion to halt or suspend trading in a series of ETF Shares.
Trading may be halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable. These may include: (1) The extent to which certain
information about the ETF Shares that is required to be disclosed
under Rule 6c-11 of the Investment Company Act of 1940 is not being
made available; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present.
\16\ Specifically, proposed Rule 14.11(l)(4)(B)(i), provides
that if a series of ETF Shares is not in compliance with the
applicable listing requirements, including: (a) If the issuer of the
ETF Shares has failed to file any filings required by the Commission
or if the Exchange is aware that the issuer is not in compliance
with the requirements of Rule 6c-11 of the Investment Company Act of
1940; (b) if any of the other listing requirements set forth in this
Rule 14.11(l) are not continuously maintained; or (c) if such other
event shall occur or condition exists which, in the opinion of the
Exchange, makes further dealings on the Exchange inadvisable, the
Exchange will commence delisting procedures under Rule 14.12.
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Further, the Exchange also represents that its surveillance
procedures are adequate to properly monitor the trading of the ETF
Shares in all trading sessions and to deter and detect violations of
Exchange rules and applicable federal securities laws. Specifically,
the Exchange intends to utilize its existing surveillance procedures
applicable to derivative products, which are currently applicable to
Index Fund Shares and Managed Fund Shares, among other product types,
to monitor trading in ETF Shares. The Exchange or the Financial
Industry Regulatory Authority, Inc. (``FINRA''), on behalf of the
Exchange, will communicate as needed regarding trading in ETF Shares
and certain of their applicable underlying components with other
markets that are members of the Intermarket Surveillance Group
(``ISG'') or with which the Exchange has in place a comprehensive
surveillance sharing agreement. In addition, the Exchange may obtain
information regarding trading in ETF Shares and certain of their
applicable underlying components from markets and other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. Additionally, FINRA, on
behalf of the Exchange, is able to access, as needed, trade information
for certain
[[Page 64611]]
fixed income securities that may be held by a series of ETF Shares
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
FINRA also can access data obtained from the Municipal Securities
Rulemaking Board's (``MSRB'') Electronic Municipal Market Access
(``EMMA'') system relating to municipal bond trading activity for
surveillance purposes in connection with trading in a series of ETF
Shares, to the extent that a series of ETF Shares holds municipal
securities. Finally, as noted above, the issuer of a series of ETF
Shares will be required to comply with Rule 10A-3 under the Act for the
initial and continued listing of Exchange-Traded Fund Shares, as
provided under Rule 14.10(e)(1)(E).
Intraday Indicative Value
As described above, proposed Rule 14.11(l) does not include any
requirements related to the dissemination of an Intraday Indicative
Value. Both Rule 14.11(c) and Rule 14.11(i) include the requirement
that a series of Index Fund Shares and Managed Fund Shares,
respectively, disseminate and update an Intraday Indicative Value at
least every 15 seconds.\17\ Historically (and theoretically), the IIV
could provide valuable information about an ETF that would not
otherwise be available or easily calculable. However, as consistently
highlighted in the Rule 6c-11 Release, that is not reflective of the
current marketplace and the Commission has expressed concerns regarding
the accuracy of IIV estimates for certain ETFs. Specifically, the
Commission noted that an IIV may not accurately reflect the value of an
ETF that holds securities that trade less frequently as such IIV can be
stale or inaccurate.\18\ Additionally, the Commission indicated that
even in circumstances when an IIV may be reliable, retail investors do
not have easy access to free, publicly available IIV information.\19\
Further, in instances when IIV may be free and publicly available, it
can be delayed by up to 45 minutes.\20\
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\17\ See Rules 14.11(c)(3)(C), 14.11(c)(6)(A), and
14.11(c)(9)(B)(e) related to Index Fund Shares and Rules
14.11(i)(3)(C), 14.11(i)(4)(B)(i), 14.11(i)(4)(B)(iii)(b), and
14.11(i)(4)(B)(iv) related to Managed Fund Shares.
\18\ See Rule 6c-11 Release at 62.
\19\ See Id., at 66.
\20\ See Id.
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Aside from the fact that the disseminated IIV may provide investors
with stale or misleading data, the Commission also stated that market
makers and authorized participants typically calculate their own
intraday value of an ETF's portfolio with proprietary algorithms that
use an ETF's daily portfolio disclosure and available pricing
information.\21\ Such information allows those market participants to
support the arbitrage mechanism for ETFs. Therefore, as market
participants who engage in arbitrage typically calculate their own
intraday value of an ETF's portfolio based on the ETF's daily portfolio
disclosure and pricing information and use an IIV only as a secondary
check to their own calculation,\22\ the Commission noted that IIV was
not necessary to support the arbitrage mechanism.\23\ Given this,
combined with potential shortcomings of the IIV noted above, the
Commission concluded that ETFs will not be required to disseminate an
IIV under Rule 6c-11.\24\
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\21\ See Id., at 63.
\22\ See Id., at 63.
\23\ See Id., at 65.
\24\ See Id., at 61.
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The Exchange generally agrees with the limitations and shortcomings
of IIV described in the Rule 6c-11 Release. The Exchange further agrees
with the conclusion of the Adopting Release that the ``IIV is not
necessary to support the arbitrage mechanism for ETFs that provide
daily portfolio holdings disclosure.'' The transparency that comes from
daily portfolio holdings disclosure as required under Rule 6c-11
provides market participants with sufficient information to facilitate
the intraday valuation of ETF Shares. The Exchange notes that it is not
proposing to prohibit the dissemination of an IIV for a series of ETF
Shares and believes that there are certain instances in which the
dissemination of an IIV could provide valuable information to the
investing public. The Exchange is simply not proposing to require the
dissemination of such information.
As such, the Exchange believes that it is appropriate and
consistent with the Act to not include a requirement for the
dissemination of an IIV for a series of ETF Shares to be listed on the
Exchange.
Firewalls
Both Rule 14.11(c) and Rule 14.11(i) require under certain
circumstances the implementation of firewalls between certain
affiliates and related employees as well as policies and procedures
designed to prevent the dissemination of material non-public
information.\25\ The Exchange fully supports the rationale underlying
these rules, but generally agrees with the sentiment expressed by the
Commission in the Rule 6c-11 Release that existing federal securities
laws adequately address concerns about dissemination and misuse of
material non-public information.\26\ The Exchange also further agrees
that issuers of ETF Shares are likely to be in a position to best
understand the circumstances and relationships that could give rise to
misuse of material non-public information and can develop appropriate
measures to address them.\27\ As such, the Exchange is not proposing to
include firewall or material non-public information policies and
procedures requirements in the generic listing standards for ETF Shares
because it believes that such issues are sufficiently addressed by
existing federal securities laws.
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\25\ See Rules 14.11(c)(3)(B)(i) and (iii), Rules
14.11(c)(4)(C)(i) and (iii), Rules 14.11(c)(5)(A)(i) and (iii), and
Rule 14.11(7).
\26\ See 17 CFR 270.38a-1 (Rule 38a-1 under the 1940 Act)
(requiring funds to adopt policies and procedures reasonably
designed to prevent violation of federal securities laws); 17 CFR
270.17j-1(c)(1) (Rule 17j-1(c)(1) under the 1940 Act) (requiring
funds to adopt a code of ethics containing provisions designed to
prevent certain fund personnel (``access persons'') from misusing
information regarding fund transactions); Section 204A of the
Investment Advisers Act of 1940 (``Advisers Act'') (15 U.S.C. 80b-
204A) (requiring an adviser to adopt policies and procedures that
are reasonably designed, taking into account the nature of its
business, to prevent the misuse of material, non-public information
by the adviser or any associated person, in violation of the
Advisers Act or the Act, or the rules or regulations thereunder);
Section 15(g) of the Act (15 U.S.C. 78o(f)) (requiring a registered
broker or dealer to adopt policies and procedures reasonably
designed, taking into account the nature of the broker's or dealer's
business, to prevent the misuse of material, nonpublic information
by the broker or dealer or any person associated with the broker or
dealer, in violation of the Exchange Act or the rules or regulations
thereunder).
\27\ See Rule 6c-11 Release at 25.
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Discontinuing Quarterly Reporting for Managed Fund Shares
Finally, the Exchange is proposing to eliminate certain quarterly
reporting obligations related to the listing and trading of Managed
Fund Shares on the Exchange. In the order approving the Exchange's
proposal to adopt generic listing standards for Managed Fund
Shares,\28\ the Commission noted that the Exchange had represented that
``on a quarterly basis, the Exchange will provide a report to the
Commission staff that contains, for each ETF whose shares are
generically listed and traded under BATS Rule 14.11(i): (a) Symbol and
date of listing; (b) the number of active authorized participants
(``APs'') and a description of any failure by either a fund or an AP to
deliver promised baskets of shares, cash, or
[[Page 64612]]
cash and instruments in connection with creation or redemption orders;
and (c) a description of any failure by an ETF to comply with BATS Rule
14.11(i).'' \29\ This reporting requirement is not specifically
enumerated in Rule 14.11(i).
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\28\ See Securities Exchange Act Release No. 78396 (July 22,
2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-100) (the ``MFS
Approval Order'').
\29\ See MFS Approval Order at footnote 14.
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The Exchange has provided such information to the Commission on a
quarterly basis since the MFS Approval Order was issued in 2016. The
type of information provided in the reports was created to provide a
window into the creation and redemption process for Managed Fund Shares
in order to ensure that the arbitrage mechanism would work as expected
for products that were listed pursuant to the newly approved generic
listing standards. In the Rule 6c-11 Release, the Commission concluded
that ``the arbitrage mechanism for existing actively managed ETFs has
worked effectively with small deviations between market price and NAV
per share.'' \30\ The Exchange generally agrees with this conclusion
and, while such quarterly reports were useful when Managed Fund Shares
were first able to be listed pursuant to generic listing standards, the
Exchange believes that such a window into the creation and redemption
process for Managed Fund Shares no longer provides useful information
related to the prevention of manipulation or protection of investors
which it was originally designed to provide. Further, because the same
general types of information provided in those reports will be made
available under Rule 6c-11 directly from the issuers of such securities
the Exchange also believes that it is consistent with the Act to remove
this reporting obligation because it will be duplicative and no longer
necessary.
---------------------------------------------------------------------------
\30\ See Rule 6c-11 Release at 23.
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2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \31\ in general and Section 6(b)(5) of the Act \32\ 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.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f.
\32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that proposed Rule 14.11(l) is designed to
prevent fraudulent and manipulative acts and practices in that the
proposed rules relating to listing and trading ETF Shares on the
Exchange provide specific initial and continued listing criteria
required to be met by such securities. Proposed Rule 14.11(l)(4) sets
forth initial and continued listing criteria applicable to ETF Shares,
specifically providing that the Exchange may approve ETF Shares for
listing and/or trading (including pursuant to unlisted trading
privileges) on the Exchange pursuant to Rule 19b-4(e) under the Act so
long as such series of ETF Shares is eligible to operate in reliance on
Rule 6c-11 and meets all applicable requirements under such Rule 6c-11
upon initial listing and on a continuing basis. Proposed Rule
14.11(l)(4)(A)(i) provides that the Exchange will establish for each
series of ETF Shares a minimum number of shares required to be
outstanding at the time of commencement of trading on the Exchange.
Proposed Rule 14.11(l)(4)(A)(i) provides that the Exchange will obtain
a representation from the issuer of each series of ETF Shares stating
that the disclosures required under Rule 6c-11 of the Investment
Company Act of 1940 will be made available on a daily basis in
compliance with Rule 6c-11 and that the issuer will notify the Exchange
of any failure to do so.
Proposed Rule 14.11(l)(4)(B)(i) provides that the Exchange will
consider the suspension of trading in, and will commence delisting
proceedings under Rule 14.12 for, a series of ETF Shares under any of
the following circumstances: (a) If the issuer of the ETF Shares has
failed to file any filings required by the Commission or if the
Exchange is aware that the issuer is not in compliance with the
requirements of Rule 6c-11 of the Investment Company Act of 1940; (b)
if any of the other listing requirements set forth in this Rule
14.11(l) are not continuously maintained; or (c) if such other event
shall occur or condition exists which, in the opinion of the Exchange,
makes further dealings on the Exchange inadvisable. Proposed Rule
14.11(l)(4)(B)(ii) provides that the Exchange may consider all relevant
factors in exercising its discretion to halt or suspend trading in a
series of ETF Shares. Trading may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may include: (1) The extent to
which certain information about the ETF Shares that is required to be
disclosed under Rule 6c-11 is not being made available; or (2) whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. Finally, proposed
Rule 14.11(l)(4)(B)(iii) provides that, upon termination of an
investment company, the Exchange requires that ETF Shares issued in
connection with such entity be removed from Exchange listing.
The Exchange further believes that proposed Rule 14.11(l) is
designed to prevent fraudulent and manipulative acts and practices
because of the robust surveillances in place on the Exchange as
required under proposed Rule 14.11(l)(2)(C) along with the similarities
of proposed Rule 14.11(l) to the rules related to other securities that
are already listed and traded on the Exchange and which would qualify
as ETF Shares. Proposed Rule 14.11(l) is based in large part on Rules
14.11(c) and (i) related to the listing and trading of Index Fund
Shares and Managed Fund Shares on the Exchange, respectively, both of
which are issued under the 1940 Act and would qualify as ETF Shares
after Rule 6c-11 is effective. Rule 14.11(c) and 14.11(i) are very
similar, their primary difference being that Index Fund Shares are
designed to track an underlying index and Managed Fund Shares are based
on an actively managed portfolio that is not designed to track an
index. As such, the Exchange believes that using the Current ETF
Standards as the basis for proposed Rule 14.11(l) is appropriate
because they are generally designed to address the issues associated
with ETF Shares. The only substantial differences between proposed Rule
14.11(l) and the Current ETF Standards that are not otherwise required
under Rule 6c-11 are as follows: (i) proposed Rule 14.11(l) does not
include the quantitative standards applicable to a fund or an index
that are included in the Current ETF Standards; (ii) proposed Rule
14.11(l) does not include any requirements related to the dissemination
of a fund's Intraday Indicative Value; \33\ (iii) and proposed Rule
14.11(l) does not include any specific requirements related to
``firewalls'' that need to be in place between certain parties
associated with a fund and their affiliates.
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\33\ For purposes of this filing, the term ``Intraday Indicative
Value'' or ``IIV'' shall mean an intraday estimate of the value of a
share of each series of either Index Fund Shares or Managed Fund
Shares.
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Quantitative Standards
The Exchange believes that the proposal is designed to prevent
fraudulent and manipulative acts and practices because the Exchange
will perform ongoing surveillance of ETF
[[Page 64613]]
Shares listed on the Exchange in order to ensure compliance with Rule
6c-11 and the 1940 Act on an ongoing basis. While proposed Rule
14.11(l) does not include the quantitative requirements applicable to a
fund and a fund's holdings or underlying index that are included in
Rules 14.(c) and 14.11(i),\34\ the Exchange believes that the
manipulation concerns that such standards are intended to address are
otherwise mitigated by a combination of the Exchange's surveillance
procedures, the Exchange's ability to halt trading under the proposed
Rule 14.11(l)(4)(B)(ii), and the Exchange's ability to suspend trading
and commence delisting proceedings under proposed Rule
14.11(l)(4)(B)(i). The Exchange also believes that such concerns are
further mitigated by enhancements to the arbitrage mechanism that will
come from Rule 6c-11, specifically the additional flexibility provided
to issuers of ETF Shares through the use of custom baskets for
creations and redemptions and the additional information made available
to the public through the additional Disclosure Obligations.\35\ The
Exchange believes that the combination of these factors will act to
keep ETF Shares trading near the value of their underlying holdings and
further mitigate concerns around manipulation of ETF Shares on the
Exchange without the inclusion of quantitative standards.\36\ The
Exchange will monitor for compliance with the 1940 Act generally as
well as Rule 6c-11 specifically in order to ensure that the continued
listing standards are being met. Specifically, the Exchange plans to
review the website of series of ETF Shares in order to ensure that the
disclosure requirements of Rule 6c-11 are being met and to review the
portfolio underlying series of ETF Shares listed on the Exchange in
order to ensure that certain investment requirements and limitations
under the 1940 Act are being met. The Exchange will also employ
numerous intraday alerts that will notify Exchange personnel of trading
activity throughout the day that is potentially indicative of certain
disclosures not being made accurately or the presence of other unusual
conditions or circumstances that could be detrimental to the
maintenance of a fair and orderly market. As a backstop to the
surveillances described above, the Exchange also notes that Rule
14.11(a) and proposed Rule 14.11(l)(4)(A)(ii) would require an issuer
of ETF Shares to notify the Exchange of any failure to comply with Rule
6c-11 or the 1940 Act.
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\34\ The Exchange notes that Rules 14.11(c) and (i) include
certain quantitative standards related to the size, trading volume,
concentration, and diversity of the holdings of a series of Index
Fund Shares or Managed Fund Shares (the ``Holdings Standards'') as
well as related to the minimum number of beneficial holders of a
fund (the ``Distribution Standards''). The Exchange believes that to
the extent that manipulation concerns are mitigated based on the
factors described herein, such concerns are mitigated both as it
relates to the Holdings Standards and the Distribution Standards.
\35\ The Exchange notes that the Commission came to a similar
conclusion in several places in the Rule 6c-11 Release. See Rule 6c-
11 Release at 15-18; 60-61; 69-70; 78-79; 82-84; and 95-96.
\36\ The Exchange believes that this applies to all quantitative
standards, whether applicable to the portfolio holdings of a series
of ETF Shares or the distribution of the ETF Shares.
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To the extent that any of the requirements under Rule 6c-11 or the
1940 Act are not being met, the Exchange may halt trading in a series
of ETF Shares as provided in proposed Rule 14.11(l)(4)(B)(ii).\37\
Further, the Exchange may also suspend trading in and commence
delisting proceedings for a series of ETF Shares where such series is
not in compliance with the applicable listing standards or where the
Exchange believes that further dealings on the Exchange are
inadvisable.\38\
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\37\ Specifically, proposed Rule 14.11(l)(4)(B)(ii) states that
the Exchange may consider all relevant factors in exercising its
discretion to halt or suspend trading in a series of ETF Shares.
Trading may be halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable. These may include: (1) The extent to which certain
information about the ETF Shares that is required to be disclosed
under Rule 6c-11 of the Investment Company Act of 1940 is not being
made available; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present.
\38\ Specifically, proposed Rule 14.11(l)(4)(B)(i), provides
that if a series of ETF Shares is not in compliance with the
applicable listing requirements, including: (a) If the issuer of the
ETF Shares has failed to file any filings required by the Commission
or if the Exchange is aware that the issuer is not in compliance
with the requirements of Rule 6c-11 of the Investment Company Act of
1940; (b) if any of the other listing requirements set forth in this
Rule 14.11(l) are not continuously maintained; or (c) if such other
event shall occur or condition exists which, in the opinion of the
Exchange, makes further dealings on the Exchange inadvisable, the
Exchange will commence delisting procedures under Rule 14.12.
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Further, the Exchange also represents that its surveillance
procedures are adequate to properly monitor the trading of the ETF
Shares in all trading sessions and to deter and detect violations of
Exchange rules. Specifically, the Exchange intends to utilize its
existing surveillance procedures applicable to derivative products,
which are currently applicable to Index Fund Shares and Managed Fund
Shares, among other product types, to monitor trading in ETF Shares.
The Exchange or FINRA, on behalf of the Exchange, will communicate as
needed regarding trading in ETF Shares and certain of their applicable
underlying components with other markets that are members of the ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement. In addition, the Exchange may obtain information
regarding trading in ETF Shares and certain of their applicable
underlying components from markets and other entities that are members
of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement. Additionally, FINRA, on behalf of the
Exchange, is able to access, as needed, trade information for certain
fixed income securities that may be held by a series of ETF Shares
reported to FINRA's TRACE. FINRA also can access data obtained from the
MSRB's EMMA system relating to municipal bond trading activity for
surveillance purposes in connection with trading in a series of ETF
Shares, to the extent that a series of ETF Shares holds municipal
securities. Finally, as noted above, the issuer of a series of ETF
Shares will be required to comply with Rule 10A-3 under the Act for the
initial and continued listing of Exchange-Traded Fund Shares, as
provided under Rule 14.10(e)(1)(E).
Intraday Indicative Value
As described above, proposed Rule 14.11(l) does not include any
requirements related to the dissemination of an Intraday Indicative
Value. Both Rule 14.11(c) and Rule 14.11(i) include the requirement
that a series of Index Fund Shares and Managed Fund Shares,
respectively, disseminate and update an Intraday Indicative Value at
least every 15 seconds.\39\ Historically (and theoretically), the IIV
could provide valuable information about an ETF that would not
otherwise be available or easily calculable. However, as consistently
highlighted in the Rule 6c-11 Release, that is not reflective of the
current marketplace and the Commission has expressed concerns regarding
the accuracy of IIV estimates for certain ETFs. Specifically, the
Commission noted that an IIV may not accurately reflect the value of an
ETF that holds securities that trade less frequently as such IIV can be
stale or
[[Page 64614]]
inaccurate.\40\ Additionally, the Commission indicated that even in
circumstances when an IIV may be reliable, retail investors do not have
easy access to free, publicly available IIV information.\41\ Further,
in instances when IIV may be free and publicly available, it can be
delayed by up to 45 minutes.\42\
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\39\ See Rules 14.11(c)(3)(C), 14.11(c)(6)(A), and
14.11(c)(9)(B)(e) related to Index Fund Shares and Rules
14.11(i)(3)(C), 14.11(i)(4)(B)(i), 14.11(i)(4)(B)(iii)(b), and
14.11(i)(4)(B)(iv) related to Managed Fund Shares.
\40\ See Rule 6c-11 Release at 62.
\41\ See Id., at 66.
\42\ See Id.
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Aside from the fact that the disseminated IIV may provide investors
with stale or misleading data, the Commission also stated that market
makers and authorized participants typically calculate their own
intraday value of an ETF's portfolio with proprietary algorithms that
use an ETF's daily portfolio disclosure and available pricing
information.\43\ Such information allows those market participants to
support the arbitrage mechanism for ETFs. Therefore, as market
participants who engage in arbitrage typically calculate their own
intraday value of an ETF's portfolio based on the ETF's daily portfolio
disclosure and pricing information and use an IIV only as a secondary
check to their own calculation,\44\ the Commission noted that IIV was
not necessary to support the arbitrage mechanism.\45\ Given this,
combined with potential shortcomings of the IIV noted above, the
Commission concluded that ETFs will not be required to disseminate an
IIV under Rule 6c-11.\46\
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\43\ See Id., at 63.
\44\ See Id., at 63.
\45\ See Id., at 65.
\46\ See Id., at 61.
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The Exchange generally agrees with the limitations and shortcomings
of IIV described in the Rule 6c-11 Release. The Exchange further agrees
with the conclusion of the Adopting Release that the ``IIV is not
necessary to support the arbitrage mechanism for ETFs that provide
daily portfolio holdings disclosure.'' The transparency that comes from
daily portfolio holdings disclosure as required under Rule 6c-11
provides market participants with sufficient information to facilitate
the intraday valuation of ETF Shares. The Exchange notes that it is not
proposing to prohibit the dissemination of an IIV for a series of ETF
Shares and believes that there are certain instances in which the
dissemination of an IIV could provide valuable information to the
investing public. The Exchange is simply not proposing to require the
dissemination of such information.
As such, the Exchange believes that it is appropriate and
consistent with the Act to not include a requirement for the
dissemination of an IIV for a series of ETF Shares to be listed on the
Exchange.
Firewalls
Both Rule 14.11(c) and Rule 14.11(i) require under certain
circumstances the implementation of firewalls between certain
affiliates and related employees as well as policies and procedures
designed to prevent the dissemination of material non-public
information.\47\ The Exchange fully supports the rationale underlying
these rules, but generally agrees with the sentiment expressed by the
Commission in the Rule 6c-11 Release that existing federal securities
laws adequately address concerns about dissemination and misuse of
material non-public information.\48\ The Exchange also further agrees
that issuers of ETF Shares are likely to be in a position to best
understand the circumstances and relationships that could give rise to
misuse of material non-public information and can develop appropriate
measures to address them.\49\ As such, the Exchange is not proposing to
include firewall or material non-public information policies and
procedures requirements in the generic listing standards for ETF Shares
because it believes that such issues are sufficiently addressed by
existing federal securities laws. With this in mind, the Exchange
further believes that proposed Rule 14.11(l) is consistent with the Act
and is designed to prevent fraudulent and manipulative acts and
practices.
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\47\ See Rules 14.11(c)(3)(B)(i) and (iii), Rules
14.11(c)(4)(C)(i) and (iii), Rules 14.11(c)(5)(A)(i) and (iii), and
Rule 14.11(7).
\48\ See 17 CFR 270.38a-1 (Rule 38a-1 under the 1940 Act)
(requiring funds to adopt policies and procedures reasonably
designed to prevent violation of federal securities laws); 17 CFR
270.17j-1(c)(1) (Rule 17j-1(c)(1) under the 1940 Act) (requiring
funds to adopt a code of ethics containing provisions designed to
prevent certain fund personnel (``access persons'') from misusing
information regarding fund transactions); Section 204A of the
Investment Advisers Act of 1940 (``Advisers Act'') (15 U.S.C. 80b-
204A) (requiring an adviser to adopt policies and procedures that
are reasonably designed, taking into account the nature of its
business, to prevent the misuse of material, non-public information
by the adviser or any associated person, in violation of the
Advisers Act or the Act, or the rules or regulations thereunder);
Section 15(g) of the Act (15 U.S.C. 78o(f)) (requiring a registered
broker or dealer to adopt policies and procedures reasonably
designed, taking into account the nature of the broker's or dealer's
business, to prevent the misuse of material, nonpublic information
by the broker or dealer or any person associated with the broker or
dealer, in violation of the Exchange Act or the rules or regulations
thereunder).
\49\ See Rule 6c-11 Release at 25.
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The Exchange also believes that 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 from the issuer of each series of ETF Shares
stating that the Disclosure Requirements under Rule 6c-11 of the
Investment Company Act of 1940 will be made available on a daily basis
in compliance with Rule 6c-11 and that the issuer will notify the
Exchange of any failure to do so. In addition, a large amount of
information will be publicly available regarding the Funds and the
Shares, thereby promoting market transparency. Quotation and last sale
information for ETF Shares will be available via the CTA high-speed
line. The website for each series of ETF Shares will include a form of
the 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 in the series of ETF
Shares. As noted above, series of ETF Shares will not be required to
publicly disseminate an IIV. The Exchange continues to believe that
this proposal is consistent with the Act and is designed to promote
just and equitable principles of trade and to protect investors and the
public interest because the transparency that comes from daily
portfolio holdings disclosure as required under Rule 6c-11 provides
market participants with sufficient information to facilitate the
intraday valuation of ETF Shares, rendering the dissemination of the
IIV unnecessary.
The Exchange notes that it is not proposing to prohibit the
dissemination of an IIV for a series of ETF Shares and believes that
there could be certain instances in which the dissemination of an IIV
could provide valuable information to the investing public. The
Exchange proposes to leave that decision to an issuer of ETF Shares and
is simply not proposing to require the dissemination of an IIV.
Based on the foregoing discussion regarding proposed Rule 14.11(l)
and its similarities to and differences between the Current ETF
Standards, the Exchange believes that the proposal is consistent with
the Act and is designed to prevent fraudulent and manipulative
transactions and that the manipulation concerns that the quantitative
standards, the IIV, and the firewall requirements are designed to
address are otherwise mitigated by the proposal and the new Disclosure
Obligations and flexibility under Rule 6c-11.
[[Page 64615]]
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
ETF Shares in a manner that will enhance competition among market
participants, to the benefit of investors and the marketplace. The
Exchange believes that approval of this proposal will streamline
current procedures, reduce the costs and timeline associated with
bringing ETFs to market, and provide significantly greater regulatory
certainty to potential issuers considering bringing ETF Shares to
market, thereby enhancing competition among ETF issuers and reducing
costs for investors.\50\
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\50\ In approving the rule, the Commission stated that the
``rule will modernize the regulatory framework for ETFs to reflect
our more than two decades of experience with these investment
products. The rule is designed to further important Commission
objectives, including establishing a consistent, transparent, and
efficient regulatory framework for ETFs and facilitating greater
competition and innovation among ETFs.'' Rule 6c-11 Release, at
57163. The Commission also stated the following regarding the rule's
impact: ``We believe rule 6c-11 will establish a regulatory
framework that: (1) Reduces the expense and delay currently
associated with forming and operating certain ETFs unable to rely on
existing orders; and (2) creates a level playing field for ETFs that
can rely on the rule. As such, the rule will enable increased
product competition among certain ETF providers, which can lead to
lower fees for investors, encourage financial innovation, and
increase investor choice in the ETF market.'' Rule 6c-11 Release, at
57204.
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The Exchange also believes that the non-substantive change to amend
Rule 14.10(e)(1)(E) in order to add ETF Shares to a list of product
types listed on the Exchange, including Index Fund Shares and Managed
Fund Shares, that are exempted from the Audit Committee requirements
set forth in Rule 14.10(c)(3), except for the applicable requirements
of SEC Rule 10A-3 because it is a non-substantive change meant only to
subject ETF Shares to the same corporate governance requirements
currently applicable to Index Fund Shares and Managed Fund Shares. The
Exchange also believes that the non-substantive change to amend Rule
14.11(c)(3)(A)(i)(a) in order to include ETF Shares in the definition
of Derivative Securities Products is also a non-substantive change
because it is just intended to add ETF Shares to a definition that
includes Index Fund Shares and Managed Fund Shares in order to make
sure that ETF Shares are treated consistently with Index Fund Shares
and Managed Fund Shares throughout the Exchange's rules.
Finally, the Exchange believes that eliminating the quarterly
reporting requirement for Managed Fund Shares is designed to prevent
fraudulent and manipulative acts and practices and, in general, to
protect investors and the public interest because the report no longer
serves the purpose for which it was originally intended. The type of
information provided in the reports was created to provide a window
into the creation and redemption process for Managed Fund Shares in
order to ensure that the arbitrage mechanism would work as expected for
products that were listed pursuant to the newly approved generic
listing standards. In the Rule 6c-11 Release, the Commission concluded
that ``the arbitrage mechanism for existing actively managed ETFs has
worked effectively with small deviations between market price and NAV
per share.'' \51\ The Exchange generally agrees with this conclusion
and, while such quarterly reports were useful when Managed Fund Shares
were first able to be listed pursuant to generic listing standards, the
Exchange believes that such a window into the creation and redemption
process for Managed Fund Shares no longer provides useful information
related to the prevention of manipulation or protection of investors
which it was originally designed to provide. Further, because the same
general types of information provided in those reports will be made
available under Rule 6c-11 directly from the issuers of such securities
the Exchange also believes that it is consistent with the Act to remove
this reporting obligation because it will be duplicative and no longer
necessary.
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\51\ See Rule 6c-11 Release at 23.
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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. To the contrary, the Exchange
believes that the proposed rule change would enhance competition by
streamlining current procedures, reducing the costs and timeline
associated with bringing ETFs to market, and providing significantly
greater regulatory certainty to potential issuers considering bringing
ETF Shares to market, all of which the Exchange believes would enhance
competition among ETF issuers and reduce costs for investors. The
Exchange also believes that the proposed change would make enhance
competition among ETF Shares by ensuring the application of uniform
listing standards.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2019-097 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-2019-097. 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
[[Page 64616]]
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-2019-097, and should
be submitted on or before December 13, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\52\
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\52\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-25317 Filed 11-21-19; 8:45 am]
BILLING CODE 8011-01-P
