Self-Regulatory Organizations; Long-Term Stock Exchange; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Trading of Exchange Traded Products on an Unlisted Trading Privileges Basis, 17148-17151 [2020-06301]

Download as PDF 17148 Federal Register / Vol. 85, No. 59 / Thursday, March 26, 2020 / Notices based index options with similar expirations. This proposal will harmonize Phlx’s index options and equity and ETF options rules, with respect to Long-Term Option Series in index options. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 16 and Rule 19b– 4(f)(6) thereunder.17 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 18 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 19 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the proposed rule change may become operative upon filing. As the proposed rule change raises no novel issues and allows Phlx, with respect to Long-Term Option Series in index options, to harmonize its index options and equity and ETF options rules, the Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the operative delay and designates the proposed rule change operative upon filing.20 16 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. 18 17 CFR 240.19b–4(f)(6). 19 17 CFR 240.19b–4(f)(6)(iii). 20 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). lotter on DSKBCFDHB2PROD with NOTICES 17 17 VerDate Sep<11>2014 17:20 Mar 25, 2020 Jkt 250001 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– Phlx–2020–10 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–Phlx–2020–10. 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 (http://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 a.m. and 3 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 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 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–Phlx– 2020–10, and should be submitted on or before April 16, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–06390 Filed 3–25–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88439; File No. SR–LTSE– 2020–06] Self-Regulatory Organizations; LongTerm Stock Exchange; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Trading of Exchange Traded Products on an Unlisted Trading Privileges Basis March 20, 2020. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on March 11, 2020, Long-Term Stock Exchange (‘‘LTSE’’ or the ‘‘Exchange’’) 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 selfregulatory organization. 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 LTSE proposes a rule change to adopt rules relating to the trading of Exchange Traded Products (‘‘ETPs’’) on an unlisted trading privileges (‘‘UTP’’) basis. The text of the proposed rule change is available at the Exchange’s website at https://longtermstockexchange.com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 21 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 E:\FR\FM\26MRN1.SGM 26MRN1 Federal Register / Vol. 85, No. 59 / Thursday, March 26, 2020 / Notices II. Self-Regulatory Organization’s Statement on the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. lotter on DSKBCFDHB2PROD with NOTICES A. Self-Regulatory Organization’s Statement on the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to adopt rules to allow for trading securities on a UTP basis. The Exchange proposes to adopt LTSE Rule 14.350, which would address securities traded pursuant to UTP and would set standards for certain equity derivative securities that are identical to the rules of other equity exchanges,4 but for changes to the terminology used by the Exchange (i.e., ‘‘Member’’ instead of ‘‘ETP Holder’’) and the placement of two definitions directly within the rule (i.e., the definitions of ‘‘Exchange Traded Product’’ and ‘‘UTP Exchange Traded Product’’ in proposed Rule 14.350(b)). Proposed Rule 14.350(a) would allow the Exchange to extend UTP to any security that is an NMS Stock (as defined in Rule 600 under Regulation NMS) that is listed on another national securities exchange or with respect to which UTP may otherwise be extended in accordance with Section 12(f) of the Exchange Act.5 Any such security to which UTP is extended would be subject to all of the Exchange’s rules applicable to trading on the Exchange, unless otherwise noted. Proposed Rule 14.350(b) would adopt a definition of ‘‘Exchange Traded Product’’ to mean a security that meets the definition of ‘‘derivative securities product’’ in Rule 19b–4(e) under the Exchange Act. The proposed rule also would adopt a definition of ‘‘UTP Exchange Traded Product’’ to mean one of the following Exchange Traded Products that trades on the Exchange pursuant to unlisted trading privileges: Equity Linked Notes, Investment 4 See NYSE National Rule 5.1; see also Securities Exchange Act Release No. 83289 (May 17, 2018), 83 FR 23968 (May 23, 2018) (SR–NYSENAT–2018–02) (approving NYSE National Rule 5.1). 5 15 U.S.C. 78l(f). See also 17 CFR 242.600. VerDate Sep<11>2014 17:20 Mar 25, 2020 Jkt 250001 Company Units, Index-Linked Exchangeable Notes, Equity Gold Shares, Equity Index-Linked Securities, Commodity-Linked Securities, Currency-Linked Securities, FixedIncome Index-Linked Securities, Futures-Linked Securities, MultifactorIndex-Linked Securities, Trust Certificates, Currency and Index Warrants, Portfolio Depository Receipts, Trust Issued Receipts, CommodityBased Trust Shares, Currency Trust Shares, Commodity Index Trust Shares, Commodity Futures Trust Shares, Partnership Units, Paired Trust Shares, Trust Units, Managed Fund Shares, and Managed Trust Securities.6 Any UTP Security 7 that is a UTP Exchange Traded Product would be subject to the additional requirements set forth in the proposed subsections of Rule 14.350(b). Specifically, proposed Rule 14.350(b)(1) would provide that the Exchange distribute an information circular prior to the commencement of trading in each UTP Exchange Traded Product that generally includes the same information as is contained in the information circular provided by the listing exchange, including (a) the special risks of trading the new Exchange Traded Product, (b) the Exchange’s rules that apply to the new Exchange Traded Product, and (c) information about the dissemination of value of the underlying assets or indices. Proposed Rule 14.350(b)(2)(A) would set forth requirements regarding prospectus delivery requirements. Members would be subject to the prospectus delivery requirements under the Securities Act of 1933, unless the UTP Exchange Traded Product is the subject of an order by the Securities and Exchange Commission exempting the product from certain prospectus delivery requirements under Section 24(d) of the Investment Company Act of 1940 8 and the product is not otherwise subject to prospectus delivery requirements under the Securities Act of 1933. Proposed Rule 14.350(b)(2)(B) would require the Exchange to inform Members of the application of the provisions of this subparagraph to UTP Exchange Traded Products by means of 6 The terms ‘‘Exchange Traded Product’’ and ‘‘UTP Exchange Traded Product’’ are identical to those terms as they are used in NYSE National Rule 5.1 and defined in NYSE National Rule 1.1(m). See supra text accompanying note 4. 7 ‘‘UTP Security’’ is defined as ‘‘any security that is not listed on the Exchange, but is traded on the Exchange pursuant to unlisted trading privileges.’’ LTSE Rule 1.160(vv). 8 15 U.S.C. 80a–24. PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 17149 an information circular. It also would require the Exchange to require that a Member of the Exchange provide each purchaser of UTP Exchange Traded Products a written description of the terms and characteristics of those securities, in a form approved by the Exchange or prepared by the openended management company issuing such securities, not later than the time a confirmation of the first transaction in such securities is delivered to the purchaser. In addition, a Member would need to include a written description of the terms and characteristics of these securities with any sales material relating to UTP Exchange Traded Products 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 the UTP Exchange Traded Products as an investment vehicle would need to include a statement substantially in the following form: ‘‘A circular describing the terms and characteristics of [the UTP Exchange Traded Products] has been prepared by the [open-ended management investment company name] and is available from your broker. It is recommended that you obtain and review such circular before purchasing [the UTP Exchange Traded Products].’’ A Member carrying an omnibus account for a non-Member would be required to inform such non-Member that execution of an order to purchase UTP Exchange Traded Products for such omnibus account would be deemed to constitute an agreement by the non-Member to make such written description available to its customers on the same terms that are directly applicable to the Member under this proposed rule. Proposed Rule 14.350(b)(2)(C) would provide that, upon request of a customer, a Member would need to provide to the customer a prospectus for the particular UTP Exchange Traded Product. Proposed Rule 14.350(b)(3) would govern trading halts and would provide that the Exchange would halt trading in a UTP Exchange Traded Product as provided for in Exchange Rule 11.271. Nothing in proposed Rule 14.350(b)(3) would be intended to limit the power of the Exchange under its rules or procedures with respect to its ability to suspend trading in any securities if such suspension is necessary for the protection of investors or in the public interest. Proposed Rule 14.350(b)(4) would set forth restrictions on Members acting as Market Makers on the Exchange in a UTP Exchange Traded Product that derives its value from one or more E:\FR\FM\26MRN1.SGM 26MRN1 lotter on DSKBCFDHB2PROD with NOTICES 17150 Federal Register / Vol. 85, No. 59 / Thursday, March 26, 2020 / Notices currencies, commodities, or derivatives based on one or more currencies or commodities, or is based on a basket or index composed of currencies or commodities (collectively, ‘‘Reference Assets’’). First, under proposed Rule 14.350(b)(A), Market Makers would need to file with the Exchange, in a manner prescribed by the Exchange, and keep current a list identifying all accounts for trading the underlying physical asset or commodity, related futures or options on futures, or any other related derivatives (collectively with Reference Assets, ‘‘Related Instruments’’), which the Member acting as a registered Market Maker on the Exchange may have or over which it may exercise investment discretion. No Market Maker would be permitted to trade in the underlying physical asset or commodity, related futures or options on futures, or any other related derivatives, in an account in which a Member acting as a registered Market Maker on the Exchange, directly or indirectly, controls trading activities, or has a direct interest in the profits or losses thereof, which has not been reported to the Exchange as required by proposed Rule 14.350. Second, under proposed Rule 14.350(b)(B), a Market Maker on the Exchange would, in a manner prescribed by the Exchange, be required to file with the Exchange and keep current a list identifying any accounts (‘‘Related Instrument Trading Accounts’’) for which Related Instruments are traded: (i) In which the Market Maker holds an interest; (ii) over which it has investment discretion; or (iii) in which it shares in the profits and/or losses. A Market Maker on the Exchange would not be permitted to have an interest in, exercise investment discretion over, or share in the profits and/or losses of a Related Instrument Trading Account that has not been reported to the Exchange as required by proposed Rule 14.350. Third, under proposed Rule 14.350(b)(C), in addition to the existing obligations under Exchange rules regarding the production of books and records, a Market Maker on the Exchange would be required to, upon request by the Exchange, make available to the Exchange any books, records, or other information pertaining to any Related Instrument Trading Account or to the account of any registered or nonregistered employee affiliated with the Market Maker on the Exchange for which Related Instruments are traded. Fourth, under proposed Rule 14.350(b)(D), a Market Maker on the Exchange would not be allowed to use VerDate Sep<11>2014 17:20 Mar 25, 2020 Jkt 250001 any material nonpublic information in connection with trading a Related Instrument. Finally, proposed Rule 14.350(b)(5) would provide that the Exchange will enter into comprehensive surveillance sharing agreements with markets that trade components of the index or portfolio on which the UTP Exchange Traded Product is based to the same extent as the listing exchange’s rules require the listing exchange to enter into comprehensive surveillance sharing agreements with such markets. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,9 in general, and furthers the objectives of Section 6(b)(5) of the Act,10 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. Specifically, the Exchange believes that proposed Rule 14.350 would remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, would protect investors and the public interest by providing for the trading of securities, including UTP Exchange Traded Products, on the Exchange pursuant to UTP, subject to consistent and reasonable standards. Accordingly, the proposed rule change would contribute to the protection of investors and the public interest because it may provide a better trading environment for investors and, generally, encourage greater competition between markets. The proposal is designed to remove impediments to and perfect the mechanism of a free and open market and a national market system by adopting rules that will ultimately lead to the trading pursuant to UTP of the proposed products on the Exchange, just as they are currently traded on other exchanges. The proposed changes do nothing more than match Exchange rules with what is currently available on other exchanges.11 The Exchange believes that by conforming its rules and allowing trading opportunities on the U.S.C. 78f. U.S.C. 78f(b)(5). 11 See supra note 4. Exchange that are already allowed by rule on another market, the proposed rule change would offer another venue for trading Exchange Traded Products and thereby promote broader competition among exchanges. The Exchange also believes that individuals and entities that are allowed to make markets on the Exchange in the proposed new products should enhance competition within the mechanism of a free and open market and a national market system, and customers and other investors in the national market system should benefit from more depth and liquidity in the market for the proposed new products. The Exchange believes that proposed Rule 14.350, which would enumerate the categories of UTP Exchange Traded Products that the Exchange proposes to trade and would specify additional requirements relating to UTP Exchange Traded Products, would ensure the maintenance of a fair and orderly market and provide for mechanisms for the regulatory oversight of securities trading on a UTP basis on the Exchange, in compliance with Rule 12f–5 under the Act.12 The Exchange also believes that the proposed rule change supports the principles of Section 11A(a)(1) of the Act 13 in that it seeks to ensure the economically efficient execution of securities transactions and fair competition among brokers and dealers, and among exchange markets. The proposed rule change also supports the principles of Section 12(f) of the Act, which govern the trading of securities pursuant to a grant of unlisted trading privileges consistent with the maintenance of fair and orderly markets, the protection of investors and the public interest, and the impact of extending the existing markets for such securities. By providing for the trading of securities on the Exchange on a UTP basis, the Exchange believes its proposal will lead to the addition of liquidity to the broader market for these securities and to increased competition among the existing group of liquidity providers. The Exchange also believes that, by so doing, the proposed rule change would encourage the additional utilization of, and interaction with, the exchange market, and provide market participants with improved price discovery, increased liquidity, more competitive quotes, and greater price improvement for securities traded pursuant to UTP. The Exchange further believes that enhancing liquidity by trading securities 9 15 10 15 PO 00000 Frm 00110 Fmt 4703 12 17 13 15 Sfmt 4703 E:\FR\FM\26MRN1.SGM CFR 240.12f–5. U.S.C. 78k–1(a)(1). 26MRN1 Federal Register / Vol. 85, No. 59 / Thursday, March 26, 2020 / Notices on a UTP basis would help raise investors’ confidence in the fairness of the market, generally, and their transactions, in particular. As such, the general UTP trading rule would foster cooperation and coordination with persons engaged in facilitating securities transactions, enhance the mechanism of a free and open market, and promote fair and orderly markets in securities on the Exchange. B. Self-Regulatory Organization’s Statement on Burden on Competition LTSE does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). 16 15 U.S.C. 78s(b)(3)(A). 17 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. lotter on DSKBCFDHB2PROD with NOTICES 15 17 VerDate Sep<11>2014 17:20 Mar 25, 2020 Jkt 250001 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– LTSE–2020–06 on the subject line. Paper Comments III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 14 and Rule 19b–4(f)(6) thereunder.15 Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, it has become effective pursuant to Section 19(b)(3)(A) of the Act 16 and Rule 19b– 4(f)(6) thereunder.17 At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such 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 14 15 under Section 19(b)(2)(B) 18 of the Act to determine whether the proposed rule change should be approved or disapproved. • 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–LTSE–2020–06. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–LTSE–2020–06 and should 18 15 PO 00000 U.S.C. 78s(b)(2)(B). Frm 00111 Fmt 4703 Sfmt 4703 17151 be submitted on or before April 16, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–06301 Filed 3–25–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88446; File No. SR– CboeEDGA–2020–003] Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Designation of Longer Period for Commission Action on Proposed Rule Change To Amend Certain Rules Within Rules 4.5 Through 4.16, Which Contains the Exchange’s Compliance Rule (‘‘Compliance Rule’’) Regarding the National Market System Plan Governing the Consolidated Audit Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’), To Be Consistent With Certain Proposed Amendments To and Exemptions From the CAT NMS Plan as Well as To Facilitate the Retirement of Certain Existing Regulatory Systems March 20, 2020. On January 22, 2020, Cboe EDGA Exchange, Inc. (‘‘EDGA’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to amend the Exchange’s compliance rule regarding the National Market System Plan Governing the Consolidated Audit Trail. The proposed rule change was published for comment in the Federal Register on February 5, 2020.3 The Commission has received no comment letters on the proposed rule change. Section 19(b)(2) of the Act 4 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 88102 (January 30, 2020), 85 FR 6659. 4 15 U.S.C. 78s(b)(2). 1 15 E:\FR\FM\26MRN1.SGM 26MRN1

Agencies

[Federal Register Volume 85, Number 59 (Thursday, March 26, 2020)]
[Notices]
[Pages 17148-17151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06301]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88439; File No. SR-LTSE-2020-06]


Self-Regulatory Organizations; Long-Term Stock Exchange; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to the Trading of Exchange Traded Products on an Unlisted Trading 
Privileges Basis

March 20, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on March 11, 2020, Long-Term Stock Exchange (``LTSE'' or 
the ``Exchange'') 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 self-
regulatory organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    LTSE proposes a rule change to adopt rules relating to the trading 
of Exchange Traded Products (``ETPs'') on an unlisted trading 
privileges (``UTP'') basis.
    The text of the proposed rule change is available at the Exchange's 
website at https://longtermstockexchange.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

[[Page 17149]]

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

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

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

1. Purpose
    The Exchange proposes to adopt rules to allow for trading 
securities on a UTP basis. The Exchange proposes to adopt LTSE Rule 
14.350, which would address securities traded pursuant to UTP and would 
set standards for certain equity derivative securities that are 
identical to the rules of other equity exchanges,\4\ but for changes to 
the terminology used by the Exchange (i.e., ``Member'' instead of ``ETP 
Holder'') and the placement of two definitions directly within the rule 
(i.e., the definitions of ``Exchange Traded Product'' and ``UTP 
Exchange Traded Product'' in proposed Rule 14.350(b)).
---------------------------------------------------------------------------

    \4\ See NYSE National Rule 5.1; see also Securities Exchange Act 
Release No. 83289 (May 17, 2018), 83 FR 23968 (May 23, 2018) (SR-
NYSENAT-2018-02) (approving NYSE National Rule 5.1).
---------------------------------------------------------------------------

    Proposed Rule 14.350(a) would allow the Exchange to extend UTP to 
any security that is an NMS Stock (as defined in Rule 600 under 
Regulation NMS) that is listed on another national securities exchange 
or with respect to which UTP may otherwise be extended in accordance 
with Section 12(f) of the Exchange Act.\5\ Any such security to which 
UTP is extended would be subject to all of the Exchange's rules 
applicable to trading on the Exchange, unless otherwise noted.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78l(f). See also 17 CFR 242.600.
---------------------------------------------------------------------------

    Proposed Rule 14.350(b) would adopt a definition of ``Exchange 
Traded Product'' to mean a security that meets the definition of 
``derivative securities product'' in Rule 19b-4(e) under the Exchange 
Act. The proposed rule also would adopt a definition of ``UTP Exchange 
Traded Product'' to mean one of the following Exchange Traded Products 
that trades on the Exchange pursuant to unlisted trading privileges: 
Equity Linked Notes, Investment Company Units, Index-Linked 
Exchangeable Notes, Equity Gold Shares, Equity Index-Linked Securities, 
Commodity-Linked Securities, Currency-Linked Securities, Fixed-Income 
Index-Linked Securities, Futures-Linked Securities, Multifactor-Index-
Linked Securities, Trust Certificates, Currency and Index Warrants, 
Portfolio Depository Receipts, Trust Issued Receipts, Commodity-Based 
Trust Shares, Currency Trust Shares, Commodity Index Trust Shares, 
Commodity Futures Trust Shares, Partnership Units, Paired Trust Shares, 
Trust Units, Managed Fund Shares, and Managed Trust Securities.\6\
---------------------------------------------------------------------------

    \6\ The terms ``Exchange Traded Product'' and ``UTP Exchange 
Traded Product'' are identical to those terms as they are used in 
NYSE National Rule 5.1 and defined in NYSE National Rule 1.1(m). See 
supra text accompanying note 4.
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    Any UTP Security \7\ that is a UTP Exchange Traded Product would be 
subject to the additional requirements set forth in the proposed 
subsections of Rule 14.350(b).
---------------------------------------------------------------------------

    \7\ ``UTP Security'' is defined as ``any security that is not 
listed on the Exchange, but is traded on the Exchange pursuant to 
unlisted trading privileges.'' LTSE Rule 1.160(vv).
---------------------------------------------------------------------------

    Specifically, proposed Rule 14.350(b)(1) would provide that the 
Exchange distribute an information circular prior to the commencement 
of trading in each UTP Exchange Traded Product that generally includes 
the same information as is contained in the information circular 
provided by the listing exchange, including (a) the special risks of 
trading the new Exchange Traded Product, (b) the Exchange's rules that 
apply to the new Exchange Traded Product, and (c) information about the 
dissemination of value of the underlying assets or indices.
    Proposed Rule 14.350(b)(2)(A) would set forth requirements 
regarding prospectus delivery requirements. Members would be subject to 
the prospectus delivery requirements under the Securities Act of 1933, 
unless the UTP Exchange Traded Product is the subject of an order by 
the Securities and Exchange Commission exempting the product from 
certain prospectus delivery requirements under Section 24(d) of the 
Investment Company Act of 1940 \8\ and the product is not otherwise 
subject to prospectus delivery requirements under the Securities Act of 
1933.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 80a-24.
---------------------------------------------------------------------------

    Proposed Rule 14.350(b)(2)(B) would require the Exchange to inform 
Members of the application of the provisions of this subparagraph to 
UTP Exchange Traded Products by means of an information circular. It 
also would require the Exchange to require that a Member of the 
Exchange provide each purchaser of UTP Exchange Traded Products a 
written description of the terms and characteristics of those 
securities, in a form approved by the Exchange or prepared by the open-
ended management company issuing such securities, not later than the 
time a confirmation of the first transaction in such securities is 
delivered to the purchaser. In addition, a Member would need to include 
a written description of the terms and characteristics of these 
securities with any sales material relating to UTP Exchange Traded 
Products 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 the UTP Exchange Traded Products as an investment 
vehicle would need to include a statement substantially in the 
following form: ``A circular describing the terms and characteristics 
of [the UTP Exchange Traded Products] has been prepared by the [open-
ended management investment company name] and is available from your 
broker. It is recommended that you obtain and review such circular 
before purchasing [the UTP Exchange Traded Products].'' A Member 
carrying an omnibus account for a non-Member would be required to 
inform such non-Member that execution of an order to purchase UTP 
Exchange Traded Products for such omnibus account would be deemed to 
constitute an agreement by the non-Member to make such written 
description available to its customers on the same terms that are 
directly applicable to the Member under this proposed rule.
    Proposed Rule 14.350(b)(2)(C) would provide that, upon request of a 
customer, a Member would need to provide to the customer a prospectus 
for the particular UTP Exchange Traded Product.
    Proposed Rule 14.350(b)(3) would govern trading halts and would 
provide that the Exchange would halt trading in a UTP Exchange Traded 
Product as provided for in Exchange Rule 11.271. Nothing in proposed 
Rule 14.350(b)(3) would be intended to limit the power of the Exchange 
under its rules or procedures with respect to its ability to suspend 
trading in any securities if such suspension is necessary for the 
protection of investors or in the public interest.
    Proposed Rule 14.350(b)(4) would set forth restrictions on Members 
acting as Market Makers on the Exchange in a UTP Exchange Traded 
Product that derives its value from one or more

[[Page 17150]]

currencies, commodities, or derivatives based on one or more currencies 
or commodities, or is based on a basket or index composed of currencies 
or commodities (collectively, ``Reference Assets'').
    First, under proposed Rule 14.350(b)(A), Market Makers would need 
to file with the Exchange, in a manner prescribed by the Exchange, and 
keep current a list identifying all accounts for trading the underlying 
physical asset or commodity, related futures or options on futures, or 
any other related derivatives (collectively with Reference Assets, 
``Related Instruments''), which the Member acting as a registered 
Market Maker on the Exchange may have or over which it may exercise 
investment discretion. No Market Maker would be permitted to trade in 
the underlying physical asset or commodity, related futures or options 
on futures, or any other related derivatives, in an account in which a 
Member acting as a registered Market Maker on the Exchange, directly or 
indirectly, controls trading activities, or has a direct interest in 
the profits or losses thereof, which has not been reported to the 
Exchange as required by proposed Rule 14.350.
    Second, under proposed Rule 14.350(b)(B), a Market Maker on the 
Exchange would, in a manner prescribed by the Exchange, be required to 
file with the Exchange and keep current a list identifying any accounts 
(``Related Instrument Trading Accounts'') for which Related Instruments 
are traded: (i) In which the Market Maker holds an interest; (ii) over 
which it has investment discretion; or (iii) in which it shares in the 
profits and/or losses. A Market Maker on the Exchange would not be 
permitted to have an interest in, exercise investment discretion over, 
or share in the profits and/or losses of a Related Instrument Trading 
Account that has not been reported to the Exchange as required by 
proposed Rule 14.350.
    Third, under proposed Rule 14.350(b)(C), in addition to the 
existing obligations under Exchange rules regarding the production of 
books and records, a Market Maker on the Exchange would be required to, 
upon request by the Exchange, make available to the Exchange any books, 
records, or other information pertaining to any Related Instrument 
Trading Account or to the account of any registered or non-registered 
employee affiliated with the Market Maker on the Exchange for which 
Related Instruments are traded.
    Fourth, under proposed Rule 14.350(b)(D), a Market Maker on the 
Exchange would not be allowed to use any material nonpublic information 
in connection with trading a Related Instrument.
    Finally, proposed Rule 14.350(b)(5) would provide that the Exchange 
will enter into comprehensive surveillance sharing agreements with 
markets that trade components of the index or portfolio on which the 
UTP Exchange Traded Product is based to the same extent as the listing 
exchange's rules require the listing exchange to enter into 
comprehensive surveillance sharing agreements with such markets.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\9\ in general, and 
furthers the objectives of Section 6(b)(5) of the Act,\10\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, to foster cooperation and coordination with persons engaged 
in facilitating transactions in securities, to remove impediments to 
and perfect the mechanisms of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that proposed Rule 14.350 would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, would protect 
investors and the public interest by providing for the trading of 
securities, including UTP Exchange Traded Products, on the Exchange 
pursuant to UTP, subject to consistent and reasonable standards. 
Accordingly, the proposed rule change would contribute to the 
protection of investors and the public interest because it may provide 
a better trading environment for investors and, generally, encourage 
greater competition between markets.
    The proposal is designed to remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
adopting rules that will ultimately lead to the trading pursuant to UTP 
of the proposed products on the Exchange, just as they are currently 
traded on other exchanges. The proposed changes do nothing more than 
match Exchange rules with what is currently available on other 
exchanges.\11\ The Exchange believes that by conforming its rules and 
allowing trading opportunities on the Exchange that are already allowed 
by rule on another market, the proposed rule change would offer another 
venue for trading Exchange Traded Products and thereby promote broader 
competition among exchanges. The Exchange also believes that 
individuals and entities that are allowed to make markets on the 
Exchange in the proposed new products should enhance competition within 
the mechanism of a free and open market and a national market system, 
and customers and other investors in the national market system should 
benefit from more depth and liquidity in the market for the proposed 
new products.
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    \11\ See supra note 4.
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 14.350, which would 
enumerate the categories of UTP Exchange Traded Products that the 
Exchange proposes to trade and would specify additional requirements 
relating to UTP Exchange Traded Products, would ensure the maintenance 
of a fair and orderly market and provide for mechanisms for the 
regulatory oversight of securities trading on a UTP basis on the 
Exchange, in compliance with Rule 12f-5 under the Act.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 240.12f-5.
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    The Exchange also believes that the proposed rule change supports 
the principles of Section 11A(a)(1) of the Act \13\ in that it seeks to 
ensure the economically efficient execution of securities transactions 
and fair competition among brokers and dealers, and among exchange 
markets. The proposed rule change also supports the principles of 
Section 12(f) of the Act, which govern the trading of securities 
pursuant to a grant of unlisted trading privileges consistent with the 
maintenance of fair and orderly markets, the protection of investors 
and the public interest, and the impact of extending the existing 
markets for such securities.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

    By providing for the trading of securities on the Exchange on a UTP 
basis, the Exchange believes its proposal will lead to the addition of 
liquidity to the broader market for these securities and to increased 
competition among the existing group of liquidity providers. The 
Exchange also believes that, by so doing, the proposed rule change 
would encourage the additional utilization of, and interaction with, 
the exchange market, and provide market participants with improved 
price discovery, increased liquidity, more competitive quotes, and 
greater price improvement for securities traded pursuant to UTP.
    The Exchange further believes that enhancing liquidity by trading 
securities

[[Page 17151]]

on a UTP basis would help raise investors' confidence in the fairness 
of the market, generally, and their transactions, in particular. As 
such, the general UTP trading rule would foster cooperation and 
coordination with persons engaged in facilitating securities 
transactions, enhance the mechanism of a free and open market, and 
promote fair and orderly markets in securities on the Exchange.

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

    LTSE does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    Written comments were neither solicited nor received.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6) 
thereunder.\17\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \18\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \18\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-LTSE-2020-06 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-LTSE-2020-06. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-LTSE-2020-06 and should be submitted on 
or before April 16, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06301 Filed 3-25-20; 8:45 am]
 BILLING CODE 8011-01-P