Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Adopting Rule 14.12 Governing the Trading, Pursuant to Unlisted Trading Privileges, of Exchange-Traded Fund Shares, 29000-29005 [2020-10288]
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Federal Register / Vol. 85, No. 94 / Thursday, May 14, 2020 / Notices
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 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.
For the above reasons, the Exchange
believes that the proposed rule change
is consistent with the requirements of
Section 6(b)(5) of the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change,
rather will facilitate the trading,
pursuant to UTP, of ETF Shares that
will enhance competition among both
market participants and listing venues,
to the benefit of investors and the
marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 17 and Rule 19b–
4(f)(6) thereunder.18
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17 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
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A proposed rule change filed under
Rule 19b–4(f)(6) 19 normally does not
become operative for 30 days after the
date of the filing. However, pursuant to
Rule 19b–4(f)(6)(iii),20 the Commission
may 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 to
immediately allow ETF Shares to be
traded on another venue. The
Commission believes that waiver of the
30-day operative delay for this purpose
is consistent with the protection of
investors and the public interest and
hereby waives the 30-day operative
delay and designates the proposed rule
change operative upon filing.21
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeEDGX–2020–021 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–CboeEDGX–2020–021. 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
19 17
CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
21 For purposes only of waiving the operative
delay, the Commission has considered the proposed
rule’s impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
20 17
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only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeEDGX–2020–021 and
should be submitted on or before June
4, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–10287 Filed 5–13–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88844; File No. SRCboeEDGA–2020–013]
Self-Regulatory Organizations; Cboe
EDGA Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Adopting Rule
14.12 Governing the Trading, Pursuant
to Unlisted Trading Privileges, of
Exchange-Traded Fund Shares
May 8, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 7,
2020, Cboe EDGA Exchange, Inc.
(‘‘Exchange’’ or ‘‘EDGA’’) filed with the
Securities and Exchange Commission
22 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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Federal Register / Vol. 85, No. 94 / Thursday, May 14, 2020 / Notices
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGA Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGA’’) is filing with
the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change to adopt Rule
14.12 to permit the trading, pursuant to
unlisted trading privileges, of ExchangeTraded Fund Shares. Additionally, the
Exchange proposes to make
corresponding changes to Rule 14.1(a).
The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edga/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to adopt Rule
14.12 to permit the trading, pursuant to
unlisted trading privileges (‘‘UTP’’), of
Exchange-Traded Fund (also referred to
as ‘‘ETF’’) Shares,5 which substantially
conforms to Cboe BZX Exchange, Inc.
3 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
5 ETF Shares means shares of stock issued by an
Exchange-Traded Fund. See proposed Rule
14.12(c)(1).
4 17
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(‘‘BZX’’) Rule 14.11(l).6 Additionally,
the Exchange proposes to make
corresponding changes to Rule 14.1(a) to
reference Exchange-Traded Fund Shares
and proposed Rule 14.12, where
applicable.
The Exchange does not currently list
any securities as a primary listing
market. Consistent with this fact,
Exchange Rule 14.1(a) currently states
that all securities traded on the
Exchange are traded pursuant to UTP
and that the Exchange will not list any
securities before first filing and
obtaining Commission approval of rules
that incorporate qualitative listing
criteria and comply with Rules 10A–3 7
(‘‘Rule 10A–3’’) and 10C–1 8 (‘‘Rule
10C–1’’) under the Act. Therefore, the
provisions of existing Rules 14.2
through 14.9, 14.11, and proposed Rule
14.12 that permit the listing of certain
Equity Securities 9 will not be effective
until the Exchange files a proposed rule
change under Section 19(b)(2) under the
Exchange Act to amend its rules to
comply with Rule 10A–3 and 10C–1
under the Exchange Act and to
incorporate qualitative listing criteria,
and such proposed rule change is
approved by the Commission.
Considering the foregoing, the Exchange
proposes to adopt Rule 14.12 as set forth
below.
Proposed Listing Rules
Proposed Rule 14.12(a) provides that
the Exchange will consider for trading,
whether by listing or pursuant to UTP,
6 See Securities and Exchange Act Release No.
88566 (April 6, 2020) 85 FR 20312 (April 10, 2020)
(SR-CboeBZX–2019–097) (the ‘‘BZX Approval
Order’’).
7 Rule 10A–3 obligates the Exchange to prohibit
the initial or continued listing of any security of an
issuer that is not in compliance with certain
required standards. See 17 CFR 240.10A–3.
8 Rule 10C–1 obligates the Exchange to establish
listing standards that require each member of a
listed issuer’s compensation committee to be a
member of the issuer’s board and to be
independent, as well as establish certain factors that
an issuer must consider when evaluating the
independence of a director. See 17 CFR 240.10C–
1.
9 As provided in Rule 14.1(a), the term ‘‘Equity
Security’’ means, but is not limited to, common
stock, secondary classes of common stock, preferred
stock and similar issues, shares or certificates of
beneficial interest of trusts, notes, limited
partnership interests, warrants, certificates of
deposit for common stock, convertible debt
securities, ADRs, CVRs, Investment Company Units,
Trust Issued Receipts (including those based on
Investment Shares), Commodity-Based Trust
Shares, Currency Trust Shares, Partnership Units,
Equity-Linked Securities, Commodity-Linked
Securities, Currency-Linked Securities, Portfolio
Depositary Receipts, Equity-Linked Debt Securities,
and Managed Portfolio Shares. Further, the
Exchange now proposes to include the term
‘‘Exchange-Traded Fund Shares’’ to the definition
of Equity Security.
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29001
ETF Shares that meet the criteria of Rule
14.12.
Proposed Rule 14.12(b) provides that
Rule 14.12 is applicable only to ETF
Shares and that, except to the extent
inconsistent with Rule 14.12, or unless
the context otherwise requires, the rules
and procedures of the Exchange’s Board
of Directors shall be applicable to the
trading on the Exchange of such
securities. Proposed Rule 14.12(b)
provides further that ETF Shares are
included within the definition of
‘‘security’’ or ‘‘securities’’ as such terms
are used in the Rules of the Exchange.
Proposed Rule 14.12(b)(1) provides
that transactions in ETF Shares will
occur throughout the Exchange’s trading
hours.
Proposed Rule 14.12(b)(2) provides
that the minimum price variation for
quoting and entry of orders in ETF
Shares will be $0.01.
Proposed Rule 14.12(b)(3) provides
that the Exchange will implement and
maintain written surveillance
procedures for ETF Shares.
Proposed Rule 14.12(c)(1) defines the
term ‘‘ETF Shares’’ as shares of stock
issued by an Exchange-Traded Fund.10
Proposed Rule 14.12(c)(2) defines the
term ‘‘Exchange-Traded Fund’’ as
having the same meaning as the term
‘‘exchange-traded fund’’ as defined in
Rule 6c–11 under the Investment
Company Act of 1940.11
Proposed Rule 14.12(c)(3) defines 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 UTP) as the official source
for calculating and reporting
information relating to such series,
including, but not limited to, the
amount of any dividend equivalent
payment or cash distribution to holders
of ETF Shares, the net asset value (the
‘‘NAV’’), index or portfolio value, the
current value of the portfolio of
securities required to be deposited in
connection with issuance of ETF Shares,
or other information relating to the
issuance, redemption or trading of ETF
10 For purposes of this filing, references to a series
of Exchange-Traded Fund Shares are referred to
interchangeably as a series of Exchange-Traded
Fund Shares or as a ‘‘Fund’’ and shares of a series
of Exchange-Traded Fund Shares are generally
referred to as the ‘‘Shares’’.
11 Per Rule 6c-11, an exchange-traded fund means
a registered open-end management company: (A)
That issues (and redeems) creation units to (and
from) authorized participants in exchange for a
basket and a cash balancing amount if any; and (B)
Whose shares are listed on a national securities
exchange and traded at market-determined prices.
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Shares. A series of ETF Shares may have
more than one Reporting Authority,
each having different functions.
Proposed Rule 14.12(d) provides for
the initial and continued listing and/or
trading of ETF Shares, including trading
pursuant to UTP, pursuant to Rule
19b4–(e) under the Act. Proposed Rule
14.12(d)(1) sets forth initial listing
criteria applicable to ETF Shares.
Specifically, proposed Rule 14.12(d)(1)
provides that the requirements of Rule
6c-11 must be satisfied by a series of
ETF Shares on an initial and continued
listing basis. Such securities must also
satisfy the criteria on an initial and,
with the exception of proposed
subparagraph (d)(1)(A), a continued
listing basis. Proposed Rule
14.12(d)(1)(A) provides that 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. However, as noted above,
such criteria is not applicable on a
continued listing basis. Proposed rule
14.12(d)(1)(B) provides that if an index
underlying a series of ETF Shares is
maintained by a broker-dealer or fund
adviser, the broker-dealer or fund
adviser shall erect and maintain a ‘‘fire
wall’’ around the personnel who have
access to information concerning
changes and adjustments to the index
and the index shall be calculated by a
third party who is not a broker-dealer or
fund adviser. If the investment adviser
to the investment company issuing an
actively managed series of ETF Shares is
affiliated with a broker-dealer, such
investment adviser shall erect and
maintain a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such ExchangeTraded Fund’s portfolio. Additionally
proposed rule 14.12(d)(1)(C) provides
that any advisory committee,
supervisory board, or similar entity that
advises a Reporting Authority or that
makes decisions on the composition,
methodology, and related matters of an
index underlying a series of ETF Shares,
must implement and maintain, or be
subject to, procedures designed to
prevent the use and dissemination of
material non-public information
regarding the applicable index. For
actively managed Exchange-Traded
Funds, personnel who make decisions
on the portfolio composition must be
subject to procedures designed to
prevent the use and dissemination of
material nonpublic information
regarding the applicable portfolio.
Proposed Rule 14.12(d)(2) provides
that each series of ETF Shares will be
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listed and traded subject to application
of the following continued listing
criteria. Proposed Rule 14.12(d)(2)(A)
provides that the Exchange will
consider the suspension of trading in or
removal from listing of or termination of
unlisted trading privileges for a series of
ETF Shares under any of the following
circumstances: (i) If the Exchange
becomes aware that the issuer of the
ETF Shares is no longer eligible to
operate in reliance on Rule 6c–11 under
the Investment Company Act of 1940;
(ii) if any of the other listing
requirements set forth in this Rule 14.12
are not continuously maintained; (iii) if,
following the initial twelve month
period after commencement of trading
on the Exchange of a series of ETF
Shares, there are fewer than 50
beneficial holders of the series of ETF
Shares for 30 or more consecutive
trading days; or (iv) 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
14.12(d)(2)(B) provides that upon
termination of an investment company,
the Exchange will require that ETF
Shares issued in connection with such
entity be removed from Exchange
listing.
Proposed Rule 14.12(e), which relates
to limitation of Exchange liability,
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.
The Exchange does not propose to
adopt BZX Rule 14.11(l)(6) because it is
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not applicable as the Exchange does not
currently have any listed products.
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 14.12 does not
include the quantitative requirements
applicable to an ETF or an ETF’s
holdings or underlying index that are
included in Rule 14.2, 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 and the
Exchange’s ability to suspend trading or
terminate unlisted trading privileges
under the proposed Rule 14.12(d)(2)(A).
The Exchange will also halt trading in
ETF Shares under the conditions
specified in Rule 11.16, ‘‘Trading Halts
Due to Extraordinary Market Volatility.’’
The Exchange 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 daily website disclosure
obligations applicable under Rule 6c–
11.12 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.13
Surveillance
The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of ETF
Shares on the Exchange during all
trading sessions and to deter and detect
violations of Exchange rules and the
applicable federal securities laws.
Trading of ETF Shares through the
12 The Exchange notes that the Commission came
to a similar conclusion in several places in the Rule
6c-11 Release. 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’’) at 15–18; 60–61;
69–70; 78–79; 82–84; and 95–96.
13 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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Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products. The Exchange will
require the issuer of each series of ETF
Shares listed on the Exchange to
represent to the Exchange that it will
advise the Exchange of any failure by a
Fund to comply with the continued
listing requirements, and, pursuant to
its obligations under Section 19(g)(1) of
the Exchange Act, the Exchange will
surveil for compliance with the
continued listing requirements.
Specifically, the Exchange intends to
utilize its existing surveillance
procedures applicable to derivative
products, which are currently
applicable to Investment Company
Units, 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
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.
Trading Halts
As proposed above, the Exchange may
consider all relevant factors in
exercising its discretion to halt trading
in a series of Managed Portfolio Shares.
Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the series of ETF Shares inadvisable.
These may include: (i) The extent to
which trading is not occurring in the
securities and/or the financial
instruments composing the portfolio; or
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18:29 May 13, 2020
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(ii) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Additionally, the
Exchange would halt trading as soon as
practicable where the Exchange
becomes aware that: (i) If the Exchange
becomes aware that the issuer of the
ETF Shares is no longer eligible to
operate in reliance on Rule 6c–11 under
the Investment Company Act of 1940;
(ii) if any of the other listing
requirements set forth in this Rule 14.12
are not continuously maintained; (iii) if,
following the initial twelve month
period after commencement of trading
on the Exchange of a series of ETF
Shares, there are fewer than 50
beneficial holders of the series of ETF
Shares for 30 or more consecutive
trading days; or (iv) if such other event
shall occur or condition exists which, in
the opinion of the Exchange, makes
further dealings on the Exchange
inadvisable.
Trading Rules
The Exchange deems ETF Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. ETF Shares will trade
on the Exchange throughout the
Exchange’s trading hours. As provided
in proposed Rule 14.12(b)(2), the
minimum price variation for quoting
and entry of orders in ETF Shares traded
on the Exchange is $0.01.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 14 in general and Section
6(b)(5) of the Act 15 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 14.12 will remove impediments to
and perfect the mechanism of a free and
open market and national market
system. Specifically, the proposed
amendment raises no substantive issues
that have not otherwise been considered
by the Commission in either the BZX
Approval Order or in the context of
other similar Exchange Rules. This
proposal is substantively similar to the
BZX Approval Order, with the
exception that the Exchange is only
proposing to trade series of ETF Shares
14 15
15 15
PO 00000
U.S.C. 78f.
U.S.C. 78f(b)(5).
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29003
pursuant to unlisted trading privileges,
while BZX will both list and trade series
of ETF Shares. Further, while proposed
Rule 14.12(d)(2)(A) provides that the
Exchange may terminate unlisted
trading privileges and BZX Rule 14.11(l)
does not, the proposed rule text is
substantially similar to existing
Exchange Rules 14.3(g)(2) and
14.11(d)(2)(B) and therefore raises no
novel issues.
The Exchange believes that proposed
Rule 14.12 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 14.12(d) sets forth initial
and continued listing criteria applicable
to ETF Shares, specifically providing
that the Exchange may approve a series
of 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, provided
such series of ETF Shares is eligible to
operate in reliance on Rule 6c–11 under
the Investment Company Act of 1940
and must satisfy the requirements of
this Rule 14.12 on an initial and
continued listing basis.
Proposed Rule 14.12(d)(1) provides
that initial listing criteria which
includes (A) 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; (B) if an index underlying a
series of ETF Shares is maintained by a
broker-dealer or fund adviser, the
broker-dealer or fund adviser shall erect
and maintain a ‘‘fire wall’’ around the
personnel who have access to
information concerning changes and
adjustments to the index and the index
shall be calculated by a third party who
is not a broker-dealer or fund adviser. If
the investment adviser to the
investment company issuing an actively
managed series of ETF Shares is
affiliated with a broker-dealer, such
investment adviser shall erect and
maintain a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such ExchangeTraded Fund’s portfolio; and (C) any
advisory committee, supervisory board,
or similar entity that advises a Reporting
Authority or that makes decisions on
the composition, methodology, and
related matters of an index underlying
a series of ETF Shares, must implement
and maintain, or be subject to,
procedures designed to prevent the use
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and dissemination of material nonpublic information regarding the
applicable index. For actively managed
Exchange-Traded Funds, personnel who
make decisions on the portfolio
composition must be subject to
procedures designed to prevent the use
and dissemination of material
nonpublic information regarding the
applicable portfolio.
Proposed Rule 14.12(d)(2) provides
that each series of ETF Shares will be
listed and traded on the Exchange
subject to application of Proposed Rule
14.12(d)(2)(A) and (B). Proposed Rule
14.12(d)(2)(A) provides that the
Exchange will consider the suspension
of trading in or removal from listing of
or termination of UTP for a series of ETF
Shares under any of the following
circumstances: (i) If the Exchange
becomes aware that the issuer of the
ETF Shares is no longer eligible to
operate in reliance on Rule 6c–11 under
the Investment Company Act of 1940;
(ii) if any of the other listing
requirements set forth in this Rule 14.12
are not continuously maintained; (iii) if,
following the initial twelve month
period after commencement of trading
on the Exchange of a series of ETF
Shares, there are fewer than 50
beneficial holders of the series of ETF
Shares for 30 or more consecutive
trading days; or (iv) 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
14.12(d)(2)(B) 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 14.12 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
14.12(b)(3) along with the similarities of
proposed Rule 14.12 to the rules related
to other securities that are already
traded on the Exchange pursuant to UTP
and which would qualify as ETF Shares.
Proposed Rule 14.12 is based in large
part on Rule 14.2 related to the listing
and trading of Investment Company
Units on the Exchange, which are issued
under the 1940 Act and would qualify
as ETF Shares after Rule 6c–11 is
effective. As such, the Exchange
believes that using Rule 14.2 (the
‘‘Current ETF Standards’’) as the basis
for proposed Rule 14.12 is appropriate
because they are generally designed to
address the issues associated with ETF
Shares. The only substantial differences
between proposed Rule 14.12 and the
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19:51 May 13, 2020
Jkt 250001
Current ETF Standards that are not
otherwise required under Rule 6c–11
are as follows: (i) proposed Rule 14.12
does not include the quantitative
standards applicable to a fund or an
index that are included in the Current
ETF Standards; and (ii) proposed Rule
14.12 does not include any
requirements related to the
dissemination of a fund’s intraday
indicative value.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 Investment Company
Units, among other product types, to
monitor trading in ETF Shares. The
Exchange or the 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 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.
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
16 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
Investment Company Units.
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change,
rather will facilitate the trading,
pursuant to UTP, of ETF Shares that
will enhance competition among both
market participants and listing venues,
to the benefit of investors and the
marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 17 and Rule 19b–
4(f)(6) thereunder.18
A proposed rule change filed under
Rule 19b–4(f)(6) 19 normally does not
become operative for 30 days after the
date of the filing. However, pursuant to
Rule 19b–4(f)(6)(iii),20 the Commission
may 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 to
immediately allow ETF Shares to be
traded on another venue. The
Commission believes that waiver of the
30-day operative delay for this purpose
is consistent with the protection of
investors and the public interest and
hereby waives the 30-day operative
delay and designates the proposed rule
change operative upon filing.21
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
17 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.
19 17 CFR 240.19b–4(f)(6).
20 17 CFR 240.19b–4(f)(6)(iii).
21 For purposes only of waiving the operative
delay, the Commission has considered the proposed
rule’s impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
18 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 will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
jbell on DSKJLSW7X2PROD with NOTICES
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–
CboeEDGA–2020–013 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–CboeEDGA–2020–013. 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
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19:51 May 13, 2020
Jkt 250001
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeEDGA–2020–013 and
should be submitted on or before June
4, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–10288 Filed 5–13–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88839; File No. SR–FINRA–
2020–014]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend FINRA Rule
9231 To Provide for the Compensation
of All Panelists That Serve in
Connection With a FINRA Disciplinary
Hearing
May 8, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 5,
2020, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under paragraph (f)(6) of Rule
19b–4 under the Act,3 which renders
the proposal effective upon receipt of
this filing by the Commission. 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
FINRA is proposing to amend FINRA
Rule 9231 to provide for the
compensation of all panelists that serve
in connection with a FINRA
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6). Rule 19b–4(f)(6)
requires a self-regulatory organization to give the
Commission written notice of its intent to file 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. FINRA has satisfied this requirement.
1 15
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
29005
disciplinary hearing, regardless of
whether it is an Extended or nonExtended Hearing.4
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA 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,
FINRA 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. FINRA 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
FINRA Rule 9231 governs the
appointment by FINRA’s Chief Hearing
Officer of Hearing Panels, both
Extended and non-Extended, and
replacement Hearing Officers.
A Hearing Panel consists of a Hearing
Officer and two Panelists.5 Each
Panelist must be associated with a
FINRA member or retired therefrom.6
Service as a Panelist is voluntary.
Rule 9231 authorizes the Chief
Hearing Officer to exercise his or her
discretion to compensate Panelists who
serve on Extended Hearing Panels only.
The proposed rule change would amend
Rule 9231 to provide for the
compensation of all Panelists,
irrespective of whether they serve on
Extended or non-Extended Hearing
Panels, and without the exercise of
discretion by the Chief Hearing Officer.
FINRA believes the proposed rule
change will encourage a greater and
more diverse pool of eligible individuals
4 FINRA Rule 9231(c) sets forth the circumstances
in which a hearing may be designated an Extended
Hearing. Matters that require an Extended Hearing
are assigned an Extended Hearing Panel. For the
purposes of this proposal only, the term ‘‘Hearing
Panel’’ collectively refers to both Extended and
non-Extended Hearing Panels.
5 See FINRA Rule 9231(b) and (c). If, after
appointment, a Panelist withdraws, is unable to
serve, or is disqualified, the Chief Hearing Officer
may, in his or her discretion, determine whether to
appoint a replacement Panelist. If two Panelists
withdraw, are unable to serve, or are disqualified,
the Chief Hearing Officer must appoint two
replacement Panelists. See FINRA Rule 9234.
6 See FINRA Rule 9231(b) and (c).
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]]>Agencies
[Federal Register Volume 85, Number 94 (Thursday, May 14, 2020)]
[Notices]
[Pages 29000-29005]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10288]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88844; File No. SR-CboeEDGA-2020-013]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Adopting Rule 14.12 Governing the Trading, Pursuant to Unlisted Trading
Privileges, of Exchange-Traded Fund Shares
May 8, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 7, 2020, Cboe EDGA Exchange, Inc. (``Exchange'' or ``EDGA'')
filed with the Securities and Exchange Commission
[[Page 29001]]
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to adopt Rule 14.12 to permit the trading, pursuant to
unlisted trading privileges, of Exchange-Traded Fund Shares.
Additionally, the Exchange proposes to make corresponding changes to
Rule 14.1(a). The text of the proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/edga/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt Rule 14.12 to permit the trading,
pursuant to unlisted trading privileges (``UTP''), of Exchange-Traded
Fund (also referred to as ``ETF'') Shares,\5\ which substantially
conforms to Cboe BZX Exchange, Inc. (``BZX'') Rule 14.11(l).\6\
Additionally, the Exchange proposes to make corresponding changes to
Rule 14.1(a) to reference Exchange-Traded Fund Shares and proposed Rule
14.12, where applicable.
---------------------------------------------------------------------------
\5\ ETF Shares means shares of stock issued by an Exchange-
Traded Fund. See proposed Rule 14.12(c)(1).
\6\ See Securities and Exchange Act Release No. 88566 (April 6,
2020) 85 FR 20312 (April 10, 2020) (SR-CboeBZX-2019-097) (the ``BZX
Approval Order'').
---------------------------------------------------------------------------
The Exchange does not currently list any securities as a primary
listing market. Consistent with this fact, Exchange Rule 14.1(a)
currently states that all securities traded on the Exchange are traded
pursuant to UTP and that the Exchange will not list any securities
before first filing and obtaining Commission approval of rules that
incorporate qualitative listing criteria and comply with Rules 10A-3
\7\ (``Rule 10A-3'') and 10C-1 \8\ (``Rule 10C-1'') under the Act.
Therefore, the provisions of existing Rules 14.2 through 14.9, 14.11,
and proposed Rule 14.12 that permit the listing of certain Equity
Securities \9\ will not be effective until the Exchange files a
proposed rule change under Section 19(b)(2) under the Exchange Act to
amend its rules to comply with Rule 10A-3 and 10C-1 under the Exchange
Act and to incorporate qualitative listing criteria, and such proposed
rule change is approved by the Commission. Considering the foregoing,
the Exchange proposes to adopt Rule 14.12 as set forth below.
---------------------------------------------------------------------------
\7\ Rule 10A-3 obligates the Exchange to prohibit the initial or
continued listing of any security of an issuer that is not in
compliance with certain required standards. See 17 CFR 240.10A-3.
\8\ Rule 10C-1 obligates the Exchange to establish listing
standards that require each member of a listed issuer's compensation
committee to be a member of the issuer's board and to be
independent, as well as establish certain factors that an issuer
must consider when evaluating the independence of a director. See 17
CFR 240.10C-1.
\9\ As provided in Rule 14.1(a), the term ``Equity Security''
means, but is not limited to, common stock, secondary classes of
common stock, preferred stock and similar issues, shares or
certificates of beneficial interest of trusts, notes, limited
partnership interests, warrants, certificates of deposit for common
stock, convertible debt securities, ADRs, CVRs, Investment Company
Units, Trust Issued Receipts (including those based on Investment
Shares), Commodity-Based Trust Shares, Currency Trust Shares,
Partnership Units, Equity-Linked Securities, Commodity-Linked
Securities, Currency-Linked Securities, Portfolio Depositary
Receipts, Equity-Linked Debt Securities, and Managed Portfolio
Shares. Further, the Exchange now proposes to include the term
``Exchange-Traded Fund Shares'' to the definition of Equity
Security.
---------------------------------------------------------------------------
Proposed Listing Rules
Proposed Rule 14.12(a) provides that the Exchange will consider for
trading, whether by listing or pursuant to UTP, ETF Shares that meet
the criteria of Rule 14.12.
Proposed Rule 14.12(b) provides that Rule 14.12 is applicable only
to ETF Shares and that, except to the extent inconsistent with Rule
14.12, or unless the context otherwise requires, the rules and
procedures of the Exchange's Board of Directors shall be applicable to
the trading on the Exchange of such securities. Proposed Rule 14.12(b)
provides further that ETF Shares are included within the definition of
``security'' or ``securities'' as such terms are used in the Rules of
the Exchange.
Proposed Rule 14.12(b)(1) provides that transactions in ETF Shares
will occur throughout the Exchange's trading hours.
Proposed Rule 14.12(b)(2) provides that the minimum price variation
for quoting and entry of orders in ETF Shares will be $0.01.
Proposed Rule 14.12(b)(3) provides that the Exchange will implement
and maintain written surveillance procedures for ETF Shares.
Proposed Rule 14.12(c)(1) defines the term ``ETF Shares'' as shares
of stock issued by an Exchange-Traded Fund.\10\
---------------------------------------------------------------------------
\10\ For purposes of this filing, references to a series of
Exchange-Traded Fund Shares are referred to interchangeably as a
series of Exchange-Traded Fund Shares or as a ``Fund'' and shares of
a series of Exchange-Traded Fund Shares are generally referred to as
the ``Shares''.
---------------------------------------------------------------------------
Proposed Rule 14.12(c)(2) defines the term ``Exchange-Traded Fund''
as having the same meaning as the term ``exchange-traded fund'' as
defined in Rule 6c-11 under the Investment Company Act of 1940.\11\
---------------------------------------------------------------------------
\11\ Per Rule 6c-11, an exchange-traded fund means a registered
open-end management company: (A) That issues (and redeems) creation
units to (and from) authorized participants in exchange for a basket
and a cash balancing amount if any; and (B) Whose shares are listed
on a national securities exchange and traded at market-determined
prices.
---------------------------------------------------------------------------
Proposed Rule 14.12(c)(3) defines 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 UTP) as the official source
for calculating and reporting information relating to such series,
including, but not limited to, the amount of any dividend equivalent
payment or cash distribution to holders of ETF Shares, the net asset
value (the ``NAV''), index or portfolio value, the current value of the
portfolio of securities required to be deposited in connection with
issuance of ETF Shares, or other information relating to the issuance,
redemption or trading of ETF
[[Page 29002]]
Shares. A series of ETF Shares may have more than one Reporting
Authority, each having different functions.
Proposed Rule 14.12(d) provides for the initial and continued
listing and/or trading of ETF Shares, including trading pursuant to
UTP, pursuant to Rule 19b4-(e) under the Act. Proposed Rule 14.12(d)(1)
sets forth initial listing criteria applicable to ETF Shares.
Specifically, proposed Rule 14.12(d)(1) provides that the requirements
of Rule 6c-11 must be satisfied by a series of ETF Shares on an initial
and continued listing basis. Such securities must also satisfy the
criteria on an initial and, with the exception of proposed subparagraph
(d)(1)(A), a continued listing basis. Proposed Rule 14.12(d)(1)(A)
provides that 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. However, as noted above, such
criteria is not applicable on a continued listing basis. Proposed rule
14.12(d)(1)(B) provides that if an index underlying a series of ETF
Shares is maintained by a broker-dealer or fund adviser, the broker-
dealer or fund adviser shall erect and maintain a ``fire wall'' around
the personnel who have access to information concerning changes and
adjustments to the index and the index shall be calculated by a third
party who is not a broker-dealer or fund adviser. If the investment
adviser to the investment company issuing an actively managed series of
ETF Shares is affiliated with a broker-dealer, such investment adviser
shall erect and maintain a ``fire wall'' between the investment adviser
and the broker-dealer with respect to access to information concerning
the composition and/or changes to such Exchange-Traded Fund's
portfolio. Additionally proposed rule 14.12(d)(1)(C) provides that any
advisory committee, supervisory board, or similar entity that advises a
Reporting Authority or that makes decisions on the composition,
methodology, and related matters of an index underlying a series of ETF
Shares, must implement and maintain, or be subject to, procedures
designed to prevent the use and dissemination of material non-public
information regarding the applicable index. For actively managed
Exchange-Traded Funds, personnel who make decisions on the portfolio
composition must be subject to procedures designed to prevent the use
and dissemination of material nonpublic information regarding the
applicable portfolio.
Proposed Rule 14.12(d)(2) provides that each series of ETF Shares
will be listed and traded subject to application of the following
continued listing criteria. Proposed Rule 14.12(d)(2)(A) provides that
the Exchange will consider the suspension of trading in or removal from
listing of or termination of unlisted trading privileges for a series
of ETF Shares under any of the following circumstances: (i) If the
Exchange becomes aware that the issuer of the ETF Shares is no longer
eligible to operate in reliance on Rule 6c-11 under the Investment
Company Act of 1940; (ii) if any of the other listing requirements set
forth in this Rule 14.12 are not continuously maintained; (iii) if,
following the initial twelve month period after commencement of trading
on the Exchange of a series of ETF Shares, there are fewer than 50
beneficial holders of the series of ETF Shares for 30 or more
consecutive trading days; or (iv) 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 14.12(d)(2)(B)
provides that upon termination of an investment company, the Exchange
will require that ETF Shares issued in connection with such entity be
removed from Exchange listing.
Proposed Rule 14.12(e), which relates to limitation of Exchange
liability, 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.
The Exchange does not propose to adopt BZX Rule 14.11(l)(6) because
it is not applicable as the Exchange does not currently have any listed
products.
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 14.12 does not include the
quantitative requirements applicable to an ETF or an ETF's holdings or
underlying index that are included in Rule 14.2, 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 and the Exchange's ability to suspend trading
or terminate unlisted trading privileges under the proposed Rule
14.12(d)(2)(A). The Exchange will also halt trading in ETF Shares under
the conditions specified in Rule 11.16, ``Trading Halts Due to
Extraordinary Market Volatility.'' The Exchange 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 daily website
disclosure obligations applicable under Rule 6c-11.\12\ 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.\13\
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\12\ The Exchange notes that the Commission came to a similar
conclusion in several places in the Rule 6c-11 Release. 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'') at 15-18; 60-61; 69-70; 78-79; 82-84; and 95-96.
\13\ 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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Surveillance
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of ETF Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Trading of ETF Shares
through the
[[Page 29003]]
Exchange will be subject to the Exchange's surveillance procedures for
derivative products. The Exchange will require the issuer of each
series of ETF Shares listed on the Exchange to represent to the
Exchange that it will advise the Exchange of any failure by a Fund to
comply with the continued listing requirements, and, pursuant to its
obligations under Section 19(g)(1) of the Exchange Act, the Exchange
will surveil for compliance with the continued listing requirements.
Specifically, the Exchange intends to utilize its existing
surveillance procedures applicable to derivative products, which are
currently applicable to Investment Company Units, 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 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.
Trading Halts
As proposed above, the Exchange may consider all relevant factors
in exercising its discretion to halt trading in a series of Managed
Portfolio Shares. Trading may be halted because of market conditions or
for reasons that, in the view of the Exchange, make trading in the
series of ETF Shares inadvisable. These may include: (i) The extent to
which trading is not occurring in the securities and/or the financial
instruments composing the portfolio; or (ii) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present. Additionally, the Exchange would halt
trading as soon as practicable where the Exchange becomes aware that:
(i) If the Exchange becomes aware that the issuer of the ETF Shares is
no longer eligible to operate in reliance on Rule 6c-11 under the
Investment Company Act of 1940; (ii) if any of the other listing
requirements set forth in this Rule 14.12 are not continuously
maintained; (iii) if, following the initial twelve month period after
commencement of trading on the Exchange of a series of ETF Shares,
there are fewer than 50 beneficial holders of the series of ETF Shares
for 30 or more consecutive trading days; or (iv) if such other event
shall occur or condition exists which, in the opinion of the Exchange,
makes further dealings on the Exchange inadvisable.
Trading Rules
The Exchange deems ETF Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. ETF Shares will trade
on the Exchange throughout the Exchange's trading hours. As provided in
proposed Rule 14.12(b)(2), the minimum price variation for quoting and
entry of orders in ETF Shares traded on the Exchange is $0.01.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \14\ in general and Section 6(b)(5) of the Act \15\ 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.
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\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that proposed Rule 14.12 will remove
impediments to and perfect the mechanism of a free and open market and
national market system. Specifically, the proposed amendment raises no
substantive issues that have not otherwise been considered by the
Commission in either the BZX Approval Order or in the context of other
similar Exchange Rules. This proposal is substantively similar to the
BZX Approval Order, with the exception that the Exchange is only
proposing to trade series of ETF Shares pursuant to unlisted trading
privileges, while BZX will both list and trade series of ETF Shares.
Further, while proposed Rule 14.12(d)(2)(A) provides that the Exchange
may terminate unlisted trading privileges and BZX Rule 14.11(l) does
not, the proposed rule text is substantially similar to existing
Exchange Rules 14.3(g)(2) and 14.11(d)(2)(B) and therefore raises no
novel issues.
The Exchange believes that proposed Rule 14.12 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 14.12(d) sets
forth initial and continued listing criteria applicable to ETF Shares,
specifically providing that the Exchange may approve a series of 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, provided such series of ETF Shares is eligible to operate in
reliance on Rule 6c-11 under the Investment Company Act of 1940 and
must satisfy the requirements of this Rule 14.12 on an initial and
continued listing basis.
Proposed Rule 14.12(d)(1) provides that initial listing criteria
which includes (A) 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; (B) if an index underlying a
series of ETF Shares is maintained by a broker-dealer or fund adviser,
the broker-dealer or fund adviser shall erect and maintain a ``fire
wall'' around the personnel who have access to information concerning
changes and adjustments to the index and the index shall be calculated
by a third party who is not a broker-dealer or fund adviser. If the
investment adviser to the investment company issuing an actively
managed series of ETF Shares is affiliated with a broker-dealer, such
investment adviser shall erect and maintain a ``fire wall'' between the
investment adviser and the broker-dealer with respect to access to
information concerning the composition and/or changes to such Exchange-
Traded Fund's portfolio; and (C) any advisory committee, supervisory
board, or similar entity that advises a Reporting Authority or that
makes decisions on the composition, methodology, and related matters of
an index underlying a series of ETF Shares, must implement and
maintain, or be subject to, procedures designed to prevent the use
[[Page 29004]]
and dissemination of material non-public information regarding the
applicable index. For actively managed Exchange-Traded Funds, personnel
who make decisions on the portfolio composition must be subject to
procedures designed to prevent the use and dissemination of material
nonpublic information regarding the applicable portfolio.
Proposed Rule 14.12(d)(2) provides that each series of ETF Shares
will be listed and traded on the Exchange subject to application of
Proposed Rule 14.12(d)(2)(A) and (B). Proposed Rule 14.12(d)(2)(A)
provides that the Exchange will consider the suspension of trading in
or removal from listing of or termination of UTP for a series of ETF
Shares under any of the following circumstances: (i) If the Exchange
becomes aware that the issuer of the ETF Shares is no longer eligible
to operate in reliance on Rule 6c-11 under the Investment Company Act
of 1940; (ii) if any of the other listing requirements set forth in
this Rule 14.12 are not continuously maintained; (iii) if, following
the initial twelve month period after commencement of trading on the
Exchange of a series of ETF Shares, there are fewer than 50 beneficial
holders of the series of ETF Shares for 30 or more consecutive trading
days; or (iv) 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 14.12(d)(2)(B) 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 14.12 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 14.12(b)(3) along with the similarities of proposed Rule
14.12 to the rules related to other securities that are already traded
on the Exchange pursuant to UTP and which would qualify as ETF Shares.
Proposed Rule 14.12 is based in large part on Rule 14.2 related to the
listing and trading of Investment Company Units on the Exchange, which
are issued under the 1940 Act and would qualify as ETF Shares after
Rule 6c-11 is effective. As such, the Exchange believes that using Rule
14.2 (the ``Current ETF Standards'') as the basis for proposed Rule
14.12 is appropriate because they are generally designed to address the
issues associated with ETF Shares. The only substantial differences
between proposed Rule 14.12 and the Current ETF Standards that are not
otherwise required under Rule 6c-11 are as follows: (i) proposed Rule
14.12 does not include the quantitative standards applicable to a fund
or an index that are included in the Current ETF Standards; and (ii)
proposed Rule 14.12 does not include any requirements related to the
dissemination of a fund's intraday indicative value.\16\
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\16\ 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 Investment Company Units.
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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
Investment Company Units, among other product types, to monitor trading
in ETF Shares. The Exchange or the 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 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.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the trading, pursuant to
UTP, of ETF Shares that will enhance competition among both market
participants and listing venues, to the benefit of investors and the
marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative for 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\20\ the Commission may
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 to immediately allow
ETF Shares to be traded on another venue. The Commission believes that
waiver of the 30-day operative delay for this purpose is consistent
with the protection of investors and the public interest and hereby
waives the 30-day operative delay and designates the proposed rule
change operative upon filing.\21\
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\19\ 17 CFR 240.19b-4(f)(6).
\20\ 17 CFR 240.19b-4(f)(6)(iii).
\21\ For purposes only of waiving the operative delay, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if
[[Page 29005]]
it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeEDGA-2020-013 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-CboeEDGA-2020-013. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeEDGA-2020-013 and should be
submitted on or before June 4, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10288 Filed 5-13-20; 8:45 am]
BILLING CODE 8011-01-P
