Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Instituting Proceedings To Determine Whether to Approve or Disapprove a Proposed Rule Change Relating to Rule 14.11, Other Securities, To Modify a Continued Listing Criterion for Certain Exchange-Traded Products, 48318-48320 [2020-17353]
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48318
Federal Register / Vol. 85, No. 154 / Monday, August 10, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–17347 Filed 8–7–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89472; File No. SR–
CboeBZX–2020–036]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Order Instituting
Proceedings To Determine Whether to
Approve or Disapprove a Proposed
Rule Change Relating to Rule 14.11,
Other Securities, To Modify a
Continued Listing Criterion for Certain
Exchange-Traded Products
August 4, 2020.
On April 29, 2020, Cboe BZX
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’ or
‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend one of the continued listing
requirements relating to certain
exchange-traded products (‘‘ETPs’’)
under BZX Rule 14.11. The proposed
rule change was published for comment
in the Federal Register on May 7, 2020.3
On June 16, 2020, pursuant to Section
19(b)(2) of the Act,4 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
rule change.5 The Commission has
received one comment letter on the
proposed rule change.6 The Commission
is issuing this order to institute
proceedings pursuant to Section
19(b)(2)(B) of the Act 7 to determine
whether to approve or disapprove the
proposed rule change.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 88795
(May 1, 2020), 85 FR 27254 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 89076,
85 FR 37488 (June 22, 2020). The Commission
designated August 5, 2020 as the date by which the
Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 Comments on the proposed rule change can be
found on the Commission’s website at: https://
www.sec.gov/comments/sr-cboebzx-2020-036/
srcboebzx2020036.htm.
7 15 U.S.C. 78s(b)(2)(B).
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2 17
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I. Description of the Proposal
A continued listing requirement for
certain ETPs 8 currently provides that,
following the initial 12-month period
after commencement of trading on the
Exchange, the Exchange will consider
the suspension of trading in, and will
commence delisting proceedings under
BZX Rule 14.12 for, shares of such ETPs
for which there are fewer than 50
beneficial holders for 30 or more
consecutive trading days (‘‘Beneficial
Holder Rule’’). The Exchange is
proposing to change the date after
which an ETP must have at least 50
beneficial holders or be subject to
delisting proceedings under BZX Rule
14.12 (‘‘Non-Compliance Period’’).
Specifically, the Exchange seeks to
extend the Non-Compliance Period from
12 months after commencement of
trading on the Exchange to 36 months
after commencement of trading on the
Exchange.
A. The Exchange’s Rationale
The Exchange asserts that it would be
appropriate to increase the NonCompliance Period from 12 months to
36 months because: (1) It would bring
the rule more in line with the life cycle
of an ETP; (2) the economic and
competitive structures in place in the
ETP ecosystem naturally incentivize
issuers to de-list products rather than
continuing to list products that do not
garner investor interest; and (3)
extending the period from 12 to 36
months will not meaningfully impact
the manipulation concerns that the
continued listing standard is intended
to address.
According to the Exchange, the ETP
space is more competitive that it has
ever been, with more than 2000 ETPs
listed on exchanges. As a result,
distribution platforms have become
more restrictive about the ETPs they
will allow on their systems, often
requiring a minimum track record (e.g.,
twelve months) and a minimum level of
assets under management (e.g., $100
million). Many larger entities also
require a one-year track record before
they will invest in an ETP. In the
Exchange’s view, this has slowed the
growth cycle of the average ETP, with
the result that the Exchange has seen a
significant number of deficiencies with
respect to the Beneficial Holders Rule
over the last several years. Specifically,
the Exchange notes that it has issued
deficiency notifications to 34 ETPs for
8 For purposes of the proposal, the term ‘‘ETP’’
means securities listed pursuant to BZX Rule
14.11(c) (Index Fund Shares), BZX Rule 14.11(i)
(Managed Fund Shares), and BZX Rule 14.11(l)
(Exchange-Traded Fund Shares (‘‘ETF Shares’’)).
PO 00000
Frm 00170
Fmt 4703
Sfmt 4703
non-compliance with the Beneficial
Holders Rule in the last five years, 27 of
which ultimately were able to achieve
compliance while going through the
delisting process.
In addition, the Exchange believes
that the economic and competitive
structures in place in the ETP ecosystem
naturally incentivize issuers to de-list
products with insufficient investor
interest, and that the Beneficial Holders
Rule has resulted in the forced
termination of ETPs that issuers
believed were still economically viable.
The Exchange states that there are
significant costs associated with the
launch and continued operation of an
ETP, and notes that the Exchange has
had 69 products voluntarily delist in the
last two years. The Exchange also
questions whether the number of
beneficial holders is a meaningful
measure of market interest in an ETP,
and believes that an ETP issuer is
incentivized to have as many beneficial
holders as possible.
Finally, the Exchange states that the
proposal ‘‘does not create any
significant change in the risk of
manipulation for ETPs listed on the
exchange.’’ The Exchange ‘‘does not
believe there is anything particularly
important about the 50th Beneficial
Holder that reduces the manipulation
risk associated with an ETP as
compared to the 49th, nor is there any
manipulation concern that arises on the
366th day after an ETP began trading on
the Exchange that didn’t otherwise exist
on the 1st, 2nd, or 365th day.’’ 9 The
Exchange also states that it has in place
a robust surveillance program for ETPs
that it believes is sufficient to deter and
detect manipulation and other violative
activity, and that the Exchange (or the
Financial Industry Regulatory Authority
on its behalf) communicates as needed
with other members of the Intermarket
Surveillance Group. The Exchange
believes that ‘‘these robust surveillance
procedures will further act to mitigate
concerns that arise from extending the
compliance period for the Beneficial
Holders [Rule] from 12 months to 36
months.’’ 10 Lastly, the Exchange takes
the position that other continued listing
standards (e.g., with respect to the
diversity, liquidity and size of an ETP’s
holdings or reference assets) ‘‘are
generally sufficient to mitigate
manipulation concerns associated with
the applicable ETP.’’ 11
9 See
Notice, supra note 3, 85 FR at 27256.
id.
11 See id.
10 See
E:\FR\FM\10AUN1.SGM
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Federal Register / Vol. 85, No. 154 / Monday, August 10, 2020 / Notices
B. Comment on the Proposed Rule
Change
The Commission received one
comment in support of the proposal.12
The commenter states that the beneficial
owner requirement disproportionately
punishes smaller companies without the
resources to pay for aggressive
distribution, and disincentivizes issuers
from launching funds that can prove
themselves purely by investment merit
over the long term.13 The commenter
believes that the purpose of the
beneficial holder minimum likely is to
enforce some sort of minimum liquidity,
and accordingly suggests alternative
liquidity measures such as the quality of
secondary markets (e.g., spreads and
depth of book), the liquidity of the
underlying basket, and the number of
potential liquidity providers. In this
commenter’s view, increasing the time
period to achieve the minimum number
of beneficial holders is a positive step,
but eliminating the requirement
altogether would be far more
purposeful.14
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II. Proceedings To Determine Whether
To Approve or Disapprove SR–
CboeBZX–2020–036 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 15 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved.
Pursuant to Section 19(b)(2)(B) of the
Act,16 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of and input
concerning the proposed rule change’s
consistency with the Act and, in
particular, Section 6(b)(5) of the Act,
which requires, among other things, that
the rules of a national securities
exchange be ‘‘designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to and perfect the
12 See Letter to Secretary, Commission, from S
Phil Bak, Founder & CEO, SecLenX (May 13, 2020)
(‘‘SecLenX Letter’’).
13 See id. at 1.
14 See id. at 2.
15 15 U.S.C. 78s(b)(2)(B).
16 Id.
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mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest; and are not designed to
permit unfair discrimination between
customers, issuers, brokers, or
dealers.’’ 17
The Commission has consistently
recognized the importance of the
minimum number of holders and other
similar requirements in exchange listing
standards. Among other things, such
listing standards help ensure that
exchange listed securities have
sufficient public float, investor base,
and trading interest to provide the depth
and liquidity necessary to promote fair
and orderly markets.18
As discussed above, the Exchange is
proposing to increase the NonCompliance Period from 12 months to
36 months, thereby extending by two
years the length of time during which an
ETP listed on the Exchange would have
no requirement to have a minimum
number of beneficial holders. In support
of its proposal, the Exchange
emphasizes that some ETPs have had
difficulty complying with the Beneficial
Holders Rule. The Exchange indicates
that noncompliance with the Beneficial
Holders Rule is increasing because the
ETP market has become so competitive,
and there are so many of them, that it
can be difficult to acquire the requisite
number of beneficial holders within the
existing Non-Compliance Period. The
Exchange also believes that the existing
Beneficial Holders Rule forces the
delisting of ETPs that may still be
economically viable. With respect to
regulatory considerations, the Exchange
takes the position that the manipulation
risk would not be materially greater if
an ETP had 49 beneficial holders as
opposed to 50, and that no new
manipulation concerns would arise with
a longer Non-Compliance Period than a
shorter one. The Exchange also asserts
that existing surveillances and other
listing standards are sufficient to
mitigate manipulation concerns.
While the Exchange takes the position
that the highly-competitive ETP market
has made compliance with the
17 15
U.S.C. 78f(b)(5).
e.g., Securities Exchange Act Release No.
57785 (May 6, 2008), 73 FR 27597 (May 13,
2008)(SR–NYSE–2008–17) (stating that the
distribution standards, which includes exchange
holder requirements ‘‘. . . should help to ensure
that the [Special Purpose Acquisition Company’s]
securities have sufficient public float, investor base,
and liquidity to promote fair and orderly markets’’);
Securities Exchange Act Release No. 86117 (June
14, 2019), 84 FR 28879 (June 20, 2018) (SR–NYSE–
2018–46) (disapproving a proposal to reduce the
minimum number of public holders continued
listing requirement applicable to Special Purpose
Acquisition Companies from 300 to 100).
18 See,
PO 00000
Frm 00171
Fmt 4703
Sfmt 4703
48319
Beneficial Holders Rule difficult, and
led to the delisting of ETPs that may be
economically viable, the Exchange does
not explain why these compliance
difficulties justify extending the NonCompliance Period for this core
quantitative listing standard for an
additional two years. For example, the
Exchange states that the manipulation
risk is not materially greater with 49
beneficial holders than with 50, but the
Exchange is proposing to require no
minimum number during the NonCompliance Period, and does not
explain why the manipulation and other
regulatory risks would not be greater
with a very small number of beneficial
holders. The Exchange also states that
no new manipulation concerns would
arise with a longer Non-Compliance
Period than a shorter one, but does not
explain why tripling the period during
which the same regulatory risks posed
by a Non-Compliance Period would be
present, is consistent with the Exchange
Act. The Exchange takes the position
that existing surveillances and other
listing standards are sufficient to
mitigate manipulation concerns, but
does not explain in any detail the basis
for this view, or the impact of its
proposal on the maintenance of fair and
orderly markets or other applicable
Exchange Act standards.
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the Exchange Act and
the rules and regulations issued
thereunder . . . is on the self-regulatory
organization [‘SRO’] that proposed the
rule change.’’ 19 The description of a
proposed rule change, its purpose and
operation, its effect, and a legal analysis
of its consistency with applicable
requirements must all be sufficiently
detailed and specific to support an
affirmative Commission finding, and
any failure of an SRO to provide this
information may result in the
Commission not having a sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Exchange Act and the
applicable rules and regulations.20
For these reasons, the Commission
believes it is appropriate to institute
proceedings pursuant to Section
19(b)(2)(B) of the Act to determine
whether the proposal should be
approved or disapproved.
19 Rule 700(b)(3), Commission Rules of Practice,
17 CFR 201.700(b)(3).
20 See id.
E:\FR\FM\10AUN1.SGM
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48320
Federal Register / Vol. 85, No. 154 / Monday, August 10, 2020 / Notices
IV. Commission’s Solicitation of
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the Act,
or the rules and regulations thereunder.
Although there do not appear to be any
issues relevant to approval or
disapproval that would be facilitated by
an oral presentation of views, data, and
arguments, the Commission will
consider, pursuant to Rule 19b–4, any
request for an opportunity to make an
oral presentation.21
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by August 31, 2020. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by September 14, 2020. The
Commission asks that commenters
address the sufficiency of the
Exchange’s statements in support of the
proposal, which are set forth in the
Notice, in addition to any other
comments they may wish to submit
about the proposed rule change.
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2020–036 on the subject line.
Paper Comments
jbell on DSKJLSW7X2PROD with NOTICES
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeBZX–2020–036. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
21 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
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20:31 Aug 07, 2020
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comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2020–036 and
should be submitted by August 31,
2020. Rebuttal comments should be
submitted by September 14, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–17353 Filed 8–7–20; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF TRANSPORTATION
Federal Highway Administration
Notice of Final Federal Agency Actions
on Proposed Highway in California
Federal Highway
Administration (FHWA), Department of
Transportation (DOT).
ACTION: Notice of Limitation on Claims
for Judicial Review of Actions by the
California Department of Transportation
(Caltrans).
AGENCY:
The FHWA, on behalf of
Caltrans, is issuing this notice to
announce actions taken by Caltrans, that
are final. The actions relate to a
proposed highway improvement project
along State Route 70 in the County of
SUMMARY:
22 17
PO 00000
CFR 200.30–3(a)(57).
Frm 00172
Fmt 4703
Sfmt 4703
Yuba, State of California. Those actions
grant licenses, permits, and approvals
for the project.
DATES: By this notice, the FHWA, on
behalf of Caltrans, is advising the public
of final agency actions subject to 23
U.S.C. 139(l)(1). A claim seeking
judicial review of the Federal agency
actions on the highway project will be
barred unless the claim is filed on or
before January 7, 2021. If the Federal
law that authorizes judicial review of a
claim provides a time period of less
than 150 days for filing such claim, then
that shorter time period still applies.
FOR FURTHER INFORMATION CONTACT: For
Caltrans: Cara Lambirth, Branch Chief,
Caltrans Office of Environmental
Management, M–3 California
Department of Transportation-District 3,
703 B Street, Marysville, CA 95901.
Office Hours: 8:00 a.m.–5:00 p.m.,
Pacific Standard Time, telephone (530)
741–4549 or email cara.lambirth@
dot.ca.gov. For FHWA, contact David
Tedrick at (916) 498–5024 or email
david.tedrick@dot.gov.
SUPPLEMENTARY INFORMATION: Effective
July 1, 2007, FHWA assigned, and the
Caltrans assumed, environmental
responsibilities for this project pursuant
to 23 U.S.C. 327. Notice is hereby given
that the Caltrans has taken final agency
actions subject to 23 U.S.C. 139(l)(1) by
issuing licenses, permits, and approvals
for the following highway project in the
State of California.
The Caltrans proposes a project along
a 9.6-mile portion of State Route 70 (SR
70) from Laurellen Road to Honcut
Creek Bridge in Yuba County. The
project is intended to improve travel
times along the corridor which will
result in greater reliability and
efficiency for the movement of goods,
provide better connectivity between
Yuba County and the Sacramento
Valley, and support the overall
economic viability of the Yuba County
region. This project will address
operational deficiencies in the corridor,
but these improvements improve the
overall safety of travelers within the
corridor.
The actions by the Federal agencies,
and the laws under which such actions
were taken, are described in the Final
Environmental Assessment (FEA)/
Finding of No Significant Impact
(FONSI) for the project, issued July 16,
2020, and in other documents in
Caltrans’ project records. The FEA,
FONSI and other project records are
available by contacting Caltrans at the
addresses provided above. The Caltrans
FEA, FONSI and other project records
can be viewed and downloaded from
the project website at https://dot.ca.gov/
E:\FR\FM\10AUN1.SGM
10AUN1
]]>Agencies
[Federal Register Volume 85, Number 154 (Monday, August 10, 2020)]
[Notices]
[Pages 48318-48320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17353]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89472; File No. SR-CboeBZX-2020-036]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether to Approve or Disapprove a
Proposed Rule Change Relating to Rule 14.11, Other Securities, To
Modify a Continued Listing Criterion for Certain Exchange-Traded
Products
August 4, 2020.
On April 29, 2020, Cboe BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend one of the continued
listing requirements relating to certain exchange-traded products
(``ETPs'') under BZX Rule 14.11. The proposed rule change was published
for comment in the Federal Register on May 7, 2020.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 88795 (May 1, 2020),
85 FR 27254 (``Notice'').
---------------------------------------------------------------------------
On June 16, 2020, pursuant to Section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\ The Commission has received one comment letter on the
proposed rule change.\6\ The Commission is issuing this order to
institute proceedings pursuant to Section 19(b)(2)(B) of the Act \7\ to
determine whether to approve or disapprove the proposed rule change.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 89076, 85 FR 37488
(June 22, 2020). The Commission designated August 5, 2020 as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ Comments on the proposed rule change can be found on the
Commission's website at: https://www.sec.gov/comments/sr-cboebzx-2020-036/srcboebzx2020036.htm.
\7\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
I. Description of the Proposal
A continued listing requirement for certain ETPs \8\ currently
provides that, following the initial 12-month period after commencement
of trading on the Exchange, the Exchange will consider the suspension
of trading in, and will commence delisting proceedings under BZX Rule
14.12 for, shares of such ETPs for which there are fewer than 50
beneficial holders for 30 or more consecutive trading days
(``Beneficial Holder Rule''). The Exchange is proposing to change the
date after which an ETP must have at least 50 beneficial holders or be
subject to delisting proceedings under BZX Rule 14.12 (``Non-Compliance
Period''). Specifically, the Exchange seeks to extend the Non-
Compliance Period from 12 months after commencement of trading on the
Exchange to 36 months after commencement of trading on the Exchange.
---------------------------------------------------------------------------
\8\ For purposes of the proposal, the term ``ETP'' means
securities listed pursuant to BZX Rule 14.11(c) (Index Fund Shares),
BZX Rule 14.11(i) (Managed Fund Shares), and BZX Rule 14.11(l)
(Exchange-Traded Fund Shares (``ETF Shares'')).
---------------------------------------------------------------------------
A. The Exchange's Rationale
The Exchange asserts that it would be appropriate to increase the
Non-Compliance Period from 12 months to 36 months because: (1) It would
bring the rule more in line with the life cycle of an ETP; (2) the
economic and competitive structures in place in the ETP ecosystem
naturally incentivize issuers to de-list products rather than
continuing to list products that do not garner investor interest; and
(3) extending the period from 12 to 36 months will not meaningfully
impact the manipulation concerns that the continued listing standard is
intended to address.
According to the Exchange, the ETP space is more competitive that
it has ever been, with more than 2000 ETPs listed on exchanges. As a
result, distribution platforms have become more restrictive about the
ETPs they will allow on their systems, often requiring a minimum track
record (e.g., twelve months) and a minimum level of assets under
management (e.g., $100 million). Many larger entities also require a
one-year track record before they will invest in an ETP. In the
Exchange's view, this has slowed the growth cycle of the average ETP,
with the result that the Exchange has seen a significant number of
deficiencies with respect to the Beneficial Holders Rule over the last
several years. Specifically, the Exchange notes that it has issued
deficiency notifications to 34 ETPs for non-compliance with the
Beneficial Holders Rule in the last five years, 27 of which ultimately
were able to achieve compliance while going through the delisting
process.
In addition, the Exchange believes that the economic and
competitive structures in place in the ETP ecosystem naturally
incentivize issuers to de-list products with insufficient investor
interest, and that the Beneficial Holders Rule has resulted in the
forced termination of ETPs that issuers believed were still
economically viable. The Exchange states that there are significant
costs associated with the launch and continued operation of an ETP, and
notes that the Exchange has had 69 products voluntarily delist in the
last two years. The Exchange also questions whether the number of
beneficial holders is a meaningful measure of market interest in an
ETP, and believes that an ETP issuer is incentivized to have as many
beneficial holders as possible.
Finally, the Exchange states that the proposal ``does not create
any significant change in the risk of manipulation for ETPs listed on
the exchange.'' The Exchange ``does not believe there is anything
particularly important about the 50th Beneficial Holder that reduces
the manipulation risk associated with an ETP as compared to the 49th,
nor is there any manipulation concern that arises on the 366th day
after an ETP began trading on the Exchange that didn't otherwise exist
on the 1st, 2nd, or 365th day.'' \9\ The Exchange also states that it
has in place a robust surveillance program for ETPs that it believes is
sufficient to deter and detect manipulation and other violative
activity, and that the Exchange (or the Financial Industry Regulatory
Authority on its behalf) communicates as needed with other members of
the Intermarket Surveillance Group. The Exchange believes that ``these
robust surveillance procedures will further act to mitigate concerns
that arise from extending the compliance period for the Beneficial
Holders [Rule] from 12 months to 36 months.'' \10\ Lastly, the Exchange
takes the position that other continued listing standards (e.g., with
respect to the diversity, liquidity and size of an ETP's holdings or
reference assets) ``are generally sufficient to mitigate manipulation
concerns associated with the applicable ETP.'' \11\
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\9\ See Notice, supra note 3, 85 FR at 27256.
\10\ See id.
\11\ See id.
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[[Page 48319]]
B. Comment on the Proposed Rule Change
The Commission received one comment in support of the proposal.\12\
The commenter states that the beneficial owner requirement
disproportionately punishes smaller companies without the resources to
pay for aggressive distribution, and disincentivizes issuers from
launching funds that can prove themselves purely by investment merit
over the long term.\13\ The commenter believes that the purpose of the
beneficial holder minimum likely is to enforce some sort of minimum
liquidity, and accordingly suggests alternative liquidity measures such
as the quality of secondary markets (e.g., spreads and depth of book),
the liquidity of the underlying basket, and the number of potential
liquidity providers. In this commenter's view, increasing the time
period to achieve the minimum number of beneficial holders is a
positive step, but eliminating the requirement altogether would be far
more purposeful.\14\
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\12\ See Letter to Secretary, Commission, from S Phil Bak,
Founder & CEO, SecLenX (May 13, 2020) (``SecLenX Letter'').
\13\ See id. at 1.
\14\ See id. at 2.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2020-036 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \15\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved.
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\15\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\16\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of and input concerning the proposed rule change's consistency
with the Act and, in particular, Section 6(b)(5) of the Act, which
requires, among other things, that the rules of a national securities
exchange be ``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; and are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.'' \17\
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\16\ Id.
\17\ 15 U.S.C. 78f(b)(5).
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The Commission has consistently recognized the importance of the
minimum number of holders and other similar requirements in exchange
listing standards. Among other things, such listing standards help
ensure that exchange listed securities have sufficient public float,
investor base, and trading interest to provide the depth and liquidity
necessary to promote fair and orderly markets.\18\
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\18\ See, e.g., Securities Exchange Act Release No. 57785 (May
6, 2008), 73 FR 27597 (May 13, 2008)(SR-NYSE-2008-17) (stating that
the distribution standards, which includes exchange holder
requirements ``. . . should help to ensure that the [Special Purpose
Acquisition Company's] securities have sufficient public float,
investor base, and liquidity to promote fair and orderly markets'');
Securities Exchange Act Release No. 86117 (June 14, 2019), 84 FR
28879 (June 20, 2018) (SR-NYSE-2018-46) (disapproving a proposal to
reduce the minimum number of public holders continued listing
requirement applicable to Special Purpose Acquisition Companies from
300 to 100).
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As discussed above, the Exchange is proposing to increase the Non-
Compliance Period from 12 months to 36 months, thereby extending by two
years the length of time during which an ETP listed on the Exchange
would have no requirement to have a minimum number of beneficial
holders. In support of its proposal, the Exchange emphasizes that some
ETPs have had difficulty complying with the Beneficial Holders Rule.
The Exchange indicates that noncompliance with the Beneficial Holders
Rule is increasing because the ETP market has become so competitive,
and there are so many of them, that it can be difficult to acquire the
requisite number of beneficial holders within the existing Non-
Compliance Period. The Exchange also believes that the existing
Beneficial Holders Rule forces the delisting of ETPs that may still be
economically viable. With respect to regulatory considerations, the
Exchange takes the position that the manipulation risk would not be
materially greater if an ETP had 49 beneficial holders as opposed to
50, and that no new manipulation concerns would arise with a longer
Non-Compliance Period than a shorter one. The Exchange also asserts
that existing surveillances and other listing standards are sufficient
to mitigate manipulation concerns.
While the Exchange takes the position that the highly-competitive
ETP market has made compliance with the Beneficial Holders Rule
difficult, and led to the delisting of ETPs that may be economically
viable, the Exchange does not explain why these compliance difficulties
justify extending the Non-Compliance Period for this core quantitative
listing standard for an additional two years. For example, the Exchange
states that the manipulation risk is not materially greater with 49
beneficial holders than with 50, but the Exchange is proposing to
require no minimum number during the Non-Compliance Period, and does
not explain why the manipulation and other regulatory risks would not
be greater with a very small number of beneficial holders. The Exchange
also states that no new manipulation concerns would arise with a longer
Non-Compliance Period than a shorter one, but does not explain why
tripling the period during which the same regulatory risks posed by a
Non-Compliance Period would be present, is consistent with the Exchange
Act. The Exchange takes the position that existing surveillances and
other listing standards are sufficient to mitigate manipulation
concerns, but does not explain in any detail the basis for this view,
or the impact of its proposal on the maintenance of fair and orderly
markets or other applicable Exchange Act standards.
Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
self-regulatory organization [`SRO'] that proposed the rule change.''
\19\ The description of a proposed rule change, its purpose and
operation, its effect, and a legal analysis of its consistency with
applicable requirements must all be sufficiently detailed and specific
to support an affirmative Commission finding, and any failure of an SRO
to provide this information may result in the Commission not having a
sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rules and
regulations.\20\
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\19\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\20\ See id.
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For these reasons, the Commission believes it is appropriate to
institute proceedings pursuant to Section 19(b)(2)(B) of the Act to
determine whether the proposal should be approved or disapproved.
[[Page 48320]]
IV. Commission's Solicitation of Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Act, or
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\21\
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\21\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by August 31, 2020. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
September 14, 2020. The Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal,
which are set forth in the Notice, in addition to any other comments
they may wish to submit about the proposed rule change.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2020-036 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeBZX-2020-036. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2020-036 and should be submitted
by August 31, 2020. Rebuttal comments should be submitted by September
14, 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)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17353 Filed 8-7-20; 8:45 am]
BILLING CODE 8011-01-P
