Self-Regulatory Organizations; NYSE Arca, Inc.; Order Disapproving a Proposed Rule Change To Amend NYSE Arca Rules 5.2-E(j)(3), 5.2-E(j)(8), 5.5-E(g)(2), 8.600-E, and 8.900-E, 13414-13417 [2021-04676]

Download as PDF 13414 Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. [FR Doc. 2021–04677 Filed 3–5–21; 8:45 am] IV. Solicitation of Comments BILLING CODE 8011–01–P 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 SRCboeBZX–2021–017 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-2021–017. 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; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– CboeBZX–2021–017 and should be submitted on or before March 29, 2021. VerDate Sep<11>2014 19:05 Mar 05, 2021 Jkt 253001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 J. Matthew DeLesDernier, Assistant Secretary. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–91236; File No. SR– NYSEArca–2020–56] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Disapproving a Proposed Rule Change To Amend NYSE Arca Rules 5.2–E(j)(3), 5.2– E(j)(8), 5.5–E(g)(2), 8.600–E, and 8.900– E March 2, 2021. I. Introduction On June 18, 2020, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend certain listing requirements relating to maintaining a minimum number of beneficial holders and minimum number of shares outstanding. The proposed rule change was published for comment in the Federal Register on July 7, 2020.3 On August 17, 2020, pursuant to Section 19(b)(2) of the Exchange 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 On October 2, 2020, the Commission instituted proceedings to determine whether to approve or disapprove the proposed rule change.6 On December 15, 2020, the Commission designated a longer period for Commission action on the proposed rule change.7 The Commission received one comment letter on the proposed rule change.8 17 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 89197 (June 30, 2020), 85 FR 40720 (‘‘Notice’’). 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 89584, 85 FR 51817 (Aug. 21, 2020). 6 See Securities Exchange Act Release No. 90075, 85 FR 63597 (Oct. 8, 2020) (‘‘OIP’’). 7 See Securities Exchange Act Release No. 90672, 85 FR 83135 (Dec. 21, 2020). 8 The comment on the proposed rule change can be found on the Commission’s website at: https:// 1 15 PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 This order disapproves the proposed rule change because, as discussed below, NYSE Arca has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), and, in particular, the requirement that the rules of a national securities exchange be designed ‘‘to prevent fraudulent and manipulative acts and practices’’ and ‘‘to protect investors and the public interest.’’ 9 II. Description of the Proposal As described in detail in the Notice and OIP, the Exchange proposes to amend the listing standards governing the listing and trading of Investment Company Units, Exchange-Traded Fund Shares, Managed Fund Shares, and Managed Portfolio Shares (collectively, ‘‘Fund Shares’’).10 Specifically, NYSE Arca proposes to: (1) Remove the listing requirement that, following the initial twelve-month period after commencement of trading of a series of Fund Shares on the Exchange, such series have at least 50 beneficial holders (‘‘Beneficial Holders Rule’’); and (2) replace the existing minimum number of shares requirements (‘‘Minimum Shares Outstanding Rules’’) 11 with a requirement that a series of Fund Shares have at least one creation unit outstanding on an initial and continued listing basis.12 The Exchange states that Beneficial Holders Rule as it pertains to Fund Shares listed on NYSE Arca is no longer necessary. The Exchange contends that the requirements of Rule 6c–11 under the 1940 Act and, in particular, the website disclosure requirements of Rule www.sec.gov/comments/sr-nysearca-2020-56/ srnysearca202056-8163217-226939.pdf. 9 15 U.S.C. 78f(b)(5). 10 See NYSE Arca Rules 5.2–E(j)(3) and 5.5– E(g)(2) (Investment Company Units); 5.2–E(j)(8) (Exchange-Traded Fund Shares); 8.600–E (Managed Fund Shares); and 8.900–E (Managed Portfolio Shares). 11 See Commentary .01(d) to NYSE Arca Rule 5.2– E(j)(3) (requiring a minimum of 100,000 shares of a series of Investment Company Units to be outstanding at commencement of trading); NYSE Arca Rule 5.2–E(j)(8)(e)(1)(A) (requiring the Exchange to establish a minimum number of Exchange-Traded Fund Shares to be outstanding at the time of commencement of trading); NYSE Arca Rule 8.600–E(d)(1)(A) (requiring the Exchange to establish a minimum number of Managed Fund Shares to be outstanding at the time of commencement of trading); and NYSE Arca Rule 8.900–E(d)(1)(A) (requiring the Exchange to establish a minimum number of Managed Portfolio Shares to be outstanding at the time of commencement of trading). 12 The Exchange represents that the term ‘‘creation unit’’ would have the same meaning as defined in Rule 6c–11(a)(1) under the Investment Company Act of 1940 (‘‘1940 Act’’). E:\FR\FM\08MRN1.SGM 08MRN1 Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES 6c–11(c), together with the existing creation and redemption process, serve to mitigate the risks of manipulation and lack of liquidity that the Beneficial Holders Rule was intended to address.13 The Exchange also asserts that requiring at least one creation unit to be outstanding at all times, together with the enhanced disclosure requirements of Rule 6c–11 under the 1940 Act, will facilitate an effective arbitrage mechanism that, with respect to Investment Company Units, Managed Fund Shares, and Exchange-Traded Fund Shares, will provide investors with sufficient transparency into the holdings of the underlying portfolio and help ensure that the trading price in the secondary market remains in line with the net asset value-per-share of a fund’s portfolio. In support of this assertion, the Exchange cites to Rule 6c– 11(c)(1)(vi) under the 1940 Act, which requires additional disclosures if the premium or discount with respect to a fund’s trading price in the secondary market and the net asset value-per-share of a fund’s portfolio is in excess of 2% for more than seven consecutive days. NYSE Arca asserts that such enhanced disclosure would provide transparency to investors in the event there are indications of an inefficient arbitrage mechanism. With respect to Managed Portfolio Shares, while these securities do not publicly disclose their portfolio holdings daily and are not eligible to rely on Rule 6c–11 under the 1940 Act, the Exchange argues that the applicable Verified Intraday Indicative Value and other information required to be disseminated in connection with the listing and trading of Managed Portfolio Shares ensures transparency of key values and information, and that such information is sufficient to support an effective arbitrage process, independent of any Beneficial Holders Rule. The Exchange states that the arbitrage mechanism generally causes the market price and the net asset value-per-share to align, and the functioning of the arbitrage mechanism helps to ensure that the trading price in the secondary market is at fair value. The Exchange further states that the existence of the creation and redemption process, as well as the proposed requirement that at 13 The portfolio holdings underlying Managed Portfolio Shares must be disclosed within at least 60 days following the end of every fiscal quarter. See NYSE Arca Rule 8.900–E(c)1.d. As a result, the requirements of Rule 6c–11 upon which the Exchange relies to mitigate manipulation risk and illiquidity do not apply to Managed Portfolio Shares. See Investment Company Act Release No. 33646 (September 25, 2019), 84 FR 57162, 57163 (October 24, 2019) (‘‘Because these non-transparent ETFs do not provide daily portfolio transparency, they would not meet the conditions of rule 6c–11’’). VerDate Sep<11>2014 19:05 Mar 05, 2021 Jkt 253001 least one creation unit is always outstanding, would ensure that market participants are able to redeem Fund Shares and, thereby, allow the arbitrage mechanism to function properly. The Exchange concludes, therefore, that such arbitrage mechanism would obviate the need for a Beneficial Holders Rule to support a fair and orderly market in Fund Shares. In addition, the Exchange contends that its surveillance procedures for Fund Shares and its ability to halt trading in Fund Shares in specified circumstances provide for additional investor protections by further mitigating any abnormal trading that would affect the Fund Shares’ prices. The Commission received one comment in support of the proposal.14 The commenter states that the Beneficial Holders Rule ‘‘does not appear to provide any meaningful investor-protection benefits.’’ 15 Specifically, the commenter expresses the view that the liquidity of shares of an exchange-traded fund (‘‘ETF’’) is primarily a function of the liquidity of the ETF’s underlying securities, that the marketplace taps into this liquidity through the creation and redemption and arbitrage processes, and that this mitigates potential price manipulation concerns.16 In addition, the commenter believes that the enhanced disclosure requirements of Rule 6c-11 under the 1940 Act,17 including those relating to an ETF’s portfolio holdings and when an ETF’s premium or discount exceeds 2% for more than seven consecutive days, will help facilitate effective arbitrage. The commenter conducted a survey of its members that sought information on level of assets, number of beneficial holders, and various trading measures of newly-listed ETFs over different periods following initial listing, and concluded that the number of shareholders in an ETF does not appear to be a significant consideration in an ETF’s sponsor’s decision to delist and terminate an ETF and that this requirement does not appear to offer investor protection benefits.18 14 See Letter to Secretary, Commission, from Timothy W. Cameron, Asset Management Group— Head, and Lindsey Weber Keljo, Asset Management Group—Managing Director and Associate General Counsel, SIFMA AMG (Dec. 18, 2020) (‘‘SIFMA Letter’’). 15 SIFMA Letter, id. at 3. 16 See id. 17 See id. at 3–4. The commenter also states that the Beneficial Holders Rule puts newer and smaller sponsors at an unnecessary disadvantage to larger sponsors having the enterprise-wide scale and distribution reach to gather assets in the months after launch. See id. 18 See id. PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 13415 III. Discussion and Commission Findings The Commission must consider whether NYSE Arca’s proposal is consistent with Section 6(b)(5) of the Exchange Act, which requires, in relevant part, that the rules of a national securities exchange be designed ‘‘to prevent fraudulent and manipulative acts and practices’’ and ‘‘to protect investors and the public interest.’’ 19 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.’’ 20 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,21 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.22 Moreover, ‘‘unquestioning reliance’’ on an SRO’s representations in a proposed rule change is not sufficient to justify Commission approval of a proposed rule change.23 The Commission has consistently recognized the importance of the 19 15 U.S.C. 78f(b)(5). Pursuant to Section 19(b)(2) of the Exchange Act, 15 U.S.C. 78s(b)(2), the Commission must disapprove a proposed rule change filed by a national securities exchange if it does not find that the proposed rule change is consistent with the applicable requirements of the Exchange Act. Exchange Act Section 6(b)(5) states that an exchange shall not be registered as a national securities exchange unless the Commission determines that ‘‘[t]he rules of the exchange are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, 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, or to regulate by virtue of any authority conferred by this title matters not related to the purposes of this title or the administration of the exchange.’’ 15 U.S.C. 78(f)(b)(5). 20 Rule 700(b)(3), Commission Rules of Practice, 17 CFR 201.700(b)(3). 21 See id. 22 See id. 23 Susquehanna Int’l Group, LLP v. Securities and Exchange Commission, 866 F.3d 442, 447 (DC Cir. 2017). E:\FR\FM\08MRN1.SGM 08MRN1 13416 Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices jbell on DSKJLSW7X2PROD with NOTICES minimum number of holders and other similar requirements, stating that 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.24 As stated by the Exchange, the minimum number of holders requirement is intended to address the risks of manipulation.25 As discussed above, the Exchange is proposing to (1) remove the Beneficial Holders Rule applicable to Fund Shares listed on NYSE Arca, and (2) replace the existing Minimum Shares Outstanding Rules with a requirement that a series of Fund Shares have at least one creation unit outstanding on an initial and continued listing basis. In support of its proposal, the Exchange asserts that the requirements of Rule 6c–11 under the 1940 Act, and in particular the website disclosure requirements of Rule 6c– 11(c) and, for Managed Portfolio Shares, the information required to be disseminated (including the verified intraday indicative value) in connection with the listing and trading of those Shares, together with the existing creation and redemption process and proposed requirement that at least one creation unit is always outstanding, would serve to mitigate the risks of manipulation and the lack of liquidity that the Beneficial Holders Rule was intended to address. However, the Exchange does not sufficiently support its assertions, particularly where a series of Fund Shares is permitted to have a very small number of beneficial holders. For example, the Exchange does not sufficiently address how the arbitrage mechanism will ensure Fund Shares with very few beneficial holders would be sufficiently liquid to support fair and orderly markets. The Exchange also does not discuss in sufficient detail the 24 The Commission considers distribution standards, including minimum number of holders and number of shares outstanding requirements, to be important means of promoting fair and orderly markets. 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 include exchange holder and number of shares outstanding 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). 25 See Notice, supra note 3, 85 FR at 40722. See also SIFMA Letter, supra note 14, at 3 (acknowledging that the Beneficial Holders Rule was intended to address ‘‘potential price manipulation,’’ among other things). VerDate Sep<11>2014 19:05 Mar 05, 2021 Jkt 253001 potential inefficiencies in the arbitrage mechanism that might occur with illiquid Fund Shares that have very few holders, and the impact that would have on the ability of the arbitrage mechanism to effectively mitigate the risks of manipulation. In addition, the Exchange does not sufficiently explain how an efficient and effective arbitrage mechanism and sufficient liquidity could result for a series of Fund Shares held only by a very few number of buyand-hold investors and thereby mitigate manipulation risks. Further, the Exchange does not sufficiently address the impact of creation unit size on the efficiency of the arbitrage mechanism. For example, with respect to a series of illiquid Fund Shares with very few beneficial holders, the Exchange does not describe how the proposal is designed to mitigate the risks of manipulation if the creation unit size for the Fund Shares is large in comparison to the total number of Fund Shares outstanding. The Exchange provides no data or analysis to support its position, other than noting the number and size of the creation units for existing series of Fund Shares. As discussed above, the Beneficial Holders Rule and other minimum number of holders requirements are important to ensure that trading in exchange listed securities is fair and orderly and not susceptible to manipulation, and the Exchange does not sufficiently explain why its proposed modification of these requirements is consistent with the Exchange Act. While the Exchange also proposes to replace the existing Minimum Shares Outstanding Rules with a requirement that a series of Fund Shares have a number of shares outstanding equal to at least one creation unit, the Exchange does not sufficiently explain why this is an appropriate substitute for its existing standards. Creation unit sizes could be highly variable, since they are determined at the discretion of the issuer of Fund Shares, and the Exchange has not articulated how this new standard would effectively support fair and orderly markets, address the risks of manipulation, and otherwise be consistent with Section 6(b)(5) and other relevant provisions of the Act. The Exchange argues that requiring at least one creation unit to be outstanding at all times, together with the enhanced disclosure requirements of Rule 6c–11, would facilitate an effective arbitrage mechanism that would provide investors with sufficient transparency into the holdings of the underlying portfolio and help ensure that the trading price in the secondary market PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 remains in line with the value per share of a fund’s portfolio. The Exchange, however, fails to explain in sufficient detail how an efficient and effective arbitrage mechanism could result for an illiquid series of Fund Shares held by very few beneficial holders and with only one creation unit of Fund Shares outstanding. The Exchange also does not provide any explanation as to how such series of Fund Shares with only a single creation unit outstanding is therefore less susceptible to manipulation risks on a continued listing basis. Finally, while the Exchange asserts that its surveillance procedures and trading halt authority would provide for additional investor protections by further mitigating any abnormal trading that would affect the Fund Shares’ prices, it does not offer any explanation of the basis for that view or provide any supporting information or evidence to support its conclusion. Notably, the Exchange does not explain how any of its specific existing surveillance procedures or administration of its trading halt authority effectively address, in the absence of the Beneficial Holders Rule 26 and the Minimum Shares Outstanding Rules, manipulation concerns and other regulatory risks to fair and orderly markets, investor protection, and the public interest. Accordingly, the Commission is unable to assess whether the Exchange’s assertion has merit. The Commission identified all of these concerns in the OIP, but the Exchange has not responded or provided additional data addressing these concerns.27 As stated above, under 26 See supra note 24 and accompanying text. OIP, supra note 6. The commenter asserts that the creation and redemption processes, which tap into the liquidity of the underlying holdings, coupled with the enhanced disclosures mandated under Rule 6c–11 under the 1940 Act, mitigate manipulation concerns. See SIFMA Letter, supra note 14, at 3. However, neither the Exchange nor the commenter explains why arbitrage opportunities would sufficiently mitigate manipulation concerns for the full range of ETFs, including ETFs overlying a portfolio of instruments that are themselves illiquid, or where market interest in the ETF is not sufficient to attract effective arbitrage activity. While the Exchange and the commenter assert that certain disclosures under Rule 6c–11 under the 1940 Act provide investors with transparency into the holdings of the underlying portfolio and additional insight into the effectiveness of an ETF’s arbitrage (see Notice, supra note 3, 85 FR at 40721; SIFMA Letter, supra note 14, at 3–4), neither the Exchange nor the commenter sufficiently explains how such disclosures might prevent manipulation. In addition, while the commenter states that its survey data showed that an ETF’s number of shareholders, level of assets and liquidity tended to improve after three years of operation as compared to one year, the commenter does not assert that the survey addressed the concerns about potential 27 See E:\FR\FM\08MRN1.SGM 08MRN1 Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices 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.’’ 28 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.29 The Commission concludes that, because NYSE Arca has not demonstrated that its proposal is designed to prevent fraudulent and manipulative acts and practices or to protect investors and the public interest, the Exchange has not met its burden to demonstrate that its proposal is consistent with Section 6(b)(5) of the Exchange Act.30 For this reason, the Commission must disapprove the proposal. IV. Conclusion jbell on DSKJLSW7X2PROD with NOTICES For the reasons set forth above, the Commission does not find, pursuant to Section 19(b)(2) of the Exchange Act,31 that the proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange, and in particular, with Section 6(b)(5) of the Exchange Act.32 It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act, that proposed rule change SR– NYSEArca–2020–56 is disapproved. manipulation that the proposal raises, as described above. 28 Rule 700(b)(3), Commission Rules of Practice, 17 CFR 201.700(b)(3). 29 See id. 30 In disapproving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). Although the commenter (see SIFMA Letter, supra note 14, at 4) asserts that the current Beneficial Holders Rule puts newer and smaller sponsors at an unnecessary disadvantage to larger sponsors having the enterprise-wide scale and distribution reach to gather assets in the months after launch, neither the commenter nor the Exchange has provided data to support this conclusion. 31 15 U.S.C. 78s(b)(2). 32 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 19:05 Mar 05, 2021 Jkt 253001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.33 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–04676 Filed 3–5–21; 8:45 am] BILLING CODE 8011–01–P 13417 Clear Europe has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change (a) Purpose SECURITIES AND EXCHANGE COMMISSION [Release No. 34–91240; File No. SR–ICEEU– 2021–006] Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing of Proposed Rule Change Relating to the ICE Clear Europe CDS Clearing Stress Testing Policy, CDS End of Day Price Discovery Policy, CDS Risk Model Description and CDS Risk Policy and CDS Parameters Review Procedures March 2, 2021. 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 February 23, 2021, ICE Clear Europe Limited (‘‘ICE Clear Europe’’ or the ‘‘Clearing House’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule changes described in Items I, II and III below, which Items have been prepared by ICE Clear Europe. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change ICE Clear Europe Limited proposes to modify certain provisions of its CDS Clearing Stress Testing Policy, CDS End of Day Price Discovery Policy, CDS Risk Model Description and CDS Risk Policy (together, the ‘‘Documents’’) and to adopt a new document titled CDS Parameters Review Procedures (the ‘‘Parameters Procedures’’). II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, ICE Clear Europe 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. ICE 33 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 ICE Clear Europe is proposing to amend the Documents and institute the new Parameters Procedures principally to describe more fully certain existing Clearing House practices, as discussed herein. ICE Clear Europe is also proposing to make certain enhancements to CDS stress testing, specifically to incorporate the impact of the COVID–19 pandemic into its stress testing framework. CDS End of Day Price Discovery Policy The amendments to this policy would generally clarify the process to determine prices for a particular instrument when fewer than three Clearing Members have open interest in that instrument, in order to provide more reliable pricing in that scenario. The amendments would also make minor terminology updates to conform uses of defined terms, correctly reference various ICE Clear Europe personnel and operations and make similar typographical corrections throughout the document and add a new table. Currently, the CDS End of Day Price Discovery Policy states that if fewer than three CDS Clearing Members have cleared open interest in an instrument, ICE Clear Europe may require all CDS Clearing Members to provide a price submission for that instrument. ICE Clear Europe proposes to supplement this concept to provide more flexibility to ensure enough submissions to enable effective determination of reliable endof-day prices and thereby facilitate an accurate and stable variation margin process. Specifically, the amendments are designed to produce more reliable prices by increasing the probability of receiving multiple submissions. As amended, the policy would state that ICE Clear Europe believes that tradeable quotes submitted by CDS Clearing Members are the preferred source of data and should be used where possible and reliable, meaning where there is more than one CDS Clearing Member with which the quote could be crossed. Where there are not enough CDS Clearing Members to enable tradeable quotes (i.e., quotes at which a member would transact) to be crossed with more than one CDS Clearing Member (i.e., fewer than three CDS Clearing Members E:\FR\FM\08MRN1.SGM 08MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 43 (Monday, March 8, 2021)]
[Notices]
[Pages 13414-13417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04676]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91236; File No. SR-NYSEArca-2020-56]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order 
Disapproving a Proposed Rule Change To Amend NYSE Arca Rules 5.2-
E(j)(3), 5.2-E(j)(8), 5.5-E(g)(2), 8.600-E, and 8.900-E

March 2, 2021.

I. Introduction

    On June 18, 2020, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to amend certain listing requirements relating to maintaining a 
minimum number of beneficial holders and minimum number of shares 
outstanding. The proposed rule change was published for comment in the 
Federal Register on July 7, 2020.\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 89197 (June 30, 
2020), 85 FR 40720 (``Notice'').
---------------------------------------------------------------------------

    On August 17, 2020, pursuant to Section 19(b)(2) of the Exchange 
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\ On October 2, 2020, the Commission instituted 
proceedings to determine whether to approve or disapprove the proposed 
rule change.\6\ On December 15, 2020, the Commission designated a 
longer period for Commission action on the proposed rule change.\7\ The 
Commission received one comment letter on the proposed rule change.\8\
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 89584, 85 FR 51817 
(Aug. 21, 2020).
    \6\ See Securities Exchange Act Release No. 90075, 85 FR 63597 
(Oct. 8, 2020) (``OIP'').
    \7\ See Securities Exchange Act Release No. 90672, 85 FR 83135 
(Dec. 21, 2020).
    \8\ The comment on the proposed rule change can be found on the 
Commission's website at: https://www.sec.gov/comments/sr-nysearca-2020-56/srnysearca202056-8163217-226939.pdf.
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    This order disapproves the proposed rule change because, as 
discussed below, NYSE Arca has not met its burden under the Exchange 
Act and the Commission's Rules of Practice to demonstrate that its 
proposal is consistent with the requirements of Exchange Act Section 
6(b)(5), and, in particular, the requirement that the rules of a 
national securities exchange be designed ``to prevent fraudulent and 
manipulative acts and practices'' and ``to protect investors and the 
public interest.'' \9\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(5).
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II. Description of the Proposal

    As described in detail in the Notice and OIP, the Exchange proposes 
to amend the listing standards governing the listing and trading of 
Investment Company Units, Exchange-Traded Fund Shares, Managed Fund 
Shares, and Managed Portfolio Shares (collectively, ``Fund 
Shares'').\10\ Specifically, NYSE Arca proposes to: (1) Remove the 
listing requirement that, following the initial twelve-month period 
after commencement of trading of a series of Fund Shares on the 
Exchange, such series have at least 50 beneficial holders (``Beneficial 
Holders Rule''); and (2) replace the existing minimum number of shares 
requirements (``Minimum Shares Outstanding Rules'') \11\ with a 
requirement that a series of Fund Shares have at least one creation 
unit outstanding on an initial and continued listing basis.\12\
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    \10\ See NYSE Arca Rules 5.2-E(j)(3) and 5.5-E(g)(2) (Investment 
Company Units); 5.2-E(j)(8) (Exchange-Traded Fund Shares); 8.600-E 
(Managed Fund Shares); and 8.900-E (Managed Portfolio Shares).
    \11\ See Commentary .01(d) to NYSE Arca Rule 5.2-E(j)(3) 
(requiring a minimum of 100,000 shares of a series of Investment 
Company Units to be outstanding at commencement of trading); NYSE 
Arca Rule 5.2-E(j)(8)(e)(1)(A) (requiring the Exchange to establish 
a minimum number of Exchange-Traded Fund Shares to be outstanding at 
the time of commencement of trading); NYSE Arca Rule 8.600-
E(d)(1)(A) (requiring the Exchange to establish a minimum number of 
Managed Fund Shares to be outstanding at the time of commencement of 
trading); and NYSE Arca Rule 8.900-E(d)(1)(A) (requiring the 
Exchange to establish a minimum number of Managed Portfolio Shares 
to be outstanding at the time of commencement of trading).
    \12\ The Exchange represents that the term ``creation unit'' 
would have the same meaning as defined in Rule 6c-11(a)(1) under the 
Investment Company Act of 1940 (``1940 Act'').
---------------------------------------------------------------------------

    The Exchange states that Beneficial Holders Rule as it pertains to 
Fund Shares listed on NYSE Arca is no longer necessary. The Exchange 
contends that the requirements of Rule 6c-11 under the 1940 Act and, in 
particular, the website disclosure requirements of Rule

[[Page 13415]]

6c-11(c), together with the existing creation and redemption process, 
serve to mitigate the risks of manipulation and lack of liquidity that 
the Beneficial Holders Rule was intended to address.\13\
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    \13\ The portfolio holdings underlying Managed Portfolio Shares 
must be disclosed within at least 60 days following the end of every 
fiscal quarter. See NYSE Arca Rule 8.900-E(c)1.d. As a result, the 
requirements of Rule 6c-11 upon which the Exchange relies to 
mitigate manipulation risk and illiquidity do not apply to Managed 
Portfolio Shares. See Investment Company Act Release No. 33646 
(September 25, 2019), 84 FR 57162, 57163 (October 24, 2019) 
(``Because these non-transparent ETFs do not provide daily portfolio 
transparency, they would not meet the conditions of rule 6c-11'').
---------------------------------------------------------------------------

    The Exchange also asserts that requiring at least one creation unit 
to be outstanding at all times, together with the enhanced disclosure 
requirements of Rule 6c-11 under the 1940 Act, will facilitate an 
effective arbitrage mechanism that, with respect to Investment Company 
Units, Managed Fund Shares, and Exchange-Traded Fund Shares, will 
provide investors with sufficient transparency into the holdings of the 
underlying portfolio and help ensure that the trading price in the 
secondary market remains in line with the net asset value-per-share of 
a fund's portfolio. In support of this assertion, the Exchange cites to 
Rule 6c-11(c)(1)(vi) under the 1940 Act, which requires additional 
disclosures if the premium or discount with respect to a fund's trading 
price in the secondary market and the net asset value-per-share of a 
fund's portfolio is in excess of 2% for more than seven consecutive 
days. NYSE Arca asserts that such enhanced disclosure would provide 
transparency to investors in the event there are indications of an 
inefficient arbitrage mechanism. With respect to Managed Portfolio 
Shares, while these securities do not publicly disclose their portfolio 
holdings daily and are not eligible to rely on Rule 6c-11 under the 
1940 Act, the Exchange argues that the applicable Verified Intraday 
Indicative Value and other information required to be disseminated in 
connection with the listing and trading of Managed Portfolio Shares 
ensures transparency of key values and information, and that such 
information is sufficient to support an effective arbitrage process, 
independent of any Beneficial Holders Rule.
    The Exchange states that the arbitrage mechanism generally causes 
the market price and the net asset value-per-share to align, and the 
functioning of the arbitrage mechanism helps to ensure that the trading 
price in the secondary market is at fair value. The Exchange further 
states that the existence of the creation and redemption process, as 
well as the proposed requirement that at least one creation unit is 
always outstanding, would ensure that market participants are able to 
redeem Fund Shares and, thereby, allow the arbitrage mechanism to 
function properly. The Exchange concludes, therefore, that such 
arbitrage mechanism would obviate the need for a Beneficial Holders 
Rule to support a fair and orderly market in Fund Shares. In addition, 
the Exchange contends that its surveillance procedures for Fund Shares 
and its ability to halt trading in Fund Shares in specified 
circumstances provide for additional investor protections by further 
mitigating any abnormal trading that would affect the Fund Shares' 
prices.
    The Commission received one comment in support of the proposal.\14\ 
The commenter states that the Beneficial Holders Rule ``does not appear 
to provide any meaningful investor-protection benefits.'' \15\ 
Specifically, the commenter expresses the view that the liquidity of 
shares of an exchange-traded fund (``ETF'') is primarily a function of 
the liquidity of the ETF's underlying securities, that the marketplace 
taps into this liquidity through the creation and redemption and 
arbitrage processes, and that this mitigates potential price 
manipulation concerns.\16\ In addition, the commenter believes that the 
enhanced disclosure requirements of Rule 6c-11 under the 1940 Act,\17\ 
including those relating to an ETF's portfolio holdings and when an 
ETF's premium or discount exceeds 2% for more than seven consecutive 
days, will help facilitate effective arbitrage. The commenter conducted 
a survey of its members that sought information on level of assets, 
number of beneficial holders, and various trading measures of newly-
listed ETFs over different periods following initial listing, and 
concluded that the number of shareholders in an ETF does not appear to 
be a significant consideration in an ETF's sponsor's decision to delist 
and terminate an ETF and that this requirement does not appear to offer 
investor protection benefits.\18\
---------------------------------------------------------------------------

    \14\ See Letter to Secretary, Commission, from Timothy W. 
Cameron, Asset Management Group--Head, and Lindsey Weber Keljo, 
Asset Management Group--Managing Director and Associate General 
Counsel, SIFMA AMG (Dec. 18, 2020) (``SIFMA Letter'').
    \15\ SIFMA Letter, id. at 3.
    \16\ See id.
    \17\ See id. at 3-4. The commenter also states that the 
Beneficial Holders Rule puts newer and smaller sponsors at an 
unnecessary disadvantage to larger sponsors having the enterprise-
wide scale and distribution reach to gather assets in the months 
after launch. See id.
    \18\ See id.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    The Commission must consider whether NYSE Arca's proposal is 
consistent with Section 6(b)(5) of the Exchange Act, which requires, in 
relevant part, that the rules of a national securities exchange be 
designed ``to prevent fraudulent and manipulative acts and practices'' 
and ``to protect investors and the public interest.'' \19\ 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.'' \20\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b)(5). Pursuant to Section 19(b)(2) of the 
Exchange Act, 15 U.S.C. 78s(b)(2), the Commission must disapprove a 
proposed rule change filed by a national securities exchange if it 
does not find that the proposed rule change is consistent with the 
applicable requirements of the Exchange Act. Exchange Act Section 
6(b)(5) states that an exchange shall not be registered as a 
national securities exchange unless the Commission determines that 
``[t]he rules of the exchange are designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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, or to regulate by virtue of any authority conferred by 
this title matters not related to the purposes of this title or the 
administration of the exchange.'' 15 U.S.C. 78(f)(b)(5).
    \20\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
---------------------------------------------------------------------------

    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,\21\ 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.\22\ Moreover, ``unquestioning reliance'' on an SRO's 
representations in a proposed rule change is not sufficient to justify 
Commission approval of a proposed rule change.\23\
---------------------------------------------------------------------------

    \21\ See id.
    \22\ See id.
    \23\ Susquehanna Int'l Group, LLP v. Securities and Exchange 
Commission, 866 F.3d 442, 447 (DC Cir. 2017).
---------------------------------------------------------------------------

    The Commission has consistently recognized the importance of the

[[Page 13416]]

minimum number of holders and other similar requirements, stating that 
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.\24\ As stated by the Exchange, the minimum number of holders 
requirement is intended to address the risks of manipulation.\25\
---------------------------------------------------------------------------

    \24\ The Commission considers distribution standards, including 
minimum number of holders and number of shares outstanding 
requirements, to be important means of promoting fair and orderly 
markets. 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 include exchange holder and number 
of shares outstanding 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).
    \25\ See Notice, supra note 3, 85 FR at 40722. See also SIFMA 
Letter, supra note 14, at 3 (acknowledging that the Beneficial 
Holders Rule was intended to address ``potential price 
manipulation,'' among other things).
---------------------------------------------------------------------------

    As discussed above, the Exchange is proposing to (1) remove the 
Beneficial Holders Rule applicable to Fund Shares listed on NYSE Arca, 
and (2) replace the existing Minimum Shares Outstanding Rules with a 
requirement that a series of Fund Shares have at least one creation 
unit outstanding on an initial and continued listing basis. In support 
of its proposal, the Exchange asserts that the requirements of Rule 6c-
11 under the 1940 Act, and in particular the website disclosure 
requirements of Rule 6c-11(c) and, for Managed Portfolio Shares, the 
information required to be disseminated (including the verified 
intraday indicative value) in connection with the listing and trading 
of those Shares, together with the existing creation and redemption 
process and proposed requirement that at least one creation unit is 
always outstanding, would serve to mitigate the risks of manipulation 
and the lack of liquidity that the Beneficial Holders Rule was intended 
to address. However, the Exchange does not sufficiently support its 
assertions, particularly where a series of Fund Shares is permitted to 
have a very small number of beneficial holders. For example, the 
Exchange does not sufficiently address how the arbitrage mechanism will 
ensure Fund Shares with very few beneficial holders would be 
sufficiently liquid to support fair and orderly markets. The Exchange 
also does not discuss in sufficient detail the potential inefficiencies 
in the arbitrage mechanism that might occur with illiquid Fund Shares 
that have very few holders, and the impact that would have on the 
ability of the arbitrage mechanism to effectively mitigate the risks of 
manipulation. In addition, the Exchange does not sufficiently explain 
how an efficient and effective arbitrage mechanism and sufficient 
liquidity could result for a series of Fund Shares held only by a very 
few number of buy-and-hold investors and thereby mitigate manipulation 
risks. Further, the Exchange does not sufficiently address the impact 
of creation unit size on the efficiency of the arbitrage mechanism. For 
example, with respect to a series of illiquid Fund Shares with very few 
beneficial holders, the Exchange does not describe how the proposal is 
designed to mitigate the risks of manipulation if the creation unit 
size for the Fund Shares is large in comparison to the total number of 
Fund Shares outstanding. The Exchange provides no data or analysis to 
support its position, other than noting the number and size of the 
creation units for existing series of Fund Shares. As discussed above, 
the Beneficial Holders Rule and other minimum number of holders 
requirements are important to ensure that trading in exchange listed 
securities is fair and orderly and not susceptible to manipulation, and 
the Exchange does not sufficiently explain why its proposed 
modification of these requirements is consistent with the Exchange Act.
    While the Exchange also proposes to replace the existing Minimum 
Shares Outstanding Rules with a requirement that a series of Fund 
Shares have a number of shares outstanding equal to at least one 
creation unit, the Exchange does not sufficiently explain why this is 
an appropriate substitute for its existing standards. Creation unit 
sizes could be highly variable, since they are determined at the 
discretion of the issuer of Fund Shares, and the Exchange has not 
articulated how this new standard would effectively support fair and 
orderly markets, address the risks of manipulation, and otherwise be 
consistent with Section 6(b)(5) and other relevant provisions of the 
Act. The Exchange argues that requiring at least one creation unit to 
be outstanding at all times, together with the enhanced disclosure 
requirements of Rule 6c-11, would facilitate an effective arbitrage 
mechanism that would provide investors with sufficient transparency 
into the holdings of the underlying portfolio and help ensure that the 
trading price in the secondary market remains in line with the value 
per share of a fund's portfolio. The Exchange, however, fails to 
explain in sufficient detail how an efficient and effective arbitrage 
mechanism could result for an illiquid series of Fund Shares held by 
very few beneficial holders and with only one creation unit of Fund 
Shares outstanding. The Exchange also does not provide any explanation 
as to how such series of Fund Shares with only a single creation unit 
outstanding is therefore less susceptible to manipulation risks on a 
continued listing basis.
    Finally, while the Exchange asserts that its surveillance 
procedures and trading halt authority would provide for additional 
investor protections by further mitigating any abnormal trading that 
would affect the Fund Shares' prices, it does not offer any explanation 
of the basis for that view or provide any supporting information or 
evidence to support its conclusion. Notably, the Exchange does not 
explain how any of its specific existing surveillance procedures or 
administration of its trading halt authority effectively address, in 
the absence of the Beneficial Holders Rule \26\ and the Minimum Shares 
Outstanding Rules, manipulation concerns and other regulatory risks to 
fair and orderly markets, investor protection, and the public interest. 
Accordingly, the Commission is unable to assess whether the Exchange's 
assertion has merit.
---------------------------------------------------------------------------

    \26\ See supra note 24 and accompanying text.
---------------------------------------------------------------------------

    The Commission identified all of these concerns in the OIP, but the 
Exchange has not responded or provided additional data addressing these 
concerns.\27\ As stated above, under

[[Page 13417]]

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.'' \28\ 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.\29\ The Commission concludes that, because NYSE Arca has 
not demonstrated that its proposal is designed to prevent fraudulent 
and manipulative acts and practices or to protect investors and the 
public interest, the Exchange has not met its burden to demonstrate 
that its proposal is consistent with Section 6(b)(5) of the Exchange 
Act.\30\ For this reason, the Commission must disapprove the proposal.
---------------------------------------------------------------------------

    \27\ See OIP, supra note 6. The commenter asserts that the 
creation and redemption processes, which tap into the liquidity of 
the underlying holdings, coupled with the enhanced disclosures 
mandated under Rule 6c-11 under the 1940 Act, mitigate manipulation 
concerns. See SIFMA Letter, supra note 14, at 3. However, neither 
the Exchange nor the commenter explains why arbitrage opportunities 
would sufficiently mitigate manipulation concerns for the full range 
of ETFs, including ETFs overlying a portfolio of instruments that 
are themselves illiquid, or where market interest in the ETF is not 
sufficient to attract effective arbitrage activity. While the 
Exchange and the commenter assert that certain disclosures under 
Rule 6c-11 under the 1940 Act provide investors with transparency 
into the holdings of the underlying portfolio and additional insight 
into the effectiveness of an ETF's arbitrage (see Notice, supra note 
3, 85 FR at 40721; SIFMA Letter, supra note 14, at 3-4), neither the 
Exchange nor the commenter sufficiently explains how such 
disclosures might prevent manipulation. In addition, while the 
commenter states that its survey data showed that an ETF's number of 
shareholders, level of assets and liquidity tended to improve after 
three years of operation as compared to one year, the commenter does 
not assert that the survey addressed the concerns about potential 
manipulation that the proposal raises, as described above.
    \28\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \29\ See id.
    \30\ In disapproving this proposed rule change, the Commission 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f). Although 
the commenter (see SIFMA Letter, supra note 14, at 4) asserts that 
the current Beneficial Holders Rule puts newer and smaller sponsors 
at an unnecessary disadvantage to larger sponsors having the 
enterprise-wide scale and distribution reach to gather assets in the 
months after launch, neither the commenter nor the Exchange has 
provided data to support this conclusion.
---------------------------------------------------------------------------

IV. Conclusion

    For the reasons set forth above, the Commission does not find, 
pursuant to Section 19(b)(2) of the Exchange Act,\31\ that the proposed 
rule change is consistent with the requirements of the Exchange Act and 
the rules and regulations thereunder applicable to a national 
securities exchange, and in particular, with Section 6(b)(5) of the 
Exchange Act.\32\
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(2).
    \32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act, that proposed rule change SR-NYSEArca-2020-56 is 
disapproved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-04676 Filed 3-5-21; 8:45 am]
BILLING CODE 8011-01-P

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