Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 6, Section 7, 27138-27141 [2021-10497]
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Federal Register / Vol. 86, No. 95 / Wednesday, May 19, 2021 / Notices
within measured intervals, and
continues to review haircuts at least
monthly, subject to regular reviews and
more frequent valuation updates, if
needed.
For these reasons, the Commission
finds that the proposed rule change is
consistent with Rule 17Ad–22(e)(5).15
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act, and in
particular, with the requirements of
Section 17A(b)(3)(F) of the Act 16 and
Rules 17Ad–22(e)(2)(i) and (v), (e)(3)(i),
and (e)(5) thereunder.17
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 18 that the
proposed rule change (SR–ICC–2021–
007) be, and hereby is, approved.19
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–10498 Filed 5–18–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91887; File No. SR–Phlx–
2021–30]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 6,
Section 7
May 13, 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 May 6,
2021, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II,
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
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15 17
CFR 240.17Ad–22(e)(5).
16 15 U.S.C. 78q–1(b)(3)(F).
17 17 CFR 240.17Ad–22(e)(2)(i) and (v), (e)(3)(i),
and (e)(5).
18 15 U.S.C. 78s(b)(2).
19 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
20 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Options 6, Section 7 to permit in-kind
transfers of positions off of the Exchange
in connection with unit investment
trusts (‘‘UITs’’).
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Options 6, Section 7, which permits offExchange, in-kind transfers of options
positions in connection with exchangetraded funds (‘‘ETFs’’) organized as
open-ended management investments
companies under the Investment
Company Act of 1940 (the ‘‘1940 Act’’),
to also permit in-kind transfers of
options positions in connection with
entities registered as UITs under the
1940 Act. This is a competitive filing
that is substantially similar to rules in
place on Cboe Exchange, Inc. (‘‘Cboe’’)
and its affiliates.3
3 See Cboe Rule 6.9 (the ‘‘Cboe Rule’’); see also
Securities Exchange Act Release No. 88786 (April
30, 2020), 85 FR 26998 (May 6, 2020) (SR–CBOE–
2020–042). See also Cboe C2 Exchange (‘‘C2’’) Rule
6.63; Securities Exchange Act Release No. 89056
(June 12, 2020), 85 FR 36888 (June 18, 2020) (SR–
C2–2020–006). See also Cboe BZX Exchange
(‘‘BZX’’) Rule 20.12; Securities Exchange Act
Release No. 89313 (July 14, 2020), 85 FR 43907
(July 20, 2020) (SR–CboeBZX–2020–054). See also
Cboe EDGX Exchange (‘‘EDGX’’) Rule 20.12;
Securities Exchange Act Release No. 89312 (July 14,
2020), 85 FR 43887 (July 20, 2020) (SR–CboeEDGX–
2020–031).
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Today, the Exchange allows members
and member organizations to transfer
their options positions off of the
Exchange in limited, specified
circumstances.4 For instance, Options 6,
Section 7 permits positions in options
listed on the Exchange to be transferred
off the Exchange by a member or
member organization in connection
with transactions to purchase or redeem
creation units of ETF shares between an
authorized participant 5 and the issuer
of such ETF shares.6 Such transfers
pursuant to Section 7 occur between
two different parties, off the Exchange,
and are considered position transfers
from an account with one clearing firm
to the account of another clearing firm.7
Each of these transfers occurs at the
price used to calculate the net asset
value (‘‘NAV’’) of such ETF shares. The
ability to effect in-kind transfers is a key
component of the operational structure
of an ETF and Options 6, Section 7
allows options-based ETFs to be more
tax-efficient investment vehicles, to the
benefit of their shareholders, and
potentially resulting in transaction cost
savings, which may be passed along to
investors.
The Exchange now proposes to
expand Options 6, Section 7 to mirror
the Cboe Rule, which would permit inkind transfers in connection with the
creation or redemption of units issued
by a UIT, another type of investment
company registered under the 1940 Act.
Although UITs operate differently than
ETFs in certain respects, as described
below, the anticipated potential benefits
to UIT investors (i.e., greater tax
efficiencies and transaction cost
savings) from the proposed changes
would be similar as discussed below.
Furthermore, allowing the Exchange to
permit such in-kind transfers would
4 See Options 6, Section 5(a) (Transfer of
Positions), Section 6 (Off-Exchange RWA
Transfers), and Section 7 (In-Kind Exchange of
Options Positions and ETF Shares).
5 An ‘‘authorized participant’’ is an entity that has
a written agreement with the issuer of ETF shares
or one of its service providers, which allows the
authorized participant to place orders for the
purchase and redemption of creation units (i.e.,
specified numbers of ETF shares. See Options 6,
Section 7(a).
6 An ‘‘issuer of ETF shares’’ is an entity registered
with the Commission as an open-ended
management investment company under the
Investment Company Act of 1940. See Options 6,
Section 7(b).
7 These back-office transfers of options positions
are in accordance with the rules of The Options
Clearing Corporation (‘‘OCC’’), as the transferred
positions are held in an account of an OCC member.
Accordingly, all transfers pursuant to proposed
Options 6, Section 7 would be required to comply
with OCC rules. See Options 1, Section 1(b)(10) and
Options 6, Section 8 (which, taken together,
effectively requires all members and member
organizations that are OCC members to comply with
OCC’s rules).
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Federal Register / Vol. 86, No. 95 / Wednesday, May 19, 2021 / Notices
enable the Exchange to compete more
effectively with other options exchanges
that already allow such transfers.8
Under the 1940 Act,9 a UIT is an
investment company organized under a
trust indenture or similar instrument
that issues redeemable securities, each
of which represents an undivided
interest in a unit of specified
securities.10 A UIT’s investment
portfolio is relatively fixed and, unlike
an ETF, a UIT has a fixed life (a
termination date for the trust is
established when the trust is created).
Similar to other types of investment
companies (including ETFs), UITs
invest their assets in accordance with
their investment objectives and
investment strategies, and UIT units
represent interests in a UIT’s underlying
assets. Like ETFs, UITs do not sell or
redeem individual shares, but instead,
through the creation and redemption
process, a UIT’s sponsor (a brokerdealer) may purchase and redeem shares
directly from the UIT’s trustee in
aggregations known as ‘‘units.’’ A
broker-dealer purchases a unit of UIT
shares from the UIT trustee by
depositing a basket of securities and/or
other assets identified by the UIT. These
transactions are largely effected by ‘‘inkind’’ transfers, or the exchange of
securities, non-cash assets, and/or other
non-cash positions. The basket
deposited by the broker-dealer is
generally expected to be representative
of the UIT’s units and will be equal in
value to the aggregate NAV of the shares
of the UIT comprising a unit.11 The UIT
then issues units that are publicly
offered and sold. Unlike ETFs, UITs
typically do not continuously offer their
shares for sale, but rather, make a onetime or limited public offering of only
a specific, fixed number of units like a
closed-end fund (i.e., the primary
period, which may range from a single
8 See
supra note 3.
U.S.C. 80a–4(2).
10 The Exchange also notes that although a
majority of ETFs are structured as open-ended
funds (i.e., those ETFs covered by Options 6,
Section 7), some ETFs are structured as UITs, and
currently represent a significant amount of assets
within the ETF industry. These include, for
example, SPDR S&P 500 ETF Trust (‘‘SPY’’) and
PowerShares QQQ Trust, Series 1 (‘‘QQQ’’).
11 The NAV is an investment company’s total
assets minus its total liabilities. UITs must calculate
their NAV at least once every business day,
typically after market close. See § 270.2a–4(c),
which provides that any interim determination of
current net asset value between calculations made
as of the close of the New York Stock Exchange on
the preceding business day and the current business
day may be estimated so as to reflect any change
in current net asset value since the closing
calculation on the preceding business day. This,
however, is notwithstanding the requirements of
§ 270.2a–4(a), which provides for other events that
would trigger computation of a UIT’s NAV.
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9 15
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day to a few months). Similar to the
process for ETFs, UITs allow investorowners of units to redeem their units
back to the UIT’s trustee on a daily basis
and, upon redemption, such investorowners are entitled to receive the
redemption price at the UIT’s NAV.
While UITs provide for daily
redemptions directly with the UIT’s
trustee, UIT sponsors frequently
maintain a secondary market for units,
also like that of ETFs, and will buy back
units at the applicable redemption price
per unit. To satisfy redemptions, a UIT
typically sells securities and/or other
assets, which results in negative tax
implications and an incurrence of
trading costs borne by remaining unit
holders.
Although ETFs and UITs operate
differently in certain respects, the
ability to effect in-kind transfers is
significant to both types of investment
vehicles. Currently, in-kind transfers of
options pursuant to Options 6, Section
7 protect ETF shareholders from certain
undesirable tax consequences and
improve the overall tax efficiency of the
products. Indeed, by effecting
redemptions on an in-kind basis, as
permitted by Options 6, Section 7, there
is no need for an ETF to sell assets and
potentially realize capital gains that
would be distributed to shareholders.
Additionally, by transacting on an inkind basis, ETFs may currently avoid
certain transaction costs they would
otherwise incur in connection with the
purchase and sale of securities and
other assets (including options). Options
6, Section 7 does not currently permit
these in-kind transfers for UITs as they
are still generally required to sell
options on an exchange to obtain the
requisite cash when effecting
redemption transactions with brokerdealers.
In light of the foregoing, the Exchange
proposes to extend Options 6, Section 7
to UITs. As amended, Options 6,
Section 7 will provide that positions in
options listed on the Exchange may be
transferred off the Exchange by a
member or member organization in
connection with transactions (1) to
purchase or redeem creation units of
ETF shares between an authorized
participant and the issuer of such ETF
shares or (2) to create or redeem units
of a unit investment trust (‘‘UIT’’)
between a broker-dealer and the issuer
of such UIT units, which transfers
would occur at the price(s) used to
calculate the net asset value of such ETF
shares or UIT units, respectively. An
‘‘issuer of UIT units’’ will be defined in
new paragraph (c) of the Rule as a trust
registered with the Commission as a
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27139
unit investment trust under the
Investment Company Act of 1940.
As described above, UITs and ETFs
are situated in substantially the same
manner; the key differences being a
UIT’s fixed duration, and that a UIT
generally makes a one-time public
offering of only a specific, fixed number
of units. Negative tax implications and
trading costs for remaining unit holders
would be mitigated by allowing a UIT
sponsor or another broker-dealer to
receive an in-kind distribution of
options upon redemption. Accordingly,
permitting off-Exchange in-kind
transfers for UITs would benefit
investors by potentially providing tax
efficiencies and transaction cost savings
similar to those that investors in ETFs
may enjoy today.
The Exchange does not believe that
the proposed extension of Options 6,
Section 7 will compromise price
discovery or transparency. To note, this
Rule is already applicable to options in
connection with ETF creations and
redemptions. Although options
positions in connection with ETF and
UIT (as proposed) creations and
redemptions are transferred off the
Exchange, they are not closed or
‘‘traded,’’ and instead, merely reside in
a different clearing account until closed
in a trade on the Exchange or until they
expire. The Exchange also notes that
just like the Cboe Rule, amended
Options 6, Section 7 will continue to be
clearly delineated and limited in scope,
given that the Rule will continue to
apply only to transfers of options
effected in connection with the creation
and redemption process, and for certain
investment companies registered under
the 1940 Act. Other than the transfers
covered by the amended Rule, options
transactions, whether held by an ETF or
an authorized participant, or a UIT or a
broker-dealer, would be fully subject to
all applicable trading Rules on the
Exchange.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,12 in general, and furthers the
objectives of Section 6(b)(5) of the Act,13
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest.
The Exchange believes that permitting
off-Exchange transfers in connection
with the in-kind UIT creation and
12 15
13 15
E:\FR\FM\19MYN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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redemption process promotes just and
equitable principles of trade and helps
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, as it
would permit UITs that invest in
options traded on the Exchange to
utilize the in-kind creation and
redemption process that is currently
available for ETFs under Options 6,
Section 7. Furthermore, the Exchange
believes that permitting a comparable
investment vehicle, also registered as an
investment company under the 1940
Act, to be covered by Options 6, Section
7 removes impediments to and perfects
the mechanism of a free and open
market and national market system as it
would enable UITs to compete more
effectively with other investment
vehicles that, based on their portfolio
holdings, may effect in-kind creations
and redemptions without restriction.
The Exchange notes that the ability to
effect in-kind transfers is significant to
both ETFs and UITs as investment
vehicles. By permitting UITs that invest
in options traded on the Exchange to
benefit from potential tax efficiencies
and transaction cost savings similar to
those that ETFs may currently enjoy, the
proposed rule change would protect
investors and the public interest by
passing along such potential benefits to
investors that participate in UITs. The
Exchange does not believe that the
proposed rule change affects the
protection of investors or the
maintenance of a fair and orderly
market because Options 6, Section 7, as
amended, would continue to be clearly
delineated and limited in scope. The
Rule already applies to ETFs, which
operate in a similar manner as UITs, and
the proposed rule change to extend the
Rule to UITs is based on a similar
rationale and does not raise any new or
novel issues. In this regard, as with inkind, off-exchange transfers of options
in connection with ETFs, those transfers
in connection with UITs would also
occur at a price related to the NAV of
the applicable UIT units, which
removes the need for price discovery on
an exchange. The Exchange expects that
off-exchange options transfers in
connection with the creation and
redemption process for UITs will
comprise a minimal percentage of
average daily volume (‘‘ADV’’), just as
such transfers currently permissible in
connection with ETFs comprise a
minimal percentage of ADV. Further,
the general price at which UIT-related
transfers are effected will be publicly
available as they are based on the
disseminated closing prices and are
generally expected to include
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corresponding transactions by a brokerdealer that would occur on an exchange
and be reported to OPRA.14
Finally, the proposed rule change
would align the Exchange’s Rule with
that of other options exchanges, thereby
allowing the Exchange to compete on
equal footing.15
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe the proposed
rule change will impose any burden on
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Utilizing the
proposed in-kind process under Options
6, Section 7 would be voluntary. The
proposed rule change would provide
market participants with an efficient
and effective means to transfer positions
as part of the creation and redemption
process for UITs under the same
specified circumstances currently
applicable to the ETF creation and
redemption process. The proposed
expansion of Options 6, Section 7 to
UITs would enable this investment
vehicle, which is comparable to ETFs, to
enjoy the benefits of off-Exchange, inkind creations and redemptions already
available to ETFs, and to pass these
benefits along to investors. The
proposed rule change would apply in
the same manner to all broker-dealers
that opt to invoke the proposed in-kind
process.
The Exchange does not believe the
proposed rule change will impose any
burden on intermarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
because the proposed rule would
continue to provide a clearly delineated
and limited circumstance in which
options positions can be transferred off
an exchange. Furthermore, as indicated
above, in light of the significant benefits
14 The Exchange notes that in conjunction with
depositing options with a UIT’s trustee and creating
units, the necessary options positions will be
acquired in an on-exchange transaction that is
reported to OPRA. In conjunction with
redemptions, the sponsor or other broker-dealer
will generally acquire both the units redeemed by
a redeeming unit holder and an options position to
offset the position that it will receive as proceeds
for the redemption. Such an options position is
likely acquired in an on-exchange transaction that
would be reported to OPRA. Thus, while the
transfer of options positions between the sponsor or
other broker-dealer and the UIT would not
necessarily be reported, there are generally
corresponding transactions that would be reported,
providing transparency into the transactions.
15 See supra note 3.
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provided (e.g., tax efficiencies and
potential transaction cost savings), the
proposed expansion may lead to further
development of UITs that invest in
options, thereby fostering competition
and resulting in additional choices for
investors, which ultimately benefits the
marketplace and the public. Lastly, the
Exchange notes that proposed rule
change is based rules already in place
on other options exchanges.16 As such,
the Exchange believes that its proposal
enhances fair competition between
markets by providing for additional
listing venues for UITs that hold options
to utilize the in-kind transfers proposed
herein.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 17 and
subparagraph (f)(6) of Rule 19b–4
thereunder.18
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative for 30 days from the
date of filing. However, Rule 19b–
4(f)(6)(iii) 19 permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
it may adopt the proposed transfer rule
as soon as possible, which, according to
the Exchange, may lead to further
development of UITs that invest in
options and foster competition. The
proposed rule change does not present
any unique or novel regulatory issues
and is substantively similar to the Cboe
16 See
supra note 3.
U.S.C. 78s(b)(3)(A)(iii).
18 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
19 17 CFR 240.19b–4(f)(6)(iii).
17 15
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Federal Register / Vol. 86, No. 95 / Wednesday, May 19, 2021 / Notices
Rule.20 Accordingly, the Commission
waives the 30-day operative delay and
designates the proposed rule change
operative upon filing.21
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2021–30 on the subject line.
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Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2021–30. 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
20 See
supra note 3.
purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
21 For
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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–Phlx–2021–30 and should
be submitted on or before June 9, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–10497 Filed 5–18–21; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
Meeting of the Interagency Task Force
on Veterans Small Business
Development
U.S. Small Business
Administration (SBA).
ACTION: Notice of open Federal Advisory
Committee Meeting.
AGENCY:
The SBA is issuing this notice
to announce the date, time, and agenda
for the next meeting of the Interagency
Task Force on Veterans Small Business
Development (IATF).
DATES: Wednesday, June 2, 2021, from
1:00 p.m. to 3:00 p.m. EDT.
ADDRESSES: Due to the coronavirus
pandemic, the meeting will be held via
Microsoft Teams.
FOR FURTHER INFORMATION CONTACT: The
meeting is open to the public; however
advance notice of attendance is strongly
encouraged. To RSVP and confirm
attendance, the general public should
email veteransbusiness@sba.gov with
subject line—‘‘RSVP for June 2, 2021,
IATF Public Meeting.’’ To submit a
written comment, individuals should
email veteransbusiness@sba.gov with
subject line—‘‘Response for 6/2/2021,
IATF Public Meeting’’ no later than May
26, 2021 or contact Timothy Green,
Deputy Associate Administrator, Office
of Veterans Business Development
(OVBD) at (202) 205–6773. Comments
received in advanced will be addressed
as time allows during the public
SUMMARY:
22 17
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CFR 200.30–3(a)(12).
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27141
comment period. All other submitted
comments will be included in the
meeting record. During the live meeting,
those who wish to comment will be able
to do so during the public comment
period.
Participants can join the meeting via
computer https://bit.ly/IATFJune or
phone. Call in (audio only): Dial In:
202–765–1264: Phone Conference ID:
979863534#.
Special accommodation requests
should be directed to OVBD at (202)
205–6773 or veteransbusiness@sba.gov.
All applicable documents will be posted
on the IATF website prior to the
meeting: https://www.sba.gov/page/
interagency-task-force-veterans-smallbusiness-development. For more
information on veteran owned small
business programs, please visit
www.sba.gov/ovbd.
SUPPLEMENTARY INFORMATION: Pursuant
to section 10(a)(2) of the Federal
Advisory Committee Act (5 U.S.C.,
Appendix 2), SBA announces the
meeting of the Interagency Task Force
on Veterans Small Business
Development (IAFT). The IATF is
established pursuant to Executive Order
13540 to coordinate the efforts of
Federal agencies to improve capital,
business development opportunities,
and pre-established federal contracting
goals for small business concerns owned
and controlled by veterans and servicedisabled veterans.
The purpose of this meeting is to
discuss efforts that support veteranowned small businesses, updates on
past and current events, and the IATF’s
objectives for fiscal year 2021.
Dated: May 14, 2021.
Andrienne Johnson,
Committee Management Officer.
[FR Doc. 2021–10484 Filed 5–18–21; 8:45 am]
BILLING CODE 8026–03–P
DEPARTMENT OF STATE
[Public Notice: 11421]
Notice of Determinations; Culturally
Significant Objects Being Imported for
Exhibition—Determinations: ‘‘Sean
Scully: The Shape of Ideas’’ Exhibition
Notice is hereby given of the
following determinations: I hereby
determine that certain objects being
imported from abroad pursuant to
agreements with their foreign owners or
custodians for temporary display in the
exhibition ‘‘Sean Scully: The Shape of
Ideas,’’ at the Modern Art Museum of
Fort Worth, in Fort Worth, Texas, at the
Philadelphia Museum of Art,
Philadelphia, Pennsylvania, and at
SUMMARY:
E:\FR\FM\19MYN1.SGM
19MYN1
]]>Agencies
[Federal Register Volume 86, Number 95 (Wednesday, May 19, 2021)]
[Notices]
[Pages 27138-27141]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10497]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91887; File No. SR-Phlx-2021-30]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 6,
Section 7
May 13, 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 May 6, 2021, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II, below, which Items have
been prepared by the Exchange. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 6, Section 7 to permit in-
kind transfers of positions off of the Exchange in connection with unit
investment trusts (``UITs'').
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Options 6, Section 7, which permits
off-Exchange, in-kind transfers of options positions in connection with
exchange-traded funds (``ETFs'') organized as open-ended management
investments companies under the Investment Company Act of 1940 (the
``1940 Act''), to also permit in-kind transfers of options positions in
connection with entities registered as UITs under the 1940 Act. This is
a competitive filing that is substantially similar to rules in place on
Cboe Exchange, Inc. (``Cboe'') and its affiliates.\3\
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\3\ See Cboe Rule 6.9 (the ``Cboe Rule''); see also Securities
Exchange Act Release No. 88786 (April 30, 2020), 85 FR 26998 (May 6,
2020) (SR-CBOE-2020-042). See also Cboe C2 Exchange (``C2'') Rule
6.63; Securities Exchange Act Release No. 89056 (June 12, 2020), 85
FR 36888 (June 18, 2020) (SR-C2-2020-006). See also Cboe BZX
Exchange (``BZX'') Rule 20.12; Securities Exchange Act Release No.
89313 (July 14, 2020), 85 FR 43907 (July 20, 2020) (SR-CboeBZX-2020-
054). See also Cboe EDGX Exchange (``EDGX'') Rule 20.12; Securities
Exchange Act Release No. 89312 (July 14, 2020), 85 FR 43887 (July
20, 2020) (SR-CboeEDGX-2020-031).
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Today, the Exchange allows members and member organizations to
transfer their options positions off of the Exchange in limited,
specified circumstances.\4\ For instance, Options 6, Section 7 permits
positions in options listed on the Exchange to be transferred off the
Exchange by a member or member organization in connection with
transactions to purchase or redeem creation units of ETF shares between
an authorized participant \5\ and the issuer of such ETF shares.\6\
Such transfers pursuant to Section 7 occur between two different
parties, off the Exchange, and are considered position transfers from
an account with one clearing firm to the account of another clearing
firm.\7\ Each of these transfers occurs at the price used to calculate
the net asset value (``NAV'') of such ETF shares. The ability to effect
in-kind transfers is a key component of the operational structure of an
ETF and Options 6, Section 7 allows options-based ETFs to be more tax-
efficient investment vehicles, to the benefit of their shareholders,
and potentially resulting in transaction cost savings, which may be
passed along to investors.
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\4\ See Options 6, Section 5(a) (Transfer of Positions), Section
6 (Off-Exchange RWA Transfers), and Section 7 (In-Kind Exchange of
Options Positions and ETF Shares).
\5\ An ``authorized participant'' is an entity that has a
written agreement with the issuer of ETF shares or one of its
service providers, which allows the authorized participant to place
orders for the purchase and redemption of creation units (i.e.,
specified numbers of ETF shares. See Options 6, Section 7(a).
\6\ An ``issuer of ETF shares'' is an entity registered with the
Commission as an open-ended management investment company under the
Investment Company Act of 1940. See Options 6, Section 7(b).
\7\ These back-office transfers of options positions are in
accordance with the rules of The Options Clearing Corporation
(``OCC''), as the transferred positions are held in an account of an
OCC member. Accordingly, all transfers pursuant to proposed Options
6, Section 7 would be required to comply with OCC rules. See Options
1, Section 1(b)(10) and Options 6, Section 8 (which, taken together,
effectively requires all members and member organizations that are
OCC members to comply with OCC's rules).
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The Exchange now proposes to expand Options 6, Section 7 to mirror
the Cboe Rule, which would permit in-kind transfers in connection with
the creation or redemption of units issued by a UIT, another type of
investment company registered under the 1940 Act. Although UITs operate
differently than ETFs in certain respects, as described below, the
anticipated potential benefits to UIT investors (i.e., greater tax
efficiencies and transaction cost savings) from the proposed changes
would be similar as discussed below. Furthermore, allowing the Exchange
to permit such in-kind transfers would
[[Page 27139]]
enable the Exchange to compete more effectively with other options
exchanges that already allow such transfers.\8\
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\8\ See supra note 3.
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Under the 1940 Act,\9\ a UIT is an investment company organized
under a trust indenture or similar instrument that issues redeemable
securities, each of which represents an undivided interest in a unit of
specified securities.\10\ A UIT's investment portfolio is relatively
fixed and, unlike an ETF, a UIT has a fixed life (a termination date
for the trust is established when the trust is created). Similar to
other types of investment companies (including ETFs), UITs invest their
assets in accordance with their investment objectives and investment
strategies, and UIT units represent interests in a UIT's underlying
assets. Like ETFs, UITs do not sell or redeem individual shares, but
instead, through the creation and redemption process, a UIT's sponsor
(a broker-dealer) may purchase and redeem shares directly from the
UIT's trustee in aggregations known as ``units.'' A broker-dealer
purchases a unit of UIT shares from the UIT trustee by depositing a
basket of securities and/or other assets identified by the UIT. These
transactions are largely effected by ``in-kind'' transfers, or the
exchange of securities, non-cash assets, and/or other non-cash
positions. The basket deposited by the broker-dealer is generally
expected to be representative of the UIT's units and will be equal in
value to the aggregate NAV of the shares of the UIT comprising a
unit.\11\ The UIT then issues units that are publicly offered and sold.
Unlike ETFs, UITs typically do not continuously offer their shares for
sale, but rather, make a one-time or limited public offering of only a
specific, fixed number of units like a closed-end fund (i.e., the
primary period, which may range from a single day to a few months).
Similar to the process for ETFs, UITs allow investor-owners of units to
redeem their units back to the UIT's trustee on a daily basis and, upon
redemption, such investor-owners are entitled to receive the redemption
price at the UIT's NAV. While UITs provide for daily redemptions
directly with the UIT's trustee, UIT sponsors frequently maintain a
secondary market for units, also like that of ETFs, and will buy back
units at the applicable redemption price per unit. To satisfy
redemptions, a UIT typically sells securities and/or other assets,
which results in negative tax implications and an incurrence of trading
costs borne by remaining unit holders.
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\9\ 15 U.S.C. 80a-4(2).
\10\ The Exchange also notes that although a majority of ETFs
are structured as open-ended funds (i.e., those ETFs covered by
Options 6, Section 7), some ETFs are structured as UITs, and
currently represent a significant amount of assets within the ETF
industry. These include, for example, SPDR S&P 500 ETF Trust
(``SPY'') and PowerShares QQQ Trust, Series 1 (``QQQ'').
\11\ The NAV is an investment company's total assets minus its
total liabilities. UITs must calculate their NAV at least once every
business day, typically after market close. See Sec. 270.2a-4(c),
which provides that any interim determination of current net asset
value between calculations made as of the close of the New York
Stock Exchange on the preceding business day and the current
business day may be estimated so as to reflect any change in current
net asset value since the closing calculation on the preceding
business day. This, however, is notwithstanding the requirements of
Sec. 270.2a-4(a), which provides for other events that would
trigger computation of a UIT's NAV.
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Although ETFs and UITs operate differently in certain respects, the
ability to effect in-kind transfers is significant to both types of
investment vehicles. Currently, in-kind transfers of options pursuant
to Options 6, Section 7 protect ETF shareholders from certain
undesirable tax consequences and improve the overall tax efficiency of
the products. Indeed, by effecting redemptions on an in-kind basis, as
permitted by Options 6, Section 7, there is no need for an ETF to sell
assets and potentially realize capital gains that would be distributed
to shareholders. Additionally, by transacting on an in-kind basis, ETFs
may currently avoid certain transaction costs they would otherwise
incur in connection with the purchase and sale of securities and other
assets (including options). Options 6, Section 7 does not currently
permit these in-kind transfers for UITs as they are still generally
required to sell options on an exchange to obtain the requisite cash
when effecting redemption transactions with broker-dealers.
In light of the foregoing, the Exchange proposes to extend Options
6, Section 7 to UITs. As amended, Options 6, Section 7 will provide
that positions in options listed on the Exchange may be transferred off
the Exchange by a member or member organization in connection with
transactions (1) to purchase or redeem creation units of ETF shares
between an authorized participant and the issuer of such ETF shares or
(2) to create or redeem units of a unit investment trust (``UIT'')
between a broker-dealer and the issuer of such UIT units, which
transfers would occur at the price(s) used to calculate the net asset
value of such ETF shares or UIT units, respectively. An ``issuer of UIT
units'' will be defined in new paragraph (c) of the Rule as a trust
registered with the Commission as a unit investment trust under the
Investment Company Act of 1940.
As described above, UITs and ETFs are situated in substantially the
same manner; the key differences being a UIT's fixed duration, and that
a UIT generally makes a one-time public offering of only a specific,
fixed number of units. Negative tax implications and trading costs for
remaining unit holders would be mitigated by allowing a UIT sponsor or
another broker-dealer to receive an in-kind distribution of options
upon redemption. Accordingly, permitting off-Exchange in-kind transfers
for UITs would benefit investors by potentially providing tax
efficiencies and transaction cost savings similar to those that
investors in ETFs may enjoy today.
The Exchange does not believe that the proposed extension of
Options 6, Section 7 will compromise price discovery or transparency.
To note, this Rule is already applicable to options in connection with
ETF creations and redemptions. Although options positions in connection
with ETF and UIT (as proposed) creations and redemptions are
transferred off the Exchange, they are not closed or ``traded,'' and
instead, merely reside in a different clearing account until closed in
a trade on the Exchange or until they expire. The Exchange also notes
that just like the Cboe Rule, amended Options 6, Section 7 will
continue to be clearly delineated and limited in scope, given that the
Rule will continue to apply only to transfers of options effected in
connection with the creation and redemption process, and for certain
investment companies registered under the 1940 Act. Other than the
transfers covered by the amended Rule, options transactions, whether
held by an ETF or an authorized participant, or a UIT or a broker-
dealer, would be fully subject to all applicable trading Rules on the
Exchange.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\12\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\13\ in particular, in that it is designed 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.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that permitting off-Exchange transfers in
connection with the in-kind UIT creation and
[[Page 27140]]
redemption process promotes just and equitable principles of trade and
helps remove impediments to and perfect the mechanism of a free and
open market and a national market system, as it would permit UITs that
invest in options traded on the Exchange to utilize the in-kind
creation and redemption process that is currently available for ETFs
under Options 6, Section 7. Furthermore, the Exchange believes that
permitting a comparable investment vehicle, also registered as an
investment company under the 1940 Act, to be covered by Options 6,
Section 7 removes impediments to and perfects the mechanism of a free
and open market and national market system as it would enable UITs to
compete more effectively with other investment vehicles that, based on
their portfolio holdings, may effect in-kind creations and redemptions
without restriction. The Exchange notes that the ability to effect in-
kind transfers is significant to both ETFs and UITs as investment
vehicles. By permitting UITs that invest in options traded on the
Exchange to benefit from potential tax efficiencies and transaction
cost savings similar to those that ETFs may currently enjoy, the
proposed rule change would protect investors and the public interest by
passing along such potential benefits to investors that participate in
UITs. The Exchange does not believe that the proposed rule change
affects the protection of investors or the maintenance of a fair and
orderly market because Options 6, Section 7, as amended, would continue
to be clearly delineated and limited in scope. The Rule already applies
to ETFs, which operate in a similar manner as UITs, and the proposed
rule change to extend the Rule to UITs is based on a similar rationale
and does not raise any new or novel issues. In this regard, as with in-
kind, off-exchange transfers of options in connection with ETFs, those
transfers in connection with UITs would also occur at a price related
to the NAV of the applicable UIT units, which removes the need for
price discovery on an exchange. The Exchange expects that off-exchange
options transfers in connection with the creation and redemption
process for UITs will comprise a minimal percentage of average daily
volume (``ADV''), just as such transfers currently permissible in
connection with ETFs comprise a minimal percentage of ADV. Further, the
general price at which UIT-related transfers are effected will be
publicly available as they are based on the disseminated closing prices
and are generally expected to include corresponding transactions by a
broker-dealer that would occur on an exchange and be reported to
OPRA.\14\
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\14\ The Exchange notes that in conjunction with depositing
options with a UIT's trustee and creating units, the necessary
options positions will be acquired in an on-exchange transaction
that is reported to OPRA. In conjunction with redemptions, the
sponsor or other broker-dealer will generally acquire both the units
redeemed by a redeeming unit holder and an options position to
offset the position that it will receive as proceeds for the
redemption. Such an options position is likely acquired in an on-
exchange transaction that would be reported to OPRA. Thus, while the
transfer of options positions between the sponsor or other broker-
dealer and the UIT would not necessarily be reported, there are
generally corresponding transactions that would be reported,
providing transparency into the transactions.
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Finally, the proposed rule change would align the Exchange's Rule
with that of other options exchanges, thereby allowing the Exchange to
compete on equal footing.\15\
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\15\ See supra note 3.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Utilizing the proposed in-kind process under
Options 6, Section 7 would be voluntary. The proposed rule change would
provide market participants with an efficient and effective means to
transfer positions as part of the creation and redemption process for
UITs under the same specified circumstances currently applicable to the
ETF creation and redemption process. The proposed expansion of Options
6, Section 7 to UITs would enable this investment vehicle, which is
comparable to ETFs, to enjoy the benefits of off-Exchange, in-kind
creations and redemptions already available to ETFs, and to pass these
benefits along to investors. The proposed rule change would apply in
the same manner to all broker-dealers that opt to invoke the proposed
in-kind process.
The Exchange does not believe the proposed rule change will impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed rule would continue to provide a clearly delineated and
limited circumstance in which options positions can be transferred off
an exchange. Furthermore, as indicated above, in light of the
significant benefits provided (e.g., tax efficiencies and potential
transaction cost savings), the proposed expansion may lead to further
development of UITs that invest in options, thereby fostering
competition and resulting in additional choices for investors, which
ultimately benefits the marketplace and the public. Lastly, the
Exchange notes that proposed rule change is based rules already in
place on other options exchanges.\16\ As such, the Exchange believes
that its proposal enhances fair competition between markets by
providing for additional listing venues for UITs that hold options to
utilize the in-kind transfers proposed herein.
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\16\ See supra note 3.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \17\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A)(iii).
\18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days from the date of filing. However, Rule
19b-4(f)(6)(iii) \19\ permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. The Exchange has asked the Commission to waive the
30-day operative delay so that it may adopt the proposed transfer rule
as soon as possible, which, according to the Exchange, may lead to
further development of UITs that invest in options and foster
competition. The proposed rule change does not present any unique or
novel regulatory issues and is substantively similar to the Cboe
[[Page 27141]]
Rule.\20\ Accordingly, the Commission waives the 30-day operative delay
and designates the proposed rule change operative upon filing.\21\
---------------------------------------------------------------------------
\19\ 17 CFR 240.19b-4(f)(6)(iii).
\20\ See supra note 3.
\21\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-Phlx-2021-30 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2021-30. 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-Phlx-2021-30 and should be submitted on
or before June 9, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
J. Matthew DeLesDernier,
Assistant Secretary.
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\22\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2021-10497 Filed 5-18-21; 8:45 am]
BILLING CODE 8011-01-P
