[Federal Register Volume 85, Number 112 (Wednesday, June 10, 2020)]
[Notices]
[Pages 35490-35492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12517]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89011; File No. SR-CboeBZX-2020-049]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Exempt
Tracking Fund Shares Listed Pursuant to Rule 14.11(m) From Certain
Governance Requirements
June 4, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 3, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 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.
[[Page 35491]]
The Exchange filed the proposal as a ``non-controversial'' proposed
rule change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and
Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes a rule change to provide an exemption to
certain governance requirements for series of Tracking Fund Shares
listed on the Exchange pursuant to Rule 14.11(m).
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On May 15, 2020, the Commission approved an Exchange proposal to
adopt BZX Rule 14.11(m) related to the listing and trading of Tracking
Fund Shares \5\ on the Exchange.\6\ Currently, Rule 14.10(e)(1)(E)
provides an exemption to certain audit committee requirements provided
under Rule 14.10(c)(3) for funds listed on the Exchange that are Index
Fund Shares, Managed Fund Shares, Managed Portfolio Shares, and ETF
Shares. Specifically, Rule 14.10(e)(1)(E) provides that ``management
investment companies that are Index Fund Shares, Managed Fund Shares,
Managed Portfolio Shares, and ETF Shares, as defined in Rules 14.11(c),
14.11(i), 14.11(k), and 14.11(l), respectively, are exempt from the
Audit Committee requirements set forth in Rule 14.10(c)(3), except for
the applicable requirements of SEC Rule 10A-3.'' \7\
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\5\ The term ``Tracking Fund Share'' means a security that: (i)
Represents an interest in an investment company registered under the
Investment Company Act of 1940 (``Investment Company'') organized as
an open-end management investment company, that invests in a
portfolio of securities selected by the Investment Company's
investment adviser consistent with the Investment Company's
investment objectives and policies; (ii) is issued in a specified
aggregate minimum number in return for a deposit of a specified
Tracking Basket and/or a cash amount with a value equal to the next
determined net asset value; (iii) when aggregated in the same
specified minimum number, may be redeemed at a holder's request,
which holder will be paid a specified Tracking Basket and/or a cash
amount with a value equal to the next determined net asset value;
and (iv) the portfolio holdings for which are disclosed within at
least 60 days following the end of every fiscal quarter.
\6\ See Securities Exchange Act Release No. 88887 (May 15,
2020), 85 FR 30990 (May 21, 2020) (SR-CboeBZX-2019-107) (the
``Approval Order''). While the Approval Order approved the listing
and trading of several series of Tracking Fund Shares, the Exchange
notes that those series have not yet listed on the Exchange.
\7\ The Exchange notes that it recently submitted a similar
proposal to add Managed Portfolio Shares to the exemption under Rule
14.10(e)(1)(E). See Securities Exchange Act Release No. 88075
(January 29, 2020), 85 FR 6240 (February 4, 2020) (SR-CboeBZX-2020-
010).
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Index Fund Shares, Managed Fund Shares, Managed Portfolio Shares,
and ETF Shares are exempted from the requirements of Rule 14.10(c)(3)
because they are otherwise subject to the accounting and auditing
requirements of the Investment Company Act of 1940 (the ``1940 Act''),
including Section 32(a).\8\ Because Tracking Fund Shares are also
subject to the accounting and auditing requirements under the 1940 Act
and are so similarly situated to Index Fund Shares, Managed Fund
Shares, Managed Portfolio Shares, and ETF Shares, the Exchange believes
that Tracking Fund Shares should be subject to and exempt from the same
corporate governance requirements associated with listing on the
Exchange. As such, the Exchange is proposing to make a change to amend
Rule 14.10(e)(1)(E) in order to add Tracking Fund Shares to the list of
product types listed on the Exchange that are exempted from the Audit
Committee requirements set forth in Rule 14.10(c)(3), except for the
applicable requirements of SEC Rule 10A-3.\9\
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\8\ 15 U.S.C. 80a-31.
\9\ 17 CFR 240.10A-3.
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2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \10\ in general and Section 6(b)(5) of the Act \11\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
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\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that this change to amend Rule 14.10(e)(1)(E)
in order to add Tracking Fund Shares to a list of product types listed
on the Exchange, including Index Fund Shares, Managed Fund Shares,
Managed Portfolio Shares, and ETF Shares, that are exempted from the
Audit Committee requirements set forth in Rule 14.10(c)(3), except for
the applicable requirements of SEC Rule 10A-3 is consistent with the
Act because it is meant only to subject Tracking Fund Shares to the
same corporate governance requirements currently applicable to the very
similar product structures of Index Fund Shares, Managed Fund Shares,
Managed Portfolio Shares, and ETF Shares.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. To the contrary, the Exchange
believes that the proposed rule change would promote both intermarket
and intramarket competition by exempting Tracking Fund Shares from the
audit committee requirements set forth in Rule 14.10(c)(3) except for
the applicable requirements of SEC Rule 10A-3. This is consistent with
exemptions provided to Index Fund Shares, Managed Fund Shares, Managed
Portfolio Shares, and ETF Shares, which, like Tracking Fund Shares, are
otherwise subject to the
[[Page 35492]]
audit committee requirements of the 1940 Act, including Section 32(a).
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \14\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \15\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposal may become operative upon filing. The Exchange stated
that it believes that waiving the operative delay will allow any series
of Tracking Fund Shares that lists on the Exchange in the near future
to take advantage of this exemption to certain audit committee
requirements and not have to either delay launch or take short-term
remedial measures to comply with all requirements of Rule 14.10(c)(3).
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that waiver of the operative delay is
appropriate because, as the Exchange stated, the rule proposal is
requesting an exemption to certain audit committee requirements that is
currently granted to Managed Fund Shares, Index Fund Shares, Managed
Portfolio Shares, and ETF Shares, and there are no unique issues
associated with proving such an exemption to Tracking Fund Shares that
have not already been considered by the Commission or that would
warrant disparate treatment. Accordingly, the Commission designates the
proposed rule change to be operative upon filing.\16\
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\16\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2020-049 on the subject line.
Paper Comments
Send paper comments in triplicate to: Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number SR-CboeBZX-2020-049. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2020-049 and should be submitted
on or before July 1, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12517 Filed 6-9-20; 8:45 am]
BILLING CODE 8011-01-P