[Federal Register Volume 85, Number 59 (Thursday, March 26, 2020)]
[Notices]
[Pages 17148-17151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06301]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88439; File No. SR-LTSE-2020-06]
Self-Regulatory Organizations; Long-Term Stock Exchange; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change Relating
to the Trading of Exchange Traded Products on an Unlisted Trading
Privileges Basis
March 20, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on March 11, 2020, Long-Term Stock Exchange (``LTSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
\3\ 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
LTSE proposes a rule change to adopt rules relating to the trading
of Exchange Traded Products (``ETPs'') on an unlisted trading
privileges (``UTP'') basis.
The text of the proposed rule change is available at the Exchange's
website at https://longtermstockexchange.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
[[Page 17149]]
II. Self-Regulatory Organization's Statement on the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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 those statements may be examined at
the places specified in Item IV below. The self-regulatory organization
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 on the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt rules to allow for trading
securities on a UTP basis. The Exchange proposes to adopt LTSE Rule
14.350, which would address securities traded pursuant to UTP and would
set standards for certain equity derivative securities that are
identical to the rules of other equity exchanges,\4\ but for changes to
the terminology used by the Exchange (i.e., ``Member'' instead of ``ETP
Holder'') and the placement of two definitions directly within the rule
(i.e., the definitions of ``Exchange Traded Product'' and ``UTP
Exchange Traded Product'' in proposed Rule 14.350(b)).
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\4\ See NYSE National Rule 5.1; see also Securities Exchange Act
Release No. 83289 (May 17, 2018), 83 FR 23968 (May 23, 2018) (SR-
NYSENAT-2018-02) (approving NYSE National Rule 5.1).
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Proposed Rule 14.350(a) would allow the Exchange to extend UTP to
any security that is an NMS Stock (as defined in Rule 600 under
Regulation NMS) that is listed on another national securities exchange
or with respect to which UTP may otherwise be extended in accordance
with Section 12(f) of the Exchange Act.\5\ Any such security to which
UTP is extended would be subject to all of the Exchange's rules
applicable to trading on the Exchange, unless otherwise noted.
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\5\ 15 U.S.C. 78l(f). See also 17 CFR 242.600.
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Proposed Rule 14.350(b) would adopt a definition of ``Exchange
Traded Product'' to mean a security that meets the definition of
``derivative securities product'' in Rule 19b-4(e) under the Exchange
Act. The proposed rule also would adopt a definition of ``UTP Exchange
Traded Product'' to mean one of the following Exchange Traded Products
that trades on the Exchange pursuant to unlisted trading privileges:
Equity Linked Notes, Investment Company Units, Index-Linked
Exchangeable Notes, Equity Gold Shares, Equity Index-Linked Securities,
Commodity-Linked Securities, Currency-Linked Securities, Fixed-Income
Index-Linked Securities, Futures-Linked Securities, Multifactor-Index-
Linked Securities, Trust Certificates, Currency and Index Warrants,
Portfolio Depository Receipts, Trust Issued Receipts, Commodity-Based
Trust Shares, Currency Trust Shares, Commodity Index Trust Shares,
Commodity Futures Trust Shares, Partnership Units, Paired Trust Shares,
Trust Units, Managed Fund Shares, and Managed Trust Securities.\6\
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\6\ The terms ``Exchange Traded Product'' and ``UTP Exchange
Traded Product'' are identical to those terms as they are used in
NYSE National Rule 5.1 and defined in NYSE National Rule 1.1(m). See
supra text accompanying note 4.
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Any UTP Security \7\ that is a UTP Exchange Traded Product would be
subject to the additional requirements set forth in the proposed
subsections of Rule 14.350(b).
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\7\ ``UTP Security'' is defined as ``any security that is not
listed on the Exchange, but is traded on the Exchange pursuant to
unlisted trading privileges.'' LTSE Rule 1.160(vv).
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Specifically, proposed Rule 14.350(b)(1) would provide that the
Exchange distribute an information circular prior to the commencement
of trading in each UTP Exchange Traded Product that generally includes
the same information as is contained in the information circular
provided by the listing exchange, including (a) the special risks of
trading the new Exchange Traded Product, (b) the Exchange's rules that
apply to the new Exchange Traded Product, and (c) information about the
dissemination of value of the underlying assets or indices.
Proposed Rule 14.350(b)(2)(A) would set forth requirements
regarding prospectus delivery requirements. Members would be subject to
the prospectus delivery requirements under the Securities Act of 1933,
unless the UTP Exchange Traded Product is the subject of an order by
the Securities and Exchange Commission exempting the product from
certain prospectus delivery requirements under Section 24(d) of the
Investment Company Act of 1940 \8\ and the product is not otherwise
subject to prospectus delivery requirements under the Securities Act of
1933.
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\8\ 15 U.S.C. 80a-24.
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Proposed Rule 14.350(b)(2)(B) would require the Exchange to inform
Members of the application of the provisions of this subparagraph to
UTP Exchange Traded Products by means of an information circular. It
also would require the Exchange to require that a Member of the
Exchange provide each purchaser of UTP Exchange Traded Products a
written description of the terms and characteristics of those
securities, in a form approved by the Exchange or prepared by the open-
ended management company issuing such securities, not later than the
time a confirmation of the first transaction in such securities is
delivered to the purchaser. In addition, a Member would need to include
a written description of the terms and characteristics of these
securities with any sales material relating to UTP Exchange Traded
Products that is provided to customers or the public. Any other written
materials provided by a Member to customers or the public making
specific reference to the UTP Exchange Traded Products as an investment
vehicle would need to include a statement substantially in the
following form: ``A circular describing the terms and characteristics
of [the UTP Exchange Traded Products] has been prepared by the [open-
ended management investment company name] and is available from your
broker. It is recommended that you obtain and review such circular
before purchasing [the UTP Exchange Traded Products].'' A Member
carrying an omnibus account for a non-Member would be required to
inform such non-Member that execution of an order to purchase UTP
Exchange Traded Products for such omnibus account would be deemed to
constitute an agreement by the non-Member to make such written
description available to its customers on the same terms that are
directly applicable to the Member under this proposed rule.
Proposed Rule 14.350(b)(2)(C) would provide that, upon request of a
customer, a Member would need to provide to the customer a prospectus
for the particular UTP Exchange Traded Product.
Proposed Rule 14.350(b)(3) would govern trading halts and would
provide that the Exchange would halt trading in a UTP Exchange Traded
Product as provided for in Exchange Rule 11.271. Nothing in proposed
Rule 14.350(b)(3) would be intended to limit the power of the Exchange
under its rules or procedures with respect to its ability to suspend
trading in any securities if such suspension is necessary for the
protection of investors or in the public interest.
Proposed Rule 14.350(b)(4) would set forth restrictions on Members
acting as Market Makers on the Exchange in a UTP Exchange Traded
Product that derives its value from one or more
[[Page 17150]]
currencies, commodities, or derivatives based on one or more currencies
or commodities, or is based on a basket or index composed of currencies
or commodities (collectively, ``Reference Assets'').
First, under proposed Rule 14.350(b)(A), Market Makers would need
to file with the Exchange, in a manner prescribed by the Exchange, and
keep current a list identifying all accounts for trading the underlying
physical asset or commodity, related futures or options on futures, or
any other related derivatives (collectively with Reference Assets,
``Related Instruments''), which the Member acting as a registered
Market Maker on the Exchange may have or over which it may exercise
investment discretion. No Market Maker would be permitted to trade in
the underlying physical asset or commodity, related futures or options
on futures, or any other related derivatives, in an account in which a
Member acting as a registered Market Maker on the Exchange, directly or
indirectly, controls trading activities, or has a direct interest in
the profits or losses thereof, which has not been reported to the
Exchange as required by proposed Rule 14.350.
Second, under proposed Rule 14.350(b)(B), a Market Maker on the
Exchange would, in a manner prescribed by the Exchange, be required to
file with the Exchange and keep current a list identifying any accounts
(``Related Instrument Trading Accounts'') for which Related Instruments
are traded: (i) In which the Market Maker holds an interest; (ii) over
which it has investment discretion; or (iii) in which it shares in the
profits and/or losses. A Market Maker on the Exchange would not be
permitted to have an interest in, exercise investment discretion over,
or share in the profits and/or losses of a Related Instrument Trading
Account that has not been reported to the Exchange as required by
proposed Rule 14.350.
Third, under proposed Rule 14.350(b)(C), in addition to the
existing obligations under Exchange rules regarding the production of
books and records, a Market Maker on the Exchange would be required to,
upon request by the Exchange, make available to the Exchange any books,
records, or other information pertaining to any Related Instrument
Trading Account or to the account of any registered or non-registered
employee affiliated with the Market Maker on the Exchange for which
Related Instruments are traded.
Fourth, under proposed Rule 14.350(b)(D), a Market Maker on the
Exchange would not be allowed to use any material nonpublic information
in connection with trading a Related Instrument.
Finally, proposed Rule 14.350(b)(5) would provide that the Exchange
will enter into comprehensive surveillance sharing agreements with
markets that trade components of the index or portfolio on which the
UTP Exchange Traded Product is based to the same extent as the listing
exchange's rules require the listing exchange to enter into
comprehensive surveillance sharing agreements with such markets.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\9\ in general, and
furthers the objectives of Section 6(b)(5) of the Act,\10\ in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, to foster cooperation and coordination with persons engaged
in facilitating transactions in securities, to remove impediments to
and perfect the mechanisms 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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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that proposed Rule 14.350 would
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, would protect
investors and the public interest by providing for the trading of
securities, including UTP Exchange Traded Products, on the Exchange
pursuant to UTP, subject to consistent and reasonable standards.
Accordingly, the proposed rule change would contribute to the
protection of investors and the public interest because it may provide
a better trading environment for investors and, generally, encourage
greater competition between markets.
The proposal is designed to remove impediments to and perfect the
mechanism of a free and open market and a national market system by
adopting rules that will ultimately lead to the trading pursuant to UTP
of the proposed products on the Exchange, just as they are currently
traded on other exchanges. The proposed changes do nothing more than
match Exchange rules with what is currently available on other
exchanges.\11\ The Exchange believes that by conforming its rules and
allowing trading opportunities on the Exchange that are already allowed
by rule on another market, the proposed rule change would offer another
venue for trading Exchange Traded Products and thereby promote broader
competition among exchanges. The Exchange also believes that
individuals and entities that are allowed to make markets on the
Exchange in the proposed new products should enhance competition within
the mechanism of a free and open market and a national market system,
and customers and other investors in the national market system should
benefit from more depth and liquidity in the market for the proposed
new products.
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\11\ See supra note 4.
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The Exchange believes that proposed Rule 14.350, which would
enumerate the categories of UTP Exchange Traded Products that the
Exchange proposes to trade and would specify additional requirements
relating to UTP Exchange Traded Products, would ensure the maintenance
of a fair and orderly market and provide for mechanisms for the
regulatory oversight of securities trading on a UTP basis on the
Exchange, in compliance with Rule 12f-5 under the Act.\12\
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\12\ 17 CFR 240.12f-5.
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The Exchange also believes that the proposed rule change supports
the principles of Section 11A(a)(1) of the Act \13\ in that it seeks to
ensure the economically efficient execution of securities transactions
and fair competition among brokers and dealers, and among exchange
markets. The proposed rule change also supports the principles of
Section 12(f) of the Act, which govern the trading of securities
pursuant to a grant of unlisted trading privileges consistent with the
maintenance of fair and orderly markets, the protection of investors
and the public interest, and the impact of extending the existing
markets for such securities.
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\13\ 15 U.S.C. 78k-1(a)(1).
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By providing for the trading of securities on the Exchange on a UTP
basis, the Exchange believes its proposal will lead to the addition of
liquidity to the broader market for these securities and to increased
competition among the existing group of liquidity providers. The
Exchange also believes that, by so doing, the proposed rule change
would encourage the additional utilization of, and interaction with,
the exchange market, and provide market participants with improved
price discovery, increased liquidity, more competitive quotes, and
greater price improvement for securities traded pursuant to UTP.
The Exchange further believes that enhancing liquidity by trading
securities
[[Page 17151]]
on a UTP basis would help raise investors' confidence in the fairness
of the market, generally, and their transactions, in particular. As
such, the general UTP trading rule would foster cooperation and
coordination with persons engaged in facilitating securities
transactions, enhance the mechanism of a free and open market, and
promote fair and orderly markets in securities on the Exchange.
B. Self-Regulatory Organization's Statement on Burden on Competition
LTSE 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\
Because the 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, it has become effective pursuant to
Section 19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6)
thereunder.\17\
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\14\ 15 U.S.C. 78s(b)(3)(A)(iii).
\15\ 17 CFR 240.19b-4(f)(6).
\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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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At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) \18\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\18\ 15 U.S.C. 78s(b)(2)(B).
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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-LTSE-2020-06 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-LTSE-2020-06. 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-LTSE-2020-06 and should be submitted on
or before April 16, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06301 Filed 3-25-20; 8:45 am]
BILLING CODE 8011-01-P