[Federal Register Volume 85, Number 12 (Friday, January 17, 2020)]
[Notices]
[Pages 3099-3101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00683]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87951; File No. SR-CboeBZX-2019-076]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade
Shares of the Clearbridge Small Cap Value ETF Under BZX Rule 14.11(k)
January 13, 2020.
On September 26, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade shares
(``Shares'') of the Clearbridge Small Cap Value ETF (``Fund'') under
BZX Rule 14.11(k) (Managed Portfolio Shares). On October 9, 2019, the
Exchange filed Amendment No. 1 to the proposed rule change, which
amended and replaced the rule change in its entirety. The proposed rule
change, as modified by Amendment No. 1, was published for comment in
the Federal Register on October 17, 2019.\3\ On November 21, 2019,
pursuant to Section 19(b)(2) of the Exchange Act,\4\ the Commission
designated a longer period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to disapprove the proposed rule change.\5\ The
Commission has received no comments on the proposed rule change. This
order institutes proceedings under Section 19(b)(2)(B) of the Exchange
Act \6\ to determine whether to approve or disapprove the proposed rule
change, as modified by Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 87286 (October 10,
2019), 84 FR 55608 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 87581, 84 FR 65434
(November 27, 2019). The Commission designated January 15, 2020, as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
I. Summary of the Exchange's Description of the Proposed Rule Change,
as Modified by Amendment No. 1 \7\
---------------------------------------------------------------------------
\7\ For a complete description of the Exchange's proposal, see
the Notice, supra note 3.
---------------------------------------------------------------------------
The Exchange proposes to list and trade Shares of the Fund under
BZX Rule 14.11(k).\8\ The Shares will be issued by Precidian ETF Trust
II (``Trust''), a statutory trust organized under the laws of the State
of Delaware and registered with the Commission as an open-end
management investment company.\9\ The investment adviser to the Trust
will be Precidian Funds LLC (``Adviser'') and the sub-adviser to the
Fund will be ClearBridge Investments, LLC (``Sub-Adviser'').\10\ Legg
Mason Investor Services, LLC will serve as the distributor of the
Shares.
---------------------------------------------------------------------------
\8\ The Commission recently approved the Exchange's proposed
rule change to adopt BZX Rule 14.11(k) to permit the listing and
trading of Managed Portfolio Shares. See Securities Exchange Act
Release No. 87759 (December 16, 2019), 84 FR 70223 (December 20,
2019) (SR-CboeBZX-2019-047).
\9\ According to the Exchange, the Trust is registered under the
Investment Company Act of 1940 (``1940 Act'') and plans to file a
registration statement on Form N-1A relating to the Fund. An order
granting exemptive relief to the Trust was issued on May 20, 2019
(File No. 812-14405) (``Exemptive Order''). The Exchange states that
investments made by the Fund will comply with the conditions set
forth in the Exemptive Order.
\10\ The Exchange states that the Adviser is not registered as a
broker-dealer or affiliated with a broker-dealer. The Exchange
states that the Sub-Adviser is not registered as a broker-dealer,
but is affiliated with a broker-dealer and has implemented and will
maintain a ``fire wall'' with respect to such broker-dealer
regarding access to information concerning the composition of and/or
changes to the Fund's portfolio and Creation Basket (as such term is
defined in BZX Rule 14.11(k). The Exchange further states that in
the event (a) the Adviser or Sub-Adviser becomes registered as a
broker-dealer or becomes newly affiliated with a broker-dealer, or
(b) any new adviser or sub-adviser is a registered broker-dealer or
becomes affiliated with a broker-dealer, it will implement and
maintain a fire wall with respect to its relevant personnel or its
broker-dealer affiliate regarding access to information concerning
the composition of and/or changes to the portfolio and the Creation
Basket, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding
such portfolio or Creation Basket.
---------------------------------------------------------------------------
A. Description of the Fund
The Exchange states that the Fund seeks long-term capital growth.
The Exchange states that Fund's holdings will be limited to and
consistent with what is permissible under the Exemptive Order and
described in the Notice. Under Normal Market Conditions,\11\ the Fund
will invest at
[[Page 3100]]
least 80% of its net assets, plus borrowings for investment purposes,
in U.S. exchange-listed common stocks and other equity securities of
small capitalization U.S. companies or in other U.S. exchange-listed
investments with similar economic characteristics, including only the
following U.S. exchange-listed securities: Common stocks, preferred
securities, securities of other investment companies and of real estate
investment companies (``REITs''), and warrants and rights.
---------------------------------------------------------------------------
\11\ The term ``Normal Market Conditions'' includes, but is not
limited to, the absence of trading halts in the applicable financial
markets generally; operational issues causing dissemination of
inaccurate market information or system failures; or force majeure
type events such as natural or man-made disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption, or any similar
intervening circumstance.
---------------------------------------------------------------------------
In addition, the Fund may also invest up to 20% of its net assets,
plus borrowings for investment purposes, in common stocks, preferred
securities, and warrants and rights of U.S. exchange-listed companies
with larger market capitalizations, U.S. ETFs,\12\ U.S. exchange-listed
ADRs, U.S. exchange-listed equity futures contracts, and U.S. exchange-
listed equity index futures contracts. The Fund may also hold cash
without limitation.
---------------------------------------------------------------------------
\12\ For purposes of describing the holdings of the Fund, ETFs
include Portfolio Depository Receipts (as described in BZX Rule
14.11(b)); Index Fund Shares (as described in BZX Rule 14.11(c));
and Managed Fund Shares (as described in BZX Rule 14.11(i)). The
ETFs in which the Fund may invest all will be listed and traded on
U.S. national securities exchanges. While the Fund may invest in
inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X,
3X or -3X) ETFs.
---------------------------------------------------------------------------
B. Investment Restrictions
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets. Illiquid securities and other illiquid
assets include those subject to contractual or other restrictions on
resale and other instruments or assets that lack readily available
markets as determined in accordance with Commission staff guidance. The
Exchange states that the Fund will monitor its portfolio liquidity on
an ongoing basis to determine whether, in light of current
circumstances, an adequate level of liquidity is being maintained, and
will consider taking appropriate steps in order to maintain adequate
liquidity. In any event, the Fund will not purchase any securities that
are illiquid investments at the time of purchase.
The Shares will conform to the initial and continued listing
criteria under BZX Rule 14.11(k). The Fund's investments will be
consistent with its investment objective and will not be used to
enhance leverage. While the Fund may invest in inverse ETFs, the Fund
will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
The Exchange states that the Fund's holdings will also meet the
generic listing standards applicable to series of Managed Fund Shares
under BZX Rule 14.11(i)(4)(C). While such standards do not apply
directly to series of Managed Portfolio Shares, the Exchange believes
that the overarching policy issues related to liquidity, market
capitalization, diversity, and concentration of portfolio holdings that
BZX Rule 14.11(i)(4)(C) is intended to address are equally applicable
to series of Managed Portfolio Shares.
II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2019-076 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \13\ to determine whether the proposed
rule change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of such proceedings is appropriate at this
time in view of the legal and policy issues raised by the proposed rule
change. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to any of the
issues involved. Rather, as described below, the Commission seeks and
encourages interested persons to provide comments on the proposed rule
change.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Exchange Act,\14\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of the proposed rule change's consistency with
Section 6(b)(5) of the Exchange Act, which requires, among other
things, that the rules of a national securities exchange be ``designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, . . . to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest.'' \15\
---------------------------------------------------------------------------
\14\ Id.
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
III. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Exchange
Act, or the rules and regulations thereunder. Although there do not
appear to be any issues relevant to approval or disapproval that would
be facilitated by an oral presentation of views, data, and arguments,
the Commission will consider, pursuant to Rule 19b-4, any request for
an opportunity to make an oral presentation.\16\
---------------------------------------------------------------------------
\16\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975),
grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by February 7, 2020. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
February 21, 2020.
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in the Notice,\17\ and any other issues raised by the proposed rule
change under the Exchange Act. In particular, the Commission seeks
commenters' views regarding whether the Exchange's proposal to list and
trade the Fund under BZX Rule 14.11(k) (Managed Portfolio Shares),
which are actively managed exchange-traded products for which the
portfolio holdings are disclosed on a quarterly, rather than daily,
basis, is adequately designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
and to protect investors and the public interest, and is consistent
with the maintenance of a fair and orderly market under the Exchange
Act.
---------------------------------------------------------------------------
\17\ See supra note 3.
---------------------------------------------------------------------------
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-2019-076 on the subject line.
[[Page 3101]]
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-2019-076. 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-2019-076 and should be submitted
on or before February 7, 2020. Rebuttal comments should be submitted by
February 21, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00683 Filed 1-16-20; 8:45 am]
BILLING CODE 8011-01-P