[Federal Register Volume 83, Number 189 (Friday, September 28, 2018)]
[Notices]
[Pages 49142-49143]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21107]
[[Page 49142]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84275; File No. SR-NYSEArca-2018-40]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change Regarding Investments of the REX BKCM ETF
September 24, 2018.
On June 26, 2018, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change
seeking to modify certain investments of the REX BKCM ETF (``Fund''), a
series of the Exchange Listed Funds Trust (``Trust''), the shares
(``Shares'') of which are currently listed and traded on the Exchange
under NYSE Arca Rule 8.600-E, Managed Fund Shares. The proposed rule
change was published for comment in the Federal Register on July 3,
2018.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 83546 (June 28,
2018), 83 FR 31214 (July 3, 2018) (``Notice'').
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On August 14, 2018, pursuant to Section 19(b)(2) of the 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 comment letters on the
proposed rule change. This order institutes proceedings under Section
19(b)(2)(B) of the Act \6\ to determine whether to approve or
disapprove the proposed rule change.
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 83844 (Aug. 14,
2018), 83 FR 42178 (Aug. 20, 2018). The Commission designated
October 1, 2018, as the date by which it should approve, disapprove,
or institute proceedings to determine whether to disapprove the
proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal \7\
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\7\ The Commission notes that additional information regarding,
among other things, the Shares, Fund, investment objective,
permitted investments, investment strategies and methodology,
investment restrictions, investment adviser and subadviser, creation
and redemption procedures, availability of information, trading
rules and halts, and surveillance procedures, can be found in the
Notice (see supra note 3) and the Registration Statement (see infra
note 8), as applicable.
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The Trust is registered under the Investment Company Act of 1940
(``1940 Act'').\8\ The Shares are listed and traded on the Exchange
under Commentary .01 to NYSE Arca Rule 8.600-E,\9\ which sets forth the
generic criteria applicable to the listing and trading of Managed Fund
Shares on the Exchange.\10\ According to the Exchange, the investment
objective of the Fund is to seek total return. The Fund will seek to
achieve its investment objective, under normal market conditions, by
obtaining investment exposure to an actively managed portfolio
consisting of equity securities of cryptocurrency-related and other
blockchain technology-related companies.\11\
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\8\ On May 7, 2018, the Trust filed with the Commission an
amendment to its registration statement on Form N-1A under the
Securities Act of 1933 and the 1940 Act relating to the Fund (File
Nos. 333-180871 and 811-22700) (``Registration Statement''). The
Exchange states that the Commission has issued an order granting
certain exemptive relief to the Trust under the 1940 Act. See
Investment Company Act Release No. 30445 (Apr. 2, 2013) (File No.
812-13969).
\9\ The Shares commenced trading on the Exchange on May 16,
2018. See Notice, supra note 3, 83 FR at 31215.
\10\ See NYSE Arca Rule 8.600-E (permitting the listing and
trading of ``Managed Fund Shares,'' defined as a security that (a)
represents an interest in a registered investment Company
(``Investment Company'') organized as an open-ended management
investment company or similar entity, 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; (b) is issued in a specified aggregate minimum number in
return for a deposit of a specified portfolio of securities and/or a
cash amount with a value equal to the next determined net asset
value; and (c) when aggregated in the same specified minimum number,
may be redeemed at a holder's request, which holder will be paid a
specified portfolio of securities and/or cash with a value equal to
the next determined net asset value).
\11\ See Notice, supra note 3, 83 FR at 31215.
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The Fund intends to change its investment strategy such that the
Shares would no longer qualify for generic listing on the Exchange.
Specifically, the Fund's portfolio would continue to satisfy all of the
generic listing requirements except that:
The Fund, through its Subsidiary,\12\ would be able to
invest up to 15% of its total assets in shares of the Bitcoin
Investment Trust (``GBTC''), an over-the-counter (``OTC'') equity
security, which investments would not meet the requirements of
Commentary .01(a)(1)(E) to Rule 8.600-E; and
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\12\ According to the Exchange, the Fund expects to obtain
exposure to certain investments by investing up to 25% of its total
assets, as measured at the end of every quarter of the Fund's
taxable year, in a wholly-owned and controlled Cayman Islands
subsidiary (``Subsidiary''). See id. at 31216.
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the Fund and the Subsidiary would be able to invest in the
securities of non-exchange-traded open-end investment companies (i.e.,
mutual funds), which investments would not meet the requirements of
Commentary .01(a)(1)(A)-(E) to Rule 8.600-E.\13\
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\13\ See id. at 31216, 31218. The Exchange represents that the
Fund will not hold listed or OTC derivatives based on bitcoin or
other cryptocurrencies. See id. at 31216 nn.10-11.
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According to the Exchange, GBTC is a private, open-ended trust
available to accredited investors that derives its value from the price
of bitcoin.\14\ The Subsidiary's investment in GBTC will be reflected
in the net asset value of the Fund's Shares based on the closing price
of GBTC on OTC Markets Group, Inc.'s (``OTC Markets'') OTCQX Best
Marketplace.\15\ According to the Exchange, GBTC has demonstrated
significant liquidity and the liquid market in the shares of GBTC
alleviates valuation concerns. In addition, the Exchange represents
that substantial and sustained trading volume in shares of GBTC, as
well as the limitation of such investment to 15% of the Fund's assets,
would help to limit any adverse effect on the Fund's arbitrage
mechanism.\16\
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\14\ See id. at 31216 n.9. The Exchange states that GBTC's
investment objective is for the net asset value per share to reflect
the performance of the market price of bitcoin, less GBTC's
expenses. See id. at 31218.
\15\ See id. at 31216.
\16\ See id. at 31218. According to the Exchange, shares of GBTC
have a minimum monthly trading volume of 250,000 shares, or a
minimum notional volume traded per month of $25 million, averaged
over the last six months, and a market value in excess of the
required $75 million. Shares of GBTC have been quoted on OTC
Markets' OTCQX Best Marketplace under the symbol ``GBTC'' since
March 26, 2015. The Exchange represents that, as of May 7, 2018,
approximately 187,572,000 shares of GBTC were outstanding, with a
market capitalization of $2,807,852,840 based on the last traded
price. Average trading volume for the 6 months ended May 7, 2018,
was 7,107,650 shares per day, and total trading volume for 2017 was
1,576,551,613 shares. See id.
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The Exchange represents that the investments in securities of non-
exchange-traded open-end investment companies will not be principal
investments of the Fund. These investments, which may include mutual
funds that invest, for example, principally in fixed income securities,
would be utilized to help the Fund meet its investment objective and to
equitize cash in the short term. According to the Exchange, such
securities have a net asset value based on the value of securities and
financial assets the investment company holds.\17\
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\17\ See id. at 31218-19.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2018-40 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
[[Page 49143]]
19(b)(2)(B) of the Act \18\ to determine whether the proposed rule
change 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.
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\18\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\19\ 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 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,'' and ``to protect investors and the public
interest.'' \20\
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\19\ Id.
\20\ 15 U.S.C. 78f(b)(5).
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According to the Exchange, the Fund, through its Subsidiary, may
invest up to 15% of its total assets in OTC shares of GBTC. In
addition, the Exchange represents that the liquid market in the shares
of GBTC alleviates valuation concerns, and that the substantial and
sustained trading volume in shares of GBTC would help to limit any
adverse effect on the Fund's arbitrage mechanism. What are commenters'
views on the Exchange's assertions that the liquid market in the shares
of GBTC alleviates valuation and arbitrage concerns? What are
commenters' views on whether any premium or discount in the market
price of GBTC compared to the value of its portfolio assets would
affect valuation and arbitrage concerns? What are commenters' views,
generally, on whether exposure to spot bitcoin markets through
investment in GBTC would render the Shares of the Fund susceptible to
manipulation?
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 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.\21\
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\21\ Section 19(b)(2) of the 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).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by October 19, 2018. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
November 2, 2018. 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,\22\ in addition to any other
comments they may wish to submit about the proposed rule change.
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\22\ See Notice, supra note 3.
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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-NYSEArca-2018-40 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-NYSEArca-2018-40. 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-NYSEArca-2018-40 and should be submitted
by October 19, 2018. Rebuttal comments should be submitted by November
2, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21107 Filed 9-27-18; 8:45 am]
BILLING CODE 8011-01-P