[Federal Register Volume 84, Number 77 (Monday, April 22, 2019)]
[Notices]
[Pages 16753-16758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07982]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85656; File No. SR-CboeBZX-2019-023]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change Amend Exchange Rule 14.11(c), Index
Fund Shares, To Adopt Generic Listing Standards for Index Fund Shares
Based on an Index of Municipal Bond Securities
April 16, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 3, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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 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 Exchange Rule 14.11(c) (``Index Fund
Shares'') to adopt generic listing standards for Index Fund Shares
based on an index of municipal bond securities.
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
Rule 14.11(c) permits the Exchange to list a series of Index Fund
Shares based on an index or portfolio of underlying securities.
Currently, Rule 14.11(c) includes generic listing standards for Index
Fund Shares based on an index or portfolio of equity or fixed income
securities or a combination thereof. The Exchange proposes to amend
Rule 14.11(c) to add a new Rule 14.11(c)(4)(B)(ii) to provide
quantitative generic listing standards for Index Fund Shares based on
an index or portfolio of Municipal Securities \3\ that do not meet the
generic listing standards under Rule 14.11(c)(4)(B)(i).\4\ All other
standards not included in Rule 14.11(c)(4)(B)(i) applicable to series
of Index Fund Shares based on an index composed of fixed income
securities will continue to apply to a series of Index Fund Shares
based on an index or portfolio of Municipal Securities listed pursuant
to Rule 14.11(c)(4)(B)(ii).
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\3\ The term ``Municipal Securities'' has the definition given
to it in Section 3(a)(29) of the Act.
\4\ The Exchange notes that this proposal is substantively
identical to a proposal recently submitted by NYSE Arca, Inc. See
Securities Exchange Act Release No. 85170 (February 21, 2019), 84 FR
6451 (February 27, 2019) (SR-NYSEArca-2019-04).
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An index of Municipal Securities typically does not meet the
generic listing requirements for Index Fund Shares based on an index of
fixed income securities.\5\ Nonetheless, the Commission has previously
approved proposed rule changes relating to listing and trading on the
Exchange of Index Fund Shares based on an index of Municipal
Securities.\6\ Given the large number of prior approvals by the
Commission, the Exchange now
[[Page 16754]]
proposes to adopt generic listing standards for Index Fund Shares based
on an index of Municipal Securities that do not meet the generic
listing standards for Index Fund Shares based on an index of fixed
income securities.
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\5\ See Exchange Rule 14.11(c)(4)(A)(ii). Municipal Securities
are typically issued in with individual maturities of relatively
small size, although they generally are constituents of a much
larger municipal bond offering. Therefore, an index of Municipal
Securities will typically be unable to satisfy the requirement that
component fixed income securities that, in the aggregate, account
for at least 75% of the weight of the index each shall have a
minimum principal amount outstanding of $100 million or more.
\6\ The Exchange notes that the Commission has approved or
published immediately effective filings allowing the listing and
trading of a large number of series of Index Fund Shares based on
Municipal Securities. See Securities Exchange Act Release Nos. 84107
(September 13, 2018), 83 FR 47210 (September 18, 2018) (SR-CboeBZX-
2018-070) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To List and Trade Shares of the iShares iBonds
Dec 2025 Term Muni Bond ETF of iShares Trust Under BZX Rule
14.11(c)(4) (Index Fund Shares)); 79381 (November 22, 2016), 81 FR
86044 (November 29, 2016) (SR-BatsBZX-2016-48) (Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendments No. 1 and No. 2 Thereto, To List and Trade Shares of the
iShares iBonds Dec 2023 Term Muni Bond ETF and iShares iBonds Dec
2024 Term Muni Bond ETF of the iShares U.S. ETF Trust Pursuant to
BZX Rule 14.11(c)(4); 67985 (October 4, 2012), 77 FR 61804 (October
11, 2012) (SR-NYSEArca-2012-92) (order approving proposed rule
change relating to the listing and trading of iShares 2018 S&P AMT-
Free Municipal Series and iShares 2019 S&P AMT-Free Municipal Series
under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02); 67729
(August 24, 2012), 77 FR 52776 (August 30, 2012) (SR-NYSEArca-2012-
92) (notice of proposed rule change relating to the listing and
trading of iShares 2018 S&P AMT-Free Municipal Series and iShares
2019 S&P AMT-Free Municipal Series under NYSE Arca Equities Rule
5.2(j)(3), Commentary .02); 72523, (July 2, 2014), 79 FR 39016 (July
9, 2014) (SR-NYSEArca-2014-37) (order approving proposed rule change
relating to the listing and trading of iShares 2020 S&P AMT-Free
Municipal Series under NYSE Arca Equities Rule 5.2(j)(3),
Commentary.02); 72172 (May 15, 2014), 79 FR 29241 (May 21, 2014)
(SR-NYSEArca-2014-37) (notice of proposed rule change relating to
the listing and trading of iShares 2020 S&P AMT-Free Municipal
Series under NYSE Arca Equities Rule 5.2(j)(3), Commentary.02);
72464 (June 25, 2014), 79 FR 37373 (July 1, 2014) (File No. SR-
NYSEArca-2014-45) (order approving proposed rule change governing
the continued listing and trading of shares of the PowerShares
Insured California Municipal Bond Portfolio, PowerShares Insured
National Municipal Bond Portfolio, and PowerShares Insured New York
Municipal Bond Portfolio); 75468 (July 16, 2015), 80 FR 43500 (July
22, 2015) (SR-NYSEArca-2015-25) (order approving proposed rule
change relating to the listing and trading of iShares iBonds Dec
2021 AMT-Free Muni Bond ETF and iShares iBonds Dec2022 AMT-Free Muni
Bond ETF under NYSE Arca Equities Rule 5.2(j)(3)); 74730 (April 15,
2015), 76 [sic] FR 22234 (April 21, 2015) (notice of proposed rule
change relating to the listing and trading of iShares iBonds Dec
2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022 AMT-Free
Muni Bond ETF under NYSE Arca Equities Rule 5.2(j)(3), Commentary
.02); 74730 75376 (July 7, 2015), 80 FR 40113 (July 13, 2015) (SR-
NYSEArca-2015-18) (order approving proposed rule change relating to
the listing and trading of Vanguard Tax-Exempt Bond Index Fund under
NYSE Arca Equities Rule 5.2(j)(3)).
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In the Exchange's experience, indices of Municipal Securities are
able to satisfy all of the generic listing requirements applicable to
fixed income indices contained in Rule 14.11(c)(4) except the
requirement that component securities in an index have a minimum
original principal amount outstanding. Specifically, Municipal
Securities are generally issued with individual maturities of
relatively small size, although they generally are constituents of a
much larger municipal bond offering. Therefore, Municipal Securities
are unable to satisfy the rule's requirement that ``at least 75% of the
Fixed Income Securities portion of the weight of the index or portfolio
each shall have a minimum original principal amount outstanding of $100
million or more.'' Notwithstanding the inability of a Municipal
Securities index to meet this aspect of the generic listing standards,
the Commission has previously approved for listing and trading a series
of Index Fund Shares based on such indices where the Exchange has
demonstrated an index is not susceptible to manipulation.\7\
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\7\ See supra note 6.
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The Exchange would apply existing Rule 14.11(c)(4) and proposed
Rule 14.11(c)(4)(B)(ii) in a ``waterfall'' manner. Specifically, every
series of Index Fund Shares based on an index of fixed income
securities and cash (including an index that contains Municipal
Securities) would initially be evaluated against the generic listing
standards of Rule 14.11(c)(4)(b)(i). If the index underlying a series
of Index Fund Shares satisfied the existing criteria of Rule
14.11(c)(4)(b)(i), the Exchange would proceed with listing the Index
Fund Shares. The Exchange would apply proposed Rule 14.11(c)(4)(B)(ii)
only if: (i) An index did not meet the requirements of Rule
14.11(c)(4)(b)(i); and (ii) such index contained only Municipal
Securities and cash.
The Exchange believes that if an index of fixed income securities
and cash (including one that contains Municipal Securities) satisfies
the existing requirements of Rule 14.11(c)(4)(B)(i), its constituent
securities are sufficiently liquid to deter manipulation of the index.
Further, the proposed alternative listing standard, which would only be
applicable to an index consisting entirely of Municipal Securities and
cash, includes many requirements that are more stringent than those
applicable to an index of fixed income securities and cash. The
Exchange believes these heightened requirements would deter potential
manipulation of such Municipal Securities indices even though the index
may include securities that have smaller original principal amounts
outstanding.
Comparison of Existing Quantitative Requirements for Fixed Income
Indices vs. Proposed Quantitative Requirements for Municipal Securities
Indices
Below is a comparison of the existing quantitative requirements for
Index Fund Shares based on an index of fixed income securities versus
the Exchange's proposed alternative quantitative requirements for Index
Fund Shares based on an index of Municipal Securities:
Original Principal Amount Outstanding
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Existing Requirement for Fixed Income Security components that in
Fixed Income Securities. aggregate account for at least 75% of
the Fixed Income Securities portion of
the weight of the index or portfolio
each shall have a minimum original
principal amount outstanding of $100
million or more.
Proposed Requirement for Municipal Security components that in
Municipal Securities. aggregate account for at least 90% of
the Municipal Securities portion of the
weight of the index or portfolio each
shall have a minimum original principal
amount outstanding of at least $5
million and have been issued as part of
a transaction of at least $20 million.
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As discussed above, Municipal Securities are typically issued with
individual maturities of relatively small size, although they generally
are constituents of a much larger municipal bond offering. In
recognition of these smaller offering sizes, the Exchange proposes to
reduce the minimum original principal amount outstanding requirement
for component securities to at least $5 million. Further, the Exchange
proposes that qualifying securities must have been issued as part of a
transaction of at least $20 million. Lastly, the Exchange proposes to
increase the percentage weight of an index that must satisfy the
original principal amount outstanding requirement from 75% to 90%.
The Exchange does not believe that reducing the minimum original
principal amount outstanding requirement for component securities will
make an index more susceptible to manipulation. The Exchange believes
that the requirement that component securities in a fixed income index
have a minimum principal amount outstanding, in concert with the other
requirements of Rule 14.11(c)(4)(B)(i), is to ensure that such index is
sufficiently broad-based in scope as to minimize potential manipulation
of the index.\8\ However, based on empirical analysis, the Exchange
does not believe that an index of Municipal Securities with lower
original principal amounts outstanding is necessarily more susceptible
to manipulation.\9\ In 2016, Blackrock, Inc. analyzed the potential
manipulation of Municipal Securities and found that such manipulation
``may be uneconomical and is unsupported in practice.'' \10\ In
addition, the Exchange believes that its proposal to require that 90%
of the weight of a Municipal Securities index meet the original
principal amount outstanding
[[Page 16755]]
requirement (as opposed to 75% for fixed income indices) will further
deter potential manipulation by ensuring that a greater portion of the
index meet this minimum size requirement.
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\8\ The Commission approved BZX Rule 14.11(c) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
\9\ See Letter from Samara Cohen, Managing Director, U.S. Head
of iShares Capital Markets, Joanne Medero, Managing Director,
Government Relations & Public Policy, and Deepa Damre, Managing
Director, Legal & Compliance, BlackRock, Inc., to Brent J. Fields,
Secretary, Commission, dated October 18, 2017 in support of the
Exchange's proposal to facilitate the listing and trading of Index
Fund Shares listed pursuant to NYSE Arca Rule 5.2-E(j)(3) (SR-
NYSEArca-2017-56).
\10\ See Id. at 3 and accompanying Footnote 11. Blackrock stated
``Our empirical analysis indicated that: (1) Given the over-the-
counter dealer-centric market for municipal bonds, the bid-ask
spread decreases with trade size; therefore, trading many small lots
to move matrix prices is likely to be costly; (2) large trades move
prices significantly and this effect is incorporated into prices
quickly; for manipulation to work by affecting bond prices, the
trades must be large, implying greater dollar cost and more
likelihood of detection even if markets were segmented; (3) while
pricing agents apply matrix pricing techniques to value non-traded
bonds, the effect is likely too small to permit price manipulation
of the corresponding index or ETF; and (4) market participants will
use all intraday data to come up with their own valuations
independently of pricing providers; ultimately, the price of an ETF
at a point in time reflects these estimates in a manner that
balances supply and demand.''
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The Exchange notes that the Commission has previously approved the
listing and trading of several series of Index Fund Shares where the
underlying Municipal Securities index required that component
securities representing at least 90% of the weight of the index have a
minimum original principal amount outstanding of at least $5 million
and have been issued as part of a transaction of at least $20
million.\11\
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\11\ See, e.g., Securities Exchange Act Release No. 84049
(September 6, 2018), 83 FR 46228 (September 12, 2018) (SR-NYSEArca-
2018-38) (order approving, among other things, revisions to the
continued listing criteria applicable to the iShares New York AMT-
Free Muni Bond ETF).
Maximum Weight of Component Securities
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------------------------------------------------------------------------
Existing Requirement for No component fixed income security
Fixed Income Securities. (excluding Treasury Securities and GSE
Securities) shall represent more than
30% of the Fixed Income Securities
portion of the weight of the index or
portfolio, and the five most heavily
weighted component fixed income
securities in the index or portfolio
shall not in the aggregate account for
more than 65% of the Fixed Income
Securities portion of the weight of the
index or portfolio.
Proposed Requirement for No component Municipal Security shall
Municipal Securities. represent more than 10% of the Municipal
Securities portion of the weight of the
index or portfolio, and the five most
heavily weighted component Municipal
Securities in the index or portfolio
shall not in the aggregate account for
more than 30% of the Municipal
Securities portion of the weight of the
index or portfolio.
------------------------------------------------------------------------
The Exchange proposes to substantially reduce the maximum weight
that any individual Municipal Security, or group of five Municipal
Securities, can have in a Municipal Securities index. The current
generic listing rules for Index Fund Shares based on a fixed income
index permit individual component securities to account for up to 30%
of the weight of such index and the top-five weighted component
securities to account for up to 65% of the weight of such index. The
Exchange proposes to reduce these metrics to 10% for individual
Municipal Securities and 30% for the top-weighted Municipal Securities
in an index.
The Exchange believes that its proposal will reduce the likelihood
that a Municipal Securities index underlying a series of Index Fund
Shares could be subject to manipulation by ensuring that no individual
Municipal Security, or group of five Municipal Securities, represents
an outsized weight of a Municipal Securities index.
Diversification of Issuers
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Existing Requirement for An underlying index or portfolio
Fixed Income Securities. (excluding one consisting entirely of
exempted securities) must include a
minimum of 13 non-affiliated issuers.
Proposed Requirement for An underlying index or portfolio must
Municipal Securities. include a minimum of 13 non-affiliated
issuers.
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The current generic listing rules for Index Fund Shares based on an
index of fixed income securities require that such index must include
securities from at least thirteen non-affiliated \12\ issuers. Notably,
the current rules exempt indices consisting entirely of exempted
securities from complying with this diversification requirement.
Municipal Securities are included in the definition of exempted
securities.\13\ Therefore, an index of Municipal Securities that
otherwise met the requirements of Rule 14.11(c)(4) would not be
required to satisfy any minimum issuer diversification requirement.
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\12\ Rule 405 under the Securities Act of 1933 defines an
affiliate as a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under
common control with such person. Control, for this purpose, is the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether
through the ownership of voting securities, by contract, or
otherwise.
\13\ See Section 3(a)(12) of the Act.
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Nonetheless, the Exchange proposes that a Municipal Securities
index be required to include securities from at least 13 non-affiliated
issuers. The Exchange believes that requiring such diversification will
reduce the likelihood that an index can be manipulated by ensuring that
securities from a variety of issuers are represented in an index of
Municipal Securities.
Number of Components
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Existing Requirement for Fixed Income Securities Thirteen.
Proposed Requirement for Municipal Securities... Five Hundred.
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The current generic listing rules for Index Fund Shares based on an
index of fixed income securities do not have an explicit requirement
that an index contain a minimum number of securities. However, given
that such rules require an index to contain securities from at least
thirteen non-affiliated issuers, there is a de facto requirement that
an index of fixed income securities contain at least thirteen component
securities. As described above, a fixed income index comprised entirely
of exempted securities (including Municipal Securities) is not required
to satisfy the issuer diversification test, thereby allowing it to have
no minimum number of component securities.
The Exchange proposes to require that a Municipal Securities index
contain at least 500 component securities. The Exchange believes that
such requirement will ensure that a Municipal Securities index is
sufficiently broad-based and diversified to make it less susceptible to
manipulation.
[[Page 16756]]
The Exchange proposes that the quantitative requirements described
above would apply to a Municipal Securities index underlying a series
of Index Fund Shares on both an initial and continued basis.
The Exchange proposes to amend Exchange Rule 14.11(c)(5) to specify
that the Exchange may approve a series of Index Fund Shares for listing
based on a combination of indexes, including an index of Municipal
Securities. To the extent that an index of Municipal Securities is
included in a combination, amended Rule 14.11(c)(5) will specify that
the Municipal Securities index must meet all requirements of Rule
14.11(c)(4)(B)(ii). In addition, amended Rule 14.11(c)(5) will specify
that requirements related to index dissemination and related continued
listing standards will apply to indexes of Municipal Securities. The
Exchange notes that a combination index that includes an index of
Municipal Securities will not be permitted to seek to provide
investment results in a multiple of the direct or inverse performance
of such combination index.
Additional Requirements
As noted above, the Exchange proposes that existing rules
applicable to Index Fund Shares based on fixed income securities will
continue to apply to any series of Index Fund Shares listed pursuant to
Rule 14.11(c)(4)(B)(ii), including: (i) Index methodology and
calculation; \14\ (ii) dissemination of information; \15\ (iii) initial
shares outstanding; \16\ (iv) hours of trading; \17\ (v) surveillance
procedures; \18\ and (vi) all continued listing requirements under Rule
14.11(c)(9)(B).
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\14\ See Rule 14.11(c)(4)(C).
\15\ See Rule 14.11(c)(6)(A).
\16\ See Rule 14.11(c)(6)(B).
\17\ See Rule 14.11(c)(7).
\18\ See Rule 14.11(c)(6)(C).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities the Act and the rules and regulations thereunder
applicable to the Exchange and, in particular, the requirements of
Section 6(b) of the Act.\19\ Specifically, the Exchange believes the
proposed rule change is consistent with the Section 6(b)(5) \20\
requirements that the rules of an exchange be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, 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. Additionally, the Exchange
believes the proposed rule change is consistent with the Section
6(b)(5) \21\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
\21\ Id.
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In particular, the Exchange believes that the proposed rule change
is designed to prevent fraudulent and manipulative acts and practices
in that Index Fund Shares listed pursuant to proposed Exchange Rule
14.11(c)(4)(B)(ii) will be subject to the existing trading
surveillances, administered by FINRA on behalf of the Exchange, which
are designed to detect violations of Exchange rules and applicable
federal securities laws. The Exchange represents that these procedures
are adequate to properly monitor Exchange trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and applicable federal securities laws. FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in the Shares
with other markets that are members of the ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
FINRA also can access data obtained from the MSRB relating to municipal
bond trading activity for surveillance purposes in connection with
trading in the Shares. FINRA, on behalf of the Exchange, is able to
access, as needed, trade information for certain fixed income
securities held by a Fund reported to FINRA's TRACE.
The Exchange believes that the proposed listing standard will
ensure that indices underlying a series of Index Fund Shares are
sufficiently well-diversified to protect against index manipulation. On
an initial and continuous basis, each index will contain at least 500
component securities. In addition, on an initial and continued basis,
at least 90% of the Municipal Securities portion of the weight of the
index or portfolio each shall have a minimum original principal amount
outstanding of at least $5 million and have been issued as part of a
transaction of at least $20 million. Further, on an initial and
continued basis, no component Municipal Security shall represent more
than 10% of the Municipal Securities portion of the weight of the index
or portfolio, and the five most heavily weighted component Municipal
Securities in an index or portfolio shall not in the aggregate account
for more than 30% of the Municipal Securities portion of the weight of
such index or portfolio. Lastly, on an initial and continued basis, an
underlying index or portfolio must include a minimum of 13 non-
affiliated issuers. The Exchange believes that this significant
diversification and the lack of concentration among constituent
securities provides [sic] a strong degree of protection against index
manipulation.
In addition, the Exchange represents that Index Fund Shares listed
to the proposed generic listing rule will comply with all other
requirements applicable to Index Fund Shares including, but not limited
to, the applicable rules governing the trading of equity securities,
trading hours, trading halts, surveillance, information barriers and
the Information Circular to Members, as set forth in Exchange rules
applicable to Index Fund Shares.
The Exchange believes that its proposed amendments to Rule
14.11(c)(5) are consistent with the Act because any index of Municipal
Securities included in a combination index will be required to meet the
requirements of proposed Rule 14.11(c)(4)(B)(ii). In addition, such
index will be required to meet the index dissemination and continued
listing requirements of Rule 14.11(c)(5). Lastly, a combination index
that includes an index of Municipal Securities will not be permitted to
seek to provide investment results in a multiple of the direct or
inverse performance of such combination index.
As described above, the Exchange notes that the Commission has
previously approved the listing and trading of several series of Index
Fund Shares where the underlying Municipal Securities index required
that component securities representing at least 90% of the weight of
the index have a minimum original principal amount outstanding of at
least $5 million and have been issued as part of a transaction of at
least $20 million. Further, the Exchange notes that the other elements
of the proposed rule are each the same or more restrictive than the
generic listing rules applicable to Index Fund Shares based on an index
of fixed income securities. The Exchange, therefore, believes that
indices underlying a series of Index Fund Shares listed pursuant to the
proposed generic rules will be sufficiently broad-based to deter
potential manipulation.
The proposed rule change is designed to promote just and equitable
principles
[[Page 16757]]
of trade and to protect investors and the public interest. The Exchange
believes that a large amount of information will be publicly available
regarding Index Fund Shares listed pursuant to the proposed rule,
thereby promoting market transparency. As described above, the Intraday
Indicative Value (the ``IIV'') will be widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Exchange's Regular Trading Hours. The current value of an index
underlying a series of Index Fund Shares will be disseminated by one or
more major market data vendors at least once per day. Information
regarding market price and trading volume of the Index Fund Shares will
be continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services, and quotation
and last sale information will be available via the CTA high-speed
line. Prior to the commencement of trading, the Exchange will inform
its Members in an Information Circular of the special characteristics
and risks associated with trading the Index Fund Shares. If the
Exchange becomes aware that the net asset value of a series of Index
Fund Shares (the ``NAV'') is not being disseminated to all market
participants at the same time, it will halt trading in the Index Fund
Shares until such time as the NAV is available to all market
participants. With respect to trading halts, the Exchange may consider
all relevant factors in exercising its discretion to halt or suspend
trading in the Index Fund Shares. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Index Fund Shares inadvisable. If the IIV or the
index values are not being disseminated as required, the Exchange may
halt trading during the day in which the interruption to the
dissemination of the applicable IIV or an index value occurs. If the
interruption to the dissemination of the applicable IIV or an index
value persists past the trading day in which it occurred, the Exchange
will halt trading. Trading in Shares of the Funds will be halted if the
circuit breaker parameters in Exchange Rule 11.18 have been reached or
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Index Fund Shares inadvisable. In
addition, investors will have ready access to information regarding the
IIV, and quotation and last sale information for the Index Fund Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of exchange-traded products based on municipal bond
indexes that will enhance competition among market participants, to the
benefit of investors and the marketplace. The Exchange has in place
surveillance procedures relating to trading in the Index Fund Shares
and may obtain information via ISG from other exchanges that are
members of ISG or with which the Exchange has entered into a
comprehensive surveillance sharing agreement. In addition, investors
will have ready access to information regarding the IIV and quotation
and last sale information for the Index Fund Shares. Trade price and
other information relating to municipal bonds is available through the
MSRB's EMMA system.
As required under Rule 14.11(c)(4)(C)(i) and (iii), if the index is
maintained by a broker-dealer or fund advisor, the broker-dealer or
fund advisor shall erect and maintain a ``firewall'' around the
personnel who have access to information concerning changes and
adjustments to the index. Further, any advisory committee, supervisory
board, or similar entity that advises a Reporting Authority or that
makes decisions on the index composition, methodology and related
matters, must implement and maintain, or be subject to, procedures
designed to prevent the use and dissemination of material non-public
information regarding the applicable index.
Further, the index value of a series of Index Fund Shares listed
pursuant to proposed Rule 14.11(c)(4)(B)(ii) will be widely
disseminated by one or more major market data vendors at least once per
day and if the index value does not change during some or all of the
period when trading is occurring on the Exchange, the last official
calculated index value must remain available throughout Exchange
trading hours. In addition, the IIV for the Index Fund Shares will be
disseminated by one or more major market data vendors, updated at least
every 15 seconds during the Exchange's Regular Trading Hours as
required under Rule 14.11(c)(4)(C)(ii).
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 notes that the
proposed rule change will facilitate the listing and trading of Index
Fund Shares based on an index of Municipal Securities which will
enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be 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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2019-023 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-2019-023. 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
[[Page 16758]]
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-2019-023, and should be submitted on or before May 13, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07982 Filed 4-19-19; 8:45 am]
BILLING CODE 8011-01-P