[Federal Register Volume 84, Number 161 (Tuesday, August 20, 2019)]
[Notices]
[Pages 43192-43194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17857]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86662; File No. SR-CboeBYX-2019-005]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Clarify Portions of Its Rules Under Chapter 14 (Securities Traded)
Related to the Applicability of Certain Disclosure Requirements
August 14, 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 July 31, 2019, Cboe BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') 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
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') proposes to
clarify portions of its rules under Chapter 14 (Securities Traded)
related to the applicability of certain disclosure requirements. The
text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/byx/), 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
The Exchange proposes to clarify portions of the rules under
Chapter 14 (Securities Traded) related to the applicability of certain
disclosure requirements.
Currently, under Rule 14.1 (Unlisted Trading Privileges), Rule 14.2
(Investment Company Units), and Rule 14.8 (Portfolio Depositary
Receipts) a Member is required to provide to all purchasers a written
description of the terms and characteristics of the applicable
securities (or a ``product description''). In addition, Members also
have a separate prospectus delivery requirement under Section 24(d) of
the Investment Company Act of 1940 (``1940 Act''). A Member, however,
is not required to send a Section 24(d) prospectus for a security if
such security is subject of an order by the Securities and Exchange
Commission (``Commission'') exempting it from Section 24(d) prospectus
delivery requirements, and is not otherwise subject to prospectus
delivery requirements under the Securities Act of 1933 (``1933 Act'').
As such, the Exchange provides rules requiring Members to deliver a
product description for securities exempt from the prospectus delivery
requirements. The Exchange notes that a product description is a
written description of the terms and characteristics of a security in a
form prepared or approved by the Exchange, whereas a prospectus is a
legal document required by and filed with the Commission which contains
detailed disclosers about a security.
Currently, Rule 14.1(c)(3)(A), Rule 14.2(d)(1), and Rule 14.8(j)(1)
provide govern the written description requirements for derivative
securities traded under unlisted trading privileges (``UTP Derivative
Securities''), series of Investment Company Units, and series of
Portfolio Depositary Receipts, respectively. As written, these
subparagraphs under their respective Rules do not make it explicit to
Members that the product description requirement is applicable only to
prospectus-exempt products. Furthermore, current Rules 14.2(d)(1) and
14.8(j)(1) do not contain a provision (like that of 14.1(c)(3)(B)) that
the Exchange will inform its Members by means of an information
circular when the product description delivery requirements apply.
Therefore, in order to provide Members with better understanding of the
provisions in connection with these requirements, the Exchange now
proposes to amend its rules to explicitly state that the product
description delivery requirements apply only to the respective products
that are exempt from the 1940 Act prospectus delivery requirements and
are not otherwise subject to the prospectus delivery requirements under
the 1933 Act. The Exchange also proposes to add language to Rule
14.2(d)(1) and Rule 14.8(j)(1) to inform Members that the Exchange will
announce the applicability of the product description delivery
requirements to particular series of Portfolio Depositary Receipts or
Investment Company Units via information circular. This change is
intended to provide clarity to Members regarding when and how the
Exchange will notify Members of their product delivery obligations. The
Exchange notes that Rule 14.1(c)(3)(B) currently provides that the
Exchange informs its Members of the application of product description
delivery requirements related to UTP Derivative Securities by means of
information circular. The Exchange also notes that the proposed
amendments are substantially similar to the disclosure requirement
provision currently applicable to Managed Fund Shares on its affiliated
exchange, Cboe BZX Exchange, Inc. (``BZX'').\5\
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\5\ See BZX Rule 14.11(i)(6).
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The Exchange proposes to update the heading of Rule 14.1(c)(3)(A),
which currently states ``Prospectus Delivery'', to ``Scope of Product
Description'' as it believes this better aligns with the requirements
provided for under paragraph (c)(3), thus provides further clarity
regarding the product description requirements contained within this
paragraph.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the
[[Page 43193]]
``Act'') and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\6\ Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \7\ 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) \8\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. The Exchange also believes the
proposed rule change is consistent with Section 6(b)(1) of the Act,
which provides that the Exchange be organized and have the capacity to
be able to carry out the purposes of the Act and to enforce compliance
by the Exchange's Members and persons associated with its Members with
the Act, the rules and regulations thereunder, and the rules of the
Exchange.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
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In particular, the Exchange believes that this proposal benefits
and protects investors because it is designed to bolster Member
understanding of its rules and the applicability of the subparagraphs
providing for written description disclosure requirements to certain
products. Because such current subparagraphs (Rule 14.1(c)(3)(A), Rule
14.2(d)(1), and Rule 14.8(j)(1)) do not explicitly state under what
circumstances they will apply to the respective products under each
subparagraph, the Exchange has found that it is unclear to Members that
the subparagraphs in connection with the required written description
only apply to securities or series that are exempt from the Section
24(d) prospectus delivery requirements, and otherwise not subject to
prospectus delivery requirements under the 1933 Act. The Exchange thus
believes this proposed change will enhance Members' understanding with
respect to when and to which products the relevant subparagraphs are
applicable, thereby protecting investors and the public interest. The
Exchange notes that this proposal does not alter any of the disclosure
requirements applicable to market participants, but merely intends to
make explicit when the written disclosure provisions apply, as well as
establish that the Exchange will notify Members via information
circular of their product description obligations for particular series
of Portfolio Depositary Receipts and Investment Company Units.
Additionally, the Exchange believes that providing clear rules
regarding the applicability of provisions requiring written product
description deliveries will enable the Exchange to be organized and
have the capacity to enforce compliance its Members with the Act and
the rules of Exchange.
Additionally, the proposed changes are substantially similar to the
rule of affiliated exchange, BZX, for disclosure requirements currently
applicable to Managed Fund Shares.\9\
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\9\ See supra note 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended. On
the contrary, the proposed rule change is not designed to address any
competitive issues but is only intended to bolster Member understanding
of its rules with respect to the applicability of certain disclosure
requirement provisions.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No comments were solicited or received on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \10\ and
Rule 19b-4(f)(6) \11\ thereunder. At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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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-CboeBYX-2019-005 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-CboeBYX-2019-005. 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
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submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-CboeBYX-2019-005 and should
be submitted on or before September 10, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17857 Filed 8-19-19; 8:45 am]
BILLING CODE 8011-01-P