[Federal Register Volume 84, Number 188 (Friday, September 27, 2019)]
[Notices]
[Pages 51215-51217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20971]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87059; File No. SR-CboeBZX-2019-057]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change to List and Trade Shares of the American Century
Focused Dynamic Growth ETF and American Century Focused Large Cap Value
ETF Under Currently Proposed Rule 14.11(k)
September 23, 2019.
On June 6, 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 of the American Century Focused Dynamic
Growth ETF and American Century Focused Large Cap Value ETF (each a
``Fund'' and, collectively, the ``Funds'') under proposed BZX Rule
14.11(k).\3\ The proposed rule change was published for comment in the
Federal Register on June 25, 2019.\4\ On August 2, 2019, pursuant to
Section 19(b)(2) of the Exchange Act,\5\ 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.\6\ 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 \7\ to determine whether to approve or disapprove the proposed rule
change.
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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. 86157 (June 19,
2019), 84 FR 29892 (June 25, 2019) (``Managed Portfolio Shares
Proposal''). Pursuant to the Managed Portfolio Shares Proposal, the
Exchange proposes to adopt new BZX Rule 14.11(k) to permit the
listing and trading of Managed Portfolio Shares. The Managed
Portfolio Shares Proposal has not yet been acted upon by the
Commission.
\4\ See Securities Exchange Act Release No. 86155 (June 19,
2019), 84 FR 29912 (``Notice'').
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 86557, 84 FR 39024
(August 8, 2019). The Commission designated September 23, 2019, as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\7\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Exchange's Description of the Proposed Rule Change
\8\
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\8\ For a complete description of the Exchange's proposal, see
the Notice, supra note 4.
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The Exchange proposes to list and trade shares of the Funds under
proposed BZX Rule 14.11(k).\9\ The shares of each Fund will be issued
by American Century ETF Trust (``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.\10\ The
investment adviser to the Trust will be American Century Investment
Management, Inc. (``Adviser'').\11\ Foreside Fund Services, LLC will
serve as the distributor of each Fund's shares.
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\9\ For a complete description of proposed BZX Rule 14.11(k),
see the Managed Portfolio Shares Proposal, supra note 3.
\10\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). On June 18, 2018, the Trust filed a
registration statement on Form N-1A relating to the Funds (File No.
811-23305). The Exchange states that the Trust filed an application
for exemptive relief under the 1940 Act (File No. 812-15035), and
shares of the Funds will not be issued until the Commission has
issued an order granting exemptive relief.
\11\ The Exchange states that the 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 a Fund's portfolio. The Exchange
further states that in the event (a) the 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 and/or changes to the portfolio, and will be subject
to procedures designed to prevent the use and dissemination of
material non-public information regarding such portfolio.
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A. American Century Focused Dynamic Growth ETF
The Exchange states that the American Century Focused Dynamic
Growth ETF seeks long-term capital growth. Under Normal Market
Conditions,\12\ the Fund intends to invest primarily in U.S. exchange-
listed equity securities. In addition, the Fund may invest in exchange-
traded funds (``ETFs''),\13\ exchange-listed American Depositary
Receipts (``ADRs''), U.S. exchange-listed equity futures contracts, and
U.S. exchange-listed equity index futures contracts. The Fund may also
hold cash and Cash Equivalents \14\ without limitation.
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\12\ 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.
\13\ For purposes of describing the holdings of the Funds, 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 a Fund will invest all will be listed and traded on
U.S. national securities exchanges. While the Funds may invest in
inverse ETFs, the Funds will not invest in leveraged (e.g., 2X, -2X,
3X or -3X) ETFs.
\14\ For purposes of this filing, ``Cash Equivalents'' are
short-term instruments with maturities of less than three months,
which include only the following: (i) U.S. Government securities,
including bills, notes, and bonds differing as to maturity and rates
of interest, which are either issued or guaranteed by the U.S.
Treasury or by U.S. Government agencies or instrumentalities; (ii)
certificates of deposit issued against funds deposited in a bank or
savings and loan association; (iii) bankers acceptances, which are
short-term credit instruments used to finance commercial
transactions; (iv) repurchase agreements and reverse repurchase
agreements; (v) bank time deposits, which are monies kept on deposit
with banks or savings and loan associations for a stated period of
time at a fixed rate of interest; (vi) commercial paper, which are
short-term unsecured promissory notes; and (vii) money market funds.
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B. American Century Focused Large Cap Value ETF
The Exchange states that the American Century Focused Large Cap
Value ETF will seek long-term capital growth. Under Normal Market
Conditions, the Fund intends to invest primarily in U.S. exchange-
listed equity securities. In addition, the Fund may invest in ETFs,
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 and Cash Equivalents without limitation.
C. Investment Restrictions
All exchange-listed equity securities in which the Funds will
invest will be listed and traded on U.S. national securities exchanges.
The Funds will not invest in forwards or swaps.
Each Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage.
Each Fund may hold up to an aggregate amount of 15% of its total
assets in illiquid assets,\15\ consistent with Commission guidance.
Each Fund will monitor its portfolio liquidity on an ongoing basis to
determine whether, in light of current circumstances, an
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adequate level of liquidity is being maintained, and will consider
taking appropriate steps in order to maintain adequate liquidity.
Illiquid assets include securities subject to contractual or other
restrictions on resale and other instruments that lack readily
available markets as determined in accordance with Commission staff
guidance. In any event, the Funds will not purchase any securities that
are illiquid investments at the time of purchase.
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\15\ In reaching liquidity decisions, the Adviser may consider
the following factors: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer).
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The shares of each Fund will conform to the initial and continued
listing criteria under proposed BZX Rule 14.11(k). The Exchange states
that each 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-2019-057 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \16\ 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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\16\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Exchange Act,\17\ 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.'' \18\
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\17\ Id.
\18\ 15 U.S.C. 78f(b)(5).
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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.\19\
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\19\ 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).
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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 18, 2019. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
November 1, 2019.
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,\20\ 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 Funds under proposed Rule 14.11(k) (Managed Portfolio
Shares), which would be actively managed exchange-traded products for
which the portfolio holdings would be 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.
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\20\ See supra note 4.
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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-CboeBZX-2019-057 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-2019-057. 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-2019-057 and should be submitted
on or before October 18, 2019. Rebuttal comments should be submitted by
November 1, 2019.
[[Page 51217]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20971 Filed 9-26-19; 8:45 am]
BILLING CODE 8011-01-P