[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

[[Page 51216]]

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.


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    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