[Federal Register Volume 86, Number 93 (Monday, May 17, 2021)]
[Notices]
[Pages 26767-26769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10275]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91845; File No. SR-CboeBZX-2021-014]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Allow Invesco Focused Discovery Growth ETF and 
Invesco Select Growth ETF To Strike and Publish Multiple Intraday Net 
Asset Values

May 11, 2021.
    On January 22, 2021, 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 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to allow Invesco Focused 
Discovery Growth ETF and Invesco Select Growth ETF (each a ``Fund'' and 
together ``the Funds'') to strike and publish multiple intraday net 
asset values. The proposed rule change was published for comment in the 
Federal Register on February 10, 2021.\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. 91064 (February 4, 
2021), 86 FR 8935 (``Notice'').
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    On March 24, 2021, 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\ No comments on the proposed rule change have been received. 
The Commission is issuing this order to institute proceedings pursuant 
to 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. 91398, 86 FR 16650 
(March 30, 2021). The Commission designated May 11, 2021, as the 
date by which the Commission shall approve or 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. Description of the Proposal

    The Commission approved a rule governing the listing and trading of 
shares (``Shares'') of the Funds,\7\ which are Tracking Fund Shares.\8\ 
The Shares are listed and are trading on the Exchange. The current rule 
governing the listing and trading of the Shares contemplates that each 
Fund would calculate and disseminate one net asset value (``NAV'') per 
day.\9\ Each Fund's NAV represents the value of the Fund's assets minus 
its liabilities divided by the number of shares outstanding.
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    \7\ See Securities Exchange Act Release No. 90684 (December 16, 
2020) 85 FR 83637 (December 22, 2020) (SR-CboeBZX-2020-091) (``Prior 
Order''). See also BZX Rule 14.11(m)(2)(A) (requiring the Exchange 
to file proposals under Section 19(b) of the Act before listing and 
trading a series of Tracking Fund Shares).
    \8\ A ``Tracking Fund Share'' is a security that: (1) Represents 
an interest in an investment company registered under the Investment 
Company Act of 1940 (``Investment Company'') organized as an open-
end management investment company, 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; (2) is issued in a specified aggregate minimum number in 
return for a deposit of a specified Tracking Basket and/or a cash 
amount with a value equal to the next determined net asset value; 
(3) when aggregated in the same specified minimum number, may be 
redeemed at a holder's request, which holder will be paid a 
specified Tracking Basket and/or a cash amount with a value equal to 
the next determined net asset value; and (4) the portfolio holdings 
for which are disclosed within at least 60 days following the end of 
every fiscal quarter. See BZX Rule 14.11(m)(3)(A).
    \9\ See Prior Order, supra note 7, 85 FR at 83638.
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    The Exchange proposes to amend the rule applicable to the listing 
and trading of the Shares to allow each Fund to calculate and 
disseminate multiple intraday NAVs. The Exchange states that NAVs, 
which are used to value exchange-traded products (``ETPs'') such as 
Tracking Fund Shares,\10\ are central to the arbitrage process for many 
ETPs,\11\ and that arbitrage is important because it provides a means 
to maintain a close tie between market price and NAV per share of the 
ETP.\12\
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    \10\ See Notice, supra note 3, 86 FR at 8935.
    \11\ See id. at 8935-8936.
    \12\ See id. at 8936.
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    In support of its proposal, the Exchange states that allowing the 
Funds to strike and publish multiple intraday NAVs would provide the 
marketplace with additional information related to each Fund's 
underlying holdings on an intraday basis, which the Exchange believes 
will allow market participants to better assess their risk and provide 
additional certainty around intraday price and hedging.\13\ The 
Exchange also provides that its proposal would reduce the risk that 
market participants face

[[Page 26768]]

intraday related to the possible divergence between the Tracking Basket 
and the value of each Fund's underlying holdings by permitting market 
participants to ``lock in'' their creation and redemption at both 
intraday NAV and at the end-of day-NAV. The Exchange states that its 
proposal, by reducing the risk that market participants face intraday, 
would encourage tighter spreads and deeper liquidity in the Shares, to 
the benefit of investors.\14\
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    \13\ See id. at 8936-8937.
    \14\ See id. at 8937.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2021-014 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \15\ 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.
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    \15\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\16\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of and input concerning the proposed rule change's consistency 
with the Act and, in particular, 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, 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; and are not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.'' \17\
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    \16\ Id.
    \17\ 15 U.S.C. 78f(b)(5).
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    The Commission has not previously approved a proposed rule change 
under Rule 19b-4 of the Act to permit the listing and trading of any 
ETP that calculates and disseminates multiple intraday NAVs.\18\ The 
Exchange's proposal, therefore, raises novel questions and concerns 
regarding the proposal's impact on how the Shares would trade and 
whether the proposal is consistent with the requirements of Section 
6(b)(5) of the Act, including the requirement that the rules of a 
national securities exchange be ``designed to . . . remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system,'' and promote ``the maintenance of fair and orderly 
markets'' consistent with Section 11(A) of the Act. Accordingly, the 
Commission seeks comments on the novel aspects of the proposal, 
including the following:
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    \18\ The Exchange notes that its proposal is similar to a 
functionality offered by Invesco Treasury Collateral ETF. According 
to the Exchange, that ETF calculates its NAV at 12 p.m. and 4 p.m. 
ET every day the New York Stock Exchange (``NYSE'') is open. See 
Notice, supra note 3, 86 FR at 8936, n.8. The Commission notes, 
however, that Invesco Treasury Collateral ETF was not filed with the 
Commission pursuant to Section 19 of the Act. Accordingly, as it 
relates the Commission's review under the Rule 19b-4 process, the 
Exchange's proposal herein is a case of first impression.
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    1. As proposed, each Fund would be able to strike and disseminate 
multiple intraday NAVs. Do commenters have views regarding whether the 
calculation and dissemination of multiple intraday NAVs would be 
helpful or confusing to market participants, particularly in light of 
the other information, including intraday indicative value, which is 
disseminated regarding the Shares?
    2. What effects, if any, would intraday creations and redemptions 
have on secondary trading and price discovery?
    3. The Shares are listed and traded on the Exchange as Tracking 
Fund Shares. Accordingly, the Funds do not disclose on a daily basis 
the Funds' full portfolio holdings. Given the lack of full portfolio 
transparency on a daily basis, what issues, if any, do multiple, 
intraday NAVs pose? What, if any, benefits do they confer?
    4. The proposal does not stipulate the number of intraday NAVs each 
Fund will strike and does not stipulate when such intraday NAVs would 
be struck. Do commenters have concerns regarding the lack of fixed 
number and times of proposed intraday NAVs? If so, what are those 
concerns?
    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
self-regulatory organization [`SRO'] that proposed the rule change.'' 
\19\ The description of a proposed rule change, its purpose and 
operation, its effect, and a legal analysis of its consistency with 
applicable requirements must all be sufficiently detailed and specific 
to support an affirmative Commission finding, and any failure of an SRO 
to provide this information may result in the Commission not having a 
sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Exchange Act and the applicable rules and 
regulations.\20\
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    \19\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \20\ See id.
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    For these reasons, the Commission believes it is appropriate to 
institute proceedings pursuant to Section 19(b)(2)(B) of the Act to 
determine whether the proposal should be approved or disapproved.

IV. Commission's Solicitation of 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 June 7, 2021. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by June 21, 
2021. 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, in addition to any other comments they may wish to 
submit about the proposed rule change.
    Comments may be submitted by any of the following methods:

[[Page 26769]]

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-2021-014 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-2021-014. 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-2021-014 and should be submitted 
by June 7, 2021. Rebuttal comments should be submitted by June 21, 
2021.
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    \22\ 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10275 Filed 5-14-21; 8:45 am]
BILLING CODE 8011-01-P