[Federal Register Volume 89, Number 138 (Thursday, July 18, 2024)]
[Notices]
[Pages 58463-58465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15771]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100522; File No. SR-CboeBZX-2024-026]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Permit the Generic Listing and Trading of 
Multi-Class ETF Shares

July 12, 2024.

I. Introduction

    On April 15, 2024, Cboe BZX Exchange, Inc. (``BZX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend BZX Rule 14.11(l) to permit the generic 
listing and trading of Multi-Class ETF Shares. The proposed rule change 
was published for comment in the Federal Register on May 1, 2024.\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. 100034 (April 25, 
2024), 89 FR 35255 (``Notice''). Comments on the proposed rule 
change are available at: https://www.sec.gov/comments/sr-cboebzx-2024-026/srcboebzx2024026.htm.
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    On May 30, 2024, 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\ The Commission is publishing this order to institute 
proceedings pursuant to Section 19(b)(2)(B) of the Act \6\ to determine 
whether to disapprove the proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 100248, 89 FR 48202 
(June 5, 2024). The Commission designated July 30, 2024, 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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II. Description of the Proposed Rule Change

    BZX Rule 14.11(l) governs the generic listing and trading of 
Exchange-Traded Fund Shares (``ETF Shares'') \7\ on the Exchange. BZX 
Rule 14.11(l)(4) currently provides that the Exchange may approve a 
series of ETF Shares for listing and/or trading (including pursuant to 
unlisted trading privileges) pursuant to Rule 19b-4(e) under the 
Act,\8\ provided such series of ETF Shares is eligible to operate in 
reliance on Rule 6c-11 under the 1940 Act, and must satisfy the 
requirements of BZX Rule 14.11(l) on an initial and continued listing 
basis.\9\ BZX Rule 14.11(l)(4)(A) also specifically requires that the 
requirements of Rule 6c-11

[[Page 58464]]

under the 1940 Act must be satisfied by a series of ETF Shares on an 
initial and continued listing basis.\10\ In addition, BZX Rule 
14.11(l)(4)(B)(i) provides that, if the Exchange becomes aware that the 
issuer of the ETF Shares is no longer eligible to operate in reliance 
on Rule 6c-11 under the 1940 Act, the Exchange will consider suspending 
trading in, and will commence delisting proceedings under BZX Rule 
14.12 for, the series of ETF Shares.\11\
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    \7\ ETF Shares are shares of stock issued by an Exchange-Traded 
Fund. See BZX Rule 14.11(l)(3)(A). Exchange-Traded Fund means 
``exchange-traded fund'' as defined in Rule 6c-11 under the 
Investment Company Act of 1940 (``1940 Act''). See BZX Rule 
14.11(l)(3)(B).
    \8\ Rule 19b-4(e)(1) under the Act provides that the listing and 
trading of a new derivative securities product by a self-regulatory 
organization shall not be deemed a proposed rule change, pursuant to 
paragraph (c)(1) of Rule 19b-4, if the Commission has approved, 
pursuant to section 19(b) of the Act, the self-regulatory 
organization's trading rules, procedures and listing standards for 
the product class that would include the new derivative securities 
product and the self-regulatory organization has a surveillance 
program for the product class. See 17 CFR 19b-4(e)(1). Rule 19b-4(e) 
defines ``new derivative securities product'' as any type of option, 
warrant, hybrid securities product or any other security, other than 
a single equity option or a security futures product, whose value is 
based, in whole or in part, upon the performance of, or interest in, 
an underlying instrument. See 17 CFR 19b-4(e).
    \9\ See BZX Rule 14.11(l)(4).
    \10\ See BZX Rule 14.11(l)(4)(A).
    \11\ See BZX Rule 14.11(l)(4)(B)(i).
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    The Exchange proposes to expand BZX Rule 14.11(l) to allow the 
Exchange to also approve a series of ETF Shares for listing and/or 
trading (including pursuant to unlisted trading privileges) on the 
Exchange pursuant to Rule 19b-4(e) under the Act, provided such series 
of ETF Shares is eligible to operate in reliance on any exemptive 
relief under Rule 6c-11 under the 1940 Act that permits the fund to 
offer a class of ETF Shares in addition to classes of shares that are 
not exchange-traded (``Multi-class ETF Shares''). Similarly, as 
proposed, such series also must satisfy the requirements of BZX Rule 
14.11(l) on an initial and continued listing basis. The Exchange also 
proposes that the requirements of Rule 6c-11, including the 
requirements of any exemptive relief applicable to Multi-class ETF 
Shares, must be satisfied by a series of ETF Shares on an initial and 
continued listing basis. Lastly, the Exchange proposes to amend BZX 
Rule 14.11(l)(4)(B)(i)(a) to provide that, if the Exchange becomes 
aware that the issuer of the ETF Shares is no longer eligible to 
operate in reliance on Rule 6c-11 under the 1940 Act or any exemptive 
relief applicable to Multi-class ETF Shares, the Exchange will consider 
suspending trading in the series and will commence delisting 
proceedings under BZX Rule 14.12.
    The Exchange states that there are numerous applications for 
exemptive relief for Multi-class ETF Shares currently before the 
Commission.\12\ As a result, the Exchange states that the proposed 
amendment would provide for the generic listing and/or trading of 
Multi-class ETF Shares under BZX Rule 14.11(l) on the Exchange 
immediately upon the Commission's applicable order granting exemptive 
relief.\13\ The Exchange further states that it submits the proposal 
only to prevent any unnecessary delay in listing Multi-class ETF Shares 
when and if such requests for exemptive relief are granted by the 
Commission.\14\
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    \12\ See Notice, supra note 3, 89 FR at 35255.
    \13\ See id.
    \14\ See id. The Exchange also restates that it ``is only 
proposing to amend its rules to allow such a series of Multi-class 
ETF Shares to list on the Exchange pursuant to Rule 14.11(l), a 
change to its rules that will only be meaningful if and when the 
Commission grants such relief to an [a]pplicant.'' Id., 89 FR at 
35256.
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    The Exchange states that ``permitting Multi-class ETF Shares to 
list on the Exchange is consistent with the applicable exemptive relief 
and will help perfect the mechanism of a free and open market and, in 
general, will protect investors and the public interest in that it will 
permit the listing and trading of Multi-class ETF Shares, consistent 
with the applicable exemptive relief, and in a manner that will benefit 
investors.'' \15\ Specifically, the Exchange believes that the 
exemptive relief proposed in the applications and the expected benefits 
of the Multi-class ETF Shares would be to the benefit of investors, and 
that eliminating any unnecessary delay for Multi-class ETF Shares 
listing on the Exchange will simply help accrue those benefits to 
investors more expeditiously.\16\ The Exchange concludes that, to the 
extent that the Commission does not grant Multi-class ETF Shares 
relief, the proposed change to BZX Rule 14.11(l) will have no impact on 
series of ETF Shares listed on the Exchange.\17\
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    \15\ See Notice, supra note 3, 89 FR at 35256.
    \16\ See id.
    \17\ See id.
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    The Exchange also believes that amending BZX Rule 14.11(l) to 
explicitly provide that the initial and continued listing standards 
applicable to ETF Shares, including the suspension of trading or 
removal standards, which would be applicable to Multi-class ETF Shares 
operating under any applicable exemptive relief, is designed to promote 
transparency and clarity in the Exchange's rules.\18\ The Exchange 
believes that these amendments would clearly allow Multi-class ETF 
Shares to list and trade upon the Commission's order of exemptive 
relief.\19\
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    \18\ See id.
    \19\ See id. See also supra note 14 and accompanying text.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2024-026 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \20\ 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 proposal. 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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    \20\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\21\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposal's consistency with 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'' and ``to protect investors and the 
public interest.'' \22\
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    \21\ Id.
    \22\ 15 U.S.C. 78f(b)(5).
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    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. In particular, the Commission 
seeks comment on whether the proposal is consistent with Section 
6(b)(5) of the Act,\23\ and specifically, whether the proposed rule 
change is designed to prevent fraudulent and manipulative acts and 
practices. According to the Exchange, a number of applications for 
exemptive relief to permit the applicable fund to offer Multi-class ETF 
Shares have been submitted to the Commission.\24\ However, the Exchange 
provides no indication that any exemptive relief to such applicants has 
yet been granted or from what elements of either Rule 6c-11 or sections 
of or particular rules under the 1940 Act issuers would be exempt. 
Correspondingly, it is unclear whether the proposed rule change 
actually would allow for the generic listing of shares of any funds 
authorized to offer a class of ETF Shares in addition to classes of 
shares that are not exchange-traded. In addition, although the Exchange 
states that its proposed rule change is to prevent any unnecessary 
delay in listing Multi-class ETF Shares when and if the requested 
prospective exemptive relief is granted by the Commission, the rule as 
proposed would allow the Exchange to generically list and trade ETF 
Shares issued by a fund that has received any exemptive

[[Page 58465]]

relief under Rule 6c-11 under the 1940 Act to offer Multi-class ETF 
Shares, not only the requested prospective exemptive relief referenced 
in the proposed rule change. Accordingly, the Commission also seeks 
comment on whether the Exchange has provided sufficient information and 
explanation regarding either the requested proposed exemptive relief 
referenced in the proposed rule change or other future exemptive relief 
that has not yet been requested, and the relationship between any such 
exemptive relief and its proposed rule change, to allow an evaluation 
of whether the proposed rule change is consistent with Section 6 of the 
Act. In particular, the Commission requests comment on whether the 
Exchange has provided sufficient explanation of how its proposed rule 
change is designed to prevent fraudulent and manipulative practices in 
light of the scope of the exemptive relief under Rule 6c-11 potentially 
available to the Multi-class ETF Shares that may be generically listed 
under the proposed rule change.
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    \23\ Id.
    \24\ See Notice, supra note 3, 89 FR at 35256.
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IV. 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 proposed rule change 
is consistent with Section 6(b)(5) or any other provision of the Act, 
and 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.\25\
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    \25\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts 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 Acts 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 proposed rule change should be approved 
or disapproved by August 8, 2024. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
August 22, 2024.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2024-026 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-2024-026. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeBZX-2024-026 and should 
be submitted on or before August 8, 2024. Rebuttal comments should be 
submitted by August 22, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15771 Filed 7-17-24; 8:45 am]
BILLING CODE 8011-01-P