[Federal Register Volume 90, Number 50 (Monday, March 17, 2025)]
[Notices]
[Pages 12387-12395]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-04188]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102594; File No. SR-CboeBZX-2024-112]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of Amendment No. 1 to a Proposed Rule Change To Amend BZX Rule
14.11(l) To Permit the Generic Listing and Trading of Multi-Class ETF
Shares
March 11, 2025
I. Introduction
On November 8, 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 November 25,
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. 101655 (November 19,
2024), 89 FR 92989 (``Notice''). Comments on the proposed rule
change are available at: https://www.sec.gov/comments/sr-cboebzx-2024-112/srcboebzx2024112.htm.
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On December 18, 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\ On February 12,
[[Page 12388]]
2025, the Commission instituted proceedings pursuant to Section
19(b)(2)(B) of the Act \6\ to determine whether to approve or
disapprove the proposed rule change.\7\
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 101960, 89 FR 105118
(December 26, 2024).
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 102408, 90 FR 9937
(February 19, 2025).
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The Commission is publishing this notice of Amendment No. 1 to the
proposed rule change to solicit comments on the proposed rule change,
as modified by Amendment No. 1, from interested persons.
II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
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 III 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, as Modified by Amendment
No. 1
1. Purpose
This Amendment No. 1 to SR-CboeBZX-2024-112 amends and replaces in
its entirety the proposal as originally submitted on November 8, 2024.
The Exchange submits this Amendment No. 1 in order to clarify certain
points and add additional details to the proposal.
The Exchange proposes to adopt new Rule 14.11(n) for the purpose of
permitting the generic listing and trading, or trading pursuant to
unlisted trading privileges, of Multi-Class Exchange-Traded Fund
(``ETF'') Shares that comply with the requirements of Rule 6c-11 under
the Investment Company Act of 1940 (the ``Investment Company Act''),
and are eligible to operate in reliance on exemptive relief from
certain requirements of the Investment Company Act and the rules and
regulations thereunder that permit the trust issuing the Multi-Class
ETF Shares to offer an exchange-traded fund class in addition to
classes of shares that are not exchange-traded of an open-end fund.\8\
The Exchange is also proposing to make conforming changes to the
Exchange's definitions, corporate governance requirements under Rule
14.10(e), and other provisions of Rule 14.11 in order to accommodate
the proposed listing of Multi-Class ETF Shares.
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\8\ The Exchange notes that it had previously submitted a
version of this filing on April 15, 2024. See Securities Exchange
Act Release No. 34-100034 (May 1, 2024) 89 FR 35255. That filing was
withdrawn on November 8, 2024 and submitted this proposal.
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Consistent with Index Fund Shares, Managed Fund Shares, and ETF
Shares listed under the generic listing standards in Rule 14.11(c),
14.11(i), and 14.11(l), respectively, series of Multi-Class ETF Shares
that comply with the requirements of Rule 6c-11 under the Investment
Company Act, and are eligible to operate in reliance on exemptive
relief from certain requirements of the Investment Company Act and the
rules and regulations thereunder that permit the trust issuing the
Multi-Class ETF Shares to offer an exchange-traded fund class in
addition to classes of shares that are not exchange-traded of an open-
end fund would be permitted to be listed and traded on the Exchange
without prior Commission approval order or notice of effectiveness
pursuant to Section 19(b) of the Act.\9\
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\9\ Rule 19b-4(e)(1) provides that the listing and trading of a
new derivative securities product by a self-regulatory organization
(``SRO'') is not 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 SRO's trading rules,
procedures and listing standards for the product class that would
include the new derivative securities product and the SRO has a
surveillance program for the product class. As contemplated by this
Rule 14.11(n), the Exchange proposes new Rule 14.11(n) to establish
generic listing standards for Multi-Class ETFs that are permitted to
operate in reliance on exemptive relief to Rule 6c-11 under the
Investment Company Act that permits the trust issuing the Multi-
Class ETF Shares to offer an exchange-traded fund class in addition
to classes of shares that are not exchange-traded of an open-end
fund. A Multi-Class ETF listed under proposed Rule 14.11(n) would
therefore not need a separate proposed rule change pursuant to Rule
19b-4 before it can be listed and traded on the Exchange.
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Background
There are numerous applications for exemptive relief for Multi-
Class ETF Shares currently before the Commission \10\ that request
exemptive relief similar to that previously granted to other funds that
are not listed on the Exchange.\11\ This proposal would provide for the
``generic'' listing and/or trading of Multi-Class ETF Shares under
proposed Rule 14.11(n) on the Exchange immediately upon the
Commission's applicable order granting exemptive relief to the
outstanding applications. The Exchange submits this proposal only to
prevent any unnecessary delay in listing additional Multi-Class ETF
Shares generically under Rule 14.11(n) when and if such requests are
granted by the Commission.
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\10\ See Perpetual US Services, LLC (filed February 7, 2023);
DFA Investment Dimensions Group Inc. and Dimensional Investment
Group Inc. (filed July 12, 2023); F/m Investments LLC (August 22,
2023); Fidelity Hastings Street Trust and Fidelity Management &
Research Company (filed October 24, 2023); Morgan Stanley
Institutional Fund Trust and Morgan Stanley Investment Management
Inc. (filed January 29, 2024); First Trust Series Fund and First
Trust Variable Insurance Trust (filed January 24, 2024); Guinness
Atkinson Funds (filed February 27, 2024); and Metropolitan West
Funds, TCW ETF Trust, and TCW Funds, Inc. (filed March 20, 2024).
\11\ Infra note 12.
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Starting in 2000, the Commission began granting limited relief for
The Vanguard Group, Inc. (``Vanguard'') to offer certain index-based
open-end management investment companies with Multi-Class ETF
Shares.\12\ After this relief was granted, there was limited public
discourse about Multi-Class ETF Shares until 2019, when the prospect of
providing blanket exemptive relief to Multi-Class ETF Shares was
addressed in the Commission's adoption of Rule 6c-11 under the
Investment Company Act (the ``ETF Rule'').\13\ The ETF Rule permits
ETFs that satisfy certain conditions to operate without the expense or
delay of obtaining an exemptive order. However, the ETF Rule did not
provide blanket exemptive relief to allow for Multi-Class ETF Shares as
part of the final rule. Instead, the Commission concluded that Multi-
Class ETF Shares should request relief through the exemptive
application process so that the Commission may assess all relevant
policy considerations in the context of the facts and circumstances of
particular applicants. The Exchange adopted Rule 14.11(l) \14\
[[Page 12389]]
shortly after the implementation of the ETF Rule and, because there
were no exemptive applications before the Commission and because none
of the Multi-Class ETF Shares that were previously granted exemptive
relief listed on the Exchange, did not propose to include any language
comparable to what is being proposed herein.
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\12\ See Vanguard Index Funds, Investment Company Act Release
Nos. 24680 (Oct. 6, 2000) (notice) and 24789 (Dec. 12, 2000)
(order). The Commission itself, as opposed to the Commission staff
acting under delegated authority, considered the original Vanguard
application and determined that the relief was appropriate in the
public interest and consistent with the protection of investors and
the purposes fairly intended by the policy and provisions of the
Act. In the process of granting the order, the Commission also
considered and denied a hearing request on the original application,
as reflected in the final Commission order. See also the Vanguard
Group, Inc., Investment Company Act Release Nos. 26282 (Dec. 2,
2003) (notice) and 26317 (Dec. 30, 2003) (order); Vanguard
International Equity Index Funds, Investment Company Act Release
Nos. 26246 (Nov. 3, 2003) (notice) and 26281 (Dec. 1, 2003) (order);
Vanguard Bond Index Funds, Investment Company Act Release Nos. 27750
(Mar. 9, 2007) (notice) and 27773 (April 2, 2007) (order)
(collectively referred to as the ``Vanguard Orders'').
\13\ See Securities Exchange Act Release No. 33-10695 (October
24, 2019) 84 FR 57162 (the ``ETF Rule Adopting Release'').
\14\ See Securities Exchange Act No. 88566 (April 6, 2020) 85 FR
20312 (April 10, 2020) (SR-CboeBZX-2019-097) (Notice of Filing of
Amendment No. 2 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 2, To Adopt BZX
Rule 14.11(l) Governing the Listing and Trading of Exchange-Traded
Fund Shares).
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As noted above, a number of applications for exemptive relief to
permit the applicable fund to offer Multi-Class ETF Shares (the
``Applications'') have been submitted to the Commission starting in
early 2023. In general, the Applications state that the ability of a
fund to offer Multi-Class ETF Shares, i.e., both a class of mutual fund
shares (each such class, a ``Mutual Fund class'' and such shares
``Mutual Fund Shares'') and ETF Shares, could be beneficial to the fund
and to shareholders of each type of class for various reasons,
including more efficient portfolio management, better secondary market
trading opportunities, and cost efficiencies, among others.\15\
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\15\ Specifically, the Applicants believe that a Mutual Fund
class would benefit ETF class shareholders because investor cash
flows through a Mutual Fund class can be used for efficient
portfolio rebalancing. To the extent that cash flows come into a
fund through a Mutual Fund class, a portfolio manager may be able to
deploy that cash strategically to rebalance the portfolio. Second,
cash flows through a Mutual Fund class may allow for greater
creation basket flexibility for creations and redemptions through
the ETF class, which could promote arbitrage efficiency and smaller
spreads on the trading of ETF Shares in the secondary market. With
respect to existing funds, ETF classes would permit investors that
prefer the ETF structure to gain access to established funds'
investment strategies. Additionally, the establishment of an ETF
class as part of an existing fund could lead to cost efficiencies.
Specifically, in terms of fund expenses, an ETF class could have
initial and ongoing advantages for its shareholders, where
shareholders of an ETF class of a fund that already has substantial
assets could immediately benefit from economies of scale. Finally,
the tax-free conversion of shares from the Mutual Fund class to the
ETF class may accelerate the development of an ETF shareholder base.
Subsequent secondary market transactions by the ETF class
shareholders could generate greater trading volume, resulting in
lower trading spreads and/or premiums or discounts in the market
prices of the ETF Shares to the benefit of ETF shareholders. The
Applicants also believe that an ETF class would benefit Mutual Fund
class shareholders because in-kind transactions through the ETF
class may contribute to lower portfolio transaction costs and
greater tax efficiency. Additionally, the conversion feature could
allow Mutual Fund shareholders to convert Mutual Fund Shares for ETF
Shares without adverse consequences to the Fund by allowing Mutual
Fund shareholders to convert their shares into the ETF class of the
same fund rather than redeeming their Mutual Fund Shares and buying
shares of another ETF. In doing so, the converting shareholder could
save on transaction costs and potential tax consequences that may
otherwise be incurred in redeeming their existing shares and buying
separate ETF Shares. The ETF class would also represent an
additional distribution channel for a fund that could lead to
additional asset grown and economies of scale; greater assets under
management may lead to additional cost efficiencies and an improved
tax profile for the fund may also assist the competitive position of
the Fund for attracting prospective shareholders. Last, the class of
ETF Shares could allow certain investors to engage in more frequent
trading without disrupting the fund's portfolio.
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While Multi-Class ETF Shares could potentially be listed under
existing Exchange Rules 14.11(c) or 14.11(i), doing so would
unnecessarily re-introduce the burdensome quantitative portfolio
requirements and ongoing compliance obligations associated therewith
that existed before the adoption of Rule 6c-11 and Exchange Rule
14.11(l).\16\ The Exchange is not aware of any clear policy rationale
as to why those quantitative requirements should apply to Multi-Class
ETF Shares other than the rules are already in place. As such, listing
Multi-Class ETF Shares under these older rules would place undue
burdens on both the Exchange and fund issuers because of the
quantitative portfolio requirements that currently do not apply to ETFs
meeting the requirements of Rule 6c-11 and Rule 14.11(l). Furthermore,
while the Applicants generally seek the same exemptive relief as
granted under those previous orders,\17\ several Applicants have
proposed different conditions to the relief that reflect the adoption
of Rule 6c-11. Therefore, the Exchange believes there is a reasonable
relationship between the Applications and the proposed rule change to
allow for the Commission's evaluation of whether the proposed rule
change is consistent with the Act. The Exchange also acknowledges that
approval of this proposed rule change would not necessarily result in
the listing and trading of the additional Multi-Class ETF Shares under
the proposed Rule until and unless the necessary relief was granted by
the Division of Investment Management, but approving this proposal
would address any potential concerns the Commission's division of
Trading and Markets might have as it specifically relates to the
listing and trading of Multi-Class ETF Shares under proposed Rule
14.11(n) and would allow for a smooth launch process if and when such
relief is granted.\18\
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\16\ See e.g., Exchange Rule 14.11(c) and 14.11(i).
\17\ Supra note 12.
\18\ The Commission has in some instances historically approved
Exchange listing rules even when no products would necessarily be
permitted to list under those rules. Most recently, the Commission
approved Exchange proposals to list and trade shares of ether-based
exchange-traded products (``ETPs'') prior to any such products
having an effective registration statement. As those ether-based
ETPs could not trade on the Exchange without an effective
registration statement, which were separately considered by the
Commission's division of corporate finance, the Exchange could not
list and trade those products even with proper Exchange Rules in
place. The Exchange believes this example illustrates the
reasonability of the Exchange pursuing the adoption a proposed Rule
that would not immediately result in the listing and trading of the
applicable products thereunder. See Securities Exchange Act No.
100224 (May 23, 2024) 89 FR 46937 (May 30, 2024) (Order Granting
Accelerated Approval of Proposed Rule Changes, as Modified by
Amendments Thereto, To List and Trade Shares of Ether-Based
Exchange-Traded Products).
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Proposal
Proposed Rule 14.11(n)(1) provides that the Exchange will consider
for trading, whether by listing or pursuant to unlisted trading
privileges, the shares of Multi-Class ETF Shares that meet the criteria
of this Rule 14.11(n).\19\
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\19\ To the extent that a series of Multi-Class ETF Shares does
not satisfy one or more of the criteria in proposed Rule 14.11(n),
the Exchange may file a separate proposal under Section 19(b) of the
Act in order to list such series on the Exchange. Consistent with
Rule 14.11(a), any of the statements or representations in that
proposal regarding the index composition, the description of the
portfolio or reference assets, limitations on portfolio holdings or
reference assets, dissemination and availability of index, reference
asset, and intraday indicative values (as applicable), or the
applicability of Exchange listing rules specified in any filing to
list such series of Multi-Class ETF Shares shall constitute
continued listing requirements for the series of Multi-Class ETF
Shares. Further, in the event that a series of Multi-Class ETF
Shares becomes listed under proposed Rule 14.11(n) and subsequently
can no longer rely on the applicable exemptive relief to Rule 6c-11,
such series of Multi-Class ETF Shares may be listed as a series of
Index Fund Shares under Rule 14.11(c) or Managed Fund Shares under
Rule 14.11(i), as applicable, as long as the series of Multi-Class
ETF Shares meets all listing requirements applicable under the
applicable rule.
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Proposed Rule 14.11(n)(2) provides that the proposed rule would be
applicable only to Multi-Class ETF Shares. Except to the extent
inconsistent with this Rule 14.11(n), or unless the context otherwise
requires, the rules and procedures of the Board of Directors shall be
applicable to the trading on the Exchange of such securities. Multi-
Class ETF Shares are included within the definition of ``security'' or
``securities'' as such terms are used in the Rules of the Exchange.
Proposed Rule 14.11(n)(2) further provides that: (A) transactions
in Multi-Class ETF Shares will occur throughout the Exchange's trading
hours; and (B) the Exchange will implement and maintain written
surveillance procedures for Multi-Class ETF Shares.
Proposed Rule 14.11(n)(3)(A) provides that the term ``Multi-Class
ETF Shares'' shall mean shares of stock issued by a Multi-Class ETF.
Proposed Rule 14.11(n)(3)(B) provides that the term ``Multi-Class
ETF'' means
[[Page 12390]]
a fund that is subject to the same relief and constraints as exchange-
traded funds under Rule 6c-11 under the Investment Company except that
the security is issued by a trust that issues Multi-Class ETF Shares in
addition to classes of shares of an open-end fund that are not
exchange-traded.
Proposed Rule 14.11(n)(3)(C) provides that the term ``Reporting
Authority'' in respect of a particular series of Multi-Class ETF Shares
means the Exchange, an institution, or a reporting service designated
by the Exchange or by the exchange that lists a particular series of
Multi-Class ETF Shares (if the Exchange is trading such series pursuant
to unlisted trading privileges) as the official source for calculating
and reporting information relating to such series, including, but not
limited to, the amount of any dividend equivalent payment or cash
distribution to holders of Multi-Class ETF Shares, net asset value,
index or portfolio value, the current value of the portfolio of
securities required in connection with issuance of Multi-Class ETF
Shares, or other information relating to the issuance, redemption or
trading of Multi-Class ETF Shares. A series of Multi-Class ETF Shares
may have more than one Reporting Authority, each having different
functions.
Proposed Rule 14.11(n)(4) provides that the Exchange may approve a
series of Multi-Class 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 Multi-Class ETF
Shares complies with the requirements of Rule 6c-11 under the
Investment Company Act, and is eligible to operate in reliance on
exemptive relief from certain requirements of the Investment Company
Act and the rules and regulations thereunder that permits the fund to
offer Multi-Class ETF Shares, and must satisfy the requirements of this
Rule 14.11(n) on an initial and continued listing basis.
Proposed Rule 14.11(n)(4)(A) provides that the requirements of
paragraph (4) of this Rule must be satisfied by a series of Multi-Class
ETF Shares on an initial and continued listing basis. Such securities
must also satisfy the following criteria on an initial and, except for
paragraph (i) below, continued, listing basis. Further, proposed Rule
14.11(n)(4)(A) provides that: (i) for each series, the Exchange will
establish a minimum number of Multi-Class ETF Shares required to be
outstanding at the time of commencement of trading on the Exchange;
(ii) if an index underlying a series of Multi-Class ETF Shares is
maintained by a broker-dealer or fund adviser, the broker-dealer or
fund adviser shall erect and maintain a ``fire wall'' around the
personnel who have access to information concerning changes and
adjustments to the index and the index shall be calculated by a third
party who is not a broker-dealer or fund adviser. If the investment
adviser to the investment company issuing an actively managed series of
Multi-Class ETF Shares is affiliated with a broker-dealer, such
investment adviser shall erect and maintain a ``fire wall'' between the
investment adviser and the broker-dealer with respect to access to
information concerning the composition and/or changes to such Multi-
Class ETF's portfolio; and (iii) any advisory committee, supervisory
board, or similar entity that advises a Reporting Authority or that
makes decisions on the composition, methodology, and related matters of
an index underlying a series of Multi-Class ETF Shares, must implement
and maintain, or be subject to, procedures designed to prevent the use
and dissemination of material non-public information regarding the
applicable index. For actively managed Multi-Class ETFs, personnel who
make decisions on the portfolio composition must be subject to
procedures designed to prevent the use and dissemination of material
nonpublic information regarding the applicable portfolio.
Proposed Rule 14.11(n)(4)(B) provides that each series of Multi-
Class ETF Shares will be listed and traded on the Exchange subject to
application of Proposed Rule 14.11(n)(4)(B)(i) and (ii). Proposed Rule
14.11(n)(4)(B)(i) provides that the Exchange will consider the
suspension of trading in, and will commence delisting proceedings under
Rule 14.12 for, a series of Multi-Class ETF Shares under any of the
following circumstances: (a) if the Exchange becomes aware that the
issuer of the Multi-Class ETF Shares is no longer in compliance with
the requirements of Rule 6c-11 under the Investment Company Act or of
the applicable exemptive relief applicable to Muti-Class ETF Shares;
(b) if any of the other listing requirements set forth in this Rule
14.11(n) are not continuously maintained; (c) if, following the initial
twelve month period after commencement of trading on the Exchange of a
series of Multi-Class ETF Shares, there are fewer than 50 beneficial
holders of the series of Multi-Class ETF Shares for 30 or more
consecutive trading days; or (d) if such other event shall occur or
condition exists which, in the opinion of the Exchange, makes further
dealings on the Exchange inadvisable. Proposed Rule 14.11(n)(4)(B)(ii)
provides that upon termination of an investment company, the Exchange
requires that Multi-Class ETF Shares issued in connection with such
entity be removed from Exchange listing.
Proposed Rule 14.11(n)(5) provides that neither the Exchange, the
Reporting Authority, nor any agent of the Exchange shall have any
liability for damages, claims, losses or expenses caused by any errors,
omissions, or delays in calculating or disseminating any current index
or portfolio value; the current value of the portfolio of securities
required to be deposited in connection with issuance of Multi-Class ETF
Shares; the amount of any dividend equivalent payment or cash
distribution to holders of Multi-Class ETF Shares; net asset value; or
other information relating to the purchase, redemption, or trading of
Multi-Class ETF Shares, resulting from any negligent act or omission by
the Exchange, the Reporting Authority, or any agent of the Exchange, or
any act, condition, or cause beyond the reasonable control of the
Exchange, its agent, or the Reporting Authority, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission, or delay in the reports of
transactions in one or more underlying securities.
The Exchange is also proposing to make corresponding amendments to
include Multi-Class ETF Shares in other Exchange rules. First, the
Exchange is proposing to add Multi-Class ETF Shares to the definition
of UTP Security in Rule 1.5(ee) and to amend Rule 14.11(c)(3)(A)(i)(a)
in order to include Multi-Class ETF Shares in the definition of
Derivative Securities Products.
Second, the Exchange proposes to amend Rule 14.10(e)(1)(E)(ii) to
exempt Multi-Class ETF Shares from the requirements of Rule 14.10(i)(1)
in connection with the acquisition of the stock or assets of an
affiliated registered investment company in a transaction that complies
with Rule 17a-8 under the Investment Company Act and does not otherwise
require shareholder approval under the Investment Company Act and the
rules thereunder or any other Exchange rule.\20\
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\20\ The Exchange notes that these proposed changes would
subject Multi-Class ETF Shares to the same corporate governance
requirements as other open-end management investment companies
listed on the Exchange.
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Third, the Exchange proposes to amend Rule 14.10(e)(1)(F)(ii) to
include
[[Page 12391]]
Multi-Class ETF Shares in the definition of ``Derivative Securities''
for purposes of Rule 14.10. Inclusion in such definition would exempt
Multi-Class ETF Shares from the requirements relating to Independent
Directors (as set forth in Rule 14.10(c)(2)), Compensation Committees
(as set forth in Rule 14.10(c)(4)), Director Nominations (as set forth
in Rule 14.10(c)(5)), Code of Conduct (as set forth in Rule 14.10(d)),
and Meetings of Shareholders (as set forth in Rule 14.10(f)). In
addition, these issuers are exempt from the requirements relating to
Audit Committees (as set forth in Rule 14.10(c)(3)), except for the
applicable requirements of SEC Rule 10A-3.\21\
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\21\ Id.
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Discussion
Proposed Rule 14.11(n) is based in large part on Rules 14.11(c),
(i), and (l) related to the listing and trading of Index Fund Shares,
Managed Fund Shares, and ETF Shares on the Exchange, respectively, each
of which are issued under the 1940 Act and qualify as ETF Shares under
Rule 6c-11. Rule 14.11(c) and 14.11(i) are very similar, their primary
difference being that Index Fund Shares are designed to track an
underlying index and Managed Fund Shares are based on an actively
managed portfolio that is not designed to track an index. ETF Shares
are identical to Multi-Class ETF Shares except that Multi-Class ETF
Shares have received exemptive relief to operate an exchange-traded
fund class in addition to classes of shares that are not exchange-
traded. As such, the Exchange believes that using Rules 14.11(c) and
(i) (collectively, the ``Current Multi-Class ETF Standards'') as well
as Rule 14.11(l) as the basis for proposed Rule 14.11(n) is appropriate
because they are generally designed to address the issues associated
with Multi-Class ETF Shares. The only substantial difference between
Rule 14.11(l) and proposed Rule 14.11(n) from the Current ETF Standards
that are not otherwise required under Rule 6c-11 is that proposed Rule
14.11(n) and Rule 14.11(l) do not include the quantitative standards
applicable to a fund or an index that are included in the Current ETF
Standards. This difference is discussed below.
The Exchange believes that the proposal is designed to prevent
fraudulent and manipulative acts and practices because the Exchange
will perform ongoing surveillance of Multi-Class ETF Shares listed on
the Exchange in order to ensure compliance with Rule 6c-11, the
Investment Company Act, and any applicable exemptive relief on an
ongoing basis. While proposed Rule 14.11(n) does not include the
quantitative requirements applicable to an ETF or an ETF's holdings or
underlying index that are included in Rules 14.(c) and 14.11(i),\22\
the Exchange believes that the manipulation concerns that such
standards are intended to address are otherwise mitigated by a
combination of the Exchange's surveillance procedures, the Exchange's
ability to halt trading under the proposed Rule 14.11(n)(4)(B)(ii), and
the Exchange's ability to suspend trading and commence delisting
proceedings under proposed Rule 14.11(n)(4)(B)(i). The Exchange will
also halt trading in Multi-Class ETF Shares under the conditions
specified in Rule 11.18, ``Trading Halts Due to Extraordinary Market
Volatility.'' The Exchange also believes that such concerns are further
mitigated by enhancements to the arbitrage mechanism that have come
from Rule 6c-11, specifically the additional flexibility provided to
issuers of Multi-Class ETF Shares through the use of custom baskets for
creations and redemptions and the additional information made available
to the public through the additional daily website disclosure
obligations applicable under Rule 6c-11.\23\ The Exchange believes that
the combination of these factors will act to keep Multi-Class ETF
Shares trading near the value of their underlying holdings and further
mitigate concerns around manipulation of Multi-Class ETF Shares on the
Exchange without the inclusion of quantitative standards.\24\ The
Exchange will monitor for compliance with Rule 6c-11 and any applicable
exemptive relief in order to ensure that the continued listing
standards are being met.\25\ Specifically, the Exchange will review the
website of each series of Multi-Class ETF Shares listed on the Exchange
in order to ensure that the requirements of Rule 6c-11 are being met.
The Exchange will also employ numerous intraday alerts that will notify
Exchange personnel of trading activity throughout the day that is
potentially indicative of certain disclosures not being made accurately
or the presence of other unusual conditions or circumstances that could
be detrimental to the maintenance of a fair and orderly market. As a
backstop to the surveillances described above, the Exchange also notes
that Rule 14.11(a) would require an issuer of Multi-Class ETF Shares to
notify the Exchange of any failure to comply with Rule 6c-11 or the
Investment Company Act.
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\22\ The Exchange notes that Rules 14.11(c) and (i) include
certain quantitative standards related to the size, trading volume,
concentration, and diversity of the holdings of a series of Index
Fund Shares or Managed Fund Shares (the ``Holdings Standards'') as
well as related to the minimum number of beneficial holders of a
fund (the ``Distribution Standards''). The Exchange believes that to
the extent that manipulation concerns are mitigated based on the
factors described herein, such concerns are mitigated both as it
relates to the Holdings Standards and the Distribution Standards.
\23\ The Exchange notes that the Commission came to a similar
conclusion in several places in the Rule 6c-11 Release. See Rule 6c-
11 Release at 15-18; 60-61; 69-70; 78-79; 82-84; and 95-96.
\24\ The Exchange believes that this applies to all quantitative
standards, whether applicable to the portfolio holdings of a series
of Multi-Class ETF Shares or the distribution of the Multi-Class ETF
Shares.
\25\ As noted throughout, proposed Rule 14.11(n), unlike Rule
14.11(c) and 14.11(i), does not include Holdings Standards and, as
such, there will be no quantitative standards applicable by the
Exchange to the portfolio holdings of a series of Multi-Class ETF
Shares on an initial or continued listing basis.
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The Exchange may suspend trading in and commence delisting
proceedings for a series of Multi-Class ETF Shares where such series is
not in compliance with the applicable listing standards or where the
Exchange believes that further dealings on the Exchange are
inadvisable.\26\ The Exchange also notes that Rule 14.11(a) requires
any issuer to provide the Exchange with prompt notification after it
becomes aware of any non-compliance with proposed Rule 14.11(n), which
would include any failure of the issuer to comply with Rule 6c-11, the
Investment Company Act, or any exemptive relief applicable to Multi-
Class ETF Shares.\27\
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\26\ Specifically, proposed Rule 14.11(n)(4)(B) provides that
each series of Multi-Class ETF Shares will be listed and traded on
the Exchange subject to application of Proposed Rule
14.11(n)(4)(B)(i) and (ii). Proposed Rule 14.11(n)(4)(B)(i) provides
that the Exchange will consider the suspension of trading in, and
will commence delisting proceedings under Rule 14.12 for, a series
of Multi-Class ETF Shares under any of the following circumstances:
(a) if the Exchange becomes aware that the issuer of the Multi-Class
ETF Shares is no longer eligible to operate in reliance on Rule 6c-
11 under the Investment Company Act of 1940 or any applicable
exemptive relief applicable to Multi-Class ETF Shares; (b) if any of
the other listing requirements set forth in this Rule 14.11(n) are
not continuously maintained; (c) if, following the initial twelve
month period after commencement of trading on the Exchange of a
series of Multi-Class ETF Shares, there are fewer than 50 beneficial
holders of the series of Multi-Class ETF Shares for 30 or more
consecutive trading days; or (d) if such other event shall occur or
condition exists which, in the opinion of the Exchange, makes
further dealings on the Exchange inadvisable. Proposed Rule
14.11(n)(4)(B)(ii) provides that upon termination of an investment
company, the Exchange requires that Multi-Class ETF Shares issued in
connection with such entity be removed from Exchange listing.
\27\ The Exchange notes that failure by an issuer to notify the
Exchange of non-compliance pursuant to Rule 14.11(a) would itself be
considered non-compliance with the requirements of Rule 14.11 and
would subject the series of Multi-Class ETF Shares to potential
trading halts and the delisting process under Rule 14.12.
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[[Page 12392]]
Further, the Exchange also represents that its surveillance
procedures are adequate to properly monitor the trading of the Multi-
Class ETF Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities laws.
Specifically, the Exchange intends to utilize its existing surveillance
procedures applicable to derivative products, which are currently
applicable to ETF Shares, Index Fund Shares and Managed Fund Shares,
among other product types, to monitor trading in Multi-Class ETF
Shares. The Exchange or the Financial Industry Regulatory Authority,
Inc. (``FINRA''), on behalf of the Exchange, will communicate as needed
regarding trading in Multi-Class ETF Shares and certain of their
applicable underlying components with other markets that are members of
the Intermarket Surveillance Group (``ISG'') or with which the Exchange
has in place a comprehensive surveillance sharing agreement. In
addition, the Exchange may obtain information regarding trading in
Multi-Class ETF Shares and certain of their applicable underlying
components from markets and other entities that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement. Additionally, FINRA, on behalf of the Exchange, is
able to access, as needed, trade information for certain fixed income
securities that may be held by a series of Multi-Class ETF Shares
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
FINRA also can access data obtained from the Municipal Securities
Rulemaking Board's (``MSRB'') Electronic Municipal Market Access
(``EMMA'') system relating to municipal bond trading activity for
surveillance purposes in connection with trading in a series of Multi-
Class ETF Shares, to the extent that a series of Multi-Class ETF Shares
holds municipal securities. Finally, as noted above, the issuer of a
series of Multi-Class ETF Shares will be required to comply with Rule
10A-3 under the Act for the initial and continued listing of Multi-
Class ETF Shares, as provided under Rule 14.10(e)(1)(E).\28\
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\28\ The Exchange notes that these proposed changes would
subject ETF Shares to the same corporate governance requirements as
other open-end management investment companies listed on the
Exchange.
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The Exchange notes that it may consider all relevant factors in
exercising its discretion to halt or suspend trading in a series of
Multi-Class ETF Shares. Trading may be halted if the circuit breaker
parameters in Rule 11.18 have been reached, because of other market
conditions, or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may include: (1) the extent to
which certain information about the Multi-Class ETF Shares that is
required to be disclosed under Rule 6c-11 of the Investment Company Act
is not being made available, including specifically where the Exchange
becomes aware that the net asset value or the daily portfolio
disclosure with respect to a series of Multi-Class ETF Shares is not
disseminated to all market participants at the same time, it will halt
trading in such series until such time as the net asset value or the
daily portfolio disclosure is available to all market participants;
\29\ (2) if an interruption to the dissemination to the value of the
index or reference asset on which a series of Multi-Class ETF Shares is
based persists past the trading day in which it occurred or is no
longer calculated or available; (3) trading in the securities
comprising the underlying index or portfolio has been halted in the
primary market(s); or (4) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present.
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\29\ The Exchange will obtain a representation from the issuer
of Multi-Class ETF Shares that the net asset value per share will be
calculated daily and the requirements under 6c-11 will be satisfied
for the series will be calculated daily and made available to all
market participants at the same time.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Act and the rules and regulations thereunder applicable to the Exchange
and, in particular, the requirements of Section 6(b) of the Act.\30\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \31\ 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) \32\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(5).
\32\ Id.
---------------------------------------------------------------------------
The Exchange believes that proposed Rule 14.11(n) is designed to
prevent fraudulent and manipulative acts and practices in that the
proposed rules relating to listing and trading Multi-Class ETF Shares
on the Exchange provide specific initial and continued listing criteria
required to be met by such securities. Proposed Rule 14.11(n)(4) sets
forth initial and continued listing criteria applicable to Multi-Class
ETF Shares, specifically providing that the Exchange may approve a
series of Multi-Class 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 Multi-Class ETF
Shares complies with the requirements of Rule 6c-11 under the
Investment Company Act, and is eligible to operate in reliance on
exemptive relief from certain requirements of the Investment Company
Act and the rules and regulations thereunder that permits the fund to
offer Multi-Class ETF Shares, and must satisfy the requirements of this
Rule 14.11(n) on an initial and continued listing basis.\33\ The
Exchange will submit a Form 19b-4(e) for all series of Multi-Class ETF
Shares upon being listed pursuant to Rule 14.11(n) and such Form 19b-
4(e) will specifically note that such series of Multi-Class ETF Shares
are being listed on the Exchange pursuant to Rule 14.11(n).
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\33\ The Exchange notes that eligibility to operate in reliance
on Rule 6c-11 or any applicable exemptive relief thereunder does not
necessarily mean that an investment company would be listed on the
Exchange pursuant to proposed Rule 14.11(n). To this point, an
investment company that operates in reliance of exemptive relief
providing for Multi-Class ETF Shares could also be listed as a
series of Index Fund Shares or Managed Fund Shares pursuant to Rule
14.11(c) or 14.11(i), respectively, and would be subject to all
requirements under each of those rules. Further to this point, in
the event that a series of Multi-Class ETF Shares listed on the
Exchange preferred to be listed as a series of Index Fund Shares or
Managed Fund Shares (as applicable), nothing would preclude such a
series from changing to be listed as a series of Index Fund Shares
or Managed Fund Shares (as applicable), as long as the series met
each of the initial and continued listing obligations under the
applicable rules.
---------------------------------------------------------------------------
Proposed Rule 14.11(n)(4)(B) provides that each series of Multi-
Class ETF Shares will be listed and traded on the Exchange subject to
application of Proposed Rule 14.11(n)(4)(B)(i) and (ii). Proposed Rule
14.11(n)(4)(B)(i) provides that the Exchange will consider the
suspension of trading in, and will
[[Page 12393]]
commence delisting proceedings under Rule 14.12 for, a series of Multi-
Class ETF Shares under any of the following circumstances: (a) if the
Exchange becomes aware that the issuer of the Multi-Class ETF Shares is
no longer in compliance with the requirements of Rule 6c-11 under the
Investment Company Act of 1940 or the exemptive relief applicable to
Multi-Class ETF Shares; (b) if any of the other listing requirements
set forth in this Rule 14.11(n) are not continuously maintained; (c)
if, following the initial twelve month period after commencement of
trading on the Exchange of a series of Multi-Class ETF Shares, there
are fewer than 50 beneficial holders of the series of Multi-Class ETF
Shares for 30 or more consecutive trading days; or (d) if such other
event shall occur or condition exists which, in the opinion of the
Exchange, makes further dealings on the Exchange inadvisable. The
Exchange notes that it may become aware that the issuer is no longer
compliant with Rule 6c-11 or any applicable exemptive relief
thereunder, as described in proposed Rule 14.11(n)(4)(B)(i)(a), as a
result of either the Exchange identifying non-compliance through its
own monitoring process or through notification by the issuer. Proposed
Rule 14.11(n)(4)(B)(ii) provides that upon termination of an investment
company, the Exchange requires that Multi-Class ETF Shares issued in
connection with such entity be removed from Exchange listing. The
Exchange also notes that it will obtain a representation from the
issuer of each series of Multi-Class ETF Shares stating that the
requirements of Rule 6c-11 will be continuously satisfied and that the
issuer will notify the Exchange of any failure to do so.
The Exchange further believes that proposed Rule 14.11(n) is
designed to prevent fraudulent and manipulative acts and practices
because of the robust surveillances in place on the Exchange as
required under proposed Rule 14.11(n)(2)(C) along with the similarities
of proposed Rule 14.11(n) to the rules related to other securities that
are already listed and traded on the Exchange and which would qualify
as Multi-Class ETF Shares. Proposed Rule 14.11(n) is based in large
part on Rules 14.11(c) and (i) related to the listing and trading of
Index Fund Shares and Managed Fund Shares on the Exchange,
respectively, both of which are issued under the 1940 Act and would
qualify as Multi-Class ETF Shares. Rules 14.11(c) and 14.11(i) are very
similar, their primary difference being that Index Fund Shares are
designed to track an underlying index and Managed Fund Shares are based
on an actively managed portfolio that is not designed to track an
index. ETF Shares are identical to Multi-Class ETF Shares except that
Multi-Class ETF Shares have received exemptive relief to operate an
exchange-traded fund class in addition to classes of shares that are
not exchange-traded. As such, the Exchange believes that using the
Current ETF Standards and Rule 14.11(l) as the basis for proposed Rule
14.11(n) is appropriate because they are generally designed to address
the issues associated with Multi-Class ETF Shares. The only substantial
difference between proposed Rule 14.11(n) and the Current ETF Standards
that are not otherwise required under Rule 6c-11 is that proposed Rule
14.11(n) does not include the quantitative standards applicable to a
fund or an index that are included in the Current ETF Standards.
The Exchange believes that the proposal is consistent with Section
6(b)(1) of the Act \34\ in that, in addition to being designed to
prevent fraudulent and manipulative acts and practices, the Exchange
has the capacity to enforce proposed Rule 14.11(n) by performing
ongoing surveillance of Multi-Class ETF Shares listed on the Exchange
in order to ensure compliance with Rule 6c-11 and the 1940 Act on an
ongoing basis. While proposed Rule 14.11(n) does not include the
quantitative requirements applicable to a fund and a fund's holdings or
underlying index that are included in Rules 14.(c) and 14.11(i),\35\
the Exchange believes that the manipulation concerns that such
standards are intended to address are otherwise mitigated by a
combination of the Exchange's surveillance procedures, the Exchange's
ability to halt trading under the proposed Rule 14.11(n)(4)(B)(ii), and
the Exchange's ability to suspend trading and commence delisting
proceedings under proposed Rule 14.11(n)(4)(B)(i). The Exchange also
believes that such concerns are further mitigated by enhancements to
the arbitrage mechanism that have come from compliance with Rule 6c-11,
specifically the additional flexibility provided to issuers of Multi-
Class ETF Shares through the use of custom baskets for creations and
redemptions and the additional information made available to the public
through the additional daily website disclosure obligations applicable
under Rule 6c-11.\36\ The Exchange believes that the combination of
these factors will act to keep Multi-Class ETF Shares trading near the
value of their underlying holdings and further mitigate concerns around
manipulation of Multi-Class ETF Shares on the Exchange without the
inclusion of quantitative standards.\37\ The Exchange will monitor for
compliance with Rule 6c-11 and any applicable exemptive relief in order
to ensure that the continued listing standards are being met.
Specifically, the Exchange plans to review the website of series of
Multi-Class ETF Shares in order to ensure that the requirements of Rule
6c-11 are being met. The Exchange will also employ numerous intraday
alerts that will notify Exchange personnel of trading activity
throughout the day that is potentially indicative of certain
disclosures not being made accurately or the presence of other unusual
conditions or circumstances that could be detrimental to the
maintenance of a fair and orderly market. As a backstop to the
surveillances described above, the Exchange also notes that Rule
14.11(a) would require an issuer of Multi-Class ETF Shares to notify
the Exchange of any failure to comply with Rule 6c-11 or the Investment
Company Act.
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78f(b)(1).
\35\ The Exchange notes that Rules 14.11(c) and (i) include
certain Holdings Standards and Distribution Standards. The Exchange
believes that to the extent that manipulation concerns are mitigated
based on the factors described herein, such concerns are mitigated
both as it relates to the Holdings Standards and the Distribution
Standards.
\36\ The Exchange notes that the Commission came to a similar
conclusion in several places in the Rule 6c-11 Release. See Rule 6c-
11 Release at 15-18; 60-61; 69-70; 78-79; 82-84; and 95-96.
\37\ The Exchange believes that this applies to all quantitative
standards, whether applicable to the portfolio holdings of a series
of Multi-Class ETF Shares or the distribution of the Multi-Class ETF
Shares.
---------------------------------------------------------------------------
To the extent that any of the requirements under Rule 6c-11 or the
1940 Act are not being met, the Exchange may halt trading in a series
of Multi-Class ETF Shares as provided in proposed Rule
14.11(n)(4)(B)(ii). Further, the Exchange may also suspend trading in
and commence delisting proceedings for a series of Multi-Class ETF
Shares where such series is not in compliance with the applicable
listing standards or where the Exchange believes that further dealings
on the Exchange are inadvisable.\38\ The
[[Page 12394]]
Exchange also notes that Rule 14.11(a) requires any issuer to provide
the Exchange with prompt notification after it becomes aware of any
non-compliance with proposed Rule 14.11(n), which would include any
failure of the issuer to comply with Rule 6c-11 or the 1940 Act.\39\
---------------------------------------------------------------------------
\38\ Specifically, proposed Rule 14.11(n)(4)(B) provides that
each series of Multi-Class ETF Shares will be listed and traded on
the Exchange subject to application of Proposed Rule
14.11(n)(4)(B)(i) and (ii). Proposed Rule 14.11(n)(4)(B)(i) provides
that the Exchange will consider the suspension of trading in, and
will commence delisting proceedings under Rule 14.12 for, a series
of Multi-Class ETF Shares under any of the following circumstances:
(a) if the Exchange becomes aware that the issuer of the Multi-Class
ETF Shares is no longer eligible to operate in reliance on Rule 6c-
11 under the Investment Company Act of 1940 or any exemptive relief
applicable to Multi-Class ETF Shares; (b) if any of the other
listing requirements set forth in this Rule 14.11(n) are not
continuously maintained; (c) if, following the initial twelve month
period after commencement of trading on the Exchange of a series of
Multi-Class ETF Shares, there are fewer than 50 beneficial holders
of the series of Multi-Class ETF Shares for 30 or more consecutive
trading days; or (d) if such other event shall occur or condition
exists which, in the opinion of the Exchange, makes further dealings
on the Exchange inadvisable. Proposed Rule 14.11(n)(4)(B)(ii)
provides that upon termination of an investment company, the
Exchange requires that Multi-Class ETF Shares issued in connection
with such entity be removed from Exchange listing.
\39\ The Exchange notes that failure by an issuer to notify the
Exchange of non-compliance pursuant to Rule 14.11(a) would itself be
considered non-compliance with the requirements of Rule 14.11 and
would subject the series of Multi-Class ETF Shares to potential
trading halts and the delisting process under Rule 14.12.
---------------------------------------------------------------------------
Further, the Exchange also represents that its surveillance
procedures are adequate to properly monitor the trading of the Multi-
Class ETF Shares in all trading sessions and to deter and detect
violations of Exchange rules. Specifically, the Exchange intends to
utilize its existing surveillance procedures applicable to derivative
products, which are currently applicable to Index Fund Shares, Managed
Fund Shares and ETF Shares, among other product types, to monitor
trading in Multi-Class ETF Shares. The Exchange or FINRA, on behalf of
the Exchange, will communicate as needed regarding trading in Multi-
Class ETF Shares and certain of their applicable underlying components
with other markets that are members of the ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
In addition, the Exchange may obtain information regarding trading in
Multi-Class ETF Shares and certain of their applicable underlying
components from markets and other entities that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement. Additionally, FINRA, on behalf of the Exchange, is
able to access, as needed, trade information for certain fixed income
securities that may be held by a series of Multi-Class ETF Shares
reported to FINRA's TRACE. FINRA also can access data obtained from the
MSRB's EMMA system relating to municipal bond trading activity for
surveillance purposes in connection with trading in a series of Multi-
Class ETF Shares, to the extent that a series of Multi-Class ETF Shares
holds municipal securities. Finally, as noted above, the issuer of a
series of Multi-Class ETF Shares will be required to comply with Rule
10A-3 under the Act for the initial and continued listing of Multi-
Class ETF Shares, as provided under Rule 14.10(e)(1)(E) to Rule
14.10.\40\
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\40\ The Exchange notes that these proposed changes would
subject Multi-Class ETF Shares to the same corporate governance
requirements as other open-end management investment companies
listed on the Exchange.
---------------------------------------------------------------------------
The Exchange believes 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. Specifically, the Exchange believes that the relief proposed
in the Applications and the expected benefits of the Multi-Class ETF
Shares described above would be to the benefit of investors.
Eliminating any unnecessary delay for additional Multi-Class ETF Shares
listing on the Exchange under proposed Rule 14.11(n) will simply help
accrue those benefits to investors more expeditiously. Further, the
Exchange 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(n), a change to its rules that will only be meaningful if and
when the Commission grants such relief to an Applicant. As noted above,
the Exchange submits this proposal only to prevent any unnecessary
delay in listing additional Multi-Class ETF Shares generically under
Rule 14.11(n) when and if such requests are granted by the Commission.
The Exchange also believes that proposed Rule 14.11(n) to
explicitly provide that the initial and continued listing standards
applicable to Multi-Class ETF Shares, including the suspension of
trading or removal standards, are designed to promote transparency and
clarity in the Exchange's Rules. The Exchange believes that with these
changes, Rule 14.11(n) would clearly allow for the listing and trading
of Multi-Class ETF Shares upon the Commission's order of exemptive
relief.
The Exchange also believes that the corresponding change to amend
the Exchange's definitions, corporate governance requirements under
Rule 14.10(e), and other provisions of Rule 14.11 in order to
accommodate the proposed listing of Multi-Class ETF Shares will add
clarity to the Exchange's Rulebook. ETF Shares, Managed Fund Shares,
and Index Fund Shares are similarly included in these definitions and
exempt from the applicable corporate governance requirements.
Therefore, the Exchange believes these are non-substantive changes
meant only to subject Multi-Class ETF Shares to the same corporate
governance requirements currently applicable to Index Fund Shares,
Managed Fund Shares, and ETF Shares. All other corporate governance
requirements that Multi-Class ETF Shares are not specifically exempted
from will otherwise apply.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes the
proposal, by permitting the listing and trading of Multi-Class ETF
Shares under exemptive relief from the Investment Company Act and the
rules and regulations thereunder, would introduce additional
competition among various ETF products to the benefit of investors.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act.
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-2024-112 on the subject line.
[[Page 12395]]
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-2024-112. 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-2024-112 and should
be submitted on or before April 7, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-04188 Filed 3-14-25; 8:45 am]
BILLING CODE 8011-01-P