332 Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Notices 

19 15 U.S.C. 78s(b)(3)(A)(ii). 

20 17 CFR 240.19b–4(f)(2). 

21 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 88795 

(May 1, 2020), 85 FR 27254 (‘‘Notice’’). 

4 15 U.S.C. 78s(b)(2). 

5See Securities Exchange Act Release No. 89076 

(June 16, 2020), 85 FR 37488 (June 22, 2020). The 

Commission designated August 5, 2020 as the date 

by which the Commission shall approve or 

disapprove, or institute proceedings to determine 

whether to disapprove, the proposed rule change. 

6See Securities Exchange Act Release No. 89472 

(Aug. 4, 2020), 85 FR 48318 (Aug. 20, 2020) 

(‘‘OIP’’). 

anticipated increase in Market Maker 

activity on the Exchange will benefit all 

market participants and improve 

competition on the Exchange. 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on intra-market competition 

that is not necessary or appropriate in 

furtherance of the purposes of the Act 

because the proposed changes for each 

separate type of market participant (new 

Market Makers and existing Market 

Makers) will be assessed equally to all 

such market participants. While 

different fees are assessed to different 

market participants in some 

circumstances, these different market 

participants have different obligations 

and different circumstances as 

discussed above. For example, Market 

Makers have quoting obligations that 

other market participants (such as 

EEMs) do not have. 

Inter-Market Competition 

The Exchange does not believe the 

proposal to reorganize certain sections 

of the Fee Schedule will impose any 

burden on inter-market competition as 

the proposal does not address any 

competitive issues and is intended to 

protect investors by providing further 

transparency regarding the Exchange’s 

Fee Schedule. [sic] 

The Exchange does not believe that 

the proposed rule change to extend the 

fee waiver for certain non-transaction 

fees will impose any burden on intermarket competition that is not necessary 

or appropriate in furtherance of the 

purposes of the Act because the 

proposed extension of the fee waivers 

apply only to the Exchange’s Proprietary 

Products (including options on SPIKES), 

which are traded exclusively on the 

Exchange. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act,19 and Rule 

19b–4(f)(2) 20 thereunder. At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

MIAX–2020–39 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–MIAX–2020–39. 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–MIAX–2020–39, and 

should be submitted on or before 

January 26, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–29134 Filed 1–4–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90819; File No. SR– 

CboeBZX–2020–036] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Order 

Disapproving a Proposed Rule Change 

Relating to Rule 14.11, Other 

Securities, To Modify a Continued 

Listing Criterion for Certain ExchangeTraded Products 

December 29, 2020. 

I. Introduction 

On April 29, 2020, Cboe BZX 

Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to amend one of 

the continued listing requirements 

relating to certain exchange-traded 

products (‘‘ETPs’’) under BZX Rule 

14.11. The proposed rule change was 

published for comment in the Federal 

Register on May 7, 2020.3

On June 16, 2020, pursuant to Section 

19(b)(2) of the Exchange 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 August 4, 

2020, the Commission instituted 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change.6 On October 28, 2020, the 

Commission designated a longer period 


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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Notices 333 

7See Securities Exchange Act Release No. 90277 

(Oct. 28, 2020), 85 FR 69675 (Nov. 3, 2020). 

8Comments on the proposed rule change can be 

found on the Commission’s website at: https://

www.sec.gov/comments/sr-cboebzx-2020-036/ 

srcboebzx2020036.htm. 

9 15 U.S.C. 78f(b)(5). 

10For purposes of the proposal, the term ‘‘ETP’’ 

means securities listed pursuant to BZX Rule 

14.11(c) (Index Fund Shares), BZX Rule 14.11(i) 

(Managed Fund Shares), and BZX Rule 14.11(l) 

(Exchange-Traded Fund Shares (‘‘ETF Shares’’)). 11See Notice, supra note 3, 85 FR at 27256. 

12See id. 13See id. 14See Letter to Secretary, Commission, from S 

Phil Bak, Founder & CEO, SecLenX (May 13, 2020) 

(‘‘SecLenX Letter’’); and letter to Secretary, 

Commission, from Timothy W. Cameron, Asset 

Management Group—Head, and Lindsey Weber 

Keljo, Asset Management Group—Managing 

Director and Associate General Counsel, SIFMA 

AMG (Dec. 18, 2020) (‘‘SIFMA Letter’’). 

15See SecLenX Letter, supra note 14, at 1. 

16 Id. at 2. 

17SIFMA Letter, supra note 14, at 3. 

for Commission action on the proposed 

rule change.7 The Commission has 

received two comment letters on the 

proposed rule change.8

This order disapproves the proposed 

rule change because, as discussed 

below, BZX has not met its burden 

under the Exchange Act and the 

Commission’s Rules of Practice to 

demonstrate that its proposal is 

consistent with the requirements of 

Exchange Act Section 6(b)(5), and, in 

particular, the requirement 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.’’ 9

II. Description of the Proposal 

As described in detail in the Notice 

and OIP, a continued listing 

requirement under BZX Rule 14.11 for 

certain ETPs 10 currently provides that, 

following the initial 12-month period 

after commencement of trading on the 

Exchange, the Exchange will consider 

the suspension of trading in, and will 

commence delisting proceedings for, 

shares of such ETPs for which there are 

fewer than 50 beneficial holders for 30 

or more consecutive trading days 

(‘‘Beneficial Holders Rule’’). The 

Exchange is proposing to change the 

date after which an ETP must have at 

least 50 beneficial holders or be subject 

to delisting proceedings under the 

Beneficial Holders Rule (‘‘NonCompliance Period’’). Specifically, the 

Exchange seeks to extend the NonCompliance Period in the Beneficial 

Holders Rule from 12 months after 

commencement of trading on the 

Exchange to 36 months after 

commencement of trading on the 

Exchange. 

The Exchange asserts that it would be 

appropriate to increase the NonCompliance Period from 12 months to 

36 months because: (1) It would bring 

the rule more in line with the life cycle 

of an ETP; (2) the economic and 

competitive structures in place in the 

ETP ecosystem naturally incentivize 

issuers to de-list products rather than 

continuing to list products that do not 

garner investor interest; and (3) 

extending the period from 12 to 36 

months will not meaningfully impact 

the manipulation concerns that the 

Beneficial Holders Rule is intended to 

address. 

According to the Exchange, the ETP 

space is more competitive than it has 

ever been, with more than 2000 ETPs 

listed on exchanges. As a result, 

distribution platforms have become 

more restrictive about the ETPs they 

will allow on their systems, often 

requiring a minimum track record (e.g., 

twelve months) and a minimum level of 

assets under management (e.g., $100 

million). Many larger entities also 

require a one-year track record before 

they will invest in an ETP. In the 

Exchange’s view, this has slowed the 

growth cycle of the average ETP, with 

the result that the Exchange has seen a 

significant number of deficiencies with 

respect to the Beneficial Holders Rule 

over the last several years. Specifically, 

the Exchange states that it has issued 

deficiency notifications to 34 ETPs for 

non-compliance with the Beneficial 

Holders Rule in the last five years, 27 of 

which ultimately were able to achieve 

compliance while going through the 

delisting process. 

In addition, the Exchange believes 

that the economic and competitive 

structures in place in the ETP ecosystem 

naturally incentivize issuers to de-list 

products with insufficient investor 

interest, and that the Beneficial Holders 

Rule has resulted in the forced 

termination of ETPs that issuers 

believed were still economically viable. 

The Exchange states that there are 

significant costs associated with the 

launch and continued operation of an 

ETP, and notes that the Exchange has 

had 69 products voluntarily delist in the 

last two years. The Exchange also 

questions whether the number of 

beneficial holders is a meaningful 

measure of market interest in an ETP, 

and believes that an ETP issuer is 

incentivized to have as many beneficial 

holders as possible. 

The Exchange states that the proposal 

‘‘does not create any significant change 

in the risk of manipulation for ETPs 

listed on the Exchange.’’ The Exchange 

‘‘does not believe there is anything 

particularly important about the 50th 

Beneficial Holder that reduces the 

manipulation risk associated with an 

ETP as compared to the 49th, nor is 

there any manipulation concern that 

arises on the 366th day after an ETP 

began trading on the Exchange that 

didn’t otherwise exist on the 1st, 2nd, 

or 365th day.’’ 11 The Exchange also 

states that it has in place a robust 

surveillance program for ETPs that it 

believes is sufficient to deter and detect 

manipulation and other violative 

activity, and that the Exchange (or the 

Financial Industry Regulatory Authority 

on its behalf) communicates as needed 

with other members of the Intermarket 

Surveillance Group. The Exchange 

believes that ‘‘these robust surveillance 

procedures will further act to mitigate 

concerns that arise from extending the 

compliance period for the Beneficial 

Holders [Rule] from 12 months to 36 

months.’’ 12 Lastly, the Exchange takes 

the position that other continued listing 

standards (e.g., with respect to the 

diversity, liquidity and size of an ETP’s 

holdings or reference assets) ‘‘are 

generally sufficient to mitigate 

manipulation concerns associated with 

the applicable ETP.’’ 13

The Commission received two 

comments in support of the proposal.14

One commenter states that the 

beneficial owner requirement 

disproportionately punishes smaller 

companies without the resources to pay 

for aggressive distribution, and 

disincentivizes issuers from launching 

funds that can prove themselves purely 

by investment merit over the long 

term,15 although the commenter 

provides no data to support that 

assertion. This commenter believes that 

the purpose of the beneficial holder 

minimum likely is to enforce some sort 

of minimum liquidity, and accordingly 

suggests alternative liquidity measures 

such as the quality of secondary markets 

(e.g., spreads and depth of book), the 

liquidity of the underlying basket, and 

the number of potential liquidity 

providers. In this commenter’s view, 

increasing the time period to achieve 

the minimum number of beneficial 

holders is a positive step, but 

eliminating the requirement altogether 

‘‘would be far more purposeful.’’ 16

Another commenter states that the 

Beneficial Holders Rule ‘‘does not 

appear to provide any meaningful 

investor-protection benefits.’’ 17

Specifically, this commenter expresses 

the view that the liquidity of shares of 

an exchange-traded fund (‘‘ETF’’) is 

primarily a function of the liquidity of 

the ETF’s underlying securities, that the 

marketplace taps into this liquidity 


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334 Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Notices 

18See id. 

19See id. at 3–4. 

20See id. at 4. 

21See id. The commenter also states that the 

proposal could put newer and smaller sponsors at 

an unnecessary disadvantage to larger sponsors 

having the enterprise-wide scale and distribution 

reach to gather assets in the months after launch. 

See id. 

22See id. The commenter also states that data 

from one large ETF sponsor revealed that liquidity 

tends to build between 12 and 36 months after 

launch, and that: (a) The median shareholder count 

increased over ten-fold between 12 and 36 months 

after launch; (b) secondary market liquidity saw a 

similar growth trajectory between 12 and 36 months 

after launch; and (c) median spreads tightened by 

3 basis points between 12 and 36 months after 

launch. See id., n.10. 

23 15 U.S.C. 78f(b)(5). Pursuant to Section 19(b)(2) 

of the Exchange Act, 15 U.S.C. 78s(b)(2), the 

Commission must disapprove a proposed rule 

change filed by a national securities exchange if it 

does not find that the proposed rule change is 

consistent with the applicable requirements of the 

Exchange Act. Exchange Act Section 6(b)(5) states 

that an exchange shall not be registered as a 

national securities exchange unless the Commission 

determines that ‘‘[t]he rules of the exchange are 

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; and are not 

designed to permit unfair discrimination between 

customers, issuers, brokers, or dealers, or to regulate 

by virtue of any authority conferred by this title 

matters not related to the purposes of this title or 

the administration of the exchange.’’ 15 U.S.C. 

78(f)(b)(5). 

24Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

25See id. 

26See id. 

27Susquehanna Int’l Group, LLP v. Securities and 

Exchange Commission, 866 F.3d 442, 447 (D.C. Cir. 

2017). 

28See, e.g., Securities Exchange Act Release No. 

57785 (May 6, 2008), 73 FR 27597 (May 13, 

2008)(SR–NYSE–2008–17) (stating that the 

distribution standards, which includes exchange 

holder requirements ‘‘. . . should help to ensure 

that the [Special Purpose Acquisition Company’s] 

securities have sufficient public float, investor base, 

and liquidity to promote fair and orderly markets’’); 

Securities Exchange Act Release No. 86117 (June 

14, 2019), 84 FR 28879 (June 20, 2018) (SR–NYSE– 

2018–46) (disapproving a proposal to reduce the 

minimum number of public holders continued 

listing requirement applicable to Special Purpose 

Acquisition Companies from 300 to 100). 

29See Notice, supra note 3, 85 FR at 27255. 

30The commenter suggests eliminating the 

requirement altogether, but does not address how 

increasing the time period to achieve the minimum 

number of beneficial holders is consistent with any 

provision of the Exchange Act. 

31See id. at 27255, n.6. 

through the creation and redemption 

and arbitrage processes, and that this 

mitigates potential price manipulation 

concerns.18 In addition, the commenter 

believes that the enhanced disclosure 

requirements of Rule 6c–11 under the 

Investment Company Act of 1940,19

including those relating to an ETF’s 

portfolio holdings and when an ETF’s 

premium or discount exceeds 2% for 

more than seven consecutive days, will 

help facilitate effective arbitrage. The 

commenter further states that it is 

appropriate to increase the period of 

time for an ETF to comply with the 

applicable beneficial holders 

requirement because it may take several 

years for an ETF to gain significant 

market acceptance and to gather 

assets.20 This commenter believes that 

many investment platforms require a 

three-year track record before making 

investment products available to clients, 

and the proposal would better align the 

rule with the lifecycle of these ETFs.21

This commenter concludes from a 

survey conducted of its members that 

ETF sponsors often make decisions 

about whether to delist and terminate 

funds with low levels of assets after 

approximately three years, and that the 

level of assets, number of shareholders, 

and average daily trading volume often 

improved after three years.22

III. Discussion and Commission 

Findings 

The Commission must consider 

whether BZX’s proposal is consistent 

with Section 6(b)(5) of the Exchange 

Act, which requires, in relevant part, 

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.’’ 23 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.’’ 24

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,25 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.26

Moreover, ‘‘unquestioning reliance’’ on 

an SRO’s representations in a proposed 

rule change is not sufficient to justify 

Commission approval of a proposed rule 

change.27

The Commission has consistently 

recognized the importance of the 

minimum number of holders and other 

similar requirements, stating that such 

listing standards help ensure that 

exchange listed securities have 

sufficient public float, investor base, 

and trading interest to provide the depth 

and liquidity necessary to promote fair 

and orderly markets.28 As stated by the 

Exchange, the minimum number of 

holders requirement also helps to 

ensure that trading in exchange-listed 

securities is not susceptible to 

manipulation.29

As discussed above, the Exchange is 

proposing to increase the NonCompliance Period from 12 months to 

36 months, thereby extending by two 

years the length of time during which an 

ETP listed on the Exchange would have 

no requirement to have a minimum 

number of beneficial holders. In support 

of its proposal, the Exchange 

emphasizes that some ETPs have had 

difficulty complying with the Beneficial 

Holders Rule. The Exchange indicates 

that non-compliance with the Beneficial 

Holders Rule is increasing because the 

ETP market has become so competitive, 

and there are so many of them, that it 

can be difficult to acquire the requisite 

number of beneficial holders within the 

existing Non-Compliance Period. The 

Exchange also believes that the existing 

Beneficial Holders Rule forces the 

delisting of ETPs that may still be 

economically viable. The Exchange 

takes the position that the manipulation 

risk would not be materially greater if 

an ETP had 49 beneficial holders as 

opposed to 50, and that no new 

manipulation concerns would arise with 

a longer Non-Compliance Period than a 

shorter one. The Exchange also asserts 

that existing surveillances and other 

listing standards are sufficient to 

mitigate manipulation concerns.30

The Exchange takes the position that 

the highly-competitive ETP market has 

made compliance with the Beneficial 

Holders Rule difficult and has led to the 

delisting of ETPs that may be 

economically viable. However, the 

Exchange does not sufficiently support 

its assertion that compliance with the 

Beneficial Holders Rule is especially 

difficult for ETPs or that any such 

compliance difficulties have led to the 

delisting of economically viable ETPs. 

For example, while the Exchange states 

that 22 ETP issues voluntarily delisted 

within 12 months of commencing 

trading on the Exchange, the Exchange 

acknowledges that it cannot attribute 

any of those voluntary delistings to noncompliance with the Beneficial Holders 

Rule.31

In addition, the Exchange does not 

sufficiently explain why any such 


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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Notices 335 

32The Exchange states that its surveillances focus 

on detecting securities trading outside of their 

normal patterns, followed by surveillance analysis 

and investigations, where appropriate, to review the 

behavior of all relevant parties for all relevant 

trading violations. The Exchange also states that it 

or the Financial Industry Regulatory Authority, on 

behalf of the Exchange, or both, communicate as 

needed regarding ETP trading with other markets 

and the Intermarket Surveillance Group member 

entities, and may obtain trading information in 

ETPs from such markets and other entities. 

33While one commenter suggests alternative 

liquidity standards (see SecLenX Letter, supra note 

14), this commenter does not explain them with any 

specificity or explain how they would satisfy the 

requirements of the Exchange Act, and, in any 

event, the Exchange has not proposed them. The 

other commenter asserts that the creation and 

redemption processes, which tap into the liquidity 

of the underlying holdings, coupled with the 

enhanced disclosures mandated under Rule 6c–11 

under the Investment Company Act of 1940, 

mitigate manipulation concerns. See SIFMA Letter, 

supra note 14, at 3. However, neither the Exchange 

nor that commenter explains why arbitrage 

opportunities would sufficiently mitigate 

manipulation concerns for the full range of ETPs, 

including ETPs overlying a portfolio of instruments 

that are themselves illiquid, or where market 

interest in the ETP is not sufficient to attract 

effective arbitrage activity. While this commenter 

asserts that certain disclosures under Rule 6c–11 

under the Investment Company Act of 1940 provide 

investors with additional insight into the 

effectiveness of an ETF’s arbitrage (see SIFMA 

Letter, supra note 14, at 3–4), neither the Exchange 

nor the commenter explains how such disclosures 

might prevent manipulation. 

34Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

35See id. 

36 In disapproving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). Although one 

commenter (see SecLenX Letter, supra note 14) 

asserts that the current Beneficial Holders Rule 

disproportionately punishes smaller companies and 

disincentivizes issuers from launching funds that 

can prove their investment merit over the long term, 

no data is provided—by the commenter or the 

Exchange—to support these conclusions. Similarly, 

although the other commenter (see SIFMA Letter, 

supra note 14, at 4) asserts that the current 

Beneficial Holders Rule puts newer and smaller 

sponsors at an unnecessary disadvantage to larger 

sponsors having the enterprise-wide scale and 

distribution reach to gather assets in the months 

after launch, neither the commenter nor the 

Exchange has provided data to support this 

conclusion. 

37 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

compliance difficulties justify tripling 

the Non-Compliance Period for this core 

quantitative listing standard from one 

year to three years, and permitting ETPs 

to trade on the Exchange for an 

additional two years without the 

protections, described above, that the 

Beneficial Holders Rule was designed to 

provide. For example, the Exchange 

states that no new manipulation 

concerns would arise with a longer NonCompliance Period than a shorter one, 

but does not address why tripling the 

period during which the same 

regulatory risks posed by a NonCompliance Period would be present is 

consistent with the Exchange Act. As 

discussed above, the Beneficial Holders 

Rule and other minimum number of 

holders requirements are important to 

ensure that trading in exchange listed 

securities is fair and orderly and not 

susceptible to manipulation, and the 

Exchange does not explain why it is 

consistent with the Exchange Act to 

permit ETPs to trade for two additional 

years without any of the protections of 

the Beneficial Holders Rule. The 

Exchange also states that the 

manipulation risk is not materially 

greater with 49 beneficial holders than 

with 50, but there is no minimum 

number of beneficial holders during the 

Non-Compliance Period, and the 

Exchange does not sufficiently address 

why the manipulation and other 

regulatory risks to fair and orderly 

markets, investor protection and the 

public interest would not be materially 

greater with a number of beneficial 

holders that is substantially smaller 

than 49 (e.g., 10 or 20). 

Finally, while the Exchange asserts 

that existing surveillances and other 

listing standards are sufficient to 

mitigate manipulation concerns, it does 

not offer any explanation of the basis for 

that view or provide any supporting 

information or evidence to support its 

conclusion. Notably, although the 

Exchange acknowledges that the 

Beneficial Holders Rule helps to ensure 

that trading in exchange-listed securities 

is not susceptible to manipulation, the 

Exchange does not explain how any of 

its specific existing surveillances or 

other listing requirements effectively 

address, in the absence of the Beneficial 

Holders Rule, those manipulation 

concerns and other regulatory risks to 

fair and orderly markets, investor 

protection and the public interest.32

Accordingly, the Commission is unable 

to assess whether the Exchange’s 

assertion has merit. 

The Commission identified all of 

these concerns in the OIP, but the 

Exchange has not responded or 

provided additional data addressing 

these concerns.33 As stated above, 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.’’ 34 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.35 The 

Commission concludes that, because 

BZX has not demonstrated that its 

proposal is designed to prevent 

fraudulent and manipulative acts and 

practices or to protect investors and the 

public interest, the Exchange has not 

met its burden to demonstrate that its 

proposal is consistent with Section 

6(b)(5) of the Exchange Act.36 For this 

reason, the Commission must 

disapprove the proposal. 

IV. Conclusion 

For the reasons set forth above, the 

Commission does not find, pursuant to 

Section 19(b)(2) of the Exchange Act, 

that the proposed rule change is 

consistent with the requirements of the 

Exchange Act and the rules and 

regulations thereunder applicable to a 

national securities exchange, and in 

particular, with Section 6(b)(5) of the 

Exchange Act. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act, 

that proposed rule change SR– 

CboeBZX–2020–036 is disapproved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.37

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–29139 Filed 1–4–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90810; File No. SR–NYSE– 

2020–109] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Add 

Commentary .07 to Rule 7.35A To 

Provide That, for a Temporary Period, 

the Exchange Will Permit DMMs 

Limited-Entry to the Trading Floor or 

Remote Access to Floor-Based System 

for Certain Auctions 

December 29, 2020. 

Pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that on December 

28, 2020, New York Stock Exchange 

LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed 


jbell on DSKJLSW7X2PROD with NOTICES