39486 Federal Register / Vol. 83, No. 154 / Thursday, August 9, 2018 / Notices 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 83152 

(May 2, 2018), 83 FR 20892. 4See Securities Exchange Act Release No. 83479, 

83 FR 29838 (June 26, 2018). The Commission 

designated August 6, 2018 as the date by which the 

Commission shall approve the proposed rule 

change, disapprove the proposed rule change, or 

institute proceedings to determine whether to 

approve or disapprove the proposed rule change. 

5 15 U.S.C. 78s(b)(2)(B). 

6The Index value, calculated and disseminated at 

least once daily, as well as the components of the 

Index and their percentage weighting, will be 

available from major market data vendors. 

7 ‘‘ABS’’ means fixed and floating rate debt 

securities secured by non-mortgage assets. 

8 ‘‘CMBS’’ means fixed rate debt securities 

secured by first mortgages on commercial real 

estate. 

9A collateral group describes the assets 

(receivables) that are held by the special purpose 

vehicle (‘‘SPV’’) issuing the ABS securities. The 

collateral group provides the source of payment for 

the SPV’s liabilities (i.e., ABS securities). Typically, 

an SPV will include assets greater than its liabilities 

as a form of credit enhancement. 

in 2010 in connection with rule 206(4)– 

5, specify that solicitation activities 

involving a government entity, as 

defined in rule 206(4)–5, are subject to 

the additional limitations of rule 

206(4)–5. The information rule 206(4)– 

3 requires is necessary to inform 

advisory clients about the nature of the 

solicitor’s financial interest in the 

recommendation so the prospective 

clients may consider the solicitor’s 

potential bias, and to protect clients 

against solicitation activities being 

carried out in a manner inconsistent 

with the adviser’s fiduciary duty to 

clients. Rule 206(4)–3 is applicable to 

all Commission registered investment 

advisers. The Commission believes that 

approximately 4,395 of these advisers 

have cash referral fee arrangements. The 

rule requires approximately 7.04 burden 

hours per year per adviser and results in 

a total of approximately 30,941 total 

burden hours (7.04 × 4,395) for all 

advisers. 

The disclosure requirements of rule 

206(4)–3 do not require recordkeeping 

or record retention. The collections of 

information requirements under the 

rules are mandatory. Information subject 

to the disclosure requirements of rule 

206(4)–3 is not submitted to the 

Commission. The disclosures pursuant 

to the rule are not kept confidential. An 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless it 

displays a currently valid OMB control 

number. 

The public may view the background 

documentation for this information 

collection at the following website, 

www.reginfo.gov. Comments should be 

directed to: (i) Desk Officer for the 

Securities and Exchange Commission, 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10102, New Executive 

Office Building, Washington, DC 20503, 

or by sending an email to: Shagufta_

Ahmed@omb.eop.gov; and (ii) Pamela 

Dyson, Director/Chief Information 

Officer, Securities and Exchange 

Commission, c/o Candace Kenner, 100 F 

Street NE, Washington, DC 20549 or 

send an email to: PRA_Mailbox@

sec.gov. Comments must be submitted to 

OMB within 30 days of this notice. 

Dated: August 3, 2018. 

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–17000 Filed 8–8–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83775; File No. SR– 

CboeBZX–2018–018] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Order Instituting 

Proceedings To Determine Whether To 

Approve or Disapprove a Proposed 

Rule Change To List and Trade Shares 

of the Principal Morley Short Duration 

Index ETF Under Rule 14.11(c)(4) 

August 3, 2018. 

I. Introduction 

On April 23, 2018, Cboe BZX 

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

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to list and trade shares 

(‘‘Shares’’) of the Principal Morley Short 

Duration Index ETF (‘‘Fund’’). The 

proposed rule change was published for 

comment in the Federal Register on 

May 8, 2018.3 On June 20, 2018, 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 approve or 

disapprove the proposed rule change.4

The Commission has received no 

comment letters on the proposed rule 

change. This order institutes 

proceedings under Section 19(b)(2)(B) of 

the Act 5 to determine whether to 

approve or disapprove the proposed 

rule change. 

II. Description of the Proposed Rule 

Change 

The Exchange proposes to list and 

trade the Shares pursuant to BZX Rule 

14.11(c)(4), which governs the listing 

and trading of index fund shares based 

on fixed income securities indexes. The 

Fund would seek to provide investment 

results that replicate, before expenses, 

the performance of The ICE BofA 

Merrill Lynch Low Duration U.S. ABS & 

CMBS Equal Par Index (‘‘Index’’).6

A. The Exchange’s Description of the 

Index 

The Index is designed to provide 

exposure to investment-grade 

securitized products issued in the U.S., 

including ABS 7 and CMBS.8

To qualify for inclusion in the Index, 

eligible securities must be a component 

of The ICE BofA Merrill Lynch US ABS 

& CMBS Index (‘‘Feeder Index’’). Such 

securities are then selected and 

weighted based upon the Index 

methodology discussed below. 

1. The Feeder Index’s Methodology 

In order to be included in the Feeder 

Index, a security (whether ABS or 

CMBS) must meet the following criteria 

(‘‘Basic Criteria’’): 

• Be rated investment-grade (based on 

an average of Moody’s, S&P Global, and 

Fitch); 

• have a term of at least one year 

remaining until final stated maturity; 

and have at least one month to the last 

expected cash flow; and 

• inverse floating rate, interest only, 

and principal only securities are 

excluded. 

In addition to the Basic Criteria, an 

ABS must meet the following criteria: 

• Must issue a fixed or floating rate 

coupon; 

• must have an original deal size for 

the collateral group 9 of at least $250 

million; 

• must have a current outstanding 

deal size for the collateral group greater 

than or equal to 10% of the original deal 

size; and 

• a minimum current outstanding 

tranche size of $50 million for senior 

tranches and $10 million current 

amount outstanding for mezzanine and 

subordinated tranches. 

In addition to the Basic Criteria, a 

CMBS (which may include U.S. agency 

CMBS) must also meet the following 

criteria: 

• Must issue a fixed coupon 

schedule; 

• must have an original deal size for 

the collateral group of at least $250 

million; 

• must have a current outstanding 

deal size for the collateral group that is 

greater than or equal to 10% of the 

original deal size; and 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 154 / Thursday, August 9, 2018 / Notices 39487 

10The term ‘‘Normal Market Conditions’’ 

includes, but is not limited to, the absence of 

trading halts in the applicable financial markets 

generally; operational issues causing dissemination 

of inaccurate market information or system failures; 

or force majeure type events such as natural or manmade disaster, act of God, armed conflict, act of 

terrorism, riot or labor disruption, or any similar 

intervening circumstance. 

11Cash equivalents are short-term instruments 

with maturities of less than three months, 

including: (i) U.S. Government securities, including 

bills, notes, and bonds differing as to maturity and 

rates of interest, which are either issued or 

guaranteed by the U.S. Treasury or by U.S. 

Government agencies or instrumentalities; (ii) 

certificates of deposit issued against funds 

deposited in a bank or savings and loan association; 

(iii) bankers acceptances, which are short-term 

credit instruments used to finance commercial 

transactions; (iv) repurchase agreements and reverse 

repurchase agreements; (v) bank time deposits, 

which are monies kept on deposit with banks or 

savings and loan associations for a stated period of 

time at a fixed rate of interest; (vi) commercial 

paper, which are short-term unsecured promissory 

notes; and (vii) money market funds. 

12Centrally cleared swaps are cleared through a 

central clearinghouse and, as such, the counterparty 

risk traditionally associated with over-the-counter 

swaps is eliminated. 

13ETFs include Index Fund Shares (as described 

in Rule 14.11(c)); Portfolio Depositary Receipts (as 

described in Rule 14.11(b)); and Managed Fund 

Shares (as described in Rule 14.11(i)). The ETFs all 

will be listed and traded in the U.S. on registered 

exchanges. The Fund may invest in the securities 

of ETFs registered under the 1940 Act consistent 

with the requirements of Section 12(d)(1) of the 

1940 Act, or any rule, regulation or order of the 

Commission or interpretation thereof. The Fund 

will not invest in leveraged or inverse leveraged 

(e.g., 2X, ¥2X, 3X or ¥3X) ETFs. 

14Rule 14.11(c)(4)(B)(i)(b) requires that 

components that in the aggregate account for at 

least 75% of the weight of the index or portfolio 

each have a minimum original principal amount 

outstanding of $100 million or more. As of February 

22, 2018, only 57.9% of the weight of the Index 

components had a minimum original principal 

amount outstanding of $100 million or more. 

15Rule 14.11(c)(4)(B)(i)(f) requires that 

component securities that in aggregate account for 

at least 90% of the Fixed Income Securities portion 

of the weight of the index or portfolio must be 

either: (1) From issuers that are required to file 

reports pursuant to Sections 13 and 15(d) of the 

Act; (2) from issuers that have a worldwide market 

value of its outstanding common equity held by 

non-affiliates of $700 million or more; (3) from 

issuers that have outstanding securities that are 

notes, bonds, debentures, or evidence of 

indebtedness having a total remaining principal 

amount of at least $1 billion; (4) exempted 

securities as defined in section 3(a)(12) of the Act; 

or (5) from issuers that are a government of a foreign 

country or a political subdivision of a foreign 

country. According to the Exchange, as of February 

22, 2018, only 68.0% of the weight of the Index 

components met the requirements of Rule 

14.11(c)(4)(B)(i)(f). 

16The Exchange notes that similar standards have 

been applied to other comparable funds, and cites 

to Securities Exchange Act Release No. 82295 

(December 12, 2017), 82 FR 60056 (December 18, 

2017) (SR–NYSEArca–2017–56). Further, according 

to the Exchange, the Index is broad-based and 

currently includes 2,693 component securities. The 

Exchange also states that, on a continuous basis, the 

Index will contain at least 500 component securities 

and comply with the index methodology 

description provided above. 

17 15 U.S.C. 78s(b)(2)(B). 

18 Id. 

19 15 U.S.C. 78f(b)(5). 

• must have a minimum outstanding 

tranche size of $50 million for senior 

tranches and $10 million for mezzanine 

and subordinated tranches. 

2. The Index’s Methodology 

Securities in the Feeder Index are 

screened for inclusion/exclusion in the 

Index based on the following criteria: 

• ABS related to home equity and 

manufactured housing are excluded; 

• CMBS securities that are rated less 

than AAA credit quality (based on an 

average of Moody’s, S&P Global and 

Fitch) are excluded; 

• CMBS securities that are issued 

prior to December 31, 2010 are 

excluded; and 

• Securities must have a modified 

duration to worst that is less than or 

equal to 5 years for initial inclusion in 

the Index, although once included, the 

security remains in the Index provided 

the remaining criteria are met. 

The qualifying securities are assigned 

equal par amounts with a 70% 

allocation given to ABS securities and a 

30% allocation given to CMBS 

securities. The Index rebalances on a 

monthly basis. 

B. The Exchange’s Description of the 

Fund 

Under Normal Market Conditions,10

the Fund will invest at least 80% of its 

net assets, plus any borrowings for 

investment purposes, in ABS and CMBS 

that compose the Index at the time of 

purchase. 

While the Fund normally will invest 

at least 80% of its net assets, plus any 

borrowings for investment purposes, in 

ABS and CMBS that compose the Index, 

as described above, the Fund may invest 

its remaining assets in securities not 

included in the Index including only 

the following instruments: ABS and 

CMBS not included in the Index; cash 

and cash equivalents; 11 Treasury 

Securities with a maturity of three 

months or greater; centrally cleared, 

index-based credit default swaps; 12

and, to the extent permitted by the 1940 

Act, other exchange-traded funds 

(‘‘ETFs’’).13

The portfolio of securities held by the 

Fund will be disclosed on the Fund’s 

website at www.PrincipalETFs.com. 

C. Exchange’s Policy Discussion 

The Exchange believes that while the 

proposed rule change does not satisfy 

all of the ‘‘generic’’ listing requirements 

of Rule 14.11(c)(4), in particular Rules 

14.11(c)(4)(B)(i)(b) 14 and 

14.11(c)(4)(B)(i)(f),15 the policy issues 

that such provisions are intended to 

address are otherwise mitigated. The 

Exchange believes that Rule 

14.11(c)(4)(B)(i)(b) is intended to 

address concerns around the size and 

manipulability of the Index’s 

components. The exchange believes that 

these policy concerns would be 

mitigated by the fact that at least 90% 

of the weight of the Index will be 

comprised of securities that have a 

minimum par amount of $10 million 

and were a constituent of an offering 

where the original deal size was at least 

$250 million.16

The Exchange also believes that the 

availability of information regarding the 

ABS and CMBS that comprise the Index 

that Rule 14.11(c)(4)(B)(i)(f) is intended 

to address would also be mitigated by 

the fact that the Fund will only hold 

ABS and CMBS for which the bond 

indenture requires the public disclosure 

of a statement to noteholders on a no 

less frequent than quarterly basis. 

III. Proceedings To Determine Whether 

To Approve or Disapprove SR– 

CboeBZX–2018–018 and Grounds for 

Disapproval Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act 17 to determine 

whether the proposed rule change 

should be approved or disapproved. 

Institution of such proceedings is 

appropriate at this time in view of the 

legal and policy issues raised by the 

proposed rule change. Institution of 

proceedings does not indicate that the 

Commission has reached any 

conclusions with respect to any of the 

issues involved. Rather, as described 

below, the Commission seeks and 

encourages interested persons to 

provide comments on the proposed rule 

change. 

Pursuant to Section 19(b)(2)(B) of the 

Act,18 the Commission is providing 

notice of the grounds for disapproval 

under consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of the proposal’s 

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

Act, which requires, among other 

things, that the rules of a national 

securities exchange be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and to 

protect investors and the public 

interest.19 Specifically, in light of the 

Index’s composition of ABS and CMBS 

and the proposed continued listing 

criteria regarding the availability of 

public information applicable to the 

Shares, the Commission seeks 

commenters’ views on whether the 


sradovich on DSK3GMQ082PROD with NOTICES
39488 Federal Register / Vol. 83, No. 154 / Thursday, August 9, 2018 / Notices 

20Section 19(b)(2) of the Act, as amended by the 

Securities Acts Amendments of 1975, Public Law 

94–29 (June 4, 1975), grants the Commission 

flexibility to determine what type of proceeding— 

either oral or notice and opportunity for written 

comments—is appropriate for consideration of a 

particular proposal by a self-regulatory 

organization. See Securities Acts Amendments of 

1975, Senate Comm. on Banking, Housing & Urban 

Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 

(1975). 

21 17 CFR 200.30–3(a)(57). 

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

2 17 CFR 240.19b–4. 

3See NYSE Rule 7.31(d)(1). 4See NYSE Rule 7.31(h)(2). 5See NYSE Rule 7.36(h) for the rules concerning 

setter priority. 

6 In Amendment No. 1, among other changes, the 

Exchange revised proposed Section 7.31(d)(1)(B) to 

clarify that the term ‘‘child’’ order refers to each 

display quantity with a different working time. 

Amendment No. 1 was reflected in the notice of 

filing of proposed rule change that was published 

in the Federal Register. See infra note 7. 

7See Securities Exchange Act Release No. 83432 

(Jun. 14, 2018), 83 FR 28701 (Jun. 20, 2018) 

(‘‘Notice’’). 

8See Section II.C. infra for a description of the 

Exchange’s setter priority. 

9See NYSE Rule 7.31(d)(1). The term ‘‘Exchange 

Book’’ is defined in NYSE Rule 1.1(a) as the 

Exchange’s electronic file of orders, containing all 

orders on the Exchange. The term ‘‘Away Market’’ 

is defined in NYSE Rule 1.1(ff) as any exchange, 

alternative trading systems or other broker-dealer 

with which the Exchange maintains an electronic 

linkage and that provides instantaneous responses 

to orders routed from the Exchange. The Exchange 

will designate from time to time those ATSs or 

other broker-dealers that qualify as Away Markets. 

information provided in the proposed 

rule change is consistent with the 

requirements of Section 6(b)(5) of the 

Act. 

IV. Procedure: Request for Written 

Comments 

Interested persons are invited to 

submit written views, data, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with Section 6(b)(5) 

or any other provision of the Act, or the 

rules and regulations thereunder. 

Although there do not appear to be any 

issues relevant to approval or 

disapproval that would be facilitated by 

an oral presentation of views, data, and 

arguments, the Commission will 

consider, pursuant to Rule 19b–4, any 

request for an opportunity to make an 

oral presentation.20

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposal should be approved or 

disapproved by August 30, 2018. Any 

person who wishes to file a rebuttal to 

any other person’s submission must file 

that rebuttal by September 13, 2018. 

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– 

CboeBZX–2018–018 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CboeBZX–2018–018. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–CboeBZX–2018–018 and 

should be submitted on or before 

August 30, 2018. Rebuttal comments 

should be submitted by September 13, 

2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–17008 Filed 8–8–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83768; File No. SR–NYSE– 

2018–26] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Granting Approval of a Proposed Rule 

Change, as Modified by Amendment 

No. 1, Amending the Exchange’s Rules 

Relating to Reserve Orders, Primary 

Pegged Orders, and Setter Priority for 

UTP Securities Trading on the 

Exchange’s Pillar Platform 

August 3, 2018. 

I. Introduction 

On June 1, 2018, New York Stock 

Exchange LLC (‘‘NYSE’’ 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 NYSE rules 

concerning Reserve Orders,3 Primary 

Pegged Orders,4 and setter priority.5 On 

June 8, 2018, the Exchange filed 

Amendment No. 1 to the proposed rule 

change, which replaced and superseded 

the proposed rule change in its 

entirety.6 The proposed rule change, as 

modified by Amendment No. 1, was 

published for comment in the Federal 

Register on June 20, 2018.7 The 

Commission has received no comments 

on the proposed rule change. This order 

approves the proposed rule change, as 

modified by Amendment No. 1. 

II. Description of the Proposed Rule 

Change, as Modified by Amendment 

No. 1 

The Exchange proposes several 

changes to the Reserve Order and the 

Primary Pegged Order, as set forth in 

NYSE Rule 7.31. The Exchange also 

proposes changes to the setter priority, 

as set forth in NYSE Rule 7.36(h). 

A. Reserve Orders 

The Exchange proposes several 

changes to the rules for Reserve Orders, 

in order to reduce the number of child 

orders associated with each Reserve 

Order, to codify existing functionality, 

and provide more clarity to existing 

Exchange rules. A ‘‘Reserve Order’’ is a 

limit order with a quantity displayed, 

ranked Priority 2—Display Orders, and 

a non-displayed quantity held in 

reserve, ranked Priority 3—NonDisplayed.8 Both the display quantity 

and the reserve interest of an arriving 

marketable Reserve Order are eligible to 

trade with resting interest in the 

Exchange Book or to route to an Away 

Market.9

First, the Exchange proposes to 

change how the displayed quantity is 

replenished. Currently, the display 


sradovich on DSK3GMQ082PROD with NOTICES