Document ID: SEC-2023-0724-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2023-07-12T04:00Z

[Federal Register Volume 88, Number 132 (Wednesday, July 12, 2023)]
[Notices]
[Pages 44427-44432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14670]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97850; File No. SR-CboeBZX-2023-043]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To List 
and Trade Shares of the Principal Focused Blue Chip ETF, a Series of 
Principal Exchange-Traded Funds, Under Exchange Rule 14.11(m), Tracking 
Fund Shares

July 6, 2023
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 27, 2023, Cboe BZX Exchange, Inc. (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'' or 
``SEC'')) a proposed rule change to list and trade shares of the 
Principal Focused Blue Chip ETF (the ``Fund''), a series of Principal 
Exchange-Traded Funds (the ``Trust''), under Rule 14.11(m), Tracking 
Fund Shares.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    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 IV 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

1. Purpose
    The Exchange adopted BZX Rule 14.11(m) for the purpose of 
permitting the listing and trading, or pursuant to unlisted trading 
privileges (``UTP''), of Tracking Fund Shares,\5\ which are securities 
issued by an actively managed open-end management investment 
company.\6\ Exchange Rule

[[Page 44428]]

14.11(m)(1)(A) requires the Exchange to file separate proposals under 
Section 19(b) of the Act before listing and trading any series of 
Tracking Fund Shares on the Exchange. Pursuant to this provision, the 
Exchange is submitting this proposal to list and trade shares 
(``Shares'') of Tracking Fund Shares of the Fund.
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    \5\ Rule 14.11(m)(3)(A) provides that the term ``Tracking Fund 
Share'' means a security that (i) represents an interest in an 
investment company registered under the Investment Company Act of 
1940 (``Investment Company'') organized as an open-end management 
investment company, that invests in a portfolio of securities 
selected by the Investment Company's investment adviser consistent 
with the Investment Company's investment objectives and policies; 
(ii) is issued in a specified aggregate minimum number in return for 
a deposit of a specified Tracking Basket or Custom Basket, as 
applicable, and/or a cash amount with a value equal to the next 
determined net asset value (``NAV''); (iii) when aggregated in the 
same specified minimum number, may be redeemed at a holder's 
request, which holder will be paid a specified Tracking Basket or 
Custom Basket, as applicable, and/or a cash amount with a value 
equal to the next determined net asset value; and (iv) the portfolio 
holdings for which are disclosed within at least 60 days following 
the end of every fiscal quarter. Rule 14.11(m)(3)(E) provides that 
the term ``Tracking Basket'' means the identities and quantities of 
the securities and other assets included in a basket that is 
designed to closely track the daily performance of the Fund 
Portfolio, as provided in the exemptive relief under the Investment 
Company Act of 1940 (the ``1940 Act'') applicable to a series of 
Tracking Fund Shares. Rule 14.11(m)(3)(F) provides that the term 
``Custom Basket'' means a portfolio of securities that is different 
from the Tracking Basket and is otherwise consistent with the 
exemptive relief issued pursuant to the 1940 Act applicable to a 
series of Tracking Fund Shares.
    \6\ See Securities Exchange Act No. 87856 (December 23, 2019) 84 
FR 72414 (December 31, 2019) (SR-CboeBZX-2019-107) (Notice of Filing 
of a Proposed Rule Change To Adopt Rule 14.11(m), Portfolio Fund 
Shares, and To List and Trade Shares of the Fidelity Value ETF, 
Fidelity Growth ETF, and Fidelity Opportunistic ETF, Each a Series 
of the Fidelity Beach Street Trust, Under Proposed Rule 14.11(m)); 
and 88887 (May 15, 2020) 85 FR 30990 (May 21, 2020) (Notice of 
Filing of Amendment No. 5 and Order Granting Accelerated Approval of 
a Proposed Rule Change, as Modified by Amendment No. 5, To Adopt 
Rule 14.11(m), Tracking Fund Shares, and To List and Trade Shares of 
the Fidelity Blue Chip Value ETF, Fidelity Blue Chip Growth ETF, and 
Fidelity New Millennium ETF)) (the ``Original Order''). Rule 
14.11(m) was later amended to provide for the use of Custom Baskets. 
See Securities Exchange Act Nos. 92626 (August 10, 2021) 86 FR 45792 
(August 16, 2021) (SR-CboeBZX-2021-053) (Notice of Filing of a 
Proposed Rule Change To Amend Rule 14.11(m) (Tracking Fund Shares) 
To Provide for the Use of Custom Baskets Consistent With the 
Exemptive Relief Issued Pursuant to the Investment Company Act of 
1940 Applicable to a Series of Tracking Fund Shares); and 93147 
(September 28, 2021) 86 FR 54772 (October 4, 2021) (Order Granting 
Approval of a Proposed Rule Change To Amend Rule 14.11(m) (Tracking 
Fund Shares) To Provide for the Use of Custom Baskets Consistent 
With the Exemptive Relief Issued Pursuant to the Investment Company 
Act of 1940 Applicable to a Series of Tracking Fund Shares) (the 
``Subsequent Order'').
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    The Shares will be offered by the Trust, which is organized as a 
statutory trust under the laws of Delaware. The Trust is registered 
with the Commission as an open-end investment company and has filed a 
registration statement on behalf of the Fund on Form N-1A with the 
Commission.\7\ Principal Global Investors, LLC (the ``Adviser'') will 
be the investment adviser to the Fund. State Street Bank and Trust 
Company is the administrator, custodian, and transfer agent for the 
Trust. ALPS Distributors, Inc. serves as the distributor for the Trust.
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    \7\ The Trust is registered under the 1940 Act. On April 6, 
2023, the Trust filed a registration statement on Form N-1A relating 
to the Fund (File No. 811-23029) (the ``Registration Statement''). 
The descriptions of the Fund and the Shares contained herein are 
based, in part, on information included in the Registration 
Statement. The Registration Statement is not yet effective and the 
Shares will not trade on the Exchange until such time that the 
Registration Statement is effective. The Fund is an actively-managed 
exchange-traded fund that operates pursuant to an exemptive order 
(File No. 812-15308) from the SEC issued on April 26, 2022 (the 
``Exemptive Order''). The Fund's application for exemptive relief 
incorporated the conditions and requirements to an exemptive order 
from the SEC under the 1940 Act (15 U.S.C. 80a-1) to Fidelity Beach 
Street Trust (File No. 812-14364), issued on December 10, 2019. See 
Investment Company Act Release Nos. 33683 (November 14, 2019), 84 FR 
64140 (November 20, 2019) (the application) and 33712 (December 10, 
2019) (the exemptive order) (File No. 812-14364).
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    Rule 14.11(m)(2)(D) provides that, if the investment adviser to the 
Investment Company issuing Tracking Fund Shares is registered as a 
broker-dealer or is affiliated with a broker-dealer, such investment 
adviser will erect and maintain a ``fire wall'' between the investment 
adviser and personnel of the broker-dealer or broker-dealer affiliate, 
as applicable, with respect to access to information concerning the 
composition of and/or changes to the Fund Portfolio,\8\ the Tracking 
Basket,\9\ and/or the Custom Basket,\10\ as applicable. Any person 
related to the investment adviser or Investment Company who makes 
decisions pertaining to the Investment Company's Fund Portfolio, the 
Tracking Basket, and/or the Custom Basket or has access to nonpublic 
information regarding the Fund Portfolio, the Tracking Basket, and/or 
the Custom Basket, as applicable, or changes thereto must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the Fund Portfolio, the Tracking 
Basket, and/or the Custom Basket, as applicable, or changes thereto. 
Rule 14.11(m)(2)(E) provides that any person or entity, including a 
custodian, Reporting Authority,\11\ distributor, or administrator, who 
has access to nonpublic information regarding the Fund Portfolio, the 
Tracking Basket, or the Custom Basket, as applicable, or changes 
thereto, must be subject to procedures designed to prevent the use and 
dissemination of material nonpublic information regarding the 
applicable Fund Portfolio, the Tracking Basket, or the Custom Basket, 
as applicable, or changes thereto. Moreover, if any such person or 
entity is registered as a broker-dealer or affiliated with a broker-
dealer, such person or entity will erect and maintain a ``fire wall'' 
between the person or entity and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
Fund Portfolio, Tracking Basket, or Custom Basket, as applicable.
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    \8\ See Exchange Rule 14.11(m)(3)(B).
    \9\ See Exchange Rule 14.11(m)(3)(E).
    \10\ See Exchange Rule 14.11(m)(3)(F).
    \11\ See Exchange Rule 14.11(m)(3)(C).
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    The Adviser is not registered as a broker-dealer, but is affiliated 
with a broker-dealer.\12\ The Adviser represents that a fire wall 
exists and will be maintained between the investment adviser and 
personnel of the broker-dealer or broker-dealer affiliate, as 
applicable, with respect to access to information concerning the 
composition of and/or changes to the Fund Portfolio, the Tracking 
Basket, and/or the Custom Basket, as applicable. Specifically, the 
Adviser represents that the personnel who make decisions on the Fund 
Portfolio, Tracking Basket and/or Custom Basket, as applicable, or who 
have access to nonpublic information regarding the Fund Portfolio, the 
Tracking Basket, and/or the Custom Basket, as applicable, or changes 
thereto are subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such Fund 
Portfolio, Tracking Basket, and/or Custom Basket. In the event that (a) 
the Adviser becomes registered as a broker-dealer or newly affiliated 
with a broker-dealer; or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes newly affiliated with a broker-
dealer it will implement and maintain a fire wall with respect to its 
relevant personnel or such broker-dealer affiliate, as applicable, 
regarding access to information concerning the composition and/or 
changes to the Fund Portfolio, the Tracking Basket, and/or the Custom 
Basket, and will be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding such 
Fund Portfolio, Tracking Basket, and/or Custom Basket. Any person or 
entity, including a custodian, Reporting Authority, distributor, or 
administrator, who has access to nonpublic information regarding the 
Fund Portfolio, Tracking Basket, and/or Custom Basket, as applicable, 
or changes thereto, will be subject to procedures designed to prevent 
the use and dissemination of material nonpublic information regarding 
the applicable Fund Portfolio, the Tracking Basket, or the Custom 
Basket, as applicable, or changes thereto. Further, any such person or 
entity that is registered as a broker-dealer or affiliated with a 
broker-dealer must have erected and will maintain a ``fire wall'' 
between the person or entity and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
Fund Portfolio, Tracking Basket, or Custom Basket, as applicable. The 
Fund intends to qualify each year as a regulated investment company 
under Subchapter M of the Internal Revenue Code of 1986, as amended.
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    \12\ The Fund currently has no sub-advisers.
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    The Shares will conform to the initial and continued listing 
criteria under Rule 14.11(m) as well as all terms in the Exemptive 
Order. The Exchange represents that, for initial and continued listing, 
the Fund will be in compliance with Rule 10A-3 under the Act. A

[[Page 44429]]

minimum of 100,000 Shares of the Fund will be outstanding at the 
commencement of trading on the Exchange, and each creation unit size 
will be at least 20,000 shares. The Exchange will obtain a 
representation from the issuer of the Shares of the Fund that the NAV 
per Share of the Fund will be calculated daily and that each of the 
following will be made available to all market participants at the same 
time when disclosed: the net asset value, the Tracking Basket, the Fund 
Portfolio, and the Custom Basket, as applicable. Additionally, with 
respect to each Custom Basket utilized by a series of Tracking Fund 
Shares, each business day, before the opening of trading in the regular 
market session, the investment company shall make publicly available on 
its website \13\ the composition of any Custom Basket transacted on the 
previous business day, except a Custom Basket that differs from the 
applicable Tracking Basket only with respect to cash. The Fund's 
investments will be consistent with its investment objective and will 
not be used to enhance leverage.
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    \13\ See www.principalam.com.
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Principal Focused Blue Chip ETF
    The Fund's holdings will conform to the permissible investments as 
stated herein and as set forth in the Exemptive Relief and the holdings 
will be consistent with all requirements in the Exemptive Relief. Any 
foreign common stocks held by the Fund will be traded on an exchange 
that is a member of the Intermarket Surveillance Group (``ISG'') \14\ 
or with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
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    \14\ For a list of the current members of ISG, see 
www.isgportal.com. The Exchange notes that all components, except 
the cash and cash equivalent components, of the Fund will trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
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    The Fund's investment objective is to seek to provide long-term 
growth of capital. The Fund seeks to achieve its investment objective 
by investing at least 80% of net assets, plus any borrowings for 
investment purposes, in equity securities of companies with large 
market capitalizations at the time of purchase that, in the opinion of 
the Adviser, display characteristics of a ``blue chip'' company. For 
this Fund, companies with large market capitalizations are those with 
market capitalizations similar to companies in the Russell 1000[supreg] 
Growth Index (as of April 30, 2023, this was between approximately 
$659.2 million and $2.7 trillion). In the Adviser's view, ``blue chip'' 
companies typically display some or all of the following 
characteristics: (1) large, well-established and financially sound 
companies; (2) issuers with market capitalizations in the billions; (3) 
are considered market leaders or among the top three companies in its 
sector; and (4) commonly considered household names. The Fund tends to 
focus on securities of companies that show potential for growth of 
capital as well as an expectation for above-average earnings. In 
selecting securities in which to invest, the Adviser uses a bottom-up, 
fundamental process, focusing on a fundamental analysis of individual 
companies.
Trading Halts
    Rule 14.11(m)(4)(B)(iv) provides that (a) the Exchange may consider 
all relevant factors in exercising its discretion to halt trading in a 
series of Tracking Fund Shares. Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. These may include: (i) the extent to 
which trading is not occurring in the securities and/or the financial 
instruments composing the Tracking Basket, Custom Basket, or Fund 
Portfolio; or (ii) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present; and (b) if the Exchange becomes aware that one of the 
following is not being made available to all market participants at the 
same time: the net asset value, the Tracking Basket, the Custom Basket, 
or the Fund Portfolio with respect to a series of Tracking Fund Shares, 
then the Exchange will halt trading in such series until such time as 
the net asset value, the Tracking Basket, the Custom Basket, or the 
Fund Portfolio is available to all market participants, as applicable.
Trading Rules
    The Exchange deems Tracking Fund Shares to be equity securities, 
thus rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities.\15\ The Exchange has 
appropriate rules to facilitate trading in Tracking Fund Shares during 
all trading sessions.
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    \15\ With respect to trading in Tracking Fund Shares, all of the 
BZX Member obligations relating to product description and 
prospectus delivery requirements will continue to apply in 
accordance with Exchange rules and federal securities laws, and the 
Exchange will continue to monitor its Members for compliance with 
such requirements.
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Tracking Basket for the Fund
    For the Fund, the Tracking Basket will consist of a combination of 
Strategy Components,\16\ Representative ETFs,\17\ select securities 
from the universe from which the Fund's investments are selected, such 
as a broad-based market index, and cash and cash equivalents. The 
Exchange notes that the Tracking Basket methodology used by the Fund is 
substantively identical to a proposal previously approved by the 
Commission.\18\
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    \16\ ``Strategy Components'' refers to recently disclosed 
portfolio holdings.
    \17\ ``Representative ETFs'' refers to liquid ETFs that convey 
information about the types of instruments (that are not otherwise 
fully represented by the Strategy Components) in which the Fund 
invests.
    \18\ See the Original Order and Subsequent Order.
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    Representative ETFs selected for inclusion in the Tracking Basket 
will be consistent with the Fund's objective and selected based on 
certain criteria, including, but not limited to, liquidity, assets 
under management, holding limits and compliance considerations. 
Representative ETFs can provide a useful mechanism to reflect the 
Fund's holdings' exposures within the Tracking Basket without revealing 
the Fund's exact positions. Intraday pricing information for all 
constituents of the Tracking Basket that are exchange-traded, which 
includes all eligible instruments except cash and cash equivalents, 
will be available on the exchanges on which they are traded and through 
subscription services. Intraday pricing information for cash 
equivalents will be available through subscription services and/or 
pricing services. The Exchange notes that the Fund's NAV will form the 
basis for creations and redemptions for the Fund and creations and 
redemptions will work in a manner substantively identical to that of 
series of Managed Fund Shares. The Adviser expects that the Shares of 
the Fund will generally be created and redeemed in-kind, with limited 
exceptions. The names and quantities of the instruments that constitute 
the basket of securities for creations and redemptions will be the same 
as the Fund's Tracking Basket, except to the extent purchases and 
redemptions are made entirely or in part on a cash basis. In addition, 
in accordance with the Exemptive Order, the Fund may determine to use 
Custom Baskets that differ from the Tracking Basket in that they 
include instruments that are not in the Tracking Basket, or are 
included in the Tracking Basket but in different weightings. In the 
event that the value of the Tracking Basket is not the same as the 
Fund's NAV, the creation and redemption baskets will

[[Page 44430]]

consist of the securities included in the Tracking Basket plus or minus 
an amount of cash equal to the difference between the NAV and the value 
of the Tracking Basket, as further described below.
    The Tracking Basket will be constructed utilizing a proprietary 
optimization process to minimize daily deviations in return of the 
Tracking Basket relative to the Fund and is used to facilitate the 
creation/redemption process and arbitrage. Typically, the Tracking 
Basket is expected to be rebalanced on schedule with the public 
disclosure of the Fund's holdings; however, a new optimized Tracking 
Basket may be generated as frequently as daily, and therefore, 
rebalancing may occur more frequently at the Adviser's discretion. In 
determining whether to rebalance a new optimized Tracking Basket, the 
Adviser will consider various factors, including liquidity of the 
securities in the Tracking Basket, tracking error, and the cost to 
create and trade the Tracking Basket. For example, if the Adviser 
determines that a new Tracking Basket would reduce the variability of 
return differentials between the Tracking Basket and the Fund when 
balanced against the cost to trade the new Tracking Basket, rebalancing 
may be appropriate. In addition to disclosure of the Tracking Basket, 
the Fund publishes the Tracking Basket Weight Overlap on its website on 
each business day before the commencement of trading in shares on the 
listing exchange. The Tracking Basket Weight Overlap is the percentage 
weight overlap between the holdings of the prior day's Tracking Basket 
compared to the holdings of the Fund that formed the basis for the 
Fund's calculation of NAV at the end of the prior business day. It is 
calculated by taking the lesser weight of each asset held in common 
between the Fund's portfolio and the Tracking Basket, and adding the 
totals. The Tracking Basket Weight Overlap is intended to provide 
investors with an understanding of the degree to which the Tracking 
Basket and the Fund's portfolio overlap and help investors evaluate the 
risk that the performance of the Tracking Basket may deviate from the 
performance of the portfolio holdings of the Fund.
    As noted above, the Fund will also disclose the entirety of its 
portfolio holdings including the name, identifier, market value and 
weight of each security and instrument in the portfolio, at a minimum 
within at least 60 days following the end of every fiscal quarter. The 
Fund's website,\19\ at no charge, will include additional quantitative 
information updated on a daily basis, including, on a per Share basis 
for the Fund, the prior business day's NAV and the closing price or 
bid/ask price at the time of calculation of such NAV, and a calculation 
of the premium or discount of the closing price or bid/ask price 
against such NAV. The website will also disclose the percentage weight 
overlap between the holdings of the Tracking Basket compared to the 
Fund Holdings for the prior business day and any information regarding 
the bid/ask spread for the Fund as may be required for other ETFs under 
Rule 6c-11 under the 1940 Act, as amended. With respect to each Custom 
Basket, each business day, before the opening of trading in the Regular 
Trading Hours,\20\ the issuer shall make publicly available on its 
website the composition of any Custom Basket transacted on the previous 
business day, except a Custom Basket that differs from the applicable 
Tracking Basket only with respect to cash. Price information for the 
exchange-listed instruments held by the Fund, including both U.S. and 
non-U.S. listed equity securities and U.S. exchange-listed futures will 
be available through major market data vendors or securities exchanges 
listing and trading such securities. The Exchange notes that the 
concept of the Tracking Basket employed under this structure is 
designed to provide investors with the traditional benefits of ETFs 
while protecting the Fund from the potential for front running or free 
riding of portfolio transactions, which could adversely impact the 
performance of the Fund.
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    \19\ Supra note 13.
    \20\ See Rule 1.5(w).
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    The Exchange believes that the particular instruments that may be 
included in the Fund's Fund Portfolio and Tracking Basket do not raise 
any concerns related to the Tracking Basket being able to closely track 
the NAV of the Fund because such instruments include only instruments 
that trade on an exchange contemporaneously with the Shares. In 
addition, the Fund's Tracking Basket will be optimized so that it 
reliably and consistently correlates to the performance of the Fund.
    The Adviser anticipates that the returns between the Fund and its 
Tracking Basket will have a consistent relationship and that the 
deviation in the returns between the Fund and the Tracking Basket will 
be sufficiently small such that the Tracking Basket will provide 
authorized participants, arbitrageurs, and certain other market 
participants (collectively, ``Market Makers'') with a reliable hedging 
vehicle that they can use to effectuate low-risk arbitrage trades in 
Fund Shares. The Exchange believes that the disclosures provided by the 
Fund will allow Market Makers to understand the relationship between 
the performance of the Fund and its Tracking Basket. Market Makers will 
be able to estimate the value of and hedge positions in the Fund's 
Shares, which the Exchange believes will facilitate the arbitrage 
process and help ensure that the Fund's Shares normally will trade at 
market prices close to their NAV. The Exchange also believes that 
competitive market making, where traders are looking to take advantage 
of differences in bid-ask spread, will aid in keeping spreads tight.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act in general and Section 6(b)(5) of the Act in particular 
in that it is 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 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.
    The Exchange notes that a significant amount of information about 
the Fund and its Fund Portfolio will be publicly available at all 
times. The Fund will disclose the Tracking Basket, which is designed to 
closely track the daily performance of the Fund Portfolio, on a daily 
basis. With respect to each Custom Basket, each business day, before 
the opening of trading in the regular market session, the Fund shall 
make publicly available on its website the composition of any Custom 
Basket transacted on the previous business day, except a Custom Basket 
that differs from the applicable Tracking Basket only with respect to 
cash. The Fund will also disclose the entirety of its portfolio 
holdings including the name, identifier, market value and weight of 
each security and instrument in the portfolio, at a minimum within at 
least 60 days following the end of every fiscal quarter in a manner 
consistent with normal disclosure requirements otherwise applicable to 
open-end investment companies registered under the 1940 Act. The 
website will include additional quantitative information updated on a 
daily basis, including, on a per Share basis for the Fund, the prior 
business day's NAV and the closing price or bid/ask price at the time 
of calculation of

[[Page 44431]]

such NAV, and a calculation of the premium or discount of the closing 
price or bid/ask price against such NAV. The website will also disclose 
the percentage weight overlap between the holdings of the Tracking 
Basket compared to the Fund Holdings for the prior business day and any 
information regarding the bid/ask spread for the Fund as may be 
required for other ETFs under Rule 6c-11 under the 1940 Act, as 
amended. Price information for the exchange-listed instruments held by 
the Fund, including both U.S. and non-U.S. listed equity securities and 
U.S. exchange-listed futures will be available through major market 
data vendors or securities exchanges listing and trading such 
securities.
    The Exchange represents that the Shares of the Fund will comply 
with all other requirements applicable to Tracking Fund Shares, 
including the dissemination of key information such as the Tracking 
Basket, the Custom Basket, the Fund Portfolio, and NAV, suspension of 
trading or removal, trading halts, surveillance, minimum price 
variation for quoting and order entry, an information circular 
informing members of the special characteristics and risks associated 
with trading in the Shares, and firewalls as set forth in the Rules 
applicable to Tracking Fund Shares and the Tracking Fund Shares 
Approval Order. Moreover, U.S.-listed equity securities held by the 
Fund will trade on markets that are a member of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
All statements and representations made in this filing regarding the 
description of the portfolio or reference assets, limitations on 
portfolio holdings or reference assets, dissemination and availability 
of reference asset (as applicable), or the applicability of Exchange 
listing rules specified in this filing shall constitute continued 
listing requirements for the Shares. The issuer has represented to the 
Exchange that it will advise the Exchange of any failure by the Fund or 
Shares to comply with the continued listing requirements, and, pursuant 
to its obligations under Section 19(g)(1) of the Act, the Exchange will 
surveil for compliance with the continued listing requirements. FINRA 
conducts certain cross-market surveillances on behalf of the Exchange 
pursuant to a regulatory services agreement. The Exchange is 
responsible for FINRA's performance under this regulatory services 
agreement. If the Fund is not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures with 
respect to the Fund under Exchange Rule 14.12.
    The Exchange believes that the proposal is designed to prevent 
fraudulent and manipulative acts and practices in that the Rules 
relating to listing and trading of Tracking Fund Shares provide 
specific initial and continued listing criteria required to be met by 
such securities.
    Rules 14.11(m)(4)(B)(iii) and (iv) provide that the Exchange will 
consider the suspension of trading in and will commence delisting 
proceedings for the Fund pursuant to Rule 14.12 under any of the 
circumstances described above and that the Exchange may consider all 
relevant factors in exercising its discretion to halt trading in a 
series of Tracking Fund Shares. Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
    Additionally, the Exchange believes that the requirements related 
to information protection enumerated under Rule 14.11(m)(2)(F) will act 
as a strong safeguard against any misuse and improper dissemination of 
information related to the Fund Portfolio, the Tracking Basket, and/or 
the Custom Basket or changes thereto. The requirement that any person 
or entity, including a custodian, Reporting Authority, distributor, or 
administrator, who has access to nonpublic information regarding the 
Fund Portfolio, Tracking Basket, and/or Custom Basket or changes 
thereto, must be subject to procedures designed to prevent the use and 
dissemination of material nonpublic information regarding the Fund 
Portfolio, Tracking Basket, and/or Custom Basket or changes thereto 
will act to prevent any individual or entity from sharing such 
information externally.
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Tracking Fund Shares. If 
the Fund is not in compliance with the applicable listing requirements, 
the Exchange will commence delisting procedures under Exchange Rule 
14.12. In addition, the Exchange also has a general policy prohibiting 
the distribution of material, non-public information by its employees. 
Any foreign common stocks held by the Fund will be traded on an 
exchange that is a member of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. All futures 
contracts that the Fund may invest in will be traded on a U.S. futures 
exchange. The Exchange or FINRA, on behalf of the Exchange, or both, 
will communicate as needed regarding trading in the Shares, underlying 
U.S. exchange-listed equity securities, and U.S. exchange-listed 
futures with other markets and other entities that are members of ISG, 
and the Exchange or FINRA, on behalf of the Exchange, or both, may 
obtain trading information regarding trading such instruments from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, underlying equity 
securities, and U.S. exchange-listed futures from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
    As provided in Rule 14.11(m)(2)(C), the Adviser will upon request 
make available to the Exchange and/or FINRA, on behalf of the Exchange, 
the daily Fund Portfolio of the Fund. The Exchange believes that the 
ability to access the information on an as needed basis will provide it 
with sufficient information to perform the necessary regulatory 
functions associated with listing and trading the Shares on the 
Exchange, including the ability to monitor compliance with the initial 
and continued listing requirements as well as the ability to surveil 
for manipulation of the Shares.
    In addition, Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly basis 
within 60 days after fiscal quarter end. Investors can obtain the 
Fund's Statement of Additional Information, its Shareholder Reports, 
its Form N-CSR and its Form N-CEN. The prospectus, Statement of 
Additional Information, and Shareholder Reports are available free upon 
request, and those documents and the Form N-PORT, Form N-CSR, and Form 
N-CEN may be viewed on-screen or downloaded from the Commission's 
website at www.sec.gov. The Exchange also notes that the Exemptive 
Relief provides that the Fund will comply with Regulation Fair 
Disclosure, including with respect to any Custom Basket, which 
prohibits selective disclosure of any material non-public information, 
which otherwise do not apply to issuers of Tracking Fund Shares.
    Information regarding market price and trading volume of the Shares 
will be

[[Page 44432]]

continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares will be available via the CTA high-speed line. The Exchange 
deems Tracking Fund Shares to be equity securities, thus rendering 
trading in the Shares subject to the Exchange's existing rules 
governing the trading of equity securities.
    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 purpose of the Act. Rather, the Exchange notes 
that the proposed rule change will facilitate the listing of a new 
series of Tracking Fund Shares, thus enhancing competition among both 
market participants and listing venues, to the benefit of investors and 
the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \21\ and Rule 19b-
4(f)(6) \22\ thereunder.\23\
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\25\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may take effect upon filing and BZX may list the Shares as 
soon as practicable. The Commission has approved and noticed for 
immediate effectiveness proposed rule changes to permit listing and 
trading on the Exchange of Tracking Fund Shares similar to the 
Fund.\26\ The Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest because the proposed rule change does not raise any new or 
novel issues. Accordingly, the Commission waives the 30-day operative 
delay and designates the proposal operative upon filing.\27\
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    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ 17 CFR 240.19b-4(f)(6)(iii).
    \26\ See supra note 6. See also Securities Exchange Act Release 
No. 93273 (October 7, 2021) 86 FR 57237 (October 14, 2021) (SR-
CboeBZX-2021-063) (Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To List and Trade Shares of Hartford Large Cap 
Growth ETF, a Series of Hartford Funds Exchange-Traded Trust, Under 
Rule 14.11(m), Tracking Fund Shares).
    \27\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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 change 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2023-043 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-2023-043. 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-2023-043 and should 
be submitted on or before August 2, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-14670 Filed 7-11-23; 8:45 am]
BILLING CODE 8011-01-P