Document ID: SEC-2020-0912-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2020-06-10T04:00Z

[Federal Register Volume 85, Number 112 (Wednesday, June 10, 2020)]
[Notices]
[Pages 35490-35492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12517]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89011; File No. SR-CboeBZX-2020-049]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Exempt 
Tracking Fund Shares Listed Pursuant to Rule 14.11(m) From Certain 
Governance Requirements

June 4, 2020.
    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 3, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 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.

[[Page 35491]]

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

    The Exchange proposes a rule change to provide an exemption to 
certain governance requirements for series of Tracking Fund Shares 
listed on the Exchange pursuant to Rule 14.11(m).
    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
    On May 15, 2020, the Commission approved an Exchange proposal to 
adopt BZX Rule 14.11(m) related to the listing and trading of Tracking 
Fund Shares \5\ on the Exchange.\6\ Currently, Rule 14.10(e)(1)(E) 
provides an exemption to certain audit committee requirements provided 
under Rule 14.10(c)(3) for funds listed on the Exchange that are Index 
Fund Shares, Managed Fund Shares, Managed Portfolio Shares, and ETF 
Shares. Specifically, Rule 14.10(e)(1)(E) provides that ``management 
investment companies that are Index Fund Shares, Managed Fund Shares, 
Managed Portfolio Shares, and ETF Shares, as defined in Rules 14.11(c), 
14.11(i), 14.11(k), and 14.11(l), respectively, are exempt from the 
Audit Committee requirements set forth in Rule 14.10(c)(3), except for 
the applicable requirements of SEC Rule 10A-3.'' \7\
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    \5\ 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 and/or a cash amount with a value equal to the next 
determined net asset value; (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 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.
    \6\ See Securities Exchange Act Release No. 88887 (May 15, 
2020), 85 FR 30990 (May 21, 2020) (SR-CboeBZX-2019-107) (the 
``Approval Order''). While the Approval Order approved the listing 
and trading of several series of Tracking Fund Shares, the Exchange 
notes that those series have not yet listed on the Exchange.
    \7\ The Exchange notes that it recently submitted a similar 
proposal to add Managed Portfolio Shares to the exemption under Rule 
14.10(e)(1)(E). See Securities Exchange Act Release No. 88075 
(January 29, 2020), 85 FR 6240 (February 4, 2020) (SR-CboeBZX-2020-
010).
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    Index Fund Shares, Managed Fund Shares, Managed Portfolio Shares, 
and ETF Shares are exempted from the requirements of Rule 14.10(c)(3) 
because they are otherwise subject to the accounting and auditing 
requirements of the Investment Company Act of 1940 (the ``1940 Act''), 
including Section 32(a).\8\ Because Tracking Fund Shares are also 
subject to the accounting and auditing requirements under the 1940 Act 
and are so similarly situated to Index Fund Shares, Managed Fund 
Shares, Managed Portfolio Shares, and ETF Shares, the Exchange believes 
that Tracking Fund Shares should be subject to and exempt from the same 
corporate governance requirements associated with listing on the 
Exchange. As such, the Exchange is proposing to make a change to amend 
Rule 14.10(e)(1)(E) in order to add Tracking Fund Shares to the list of 
product types listed on the Exchange that are exempted from the Audit 
Committee requirements set forth in Rule 14.10(c)(3), except for the 
applicable requirements of SEC Rule 10A-3.\9\
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    \8\ 15 U.S.C. 80a-31.
    \9\ 17 CFR 240.10A-3.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \10\ in general and Section 6(b)(5) of the Act \11\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, 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.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that this change to amend Rule 14.10(e)(1)(E) 
in order to add Tracking Fund Shares to a list of product types listed 
on the Exchange, including Index Fund Shares, Managed Fund Shares, 
Managed Portfolio Shares, and ETF Shares, that are exempted from the 
Audit Committee requirements set forth in Rule 14.10(c)(3), except for 
the applicable requirements of SEC Rule 10A-3 is consistent with the 
Act because it is meant only to subject Tracking Fund Shares to the 
same corporate governance requirements currently applicable to the very 
similar product structures of Index Fund Shares, Managed Fund Shares, 
Managed Portfolio Shares, and ETF Shares.
    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. To the contrary, the Exchange 
believes that the proposed rule change would promote both intermarket 
and intramarket competition by exempting Tracking Fund Shares from the 
audit committee requirements set forth in Rule 14.10(c)(3) except for 
the applicable requirements of SEC Rule 10A-3. This is consistent with 
exemptions provided to Index Fund Shares, Managed Fund Shares, Managed 
Portfolio Shares, and ETF Shares, which, like Tracking Fund Shares, are 
otherwise subject to the

[[Page 35492]]

audit committee requirements of the 1940 Act, including Section 32(a).

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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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 has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \14\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \15\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposal may become operative upon filing. The Exchange stated 
that it believes that waiving the operative delay will allow any series 
of Tracking Fund Shares that lists on the Exchange in the near future 
to take advantage of this exemption to certain audit committee 
requirements and not have to either delay launch or take short-term 
remedial measures to comply with all requirements of Rule 14.10(c)(3).
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiver of the operative delay is 
appropriate because, as the Exchange stated, the rule proposal is 
requesting an exemption to certain audit committee requirements that is 
currently granted to Managed Fund Shares, Index Fund Shares, Managed 
Portfolio Shares, and ETF Shares, and there are no unique issues 
associated with proving such an exemption to Tracking Fund Shares that 
have not already been considered by the Commission or that would 
warrant disparate treatment. Accordingly, the Commission designates the 
proposed rule change to be operative upon filing.\16\
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    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission also 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.

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-CboeBZX-2020-049 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-2020-049. 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-2020-049 and should be submitted 
on or before July 1, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12517 Filed 6-9-20; 8:45 am]
BILLING CODE 8011-01-P