Document ID: SEC-2019-1387-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2019-09-27T04:00Z

[Federal Register Volume 84, Number 188 (Friday, September 27, 2019)]
[Notices]
[Pages 51193-51205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20970]

[[Page 51193]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87062; File No. SR-CboeBZX-2019-047]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 2 and Order Instituting Proceedings To 
Determine Whether To Approve or Disapprove a Proposed Rule Change To 
Adopt BZX Rule 14.11(k) To Permit the Listing and Trading of Managed 
Portfolio Shares

September 23, 2019.

I. Introduction

    On June 6, 2019, 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 adopt BZX Rule 14.11(k) to permit the listing and trading of 
Managed Portfolio Shares, which are shares of actively managed 
exchange-traded funds for which the portfolio is disclosed in 
accordance with standard mutual fund disclosure rules. The proposed 
rule change was published for comment in the Federal Register on June 
25, 2019.\3\ On August 2, 2019, 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 September 20, 2019, the Exchange filed 
Amendment No. 1 to the proposed rule change, which replaced and 
superseded the proposed rule change as originally filed. On September 
23, 2019, the Exchange filed Amendment No. 2 to the proposed rule 
change, which replaced and superseded the proposed rule change as 
amended by Amendment No. 1.\6\ The Commission has received no comments 
on the proposed rule change. The Commission is publishing this notice 
and order to solicit comments on the proposed rule change, as modified 
by Amendment No. 2, from interested persons and to institute 
proceedings pursuant to Section 19(b)(2)(B) of the Act \7\ to determine 
whether to approve or disapprove the proposed rule change, as modified 
by Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 86157 (June 19, 
2019), 84 FR 29892.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 86157, 84 FR 39046 
(August 8, 2019). The Commission designated September 23, 2019, as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ Amendments No. 1 and No. 2 are available on the Commission's 
website at www.sec.gov.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. The Exchange's Description of the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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 those 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 parts of such statements.

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

1. Purpose
    This Amendment No. 2 to SR-CboeBZX-2019-047 amends and replaces in 
its entirety the proposal as amended by Amendment No. 1, which was 
submitted on September 20, 2019, which amended and replaced in its 
entirety the proposal as originally submitted on June 5, 2019. The 
Exchange submits this Amendment No. 2 in order to clarify certain 
points and add additional details to the proposal. The Exchange submits 
this Amendment No. 2 in order to clarify certain points and add 
additional details to the proposal.
    The Exchange proposes to add new Rule 14.11(k) for the purpose of 
permitting the listing and trading, or trading pursuant to unlisted 
trading privileges, of Managed Portfolio Shares, which are securities 
issued by an actively managed open-end management investment 
company.\8\
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    \8\ The basis of this proposal is an amended application for 
exemptive relief that was filed on April 4, 2019 (the 
``Application'') and for which public notice was issued on April 8, 
2019 (the ``Notice'') (File No. 812-14405) and subsequent order 
granting certain exemptive relief to Precidian Funds LLC 
(``Precidian''); Precidian ETFs Trust and Precidian ETF Trust II; 
and Foreside Fund Services, LLC issued on May 20, 2019 (the 
``Order'' and, collectively, with the Application and the Notice, 
the ``Exemptive Order''). The Order specifically notes that 
``granting the requested exemptions is appropriate in and consistent 
with the public interest and consistent with the protection of 
investors and the purposes fairly intended by the policy and 
provisions of the Act. It is further found that the terms of the 
proposed transactions, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and that the proposed transactions 
are consistent with the policy of each registered investment company 
concerned and with the general purposes of the Act.'' See Investment 
Company Act Release Nos. 33440 and 33477.
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Proposed Listing Rules
    The proposed change to Rule 14.11(a) would amend the rule to 
include any statements or representations regarding the Verified 
Intraday Indicative Values included in any filing to list a series of 
Managed Portfolio Shares as constituting continued listing requirements 
for such securities listed on the Exchange.
    Proposed Rule 14.11(k)(1) provides that the Exchange will consider 
for trading, whether by listing or pursuant to unlisted trading 
privileges, Managed Portfolio Shares that meet the criteria of Rule 
14.11(k).
    Proposed Rule 14.11(k)(2) provides that Rule 14.11(k) is applicable 
only to Managed Portfolio Shares and that, except to the extent 
inconsistent with Rule 14.11(k), or unless the context otherwise 
requires, the rules and procedures of the Exchange's Board of Directors 
shall be applicable to the trading on the Exchange of such securities. 
Proposed Rule 14.11(k)(2) provides further that Managed Portfolio 
Shares are included within the definition of ``security'' or 
``securities'' as such terms are used in the Rules of the Exchange.
    Proposed Rule 14.11(k)(2)(A) provides that the Exchange will file 
separate proposals under Section 19(b) of the Act before the listing 
and trading of a series of Managed Portfolio Shares.
    Proposed Rule 14.11(k)(2)(B) provides that transactions in Managed 
Portfolio Shares will occur only during Regular Trading Hours.\9\
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    \9\ As defined in Rule 1.5(w), the term ``Regular Trading 
Hours'' means the time between 9:30 a.m. and 4:00 p.m. Eastern Time.
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    Proposed Rule 14.11(k)(2)(C) provides that the Exchange will 
implement and maintain written surveillance procedures for Managed 
Portfolio Shares. As part of these surveillance procedures, the 
Investment Company's investment adviser will upon request make 
available to the Exchange and/or FINRA, on behalf of the Exchange, the 
daily portfolio holdings of each series of Managed Portfolio Shares.
    Proposed Rule 14.11(k)(2)(D) provides that, if the investment 
adviser to the Investment Company issuing Managed Portfolio 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

[[Page 51194]]

concerning the composition and/or changes to such Investment Company 
portfolio and/or Creation Basket. Any person related to the investment 
adviser or Investment Company who makes decisions pertaining to the 
Investment Company's portfolio composition or has access to information 
regarding the Investment Company's portfolio composition, Creation 
Basket, or changes thereto, must be subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the applicable Investment Company portfolio or Creation 
Basket.
    Proposed Rule 14.11(k)(2)(E) provides that person or entity, 
including an AP Representative, custodian, pricing verification agent, 
reporting authority, distributor, or administrator, who has access to 
information regarding the Investment Company's portfolio composition, 
the Creation Basket, or changes thereto, must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the applicable Investment Company portfolio or 
Creation Basket. 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 Investment Company 
portfolio or Creation Basket.
    Proposed Rule 14.11(k)(3)(A) defines the term ``Managed Portfolio 
Share'' as a security that (a) 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; (b) is issued in a 
Creation Unit, or multiples thereof, in return for a designated 
portfolio of instruments (and/or an amount of cash) with a value equal 
to the next determined net asset value and delivered to the Authorized 
Participant (as defined in the Investment Company's Form N-1A filed 
with the SEC) through a Confidential Account; (c) when aggregated into 
a Redemption Unit, or multiples thereof, may be redeemed for a 
designated portfolio of instruments (and/or an amount of cash) with a 
value equal to the next determined net asset value delivered to the 
Confidential Account for the benefit of the Authorized Participant; and 
(d) the portfolio holdings for which are disclosed within at least 60 
days following the end of every calendar quarter.\10\
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    \10\ For purposes of this filing, references to a series of 
Managed Portfolio Shares are referred to interchangeably as a series 
of Managed Portfolio Shares or as a ``Fund'' and shares of a series 
of Managed Portfolio Shares are generally referred to as the 
``Shares''.
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    Proposed Rule 14.11(k)(3)(B) defines the term ``Verified Intraday 
Indicative Value'' (``VIIV'') as the indicative value of a Managed 
Portfolio Share based on all of the holdings of a series of Managed 
Portfolio Shares as of the close of business on the prior business day 
and, for corporate actions, based on the applicable holdings as of the 
opening of business on the current business day, priced and 
disseminated in one second intervals during Regular Trading Hours by 
the Reporting Authority.
    Proposed Rule 14.11(k)(3)(C) defines the term ``AP Representative'' 
as an unaffiliated broker-dealer with which an Authorized Participant 
has signed an agreement to establish a Confidential Account for the 
benefit of such Authorized Participant that will deliver or receive all 
consideration to or from the Investment Company in a creation or 
redemption. An AP Representative will be restricted from disclosing the 
Creation Basket.
    Proposed Rule 14.11(k)(3)(D) defines the term ``Confidential 
Account'' as an account owned by an Authorized Participant and held 
with an AP Representative on behalf of the Authorized Participant. The 
account will be established and governed by contractual agreement 
between the AP Representative and the Authorized Participant solely for 
the purposes of creation and redemption, while keeping confidential the 
Creation Basket constituents of each series of Managed Portfolio 
Shares, including from the Authorized Participant. The books and 
records of the Confidential Account will be maintained by the AP 
Representative on behalf of the Authorized Participant.
    Proposed Rule 14.11(k)(3)(E) defines the term ``Creation Basket'' 
as on any given business day the names and quantities of the specified 
instruments that are required for an AP Representative to deposit in-
kind on behalf of an Authorized Participant in exchange for a Creation 
Unit and the names and quantities of the specified instruments that 
will be transferred in-kind to an AP Representative on behalf of an 
Authorized Participant in exchange for a Redemption Unit, which will be 
identical and will be transmitted to each AP Representative before the 
commencement of trading.
    Proposed Rule 14.11(k)(3)(F) defines the term ``Creation Unit'' as 
a specified minimum number of Managed Portfolio Shares issued by an 
Investment Company at the request of an Authorized Participant in 
return for a designated portfolio of instruments and/or cash.
    Proposed Rule 14.11(k)(3)(G) defines the term ``Redemption Unit'' 
as a specified minimum number of Managed Portfolio Shares that may be 
redeemed to an Investment Company at the request of an AP in return for 
a portfolio of instruments and/or cash.
    Proposed Rule 14.11(k)(3)(H) defines the term ``Reporting 
Authority'' in respect of a particular series of Managed Portfolio 
Shares as the Exchange, the exchange that lists a particular series of 
Managed Portfolio Shares (if the Exchange is trading such series 
pursuant to unlisted trading privileges), an institution, or a 
reporting service designated by the Investment Company as the official 
source for calculating and reporting information relating to such 
series, including, the NAV, the VIIV, or other information relating to 
the issuance, redemption or trading of Managed Portfolio Shares. A 
series of Managed Portfolio Shares may have more than one Reporting 
Authority, each having different functions.
    Proposed Rule 14.11(k)(3)(I) provides that the term ``Normal Market 
Conditions'' includes, but is not limited to, the absence of trading 
halts in the applicable financial markets generally; operational issues 
(e.g., systems failure) causing dissemination of inaccurate market 
information; 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.
    Proposed Rule 14.11(k)(4)(A) sets forth initial listing criteria 
applicable to Managed Portfolio Shares. Proposed Rule 14.11(k)(4)(A)(i) 
provides that, for each series of Managed Portfolio Shares, the 
Exchange will establish a minimum number of Managed Portfolio Shares 
required to be outstanding at the time of commencement of trading on 
the Exchange. In addition, proposed Rule 14.11(k)(4)(A)(ii) provides 
that the Exchange will obtain a representation from the Investment 
Company that issues each series of Managed Portfolio Shares that the 
NAV per share for the series will be calculated daily and that the NAV 
will be made available to all market participants at the same time. 
Proposed Rule 14.11(k)(4)(A)(iii) provides that all Managed Portfolio 
Shares shall have a stated investment objective, which shall be adhered 
to under Normal Market Conditions.

[[Page 51195]]

    Proposed Rule 14.11(k)(4)(B) provides that each series of Managed 
Portfolio Shares will be listed and traded subject to application of 
the following continued listing criteria. Proposed Rule 
14.11(k)(4)(B)(i) provides that the VIIV for Managed Portfolio Shares 
will be widely disseminated by the Reporting Authority and/or by one or 
more major market data vendors in one second intervals during Regular 
Trading Hours and will be disseminated to all market participants at 
the same time. Proposed Rule 14.11(k)(4)(B)(ii) provides that the 
Exchange will consider the suspension of trading in, and will commence 
delisting proceedings under Rule 14.12 for, a series of Managed 
Portfolio Shares under any of the following circumstances: (a) If, 
following the initial twelve-month period after commencement of trading 
on the Exchange of a series of Managed Portfolio Shares, there are 
fewer than 50 beneficial holders of the series of Managed Portfolio 
Shares for 30 or more consecutive trading days; (b) if the Exchange has 
halted trading in a series of Managed Portfolio Shares because the VIIV 
is interrupted pursuant to Rule 14.11(k)(4)(B)(iii) and such 
interruption persists past the trading day in which it occurred or is 
no longer available; (c) if the Exchange has halted trading in a series 
of Managed Portfolio Shares because the NAV with respect to such series 
of Managed Portfolio Shares is not disseminated to all market 
participants at the same time, the holdings of such series of Managed 
Portfolio Shares are not made available on at least a quarterly basis 
as required under the Investment Company Act of 1940 (the ``1940 
Act''), or such holdings are not made available to all market 
participants at the same time pursuant to Rule 14.11(k)(4)(B)(iii) and 
such issue persists past the trading day in which it occurred; (d) if 
the Investment Company issuing the Managed Portfolio Shares has failed 
to file any filings required by the Commission or if the Exchange is 
aware that the Investment Company is not in compliance with the 
conditions of any currently applicable exemptive order or no-action 
relief granted by the Commission or Commission staff to the Investment 
Company with respect to the series of Managed Portfolio Shares; (e) if 
any of the continued listing requirements set forth in Rule 14.11(k) 
are not continuously maintained; (f) if any of the applicable Continued 
Listing Representations, as defined in Rule 14.11(a), for the issue of 
Managed Portfolio Shares are not continuously met; or (g) if such other 
event shall occur or condition exists which, in the opinion of the 
Exchange, makes further dealings on the Exchange inadvisable.
    Proposed Rule 14.11(k)(4)(B)(iii)(a) provides that, upon 
notification to the Exchange by the Investment Company or its agent of 
the existence of any condition or set of conditions specified in any 
currently applicable exemptive order or no-action relief granted by the 
Commission or Commission staff that would require the Investment 
Company's investment adviser to request that the Exchange halt trading 
in the Managed Portfolio Shares, the Exchange shall halt trading in the 
Managed Portfolio Shares as soon as practicable. Such halt in trading 
shall continue until the Investment Company or its agent notifies the 
Exchange that the condition or conditions necessary for the resumption 
of trading have been met.\11\
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    \11\ As provided in the Application, such conditions would exist 
where either: (i) The intraday indicative values calculated by the 
pricing verification agent(s) differ by more than 25 basis points 
for 60 seconds in connection with pricing of the Verified Intraday 
Indicative Value; or (ii) holdings representing 10% or more of a 
series of Managed Portfolio Shares' portfolio have become subject to 
a trading halt or otherwise do not have readily available market 
quotations. The Exchange shall halt trading in the Managed Portfolio 
Shares as soon as practicable after receipt of notification of the 
existence of such conditions. Such halt in trading shall continue 
until the Investment Company or its agent notifies the Exchange that 
these conditions no longer exist.
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    Proposed Rule 14.11(k)(4)(B)(iii)(b) provides that, if the Exchange 
becomes aware that: (i) The Verified Intraday Indicative Value of a 
series of Managed Portfolio Shares is not being calculated or 
disseminated in one second intervals, as required; (ii) the net asset 
value with respect to a series of Managed Portfolio Shares is not 
disseminated to all market participants at the same time; (iii) the 
holdings of a series of Managed Portfolio Shares are not made available 
on at least a quarterly basis as required under the 1940 Act; or (iv) 
such holdings are not made available to all market participants at the 
same time, it will halt trading in such series until such time as the 
Verified Intraday Indicative Value, the net asset value, or the 
holdings are available to all market participants as required.
    Proposed Rule 14.11(k)(4)(B)(iv) provides that, upon termination of 
an Investment Company, the Exchange requires that Managed Portfolio 
Shares issued in connection with such entity be removed from Exchange 
listing.
    Proposed Rule 14.11(k)(4)(B)(v) provides that voting rights shall 
be as set forth in the applicable Investment Company prospectus and/or 
statement of additional information.
    Proposed Rule 14.11(k)(5), which relates to limitation of Exchange 
liability, provides that neither the Exchange, the Reporting Authority, 
when the Exchange is acting in the capacity of a Reporting Authority, 
nor any agent of the Exchange shall have any liability for damages, 
claims, losses or expenses caused by any errors, omissions, or delays 
in calculating or disseminating any current portfolio value; the 
current value of the portfolio of securities required to be deposited 
to the open-end management investment company in connection with 
issuance of Managed Portfolio Shares; the VIIV; the amount of any 
dividend equivalent payment or cash distribution to holders of Managed 
Portfolio Shares; NAV; or other information relating to the purchase, 
redemption, or trading of Managed Portfolio Shares, resulting from any 
negligent act or omission by the Exchange, the Reporting Authority when 
the Exchange is acting in the capacity of a Reporting Authority, or any 
agent of the Exchange, or any act, condition, or cause beyond the 
reasonable control of the Exchange, its agent, or the Reporting 
Authority, including, but not limited to, an act of God; fire; flood; 
extraordinary weather conditions; war; insurrection; riot; strike; 
accident; action of government; communications or power failure; 
equipment or software malfunction; or any error, omission, or delay in 
the reports of transactions in one or more underlying securities.
    Proposed Rule 14.11(k)(6), which relates to disclosures, provides 
that the provisions of subparagraph (k)(6) apply only to series of 
Managed Portfolio Shares that are the subject of an order by the 
Commission exempting such series from certain prospectus delivery 
requirements under Section 24(d) of the Investment Company Act of 1940 
and are not otherwise subject to prospectus delivery requirements under 
the Securities Act of 1933. The Exchange will inform its Members 
regarding application of this subparagraph to a particular series of 
Managed Portfolio Shares by means of an information circular prior to 
commencement of trading in such series.
    The Exchange requires that members provide to all purchasers of a 
series of Managed Portfolio Shares a written description of the terms 
and characteristics of those securities, in a form prepared by the 
open-end management investment company issuing such securities, not 
later than the time a confirmation of the first transaction in such 
series is delivered to such purchaser. In addition, members shall 
include such a written description

[[Page 51196]]

with any sales material relating to a series of Managed Portfolio 
Shares that is provided to customers or the public. Any other written 
materials provided by a member to customers or the public making 
specific reference to a series of Managed Portfolio Shares as an 
investment vehicle must include a statement in substantially the 
following form: ``A circular describing the terms and characteristics 
of (the series of Managed Portfolio Shares) has been prepared by the 
(open-end management investment company name) and is available from 
your broker. It is recommended that you obtain and review such circular 
before purchasing (the series of Managed Portfolio Shares).''
    A member carrying an omnibus account for a non-member broker-dealer 
is required to inform such non-member that execution of an order to 
purchase a series of Managed Portfolio Shares for such omnibus account 
will be deemed to constitute agreement by the non-member to make such 
written description available to its customers on the same terms as are 
directly applicable to members under this rule.
    Upon request of a customer, a member shall also provide a 
prospectus for the particular series of Managed Portfolio Shares.
Key Features of Managed Portfolio Shares
    While each series of Managed Portfolio Shares will be actively 
managed and, to that extent, similar to Managed Fund Shares (as defined 
in Rule 14.11(i)),\12\ Managed Portfolio Shares differ from Managed 
Fund Shares in the following important respects.\13\ First, in contrast 
to Managed Fund Shares, which require a ``Disclosed Portfolio'' to be 
disseminated at least once daily,\14\ the portfolio for a series of 
Managed Portfolio Shares will be disclosed at least quarterly in 
accordance with normal disclosure requirements otherwise applicable to 
open-end investment companies registered under the 1940 Act.\15\ The 
composition of the portfolio of a series of Managed Portfolio Shares 
would not be available at commencement of Exchange listing and/or 
trading. Second, in connection with the creation and redemption of 
shares in Creation Unit or Redemption Unit size (as described below), 
the delivery of any portfolio securities in kind will be effected 
through a Confidential Account (as described below) for the benefit of 
the creating or redeeming AP (as described further below in ``Creation 
and Redemption of Shares'') without disclosing the identity of such 
securities to the AP.
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    \12\ The Commission approved a proposed rule change to adopt 
generic listing standards for Managed Fund Shares. See Securities 
Exchange Act Release No. 78396 (July 22, 2016), 81 FR 49698 (July 
28, 2016 (SR-BATS-2015-100) (order approving proposed rule change to 
amend Rule 14.11(i) to adopt generic listing standards for Managed 
Fund Shares).
    \13\ The Exchange notes that these unique components of Managed 
Portfolio Shares were addressed in the Exemptive Order (specifically 
in the Application and Notice). Specifically, the Notice stated that 
the Commission ``believes that the alternative arbitrage mechanism 
proposed by Applicants can also work in an efficient manner to 
maintain an ActiveShares ETF's secondary market prices close to its 
NAV. The Commission recognizes, however, that the lack of full 
transparency may cause the ActiveShares ETFs to trade with spreads 
and premiums/discounts that are larger than those of comparable, 
fully transparent ETFs. Nonetheless, as long as arbitrage continues 
to keep the ActiveShares ETF's secondary market price and NAV close, 
and does so efficiently so that spreads remain narrow, the 
Commission believes that investors would benefit from the 
opportunity to invest in active strategies through a vehicle that 
offers the traditional benefits of ETFs.'' See Application at 19-20.
    \14\ BZX Rule 14.11(i)(3)(B) defines the term ``Disclosed 
Portfolio'' as the identities and quantities of the securities and 
other assets held by the Investment Company that will form the basis 
for the Investment Company's calculation of NAV at the end of the 
business day. Rule 14.11(i)(4)(B)(ii)(a) requires that the Disclosed 
Portfolio will be disseminated at least once daily and will be made 
available to all market participants at the same time.
    \15\ 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 
a fund's Statement of Additional Information, its Shareholder 
Reports, its Form N-CSR, filed twice a year, and its Form N-CEN, 
filed annually. A fund's SAI and Shareholder Reports are available 
free upon request from the Investment Company, 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.
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    For each series of Managed Portfolio Shares, an estimated value--
the VIIV--that reflects an estimated intraday value of a fund's 
portfolio will be disseminated. Specifically, the VIIV will be based 
upon all of a series' holdings as of the close of the prior business 
day and, for corporate actions, based on the applicable holdings as of 
the opening of business on the current business day, and will be widely 
disseminated by the Reporting Authority and/or one or more major market 
data vendors in one second intervals during Regular Trading Hours. The 
dissemination of the VIIV will allow investors to determine the 
estimated intra-day value of the underlying portfolio of a series of 
Managed Portfolio Shares and will provide a close estimate of that 
value throughout the trading day.
    The Exchange, after consulting with various Lead Market Makers 
(``LMMs'') \16\ that trade exchange-traded funds (``ETFs'') on the 
Exchange, believes that market makers will be able to make efficient 
and liquid markets priced near the ETF's intraday value as long as a 
VIIV is disseminated in one second intervals,\17\ and market makers 
employ market making techniques such as ``statistical arbitrage,'' 
including correlation hedging, beta hedging, and dispersion trading, 
which is currently used throughout the financial services industry, to 
make efficient markets in exchange-traded products.\18\ For Managed 
Portfolio Shares, market makers may use the knowledge of a Fund's means 
of achieving its investment objective, as described in the applicable 
Fund registration statement (the ``Registration Statement''), to 
construct a hedging proxy for a Fund to

[[Page 51197]]

manage a market maker's quoting risk in connection with trading Fund 
Shares. Market makers can then conduct statistical arbitrage between 
their hedging proxy (for example, the Russell 1000 Index) and Shares of 
a Fund, buying and selling one against the other over the course of the 
trading day. This ability should permit market makers to make efficient 
markets in an issue of Managed Portfolio Shares without precise 
knowledge \19\ of a fund's underlying portfolio.\20\ This is similar to 
certain other existing exchange traded products (for example, ETFs that 
invest in foreign securities that do not trade during U.S. trading 
hours), in which spreads may be generally wider in the early days of 
trading and then narrow as market makers gain more confidence in their 
real-time hedges.
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    \16\ As defined in Exchange Rule 11.8(e)(1)(B), the term LMM 
means a Market Maker registered with the Exchange for a particular 
LMM Security that has committed to maintain Minimum Performance 
Standards in the LMM Security. As defined in Exchange Rule 
11.8(e)(1)(C), the term ``LMM Security'' means an ETP that has an 
LMM. As defined in Rule 11.8(e)(1)(D), the term ``Minimum 
Performance Standards means a set of standards applicable to an LMM 
that may be determined from time to time by the Exchange. Such 
standards will vary between LMM Securities depending on the price, 
liquidity, and volatility of the LMM Security in which the LMM is 
registered. The performance measurements will include: (A) Percent 
of time at the NBBO; (B) percent of executions better than the NBBO; 
(C) average displayed size; and (D) average quoted spread.
    \17\ The Exchange notes that the Commission reached the same 
conclusion in the Notice, specifically stating: ``The Commission 
believes that the alternative arbitrage mechanism proposed by 
Applicants can also work in an efficient manner to maintain an 
ActiveShares ETF's secondary market prices close to its NAV.'' See 
the Notice at 19.
    \18\ Statistical arbitrage enables a trader to construct an 
accurate proxy for another instrument, allowing it to hedge the 
other instrument or buy or sell the instrument when it is cheap or 
expensive in relation to the proxy. Statistical analysis permits 
traders to discover correlations based purely on trading data 
without regard to other fundamental drivers. These correlations are 
a function of differentials, over time, between one instrument or 
group of instruments and one or more other instruments. Once the 
nature of these price deviations have been quantified, a universe of 
securities is searched in an effort to, in the case of a hedging 
strategy, minimize the differential. Once a suitable hedging proxy 
has been identified, a trader can minimize portfolio risk by 
executing the hedging basket. The trader then can monitor the 
performance of this hedge throughout the trade period making 
corrections where warranted. In the case of correlation hedging, the 
analysis seeks to find a proxy that matches the pricing behavior of 
a fund. In the case of beta hedging, the analysis seeks to determine 
the relationship between the price movement over time of a fund and 
that of another stock. Dispersion trading is a hedged strategy 
designed to take advantage of relative value differences in implied 
volatilities between an index and the component stocks of that 
index. Such trading strategies will allow market participants to 
engage in arbitrage between series of Managed Portfolio Shares and 
other instruments, both through the creation and redemption process 
and strictly through arbitrage without such processes.
    \19\ Using the various trading methodologies described above, 
both APs and other market participants will be able to hedge 
exposures by trading correlative portfolios, securities or other 
proxy instruments, thereby enabling an arbitrage functionality 
throughout the trading day. For example, if an AP believes that 
Shares of a Fund are trading at a price that is higher than the 
value of its underlying portfolio based on the VIIV, the AP may sell 
Shares short and purchase securities that the AP believes will track 
the movements of a Fund's portfolio until the spread narrows and the 
AP executes offsetting orders or the AP enters an order through its 
AP Representative to create Fund Shares. Upon the completion of the 
Creation Unit, the AP will unwind its correlative hedge. Similarly, 
a non-AP market participant would be able to perform an identical 
function but, because it would not be able to create or redeem 
directly, would have to employ an AP to create or redeem Shares on 
its behalf.
    \20\ APs that enter into their own separate Confidential 
Accounts shall have enough information to ensure that they are able 
to comply with applicable regulatory requirements. For example, for 
purposes of net capital requirements, the maximum Securities Haircut 
applicable to the securities in a Creation Basket, as determined 
under Rule 15c3-1, will be disclosed daily on each Fund's website.
---------------------------------------------------------------------------

    To protect the identity and weightings of the portfolio holdings, a 
series of Managed Portfolio Shares would sell and redeem their shares 
in Creation Units and Redemption Units to APs only through an AP 
Representative. As such, on each business day, before commencement of 
trading in Shares on the Exchange, each series of Managed Portfolio 
Shares will provide to an AP Representative of each AP the names and 
quantities of the instruments comprising a Creation Basket, i.e., the 
Deposit Instruments or ``Redemption Instruments'' and the estimated 
``Balancing Amount'' (if any),\21\ for that day (as further described 
below). This information will permit APs to purchase Creation Units or 
redeem Redemption Units through an in-kind transaction with a Fund, as 
described below.
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    \21\ The Balancing Amount is the cash amount necessary for the 
applicable Fund to receive or pay to compensate for the difference 
between the value of the securities delivered as part of a 
redemption and the NAV, to the extent that such values are 
different.
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Creations and Redemptions of Shares
    In connection with the creation and redemption of Creation Units 
and Redemption Units, the delivery or receipt of any portfolio 
securities in-kind will be required to be effected through a 
Confidential Account \22\ with an AP Representative,\23\ which will be 
a broker-dealer such as broker-dealer affiliates of JP Morgan Chase, 
State Street Bank and Trust, or Bank of New York Mellon, for the 
benefit of an AP.\24\ An AP must be a Depository Trust Company 
(``DTC'') Participant that has executed a ``Participant Agreement'' 
with the applicable distributor (the ``Distributor'') with respect to 
the creation and redemption of Creation Units and Redemption Units and 
formed a Confidential Account for its benefit in accordance with the 
terms of the Participant Agreement. For purposes of creations or 
redemptions, all transactions will be effected through the respective 
AP's Confidential Account, for the benefit of the AP without disclosing 
the identity of such securities to the AP. The Funds will offer and 
redeem Creation Units and Redemption Units on a continuous basis at the 
NAV per Share next determined after receipt of an order in proper form. 
The NAV per Share of each Fund will be determined as of the close of 
regular trading each business day. Funds will sell and redeem Creation 
Units and Redemption Units only on business days.
---------------------------------------------------------------------------

    \22\ Transacting through a Confidential Account is designed to 
be very similar to transacting through any broker-dealer account, 
except that the AP Representative will be bound to keep the names 
and weights of the portfolio securities confidential. Each service 
provider that has access to the identity and weightings of 
securities in a Fund's Creation Basket or portfolio securities, such 
as a Fund's custodian or pricing verification agent, shall be 
restricted contractually from disclosing that information to any 
other person, or using that information for any purpose other than 
providing services to the Fund. To comply with certain recordkeeping 
requirements applicable to APs, the AP Representative will maintain 
and preserve, and make available to the Commission, certain required 
records related to the securities held in the Confidential Account.
    \23\ Each AP shall enter into its own separate Confidential 
Account with an AP Representative.
    \24\ Each Fund will identify one or more entities to enter into 
a contractual arrangement with the Fund to serve as an AP 
Representative. In selecting entities to serve as AP 
Representatives, a Fund will obtain representations from the entity 
related to the confidentiality of the Fund's Creation Basket and 
portfolio securities, the effectiveness of information barriers, and 
the adequacy of insider trading policies and procedures. In 
addition, as a broker-dealer, Section 15(g) of the Act requires the 
AP Representative to establish, maintain, and enforce written 
policies and procedures reasonably designed to prevent the misuse of 
material, nonpublic information by the AP Representative or any 
person associated with the AP Representative.
---------------------------------------------------------------------------

    Each AP Representative will be given, before the commencement of 
trading each business day, the Creation Basket for that day. The 
published Creation Basket will apply until a new Creation Basket is 
announced on the following business day, and there will be no intra-day 
changes to the Creation Basket except to correct errors in the 
published Creation Basket. In order to keep costs low and permit Funds 
to be as fully invested as possible, Shares will be purchased and 
redeemed in Creation Units and Redemption Units and generally on an in-
kind basis. Accordingly, except where the purchase or redemption will 
include cash under the circumstances required or determined permissible 
by the Fund, APs will be required to purchase Creation Units by making 
an in-kind deposit of specified instruments (``Deposit Instruments''), 
and APs redeeming their Shares will receive an in-kind transfer of 
Redemption Instruments through the AP Representative in their 
Confidential Account.\25\
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    \25\ Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the 1933 Act.
---------------------------------------------------------------------------

    In the case of a creation, the AP \26\ would enter into an 
irrevocable creation order with a Fund and then direct the AP 
Representative to purchase the necessary basket of portfolio 
securities. The AP Representative would then purchase the necessary 
securities in the Confidential Account. In purchasing the necessary 
securities, the AP Representative would use methods such as breaking 
the purchase into multiple purchases and transacting in multiple 
marketplaces. Once the necessary basket of securities has been 
acquired, the purchased securities held in the Confidential Account 
would be contributed in-kind to the applicable Fund.
---------------------------------------------------------------------------

    \26\ An AP will issue execution instructions to the AP 
Representative and be responsible for all associated profit or 
losses. Like a traditional ETF, the AP has the ability to sell the 
basket securities at any point during Regular Trading Hours.
---------------------------------------------------------------------------

    Other market participants that are not APs will not have the 
ability to create or redeem shares directly with a Fund. Rather, if 
other market participants wish to create or redeem Shares in a Fund, 
they will have to do so through an AP.
Placement of Purchase Orders
    Each Fund will issue Shares through the Distributor on a continuous 
basis at

[[Page 51198]]

NAV. The Exchange represents that the issuance of Shares will operate 
in a manner substantially similar to that of other ETFs. Each Fund will 
issue Shares only at the NAV per Share next determined after an order 
in proper form is received.
    The Distributor will furnish acknowledgements to those placing 
orders that the orders have been accepted, but the Distributor may 
reject any order which is not submitted in proper form, as described in 
a Fund's prospectus or Statement of Additional Information (``SAI''). 
The NAV of each Fund is expected to be determined once each business 
day at a time determined by the board of the Investment Company 
(``Board''), currently anticipated to be as of the close of the regular 
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) (the 
``Valuation Time''). Each Fund will establish a cut-off time (``Order 
Cut-Off Time'') for purchase orders in proper form. To initiate a 
purchase of Shares, an AP must submit to the Distributor an irrevocable 
order to purchase such Shares after the most recent prior Valuation 
Time.
    Purchases of Shares will be settled in-kind and/or cash for an 
amount equal to the applicable NAV per Share purchased plus applicable 
``Transaction Fees,'' as discussed below.
    Generally, all orders to purchase Creation Units must be received 
by the Distributor no later than the end of Regular Trading Hours on 
the date such order is placed (``Transmittal Date'') in order for the 
purchaser to receive the NAV per Share determined on the Transmittal 
Date. In the case of custom orders made in connection with creations or 
redemptions in whole or in part in cash, the order must be received by 
the Distributor, no later than the Order Cut-Off Time.\27\
---------------------------------------------------------------------------

    \27\ A ``custom order'' is any purchase or redemption of Shares 
made in whole or in part on a cash basis, as provided in the 
Registration Statement.
---------------------------------------------------------------------------

Authorized Participant Redemption
    The Shares may be redeemed to a Fund in Redemption Unit size or 
multiples thereof as described below. Redemption orders of Redemption 
Units must be placed by or through an AP (``AP Redemption Order''). 
Each Fund will establish an Order Cut-Off Time for redemption orders of 
Redemption Units in proper form. Redemption Units of a Fund will be 
redeemable at their NAV per Share next determined after receipt of a 
request for redemption by the Investment Company in the manner 
specified below before the Order Cut-Off Time. To initiate an AP 
Redemption Order, an AP must submit to the Distributor an irrevocable 
order to redeem such Redemption Unit after the most recent prior 
Valuation Time but not later than the Order Cut-Off Time.
    In the case of a redemption, the AP would enter into an irrevocable 
redemption order, and then instruct the AP Representative to sell the 
underlying basket of securities that it will receive in the redemption. 
As with the purchase of securities, the AP Representative would be 
required to obfuscate the sale of the portfolio securities it will 
receive as redemption proceeds using similar tactics.
    Consistent with the provisions of Section 22(e) of the 1940 Act and 
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor 
payment upon redemption delayed, except for: (1) Any period during 
which the Exchange is closed other than customary weekend and holiday 
closings, (2) any period during which trading on the Exchange is 
restricted, (3) any period during which an emergency exists as a result 
of which disposal by a Fund of securities owned by it is not reasonably 
practicable or it is not reasonably practicable for a Fund to determine 
its NAV, and (4) for such other periods as the Commission may by order 
permit for the protection of shareholders.
    It is expected that redemptions will occur primarily in-kind, 
although redemption payments may also be made partly or wholly in cash. 
The Participant Agreement signed by each AP will require establishment 
of a Confidential Account to receive distributions of securities in-
kind upon redemption.\28\ Each AP will be required to open a 
Confidential Account with an AP Representative in order to facilitate 
orderly processing of redemptions.
---------------------------------------------------------------------------

    \28\ The terms of each Confidential Account will be set forth as 
an exhibit to the applicable Participant Agreement, which will be 
signed by each AP. The Authorized Participant will be free to choose 
an AP Representative for its Confidential Account from a list of 
broker-dealers that have signed confidentiality agreements with the 
Fund. The Authorized Participant will be free to negotiate account 
fees and brokerage charges with its selected AP Representative. The 
Authorized Participant will be responsible to pay all fees and 
expenses charged by the AP Representative of its Confidential 
Account.
---------------------------------------------------------------------------

    After receipt of a Redemption Order, a Fund's custodian 
(``Custodian'') will typically deliver securities to the Confidential 
Account with a value approximately equal to the value of the Shares 
\29\ tendered for redemption at the Cut-Off time. The Custodian will 
make delivery of the securities by appropriate entries on its books and 
records transferring ownership of the securities to the AP's 
Confidential Account, subject to delivery of the Shares redeemed. The 
AP Representative of the Confidential Account will in turn liquidate 
the securities based on instructions from the AP. The AP Representative 
will pay the liquidation proceeds net of expenses plus or minus any 
cash Balancing Amount to the AP through DTC. The redemption securities 
that the Confidential Account receives are expected to mirror the 
portfolio holdings of a Fund pro rata. To the extent a Fund distributes 
portfolio securities through an in-kind distribution to more than one 
Confidential Account for the benefit of the accounts' respective APs, 
each Fund expects to distribute a pro rata portion of the portfolio 
securities selected for distribution to each redeeming AP.
---------------------------------------------------------------------------

    \29\ If the NAV of the Shares redeemed differs from the value of 
the securities delivered to the applicable Confidential Account, the 
applicable Fund will receive or pay a cash Balancing Amount to 
compensate for the difference between the value of the securities 
delivered and the NAV.
---------------------------------------------------------------------------

    If the AP would receive a security that it is restricted from 
receiving, for example if the AP is engaged in a distribution of the 
security, a Fund will deliver cash equal to the value of that security. 
APs and non-AP market participants will provide the AP Representative 
with a list of restricted securities applicable to the AP or non-AP 
market participants on a daily basis, and a Fund will substitute cash 
for those securities in the applicable Confidential Account.
    The Investment Company will accept a Redemption Order in proper 
form. A Redemption Order is subject to acceptance by the Investment 
Company and must be preceded or accompanied by an irrevocable 
commitment to deliver the requisite number of Shares. At the time of 
settlement, an AP will initiate a delivery of the Shares plus or minus 
any cash Balancing Amounts, and less the expenses of liquidation.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of Managed Portfolio 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 Managed Portfolio Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products. The 
Exchange will require the issuer of each series of Managed Portfolio 
Shares listed on the Exchange to represent to the Exchange that it will 
advise the Exchange of any failure by a Fund to comply with the 
continued listing requirements, and,

[[Page 51199]]

pursuant to its obligations under Section 19(g)(1) of the Exchange Act, 
the Exchange will surveil for compliance with the continued listing 
requirements. If a Fund is not in compliance with the applicable 
listing requirements, the Exchange will commence delisting procedures 
under Exchange Rule 14.12.
    Specifically, the Exchange will implement real-time surveillances 
that monitor for the continued dissemination of the VIIV. The Exchange 
will also have surveillances designed to alert Exchange personnel where 
shares of a series of Managed Portfolio Shares are trading away from 
the VIIV. As noted in proposed Rule 14.11(k)(2)(C), the Investment 
Company's investment adviser will upon request make available to the 
Exchange and/or FINRA, on behalf of the Exchange, the daily portfolio 
holdings of each series of Managed Portfolio Shares. The Exchange 
believes that this is appropriate because, while the Exchange can 
envision circumstances under which such information would be useful to 
the Exchange, specifically in testing for a Fund's compliance with any 
continued listing representations in the rule filing under Section 
19(b) of the Act pursuant to which the Fund is listed on the Exchange, 
among others, the Exchange does not believe that there is value in the 
Exchange receiving such information every day, given its sensitivity. 
The Exchange does not believe that any of its real-time surveillances 
or reasons for halting a security, as further described below, would be 
enhanced by receiving such information and in addition does not believe 
that it makes sense to default to sharing the portfolio holdings 
unnecessarily on a daily basis.
    The Exchange notes that the Exemptive Order restricts the 
investable universe for a series of Managed Portfolio Shares to include 
only certain instruments that trade on a U.S. exchange, 
contemporaneously with the Shares, and in cash and cash 
equivalents.\30\ As such, any equity instruments or futures held by a 
Fund operating under the Exemptive Order or a substantively identical 
exemptive order would trade on markets that are a member of Intermarket 
Surveillance Group (``ISG'') or affiliated with a member of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.\31\ While future exemptive relief applicable to Managed 
Portfolio Shares may expand the investable universe, the Exchange notes 
that proposed Rule 14.11(k)(2)(A) would require the Exchange to file 
separate proposals under Section 19(b) of the Act before listing and 
trading any series of Managed Portfolio Shares and such proposal would 
describe the investable universe for any such series of Managed 
Portfolio Shares along with the Exchange's surveillance procedures 
applicable to such series.
---------------------------------------------------------------------------

    \30\ As described in the Notice, each series would invest only 
in ETFs and exchange-traded notes, common stocks, preferred stocks, 
American depositary receipts, real estate investment trusts, 
commodity pools, metals trusts, currency trusts and futures. All of 
these instruments will trade on a U.S. exchange contemporaneously 
with the Shares. The reference assets of the exchange-traded futures 
in which a Fund may invest would be assets that the Fund could 
invest in directly, or in the case of an index future, based on an 
index of a type of asset that the Fund could invest in directly. A 
Fund may also invest in cash and cash equivalents. No Fund would buy 
securities that are illiquid investments (as defined in rule 22e-
4(a)(8) under the 1940 Act) at the time of purchase, borrow for 
investment purposes or hold short positions. See Notice at 12, 
footnote 24.
    \31\ For a list of the current members of ISG, see 
www.isgportal.com. The Exchange notes that cash equivalents may 
trade on markets that are members of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Trading Halts
    As proposed above, the Exchange would halt trading as soon as 
practicable under the following circumstances: (a) Upon notification to 
the Exchange by the Investment Company or its agent of the existence of 
any condition or set of conditions specified in any currently 
applicable exemptive order or no-action relief granted by the 
Commission or Commission staff that would require the Investment 
Company's investment adviser to request that the Exchange halt trading 
in the Managed Portfolio Shares; and (b) where the Exchange becomes 
aware that: (i) The VIIV of a series of Managed Portfolio Shares is not 
being calculated or disseminated in one second intervals, as required; 
(ii) the NAV with respect to a series of Managed Portfolio Shares is 
not disseminated to all market participants at the same time; (iii) the 
holdings of a series of Managed Portfolio Shares are not made available 
on at least a quarterly basis as required under the 1940 Act; or (iv) 
such holdings are not made available to all market participants at the 
same time, and will not resume trading in such series until such time 
as the VIIV, the net asset value, or the holdings are available to all 
market participants, as required (collectively, ``Publicly Available 
Information Halts'').
Availability of Information
    As noted above, 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 a fund's 
Statement of Additional Information, its Shareholder Reports, its Form 
N-CSR, filed twice a year, and its Form N-CEN, filed annually. A fund's 
SAI and Shareholder Reports are available free upon request from the 
Investment Company, 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.
    Information regarding market price and trading volume of the Shares 
will be 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 Consolidated Tape Association 
(``CTA'') high-speed line. In addition, the VIIV, as defined in 
proposed Rule 14.11(k)(3)(B), will be widely disseminated by the 
Reporting Authority and/or one or more major market data vendors in one 
second intervals during Regular Trading Hours.
Trading Rules
    The Exchange deems Managed Portfolio Shares to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
Managed Portfolio Shares will trade on the Exchange only during Regular 
Trading Hours as provided in proposed Rule 14.11(k)(2)(B). As provided 
in BZX Rule 11.11(a), the minimum price variation for quoting and entry 
of orders in securities traded on the Exchange is $0.01, with the 
exception of securities that are priced less than $1.00, for which the 
minimum price variation for order entry is $0.0001.
Information Circular
    Prior to the commencement of trading of a series of Managed 
Portfolio Shares, the Exchange will inform its members in an 
Information Circular (``Circular'') of the special characteristics and 
risks associated with trading the Shares. Specifically, the Circular 
will discuss the following: (1) The procedures for purchases and 
redemptions of Shares; (2) BZX Rule 3.7, which imposes

[[Page 51200]]

suitability obligations on Exchange members with respect to 
recommending transactions in the Shares to customers; (3) how 
information regarding the VIIV is disseminated; (4) the requirement 
that members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
(5) trading information; and (6) that the portfolio holdings of the 
Shares are not disclosed on a daily basis.
    In addition, the Circular will reference that Funds are subject to 
various fees and expenses described in the Registration Statement. The 
Circular will discuss any exemptive, no-action, and interpretive relief 
granted by the Commission from any rules under the Act. The Circular 
will also disclose that the NAV for the Shares will be calculated after 
4:00 p.m., E.T. each trading day.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \32\ in general and Section 6(b)(5) of the Act \33\ 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.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78f.
    \33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 14.11(k) is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Managed Portfolio 
Shares provide specific initial and continued listing criteria required 
to be met by such securities. Proposed Rule 14.11(k)(4) sets forth 
initial and continued listing criteria applicable to Managed Portfolio 
Shares. Proposed Rule 14.11(k)(4)(A)(i) provides that, for each series 
of Managed Portfolio Shares, the Exchange will establish a minimum 
number of Managed Portfolio Shares required to be outstanding at the 
time of commencement of trading on the Exchange. In addition, proposed 
Rule 14.11(k)(4)(A)(ii) provides that the Exchange will obtain a 
representation from the Investment Company that issues each series of 
Managed Portfolio Shares that the NAV per share for the series will be 
calculated daily and that the NAV will be made available to all market 
participants at the same time.\34\ Proposed Rule 14.11(k)(4)(A)(iii) 
provides that all Managed Portfolio Shares shall have a stated 
investment objective, which shall be adhered to under normal market 
conditions.
---------------------------------------------------------------------------

    \34\ Proposed Rule 14.11(k)(4)(B)(iii)(b) provides that if the 
Exchange becomes aware that the NAV with respect to a series of 
Managed Portfolio Shares is not disseminated to all market 
participants at the same time, it will halt trading in such series 
until such time as the NAV is available to all market participants 
at the same time.
---------------------------------------------------------------------------

    Proposed Rule 14.11(k)(4)(B) provides that each series of Managed 
Portfolio Shares will be listed and traded subject to application of 
the specified continued listing criteria, as described above. Proposed 
Rule 14.11(k)(4)(B)(i) provides that the VIIV for Managed Portfolio 
Shares will be widely disseminated by the Reporting Authority and/or 
one or more major market data vendors in one second intervals during 
Regular Trading Hours and will be disseminated to all market 
participants at the same time. Proposed Rule 14.11(k)(4)(B)(ii) 
provides that the Exchange will consider the suspension of trading in, 
and will commence delisting proceedings under Rule 14.12 for, a series 
of Managed Portfolio Shares under any of the following circumstances: 
(a) If, following the initial twelve-month period after commencement of 
trading on the Exchange of a series of Managed Portfolio Shares, there 
are fewer than 50 beneficial holders of the series of Managed Portfolio 
Shares for 30 or more consecutive trading days; (b) if the Exchange has 
halted trading in a series of Managed Portfolio Shares because the 
Verified Intraday Indicative Value is interrupted pursuant to Rule 
14.11(k)(4)(B)(iii) and such interruption persists past the trading day 
in which it occurred or is no longer available; (c) if the Exchange has 
halted trading in a series of Managed Portfolio Shares because the net 
asset value with respect to such series of Managed Portfolio Shares is 
not disseminated to all market participants at the same time, the 
holdings of such series of Managed Portfolio Shares are not made 
available on at least a quarterly basis as required under the 1940 Act, 
or such holdings are not made available to all market participants at 
the same time pursuant to Rule 14.11(k)(4)(B)(iii) and such issue 
persists past the trading day in which it occurred; (d) if the 
Investment Company issuing the Managed Portfolio Shares has failed to 
file any filings required by the Commission or if the Exchange is aware 
that the Investment Company is not in compliance with the conditions of 
any currently applicable exemptive order or no-action relief granted by 
the Commission or Commission staff to the Investment Company with 
respect to the series of Managed Portfolio Shares; (e) if any of the 
continued listing requirements set forth in Rule 14.11(k) are not 
continuously maintained; (f) if any of the applicable Continued Listing 
Representations, as defined in Rule 14.11(a), for the issue of Managed 
Portfolio Shares are not continuously met; or (g) if such other event 
shall occur or condition exists which, in the opinion of the Exchange, 
makes further dealings on the Exchange inadvisable. Proposed Rule 
14.11(k)(4)(B)(iii)(a) provides that, upon notification to the Exchange 
by the Investment Company or its agent of the existence of any 
condition or set of conditions specified in any currently applicable 
exemptive order or no-action relief granted by the Commission or 
Commission staff that would require the Investment Company's investment 
adviser to request that the Exchange halt trading in the Managed 
Portfolio Shares, the Exchange shall halt trading in the Managed 
Portfolio Shares as soon as practicable. Such halt in trading shall 
continue until the Investment Company or its agent notifies the 
Exchange that the condition or conditions necessary for the resumption 
of trading have been met.\35\
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    \35\ As provided in the Application, such conditions would exist 
where either: (i) The intraday indicative values calculated by the 
pricing verification agent(s) differ by more than 25 basis points 
for 60 seconds in connection with pricing of the Verified Intraday 
Indicative Value; or (ii) holdings representing 10% or more of a 
series of Managed Portfolio Shares' portfolio have become subject to 
a trading halt or otherwise do not have readily available market 
quotations. The Exchange shall halt trading in the Managed Portfolio 
Shares as soon as practicable after receipt of notification of the 
existence of such conditions. Such halt in trading shall continue 
until the Investment Company or its agent notifies the Exchange that 
these conditions no longer exist.
---------------------------------------------------------------------------

    Proposed Rule 14.11(k)(4)(B)(iii)(b) provides that, if the Exchange 
becomes aware that: (i) The Verified Intraday Indicative Value of a 
series of Managed Portfolio Shares is not being calculated or 
disseminated in one second intervals, as required; (ii) the net asset 
value with respect to a series of Managed Portfolio Shares is not 
disseminated to all market participants at the same time; (iii) the 
holdings of a series of Managed Portfolio Shares are not made available 
on at least a quarterly basis as required under the 1940 Act; or (iv) 
such holdings are not made available to all market participants at the 
same time, it will halt trading in such series until such time as the 
Verified Intraday Indicative Value, the net asset value, or the 
holdings are available to all market participants as required. Proposed 
Rule 14.11(k)(4)(B)(iv) provides that, upon

[[Page 51201]]

termination of an Investment Company, the Exchange requires that 
Managed Portfolio Shares issued in connection with such entity be 
removed from Exchange listing. Proposed Rule 14.11(k)(4)(B)(v) provides 
that voting rights shall be as set forth in the applicable Investment 
Company prospectus and/or Statement of Additional Information. The 
Exchange also notes that the Notice provides that an issuer will comply 
with Regulation Fair Disclosure, which prohibits selective disclosure 
of any material non-public information, which otherwise do not apply to 
issuers of Managed Portfolio Shares.\36\
---------------------------------------------------------------------------

    \36\ See Notice at 15.
---------------------------------------------------------------------------

    Proposed Rule 14.11(k)(2)(D) provides that, if the investment 
adviser to the Investment Company issuing Managed Portfolio 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 and/or changes to such Investment Company 
portfolio and/or Creation Basket. Any person related to the investment 
adviser or Investment Company who makes decisions pertaining to the 
Investment Company's portfolio composition or has access to information 
regarding the Investment Company's portfolio composition, the Creation 
Basket, or changes thereto, must be subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the applicable Investment Company portfolio or Creation 
Basket. Proposed Rule 14.11(k)(2)(E) provides that, any person or 
entity, including an AP Representative, custodian, pricing verification 
agent, reporting authority, distributor, or administrator, who has 
access to information regarding the Investment Company's portfolio 
composition, the Creation Basket, or changes thereto, must be subject 
to procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable Investment Company 
portfolio or Creation Basket. 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 
Investment Company portfolio or Creation Basket.\37\
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    \37\ The Exchange notes that the Order dismissed concerns raised 
by a third party related to potential violation of Section 10(b) of 
the Act, stating that ``Contrary to the contentions advanced in the 
third-party submissions, the provision of the basket composition 
information to the AP Representative or use of that information by 
the AP Representative as provided for in the Application should not 
give rise to insider trading violations under section 10(b) of the 
Exchange Act.'' The notice goes on to say that an AP Representative 
``acting as an agent of another broker-dealer (``AP'') will be given 
information concerning the identity and weightings of the basket of 
securities that the ETF would exchange for its shares (but not 
information concerning the issuers of those underlying securities). 
The AP Representative is provided this information by the ETF so 
that, pursuant to instructions received from an AP, the AP 
Representative may undertake the purchase or redemption of the ETF's 
Shares (in the form of creation units) and the purchase or sale of 
the basket of securities that are exchanged for creation units. The 
ETFs will provide this information to an AP Representative on a 
confidential basis, the AP Representative is subject to a duty of 
non-disclosure (which includes an obligation not to provide this 
information to an AP), and the AP Representative may not use the 
information in any way except to facilitate the operation of the ETF 
by purchasing or selling the basket of securities and to exchange it 
with the ETF to complete an AP's orders to purchase or redeem the 
ETF's Shares. Furthermore, section 15(g) of the Exchange Act 
requires an AP Representative, as a registered broker, to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to prevent the misuse of material nonpublic information by 
the AP Representative or any person associated with the AP 
Representative.'' The Order goes on to say ``For the foregoing 
reasons, it is found that granting the requested exemptions is 
appropriate in and consistent with the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act. It is further 
found that the terms of the proposed transactions, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching on the part of any person concerned, and 
that the proposed transactions are consistent with the policy of 
each registered investment company concerned and with the general 
purposes of the Act.'' See Order at 2, 3, and 4.
---------------------------------------------------------------------------

    The Exchange believes that these proposed rules are designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Managed Portfolio Shares because they provide 
meaningful requirements about both the data that will be made publicly 
available about the Shares as well as the information that will only be 
available to certain parties and the controls on such information. 
Specifically, the Exchange believes that the requirements related to 
information protection enumerated under proposed Rule 14.11(k)(2)(E) 
\38\ will act as a strong safeguard against any misuse and improper 
dissemination of information related to a Fund's portfolio composition, 
the Creation Basket, or changes thereto. The requirement that any 
person or entity implement procedures to prevent the use and 
dissemination of material nonpublic information regarding the portfolio 
or Creation Basket will act to prevent any individual or entity from 
sharing such information externally and the internal ``fire wall'' 
requirements applicable where an entity is a registered broker-dealer 
or affiliated with a broker-dealer will act to make sure that no entity 
will be able to misuse the data for their own purposes. As such, the 
Exchange believes that this proposal is designed to prevent fraudulent 
and manipulative acts and practices.
---------------------------------------------------------------------------

    \38\ As described above, proposed Rule 14.11(k)(2)(E) provides 
that any person or entity, including an AP Representative, 
custodian, pricing verification agent, reporting authority, 
distributor, or administrator, who has access to information 
regarding the Investment Company's portfolio composition, the 
Creation Basket, or changes thereto, must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the applicable Investment Company portfolio or 
Creation Basket. 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 Investment Company portfolio or Creation Basket.
---------------------------------------------------------------------------

    The Exchange, after consulting with various LMMs that trade ETFs on 
the Exchange, believes that market makers will be able to make 
efficient and liquid markets priced near the VIIV, as long as market 
makers have knowledge of a Fund's means of achieving its investment 
objective, even without daily disclosure of a fund's underlying 
portfolio.\39\ The Exchange believes that market makers will employ 
risk-management techniques to make efficient markets in exchange traded 
products. This ability should permit market makers to make efficient 
markets in shares without knowledge of a fund's underlying portfolio.
---------------------------------------------------------------------------

    \39\ The Exchange notes that the Commission reached the same 
conclusion in the Notice, specifically stating: ``The Commission 
believes that the alternative arbitrage mechanism proposed by 
Applicants can also work in an efficient manner to maintain an 
ActiveShares ETF's secondary market prices close to its NAV.'' See 
the Notice at 19.
---------------------------------------------------------------------------

    The Exchange understands that traders use statistical analysis to 
derive correlations between different sets of instruments to identify 
opportunities to buy or sell one set of instruments when it is 
mispriced relative to the others. For Managed Portfolio Shares, market 
makers utilizing statistical arbitrage use the knowledge of a fund's 
means of achieving its investment objective, as described in the 
applicable fund registration statement, to construct a hedging proxy 
for a fund to manage a market maker's quoting risk in connection with 
trading fund shares. Market makers will then conduct statistical 
arbitrage between their

[[Page 51202]]

hedging proxy (for example, the Russell 1000 Index) and shares of a 
fund, buying and selling one against the other over the course of the 
trading day. Eventually, at the end of each day, they will evaluate how 
their proxy performed in comparison to the price of a fund's shares, 
and use that analysis as well as knowledge of risk metrics, such as 
volatility and turnover, to enhance their proxy calculation to make it 
a more efficient hedge.
    Market makers have indicated to the Exchange that there will be 
sufficient data to run a statistical analysis which will lead to 
spreads being tightened substantially around the VIIV. This is similar 
to certain other existing exchange traded products (for example, ETFs 
that invest in foreign securities that do not trade during U.S. trading 
hours), in which spreads may be generally wider in the early days of 
trading and then narrow as market makers gain more confidence in their 
real-time hedges.
    The LMMs also indicated that, as with some other new exchange-
traded products, spreads would tend to narrow as market makers gain 
more confidence in the accuracy of their hedges and their ability to 
adjust these hedges in real-time relative to the published VIIV and 
gain an understanding of the applicable market risk metrics such as 
volatility and turnover, and as natural buyers and sellers enter the 
market. Other relevant factors cited by LMMs were that a fund's 
investment objectives are clearly disclosed in the applicable 
prospectus, the existence of quarterly portfolio disclosure and the 
ability to create shares in creation unit size or redeem in redemption 
unit size through an AP.
    The real-time dissemination of a Fund's VIIV together with the 
right of APs to create and redeem each day at the NAV will be 
sufficient for market participants to value and trade Shares in a 
manner that will not lead to significant deviations between the shares' 
Bid/Ask Price and NAV.
    The pricing efficiency with respect to trading a series of Managed 
Portfolio Shares will generally rest on the ability of market 
participants to arbitrage between the Shares and a fund's portfolio, in 
addition to the ability of market participants to assess a fund's 
underlying value accurately enough throughout the trading day in order 
to hedge positions in shares effectively. Professional traders can buy 
Shares that they perceive to be trading at a price less than that which 
will be available at a subsequent time, and sell Shares they perceive 
to be trading at a price higher than that which will be available at a 
subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to Shares by the Exchange, 
off-exchange market makers, firms that specialize in electronic 
trading, hedge funds and other professionals specializing in short-
term, non-fundamental trading strategies will assume the risk of being 
``long'' or ``short'' shares through such trading and will hedge such 
risk wholly or partly by simultaneously taking positions in correlated 
assets \40\ or by netting the exposure against other, offsetting 
trading positions--much as such firms do with existing ETFs and other 
equities. Disclosure of a fund's investment objective and principal 
investment strategies in its prospectus and SAI, along with the 
dissemination of the VIIV in one second intervals, should permit 
professional investors to engage easily in this type of hedging 
activity.\41\
---------------------------------------------------------------------------

    \40\ Price correlation trading is used throughout the financial 
industry. It is used to discover both trading opportunities to be 
exploited, such as currency pairs and statistical arbitrage, as well 
as for risk mitigation such as dispersion trading and beta hedging. 
These correlations are a function of differentials, over time, 
between one or multiple securities pricing. Once the nature of these 
price deviations have been quantified, a universe of securities is 
searched in an effort to, in the case of a hedging strategy, 
minimize the differential. Once a suitable hedging basket has been 
identified, a trader can minimize portfolio risk by executing the 
hedging basket. The trader then can monitor the performance of this 
hedge throughout the trade period, making corrections where 
warranted.
    \41\ With respect to trading in the Shares, market participants 
would manage risk in a variety of ways. It is expected that market 
participants will be able to determine how to trade Shares at levels 
approximating the VIIV without taking undue risk by gaining 
experience with how various market factors (e.g., general market 
movements, sensitivity of the VIIV to intraday movements in interest 
rates or commodity prices, etc.) affect VIIV, and by finding hedges 
for their long or short positions in Shares using instruments 
correlated with such factors. Market participants will likely 
initially determine the VIIV's correlation to a major large 
capitalization equity benchmark with active derivative contracts, 
such as the Russell 1000 Index, and the degree of sensitivity of the 
VIIV to changes in that benchmark. For example, using hypothetical 
numbers for illustrative purposes, market participants should be 
able to determine quickly that price movements in the Russell 1000 
Index predict movements in a Fund's VIIV 95% of the time (an 
acceptably high correlation) but that the VIIV generally moves 
approximately half as much as the Russell 1000 Index with each price 
movement. This information is sufficient for market participants to 
construct a reasonable hedge--buy or sell an amount of futures, 
swaps or ETFs that track the Russell 1000 equal to half the opposite 
exposure taken with respect to Shares. Market participants will also 
continuously compare the intraday performance of their hedge to a 
Fund's VIIV. If the intraday performance of the hedge is correlated 
with the VIIV to the expected degree, market participants will feel 
comfortable they are appropriately hedged and can rely on the VIIV 
as appropriately indicative of a Fund's performance.
---------------------------------------------------------------------------

    With respect to trading of the Shares, the ability of market 
participants to buy and sell Shares at prices near the VIIV is 
dependent upon their assessment that the VIIV is a reliable, indicative 
real-time value for a Fund's underlying holdings. Market participants 
are expected to accept the VIIV as a reliable, indicative real-time 
value because (1) the VIIV will be calculated and disseminated based on 
a Fund's actual portfolio holdings, (2) the securities in which a Fund 
plans to invest are generally highly liquid and actively traded and 
therefore generally have accurate real time pricing available, and (3) 
market participants will have a daily opportunity to evaluate whether 
the VIIV at or near the close of trading is indeed predictive of the 
actual NAV.\42\
---------------------------------------------------------------------------

    \42\ The statements in the Statutory Basis section of this 
filing relating to pricing efficiency, arbitrage, and activities of 
market participants, including market makers and APs, are based on 
statements in the Exemptive Order, representations by Precidian, and 
review by the Exchange.
---------------------------------------------------------------------------

    In a typical index-based ETF, it is standard for APs to know what 
securities must be delivered in a creation or will be received in a 
redemption. For Managed Portfolio Shares, however, APs do not need to 
know the securities comprising the portfolio of a Fund since creations 
and redemptions are handled through the Confidential Account mechanism. 
In-kind creations and redemptions through a Confidential Account are 
expected to preserve the integrity of the active investment strategy 
and reduce the potential for ``free riding'' or ``front-running,'' 
while still providing investors with the advantages of the ETF 
structure.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the Investment 
Company that issues each series of Managed Portfolio Shares that the 
NAV per share of a fund will be calculated daily and that the NAV will 
be made available to all market participants at the same time. 
Investors can also obtain a fund's Statement of Additional Information, 
its Shareholder Reports, its Form N-CSR, filed twice a year, and its 
Form N-CEN, filed annually. A fund's SAI and Shareholder Reports are 
available free upon request from the Investment Company, 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. 
In addition, a large amount of information will be publicly available 
regarding the Funds and the Shares, thereby promoting market 
transparency. Quotation and last sale information for the Shares will 
be

[[Page 51203]]

available via the CTA high-speed line. Information regarding the VIIV 
will be widely disseminated in one second intervals throughout Regular 
Trading Hours by the Reporting Authority and/or one or more major 
market data vendors. The website for each Fund will include a form of 
the prospectus for the Fund that may be downloaded, and additional data 
relating to NAV and other applicable quantitative information, updated 
on a daily basis. Moreover, prior to the commencement of trading, the 
Exchange will inform its members in a Circular of the special 
characteristics and risks associated with trading the Shares.
    The Exchange further believes that the proposal is designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Managed Portfolio Shares and to promote just and 
equitable principles of trade and to protect investors and the public 
interest in that the Exchange would halt trading under certain 
circumstances under which trading in the shares of a Fund may be 
inadvisable. Specifically, the Exchange would halt trading as soon as 
practicable under the following circumstances: (a) Upon notification to 
the Exchange by the Investment Company or its agent of the existence of 
any condition or set of conditions specified in any currently 
applicable exemptive order or no-action relief granted by the 
Commission or Commission staff that would require the Investment 
Company's investment adviser to request that the Exchange halt trading 
in the Managed Portfolio Shares; and (b) where the Exchange becomes 
aware that: (i) The VIIV of a series of Managed Portfolio Shares is not 
being calculated or disseminated in one second intervals, as required; 
(ii) the NAV with respect to a series of Managed Portfolio Shares is 
not disseminated to all market participants at the same time; (iii) the 
holdings of a series of Managed Portfolio Shares are not made available 
on at least a quarterly basis as required under the 1940 Act; or (iv) 
such holdings are not made available to all market participants at the 
same time, and will not resume trading in such series until such time 
as the VIIV, the net asset value, or the holdings are available to all 
market participants, as required.
    The Exchange is proposing to rely on notice from the Investment 
Company or its agent of certain circumstances provided under the 
Investment Company's exemptive order or no-action relief to halt 
trading in a series of Managed Portfolio Shares (an ``Exemptive Halt'') 
and four scenarios under which the Exchange would halt trading upon 
becoming aware of certain circumstances. Specifically, the Exchange is 
proposing to rely on notice from the Investment Company or its agent to 
halt for an Exemptive Halt because the Exchange is not in a position to 
know or become aware of such circumstances without the Investment 
Company or its agent. As it relates to the Exemptive Halts provided in 
the Application and described above, the Exchange does not expect to 
act as a pricing verification agent and, as such, would not have access 
to such information without notice from the Investment Company or its 
agent and similarly will not have direct access to whether the pricing 
verification agent has readily available market quotations necessary to 
calculate the VIIV. Even if the Investment Company was providing the 
Exchange with the portfolio holdings on a daily basis,\43\ the Exchange 
would not be in a position to determine whether market quotations are 
readily available to the Investment Company or its agent and whether 
such quotations are unavailable in holdings representing 10% or more of 
a Fund's portfolio. Further, the Exchange believes that it is 
appropriate for the Exchange to halt under such circumstances because 
prior to listing on the Exchange, the Commission would have issued an 
order determining that it is appropriate to halt in those 
scenarios.\44\
---------------------------------------------------------------------------

    \43\ As described above under ``Surveillance,'' proposed Rule 
14.11(k)(2)(C), the Investment Company's investment adviser will 
upon request make available to the Exchange and/or FINRA, on behalf 
of the Exchange, the daily portfolio holdings of each series of 
Managed Portfolio Shares, but it will not necessarily be providing 
such holdings on a daily basis.
    \44\ The Exemptive Halts are included in the Application and 
Notice on which the Order is based. See Application at 23 and 24, 
footnote 57, respectively, and Notice at 12, Footnote 25.
---------------------------------------------------------------------------

    For each of the Publicly Available Information Halts, the scenario 
that triggers a halt is based on information that is available to the 
Exchange, either because the information is publicly available, the 
information will flow through the Exchange prior to being publicly 
disseminated, or both, and, thus, the Exchange is proposing that these 
halts should be subject to the Exchange becoming aware of such 
circumstances. The Exchange notes, however, that this is in addition to 
an Investment Company's obligation of disclosure of noncompliance under 
Rule 14.11(a), which requires that a ``Company with securities listed 
on the Exchange must provide the Exchange with prompt notification 
after the Company becomes aware of any noncompliance by the Company 
with the requirements of Rule 14.11.'' With this in mind, the Exchange 
becoming aware of any issue that would require a Publicly Available 
Information Halt could come through its own surveillances or through 
disclosure by an Investment Company. The Exchange further believes that 
these proposed reasons to halt trading in shares of a series of Managed 
Portfolio Shares are consistent with the Act because: (i) The 
Commission has already determined that the requirement that the VIIV be 
disseminated every second is appropriate; \45\ (ii) the other Publicly 
Available Information Halts are generally consistent with and designed 
to address the same concerns about asymmetry of information that Rule 
14.11(i)(4)(iv) related to trading halts in Managed Fund Shares \46\ is 
intended to address, specifically that the availability of such 
information is intended to reduce the potential for manipulation and 
help ensure a fair and orderly market in Managed Portfolio Shares; \47\ 
and (iii) the quarterly disclosure of portfolio holdings is a 
fundamental

[[Page 51204]]

component of Managed Portfolio Shares that allows market participants 
to better understand the strategy of the funds and to monitor how 
closely trading in the funds is tracking the value of the underlying 
portfolio and when such information is not being disclosed as required, 
trading in the shares is inadvisable and it is necessary and 
appropriate to halt trading.
---------------------------------------------------------------------------

    \45\ See Application at 4 and Notice at 11.
    \46\ Rule 14.11(i)(4)(iv) provides that ``If the Intraday 
Indicative Value of a series of Managed Fund Shares is not being 
disseminated as required, the Exchange may halt trading during the 
day in which the interruption to the dissemination of the Intraday 
Indicative Value occurs. If the interruption to the dissemination of 
the Intraday Indicative Value persists past the trading day in which 
it occurred, the Exchange will halt trading no later than the 
beginning of the trading day following the interruption. In 
addition, if the Exchange becomes aware that the net asset value or 
the Disclosed Portfolio with respect to a series of Managed Fund 
Shares is not disseminated to all market participants at the same 
time, it will halt trading in such series until such time as the net 
asset value or the Disclosed Portfolio is available to all market 
participants.'' These are generally consistent with the proposed 
Publicly Available Information Halts, specifically as it relates to 
whether the NAV or Disclosed Portfolio is not being made available 
to all market participants at the same time.
    \47\ See, e.g., Securities Exchange Act Release No. 80169 (March 
7, 2017), 82 FR 13536 (March 13, 2017); Securities Exchange Act 
Release Nos. 54739 (November 9, 2006), 71 FR 66993, 66997 (November 
17, 2006) (SR-AMEX-2006-78) (approving generic listing standards for 
Portfolio Depositary Receipts and Index Fund Shares based on 
international or global indexes, and stating that ``the proposed 
listing standards are designed to preclude ETFs from becoming 
surrogates for trading in unregistered securities'' and that ``the 
requirement that each component security underlying an ETF be listed 
on an exchange and subject to last-sale reporting should contribute 
to the transparency of the market for ETFs'' and that ``by requiring 
pricing information for both the relevant underlying index and the 
ETF to be readily available and disseminated, the proposal is 
designed to ensure a fair and orderly market for ETFs''); 53142 
(January 19, 2006), 71 FR 4180, 4186 (January 25, 2006) (SR-NASD-
2006-001) (approving generic listing standards for Index-Linked 
Securities and stating that ``[t]he Commission believes that by 
requiring pricing information for both the relevant underlying index 
or indexes and the Index Security to be readily available and 
disseminated, the proposed listing standards should help ensure a 
fair and orderly market for Index Securities'').
---------------------------------------------------------------------------

    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. The Exemptive Order also restricts the 
investable universe for a series of Managed Portfolio Shares to include 
only certain instruments that trade on a U.S. exchange, 
contemporaneously with the Shares, and in cash and cash 
equivalents.\48\ As such, any equity instruments or futures held by a 
Fund operating under the Exemptive Order or substantively identical 
exemptive order would trade on markets that are a member of Intermarket 
Surveillance Group (``ISG'') or affiliated with a member of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.\49\ While future exemptive relief applicable to Managed 
Portfolio Shares may expand the investable universe, the Exchange notes 
that proposed Rule 14.11(k)(2)(A) would require the Exchange to file 
separate proposals under Section 19(b) of the Act before listing and 
trading any series of Managed Portfolio Shares and such proposal would 
describe the investable universe for any such series of Managed 
Portfolio Shares along with the Exchange's surveillance procedures 
applicable to such series. In addition, as noted above, investors will 
have ready access to information regarding the VIIV and quotation and 
last sale information for the Shares.
---------------------------------------------------------------------------

    \48\ As described in the Notice, each series would invest only 
in ETFs and exchange-traded notes, common stocks, preferred stocks, 
American depositary receipts, real estate investment trusts, 
commodity pools, metals trusts, currency trusts and futures. All of 
these instruments will trade on a U.S. exchange contemporaneously 
with the Shares. The reference assets of the exchange-traded futures 
in which a Fund may invest would be assets that the Fund could 
invest in directly, or in the case of an index future, based on an 
index of a type of asset that the Fund could invest in directly. A 
Fund may also invest in cash and cash equivalents. No Fund would buy 
securities that are illiquid investments (as defined in rule 22e-
4(a)(8) under the 1940 Act) at the time of purchase, borrow for 
investment purposes or hold short positions.
    \49\ The Exchange notes that cash equivalents may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    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. The Exchange notes that the 
proposed rule change, rather will facilitate the listing and trading of 
a new type of actively-managed exchange-traded products that will 
enhance 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. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2019-047, as Modified by Amendment No. 2, and Grounds for 
Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act \50\ 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.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\51\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of the proposed rule change's consistency with 
Section 6(b)(5) of the Exchange 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, . . . 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.'' \52\
---------------------------------------------------------------------------

    \51\ Id.
    \52\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) or any other provision of the Exchange 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.\53\
---------------------------------------------------------------------------

    \53\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Act 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 Act Amendments of 
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 
75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 2, should be approved or disapproved by October 18, 2019. 
Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by November 1, 2019.
    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in Amendment No. 2,\54\ and any other issues raised by the proposed 
rule change, as modified by Amendment No. 2, under the Exchange Act. In 
this regard, the Commission seeks

[[Page 51205]]

commenters' views regarding whether the Exchange's proposed rule to 
list and trade Managed Portfolio Shares, which are actively managed 
exchange-traded products for which the portfolio holdings would be 
disclosed on a quarterly, rather than daily, basis, is adequately 
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, and is consistent with the 
maintenance of a fair and orderly market under the Exchange Act.
---------------------------------------------------------------------------

    \54\ See supra note 7.
---------------------------------------------------------------------------

    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-2019-047 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-2019-047. 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-2019-047 and should be submitted 
on or before October 18, 2019. Rebuttal comments should be submitted by 
November 1, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
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    \55\ 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20970 Filed 9-26-19; 8:45 am]
 BILLING CODE 8011-01-P