Document ID: SEC-2020-0267-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2020-02-26T05:00Z

[Federal Register Volume 85, Number 38 (Wednesday, February 26, 2020)]
[Notices]
[Pages 11137-11146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03770]

[[Page 11137]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88247; File No. SR-CboeBZX-2019-102]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 3 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 3 Thereto, to List 
and Trade Shares of the ClearBridge Focus Value ETF Under BZX Rule 
14.11(k)

February 20, 2020.

I. Introduction

    On November 27, 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 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the ClearBridge Focus Value ETF (``Fund'') under BZX 
Rule 14.11(k) (Managed Portfolio Shares).\3\ The proposed rule change 
was published for comment in the Federal Register on December 17, 
2019.\4\ On December 16, 2019, the Exchange filed Amendment No. 1 to 
the proposed rule change, which replaced and superseded the proposed 
rule change as originally filed.\5\ On January 31, pursuant to Section 
19(b)(2) of the Act,\6\ 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.\7\ On February 13, 2020, the 
Exchange filed Amendment No. 2 to the proposed rule change, which 
replaced and superseded the proposed rule change, as modified by 
Amendment No. 1.\8\ On February 19, 2020, the Exchange filed Amendment 
No. 3 to the proposed rule change, which replaced and superseded the 
proposed rule change, as modified by Amendment No. 2.\9\ The Commission 
has received no comments on the proposed rule change. The Commission is 
publishing this notice to solicit comments on Amendment No. 3 from 
interested persons, and is approving the proposed rule change, as 
modified by Amendment No. 3, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission recently approved the Exchange's proposed 
rule change to adopt BZX Rule 14.11(k) to permit the listing and 
trading of Managed Portfolio Shares. See Securities Exchange Act 
Release No. 87759 (December 16, 2019), 84 FR 70223 (December 20, 
2019) (SR-CboeBZX-2019-047) (``Managed Portfolio Shares Order'').
    \4\ See Securities Exchange Act Release No. 87719 (December 11, 
2019), 84 FR 68999 (``Notice'').
    \5\ Amendment No. 1 is available on the Commission's website at 
https://www.sec.gov/comments/sr-cboebzx-2019-102/srcboebzx2019102-6634920-203299.pdf.
    \6\ 15 U.S.C. 78s(b)(2).
    \7\ See Securities Exchange Act Release No. 88108, 85 FR 6987 
(February 6, 2020). The Commission designated March 16, 2020, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \8\ Amendment No. 2 is available on the Commission's website at 
https://www.sec.gov/comments/sr-cboebzx-2019-102/srcboebzx2019102-6830764-208570.pdf.
    \9\ Amendment No. 3 is available on the Commission's website at 
https://www.sec.gov/comments/sr-cboebzx-2019-102/srcboebzx2019102-6839776-208722.pdf.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change, as Modified by Amendment 
No. 3

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    This Amendment No. 3 to SR-CboeBZX-2019-102 amends and replaces in 
its entirety Amendment No. 2 to the proposal, submitted on February 13, 
2020, which amended and replaced in its entirety Amendment No. 1 to the 
proposal, submitted on December 16, 2019, which amended and replaced in 
its entirety the proposal as originally submitted on November 27, 2019. 
The Exchange submits this Amendment No. 2 [sic] in order to clarify 
certain points and add additional details to the proposal.
    The Exchange received approval to add new Rule 14.11(k) for the 
purpose of permitting the listing and trading of Managed Portfolio 
Shares, which are securities issued by an actively managed open-end 
management investment company,\10\ on December 16, 2019.\11\ Rule 
14.11(k)(2)(A) requires the Exchange to file separate proposals under 
Section 19(b) of the Act before listing and trading any series of 
Managed Portfolio Shares on the Exchange. As such, the Exchange is 
submitting this proposal in order to list and trade shares of the 
ClearBridge Focus Value ETF (the ``Fund'') under Rule 14.11(k).
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    \10\ As defined in Rule 14.11(k)(3)(A), the term ``Managed 
Portfolio Share'' means 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 (as defined below), 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 Commission) 
through a Confidential Account; (c) when aggregated into a 
Redemption Unit (as defined below), 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 (as defined below) 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 fiscal quarter.
    \11\ See Securities Exchange Act Release No. 87759 (December 16, 
2019), 84 FR 70223 (December 20, 2019) (SR-CboeBZX-2019-047).
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Description of the Fund and the Trust
    The shares of the Fund (the ``Shares'') will be issued by 
ActiveShares ETF Trust (the ``Trust''), a statutory trust organized 
under the laws of the State of Maryland and registered with the 
Commission as an open-end management investment company.\12\ The 
investment adviser to the Trust will be Precidian Funds LLC (the

[[Page 11138]]

``Adviser''). ClearBridge Investments, LLC (``ClearBridge'') and 
Western Asset Management Company, LLC (``Western Asset'' and, 
collectively with ClearBridge, the ``Sub-Advisers'') will be the Sub-
Advisers to the Fund. Legg Mason Investor Services, LLC (the 
``Distributor'') will serve as the distributor of the Fund's Shares. 
All statements and representations made in this filing regarding the 
description of the portfolio or reference assets, limitations on 
portfolio holdings or reference assets, dissemination and availability 
of the Verified Intraday Indicative Value (``VIIV''),\13\ reference 
assets, and intraday indicative values, and the applicability of 
Exchange rules shall constitute continued listing requirements for 
listing the Shares on the Exchange, as provided under Rule 14.11(a).
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    \12\ The Trust is registered under the 1940 Act. On November 1, 
2019, the Trust filed a registration statement on Form N-1A relating 
to the Fund (File No. 811-23487) (the ``Registration Statement''). 
In response to an application for exemptive relief (the ``Exemptive 
Application'') (File No. 812-14405), the Commission issued an order 
granting exemptive relief applicable to the Trust (``Exemptive 
Order'') under the 1940 Act on May 20, 2019 (Investment Company Act 
Release No. 33477). Investments made by the Fund will comply with 
the conditions set forth in the Exemptive Order. The description of 
the operation of the Trust and the Fund herein is based, in part, on 
the Registration Statement. The Exemptive 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.''
    \13\ Rule 14.11(k)(3)(B) defines the term 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 (as defined in Rule 1.5(w)) by the Reporting 
Authority, as defined below.
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    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 of and/or changes to such Investment Company portfolio and/
or the Creation Basket.\14\ 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 or changes 
thereto or the Creation Basket must be subject to procedures designed 
to prevent the use and dissemination of material nonpublic information 
regarding the applicable Investment Company portfolio or changes 
thereto or the Creation Basket.\15\ Rule 14.11(k)(2)(D) is similar to 
Rule 14.11(c)(5)(A)(i), related to Index Fund Shares, except that Rule 
14.11(k)(2)(D) relates to the establishment of a ``fire wall'' between 
the investment adviser and the broker-dealer as applicable to an 
Investment Company's portfolio and/or Creation Basket, not an 
underlying benchmark index, as is the case with index-based funds. Rule 
14.11(k)(2)(D) is also similar to Rule 14.11(i)(7), related to Managed 
Fund Shares, except that Rule 14.11(k)(2)(D) relates to the 
establishment of a ``fire wall'' between the investment adviser and the 
broker-dealer as applicable to an Investment Company's portfolio and 
Creation Basket, and not just the underlying portfolio, as is the case 
with Managed Fund Shares. The Adviser is not registered as a broker-
dealer or affiliated with a broker-dealer. Neither Sub-Adviser is 
registered as a broker-dealer, but each is affiliated with the 
Distributor, a broker-dealer, and has implemented and will maintain a 
``fire wall'' with respect to such broker-dealer regarding access to 
information concerning the composition of and changes to the Fund's 
portfolio and/or Creation Basket.
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    \14\ 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 (and/or an amount of cash) that are required for an AP 
Representative (as defined below) 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 (and/or an amount of 
cash) 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.
    \15\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel as well 
as the Sub-Advisers and their respective related personnel will be 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects its fiduciary obligations as 
well as compliance with other applicable securities laws. 
Accordingly, procedures designed to prevent the communication and 
misuse of non-public information by an investment adviser must be 
consistent with Rule 204A-1 under the Advisers Act. In addition, 
Rule 206(4)-7 under the Advisers Act makes it unlawful for an 
investment adviser to provide investment advice to clients unless 
such investment adviser (i) adopts and implements written policies 
and procedures reasonably designed to prevent violations, by the 
investment adviser and its supervised persons, of the Advisers Act 
and the Commission rules adopted thereunder; (ii) reviews, at least 
annually, the adequacy of the policies and procedures established 
pursuant to subparagraph (i) above and the effectiveness of their 
implementation; and (iii) designates an individual (who is a 
supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above. The Fund will also 
comply with the requirements of Regulation Fair Disclosure, as 
provided in the Exemptive Application.
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    In the event (a) the Adviser or either Sub-Adviser becomes 
registered as a broker-dealer or becomes newly affiliated with a 
broker-dealer, or (b) any new adviser or sub-adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, it will 
implement and maintain a fire wall with respect to its relevant 
personnel or its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the portfolio 
and/or Creation Basket.
    Any person related to the Adviser, the Sub-Advisers, or the Trust 
who makes decisions pertaining to the Fund's portfolio composition or 
that has access to information regarding the Fund's portfolio or 
changes thereto or the Creation Basket will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio or changes thereto and the 
Creation Basket.
    Further, Rule 14.11(k)(2)(E) requires that any person or entity, 
including an AP Representative, custodian, Reporting Authority, 
distributor, or administrator, who has access to information regarding 
the Investment Company's portfolio composition or changes thereto or 
the Creation Basket, must be subject to procedures designed to prevent 
the use and dissemination of material nonpublic information regarding 
the applicable Investment Company portfolio or changes thereto or the 
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. Any person or entity who has access to 
information regarding the Fund's portfolio composition or changes 
thereto or the Creation Basket will be subject to procedures designed 
to prevent the use and dissemination of material nonpublic information 
regarding the portfolio composition or changes thereto or the Creation 
Basket.
Description of the Fund
ClearBridge Focus Value ETF
    The Fund's holdings will conform to the permissible investments as 
set forth in the Exemptive Application and Exemptive Order and the 
holdings will be consistent with all requirements in the Exemptive 
Application and Exemptive Order.\16\
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    \16\ Pursuant to the Exemptive Order, the permissible 
investments include only the following instruments that trade on a 
U.S. exchange contemporaneously with the Shares: ETFs and exchange-
traded notes, common stocks, preferred stocks, American depositary 
receipts, real estate investment trusts, commodity pools, metals 
trusts, currency trusts, and futures for which the reference asset 
the Fund may 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; as well as cash and cash equivalents (short-term U.S. 
Treasury securities, government money market funds and repurchase 
agreements).

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[[Page 11139]]

    The Fund seeks long-term capital appreciation. By employing 
fundamental research, in an effort to identify securities with 
attractive risk-adjusted returns, the Fund's portfolio management team 
constructs the portfolio on a bottom-up basis.
Investment Restrictions
    The Fund will not purchase any securities that are illiquid 
investments at the time of purchase and the Fund's holdings will be 
consistent with all requirements described in the Exemptive Application 
and Exemptive Order.
    The Shares of the Fund will conform to the initial and continued 
listing criteria under Rule 14.11(k). The Fund's holdings will be 
limited to and consistent with what is permissible under the Exemptive 
Order.
    The Fund's investments will be consistent with its investment 
objective and will not be used to enhance leverage.
Creations and Redemptions of Shares
    Creations and redemptions of the Shares will occur as described in 
Rule 14.11(k). More specifically, in connection with the creation and 
redemption of Creation Units \17\ and Redemption Units,\18\ the 
delivery or receipt of any portfolio securities in-kind will be 
required to be effected through a separate confidential brokerage 
account (a ``Confidential Account'').\19\ Authorized Participants (as 
defined in the Fund's Form N-1A filed with the Commission, ``AP'') will 
sign an agreement with an AP Representative \20\ establishing the 
Confidential Account for the benefit of the AP. AP Representatives will 
be broker-dealers. An AP must be a Depository Trust Company (``DTC'') 
Participant that has executed a ``Participant Agreement'' with 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.
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    \17\ 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.
    \18\ 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 Authorized 
Participant in return for a portfolio of instruments and/or cash.
    \19\ 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.
    \20\ 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, on behalf of the Authorized Participant, all 
consideration to or from the Investment Company in a creation or 
redemption. An AP Representative will not be permitted to disclose 
the Creation Basket to any person, including the Authorized 
Participants.
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    Each AP Representative will be given, before the commencement of 
trading each Business Day (defined below), the Creation Basket (as 
described below) for that day. This information will permit an AP that 
has established a Confidential Account with an AP Representative, to 
instruct the AP Representative to buy and sell positions in the 
portfolio securities to permit creation and redemption of Creation 
Units and Redemption Units. Shares of the Fund will be issued and 
redeemed in Creation Units and Redemption Units of 5,000 or more 
Shares. The Fund will offer and redeem Creation Units and Redemption 
Units on a continuous basis at the net asset value (``NAV'') per share 
next determined after receipt of an order in proper form. The NAV per 
share of the Fund will be determined as of the close of regular trading 
on the Exchange on each day that the Exchange is open (a ``Business 
Day''). The Fund will sell and redeem Creation Units and Redemption 
Units only on Business Days.
    To keep costs low and permit the Fund 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 described in the Exemptive Application, 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 specified instruments 
(``Redemption Instruments'') through the AP Representative in their 
Confidential Account.\21\ On any given Business Day, the names and 
quantities of the instruments that constitute the Deposit Instruments 
and the names and quantities of the instruments that constitute the 
Redemption Instruments will be identical, and these instruments may be 
referred to, in the case of either a purchase or a redemption, as the 
``Creation Basket.''
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    \21\ The Fund 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.
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Placement of Purchase Orders
    The Fund will issue Shares through the Distributor on a continuous 
basis at NAV. The Exchange represents that the issuance of Shares will 
operate in a manner similar to that of other ETFs. The Fund will issue 
Shares only at the NAV per share next determined after an order in 
proper form is received.
    In the case of a creation, the AP would enter an irrevocable 
creation order with the Fund and direct the AP Representative to 
purchase the Deposit Instruments. The AP Representative would then 
purchase the necessary securities in the Confidential Account. In 
purchasing the necessary securities, the AP Representative will use 
methods, such as breaking the transaction into multiple transactions 
and transacting in multiple marketplaces, to avoid revealing the 
composition of the Creation Basket. Once the Deposit Instruments have 
been acquired in the Confidential Account, the AP Representative would 
contribute the Deposit Instruments in-kind to the Fund.
    The Distributor will furnish acknowledgements to those placing such 
orders that the orders have been accepted, but the Distributor may 
reject any order which is not submitted in proper form, as described in 
the Fund's prospectus or Statement of Additional Information (``SAI''). 
The NAV of the Fund is expected to be determined once each Business Day 
at a time determined by the Trust's Board of Trustees (``Board''), 
currently anticipated to be as of the close of the regular trading 
session on the Exchange (ordinarily 4:00 p.m. E.T.) (the ``Valuation 
Time''). The Fund will establish a cut-off time (``Order Cut-Off 
Time'') for purchase orders in proper form. Such Order Cut-Off Time 
will be provided in the Registration Statement. To initiate a purchase 
of Shares, an AP must submit

[[Page 11140]]

to the Distributor an irrevocable order to purchase such Shares after 
the most recent prior Valuation Time. All orders to purchase Creation 
Units must be received by the Distributor no later than the Order Cut-
Off Time in each case on the date such order is placed (``Transmittal 
Date'') for the AP to receive the NAV per share determined on the 
Transmittal Date. As with all existing ETFs, if there is a difference 
between the NAV attributable to a Creation Unit and the aggregate 
market value of the Creation Basket exchanged for the Creation Unit, 
the party conveying instruments with the lower value will also pay to 
the other an amount in cash equal to that difference (the ``Balancing 
Amount'').
    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.\22\ Other than the Balancing Amount, the Fund will 
substitute cash only under exceptional circumstances and as set forth 
under the Fund's policies and procedures governing the composition of 
Creation Baskets.
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    \22\ To the extent that the Fund allows creations or redemptions 
to be conducted in cash, such transactions will be effected in the 
same manner for all APs transacting in cash.
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Authorized Participant Redemption
    The Shares may be redeemed to the Fund in Redemption Unit size or 
multiples thereof as described below. Redemption orders of Redemption 
Units must be placed by an AP (``AP Redemption Order''). The Fund will 
establish in its Registration Statement an Order Cut-Off Time for 
redemption orders of Redemption Units in proper form. Redemption Units 
of the Fund will be redeemable at their NAV per share next determined 
after receipt of a request for redemption by the Trust in the manner 
specified below before the Order Cut-Off Time. A transaction fee may 
also be imposed on redemption orders. 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 the Fund would instruct its custodian to 
deliver the Redemption Instruments to the appropriate Confidential 
Account. The Authorized Participant would direct the AP Representative 
on when that day to liquidate those securities. As with the purchase of 
securities, the AP Representative will use methods, such as breaking 
the transaction into multiple transactions and transacting in multiple 
marketplaces, to avoid revealing the composition of the Creation 
Basket.
    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 the Fund of securities owned by it is not 
reasonably practicable or it is not reasonably practicable for the Fund 
to determine its NAV, and (4) for such other periods as the Commission 
may by order permit for the protection of shareholders.
    Redemptions will occur primarily in-kind, although redemption 
payments may also be made partly or wholly in cash.\23\ The Participant 
Agreement signed by each AP will require establishment of a 
Confidential Account to receive distributions of securities in-kind 
upon redemption. Each AP will be required to open a Confidential 
Account with an AP Representative in order to facilitate orderly 
processing of redemptions. Other than the Balancing Amount, the Fund 
will substitute cash only under exceptional circumstances and as set 
forth under the Fund's policies and procedures governing the 
composition of Creation Baskets.\24\
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    \23\ The value of any positions not susceptible to in-kind 
settlement may be paid in cash.
    \24\ To the extent that the Fund allows creations or redemptions 
to be conducted in cash, such transactions will be effected in the 
same manner for all APs transacting in cash.
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Net Asset Value
    The NAV per share of the Fund will be computed by dividing the 
value of the net assets of the Fund (i.e., the value of its total 
assets less total liabilities) by the total number of Shares of the 
Fund outstanding, rounded to the nearest cent. Expenses and fees, 
including, without limitation, the management, administration and 
distribution fees, will be accrued daily and taken into account for 
purposes of determining NAV. Interest and investment income on the 
Trust's assets accrue daily and will be included in the Fund's total 
assets. The NAV per share for the Fund will be calculated by the Fund's 
administrator and determined as of the close of the regular trading 
session on the Exchange (ordinarily 4:00 p.m., E.T.) on each day that 
the Exchange is open.
    Exchange-traded instruments will be valued at market value, which 
will generally be determined using the last reported official closing 
or last trading price on the exchange or market on which the securities 
are primarily traded at the time of valuation. Other holdings of the 
Fund will generally be valued on the basis of independent pricing 
services, quotes obtained from brokers and dealers or price quotations 
or other equivalent indications of value provided by a third-party 
pricing service, reported net asset value, or at cost.
Availability of Information
    The Fund's website (www.leggmason.com/etfliterature), which will be 
publicly available prior to the listing and trading of Shares, will 
include a form of the prospectus for the Fund that may be downloaded. 
The Fund's website will include additional quantitative information 
updated on a daily basis, including, on a per Share basis for the Fund, 
the prior Business Day's NAV and the market closing price and a 
calculation of the premium and discount of the market closing price. 
The Fund's website will also disclose each day the median bid/ask 
spread for the Fund's most recent 30 days based on the National Best 
Bid (``NBB'') and National Best Offer (``NBO'') at the time of 
calculation of such NAV (the ``Bid/Ask Price'').\25\ In addition, the 
Fund will provide any other information on its website regarding 
premiums/discounts that ETFs registered under the 1940 Act are required 
to provide or that are otherwise required under the Exemptive Order. 
The website and information will be publicly available at no charge.
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    \25\ The Bid/Ask Price of the Fund will be determined using the 
mid-point between the current NBB and NBO as of the time of 
calculation of the Fund's NAV. The records relating to Bid/Ask 
Prices will be retained by the Fund and/or its service providers.
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    The Trust's SAI and the Fund's shareholder reports will be 
available free upon request from the Trust. These documents and forms 
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. 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 Rule 14.11(k)(3)(B) and as described further 
below, will be widely disseminated by

[[Page 11141]]

the Reporting Authority \26\ and/or one or more major market data 
vendors in one-second intervals during Regular Trading Hours.
---------------------------------------------------------------------------

    \26\ 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 net asset value, the Verified 
Intraday Indicative Value, 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.
---------------------------------------------------------------------------

Dissemination of the VIIV
    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 the 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 
the Fund's actual portfolio holdings, (2) the securities in which the 
Fund plans to invest are generally highly liquid and actively traded 
and trade at the same time as the Fund 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. The VIIV for 
the Fund will be disseminated by the Reporting Authority and/or one or 
more major market data vendors in one-second intervals during Regular 
Trading Hours. For purposes of the VIIV, securities held by the Fund 
will be valued throughout the day based on the mid-point between the 
disseminated current NBB and NBO. If the Adviser determines that a 
portfolio security does not have a readily available market quotation, 
that fact along with the identity and weighting of that security in the 
Fund's VIIV calculation will be publicly disclosed on the Fund's 
website.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. The Exchange will halt trading in 
the Shares under the conditions specified in BZX Rule 11.18. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable, including 
whether unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Trading in the 
Shares also will be subject to Rule 14.11(k)(4)(B)(iii)(a) and (b), 
which set forth circumstances under which trading in the Shares of the 
Fund will be halted.
    Specifically, Rule 14.11(k)(4)(B)(iii)(a) provides that the 
Exchange may consider all relevant factors in exercising its discretion 
to halt trading in a series of Managed Portfolio Shares. Trading may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the series of Managed Portfolio Shares 
inadvisable. These may include: (i) The extent to which trading is not 
occurring in the securities and/or the financial instruments composing 
the portfolio; or (ii) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present.\27\ The Adviser has represented to the Exchange 
that it will provide the Exchange with prompt notification upon the 
existence of any such condition or set of conditions.
---------------------------------------------------------------------------

    \27\ The Exemptive Application provides that the Investment 
Company or their agent will request that the Exchange halt trading 
in the applicable series of Managed Portfolio Shares where: (i) The 
intraday indicative values calculated by the calculation engines 
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. Any such requests 
will be one of many factors considered in order to determine whether 
to halt trading in a series of Managed Portfolio Shares and the 
Exchange retains sole discretion in determining whether trading 
should be halted. As provided in the Exemptive Application, each 
series of Managed Portfolio Shares would employ a pricing 
verification agent to continuously compare two intraday indicative 
values during Regular Trading Hours in order to ensure the accuracy 
of the Verified Intraday Indicative Value.
---------------------------------------------------------------------------

    Rule 14.11(k)(4)(B)(iii)(b) provides that, if 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, (except as otherwise permitted under the 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), it will halt trading in 
such series until such time as the VIIV, the NAV, or the holdings are 
available, as required.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the Exchange only during Regular Trading Hours as provided in Rule 
14.11(k)(2)(B). The Exchange has appropriate rules in place to 
facilitate trading during all trading sessions in which the Shares will 
trade. 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.
    The Shares will conform to the initial and continued listing 
criteria under Rule 14.11(k) as well as all terms in the Exemptive 
Order. The Exchange represents that, for initial and/or continued 
listing, the Fund will be in compliance with Rule 10A-3 under the 
Act.\28\ A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange. The Exchange has obtained 
a representation from the issuer of the Shares of the Fund that the NAV 
per share of the Fund will be calculated daily and will be made 
available to all market participants at the same time.
---------------------------------------------------------------------------

    \28\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Portfolio Shares. 
As part of these surveillance procedures and consistent with Rule 
14.11(k)(2)(C), the Adviser will upon request make available to the 
Exchange and/or FINRA, on behalf of the Exchange, the daily portfolio 
holdings of the Fund. The issuer has represented to the Exchange that 
it will advise the Exchange of any failure by the Fund to comply with 
the continued listing requirements, and, pursuant to

[[Page 11142]]

its obligations under Section 19(g)(1) of the Exchange Act, the 
Exchange will surveil for compliance with the continued listing 
requirements. If the Fund is not in compliance with the applicable 
listing requirements, the Exchange will commence delisting procedures 
under Exchange Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares and the 
underlying exchange-traded instruments with other markets and other 
entities that are members of the Intermarket Surveillance Group 
(``ISG''), and the Exchange or FINRA, on behalf of the Exchange, or 
both, may obtain trading information regarding trading such securities 
from such markets and other entities. In addition, the Exchange may 
obtain information regarding trading in the Shares and the underlying 
exchange-traded instruments from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\29\
---------------------------------------------------------------------------

    \29\ For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Circular
    Prior to the commencement of trading, 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 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 will be 
disclosed within at least 60 days following the end of every fiscal 
quarter.
    In addition, the Circular will reference that the Fund is 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 this proposal is consistent with Section 
6(b) of the Act \30\ in general and Section 6(b)(5) of the Act \31\ 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.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f.
    \31\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that this proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the Fund 
would meet each of the rules relating to listing and trading of Managed 
Portfolio Shares and, to the extent that the Fund is not in compliance 
with such rules, the Exchange would either prevent the Fund from 
listing and trading if it hadn't started trading on the Exchange or 
would commence delisting procedures under Exchange Rule 14.12. More 
specifically, the Exchange will consider the suspension of trading in, 
and will commence delisting proceedings under Rule 14.12 for, the Fund 
under any of the following circumstances: (a) If, following the initial 
twelve-month period after commencement of trading on the Exchange, 
there are fewer than 50 beneficial holders of the Fund for 30 or more 
consecutive trading days; (b) if the Exchange has halted trading in the 
Fund because the VIIV is interrupted pursuant to Rule 
14.11(k)(4)(B)(iii)(b) 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 the Fund because the NAV with respect to such 
Fund is not disseminated to all market participants at the same time, 
the holdings of such Fund 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)(b) and such issue persists past the trading 
day in which it occurred; (d) if the Exchange has halted trading in the 
Fund pursuant to Rule 14.11(k)(4)(B)(iii)(a) and such issue persists 
past the trading day in which it occurred; (e) if the Fund has failed 
to file any filings required by the Commission or if the Exchange is 
aware that the Fund is not in compliance with the conditions of any 
currently applicable exemptive order or no-action relief granted by the 
Commission or Commission staff with respect to the Fund; (f) if any of 
the continued listing requirements set forth in Rule 14.11(k) are not 
continuously maintained; (g) if any of the applicable Continued Listing 
Representations, as defined in Rule 14.11(a), for the Fund are not 
continuously met; or (h) if such other event shall occur or condition 
exists which, in the opinion of the Exchange, makes further dealings on 
the Exchange inadvisable.
    The Adviser is not registered as a broker-dealer or affiliated with 
a broker-dealer. Neither Sub-Adviser is registered as a broker-dealer, 
but each is affiliated with the Distributor, a broker-dealer, and has 
implemented and will maintain a ``fire wall'' with respect to such 
affiliate broker-dealer regarding access to information concerning the 
composition and/or changes to the Fund's portfolio and Creation Basket.
    In the event (a) the Adviser or either Sub-Adviser becomes 
registered as a broker-dealer or becomes newly affiliated with a 
broker-dealer, or (b) any new adviser or sub-adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, it will 
implement and maintain a fire wall with respect to its relevant 
personnel or its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the portfolio 
and/or Creation Basket. Any person related to the Adviser, the Sub-
Advisers, or the Trust who makes decisions pertaining to the Fund's 
portfolio composition or that has access to information regarding the 
Fund's portfolio or changes thereto or the Creation Basket will be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding such portfolio or changes 
thereto and the Creation Basket.
    Further, Rule 14.11(k)(2)(E) requires that any person or entity, 
including an AP Representative, custodian, Reporting Authority, 
distributor, or administrator, who has access to information regarding 
the Investment Company's portfolio composition or changes thereto or 
the Creation Basket, must be subject to procedures designed to prevent 
the use and dissemination of material nonpublic information regarding 
the applicable Investment Company portfolio or changes thereto or the 
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

[[Page 11143]]

with respect to access to information concerning the composition and/or 
changes to such Investment Company portfolio or Creation Basket. Any 
person or entity who has access to information regarding the Fund's 
portfolio composition or changes thereto or the Creation Basket will be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the portfolio or changes 
thereto or the Creation Basket.
    The Exchange further believes that Rule 14.11(k) is designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Managed Portfolio Shares because it provides 
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 Rule 14.11(k)(2)(E) will act as 
a strong safeguard against misuse and improper dissemination of 
information related to the Fund's portfolio composition or changes 
thereto or the Creation Basket. 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.
    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 may be inadvisable. 
Specifically, trading in the Shares will be subject to Rule 
14.11(k)(4)(B)(iii)(a), which provides that the Exchange may consider 
all relevant factors in exercising its discretion to halt trading in a 
series of Managed Portfolio Shares. Trading may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the series of Managed Portfolio Shares inadvisable. 
These may include: (i) The extent to which trading is not occurring in 
the securities and/or the financial instruments composing the 
portfolio; or (ii) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.\32\ The Adviser has represented to the Exchange that it will 
provide the Exchange with prompt notification upon the existence of any 
such condition or set of conditions. Trading in the Shares will also be 
subject to Rule 14.11(k)(4)(B)(iii)(b), which provides that if 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, (except as otherwise permitted 
under the 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), it will halt 
trading in such series until such time as the VIIV, the NAV, or the 
holdings are available, as required.
---------------------------------------------------------------------------

    \32\ See supra note 27.
---------------------------------------------------------------------------

    With respect to the proposed listing and trading of Shares of the 
Fund, the Exchange believes that the proposed rule change is designed 
to prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Rule 14.11(k). The Fund's 
holdings will conform to the permissible investments as set forth in 
the Exemptive Application and Exemptive Order. The Exchange or FINRA, 
on behalf of the Exchange, or both, will communicate as needed 
regarding trading in the Shares and the underlying exchange-traded 
instruments with other markets and other entities that are members of 
the ISG, and the Exchange or FINRA, on behalf of the Exchange, or both, 
may obtain trading information regarding trading such instruments from 
such markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares and the underlying 
exchange-traded instruments from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
    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 the 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 
the Fund's actual portfolio holdings, (2) the securities in which the 
Fund plans to invest are generally highly liquid and actively traded 
and trade at the same time as the Fund 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.
    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 that the NAV per share 
of the 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 the Fund's SAI, shareholder reports, Form N-CSR, and Form 
N-PORT. The Fund's SAI and shareholder reports will be available free 
upon request from the applicable fund, and those documents and the Form 
N-CSR and Form N-PORT may be viewed on-screen or downloaded from the 
Commission's website. In addition, with respect to the Fund, a large 
amount of information will be publicly available regarding the Fund and 
the Shares, thereby promoting market transparency. Quotation and last 
sale information for the Shares will be available via the CTA high-
speed line. Information regarding the VIIV will be widely disseminated 
every second throughout Regular Trading Hours by the Reporting 
Authority and/or one or more major market data vendors. The website for 
the Fund will include a 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 will halt 
trading in the Shares under the conditions specified in BZX Rule 11.18 
or for reasons that, in the view of the Exchange, make trading in the 
Shares inadvisable. Trading in the Shares will be subject to Rule 
14.11(k)(4)(B)(iii)(a)

[[Page 11144]]

and (b), which set forth circumstances under which Shares of the Fund 
will be halted.
    In addition, as noted above, investors will have ready access to 
the VIIV, and quotation and last sale information for the Shares. The 
Shares will conform to the initial and continued listing criteria under 
Rule 14.11(k). The Fund's holdings will be limited to and consistent 
with what is permissible under the Exemptive Order. The Fund's 
investments will be consistent with its investment objective and will 
not be used to enhance leverage.
    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 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. In addition, as noted above, investors will have ready 
access to information regarding the VIIV and quotation and last sale 
information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change, rather will facilitate the listing and trading of 
an actively-managed exchange-traded product 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. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 3, is consistent with the Act and 
rules and regulations thereunder applicable to a national securities 
exchange.\33\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 3, is consistent with Section 
6(b)(5) of the Act,\34\ which requires, among other things, that the 
Exchange's rules 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.
---------------------------------------------------------------------------

    \33\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposal is reasonably designed to 
promote fair disclosure of information that may be necessary to price 
the Shares appropriately and to prevent trading in the Shares when a 
reasonable degree of certain pricing transparency cannot be assured. As 
such, the Commission believes the proposal is reasonably designed to 
maintain a fair and orderly market for trading the Shares. The 
Commission also finds that the proposal is consistent with Section 
11A(a)(1)(C)(iii) of the Act, which sets forth Congress's finding that 
it is in the public interest and appropriate for the protection of 
investors and the maintenance of fair and orderly markets to assure the 
availability to brokers, dealers, and investors of information with 
respect to quotations for, and transactions in, securities.
    Specifically, the Commission notes that the Exchange has obtained a 
representation from the issuer that the NAV per Share of the Fund will 
be calculated daily and will be made available to all market 
participants at the same time.\35\ 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. Quotation and last sale information for the 
Shares will be available via the Consolidated Tape Association high-
speed line. In addition, the VIIV 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 must be 
disseminated to all market participants at the same time.\36\ Moreover, 
the Fund's website will include a form of the prospectus and additional 
data relating to NAV and other applicable quantitative information for 
the Fund, including any information regarding premiums/discounts that 
ETFs registered under the 1940 Act are required to provide or that are 
otherwise required under the Exemptive Order. Such website and 
information will be publicly available at no charge.
---------------------------------------------------------------------------

    \35\ See BZX Rule 14.11(k)(4)(A)(ii).
    \36\ See BZX Rule 14.11(k)(4)(B)(i).
---------------------------------------------------------------------------

    The Commission also notes that the Exchange's rules regarding 
trading halts help to ensure the maintenance of fair and orderly 
markets for the Shares. Specifically, pursuant to its rules, the 
Exchange may consider all relevant factors in exercising its discretion 
to halt trading in the Shares, and will halt trading in the Shares 
under the conditions specified in BZX Rule 11.18. Trading may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable, including (1) the 
extent to which trading is not occurring in the securities and/or the 
financial instruments composing the portfolio; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present.\37\ Trading in the Shares also 
will be subject to BZX Rule 14.11(k)(4)(B)(iii)(b), which sets forth 
additional circumstances under which trading in the Shares will be 
halted.
---------------------------------------------------------------------------

    \37\ See BZX Rule 14.11(k)(4)(B)(iii)(a).
---------------------------------------------------------------------------

    The Commission also believes that the proposal is reasonably 
designed to help prevent fraudulent and manipulative acts and 
practices. The Exchange represents that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. The Exchange states that the Adviser is not registered as a 
broker-dealer or affiliated with a broker-dealer. The Exchange states 
that neither Sub-Adviser is registered as a broker-dealer, but that 
each is affiliated with a broker-dealer and has implemented and will 
maintain a ``fire wall'' with respect to such broker-dealer affiliate 
regarding access to information concerning the composition of and/or 
changes to the Fund's portfolio and Creation Basket. Further, the 
Commission notes that any person related to the Fund's investment 
adviser or to the Trust who makes decisions pertaining to the Fund's 
portfolio composition or has access to information regarding the Fund's 
portfolio composition or changes thereto or the Creation Basket must be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the

[[Page 11145]]

Fund's portfolio or changes thereto or the Creation Basket.\38\ In 
addition, any person or entity, including an AP Representative, 
custodian, Reporting Authority, distributor, or administrator, who has 
access to information regarding the Fund's portfolio composition or 
changes thereto or its Creation Basket, must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the applicable Fund portfolio or changes thereto 
or the Creation Basket.\39\ Moreover, if any such person or entity is 
registered as a broker-dealer or affiliated with a broker-dealer, such 
person or entity must erect and maintain a ``fire wall'' between the 
person or entity and the broker-dealer with respect to access to 
information concerning the composition of and/or changes to such Fund's 
portfolio or Creation Basket.\40\ Finally, the Exchange represents that 
trading of the Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products, including 
Managed Portfolio Shares,\41\ and that its surveillance procedures are 
adequate to properly monitor the trading of the Shares on the Exchange 
during all trading sessions and to deter and detect violations of 
Exchange rules and the applicable federal securities laws.
---------------------------------------------------------------------------

    \38\ See BZX Rule 14.11(k)(2)(D). The Exchange represents that 
any person related to the Adviser, the Sub-Advisers, or the Trust 
who makes decisions pertaining to the Fund's portfolio composition 
or that has access to information regarding the Fund's portfolio or 
changes thereto or the Creation Basket will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio or changes thereto and the 
Creation Basket.
    \39\ See BZX Rule 14.11(k)(2)(E).
    \40\ See id. The Exchange represents that any person or entity 
who has access to information regarding the Fund's portfolio 
composition or changes thereto or the Creation Basket will be 
subject to procedures designed to prevent the use and dissemination 
of material nonpublic information regarding the portfolio 
composition or changes thereto or the Creation Basket.
    \41\ See BZX Rule 14.11(k)(2)(C), which requires, as part of the 
surveillance procedures for Managed Portfolio Shares, the Fund's 
investment adviser to, upon request by the Exchange or the Financial 
Industry Regulatory Authority (``FINRA''), on behalf of the 
Exchange, make available to the Exchange or FINRA the daily 
portfolio holdings of each series of Managed Portfolio Shares.
---------------------------------------------------------------------------

    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. 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.\42\
---------------------------------------------------------------------------

    \42\ The Exchange represents that the Circular will discuss the 
following: (1) Procedures for purchases and redemptions of Shares; 
(2) BZX Rule 3.7, which imposes 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 will be disclosed within at least 60 days 
following the end of every fiscal quarter.
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    In support of this proposal, the Exchange represents that:
    (1) The Shares will conform to the initial and continued listing 
criteria under BZX Rule 14.11(k).
    (2) A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.
    (3) The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed, and may obtain trading information, regarding 
trading in the Shares, and the underlying exchange-traded instruments 
with other markets and other entities that are members of the ISG. In 
addition, the Exchange may obtain information regarding trading in the 
Shares and the underlying exchange-traded instruments from markets and 
other entities with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
    (4) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions in which the Shares trade.
    (5) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act.\43\
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    \43\ See 17 CFR 240.10A-3.
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    (6) The Fund's holdings will conform to the permissible investments 
as set forth in the Exemptive Application and Exemptive Order, and 
investments made by the Fund will be consistent with all requirements 
set forth in the Exemptive Application and Exemptive Order. The Fund's 
investments will be consistent with its investment objective and will 
not be used to enhance leverage.
    The Exchange represents that all statements and representations 
made in the filing regarding: (1) The description of the portfolio or 
reference assets; (2) limitations on portfolio holdings or reference 
assets; (3) dissemination and availability of the VIIV, reference 
assets, and intraday indicative values; and (4) the applicability of 
Exchange rules constitute continued listing requirements for listing 
the Shares on the Exchange. In addition, the Exchange represents that 
the issuer will advise the Exchange of any failure by the Fund to 
comply with the continued listing requirements and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
surveil for compliance with the continued listing requirements. If the 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under BZX Rule 14.12.

IV. Solicitation of Comments on Amendment No. 3 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 3 is consistent with the 
Exchange Act. Comments may be submitted by any of the following 
methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-102 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-2019-102. 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

[[Page 11146]]

submissions should refer to File Number SR-CboeBZX-2019-102, and should 
be submitted on or before March 18, 2020.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 3

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 3, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
3 in the Federal Register. In Amendment No. 3, the Exchange modified 
the description of the Fund's investments and conformed the description 
of BZX Rule 14.11(k) to the final rule approved in the Managed 
Portfolio Shares Order. Amendment No. 3 also provides other 
clarifications and additional information to the proposed rule 
change.\44\ The changes and additional information in Amendment No. 3 
assist the Commission in finding that the proposal is consistent with 
the Exchange Act. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Exchange Act,\45\ to approve the 
proposed rule change, as modified by Amendment No. 3, on an accelerated 
basis.
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    \44\ See Amendment No. 3, supra note 9.
    \45\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\46\ that the proposed rule change (SR-CboeBZX-2019-102), as modified 
by Amendment No. 3, be, and hereby is, approved on an accelerated 
basis.
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    \46\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
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    \47\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03770 Filed 2-25-20; 8:45 am]
BILLING CODE 8011-01-P