Document ID: SEC-2020-0553-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2020-04-10T04:00Z

[Federal Register Volume 85, Number 70 (Friday, April 10, 2020)]
[Notices]
[Pages 20312-20323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07550]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88566; File No. SR-CboeBZX-2019-097]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 2, To Adopt BZX Rule 
14.11(l) Governing the Listing and Trading of Exchange-Traded Fund 
Shares

April 6, 2020.
    On November 15, 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'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to, among other things, adopt new BZX Rule 
14.11(l) to list and trade Exchange-Traded Fund Shares. The proposed 
rule change was published for comment in the Federal Register on 
November 22, 2019.\3\
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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. 87560 (November 18, 
2019), 84 FR 64607.
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    On December 17, 2019, pursuant to Section 19(b)(2) of the 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 February 12, 2020, the Exchange filed Amendment No. 1 to 
the proposed rule change, which amended and replaced the proposed rule 
change in its entirety.\6\ On February 20, 2020, the Commission 
published the proposed rule change, as modified by Amendment No. 1, for 
notice and comment and instituted proceedings to determine whether to 
approve or disapprove the proposed change, as modified by Amendment No. 
1.\7\ On March 20, 2020, the Exchange

[[Page 20313]]

filed Amendment No. 2 to the proposed rule change, which amended and 
replaced the proposed rule change, as modified by Amendment No. 1.\8\ 
The Commission has received no comments on the proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 87777, 84 FR 70598 
(December 23, 2019).
    \6\ See infra note 8.
    \7\ See Securities Exchange Act Release No. 88208 (February 13, 
2020), 85 FR 9834.
    \8\ Amendments No. 1 and 2 to the proposed rule change is 
available on the Commission's website at: https://www.sec.gov/comments/sr-cboebzx-2019-097/srcboebzx2019097.htm.
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    The Commission is publishing this notice to solicit comments on 
Amendment No. 2 to the proposed rule change from interested persons, 
and is approving the proposed rule change, as modified by Amendment No. 
2, on an accelerated basis.

I. The Exchange's Description of the Proposal, as Modified by Amendment 
No. 2

    The Exchange proposes a rule change to adopt BZX Rule 14.11(l) to 
permit the listing and trading of Exchange-Traded Fund Shares that are 
permitted to operate in reliance on Rule 6c-11 under the Investment 
Company Act of 1940. The Exchange is also proposing to discontinue the 
quarterly reports required with respect to Managed Fund Shares listed 
on the Exchange pursuant to the generic listing standards under Rule 
14.11(i).
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    This Amendment No. 2 to SR-CboeBZX-2019-097 amends and replaces in 
its entirety the proposal as amended by Amendment No. 1, which was 
submitted on February 12, 2020, and amended and replaced in its 
entirety the proposal as originally submitted on November 15, 2019. The 
Exchange submits this Amendment No. 1 in order to clarify certain 
points and add additional details to the proposal.
    The Exchange proposes to add new Rule 14.11(l) \9\ for the purpose 
of permitting the generic listing and trading, or trading pursuant to 
unlisted trading privileges, of Exchange-Traded Fund Shares \10\ that 
are permitted to operate in reliance on Rule 6c-11 (``Rule 6c-11'') 
under the Investment Company Act of 1940 (the ``1940 Act'').\11\ The 
Exchange is also proposing to make conforming changes to the Exchange's 
corporate governance requirements under Rule 14.10(e) in order to 
accommodate the proposed listing of Exchange-Traded Fund Shares. 
Finally, the Exchange is proposing to discontinue the quarterly reports 
required with respect to Managed Fund Shares listed on the Exchange 
pursuant to the generic listing standards under Rule 14.11(i). The 
Exchange notes that it plans to submit a separate filing related to 
fees applicable to ETF Shares listed on the Exchange.
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    \9\ The Exchange notes that it is proposing new Rule 14.11(l) 
because it has also proposed a new Rule 14.11(k) as part of another 
proposal. See Securities Exchange Act Release No. 87062 (September 
23, 2019), 84 FR 51193 (September 27, 2019) (SR-CboeBZX-2019-047).
    \10\ As provided below, proposed Rule 14.11(l)(3)(A) provides 
that the term ``ETF Shares'' shall mean the shares issued by a 
registered open-end management investment company that: (i) Is 
eligible to operate in reliance on Rule 6c-11 under the Investment 
Company Act of 1940; (ii) issues (and redeems) creation units to 
(and from) authorized participants in exchange for a basket and a 
cash balancing amount (if any); and (iii) issues shares that it 
intends to list or are listed on a national securities exchange and 
traded at market-determined prices.
    \11\ 15 U.S.C. 80a-1.
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    The Commission recently adopted Rule 6c-11 to permit exchange-
traded funds (``ETFs'') that satisfy certain conditions to operate 
without obtaining an exemptive order from the Commission under the 1940 
Act.\12\ Since the first ETF was approved by the Commission in 1992, 
the Commission has routinely granted exemptive orders permitting ETFs 
to operate under the 1940 Act because there was no ETF specific rule in 
place and they have characteristics that distinguish them from the 
types of structures contemplated and included in the 1940 Act. After 
such an extended period operating without a specific rule set and only 
under exemptive relief, Rule 6c-11 is designed to provide a consistent, 
transparent, and efficient regulatory framework for ETFs.\13\ Exchange 
listing standards applicable to ETFs have been similarly adopted and 
tweaked over the years and the Exchange believes that, just as the 
Commission has undertaken a review of the 1940 Act as it is applicable 
to ETFs, it is appropriate to perform a similar holistic review and 
overhaul of Exchange listing rules. With this in mind, the Exchange 
submits this proposal to add new Rule 14.11(l) and certain 
corresponding rule changes because it believes that this proposal 
similarly promotes consistency, transparency, and efficiency 
surrounding the exchange listing process for ETF Shares in a manner 
that is consistent with the Act, as further described below.\14\ Except 
as otherwise provided, the Exchange would continue to enforce all 
governance, disclosure, and trading rules for ETF Shares, as defined 
below, listed on the Exchange.
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    \12\ See Release Nos. 33-10695; IC-33646; File No. S7-15-18 
(Exchange-Traded Funds) (September 25, 2019), 84 FR 57162 (October 
24, 2019) (the ``Rule 6c-11 Release'').
    \13\ In approving the rule, the Commission stated that the 
``rule will modernize the regulatory framework for ETFs to reflect 
our more than two decades of experience with these investment 
products. The rule is designed to further important Commission 
objectives, including establishing a consistent, transparent, and 
efficient regulatory framework for ETFs and facilitating greater 
competition and innovation among ETFs.'' Rule 6c-11 Release, at 
57163. The Commission also stated the following regarding the rule's 
impact: ``We believe rule 6c-11 will establish a regulatory 
framework that: (1) Reduces the expense and delay currently 
associated with forming and operating certain ETFs unable to rely on 
existing orders; and (2) creates a level playing field for ETFs that 
can rely on the rule. As such, the rule will enable increased 
product competition among certain ETF providers, which can lead to 
lower fees for investors, encourage financial innovation, and 
increase investor choice in the ETF market.'' Rule 6c-11 Release, at 
57204
    \14\ The Exchange deems ETF Shares to be equity securities, thus 
rendering trading in any series of ETF Shares subject to the 
Exchange's existing rules governing the trading of equity 
securities. With respect to trading in ETF Shares, all of the BZX 
Member obligations relating to product description and prospectus 
delivery requirements will continue to apply in accordance with 
Exchange rules and federal securities laws, and the Exchange will 
continue to monitor its Members for compliance with such 
requirements, which are not changing as a result of Rule 6c-11 under 
the 1940 Act.
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    Consistent with Index Fund Shares and Managed Fund Shares listed 
under the generic listing standards in Rules 14.11(c) and 14.11(i), 
respectively, series of Exchange-Traded Fund Shares that are permitted 
to operate in reliance on Rule 6c-11 would be permitted to be listed 
and traded on the Exchange without a prior Commission approval order or 
notice of effectiveness pursuant to Section 19(b) of the Act.\15\
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    \15\ Rule 19b-4(e)(1) provides that the listing and trading of a 
new derivative securities product by a self-regulatory organization 
(``SRO'') is not deemed a proposed rule change, pursuant to 
paragraph (c)(1) of Rule 19b-4, if the Commission has approved, 
pursuant to Section 19(b) of the Act, the SRO's trading rules, 
procedures and listing standards for the product class that would 
include the new derivative securities product and the SRO has a 
surveillance program for the product class. As contemplated by this 
Rule 14.11(l), the Exchange proposes new Rule 14.11(l) to establish 
generic listing standards for ETFs that are permitted to operate in 
reliance on Rule 6c-11. An ETF listed under proposed Rule 14.11(l) 
would therefore not need a separate proposed rule change pursuant to 
Rule 19b-4 before it can be listed and traded on the Exchange.

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[[Page 20314]]

Proposed Listing Rules
    Proposed Rule 14.11(l)(1) provides that the Exchange will consider 
for trading, whether by listing or pursuant to unlisted trading 
privileges, the shares of Exchange-Traded Funds (``ETF Shares'') that 
meet the criteria of this Rule 14.11(l).\16\
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    \16\ To the extent that a series of ETF Shares does not satisfy 
one or more of the criteria in proposed Rule 14.11(l), the Exchange 
may file a separate proposal under Section 19(b) of the Act in order 
to list such series on the Exchange. Consistent with Rule 14.11(a), 
any of the statements or representations in that proposal regarding 
the index composition, the description of the portfolio or reference 
assets, limitations on portfolio holdings or reference assets, 
dissemination and availability of index, reference asset, and 
intraday indicative values (as applicable), or the applicability of 
Exchange listing rules specified in any filing to list such series 
of ETF Shares shall constitute continued listing requirements for 
the series of ETF Shares. Further, in the event that a series of ETF 
Shares becomes listed under proposed Rule 14.11(l) and subsequently 
can no longer rely on Rule 6c-11, so long as the series of ETF 
Shares may otherwise rely on exemptive relief issued by the 
Commission, such series of ETF Shares may be listed as a series of 
Index Fund Shares under Rule 14.11(c) or Managed Fund Shares under 
Rule 14.11(i), as applicable, as long as the series of ETF Shares 
meets all listing requirements applicable under the applicable rule.
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    Proposed Rule 14.11(l)(2) provides that the proposed rule would be 
applicable only to ETF Shares. Except to the extent inconsistent with 
this Rule 14.11(l), or unless the context otherwise requires, the rules 
and procedures of the Board of Directors shall be applicable to the 
trading on the Exchange of such securities. ETF 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(l)(2) further provides that: (A) Transactions 
in ETF Shares will occur throughout the Exchange's trading hours; (B) 
the minimum price variation for quoting and entry of orders in ETF 
Shares is $0.01; \17\ and (C) the Exchange will implement and maintain 
written surveillance procedures for ETF Shares.
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    \17\ Consistent with Exchange Rules 11.11(a)(1) and 
14.11(i)(2)(B), the Exchange notes that the proposed minimum price 
variation is identical to the minimum price variation for Index Fund 
Shares and Managed Fund Shares.
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    Proposed Rule 14.11(l)(3)(A) provides that the term ``ETF Shares'' 
shall mean shares of stock issued by an Exchange-Traded Fund.
    Proposed Rule 14.11(l)(3)(B) provides that the term ``Exchange-
Traded Fund'' has the same meaning as the term ``exchange-traded fund'' 
as defined in Rule 6c-11 under the Investment Company Act of 1940.
    Proposed Rule 14.11(l)(3)(C) provides that the term ``Reporting 
Authority'' in respect of a particular series of ETF Shares means the 
Exchange, an institution, or a reporting service designated by the 
Exchange or by the exchange that lists a particular series of ETF 
Shares (if the Exchange is trading such series pursuant to unlisted 
trading privileges) as the official source for calculating and 
reporting information relating to such series, including, but not 
limited to, the amount of any dividend equivalent payment or cash 
distribution to holders of ETF Shares, net asset value, index or 
portfolio value, the current value of the portfolio of securities 
required in connection with issuance of ETF Shares, or other 
information relating to the issuance, redemption or trading of ETF 
Shares. A series of ETF Shares may have more than one Reporting 
Authority, each having different functions.\18\
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    \18\ The Exchange notes that the definition of Reporting 
Authority is based on the definitions provided under Rule 
14.11(c)(1)(C) and 14.11(i)(3)(D) related to Index Fund Shares and 
Managed Fund Shares, respectively.
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    Proposed Rule 14.11(l)(4) provides that the Exchange may approve a 
series of ETF Shares for listing and/or trading (including pursuant to 
unlisted trading privileges) on the Exchange pursuant to Rule 19b-4(e) 
under the Act, provided such series of ETF Shares is eligible to 
operate in reliance on Rule 6c-11 under the Investment Company Act of 
1940 and must satisfy the requirements of this Rule 14.11(l) on an 
initial and continued listing basis.
    Proposed Rule 14.11(l)(4)(A) provides that the requirements of Rule 
6c-11 must be satisfied by a series of ETF Shares on an initial and 
continued listing basis. Such securities must also satisfy the 
following criteria on an initial and, except for paragraph (i) below, 
continued, listing basis. Further, proposed Rule 14.11(l)(4)(A) 
provides that: (i) For each series, the Exchange will establish a 
minimum number of ETF Shares required to be outstanding at the time of 
commencement of trading on the Exchange; (ii) if an index underlying a 
series of ETF Shares is maintained by a broker-dealer or fund adviser, 
the broker-dealer or fund adviser shall erect and maintain a ``fire 
wall'' around the personnel who have access to information concerning 
changes and adjustments to the index and the index shall be calculated 
by a third party who is not a broker-dealer or fund adviser. If the 
investment adviser to the investment company issuing an actively 
managed series of ETF Shares is affiliated with a broker-dealer, such 
investment adviser shall erect and maintain a ``fire wall'' between the 
investment adviser and the broker-dealer with respect to access to 
information concerning the composition and/or changes to such Exchange-
Traded Fund's portfolio; and (iii) any advisory committee, supervisory 
board, or similar entity that advises a Reporting Authority or that 
makes decisions on the composition, methodology, and related matters of 
an index underlying a series of ETF Shares, must implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the 
applicable index. For actively managed Exchange-Traded Funds, personnel 
who make decisions on the portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable portfolio.\19\
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    \19\ The proposed requirements under proposed Rule 
14.11(l)(4)(A) are substantively identical to the equivalent 
provisions for Index Fund Shares and Managed Fund Shares under Rules 
14.11(c)(3)(B)(i) and (iii), 14.11(c)(4)(C)(i) and (iii), 
14.11(c)(5)(A)(i) and (iii), and 14.11(i)(7).
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    Proposed Rule 14.11(l)(4)(B) provides that each series of ETF 
Shares will be listed and traded on the Exchange subject to application 
of Proposed Rule 14.11(l)(4)(B)(i) and (ii). Proposed Rule 
14.11(l)(4)(B)(i) provides that the Exchange will consider the 
suspension of trading in, and will commence delisting proceedings under 
Rule 14.12 for, a series of ETF Shares under any of the following 
circumstances: (a) If the Exchange becomes aware that the issuer of the 
ETF Shares is no longer eligible to operate in reliance on Rule 6c-11 
under the Investment Company Act of 1940; (b) if any of the other 
listing requirements set forth in this Rule 14.11(l) are not 
continuously maintained; (c) if, following the initial twelve month 
period after commencement of trading on the Exchange of a series of ETF 
Shares, there are fewer than 50 beneficial holders of the series of ETF 
Shares for 30 or more consecutive trading days; or (d) 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(l)(4)(B)(ii) provides that upon termination of an investment 
company, the Exchange requires that ETF Shares issued in connection 
with

[[Page 20315]]

such entity be removed from Exchange listing.
    Proposed Rule 14.11(l)(5) provides that neither the Exchange, the 
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 index 
or portfolio value; the current value of the portfolio of securities 
required to be deposited in connection with issuance of ETF Shares; the 
amount of any dividend equivalent payment or cash distribution to 
holders of ETF Shares; net asset value; or other information relating 
to the purchase, redemption, or trading of ETF Shares, resulting from 
any negligent act or omission by the Exchange, the 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.\20\
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    \20\ The Exchange notes that proposed Rule 14.11(l)(5) is 
substantively identical to the equivalent Rules for Index Fund 
Shares and Managed Fund Shares under Rule 14.11(c)(10) and 
14.11(i)(5).
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    Proposed Rule 14.11(l)(6) provides that a security that has 
previously been approved for listing on the Exchange pursuant to the 
generic listing requirements specified in Rule 14.11(c) or Rule 
14.11(i), or pursuant to the approval of a proposed rule change or 
subject to a notice of effectiveness by the Commission, may be 
considered for listing solely under this Rule 14.11(l) if such security 
is eligible to operate in reliance on Rule 6c-11 under the 1940 Act. At 
the time of listing of such security under this Rule 14.11(l), the 
continued listing requirements applicable to such previously-listed 
security will be those specified in paragraph (b) of this Rule 
14.11(l). Any requirements for listing as specified in Rule 14.11(c) or 
Rule 14.11(i), or an approval order or notice of effectiveness of a 
separate proposed rule change, that differ from the requirements of 
this Rule 14.11(l) will no longer be applicable to such security.
    The Exchange is also proposing to make two corresponding amendments 
to include ETF Shares in other Exchange rules. Specifically, the 
Exchange is also proposing: (i) To amend Rule 14.10(e)(1)(E) and 
Interpretation and Policy .13 to Rule 14.10 in order to add ETF Shares 
to a list of product types listed on the Exchange, including Index Fund 
Shares, Managed Fund Shares, and Managed Portfolio Shares, that are 
exempted from the Audit Committee requirements set forth in Rule 
14.10(c)(3), except for the applicable requirements of SEC Rule 10A-3; 
\21\ and (ii) to amend Rule 14.11(c)(3)(A)(i)(a) in order to include 
ETF Shares in the definition of Derivative Securities Products.
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    \21\ The Exchange notes that these proposed changes would 
subject ETF Shares to the same corporate governance requirements as 
other open-end management investment companies listed on the 
Exchange.
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Discussion
    Proposed Rule 14.11(l) is based in large part on Rules 14.11(c) and 
(i) related to the listing and trading of Index Fund Shares and Managed 
Fund Shares on the Exchange, respectively, both of which are issued 
under the 1940 Act and would qualify as ETF Shares after Rule 6c-11 is 
effective. Rule 14.11(c) and 14.11(i) are very similar, their primary 
difference being that Index Fund Shares are designed to track an 
underlying index and Managed Fund Shares are based on an actively 
managed portfolio that is not designed to track an index. As such, the 
Exchange believes that using Rules 14.11(c) and (i) (collectively, the 
``Current ETF Standards'') as the basis for proposed Rule 14.11(l) is 
appropriate because they are generally designed to address the issues 
associated with ETF Shares. The only substantial differences between 
proposed Rule 14.11(l) and the Current ETF Standards that are not 
otherwise required under Rule 6c-11 are as follows: (i) Proposed Rule 
14.11(l) does not include the quantitative standards applicable to a 
fund or an index that are included in the Current ETF Standards; and 
(ii) proposed Rule 14.11(l) does not include any requirements related 
to the dissemination of a fund's Intraday Indicative Value.\22\ These 
differences are discussed below.
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    \22\ For purposes of this filing, the term ``Intraday Indicative 
Value'' or ``IIV'' shall mean an intraday estimate of the value of a 
share of each series of either Index Fund Shares or Managed Fund 
Shares.
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Quantitative Standards
    The Exchange believes that the proposal is designed to prevent 
fraudulent and manipulative acts and practices because the Exchange 
will perform ongoing surveillance of ETF Shares listed on the Exchange 
in order to ensure compliance with Rule 6c-11 and the 1940 Act on an 
ongoing basis. While proposed Rule 14.11(l) does not include the 
quantitative requirements applicable to an ETF or an ETF's holdings or 
underlying index that are included in Rules 14.(c) and 14.11(i),\23\ 
the Exchange believes that the manipulation concerns that such 
standards are intended to address are otherwise mitigated by a 
combination of the Exchange's surveillance procedures, the Exchange's 
ability to halt trading under the proposed Rule 14.11(l)(4)(B)(ii), and 
the Exchange's ability to suspend trading and commence delisting 
proceedings under proposed Rule 14.11(l)(4)(B)(i). The Exchange will 
also halt trading in ETF Shares under the conditions specified in Rule 
11.18, ``Trading Halts Due to Extraordinary Market Volatility.'' The 
Exchange also believes that such concerns are further mitigated by 
enhancements to the arbitrage mechanism that will come from Rule 6c-11, 
specifically the additional flexibility provided to issuers of ETF 
Shares through the use of custom baskets for creations and redemptions 
and the additional information made available to the public through the 
additional daily website disclosure obligations applicable under Rule 
6c-11.\24\ The Exchange believes that the combination of these factors 
will act to keep ETF Shares trading near the value of their underlying 
holdings and further mitigate concerns around manipulation of ETF 
Shares on the Exchange without the inclusion of quantitative 
standards.\25\ The Exchange will monitor for compliance with Rule 6c-11 
in order to ensure that the continued listing standards are being 
met.\26\ Specifically, the Exchange will review the website of each 
series of ETF Shares listed on the Exchange in order to ensure that the

[[Page 20316]]

requirements of Rule 6c-11 are being met. The Exchange will also employ 
numerous intraday alerts that will notify Exchange personnel of trading 
activity throughout the day that is potentially indicative of certain 
disclosures not being made accurately or the presence of other unusual 
conditions or circumstances that could be detrimental to the 
maintenance of a fair and orderly market. As a backstop to the 
surveillances described above, the Exchange also notes that Rule 
14.11(a) would require an issuer of ETF Shares to notify the Exchange 
of any failure to comply with Rule 6c-11 or the 1940 Act.
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    \23\ The Exchange notes that Rules 14.11(c) and (i) include 
certain quantitative standards related to the size, trading volume, 
concentration, and diversity of the holdings of a series of Index 
Fund Shares or Managed Fund Shares (the ``Holdings Standards'') as 
well as related to the minimum number of beneficial holders of a 
fund (the ``Distribution Standards''). The Exchange believes that to 
the extent that manipulation concerns are mitigated based on the 
factors described herein, such concerns are mitigated both as it 
relates to the Holdings Standards and the Distribution Standards.
    \24\ The Exchange notes that the Commission came to a similar 
conclusion in several places in the Rule 6c-11 Release. See Rule 6c-
11 Release at 15-18; 60-61; 69-70; 78-79; 82-84; and 95-96.
    \25\ The Exchange believes that this applies to all quantitative 
standards, whether applicable to the portfolio holdings of a series 
of ETF Shares or the distribution of the ETF Shares.
    \26\ As noted throughout, proposed Rule 14.11(l), unlike Rule 
14.11(c) and 14.11(i), does not include Holdings Standards and, as 
such, there will be no quantitative standards applicable by the 
Exchange to the portfolio holdings of a series of ETF Shares on an 
initial or continued listing basis.
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    The Exchange may suspend trading in and commence delisting 
proceedings for a series of ETF Shares where such series is not in 
compliance with the applicable listing standards or where the Exchange 
believes that further dealings on the Exchange are inadvisable.\27\ The 
Exchange also notes that Rule 14.11(a) requires any issuer to provide 
the Exchange with prompt notification after it becomes aware of any 
non-compliance with proposed Rule 14.11(l), which would include any 
failure of the issuer to comply with Rule 6c-11 or the 1940 Act.\28\
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    \27\ Specifically, proposed Rule 14.11(l)(4)(B) provides that 
each series of ETF Shares will be listed and traded on the Exchange 
subject to application of Proposed Rule 14.11(l)(4)(B)(i) and (ii). 
Proposed Rule 14.11(l)(4)(B)(i) provides that the Exchange will 
consider the suspension of trading in, and will commence delisting 
proceedings under Rule 14.12 for, a series of ETF Shares under any 
of the following circumstances: (a) If the Exchange becomes aware 
that the issuer of the ETF Shares is no longer eligible to operate 
in reliance on Rule 6c-11 under the Investment Company Act of 1940; 
(b) if any of the other listing requirements set forth in this Rule 
14.11(l) are not continuously maintained; (c) if, following the 
initial twelve month period after commencement of trading on the 
Exchange of a series of ETF Shares, there are fewer than 50 
beneficial holders of the series of ETF Shares for 30 or more 
consecutive trading days; or (d) 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(l)(4)(B)(ii) provides that upon termination of an investment 
company, the Exchange requires that ETF Shares issued in connection 
with such entity be removed from Exchange listing.
    \28\ The Exchange notes that failure by an issuer to notify the 
Exchange of non-compliance pursuant to Rule 14.11(a) would itself be 
considered non-compliance with the requirements of Rule 14.11 and 
would subject the series of ETF Shares to potential trading halts 
and the delisting process under Rule 14.12.
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    Further, the Exchange also represents that its surveillance 
procedures are adequate to properly monitor the trading of the ETF 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules and applicable federal securities laws. Specifically, 
the Exchange intends to utilize its existing surveillance procedures 
applicable to derivative products, which are currently applicable to 
Index Fund Shares and Managed Fund Shares, among other product types, 
to monitor trading in ETF Shares. The Exchange or the Financial 
Industry Regulatory Authority, Inc. (``FINRA''), on behalf of the 
Exchange, will communicate as needed regarding trading in ETF Shares 
and certain of their applicable underlying components with other 
markets that are members of the Intermarket Surveillance Group 
(``ISG'') or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. In addition, the Exchange may obtain 
information regarding trading in ETF Shares and certain of their 
applicable underlying components from markets and other entities that 
are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. Additionally, FINRA, on 
behalf of the Exchange, is able to access, as needed, trade information 
for certain fixed income securities that may be held by a series of ETF 
Shares reported to FINRA's Trade Reporting and Compliance Engine 
(``TRACE''). FINRA also can access data obtained from the Municipal 
Securities Rulemaking Board's (``MSRB'') Electronic Municipal Market 
Access (``EMMA'') system relating to municipal bond trading activity 
for surveillance purposes in connection with trading in a series of ETF 
Shares, to the extent that a series of ETF Shares holds municipal 
securities. Finally, as noted above, the issuer of a series of ETF 
Shares will be required to comply with Rule 10A-3 under the Act for the 
initial and continued listing of Exchange-Traded Fund Shares, as 
provided under Rule 14.10(e)(1)(E) and Interpretation and Policy .13 to 
Rule 14.10.\29\
---------------------------------------------------------------------------

    \29\ The Exchange notes that these proposed changes would 
subject ETF Shares to the same corporate governance requirements as 
other open-end management investment companies listed on the 
Exchange.
---------------------------------------------------------------------------

    The Exchange notes that it may consider all relevant factors in 
exercising its discretion to halt or suspend trading in a series of ETF 
Shares. Trading may be halted if the circuit breaker parameters in Rule 
11.18 have been reached, because of other market conditions, or for 
reasons that, in the view of the Exchange, make trading in the Shares 
inadvisable. These may include: (1) The extent to which certain 
information about the ETF Shares that is required to be disclosed under 
Rule 6c-11 of the Investment Company Act of 1940 is not being made 
available, including specifically where the Exchange becomes aware that 
the net asset value with respect to a series of ETF 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 is 
available to all market participants; \30\ (2) if an interruption to 
the dissemination to the value of the index or reference asset on which 
a series of ETF Shares is based persists past the trading day in which 
it occurred or is no longer calculated or available; (3) trading in the 
securities comprising the underlying index or portfolio has been halted 
in the primary market(s); or (4) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present.
---------------------------------------------------------------------------

    \30\ The Exchange will obtain a representation from the issuer 
of ETF Shares that the net asset value per share for the series will 
be calculated daily and made available to all market participants at 
the same time.
---------------------------------------------------------------------------

Intraday Indicative Value
    As described above, proposed Rule 14.11(l) does not include any 
requirements related to the dissemination of an Intraday Indicative 
Value. Both Rule 14.11(c) and Rule 14.11(i) include the requirement 
that a series of Index Fund Shares and Managed Fund Shares, 
respectively, disseminate and update an Intraday Indicative Value at 
least every 15 seconds.\31\ The Exchange believes that it is consistent 
with the Act to not require the calculation and dissemination of the 
Intraday Indicative Value for the same reasons enumerated in the Rule 
6c-11 Release, which specifically discusses and describes why Rule 6c-
11 does not require ETFs to publicly calculate and disseminate the 
Intraday Indicative Value,\32\ and a separate Exchange proposal to 
eliminate the requirement to calculate and disseminate the Intraday 
Indicative Value for certain series of Index Fund Shares and Managed 
Fund Shares.\33\
---------------------------------------------------------------------------

    \31\ See Rules 14.11(c)(3)(C), 14.11(c)(6)(A), and 
14.11(c)(9)(B)(e) related to Index Fund Shares and Rules 
14.11(i)(3)(C), 14.11(i)(4)(B)(i), 14.11(i)(4)(B)(iii)(b), and 
14.11(i)(4)(B)(iv) related to Managed Fund Shares.
    \32\ See Rule 6c-11 Release at 61-66.
    \33\ See Securities Exchange Act Release No. 88259 (February 21, 
2020), 85 FR 11419 (February 27, 2020) (SR-CboeBZX-2020-007).
---------------------------------------------------------------------------

    As such, the Exchange believes that it is appropriate and 
consistent with the Act to not include a requirement for the 
dissemination of an IIV for a series of ETF Shares to be listed on the 
Exchange.

[[Page 20317]]

Discontinuing Quarterly Reporting for Managed Fund Shares
    Finally, the Exchange is proposing to eliminate certain quarterly 
reporting obligations related to the listing and trading of Managed 
Fund Shares on the Exchange. In the order approving the Exchange's 
proposal to adopt generic listing standards for Managed Fund 
Shares,\34\ the Commission noted that the Exchange had represented that 
``on a quarterly basis, the Exchange will provide a report to the 
Commission staff that contains, for each ETF whose shares are 
generically listed and traded under BATS Rule 14.11(i): (a) Symbol and 
date of listing; (b) the number of active authorized participants 
(``APs'') and a description of any failure by either a fund or an AP to 
deliver promised baskets of shares, cash, or cash and instruments in 
connection with creation or redemption orders; and (c) a description of 
any failure by an ETF to comply with BATS Rule 14.11(i).'' \35\ This 
reporting requirement is not specifically enumerated in Rule 14.11(i).
---------------------------------------------------------------------------

    \34\ See Securities Exchange Act Release No. 78396 (July 22, 
2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-100) (the ``MFS 
Approval Order'').
    \35\ See MFS Approval Order at footnote 14.
---------------------------------------------------------------------------

    The Exchange has provided such information to the Commission on a 
quarterly basis since the MFS Approval Order was issued in 2016. The 
type of information provided in the reports was created to provide a 
window into the creation and redemption process for Managed Fund Shares 
in order to ensure that the arbitrage mechanism would work as expected 
for products that were listed pursuant to the newly approved generic 
listing standards. The approval of the Rule 6c-11 collapses the 
distinction between index funds and active funds, which the Exchange 
believes represents that the Commission is generally comfortable with 
actively managed funds, rendering the reports unnecessary. Further, 
because the same general types of information provided in those reports 
will be made available under Rule 6c-11 directly from the issuers of 
such securities the Exchange also believes that it is consistent with 
the Act to remove this reporting obligation because it will be 
duplicative and no longer necessary.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \36\ in general and Section 6(b)(5) of the Act \37\ 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.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78f.
    \37\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 14.11(l) is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading ETF Shares on the 
Exchange provide specific initial and continued listing criteria 
required to be met by such securities. Proposed Rule 14.11(l)(4) sets 
forth initial and continued listing criteria applicable to ETF Shares, 
specifically providing that the Exchange may approve a series of ETF 
Shares for listing and/or trading (including pursuant to unlisted 
trading privileges) on the Exchange pursuant to Rule 19b-4(e) under the 
Act, provided such series of ETF Shares is eligible to operate in 
reliance on Rule 6c-11 under the Investment Company Act of 1940 and 
must satisfy the requirements of this Rule 14.11(l) on an initial and 
continued listing basis.\38\ The Exchange will submit a Form 19b-4(e) 
for all series of ETF Shares upon being listed pursuant to Rule 
14.11(l), including those series of ETF Shares that are listed under 
Rule 14.11(l) pursuant to proposed Rule 14.11(l)(6) and such Form 19b-
4(e) will specifically note that such series of ETF Shares are being 
listed on the Exchange pursuant to Rule 14.11(l).
---------------------------------------------------------------------------

    \38\ The Exchange notes that eligibility to operate in reliance 
on Rule 6c-11 does not necessarily mean that an investment company 
would be listed on the Exchange pursuant to proposed Rule 14.11(l). 
To this point, an investment company that operates in reliance on 
6c-11 could also be listed as a series of Index Fund Shares or 
Managed Fund Shares pursuant to Rule 14.11(c) or 14.11(i), 
respectively, and would be subject to all requirements under each of 
those rules. Further to this point, in the event that a series of 
ETF Shares listed on the Exchange preferred to be listed as a series 
of Index Fund Shares or Managed Fund Shares (as applicable), nothing 
would preclude such a series from changing to be listed as a series 
of Index Fund Shares or Managed Fund Shares (as applicable), as long 
as the series met each of the initial and continued listing 
obligations under the applicable rules.
---------------------------------------------------------------------------

    Proposed Rule 14.11(l)(4)(B) provides that each series of ETF 
Shares will be listed and traded on the Exchange subject to application 
of Proposed Rule 14.11(l)(4)(B)(i) and (ii). Proposed Rule 
14.11(l)(4)(B)(i) provides that the Exchange will consider the 
suspension of trading in, and will commence delisting proceedings under 
Rule 14.12 for, a series of ETF Shares under any of the following 
circumstances: (a) If the Exchange becomes aware that the issuer of the 
ETF Shares is no longer eligible to operate in reliance on Rule 6c-11 
under the Investment Company Act of 1940; (b) if any of the other 
listing requirements set forth in this Rule 14.11(l) are not 
continuously maintained; (c) if, following the initial twelve month 
period after commencement of trading on the Exchange of a series of ETF 
Shares, there are fewer than 50 beneficial holders of the series of ETF 
Shares for 30 or more consecutive trading days; or (d) if such other 
event shall occur or condition exists which, in the opinion of the 
Exchange, makes further dealings on the Exchange inadvisable. The 
Exchange notes that it may become aware that the issuer is no longer 
eligible to operate in reliance on Rule 6c-11, as described in proposed 
Rule 14.11(l)(4)(B)(i)(a), as a result of either the Exchange 
identifying non-compliance through its own monitoring process or 
through notification by the issuer. Proposed Rule 14.11(l)(4)(B)(ii) 
provides that upon termination of an investment company, the Exchange 
requires that ETF Shares issued in connection with such entity be 
removed from Exchange listing. The Exchange also notes that it will 
obtain a representation from the issuer of each series of ETF Shares 
stating that the requirements of Rule 6c-11 will be continuously 
satisfied and that the issuer will notify the Exchange of any failure 
to do so.
    The Exchange further believes that proposed Rule 14.11(l) is 
designed to prevent fraudulent and manipulative acts and practices 
because of the robust surveillances in place on the Exchange as 
required under proposed Rule 14.11(l)(2)(C) along with the similarities 
of proposed Rule 14.11(l) to the rules related to other securities that 
are already listed and traded on the Exchange and which would qualify 
as ETF Shares. Proposed Rule 14.11(l) is based in large part on Rules 
14.11(c) and (i) related to the listing and trading of Index Fund 
Shares and Managed Fund Shares on the Exchange, respectively, both of 
which are issued under the 1940 Act and would qualify as ETF Shares 
after Rule 6c-11 is effective. Rule 14.11(c) and 14.11(i) are very 
similar, their primary difference being that Index Fund Shares are 
designed to track an underlying index and Managed Fund Shares are based 
on an actively managed portfolio that is not designed to track an 
index. As such, the Exchange believes that using the Current ETF 
Standards as the basis for proposed Rule 14.11(l) is appropriate 
because they are generally designed to address the issues

[[Page 20318]]

associated with ETF Shares. The only substantial differences between 
proposed Rule 14.11(l) and the Current ETF Standards that are not 
otherwise required under Rule 6c-11 are as follows: (i) Proposed Rule 
14.11(l) does not include the quantitative standards applicable to a 
fund or an index that are included in the Current ETF Standards; and 
(ii) proposed Rule 14.11(l) does not include any requirements related 
to the dissemination of a fund's Intraday Indicative Value.
Quantitative Standards
    The Exchange believes that the proposal is consistent with Section 
6(b)(1) of the Act \39\ in that, in addition to being designed to 
prevent fraudulent and manipulative acts and practices, the Exchange 
has the capacity to enforce proposed Rule 14.11(l) by performing 
ongoing surveillance of ETF Shares listed on the Exchange in order to 
ensure compliance with Rule 6c-11 and the 1940 Act on an ongoing basis. 
While proposed Rule 14.11(l) does not include the quantitative 
requirements applicable to a fund and a fund's holdings or underlying 
index that are included in Rules 14.(c) and 14.11(i),\40\ the Exchange 
believes that the manipulation concerns that such standards are 
intended to address are otherwise mitigated by a combination of the 
Exchange's surveillance procedures, the Exchange's ability to halt 
trading under the proposed Rule 14.11(l)(4)(B)(ii), and the Exchange's 
ability to suspend trading and commence delisting proceedings under 
proposed Rule 14.11(l)(4)(B)(i). The Exchange also believes that such 
concerns are further mitigated by enhancements to the arbitrage 
mechanism that will come from compliance with Rule 6c-11, specifically 
the additional flexibility provided to issuers of ETF Shares through 
the use of custom baskets for creations and redemptions and the 
additional information made available to the public through the 
additional daily website disclosure obligations applicable under Rule 
6c-11.\41\ The Exchange believes that the combination of these factors 
will act to keep ETF Shares trading near the value of their underlying 
holdings and further mitigate concerns around manipulation of ETF 
Shares on the Exchange without the inclusion of quantitative 
standards.\42\ The Exchange will monitor for compliance with Rule 6c-11 
in order to ensure that the continued listing standards are being met. 
Specifically, the Exchange plans to review the website of series of ETF 
Shares in order to ensure that the requirements of Rule 6c-11 are being 
met. The Exchange will also employ numerous intraday alerts that will 
notify Exchange personnel of trading activity throughout the day that 
is potentially indicative of certain disclosures not being made 
accurately or the presence of other unusual conditions or circumstances 
that could be detrimental to the maintenance of a fair and orderly 
market. As a backstop to the surveillances described above, the 
Exchange also notes that Rule 14.11(a) would require an issuer of ETF 
Shares to notify the Exchange of any failure to comply with Rule 6c-11 
or the 1940 Act.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78f(b)(1).
    \40\ The Exchange notes that Rules 14.11(c) and (i) include 
certain Holdings Standards and Distribution Standards. The Exchange 
believes that to the extent that manipulation concerns are mitigated 
based on the factors described herein, such concerns are mitigated 
both as it relates to the Holdings Standards and the Distribution 
Standards.
    \41\ The Exchange notes that the Commission came to a similar 
conclusion in several places in the Rule 6c-11 Release. See Rule 6c-
11 Release at 15-18; 60-61; 69-70; 78-79; 82-84; and 95-96.
    \42\ The Exchange believes that this applies to all quantitative 
standards, whether applicable to the portfolio holdings of a series 
of ETF Shares or the distribution of the ETF Shares.
---------------------------------------------------------------------------

    To the extent that any of the requirements under Rule 6c-11 or the 
1940 Act are not being met, the Exchange may halt trading in a series 
of ETF Shares as provided in proposed Rule 14.11(l)(4)(B)(ii). Further, 
the Exchange may also suspend trading in and commence delisting 
proceedings for a series of ETF Shares where such series is not in 
compliance with the applicable listing standards or where the Exchange 
believes that further dealings on the Exchange are inadvisable.\43\ The 
Exchange also notes that Rule 14.11(a) requires any issuer to provide 
the Exchange with prompt notification after it becomes aware of any 
non-compliance with proposed Rule 14.11(l), which would include any 
failure of the issuer to comply with Rule 6c-11 or the 1940 Act.\44\
---------------------------------------------------------------------------

    \43\ Specifically, proposed Rule 14.11(l)(4)(B) provides that 
each series of ETF Shares will be listed and traded on the Exchange 
subject to application of Proposed Rule 14.11(l)(4)(B)(i) and (ii). 
Proposed Rule 14.11(l)(4)(B)(i) provides that the Exchange will 
consider the suspension of trading in, and will commence delisting 
proceedings under Rule 14.12 for, a series of ETF Shares under any 
of the following circumstances: (a) If the Exchange becomes aware 
that the issuer of the ETF Shares is no longer eligible to operate 
in reliance on Rule 6c-11 under the Investment Company Act of 1940; 
(b) if any of the other listing requirements set forth in this Rule 
14.11(l) are not continuously maintained; (c) if, following the 
initial twelve month period after commencement of trading on the 
Exchange of a series of ETF Shares, there are fewer than 50 
beneficial holders of the series of ETF Shares for 30 or more 
consecutive trading days; or (d) 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(l)(4)(B)(ii) provides that upon termination of an investment 
company, the Exchange requires that ETF Shares issued in connection 
with such entity be removed from Exchange listing.
    \44\ The Exchange notes that failure by an issuer to notify the 
Exchange of non-compliance pursuant to Rule 14.11(a) would itself be 
considered non-compliance with the requirements of Rule 14.11 and 
would subject the series of ETF Shares to potential trading halts 
and the delisting process under Rule 14.12.
---------------------------------------------------------------------------

    Further, the Exchange also represents that its surveillance 
procedures are adequate to properly monitor the trading of the ETF 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules. Specifically, the Exchange intends to utilize its 
existing surveillance procedures applicable to derivative products, 
which are currently applicable to Index Fund Shares and Managed Fund 
Shares, among other product types, to monitor trading in ETF Shares. 
The Exchange or FINRA, on behalf of the Exchange, will communicate as 
needed regarding trading in ETF Shares and certain of their applicable 
underlying components with other markets that are members of the ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement. In addition, the Exchange may obtain information 
regarding trading in ETF Shares and certain of their applicable 
underlying components from markets and other entities that are members 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. Additionally, FINRA, on behalf of the 
Exchange, is able to access, as needed, trade information for certain 
fixed income securities that may be held by a series of ETF Shares 
reported to FINRA's TRACE. FINRA also can access data obtained from the 
MSRB's EMMA system relating to municipal bond trading activity for 
surveillance purposes in connection with trading in a series of ETF 
Shares, to the extent that a series of ETF Shares holds municipal 
securities. Finally, as noted above, the issuer of a series of ETF 
Shares will be required to comply with Rule 10A-3 under the Act for the 
initial and continued listing of Exchange-Traded Fund Shares, as 
provided under Rule 14.10(e)(1)(E) and Interpretation and Policy .13 to 
Rule 14.10.\45\
---------------------------------------------------------------------------

    \45\ The Exchange notes that these proposed changes would 
subject ETF Shares to the same corporate governance requirements as 
other open-end management investment companies listed on the 
Exchange.
---------------------------------------------------------------------------

Intraday Indicative Value
    As described above, proposed Rule 14.11(l) does not include any 
requirements related to the

[[Page 20319]]

dissemination of an Intraday Indicative Value. Both Rule 14.11(c) and 
Rule 14.11(i) include the requirement that a series of Index Fund 
Shares and Managed Fund Shares, respectively, disseminate and update an 
Intraday Indicative Value at least every 15 seconds.\46\ The Exchange 
believes that it is consistent with the Act to not require the 
calculation and dissemination of the Intraday Indicative Value for the 
same reasons enumerated in the Rule 6c-11 Release, which specifically 
discusses and describes why Rule 6c-11 does not require ETFs to 
publicly calculate and disseminate the Intraday Indicative Value,\47\ 
and a separate Exchange proposal to eliminate the requirement to 
calculate and disseminate the Intraday Indicative Value for certain 
series of Index Fund Shares and Managed Fund Shares.\48\
---------------------------------------------------------------------------

    \46\ See Rules 14.11(c)(3)(C), 14.11(c)(6)(A), and 
14.11(c)(9)(B)(e) related to Index Fund Shares and Rules 
14.11(i)(3)(C), 14.11(i)(4)(B)(i), 14.11(i)(4)(B)(iii)(b), and 
14.11(i)(4)(B)(iv) related to Managed Fund Shares.
    \47\ See Rule 6c-11 Release at 61-66.
    \48\ See Securities Exchange Act Release No. 88259 (February 21, 
2020), 85 FR 11419 (February 27, 2020) (SR-CboeBZX-2020-007).
---------------------------------------------------------------------------

    As such, the Exchange believes that it is appropriate and 
consistent with the Act to not include a requirement for the 
dissemination of an IIV for a series of ETF Shares to be listed on the 
Exchange.
    The Exchange also believes that the proposed rule change is 
designed to promote just and equitable principles of trade and to 
protect investors and the public interest in that 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 ETF Shares will be available via the CTA high-speed 
line. The website for each series of ETF Shares 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 in the series of ETF 
Shares. As noted above, series of ETF Shares will not be required to 
publicly disseminate an IIV. The Exchange continues to believe that 
this proposal is consistent with the Act and is designed to promote 
just and equitable principles of trade and to protect investors and the 
public interest because the transparency that comes from daily 
portfolio holdings disclosure as required under Rule 6c-11 provides 
market participants with sufficient information to facilitate the 
intraday valuation of ETF Shares, rendering the dissemination of the 
IIV unnecessary.
    The Exchange notes that it is not proposing to prohibit the 
dissemination of an IIV for a series of ETF Shares and believes that 
there could be certain instances in which the dissemination of an IIV 
could provide valuable information to the investing public. The 
Exchange proposes to leave that decision to an issuer of ETF Shares and 
is simply not proposing to require the dissemination of an IIV.
    Based on the foregoing discussion regarding proposed Rule 14.11(l) 
and its similarities to and differences between the Current ETF 
Standards, the Exchange believes that the proposal is consistent with 
the Act and is designed to prevent fraudulent and manipulative 
transactions and that the manipulation concerns that the quantitative 
standards and the IIV requirements are designed to address are 
otherwise mitigated by the proposal and the new daily website 
disclosure obligations and flexibility under Rule 6c-11.
    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 
ETF Shares in a manner that will enhance competition among market 
participants, to the benefit of investors and the marketplace. The 
Exchange believes that approval of this proposal will streamline 
current procedures, reduce the costs and timeline associated with 
bringing ETFs to market, and provide significantly greater regulatory 
certainty to potential issuers considering bringing ETF Shares to 
market, thereby enhancing competition among ETF issuers and reducing 
costs for investors.\49\
---------------------------------------------------------------------------

    \49\ In approving the rule, the Commission stated that the 
``rule will modernize the regulatory framework for ETFs to reflect 
our more than two decades of experience with these investment 
products. The rule is designed to further important Commission 
objectives, including establishing a consistent, transparent, and 
efficient regulatory framework for ETFs and facilitating greater 
competition and innovation among ETFs.'' Rule 6c-11 Release, at 
57163. The Commission also stated the following regarding the rule's 
impact: ``We believe rule 6c-11 will establish a regulatory 
framework that: (1) Reduces the expense and delay currently 
associated with forming and operating certain ETFs unable to rely on 
existing orders; and (2) creates a level playing field for ETFs that 
can rely on the rule. As such, the rule will enable increased 
product competition among certain ETF providers, which can lead to 
lower fees for investors, encourage financial innovation, and 
increase investor choice in the ETF market.'' Rule 6c-11 Release, at 
57204.
---------------------------------------------------------------------------

    The Exchange also believes that the corresponding change to amend 
Rule 14.10(e)(1)(E) and Interpretation and Policy .13 to Rule 14.10 in 
order to add ETF Shares to a list of product types listed on the 
Exchange, including Index Fund Shares, Managed Fund Shares, and Managed 
Portfolio Shares, that are exempted from the Audit Committee 
requirements set forth in Rule 14.10(c)(3), except for the applicable 
requirements of SEC Rule 10A-3 because it is a non-substantive change 
meant only to subject ETF Shares to the same corporate governance 
requirements currently applicable to Index Fund Shares and Managed Fund 
Shares. All other corporate governance requirements that ETF Shares are 
not specifically exempted from will otherwise apply. The Exchange also 
believes that the non-substantive change to amend Rule 
14.11(c)(3)(A)(i)(a) in order to include ETF Shares in the definition 
of Derivative Securities Products is also a non-substantive change 
because it is just intended to add ETF Shares to a definition that 
includes Index Fund Shares and Managed Fund Shares in order to make 
sure that ETF Shares are treated consistently with Index Fund Shares 
and Managed Fund Shares throughout the Exchange's rules.
    Finally, the Exchange believes that eliminating the quarterly 
reporting requirement for Managed Fund Shares is designed to prevent 
fraudulent and manipulative acts and practices and, in general, to 
protect investors and the public interest because the report no longer 
serves the purpose for which it was originally intended. The type of 
information provided in the reports was created to provide a window 
into the creation and redemption process for Managed Fund Shares in 
order to ensure that the arbitrage mechanism would work as expected for 
products that were listed pursuant to the newly approved generic 
listing standards. The Exchange and Commission have had several years 
of this reporting process and no significant issues have arisen. The 
Exchange believes that this speaks further to the maturity of the 
marketplace for ETFs and, further, Rule 6c-11 collapsing the difference 
between Index Fund Shares and Managed Fund Shares indicates a general 
comfort with Managed Fund Shares that further justifies eliminating 
this reporting obligation. In the Rule 6c-11 Release, the Commission 
concluded that ``the arbitrage mechanism for existing actively managed 
ETFs has worked effectively with small deviations between market price 
and NAV per share.'' \50\ The Exchange generally agrees with this 
conclusion and, while such quarterly reports were useful when

[[Page 20320]]

Managed Fund Shares were first able to be listed pursuant to generic 
listing standards, the Exchange believes that such a window into the 
creation and redemption process for Managed Fund Shares no longer 
provides useful information related to the prevention of manipulation 
or protection of investors which it was originally designed to provide. 
Further, because the same general types of information provided in 
those reports will be made available under Rule 6c-11 directly from the 
issuers of such securities the Exchange also believes that it is 
consistent with the Act to remove this reporting obligation because it 
will be duplicative and no longer necessary.
---------------------------------------------------------------------------

    \50\ See Rule 6c-11 Release at 23.
---------------------------------------------------------------------------

    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. To the contrary, the Exchange 
believes that the proposed rule change would enhance competition by 
streamlining current procedures, reducing the costs and timeline 
associated with bringing ETFs to market, and providing significantly 
greater regulatory certainty to potential issuers considering bringing 
ETF Shares to market, all of which the Exchange believes would enhance 
competition among ETF issuers and reduce costs for investors. The 
Exchange also believes that the proposed change would enhance 
competition among ETF Shares by ensuring the application of uniform 
listing standards.

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. 2, is consistent with the Act and 
rules and regulations thereunder applicable to a national securities 
exchange.\51\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) of the Act,\52\ 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.
---------------------------------------------------------------------------

    \51\ 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).
    \52\ 15 U.S.C. 78f(b)(5).
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A. Proposed BZX Rule 14.11(l)

    As an initial matter, the Commission notes that the Exchange 
currently has generic listing standards for Index Fund Shares, Managed 
Fund Shares, and Portfolio Depositary Receipts,\53\ and therefore 
proposed Rule 14.11(l) would not permit the Exchange to generically 
list any novel product types. The Commission also notes that a number 
of the provisions of proposed Rule 14.11(l) are substantively identical 
to provisions of other BZX listing rules.\54\
---------------------------------------------------------------------------

    \53\ See BZX Rules.
    \54\ See supra notes 17, 19, and 20 and accompanying text, 
respectively. Additionally, the proposed definition of ``Reporting 
Authority'' is based on the definitions in BZX Rules 14.11(c)(1)(C) 
and 14.11(i)(3)(D). See supra note 18.
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    The Commission believes that proposed BZX Rule 14.11(l) is 
reasonably designed to help prevent fraudulent and manipulative acts 
and practices. A central qualification for listing under the proposed 
rule is ongoing compliance with Rule 6c-11 under the 1940 Act, which 
requires, among other things, ETFs to prominently disclose the 
portfolio holdings that will form the basis for each calculation of net 
asset value per share.\55\ Because initial and ongoing compliance with 
Rule 6c-11 of the 1940 Act is a condition for listing and trading on 
the Exchange, the proposed rule would permit Nasdaq to list and trade 
shares of an investment company with a fully transparent portfolio,\56\ 
and the Commission believes that portfolio transparency should help 
prevent manipulation of the price of ETF Shares.\57\ Additionally, 
proposed BZX Rule 14.11(l) includes requirements relating to fire walls 
and procedures to prevent the use and dissemination of material, non-
public information regarding the applicable ETF index and 
portfolio,\58\ all such requirements of which are designed to prevent 
fraudulent and manipulative acts and practices.\59\ The Commission 
specifically notes that certain of these requirements relating to such 
fire walls and procedures, which are substantively identical to BZX's 
rules governing the listing and trading of index-based and actively 
managed ETFs, apply in addition to what is already required under the 
Act and the 1940 Act and respective rules and regulations thereunder, 
and the Commission believes that such requirements collectively provide 
additional protections against the potential misuse of material, non-
public information. Therefore, the Commission concludes that the 
proposed requirements relating to such fire walls and procedures, 
combined with ETF portfolio transparency and the existing requirements 
under the Act and 1940 Act, should help to protect against fraudulent 
and manipulative acts and practices under Section 6(b)(5) of the Act.
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    \55\ See Rule 6c-11 Release, supra note 12, at 57180-81.
    \56\ See supra note 9. The Commission also noted that, with 
respect to ETF portfolio transparency, the disclosures are designed 
to promote an effective arbitrage mechanism and inform investors 
about the risks of deviation between market price and net asset 
value when deciding whether to invest in ETFs generally or in a 
particular ETF. See Rule 6c-11 Release, supra note 12, at 57166.
    \57\ See id. at 57169 (concluding that portfolio transparency 
combined with existing requirements should be sufficient to protect 
against certain abuses).
    \58\ For example, proposed BZX Rule 14.11(l)(4)(A)(ii) provides 
that if the index underlying a series of ETF Shares is maintained by 
a broker-dealer or fund adviser, the broker-dealer or fund adviser 
shall erect and maintain a ``fire wall'' around the personnel who 
have access to information concerning changes and adjustments to the 
index and the index will be calculated by a third party who is not a 
broker-dealer or fund adviser. Proposed BZX Rule 14.11(l)(4)(A)(ii) 
further states that if the investment adviser to an ETF is 
affiliated with a broker-dealer, such investment adviser will erect 
and maintain a ``fire wall'' between the investment adviser and the 
broker-dealer with respect to access to information concerning the 
composition and/or changes to the underlying portfolio. Proposed BZX 
Rule 14.11(l)(4)(A)(iii) requires that any advisory committee, 
supervisory board, or similar entity that advises a Reporting 
Authority or that makes decisions on the composition, methodology 
and related matters, of an index underlying a series of ETF Shares 
must implement and maintain, or be subject to, procedures designed 
to prevent the use and dissemination of material non-public 
information regarding the applicable index. In addition, for 
actively managed ETFs, personnel who make decisions on the portfolio 
composition must be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding 
the applicable portfolio. See generally proposed BZX Rule 
14.11(l)(4)(A).
    \59\ In adopting Rule 6c-11, the Commission determined that the 
safeguards in the existing regulatory regime adequately address 
``special concerns that self-indexed ETFs present, including the 
potential ability of an affiliated index provider to manipulate an 
underlying index to the benefit or detriment of a self-indexed 
ETF.'' Rule 6c-11 Release, supra note 12, 84 FR at 57168.
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    Proposed BZX Rule 14.11(l)(2)(C) requires that the Exchange 
implement and maintain written surveillance

[[Page 20321]]

procedures for ETF Shares. The Exchange will employ its existing 
surveillance procedures applicable to derivative products, which are 
currently applicable to Index Fund Shares and Managed Fund Shares, to 
trading in ETF Shares, and represents that its surveillance procedures 
are adequate to (a) properly monitor the trading of such securities 
during all trading sessions and (b) deter and detect violations of 
Exchange rules and the applicable federal securities laws. The Exchange 
represents that, consistent with Section 6(b)(1) of the Act, it has the 
capacity to enforce proposed BZX Rule 14.11(l) by performing ongoing 
surveillance of ETF Shares listed on the Exchange in order to ensure 
compliance with Rule 6c-11 and the 1940 Act on an ongoing basis.\60\ 
Further, the Exchange represents that it, or FINRA on behalf of the 
Exchange, will communicate as needed regarding trading in ETF Shares 
and certain of their applicable underlying components with other 
markets that are members of the ISG or with which BZX has in place a 
comprehensive surveillance sharing agreement. The Exchange represents 
that it will perform ongoing surveillance of ETF Shares listed on the 
Exchange in order to ensure compliance with Rule 6c-11 under the 1940 
Act on an ongoing basis. The Exchange also notes that BZX Rule 14.11(a) 
requires any issuer to provide the Exchange with prompt notification 
after it becomes aware of any non-compliance with proposed Rule 
14.11(l), which would include any failure of the issuer to comply with 
Rule 6c-11 or the 1940 Act.\61\ Additionally, BZX plans to review the 
website of series of ETF Shares in order to ensure that the 
requirements of Rule 6c-11 are being met. Finally, proposed BZX Rule 
14.11(l)(4)(B)(i)(c) requires that the Exchange commence delisting 
proceedings for a series of ETF Shares if, following the initial 12-
month period after commencement of trading on the Exchange, there are 
fewer than 50 beneficial holders of such series of ETF Shares for 30 or 
more consecutive trading days.
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    \60\ The Commission also finds that the proposed rule change, as 
modified by Amendment No. 2, is consistent with Section 6(b)(1) of 
the Act (15 U.S.C. 78f(b)(1)), which requires (among other things) 
that a national securities exchange be organized and have the 
capacity to comply with its own rules. The Exchange represents that 
it will: (1) Monitor for compliance with Rule 6c-11 under the 1940 
Act to ensure that the continued listing standards are being met; 
(2) review the website of series of ETF Shares to ensure that the 
requirements of Rule 6c-11 under the 1940 Act are being met; and (3) 
obtain a representation from the issuer of each series of ETF Shares 
that the requirements of proposed BZX Rule 14.11(l) will be 
satisfied and that the issuer will notify the Exchange of any 
failure to do so.
    \61\ The Exchange further represents that failure by an issuer 
to notify the Exchange of non-compliance pursuant to Rule 14.11(a) 
would itself be considered non-compliance with the requirements of 
BZX Rule 14.11 and would subject the series of ETF Shares to 
potential trading halts and the delisting process under BZX Rule 
14.12.
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    Consistent with the requirement of Section 6(b)(5) of the Act \62\ 
that the Exchange's rules be designed to remove impediments to and 
perfect the mechanism of a free and open market, the Exchange's rules 
regarding trading halts will help to ensure the maintenance of fair and 
orderly markets for ETF Shares. Specifically, as discussed above, the 
Exchange may consider all relevant factors in exercising its discretion 
to halt or suspend trading in a series of ETF Shares. BZX states that 
trading in ETF Shares will be halted if the circuit breaker parameters 
in BZX Rule 11.18 have been reached or when the Exchange becomes aware 
that the net asset value for a series of ETF Shares is not being 
disseminated to all market participants at the same time.\63\ 
Additionally, trading may be halted because of market conditions or for 
reasons that, in the view of the Exchange, make trading in ETF Shares 
inadvisable. As BZX represents in the proposal, examples of such market 
conditions or reasons may be: (1) The extent to which certain 
information about the ETF Shares that is required to be disclosed under 
Rule 6c-11 of the 1940 Act is not being made available; (2) if an 
interruption to the dissemination to the value of the index or 
reference asset on which a series of ETF Shares is based persists past 
the trading day in which it occurred or is no longer calculated or 
available; (3) trading in the securities comprising the underlying 
index or portfolio has been halted in the primary market(s); or (4) in 
the presence of other unusual conditions or circumstances detrimental 
to the maintenance of a fair and orderly market. Further, BZX will 
employ numerous intraday alerts that will notify Exchange personnel of 
trading activity throughout the day that is potentially indicative of 
certain disclosures not being made accurately or the presence of other 
unusual conditions or circumstances that could be detrimental to the 
maintenance of a fair and orderly market.\64\ The Exchange also may 
suspend trading in and commence delisting proceedings for a series of 
ETF Shares where such series is not in compliance with the applicable 
listing standards or where the Exchange believes that further dealings 
on the Exchange are inadvisable.
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    \62\ 15 U.S.C. 78f(b)(5).
    \63\ See supra note 30 and accompanying text.
    \64\ See Amendment No. 2, supra note 8, at 15.
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B. Discontinuance of Quarterly Reports of Generically Listed Managed 
Fund Shares

    In support of its proposal to adopt generic listing standards for 
Managed Fund Shares, the Exchange proposed to submit quarterly reports 
to the Commission disclosing certain information.\65\ These reports 
were designed to identify problems associated with generically listed 
Managed Fund Shares. In adopting Rule 6c-11 under the 1940 Act, the 
Commission largely eliminated prior distinctions between actively 
managed and index-based ETFs, and BZX does not submit quarterly reports 
regarding the shares of index-based ETFs that it generically lists. In 
addition, the Commission recognizes that, since the adoption of the 
Managed Fund Shares generic listing standards, the marketplace for ETFs 
has matured and developed, an increased number of actively managed ETFs 
have been listed and are trading on national securities exchanges, and 
market participants have become more familiar with such securities. 
Moreover, proposed BZX Rule 14.11(l)(2)(C) requires that the Exchange 
implement and maintain written surveillance procedures for ETF 
Shares.\66\ The Exchange represents that it intends to utilize its 
existing surveillance procedures applicable to derivative products, 
which will include ETF Shares, to monitor trading in the ETF Shares, 
and will perform ongoing surveillance of ETF Shares listed on the 
Exchange to ensure compliance with Rule 6c-11 and the 1940 Act on an 
ongoing basis. The Commission notes that manipulation concerns are 
mitigated by a combination of the Exchange's surveillance procedures, 
BZX's ability to halt trading under proposed BZX Rule 14.11(l),\67\ and 
the Exchange's ability to commence

[[Page 20322]]

delisting proceedings under proposed BZX Rule 14.11(l)(4)(i). In light 
of these reasons, as well as the Commission's experience with the 
quarterly reports, the Commission believes that this proposal is 
consistent with Section 6(b)(5) of the Act, and it therefore finds that 
it is no longer necessary for BZX to continue to submit such quarterly 
reports.
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    \65\ The information included in these reports is summarized 
above. See supra note 35 and accompanying text.
    \66\ Moreover, BZX Rule 14.11(i)(2)(C) requires that the 
Exchange implement and maintain written surveillance procedures for 
Managed Fund Shares.
    \67\ The Exchange states that it may consider all relevant 
factors in exercising its discretion to halt or suspend trading in a 
series of ETF Shares, and that it may halt trading due to market 
conditions that make trading in the ETF Shares inadvisable, 
including the following circumstances: (1) Where the Exchange 
becomes aware that the net asset value with respect to a series of 
ETF Shares is not disseminated to all market participants at the 
same time; and (2) if an interruption to the dissemination to the 
value of the index or reference asset on which a series of ETF 
Shares is based persists past the trading day in which it occurred 
or is no longer calculated or available.
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C. Other Related Rule Changes

    The Exchange proposes to: (1) Expand the definition of ``Derivative 
Securities Products'' in BZX Rule 14.11(c)(3)(A)(i)(a) to include ETF 
Shares; and (2) exempt ETF Shares from certain corporate governance 
requirements by including ETF Shares among the product types enumerated 
in BZX Rules 14.10(e)(1)(E) and Interpretations and Policies .13 to BZX 
Rule 14.10.\68\ The Exchange states that these changes will subject ETF 
Shares to the same corporate governance requirements currently 
applicable to Index Fund Shares and Managed Fund Shares. The Commission 
believes that these proposed changes simply incorporate proposed BZX 
Rule 14.11(l) into the existing framework of BZX's rules, and therefore 
finds that such changes are consistent with Section 6(b)(5) of the Act.
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    \68\ Under the current version of these rules, Index Fund Shares 
and Managed Fund Shares are exempted from the specified corporate 
governance requirements.
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D. Exchange Representations

    In support of this proposal, the Exchange has made the following 
representations:
    (1) BZX deems ETF Shares to be equity securities, thus rendering 
trading in ETF Shares subject to the Exchange's existing rules 
governing the trading of equity securities.\69\ The Exchange notes that 
ETF Shares will be subject to rules governing Exchange member 
disclosure obligations in connection with equities trading, and that 
Rule 6c-11 does not change the applicability of these Exchange rules 
with respect to these securities.\70\
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    \69\ See supra note 14.
    \70\ With respect to trading in ETF Shares, the Exchange 
represents that all of the BZX member obligations relating to 
product description and prospectus delivery requirements will 
continue to apply in accordance with the Exchange rules and federal 
securities laws, and BZX will continue to monitor its members for 
compliance with such requirements, which are not changing as a 
result of Rule 6c-11 under the 1940 Act. See supra note 14.
---------------------------------------------------------------------------

    (2) BZX will (a) monitor for compliance with Rule 6c-11 to ensure 
that the continued listing standards are being met; (b) review the 
website of series of ETF Shares to ensure that the requirements of Rule 
6c-11 are being met; and (c) employ numerous intraday alerts that will 
notify Exchange personnel of unusual trading activity throughout the 
day that could be indicative of unusual conditions or circumstances 
that could be detrimental to the maintenance of a fair and orderly 
market.\71\
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    \71\ See Amendment No. 2, supra note 8, at 15. The Exchange also 
notes that BZX Rule 14.11(a) would require an issuer of ETF Shares 
to notify BZX of any failure to comply with Rule 6c-11 or the 1940 
Act. See id. The Exchange notes that failure by an issuer to notify 
the Exchange of non-compliance pursuant to Rule 14.11(a) would 
itself be considered non-compliance with the requirements of Rule 
14.11 and would subject the series of ETF Shares to potential 
trading halts and the delisting process under Rule 14.12. See id. at 
16, n.22.
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    (3) BZX will obtain a representation from the issuer of ETF Shares 
that the net asset value for the series will be calculated daily and 
will be made available to all market participants at the same time.\72\ 
BZX will also obtain a representation from the issuer of each series of 
ETF Shares that the requirements of Rule 6c-11 will be continuously 
satisfied and that the issuer will notify the Exchange of any failure 
to do so.\73\
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    \72\ See id. at 18, n.24.
    \73\ See id. at 22.
---------------------------------------------------------------------------

    (4) BZX's surveillance procedures are adequate to properly monitor 
the trading of the ETF Shares in all trading sessions and to deter and 
detect violations of Exchange rules and applicable federal securities 
laws.\74\
---------------------------------------------------------------------------

    \74\ See id. at 16.
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    (5) The Exchange, or FINRA on behalf of the Exchange, will 
communicate as needed regarding trading in ETF Shares and certain of 
their applicable underlying components with other markets that are 
members of the ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. Additionally, FINRA, on 
behalf of the Exchange, is able to access, as needed, trade information 
for certain fixed income securities that may be held by a series of ETF 
Shares reported to TRACE. FINRA also can access data obtained from the 
EMMA system relating to municipal bond trading activity for 
surveillance purposes in connection with trading in a series of ETF 
Shares, to the extent that a series of ETF Shares holds municipal 
securities.\75\
---------------------------------------------------------------------------

    \75\ See id. at 16-17.
---------------------------------------------------------------------------

    (6) The issuer of a series of ETF Shares will be required to comply 
with Rule 10A-3 under the Act for the initial and continued listing of 
ETF Shares, as provided under BZX Rule 14.10(e)(1)(E) and 
Interpretation and Policy .13 to BZX Rule 14.10.\76\
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    \76\ The Exchange also notes that these proposed changes would 
subject ETF Shares to the same corporate governance requirements as 
other open-end management investment companies listed on the 
Exchange. See id. at 17.
---------------------------------------------------------------------------

    This approval order is based on all of the Exchange's 
representations, including those set forth above and in Amendment No. 
2. For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 2, is consistent with 
Sections 6(b)(1) and 6(b)(5) of the Act \77\ and the rules and 
regulations thereunder applicable to a national securities exchange.
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    \77\ 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(5), respectively.
---------------------------------------------------------------------------

IV. Solicitation of Comments to the Proposed Rule Change, as Modified 
by Amendment No. 2

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 2 to the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-097 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-2019-097. 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,

[[Page 20323]]

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-2019-097, and should 
be submitted on or before May 1, 2020.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
2 in the Federal Register. In Amendment No. 2, the Exchange (among 
other things): (1) Modified the circumstances in which it will consider 
suspending trading in a series of ETF Shares; (2) broadened its 
undertakings with respect to ensuring compliance with the proposed 
generic listing standard; (3) clarified that ETF Shares would be 
subject to all Exchange rules applicable to equities trading, including 
rules governing Exchange member disclosure obligations; and (4) 
clarified the applicability of certain current listing rules in light 
of proposed BZX Rule 14.11(l). Amendment No. 2 also provides other 
clarifications and additional information in support of the proposed 
rule change. These changes, as well as additional information in 
Amendment No. 2, assisted the Commission in finding that the proposal 
is consistent with the Act. Accordingly, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Exchange Act,\78\ to approve 
the proposed rule change, as modified by Amendment No. 2, on an 
accelerated basis.
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    \78\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\79\ that the proposed rule change (SR-CboeBZX-2019-097), as modified 
by Amendment No. 2, be, and it hereby is, approved on an accelerated 
basis.
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    \79\ Id.
    \80\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\80\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07550 Filed 4-9-20; 8:45 am]
 BILLING CODE 8011-01-P