Document ID: SEC-2019-1490-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2019-10-11T04:00Z

[Federal Register Volume 84, Number 198 (Friday, October 11, 2019)]
[Notices]
[Pages 54935-54941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22253]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87243; File No. SR-CboeBZX-2019-084]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
to the Listing and Trading of Shares of the FT Cboe Vest U.S. Equity 
Buffer ETFs and the FT Cboe Vest U.S. Equity Deep Buffer ETFs Under the 
First Trust Exchange-Traded Fund VIII

October 7, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 23, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' 
or ``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposed rule change 
to list and trade shares of the FT Cboe Vest U.S. Equity Buffer ETFs 
and the FT Cboe Vest U.S. Equity Deep Buffer ETFs under the First Trust 
Exchange-Traded Fund VIII (the ``Trust''), under Rule 14.11(i) 
(``Managed Fund Shares'').
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of up 
to twelve monthly FT Cboe Vest U.S. Equity Buffer ETFs (collectively, 
the ``Buffer Funds'') and FT Cboe Vest U.S. Equity Deep Buffer ETFs 
(collectively, the ``Deep Buffer Funds'') (each a ``Fund'' and, 
collectively, the ``Funds'') under Rule 14.11(i), which governs the 
listing and trading of Managed Fund Shares on the Exchange.\5\ Each 
Fund will be actively managed. The Exchange submits this proposal in 
order to allow each Fund to hold listed derivatives in a manner that 
does not comply with Rule 14.11(i)(4)(C)(iv)(b), as further described 
below. The Exchange notes that this proposal and the statements or 
representations herein regarding the limitations on portfolio holdings 
or reference assets, dissemination and availability of index, reference 
asset, and intraday indicative values, and the applicability of 
Exchange listing rules are substantively identical to those statements 
and representations included in a proposal previously approved by the 
Commission \6\ and the descriptions of the portfolio or reference 
assets are substantially similar to those included in the Original 
Approval and do not raise any new issues that the Commission has not 
previously contemplated. The only other notable differences between 
this proposal and the Original Approval, which the Exchange believes 
are non-substantive, are that: (i) The Original Approval approved the 
listing and trading of three series of monthly funds, while this 
proposal only proposes to list and trade two series of monthly funds; 
(ii) the Deep Buffer Funds will provide a buffer against SPY losses 
between 5% and 30% as compared to between 5% and 35% against S&P 500 
Index losses in the Original Approval; and (iii) the investment 
objective of the Funds is based on the returns (before fees, expenses, 
and taxes) of SPY as compared to the S&P 500 Index in the Original 
Approval.
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    \5\ The Commission originally approved BZX Rule 14.11(i) in 
Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR 
55148 (September 6, 2011) (SR-BATS-2011-018) and subsequently 
approved generic listing standards for Managed Fund Shares under 
Rule 14.11(i) in Securities Exchange Act Release No. 78396 (July 22, 
2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-100).
    \6\ See Securities Exchange Act Release No. 83679 (July 20, 
2018), 83 FR 35505 (July 26, 2018) (SR-BatsBZX-2017-72) (the 
``Original Approval''). The only substantive difference between this 
proposal and the Original Approval is that this proposal would allow 
the Funds to hold FLexible EXchange Options (``FLEX Options'') on 
the SPDR S&P 500 ETF Trust (``SPY'') in addition to FLEX Options on 
the S&P 500 Price Return Index (the ``S&P 500 Index''), while the 
Original Approval only allowed for FLEX Options on the S&P 500 
Index.
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    The Shares will be offered by the Trust, which was organized as a 
Massachusetts business trust on February 22, 2016. The Trust is 
registered with the Commission as an investment company and has filed a 
registration statement on Form N-1A (``Registration Statement'') with 
the Commission on behalf of the August and November Funds.\7\ Each Fund

[[Page 54936]]

intends to qualify each year as a regulated investment company (a 
``RIC'') under Subchapter M of the Internal Revenue Code of 1986, as 
amended.\8\ First Trust Advisors L.P. (the ``Adviser'') is the 
investment adviser to the Funds. Cboe Vest Financial LLC is the sub-
adviser (the ``Sub-Adviser'') to the Funds. Rule 14.11(i)(7) provides 
that, if the investment adviser to the investment company issuing 
Managed Fund Shares is affiliated with a broker-dealer, such investment 
adviser shall erect 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 investment company portfolio.\9\ In 
addition, Rule 14.11(i)(7) further requires that personnel who make 
decisions on the investment company's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the applicable investment 
company portfolio. Neither the Adviser nor the Sub-Adviser is a 
registered broker-dealer, but both are currently affiliated with the 
same broker-dealer and have implemented and will maintain ``fire 
walls'' with respect to such broker-dealer regarding access to 
information concerning the composition and/or changes to a Fund's 
portfolio. In addition, Adviser and Sub-Adviser personnel who make 
decisions regarding a Fund's portfolio are subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the Fund's portfolio. In the event that (a) the 
Adviser or Sub-Adviser becomes registered as a broker-dealer or newly 
affiliated with a broker-dealer, or (b) any new adviser or sub-adviser 
is a registered broker-dealer or becomes affiliated with a broker-
dealer, it will implement and maintain a fire wall with respect to its 
relevant personnel or such broker-dealer affiliate, as applicable, 
regarding access to information concerning the composition and/or 
changes to the portfolio, and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio.
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    \7\ See Registration Statement on Form N-1A for the Trust (File 
Nos. 333-210186 and 811-23147). The descriptions of the Funds and 
the Shares contained herein are based on information in the 
Registration Statement. There are no permissible holdings for the 
Funds that are not described in this proposal. The Commission has 
issued an order granting certain exemptive relief to the Trust under 
the Investment Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') 
(the ``Exemptive Order''). See Investment Company Act Release No. 
28468 (October 27, 2008) (File No. 812-13477).
    \8\ 26 U.S.C. 851.
    \9\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    The investment objective of the Funds is to provide investors with 
returns (before fees, expenses, and taxes) that match those of SPY over 
a period of approximately one year, while providing a level of 
protection from SPY losses. The Funds are each actively managed funds 
that employ a ``target outcome strategy'' that:
    (1) For the Buffer Funds, seeks to provide investors with returns 
(before fees, expenses, and taxes) that match those of SPY, up to a 
pre-determined upside cap (as specified both (i) before fees, expenses, 
and taxes, and (ii) after fees and expenses) (the ``Buffer Cap 
Level''), while providing a buffer against the first 10% (before fees, 
expenses, and taxes) of SPY losses (the ``Buffer Strategy'');
    (2) for the Deep Buffer Funds, seeks to provide investors with 
returns (before fees, expenses, and taxes) that match those of SPY, up 
to a pre-determined upside cap (as specified both (i) before fees, 
expenses, and taxes, and (ii) after fees and expenses) (the ``Deep 
Buffer Cap Level''), while providing a buffer against SPY losses 
between 5% and 30% (before fees, expenses, and taxes) (the ``Deep 
Buffer Strategy'' and, collectively with the Buffer Strategy, the 
``Strategies'').
    Pursuant to the Strategies, each Fund will invest primarily in 
exchange-traded options contracts that reference either the S&P 500 
Index or ETFs \10\ that track the S&P 500 Index. Target outcome 
strategies are designed to participate in market gains and losses 
within pre-determined ranges over a specified period (i.e. point to 
point). These outcomes are predicated on the assumption that an 
investment vehicle employing the strategy is held for the designated 
outcome periods. As such, the Exchange is proposing to list up to 
twelve monthly series of each of the Buffer Funds and Deep Buffer 
Funds, as named above.
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    \10\ For purposes of this proposal, the term ETF means Portfolio 
Depositary Receipts, Index Fund Shares, and Managed Fund Shares as 
defined in Rule 14.11(b), (c), and (i), respectively, and their 
equivalents on other national securities exchanges.
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    The Exchange submits this proposal in order to allow each Fund to 
hold listed derivatives, in particular FLEX Options on SPY and/or FLEX 
Options on the S&P 500 Index (collectively, ``S&P 500 FLEX Options''), 
in a manner that does not comply with Rule 14.11(i)(4)(C)(iv)(b).\11\ 
Otherwise, the Funds will meet all other listing requirements of the 
Generic Listing Standards \12\ for Managed Fund Shares on an initial 
and continued listing basis under Rule 14.11(i).
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    \11\ Rule 14.11(i)(4)(C)(iv)(b) provides that ``the aggregate 
gross notional value of listed derivatives based on any five or 
fewer underlying reference assets shall not exceed 65% of the weight 
of the portfolio (including gross notional exposures), and the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset shall not exceed 30% of the weight 
of the portfolio (including gross notional exposures).'' The Funds 
would not meet the generic listing standards because they would fail 
to meet the requirement of Rule 14.11(i)(4)(C)(iv)(b) that prevents 
the aggregate gross notional value of listed derivatives based on 
any single underlying reference asset from exceeding 30% of the 
weight of the portfolio (including gross notional exposures) and the 
requirement that the aggregate gross notional value of listed 
derivatives based on any five or fewer underlying reference assets 
shall not exceed 65% of the weight of the portfolio (including gross 
notional exposures).
    \12\ For purposes of this proposal, the term ``Generic Listing 
Standards'' shall mean the generic listing rules for Managed Fund 
Shares under Rule 14.11(i)(4)(C).
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FT Cboe Vest U.S. Equity Buffer ETFs
    Under Normal Market Conditions,\13\ each Buffer Fund will attempt 
to achieve its investment objective by employing a ``target outcome 
strategy'' that will seek to provide investment returns (before fees, 
expenses, and taxes) during the outcome period that

[[Page 54937]]

match the gains of SPY, up to the Buffer Cap Level, while shielding 
investors from SPY losses of up to 10% (before fees, expenses, and 
taxes). Pursuant to the Buffer Strategy, each Buffer Fund will invest 
primarily in S&P 500 FLEX Options or standardized options contracts 
listed on a U.S. exchange that reference either the S&P 500 Index or 
ETFs that track the S&P 500 Index.
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    \13\ As defined in Rule 14.11(i)(3)(E), the term ``Normal Market 
Conditions'' includes, but is not limited to, the absence of trading 
halts in the applicable financial markets generally; operational 
issues causing dissemination of inaccurate market information or 
system failures; or force majeure type events such as natural or 
man-made disaster, act of God, armed conflict, act of terrorism, 
riot or labor disruption, or any similar intervening circumstance. 
In addition, for each Fund, on a temporary basis, including for 
defensive purposes, during the initial invest-up period (i.e., the 
six-week period following the commencement of trading of Shares on 
the Exchange) and during periods of high cash inflows or outflows 
(i.e., rolling periods of seven calendar days during which inflows 
or outflows of cash, in the aggregate, exceed 10% of such Fund's net 
assets as of the opening of business on the first day of such 
periods), such Fund may depart from its principal investment 
strategies; for example, it may hold a higher than normal proportion 
of its assets in cash. During such periods, a Fund may not be able 
to achieve its investment objective. A Fund may adopt a defensive 
strategy when the Adviser and/or the Sub-Adviser believes securities 
in which such Fund normally invests have elevated risks due to 
market, political or economic factors and in other extraordinary 
circumstances.
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    The portfolio managers will invest in a portfolio of S&P 500 FLEX 
Options that, when held for the specified period, seeks to produce 
returns (before fees, expenses, and taxes) that, over the outcome 
period, match the positive returns of SPY up to the Buffer Cap Level. 
Pursuant to the Buffer Strategy, each Buffer Fund's portfolio managers 
will seek to produce the following outcomes during the outcome period:
     If SPY appreciates over the outcome period, the 
combination of FLEX Options held by the Buffer Fund will provide upside 
participation that is intended to match that of SPY, up to the Buffer 
Cap Level;
     If SPY decreases over the outcome period, the combination 
of FLEX Options held by the Buffer Fund will provide a payoff at 
expiration that is intended to compensate for losses experienced by SPY 
(if any), in an amount not to exceed 10% before fees, expenses, and 
taxes;
     If SPY has decreased in value by more than 10%, the Buffer 
Fund will experience all subsequent losses on a one-to-one basis.
    The Buffer Funds will produce these outcomes by layering purchased 
and written FLEX Options. The customizable nature of FLEX Options 
allows for the creation of a strategy that sets desired target outcome 
parameters. The FLEX Options comprising a Buffer Fund's portfolio have 
terms that, when layered upon each other, are designed to buffer 
against losses or match the gains of SPY. However, another effect of 
the layering of FLEX Options with these terms is a cap on the level of 
possible gains.
    Any FLEX Options that are written by a Buffer Fund that create an 
obligation to sell or buy an asset will be offset with a position in 
FLEX Options purchased by the Buffer Fund to create the right to buy or 
sell the same asset such that the Buffer Fund will always be in a net 
long position. That is, any obligations of a Buffer Fund created by its 
writing of FLEX Options will be covered by offsetting positions in 
other purchased FLEX Options. On the FLEX Options expiration date, each 
Buffer Fund intends to sell the FLEX Options prior to their expiration 
and use the resulting proceeds to purchase new FLEX Options for the 
next outcome period. By purchasing new FLEX Options annually, each 
Buffer Fund seeks to ensure that investments made in a given month 
during the current year buffer against negative returns of SPY up to 
pre-determined levels in that same month of the following year. The 
Buffer Funds do not offer any protection against declines in SPY 
exceeding 10% on an annualized basis. Shareholders will bear all SPY 
losses exceeding 10% on a one-to-one basis.
    The FLEX Options owned by each of the Buffer Funds will have the 
same terms (i.e. same strike price and expiration) for all investors of 
a Buffer Fund within an outcome period. The Buffer Cap Level will be 
determined with respect to each Buffer Fund on the inception date of 
the Buffer Fund and at the beginning of each outcome period and is 
determined based on the price of the FLEX Options acquired by the 
Buffer Fund at that time.
FT Cboe Vest U.S. Equity Deep Buffer ETFs
    Under Normal Market Conditions, each Deep Buffer Fund will attempt 
to achieve its investment objective by employing a ``target outcome 
strategy'' that will seek to provide investment returns (before fees, 
expenses, and taxes) during the outcome period that match the gains of 
SPY, up to the Deep Buffer Cap Level, while shielding investors from 
SPY losses of between 5% and 30% (before fees, expenses, and taxes). 
Pursuant to the Deep Buffer Strategy, each Deep Buffer Fund will invest 
primarily in S&P 500 FLEX Options or standardized options contracts 
listed on a U.S. exchange that reference either the S&P 500 Index or 
ETFs that track the S&P 500 Index.
    The portfolio managers will invest in a portfolio of S&P 500 FLEX 
Options that, when held for the specified period, seeks to produce 
returns (before fees, expenses, and taxes) that, over the outcome 
period, match the returns of SPY up to the Deep Buffer Cap Level. 
Pursuant to the Deep Buffer Strategy, each Deep Buffer Fund's portfolio 
managers will seek to produce the following outcomes during the outcome 
period:
     If SPY appreciates over the outcome period, the 
combination of FLEX Options held by the Deep Buffer Fund will provide 
upside participation that is intended to match that of SPY, up to the 
Deep Buffer Cap Level;
     If SPY decreases over the outcome period by up to 5% or 
less, the combination of FLEX Options held by the Deep Buffer Fund will 
provide a payoff at expiration that is intended to match that of SPY up 
to -5% over the outcome period before fees, expenses, and taxes;
     If SPY decreases over the outcome period by more than 5% 
but less than or equal to 30%, the combination of FLEX Options held by 
the Deep Buffer Fund will provide a payoff at expiration that decreases 
by the percentage decrease of SPY, up to -5% over the outcome period 
before fees, expenses, and taxes; and
     If SPY has decreased in value by more than 30%, the 
combination of FLEX Options held by the Deep Buffer Fund will provide a 
payoff at expiration that is 25% less than the percentage loss on SPY 
with a maximum loss of approximately 75% over the outcome period before 
fees, expenses, and taxes.
    The Deep Buffer Funds will produce these outcomes by layering 
purchased and written FLEX Options. The customizable nature of FLEX 
Options allows for the creation of a strategy that sets desired target 
outcome parameters. The FLEX Options comprising a Deep Buffer Fund's 
portfolio have terms that, when layered upon each other, are designed 
to buffer against losses or match the gains of SPY. However, another 
effect of the layering of FLEX Options with these terms is a cap on the 
level of possible gains.
    Any FLEX Options that are written by a Deep Buffer Fund that create 
an obligation to sell or buy an asset will be offset with a position in 
FLEX Options purchased by the Deep Buffer Fund to create the right to 
buy or sell the same asset such that the Deep Buffer Fund will always 
be in a net long position. That is, any obligations of a Deep Buffer 
Fund created by its writing of FLEX Options will be covered by 
offsetting positions in other purchased FLEX Options. On the FLEX 
Options expiration date, each Deep Buffer Fund intends to sell the FLEX 
Options prior to their expiration and use the resulting proceeds to 
purchase new FLEX Options for the next outcome period. By purchasing 
new FLEX Options annually, each Deep Buffer Fund seeks to ensure that 
investments made in a given month during the current year buffer 
against negative returns of SPY up to pre-determined levels in that 
same month of the following year. Other than the 25% protection against 
declines from 5% to 30%, the Deep Buffer Funds do not offer any 
protection against declines in SPY exceeding 30% on an annualized 
basis. Shareholders will bear all SPY losses exceeding 30% on a one-to-
one basis.
    The FLEX Options owned by each of the Deep Buffer Funds will have 
the same terms (i.e., same strike price and

[[Page 54938]]

expiration) for all investors of a Deep Buffer Fund within an outcome 
period. The Deep Buffer Cap Level will be determined with respect to 
each Deep Buffer Fund on the inception date of the Deep Buffer Fund and 
at the beginning of each outcome period and is determined based on the 
price of the FLEX Options acquired by the Deep Buffer Fund at that 
time.
Investment Methodology for the Funds
    Under Normal Market Conditions, each Fund will invest substantially 
all of its assets in U.S. exchange-listed S&P 500 FLEX Options. Each of 
the Funds may invest its net assets (in the aggregate) in other 
investments which the Adviser and/or the Sub-Adviser believes will help 
each Fund to meet its investment objective and that will be disclosed 
at the end of each trading day (``Other Assets''). Other Assets include 
only the following: Cash or cash equivalents, as defined in Rule 
14.11(i)(4)(C)(iii) \14\ and standardized options contracts listed on a 
U.S. securities exchange that reference either the S&P 500 Index or 
that reference ETFs that track the S&P 500 Index.
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    \14\ As defined in Rule 14.11(i)(4)(C)(iii), cash equivalents 
include short-term instruments with maturities of less than three 
months, including: (i) U.S. Government securities, including bills, 
notes, and bonds differing as to maturity and rates of interest, 
which are either issued or guaranteed by the U.S. Treasury or by 
U.S. Government agencies or instrumentalities; (ii) certificates of 
deposit issued against funds deposited in a bank or savings and loan 
association; (iii) bankers acceptances, which are short-term credit 
instruments used to finance commercial transactions; (iv) repurchase 
agreements and reverse repurchase agreements; (v) bank time 
deposits, which are monies kept on deposit with banks or savings and 
loan associations for a stated period of time at a fixed rate of 
interest; (vi) commercial paper, which are short-term unsecured 
promissory notes; and (vii) money market funds.
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S&P 500 FLEX Options
    The market for options contracts on the S&P 500 Index traded on 
Cboe Exchange, Inc. (``Cboe Options'') is among the most liquid markets 
in the world. In August 2019, approximately 1.488 million options 
contracts on the S&P 500 Index were traded per day, which is more than 
$430 billion in notional volume traded on a daily basis. Similarly, 
more than 75 million options contracts referencing SPY were traded in 
August 2019, representing more than $105 billion in notional volume on 
a daily basis. While FLEX Options are traded differently than 
standardized options contracts, the Exchange believes that this 
liquidity bolsters the market for FLEX Options, as described below. 
Every FLEX Option order submitted to an exchange is exposed to a 
competitive auction process for price discovery. The process begins 
with a request for quote (``RFQ'') in which the interested party 
establishes the terms of the FLEX Options contract. The RFQ solicits 
interested market participants, including on-floor market makers, 
remote market makers trading electronically, and member firm traders, 
to respond to the RFQ with bids or offers through a competitive 
process. This solicitation contains all of the contract specifications-
underlying, size, type of option, expiration date, strike price, 
exercise style and settlement basis. During a specified amount of time, 
responses to the RFQ are received and at the end of that time period, 
the initiator can decide whether to accept the best bid or offer. The 
process occurs under the rules of the applicable listing exchange which 
means that customer transactions are effected according to the 
principles of a fair and orderly market following trading procedures 
and policies developed by the applicable self-regulatory organization.
    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Funds' Shares and S&P 500 
FLEX Options for several reasons: (i) The diversity, liquidity, and 
market cap of the securities underlying the S&P 500 Index; (ii) the 
competitive quoting process for FLEX Options; (iii) the significant 
liquidity in the market for options on the S&P 500 Index and SPY 
results in a well-established price discovery process that provides 
meaningful guideposts for FLEX Option pricing; and (iv) surveillance by 
the Exchange, Cboe Options, other U.S. options exchanges, and the 
Financial Industry Regulatory Authority (``FINRA'') designed to detect 
violations of the federal securities laws and self-regulatory 
organization (``SRO'') rules. The Exchange has in place a surveillance 
program for transactions in ETFs to ensure the availability of 
information necessary to detect and deter potential manipulations and 
other trading abuses, thereby making the Shares less readily 
susceptible to manipulation. Further, the Exchange believes that 
because the assets in each Fund's portfolio, which are comprised 
primarily of S&P 500 FLEX Options, will be acquired in extremely liquid 
and highly regulated markets,\15\ the Shares are less readily 
susceptible to manipulation.
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    \15\ All exchange-listed securities that the Funds may hold will 
trade on a market that is a member of the Intermarket Surveillance 
Group (``ISG'') and the Funds will not hold any non-exchange-listed 
equities or options, however, not all of the components of the 
portfolio for the Funds may trade on exchanges that are members of 
the ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. For a list of the current members of 
ISG, see www.isgportal.org.
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    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. All 
statements and representations made in this filing regarding (a) the 
description of the portfolio, reference assets, and index, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules shall constitute continued listing 
requirements for listing the Shares on the Exchange. The issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by a Fund or the related Shares to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will surveil for compliance with the 
continued listing requirements. If a Fund or the related Shares are not 
in compliance with the applicable listing requirements, then, with 
respect to such Fund or Shares, the Exchange will commence delisting 
procedures under Exchange Rule 14.12. FINRA conducts certain cross-
market surveillances on behalf of the Exchange pursuant to a regulatory 
services agreement. The Exchange is responsible for FINRA's performance 
under this regulatory services agreement. If a Fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures with respect to such Fund under Exchange 
Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares and exchange-traded options 
contracts with other markets and other entities that are members of the 
ISG and may obtain trading information regarding trading in the Shares 
and exchange-traded options contracts from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares and exchange-traded options contracts from 
markets and other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
In addition, the Exchange also has a general policy prohibiting the

[[Page 54939]]

distribution of material, non-public information by its employees.
    As noted above, options on the S&P 500 Index and SPY are among the 
most liquid options in the world and derive their value from the 
actively traded S&P 500 Index components. The contracts trade in 
competitive auction markets with price and quote transparency. The 
Exchange believes the highly regulated options markets and the broad 
base and scope of the S&P 500 Index make securities that derive their 
value from that index less susceptible to market manipulation in view 
of market capitalization and liquidity of the S&P 500 Index components, 
the market cap and liquidity of SPY, price and quote transparency, and 
arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for SPY, 
S&P 500 Index securities, options on the S&P 500 Index and SPY, and 
other related derivatives is sufficiently great to deter fraudulent or 
manipulative acts associated with the Funds' Shares price. The Exchange 
also believes that such liquidity is sufficient to support the creation 
and redemption mechanism. Coupled with the extensive surveillance 
programs of the SROs described above, the Exchange does not believe 
that trading in the Funds' Shares would present manipulation concerns.
    The Exchange represents that, except for the limitations on listed 
derivatives in BZX Rule 14.11(i)(4)(C)(iv)(b), the Funds' proposed 
investments will satisfy, on an initial and continued listing basis, 
all of the generic listing standards under BZX Rule 14.11(i)(4)(C) and 
all other applicable requirements for Managed Fund Shares under Rule 
14.11(i). The Trust is required to comply with Rule 10A-3 under the Act 
for the initial and continued listing of the Shares of the Funds. A 
minimum of 100,000 Shares will be outstanding at the commencement of 
trading on the Exchange. In addition, the Exchange represents that the 
Shares of the Funds will comply with all other requirements applicable 
to Managed Fund Shares, which includes the dissemination of key 
information such as the Disclosed Portfolio,\16\ Net Asset Value,\17\ 
and the Intraday Indicative Value,\18\ suspension of trading or 
removal,\19\ trading halts,\20\ surveillance,\21\ minimum price 
variation for quoting and order entry,\22\ and the information 
circular,\23\ as set forth in Exchange rules applicable to Managed Fund 
Shares. Further, all statements or representations regarding 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, or the 
applicability of Exchange listing rules shall constitute continued 
listing requirements for the Funds. Moreover, all of the options 
contracts held by the Funds will trade on markets that are a member of 
ISG or affiliated with a member of ISG or with which the Exchange has 
in place a comprehensive surveillance sharing agreement. Quotation and 
last sale information for U.S. exchange-listed options contracts 
cleared by The Options Clearing Corporation will be available via the 
Options Price Reporting Authority. RFQ information for FLEX Options 
will be available directly from the applicable options exchange. The 
intra-day, closing and settlement prices of exchange-traded options 
will be readily available from the options exchanges, automated 
quotation systems, published or other public sources, or online 
information services such as Bloomberg or Reuters. Price information on 
cash equivalents is available from major broker-dealer firms or market 
data vendors, as well as from automated quotation systems, published or 
other public sources, or online information services.
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    \16\ See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \17\ See Rule 14.11(i)(4)(A)(ii).
    \18\ See Rule 14.11(i)(4)(B)(i).
    \19\ See Rule 14.11(i)(4)(B)(iii).
    \20\ See Rule 14.11(i)(4)(B)(iv).
    \21\ See Rule 14.11(i)(2)(C).
    \22\ See Rule 14.11(i)(2)(B).
    \23\ See Rule 14.11(i)(6).
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    Lastly, the issuer represents that it will provide and maintain a 
publicly available web tool for each of the Funds on its website that 
provides existing and prospective shareholders with important 
information to help inform investment decisions. The information 
provided includes the start and end dates of the current outcome 
period, the time remaining in the outcome period, the Fund's current 
net asset value, the Fund's cap for the outcome period and the maximum 
investment gain available up to the cap for a shareholder purchasing 
Shares at the current net asset value. For each of the Funds, the web 
tool also provides information regarding each Fund's buffer. This 
information includes the remaining buffer available for a shareholder 
purchasing Shares at the current net asset value or the amount of 
losses that a shareholder purchasing Shares at the current net asset 
value would incur before benefitting from the protection of the buffer. 
The cover of each Fund's prospectus, as well as the disclosure 
contained in ``Principal Investment Strategies,'' provides the specific 
web address for each Fund's web tool.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \24\ in general and Section 6(b)(5) of the Act \25\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest, because, as noted above, the Shares will meet each of 
the initial and continued listing criteria in BZX Rule 14.11(i) with 
the exception of Rule 14.11(i)(4)(C)(iv)(b), which requires that the 
aggregate gross notional value of listed derivatives based on any five 
or fewer underlying reference assets shall not exceed 65% of the weight 
of the portfolio (including gross notional exposures), and the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset shall not exceed 30% of the weight of 
the portfolio (including gross notional exposures).\26\ Rule 
14.11(i)(4)(C)(iv)(b) is intended to ensure that a fund is not subject 
to manipulation by virtue of significant exposure to a manipulable 
underlying reference asset by establishing concentration limits among 
the underlying reference assets for listed derivatives held by a 
particular fund.
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    \24\ 15 U.S.C. 78f.
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ As noted above, the Exchange is submitting this proposal 
because the Funds would not meet the requirements of Rule 
14.11(i)(4)(C)(iv)(b) which prevents the aggregate gross notional 
value of listed derivatives based on any single underlying reference 
asset from exceeding 30% of the weight of the portfolio (including 
gross notional exposures) and the aggregate gross notional value of 
listed derivatives based on any five or fewer underlying reference 
assets from exceeding 65% of the weight of the portfolio (including 
gross notional exposures).
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    The Exchange believes that sufficient protections are in place to 
protect against market manipulation of the Funds' Shares and S&P 500 
FLEX Options for several reasons: (i) The diversity, liquidity, and 
market cap of the securities underlying the S&P 500 Index; (ii) the 
competitive quoting process for FLEX Options; (iii) the significant 
liquidity in the market for options on the S&P 500 Index and SPY 
results in a well-established price discovery process that provides 
meaningful guideposts for FLEX Option

[[Page 54940]]

pricing; and (iv) surveillance by the Exchange, Cboe Options, other 
U.S. options exchanges, and FINRA designed to detect violations of the 
federal securities laws and SRO rules. The Exchange has in place a 
surveillance program for transactions in ETFs to ensure the 
availability of information necessary to detect and deter potential 
manipulations and other trading abuses, thereby making the Shares less 
readily susceptible to manipulation. Further, the Exchange believes 
that because the assets in each Fund's portfolio, which are comprised 
primarily of S&P 500 FLEX Options, will be acquired in extremely liquid 
and highly regulated markets, the Shares are less readily susceptible 
to manipulation.
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. All 
statements and representations made in this filing regarding (a) the 
description of the portfolio, reference assets, and index, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules shall constitute continued listing 
requirements for listing the Shares on the Exchange. The issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by a Fund or the related Shares to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will surveil for compliance with the 
continued listing requirements. If a Fund or the related Shares are not 
in compliance with the applicable listing requirements, then, with 
respect to such Fund or Shares, the Exchange will commence delisting 
procedures under Exchange Rule 14.12. FINRA conducts certain cross-
market surveillances on behalf of the Exchange pursuant to a regulatory 
services agreement. The Exchange is responsible for FINRA's performance 
under this regulatory services agreement. If a Fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures with respect to such Fund under Exchange 
Rule 14.12.
    The Exchange or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares and exchange-traded options 
contracts with other markets and other entities that are members of the 
ISG and may obtain trading information regarding trading in the Shares 
and exchange-traded options contracts from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares and exchange-traded options contracts from 
markets and other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees. As 
noted above, options on the S&P 500 Index and SPY are among the most 
liquid options in the world and derive their value from the actively 
traded S&P 500 Index components. The Exchange believes the highly 
regulated options markets and the broad base and scope of the S&P 500 
Index make securities that derive their value from that index less 
susceptible to market manipulation in view of market capitalization and 
liquidity of the S&P 500 Index components, the market cap and liquidity 
of SPY, price and quote transparency, and arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for S&P 500 
Index securities, SPY, options on the S&P 500 Index and SPY, and other 
related derivatives is sufficiently great to deter fraudulent or 
manipulative acts associated with the Funds' Shares price. The Exchange 
also believes that such liquidity is sufficient to support the creation 
and redemption mechanism. Coupled with the extensive surveillance 
programs of the SROs described above, the Exchange does not believe 
that trading in the Funds' Shares would present manipulation concerns.
    The Exchange represents that, except as described above, the Funds 
will meet and be subject to all other requirements of the Generic 
Listing Standards and other applicable continued listing requirements 
for Managed Fund Shares under Rule 14.11(i), including those 
requirements regarding the Disclosed Portfolio,\27\ Intraday Indicative 
Value,\28\ suspension of trading or removal,\29\ trading halts,\30\ 
disclosure,\31\ and firewalls.\32\ The Trust is required to comply with 
Rule 10A-3 under the Act for the initial and continued listing of the 
Shares of each Fund. Moreover, all of the options contracts held by the 
Funds will trade on markets that are a member of ISG or affiliated with 
a member of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
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    \27\ See Rule 14.11(i)(4)(B)(ii).
    \28\ See Rule 14.11(i)(4)(B)(i).
    \29\ See Rule 14.11(i)(4)(B)(iii).
    \30\ See Rule 14.11(i)(4)(B)(iv).
    \31\ See Rule 14.11(i)(6).
    \32\ See Rule 14.11(i)(7).
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    Finally, this proposal and the statements or representations herein 
regarding the limitations on portfolio holdings or reference assets, 
dissemination and availability of index, reference asset, and intraday 
indicative values, and the applicability of Exchange listing rules are 
substantively identical to those statements and representations 
included in the Original Approval and the descriptions of the portfolio 
or reference assets are substantially similar to those included in the 
Original Approval. The only substantive difference between this 
proposal and the Original Approval is that this proposal would allow 
the Funds to hold S&P 500 FLEX Options, while the Original Approval 
only allowed for FLEX Options on the S&P 500 Index.\33\ As noted above, 
there is significant liquidity in the components of the S&P 500 Index, 
options on the S&P 500 Index, and options on SPY, and, as such, 
allowing the Funds to hold FLEX Options referencing SPY raises no 
additional substantive issues for the Commission to review as compared 
to allowing the comparable funds from the Original Approval to hold 
FLEX Options referencing the S&P 500 Index. As such, the Exchange 
believes the proposed rule change will not significantly affect the 
protection of investors or the public interest because the proposal 
contains no new issues that the Commission has not previously 
contemplated.
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    \33\ The Exchange also notes that the only other notable 
differences between this proposal and the Original Approval, which 
it believes are non-substantive, are that: (i) The Original Approval 
approved the listing and trading of three series of monthly funds, 
while this proposal only proposes to list and trade two series of 
monthly funds; (ii) the Deep Buffer Funds provide a buffer against 
SPY losses between 5% and 30% as compared to between 5% and 35% 
against S&P 500 Index losses in the Original Approval; and (iii) the 
investment objective of the Funds is based on the returns (before 
fees, expenses, and taxes) of SPY as compared to the S&P 500 Index 
in the Original Approval.
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    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange

[[Page 54941]]

notes that the proposed rule change will facilitate the listing and 
trading of an additional type of Managed Fund Shares that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

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

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

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \34\ and Rule 19b-
4(f)(6) thereunder.\35\
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    \34\ 15 U.S.C. 78s(b)(3)(A).
    \35\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \36\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \37\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. The 
Exchange believes that the proposal and its statements and 
representations regarding the limitations on portfolio holdings or 
reference assets, dissemination and availability of index, reference 
asset, and intraday indicative values, and the applicability of 
Exchange listing rules, as well as the descriptions of the portfolio or 
reference assets are substantively identical to those statements and 
representations included in the Original Approval. The Exchange 
believes that there is significant liquidity in the components of the 
S&P 500 Index, options on the S&P 500 Index, and options on SPY, and 
that allowing the Funds to hold FLEX Options referencing SPY raises no 
additional substantive issues for the Commission to review. Further, 
the Exchange believes waiver of the operative delay will more quickly 
facilitate the Adviser's ability to list the product on the Exchange, 
which will enhance competition among market participants, to the 
benefit of investors and the marketplace. The Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest. Accordingly, the Commission 
hereby waives the operative delay and designates the proposed rule 
change operative upon filing.\38\
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    \36\ 17 CFR 240.19b-4(f)(6).
    \37\ 17 CFR 240.19b-4(f)(6)(iii).
    \38\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-084 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-2019-084. 
This file number should be included on the subject line if email is 
used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's internet website (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for website 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE, Washington, DC 20549 on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-CboeBZX-2019-084, 
and should be submitted on or before November 1, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
Jill M. Peterson,
Assistant Secretary.
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    \39\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2019-22253 Filed 10-10-19; 8:45 am]
BILLING CODE 8011-01-P