Document ID: SEC-2019-0540-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2019-04-22T04:00Z

[Federal Register Volume 84, Number 77 (Monday, April 22, 2019)]
[Notices]
[Pages 16753-16758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07982]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85656; File No. SR-CboeBZX-2019-023]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change Amend Exchange Rule 14.11(c), Index 
Fund Shares, To Adopt Generic Listing Standards for Index Fund Shares 
Based on an Index of Municipal Bond Securities

April 16, 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 April 3, 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, II, 
and III below, which Items have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Exchange Rule 14.11(c) (``Index Fund 
Shares'') to adopt generic listing standards for Index Fund Shares 
based on an index of municipal bond securities.
    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
    Rule 14.11(c) permits the Exchange to list a series of Index Fund 
Shares based on an index or portfolio of underlying securities. 
Currently, Rule 14.11(c) includes generic listing standards for Index 
Fund Shares based on an index or portfolio of equity or fixed income 
securities or a combination thereof. The Exchange proposes to amend 
Rule 14.11(c) to add a new Rule 14.11(c)(4)(B)(ii) to provide 
quantitative generic listing standards for Index Fund Shares based on 
an index or portfolio of Municipal Securities \3\ that do not meet the 
generic listing standards under Rule 14.11(c)(4)(B)(i).\4\ All other 
standards not included in Rule 14.11(c)(4)(B)(i) applicable to series 
of Index Fund Shares based on an index composed of fixed income 
securities will continue to apply to a series of Index Fund Shares 
based on an index or portfolio of Municipal Securities listed pursuant 
to Rule 14.11(c)(4)(B)(ii).
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    \3\ The term ``Municipal Securities'' has the definition given 
to it in Section 3(a)(29) of the Act.
    \4\ The Exchange notes that this proposal is substantively 
identical to a proposal recently submitted by NYSE Arca, Inc. See 
Securities Exchange Act Release No. 85170 (February 21, 2019), 84 FR 
6451 (February 27, 2019) (SR-NYSEArca-2019-04).
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    An index of Municipal Securities typically does not meet the 
generic listing requirements for Index Fund Shares based on an index of 
fixed income securities.\5\ Nonetheless, the Commission has previously 
approved proposed rule changes relating to listing and trading on the 
Exchange of Index Fund Shares based on an index of Municipal 
Securities.\6\ Given the large number of prior approvals by the 
Commission, the Exchange now

[[Page 16754]]

proposes to adopt generic listing standards for Index Fund Shares based 
on an index of Municipal Securities that do not meet the generic 
listing standards for Index Fund Shares based on an index of fixed 
income securities.
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    \5\ See Exchange Rule 14.11(c)(4)(A)(ii). Municipal Securities 
are typically issued in with individual maturities of relatively 
small size, although they generally are constituents of a much 
larger municipal bond offering. Therefore, an index of Municipal 
Securities will typically be unable to satisfy the requirement that 
component fixed income securities that, in the aggregate, account 
for at least 75% of the weight of the index each shall have a 
minimum principal amount outstanding of $100 million or more.
    \6\ The Exchange notes that the Commission has approved or 
published immediately effective filings allowing the listing and 
trading of a large number of series of Index Fund Shares based on 
Municipal Securities. See Securities Exchange Act Release Nos. 84107 
(September 13, 2018), 83 FR 47210 (September 18, 2018) (SR-CboeBZX-
2018-070) (Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To List and Trade Shares of the iShares iBonds 
Dec 2025 Term Muni Bond ETF of iShares Trust Under BZX Rule 
14.11(c)(4) (Index Fund Shares)); 79381 (November 22, 2016), 81 FR 
86044 (November 29, 2016) (SR-BatsBZX-2016-48) (Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendments No. 1 and No. 2 Thereto, To List and Trade Shares of the 
iShares iBonds Dec 2023 Term Muni Bond ETF and iShares iBonds Dec 
2024 Term Muni Bond ETF of the iShares U.S. ETF Trust Pursuant to 
BZX Rule 14.11(c)(4); 67985 (October 4, 2012), 77 FR 61804 (October 
11, 2012) (SR-NYSEArca-2012-92) (order approving proposed rule 
change relating to the listing and trading of iShares 2018 S&P AMT-
Free Municipal Series and iShares 2019 S&P AMT-Free Municipal Series 
under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02); 67729 
(August 24, 2012), 77 FR 52776 (August 30, 2012) (SR-NYSEArca-2012-
92) (notice of proposed rule change relating to the listing and 
trading of iShares 2018 S&P AMT-Free Municipal Series and iShares 
2019 S&P AMT-Free Municipal Series under NYSE Arca Equities Rule 
5.2(j)(3), Commentary .02); 72523, (July 2, 2014), 79 FR 39016 (July 
9, 2014) (SR-NYSEArca-2014-37) (order approving proposed rule change 
relating to the listing and trading of iShares 2020 S&P AMT-Free 
Municipal Series under NYSE Arca Equities Rule 5.2(j)(3), 
Commentary.02); 72172 (May 15, 2014), 79 FR 29241 (May 21, 2014) 
(SR-NYSEArca-2014-37) (notice of proposed rule change relating to 
the listing and trading of iShares 2020 S&P AMT-Free Municipal 
Series under NYSE Arca Equities Rule 5.2(j)(3), Commentary.02); 
72464 (June 25, 2014), 79 FR 37373 (July 1, 2014) (File No. SR-
NYSEArca-2014-45) (order approving proposed rule change governing 
the continued listing and trading of shares of the PowerShares 
Insured California Municipal Bond Portfolio, PowerShares Insured 
National Municipal Bond Portfolio, and PowerShares Insured New York 
Municipal Bond Portfolio); 75468 (July 16, 2015), 80 FR 43500 (July 
22, 2015) (SR-NYSEArca-2015-25) (order approving proposed rule 
change relating to the listing and trading of iShares iBonds Dec 
2021 AMT-Free Muni Bond ETF and iShares iBonds Dec2022 AMT-Free Muni 
Bond ETF under NYSE Arca Equities Rule 5.2(j)(3)); 74730 (April 15, 
2015), 76 [sic] FR 22234 (April 21, 2015) (notice of proposed rule 
change relating to the listing and trading of iShares iBonds Dec 
2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022 AMT-Free 
Muni Bond ETF under NYSE Arca Equities Rule 5.2(j)(3), Commentary 
.02); 74730 75376 (July 7, 2015), 80 FR 40113 (July 13, 2015) (SR-
NYSEArca-2015-18) (order approving proposed rule change relating to 
the listing and trading of Vanguard Tax-Exempt Bond Index Fund under 
NYSE Arca Equities Rule 5.2(j)(3)).
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    In the Exchange's experience, indices of Municipal Securities are 
able to satisfy all of the generic listing requirements applicable to 
fixed income indices contained in Rule 14.11(c)(4) except the 
requirement that component securities in an index have a minimum 
original principal amount outstanding. Specifically, Municipal 
Securities are generally issued with individual maturities of 
relatively small size, although they generally are constituents of a 
much larger municipal bond offering. Therefore, Municipal Securities 
are unable to satisfy the rule's requirement that ``at least 75% of the 
Fixed Income Securities portion of the weight of the index or portfolio 
each shall have a minimum original principal amount outstanding of $100 
million or more.'' Notwithstanding the inability of a Municipal 
Securities index to meet this aspect of the generic listing standards, 
the Commission has previously approved for listing and trading a series 
of Index Fund Shares based on such indices where the Exchange has 
demonstrated an index is not susceptible to manipulation.\7\
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    \7\ See supra note 6.
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    The Exchange would apply existing Rule 14.11(c)(4) and proposed 
Rule 14.11(c)(4)(B)(ii) in a ``waterfall'' manner. Specifically, every 
series of Index Fund Shares based on an index of fixed income 
securities and cash (including an index that contains Municipal 
Securities) would initially be evaluated against the generic listing 
standards of Rule 14.11(c)(4)(b)(i). If the index underlying a series 
of Index Fund Shares satisfied the existing criteria of Rule 
14.11(c)(4)(b)(i), the Exchange would proceed with listing the Index 
Fund Shares. The Exchange would apply proposed Rule 14.11(c)(4)(B)(ii) 
only if: (i) An index did not meet the requirements of Rule 
14.11(c)(4)(b)(i); and (ii) such index contained only Municipal 
Securities and cash.
    The Exchange believes that if an index of fixed income securities 
and cash (including one that contains Municipal Securities) satisfies 
the existing requirements of Rule 14.11(c)(4)(B)(i), its constituent 
securities are sufficiently liquid to deter manipulation of the index. 
Further, the proposed alternative listing standard, which would only be 
applicable to an index consisting entirely of Municipal Securities and 
cash, includes many requirements that are more stringent than those 
applicable to an index of fixed income securities and cash. The 
Exchange believes these heightened requirements would deter potential 
manipulation of such Municipal Securities indices even though the index 
may include securities that have smaller original principal amounts 
outstanding.
Comparison of Existing Quantitative Requirements for Fixed Income 
Indices vs. Proposed Quantitative Requirements for Municipal Securities 
Indices
    Below is a comparison of the existing quantitative requirements for 
Index Fund Shares based on an index of fixed income securities versus 
the Exchange's proposed alternative quantitative requirements for Index 
Fund Shares based on an index of Municipal Securities:

                  Original Principal Amount Outstanding
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Existing Requirement for       Fixed Income Security components that in
 Fixed Income Securities.       aggregate account for at least 75% of
                                the Fixed Income Securities portion of
                                the weight of the index or portfolio
                                each shall have a minimum original
                                principal amount outstanding of $100
                                million or more.
Proposed Requirement for       Municipal Security components that in
 Municipal Securities.          aggregate account for at least 90% of
                                the Municipal Securities portion of the
                                weight of the index or portfolio each
                                shall have a minimum original principal
                                amount outstanding of at least $5
                                million and have been issued as part of
                                a transaction of at least $20 million.
------------------------------------------------------------------------

    As discussed above, Municipal Securities are typically issued with 
individual maturities of relatively small size, although they generally 
are constituents of a much larger municipal bond offering. In 
recognition of these smaller offering sizes, the Exchange proposes to 
reduce the minimum original principal amount outstanding requirement 
for component securities to at least $5 million. Further, the Exchange 
proposes that qualifying securities must have been issued as part of a 
transaction of at least $20 million. Lastly, the Exchange proposes to 
increase the percentage weight of an index that must satisfy the 
original principal amount outstanding requirement from 75% to 90%.
    The Exchange does not believe that reducing the minimum original 
principal amount outstanding requirement for component securities will 
make an index more susceptible to manipulation. The Exchange believes 
that the requirement that component securities in a fixed income index 
have a minimum principal amount outstanding, in concert with the other 
requirements of Rule 14.11(c)(4)(B)(i), is to ensure that such index is 
sufficiently broad-based in scope as to minimize potential manipulation 
of the index.\8\ However, based on empirical analysis, the Exchange 
does not believe that an index of Municipal Securities with lower 
original principal amounts outstanding is necessarily more susceptible 
to manipulation.\9\ In 2016, Blackrock, Inc. analyzed the potential 
manipulation of Municipal Securities and found that such manipulation 
``may be uneconomical and is unsupported in practice.'' \10\ In 
addition, the Exchange believes that its proposal to require that 90% 
of the weight of a Municipal Securities index meet the original 
principal amount outstanding

[[Page 16755]]

requirement (as opposed to 75% for fixed income indices) will further 
deter potential manipulation by ensuring that a greater portion of the 
index meet this minimum size requirement.
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    \8\ The Commission approved BZX Rule 14.11(c) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \9\ See Letter from Samara Cohen, Managing Director, U.S. Head 
of iShares Capital Markets, Joanne Medero, Managing Director, 
Government Relations & Public Policy, and Deepa Damre, Managing 
Director, Legal & Compliance, BlackRock, Inc., to Brent J. Fields, 
Secretary, Commission, dated October 18, 2017 in support of the 
Exchange's proposal to facilitate the listing and trading of Index 
Fund Shares listed pursuant to NYSE Arca Rule 5.2-E(j)(3) (SR-
NYSEArca-2017-56).
    \10\ See Id. at 3 and accompanying Footnote 11. Blackrock stated 
``Our empirical analysis indicated that: (1) Given the over-the-
counter dealer-centric market for municipal bonds, the bid-ask 
spread decreases with trade size; therefore, trading many small lots 
to move matrix prices is likely to be costly; (2) large trades move 
prices significantly and this effect is incorporated into prices 
quickly; for manipulation to work by affecting bond prices, the 
trades must be large, implying greater dollar cost and more 
likelihood of detection even if markets were segmented; (3) while 
pricing agents apply matrix pricing techniques to value non-traded 
bonds, the effect is likely too small to permit price manipulation 
of the corresponding index or ETF; and (4) market participants will 
use all intraday data to come up with their own valuations 
independently of pricing providers; ultimately, the price of an ETF 
at a point in time reflects these estimates in a manner that 
balances supply and demand.''
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    The Exchange notes that the Commission has previously approved the 
listing and trading of several series of Index Fund Shares where the 
underlying Municipal Securities index required that component 
securities representing at least 90% of the weight of the index have a 
minimum original principal amount outstanding of at least $5 million 
and have been issued as part of a transaction of at least $20 
million.\11\
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    \11\ See, e.g., Securities Exchange Act Release No. 84049 
(September 6, 2018), 83 FR 46228 (September 12, 2018) (SR-NYSEArca-
2018-38) (order approving, among other things, revisions to the 
continued listing criteria applicable to the iShares New York AMT-
Free Muni Bond ETF).

                 Maximum Weight of Component Securities
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Existing Requirement for       No component fixed income security
 Fixed Income Securities.       (excluding Treasury Securities and GSE
                                Securities) shall represent more than
                                30% of the Fixed Income Securities
                                portion of the weight of the index or
                                portfolio, and the five most heavily
                                weighted component fixed income
                                securities in the index or portfolio
                                shall not in the aggregate account for
                                more than 65% of the Fixed Income
                                Securities portion of the weight of the
                                index or portfolio.
Proposed Requirement for       No component Municipal Security shall
 Municipal Securities.          represent more than 10% of the Municipal
                                Securities portion of the weight of the
                                index or portfolio, and the five most
                                heavily weighted component Municipal
                                Securities in the index or portfolio
                                shall not in the aggregate account for
                                more than 30% of the Municipal
                                Securities portion of the weight of the
                                index or portfolio.
------------------------------------------------------------------------

    The Exchange proposes to substantially reduce the maximum weight 
that any individual Municipal Security, or group of five Municipal 
Securities, can have in a Municipal Securities index. The current 
generic listing rules for Index Fund Shares based on a fixed income 
index permit individual component securities to account for up to 30% 
of the weight of such index and the top-five weighted component 
securities to account for up to 65% of the weight of such index. The 
Exchange proposes to reduce these metrics to 10% for individual 
Municipal Securities and 30% for the top-weighted Municipal Securities 
in an index.
    The Exchange believes that its proposal will reduce the likelihood 
that a Municipal Securities index underlying a series of Index Fund 
Shares could be subject to manipulation by ensuring that no individual 
Municipal Security, or group of five Municipal Securities, represents 
an outsized weight of a Municipal Securities index.

                       Diversification of Issuers
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Existing Requirement for       An underlying index or portfolio
 Fixed Income Securities.       (excluding one consisting entirely of
                                exempted securities) must include a
                                minimum of 13 non-affiliated issuers.
Proposed Requirement for       An underlying index or portfolio must
 Municipal Securities.          include a minimum of 13 non-affiliated
                                issuers.
------------------------------------------------------------------------

    The current generic listing rules for Index Fund Shares based on an 
index of fixed income securities require that such index must include 
securities from at least thirteen non-affiliated \12\ issuers. Notably, 
the current rules exempt indices consisting entirely of exempted 
securities from complying with this diversification requirement. 
Municipal Securities are included in the definition of exempted 
securities.\13\ Therefore, an index of Municipal Securities that 
otherwise met the requirements of Rule 14.11(c)(4) would not be 
required to satisfy any minimum issuer diversification requirement.
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    \12\ Rule 405 under the Securities Act of 1933 defines an 
affiliate as a person that directly, or indirectly through one or 
more intermediaries, controls or is controlled by, or is under 
common control with such person. Control, for this purpose, is the 
possession, direct or indirect, of the power to direct or cause the 
direction of the management and policies of a person, whether 
through the ownership of voting securities, by contract, or 
otherwise.
    \13\ See Section 3(a)(12) of the Act.
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    Nonetheless, the Exchange proposes that a Municipal Securities 
index be required to include securities from at least 13 non-affiliated 
issuers. The Exchange believes that requiring such diversification will 
reduce the likelihood that an index can be manipulated by ensuring that 
securities from a variety of issuers are represented in an index of 
Municipal Securities.

                          Number of Components
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Existing Requirement for Fixed Income Securities  Thirteen.
Proposed Requirement for Municipal Securities...  Five Hundred.
------------------------------------------------------------------------

    The current generic listing rules for Index Fund Shares based on an 
index of fixed income securities do not have an explicit requirement 
that an index contain a minimum number of securities. However, given 
that such rules require an index to contain securities from at least 
thirteen non-affiliated issuers, there is a de facto requirement that 
an index of fixed income securities contain at least thirteen component 
securities. As described above, a fixed income index comprised entirely 
of exempted securities (including Municipal Securities) is not required 
to satisfy the issuer diversification test, thereby allowing it to have 
no minimum number of component securities.
    The Exchange proposes to require that a Municipal Securities index 
contain at least 500 component securities. The Exchange believes that 
such requirement will ensure that a Municipal Securities index is 
sufficiently broad-based and diversified to make it less susceptible to 
manipulation.

[[Page 16756]]

    The Exchange proposes that the quantitative requirements described 
above would apply to a Municipal Securities index underlying a series 
of Index Fund Shares on both an initial and continued basis.
    The Exchange proposes to amend Exchange Rule 14.11(c)(5) to specify 
that the Exchange may approve a series of Index Fund Shares for listing 
based on a combination of indexes, including an index of Municipal 
Securities. To the extent that an index of Municipal Securities is 
included in a combination, amended Rule 14.11(c)(5) will specify that 
the Municipal Securities index must meet all requirements of Rule 
14.11(c)(4)(B)(ii). In addition, amended Rule 14.11(c)(5) will specify 
that requirements related to index dissemination and related continued 
listing standards will apply to indexes of Municipal Securities. The 
Exchange notes that a combination index that includes an index of 
Municipal Securities will not be permitted to seek to provide 
investment results in a multiple of the direct or inverse performance 
of such combination index.
Additional Requirements
    As noted above, the Exchange proposes that existing rules 
applicable to Index Fund Shares based on fixed income securities will 
continue to apply to any series of Index Fund Shares listed pursuant to 
Rule 14.11(c)(4)(B)(ii), including: (i) Index methodology and 
calculation; \14\ (ii) dissemination of information; \15\ (iii) initial 
shares outstanding; \16\ (iv) hours of trading; \17\ (v) surveillance 
procedures; \18\ and (vi) all continued listing requirements under Rule 
14.11(c)(9)(B).
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    \14\ See Rule 14.11(c)(4)(C).
    \15\ See Rule 14.11(c)(6)(A).
    \16\ See Rule 14.11(c)(6)(B).
    \17\ See Rule 14.11(c)(7).
    \18\ See Rule 14.11(c)(6)(C).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities the Act and the rules and regulations thereunder 
applicable to the Exchange and, in particular, the requirements of 
Section 6(b) of the Act.\19\ Specifically, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) \20\ 
requirements that the rules of an exchange be 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 regulating, clearing, settling, processing 
information with respect to, and 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. Additionally, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \21\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ Id.
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    In particular, the Exchange believes that the proposed rule change 
is designed to prevent fraudulent and manipulative acts and practices 
in that Index Fund Shares listed pursuant to proposed Exchange Rule 
14.11(c)(4)(B)(ii) will be subject to the existing trading 
surveillances, administered by FINRA on behalf of the Exchange, which 
are designed to detect violations of Exchange rules and applicable 
federal securities laws. The Exchange represents that these procedures 
are adequate to properly monitor Exchange trading of the Shares in all 
trading sessions and to deter and detect violations of Exchange rules 
and applicable federal securities laws. FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares 
with other markets that are members of the ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
FINRA also can access data obtained from the MSRB relating to municipal 
bond trading activity for surveillance purposes in connection with 
trading in the Shares. FINRA, on behalf of the Exchange, is able to 
access, as needed, trade information for certain fixed income 
securities held by a Fund reported to FINRA's TRACE.
    The Exchange believes that the proposed listing standard will 
ensure that indices underlying a series of Index Fund Shares are 
sufficiently well-diversified to protect against index manipulation. On 
an initial and continuous basis, each index will contain at least 500 
component securities. In addition, on an initial and continued basis, 
at least 90% of the Municipal Securities portion of the weight of the 
index or portfolio each shall have a minimum original principal amount 
outstanding of at least $5 million and have been issued as part of a 
transaction of at least $20 million. Further, on an initial and 
continued basis, no component Municipal Security shall represent more 
than 10% of the Municipal Securities portion of the weight of the index 
or portfolio, and the five most heavily weighted component Municipal 
Securities in an index or portfolio shall not in the aggregate account 
for more than 30% of the Municipal Securities portion of the weight of 
such index or portfolio. Lastly, on an initial and continued basis, an 
underlying index or portfolio must include a minimum of 13 non-
affiliated issuers. The Exchange believes that this significant 
diversification and the lack of concentration among constituent 
securities provides [sic] a strong degree of protection against index 
manipulation.
    In addition, the Exchange represents that Index Fund Shares listed 
to the proposed generic listing rule will comply with all other 
requirements applicable to Index Fund Shares including, but not limited 
to, the applicable rules governing the trading of equity securities, 
trading hours, trading halts, surveillance, information barriers and 
the Information Circular to Members, as set forth in Exchange rules 
applicable to Index Fund Shares.
    The Exchange believes that its proposed amendments to Rule 
14.11(c)(5) are consistent with the Act because any index of Municipal 
Securities included in a combination index will be required to meet the 
requirements of proposed Rule 14.11(c)(4)(B)(ii). In addition, such 
index will be required to meet the index dissemination and continued 
listing requirements of Rule 14.11(c)(5). Lastly, a combination index 
that includes an index of Municipal Securities will not be permitted to 
seek to provide investment results in a multiple of the direct or 
inverse performance of such combination index.
    As described above, the Exchange notes that the Commission has 
previously approved the listing and trading of several series of Index 
Fund Shares where the underlying Municipal Securities index required 
that component securities representing at least 90% of the weight of 
the index have a minimum original principal amount outstanding of at 
least $5 million and have been issued as part of a transaction of at 
least $20 million. Further, the Exchange notes that the other elements 
of the proposed rule are each the same or more restrictive than the 
generic listing rules applicable to Index Fund Shares based on an index 
of fixed income securities. The Exchange, therefore, believes that 
indices underlying a series of Index Fund Shares listed pursuant to the 
proposed generic rules will be sufficiently broad-based to deter 
potential manipulation.
    The proposed rule change is designed to promote just and equitable 
principles

[[Page 16757]]

of trade and to protect investors and the public interest. The Exchange 
believes that a large amount of information will be publicly available 
regarding Index Fund Shares listed pursuant to the proposed rule, 
thereby promoting market transparency. As described above, the Intraday 
Indicative Value (the ``IIV'') will be widely disseminated by one or 
more major market data vendors at least every 15 seconds during the 
Exchange's Regular Trading Hours. The current value of an index 
underlying a series of Index Fund Shares will be disseminated by one or 
more major market data vendors at least once per day. Information 
regarding market price and trading volume of the Index Fund Shares will 
be continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services, and quotation 
and last sale information will be available via the CTA high-speed 
line. Prior to the commencement of trading, the Exchange will inform 
its Members in an Information Circular of the special characteristics 
and risks associated with trading the Index Fund Shares. If the 
Exchange becomes aware that the net asset value of a series of Index 
Fund Shares (the ``NAV'') is not being disseminated to all market 
participants at the same time, it will halt trading in the Index Fund 
Shares until such time as the NAV is available to all market 
participants. With respect to trading halts, the Exchange may consider 
all relevant factors in exercising its discretion to halt or suspend 
trading in the Index Fund Shares. Trading also may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Index Fund Shares inadvisable. If the IIV or the 
index values are not being disseminated as required, the Exchange may 
halt trading during the day in which the interruption to the 
dissemination of the applicable IIV or an index value occurs. If the 
interruption to the dissemination of the applicable IIV or an index 
value persists past the trading day in which it occurred, the Exchange 
will halt trading. Trading in Shares of the Funds will be halted if the 
circuit breaker parameters in Exchange Rule 11.18 have been reached or 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Index Fund Shares inadvisable. In 
addition, investors will have ready access to information regarding the 
IIV, and quotation and last sale information for the Index Fund Shares.
    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 
additional types of exchange-traded products based on municipal bond 
indexes that will enhance competition among market participants, to the 
benefit of investors and the marketplace. The Exchange has in place 
surveillance procedures relating to trading in the Index Fund Shares 
and may obtain information via ISG from other exchanges that are 
members of ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. In addition, investors 
will have ready access to information regarding the IIV and quotation 
and last sale information for the Index Fund Shares. Trade price and 
other information relating to municipal bonds is available through the 
MSRB's EMMA system.
    As required under Rule 14.11(c)(4)(C)(i) and (iii), if the index is 
maintained by a broker-dealer or fund advisor, the broker-dealer or 
fund advisor shall erect and maintain a ``firewall'' around the 
personnel who have access to information concerning changes and 
adjustments to the index. Further, any advisory committee, supervisory 
board, or similar entity that advises a Reporting Authority or that 
makes decisions on the index composition, methodology and related 
matters, 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.
    Further, the index value of a series of Index Fund Shares listed 
pursuant to proposed Rule 14.11(c)(4)(B)(ii) will be widely 
disseminated by one or more major market data vendors at least once per 
day and if the index value does not change during some or all of the 
period when trading is occurring on the Exchange, the last official 
calculated index value must remain available throughout Exchange 
trading hours. In addition, the IIV for the Index Fund Shares will be 
disseminated by one or more major market data vendors, updated at least 
every 15 seconds during the Exchange's Regular Trading Hours as 
required under Rule 14.11(c)(4)(C)(ii).

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 purposes of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of Index 
Fund Shares based on an index of Municipal Securities which 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 neither solicited nor received comments on the 
proposed rule change.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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 [email protected]. Please include 
File Number SR-CboeBZX-2019-023 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-2019-023. 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

[[Page 16758]]

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-2019-023, and should be submitted on or before May 13, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07982 Filed 4-19-19; 8:45 am]
 BILLING CODE 8011-01-P