Document ID: SEC-2019-1127-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2019-08-07T04:00Z

[Federal Register Volume 84, Number 152 (Wednesday, August 7, 2019)]
[Notices]
[Pages 38689-38696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16855]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86546; File No. SR-CboeBZX-2019-068]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the 
iShares California Short Maturity Muni Bond ETF of the iShares U.S. ETF 
Trust Under Rule 14.11(i), Managed Fund Shares

August 1, 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 July 19, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

---------------------------------------------------------------------------

[[Page 38690]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes a rule change to list and trade shares of the 
iShares California Short Maturity Muni Bond ETF (the ``Fund'') of the 
iShares U.S. ETF Trust (the ``Trust'' or the ``Issuer'') under Rule 
14.11(i) (``Managed Fund Shares''). The shares of the Fund are referred 
to herein as the ``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 the Shares under Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\3\ The Fund will be an actively managed fund. The 
Shares will be offered by the Trust, which was established as a 
Delaware statutory trust on June 21, 2011. The Trust is registered with 
the Commission as an open-end investment company and has filed a 
registration statement on behalf of the Fund on Form N-1A 
(``Registration Statement'') with the Commission.\4\
---------------------------------------------------------------------------

    \3\ The Commission approved Rule 14.11(i) in Securities Exchange 
Act Release No. 65225 (August 30, 2011), 76 FR 55148 (September 6, 
2011) (SR-BATS-2011-018).
    \4\ See Registration Statement on Form N-1A for the Trust, filed 
on April 11, 2019 (File Nos. 333-179904 and 811-22649). The 
description of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement. 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. 29571 (January 24, 2011) (File No. 812-13601).
---------------------------------------------------------------------------

    Rule 14.11(i)(4)(C)(ii)(a) requires that component fixed income 
securities that, in the aggregate, account for at least 75% of the 
fixed income weight of the portfolio must each have a minimum principal 
amount outstanding of $100 million or more. The Exchange submits this 
proposal because the Fund will not meet this requirement. The Fund 
will, however, meet all of the other requirements of Rule 14.11(i).\5\
---------------------------------------------------------------------------

    \5\ The Exchange notes that the Commission has approved several 
proposals related to the listing and trading of index-based 
municipal bond funds focused solely on issuers from California as 
well as several other single-state index-based municipal bond funds. 
See, e.g., Securities Exchange Act Release Nos. 72464 (June 25, 
2014), 79 FR 37373 (July 1, 2014) (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); and 82295 (December 12, 2017), 82 FR 60056 (December 18, 
2017) (SR-NYSEArca-2017-56) (order approving proposed rule change to 
list and trade shares of twelve series of investment company units, 
including the iShares California Muni Bond ETF and the iShares New 
York Muni Bond ETF).
---------------------------------------------------------------------------

Description of the Shares and the Fund
    BlackRock Fund Advisors is the investment adviser (``BFA'' or 
``Adviser'') to the Fund.\6\ State Street Bank and Trust Company is the 
administrator, custodian, and transfer agent (``Administrator,'' 
``Custodian,'' and ``Transfer Agent,'' respectively) for the Trust. 
BlackRock Investments, LLC serves as the distributor (``Distributor'') 
for the Trust.
---------------------------------------------------------------------------

    \6\ BFA is an indirect wholly owned subsidiary of BlackRock, 
Inc.
---------------------------------------------------------------------------

    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.\7\ 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. Rule 14.11(i)(7) is 
similar to Rule 14.11(b)(5)(A)(i), however, Rule 14.11(i)(7) in 
connection with the establishment of a ``fire wall'' between the 
investment adviser and the broker-dealer reflects the applicable open-
end fund's portfolio, not an underlying benchmark index, as is the case 
with index-based funds. The Adviser is not a registered broker-dealer, 
but is affiliated with multiple broker-dealers and has implemented 
``fire walls'' with respect to such broker-dealers regarding access to 
information concerning the composition and/or changes to the Fund's 
portfolio. In addition, Adviser personnel who make decisions regarding 
the 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 becomes registered 
as a broker-dealer or newly affiliated with another 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 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.
---------------------------------------------------------------------------

    \7\ 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.
---------------------------------------------------------------------------

iShares California Short Maturity Muni Bond ETF
    According to the Registration Statement, the Fund will seek to 
maximize tax-free current income from a portfolio composed of short 
maturity, investment-grade municipal bonds issued in the State of 
California. To achieve its objective, the Fund will invest, under 
Normal Market Conditions,\8\ at least 80% of its net

[[Page 38691]]

assets in Municipal Securities, as defined below, issued in the State 
of California by or on behalf of California state or local governments 
or agencies, whose interest payments are exempt from U.S. federal, 
including the federal alternative minimum tax, and California state 
income taxes. The Fund will be classified as a ``non-diversified'' 
investment company under the 1940 Act.\9\
---------------------------------------------------------------------------

    \8\ 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.
    \9\ The diversification standard is set forth in Section 5(b)(1) 
of the 1940 Act.
---------------------------------------------------------------------------

    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended. The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
Principal Holdings--Municipal Securities
    To achieve its objective, the Fund will invest, under Normal Market 
Conditions, in U.S.-dollar denominated investment-grade short-term 
fixed- and floating-rate Municipal Securities, as defined below, with 
remaining maturities of five years or less. Investment-grade securities 
are rated BBB- or higher by S&P Global Ratings and/or Fitch Ratings, 
Inc., or Baa3 or higher by Moody's Investors Service, Inc., or if 
unrated, determined by the Adviser to be of equivalent quality.\10\ 
Under Normal Market Conditions, the Fund will seek to maintain a 
weighted average maturity that is less than three years.\11\
---------------------------------------------------------------------------

    \10\ According to the Adviser, BFA may determine that unrated 
securities are of ``equivalent quality'' based on such credit 
quality factors that it deems appropriate, which may include among 
other things, performing an analysis similar, to the extent 
possible, to that performed by a nationally recognized statistical 
ratings organization when rating similar securities and issuers. In 
making such a determination, BFA may consider internal analyses and 
risk ratings, third party research and analysis, and other sources 
of information, as deemed appropriate by the Adviser.
    \11\ Weighted average maturity is a U.S. dollar-weighted average 
of the remaining term to maturity of the underlying securities in 
the Fund's portfolio. For the purposes of determining the Fund's 
weighted average maturity, a security's final maturity date will be 
used for calculation purposes.
---------------------------------------------------------------------------

    Municipal securities (``Municipal Securities'') are fixed and 
variable rate securities issued in the U.S. by U.S. states and 
territories, municipalities and other political subdivisions, agencies, 
authorities, and instrumentalities of states and multi-state agencies 
and authorities and will include only the following instruments: 
General obligation bonds,\12\ limited obligation bonds (or revenue 
bonds),\13\ municipal notes,\14\ municipal commercial paper,\15\ tender 
option bonds,\16\ variable rate demand notes and demand obligations 
(``VRDOs''),\17\ municipal lease obligations,\18\ stripped 
securities,\19\ structured securities,\20\ zero coupon securities,\21\ 
and exchange traded and non-exchange traded investment companies 
(including investment companies advised by BFA or its affiliates) that 
invest in such Municipal Securities.\22\
---------------------------------------------------------------------------

    \12\ General obligation bonds are obligations involving the 
credit of an issuer possessing taxing power and are payable from 
such issuer's general revenues and not from any particular source.
    \13\ Limited obligation bonds are payable only from the revenues 
derived from a particular facility or class of facilities or, in 
some cases, from the proceeds of a special excise or other specific 
revenue source, and also include industrial development bonds issued 
pursuant to former U.S. federal tax law. Industrial development 
bonds generally are also revenue bonds and thus are not payable from 
the issuer's general revenues. The credit and quality of industrial 
development bonds are usually related to the credit of the corporate 
user of the facilities. Payment of interest on and repayment of 
principal of such bonds is the responsibility of the corporate user 
(and/or any guarantor).
    \14\ Municipal notes are shorter-term municipal debt obligations 
that may provide interim financing in anticipation of tax 
collection, receipt of grants, bond sales, or revenue receipts.
    \15\ Municipal commercial paper is generally unsecured debt that 
is issued to meet short-term financing needs.
    \16\ Tender option bonds are synthetic floating-rate or 
variable-rate securities issued when long-term bonds are purchased 
in the primary or secondary market and then deposited into a trust. 
Custodial receipts are then issued to investors, such as the Fund, 
evidencing ownership interests in the trust.
    \17\ VRDOs are tax-exempt obligations that contain a floating or 
variable interest rate adjustment formula and a right of demand on 
the part of the holder thereof to receive payment of the unpaid 
principal balance plus accrued interest upon a short notice period 
not to exceed seven days.
    \18\ Municipal lease obligations include certificates of 
participation issued by government authorities or entities to 
finance the acquisition or construction of equipment, land, and/or 
facilities.
    \19\ Stripped securities are created when an issuer separates 
the interest and principal components of an instrument and sells 
them as separate securities. In general, one security is entitled to 
receive the interest payments on the underlying assets and the other 
to receive the principal payments.
    \20\ Structured securities are privately negotiated debt 
obligations where the principal and/or interest is determined by 
reference to the performance of an underlying investment, index, or 
reference obligation, and may be issued by governmental agencies. 
While structured securities are part of the principal holdings of 
the Fund, the Issuer represents that such securities, when combined 
with those instruments held as part of the other portfolio holdings 
described below, will not exceed 20% of the Fund's net assets.
    \21\ Zero coupon securities are securities that are sold at a 
discount to par value and do not pay interest during the life of the 
security. The discount approximates the total amount of interest the 
security will accrue and compound over the period until maturity at 
a rate of interest reflecting the market rate of the security at the 
time of issuance. Upon maturity, the holder of a zero coupon 
security is entitled to receive the par value of the security.
    \22\ The Fund currently anticipates investing in only registered 
open-end investment companies, including mutual funds and the open-
end investment company funds described in Rule 14.11. The Fund may 
invest in the securities of other investment companies to the extent 
permitted by law.
---------------------------------------------------------------------------

    In the absence of Normal Market Conditions, the Fund may 
temporarily depart from its normal investment process, provided that 
such departure is, in the opinion of the Adviser, consistent with the 
Fund's investment objective and in the best interest of the Fund. For 
example, the Fund may hold a higher than normal proportion of its 
assets in cash in response to adverse market, economic or political 
conditions.
    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\23\ The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
---------------------------------------------------------------------------

    \23\ 26 U.S.C. 851.
---------------------------------------------------------------------------

Other Portfolio Holdings
    The Fund may also, to a limited extent (under Normal Market 
Conditions, less than 20% of the Fund's net assets), invest in certain 
futures, options and swap contracts,\24\ cash and cash equivalents, 
including shares of money market funds advised by BFA or its 
affiliates, as well as in Municipal Securities of issuers located 
outside of California whose interest payments are exempt from regular 
federal income taxes.\25\ The Fund's investments will be consistent 
with its investment objective and will not be used to achieve leveraged 
returns (i.e. two times or three

[[Page 38692]]

times the Fund's benchmark, as described in the Registration 
Statement).
---------------------------------------------------------------------------

    \24\ Such futures, options and swap contracts will include only 
the following: Interest rate futures, interest rate options, and 
interest rate swaps. The derivatives will be centrally cleared and 
they will be collateralized. At least 90% of the Fund's net assets 
that are invested in listed derivatives will be invested in 
instruments that trade in markets that are members or affiliates of 
members of the Intermarket Surveillance Group (``ISG'') or are 
parties to a comprehensive surveillance sharing with the Exchange.
    \25\ Issuers located outside of California may be states, 
territories and possessions of the U.S., including the District of 
Columbia, and their political subdivisions, agencies and 
instrumentalities.
---------------------------------------------------------------------------

    The Fund may also enter into repurchase and reverse repurchase 
agreements for Municipal Securities (collectively, ``Repurchase 
Agreements''). Repurchase Agreements involve the sale of securities 
with an agreement to repurchase the securities at an agreed-upon price, 
date and interest payment and have the characteristics of borrowing as 
part of the Fund's principal holdings.\26\
---------------------------------------------------------------------------

    \26\ The Fund's exposure to reverse repurchase agreements will 
be covered by liquid assets having a value equal to or greater than 
such commitments. The use of reverse repurchase agreements is a form 
of leverage because the proceeds derived from reverse repurchase 
agreements may be invested in additional securities. As further 
stated below, the Fund's investments will be consistent with its 
investment objective and will not be used to achieve leveraged 
returns.
---------------------------------------------------------------------------

    The Fund may also invest in short-term instruments (``Short-Term 
Instruments''),\27\ which includes exchange traded and non-exchange 
traded investment companies (including investment companies advised by 
BFA or its affiliates) that invest in money market instruments.
---------------------------------------------------------------------------

    \27\ The Fund may invest in Short-Term Instruments, including 
money market instruments, on an ongoing basis to provide liquidity 
or for other reasons. Money market instruments are generally short-
term investments that include only the following: (i) Shares of 
money market funds (including those advised by BFA or otherwise 
affiliated with BFA); (ii) obligations issued or guaranteed by the 
U.S. government, its agencies or instrumentalities (including 
government-sponsored enterprises); (iii) negotiable certificates of 
deposit (``CDs''), bankers' acceptances, fixed-time deposits and 
other obligations of U.S. and non-U.S. banks (including non-U.S. 
branches) and similar institutions; (iv) commercial paper, including 
asset-backed commercial paper; (v) non-convertible corporate debt 
securities (e.g., bonds and debentures) with remaining maturities at 
the date of purchase of not more than 397 days and that satisfy the 
rating requirements set forth in Rule 2a-7 under the 1940 Act; and 
(vi) short-term U.S. dollar-denominated obligations of non-U.S. 
banks (including U.S. branches) that, in the opinion of BFA, are of 
comparable quality to obligations of U.S. banks which may be 
purchased by the Fund. All money market securities acquired by the 
Fund will be rated investment grade. The Fund does not intend to 
invest in any unrated money market securities. However, it may do 
so, to a limited extent, such as where a rated money market security 
becomes unrated, if such money market security is determined by the 
Adviser to be of comparable quality. BFA may determine that unrated 
securities are of comparable quality based on such credit quality 
factors that it deems appropriate, which may include, among other 
things, performing an analysis similar, to the extent possible, to 
that performed by a nationally recognized statistical rating 
organization rating similar securities and issuers.
---------------------------------------------------------------------------

Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), as 
deemed illiquid by the Adviser \28\ under the 1940 Act.\29\ The Fund 
will monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets are defined by 
Rule 22e-4.
---------------------------------------------------------------------------

    \28\ In reaching liquidity decisions, the Adviser may consider 
factors including: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer); any legal or contractual 
restrictions on the ability to transfer the security or asset; 
significant developments involving the issuer or counterparty 
specifically (e.g., default, bankruptcy, etc.) or the securities 
markets generally; and settlement practices, registration 
procedures, limitations on currency conversion or repatriation, and 
transfer limitations (for foreign securities or other assets).
    \29\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).
---------------------------------------------------------------------------

    The Fund will launch with at least 500,000 Shares outstanding. The 
portfolio will hold a minimum of 15 different Municipal Securities from 
at least 15 unique issuers. No single obligor will account for more 
than 10% of the weight of the Fund's portfolio and no 10 obligors will 
account for more than 75% of the weight of the Fund's portfolio. The 
Exchange notes that the California AMT-Free municipal bond market value 
is estimated to be ~$151 billion and is the second largest as measured 
by state. As of June 5, 2019, California represented 21.02% of all 
issuances in the U.S.\30\ Additionally, as a registered investment 
company, no more than 50% of the Fund's assets will be invested in 
issuers that are more than 5% of the value of the Fund's assets. In 
addition, the Fund will not invest more than 25% of its assets in any 
single issuer. As noted above, the Fund will satisfy all of the generic 
listing requirements for Managed Fund Shares that hold fixed income 
securities, except for the minimum principal amount outstanding 
requirement in 14.11(i)(4)(C)(ii)(a).
---------------------------------------------------------------------------

    \30\ Statistics are based on the universe included in the S&P 
National AMT-Free Muni Bond Index. New York ($160b) is the largest 
municipal bond market by state, registering 22.07% of all issuances 
in the U.S.
---------------------------------------------------------------------------

Availability of Information
    The Fund's website, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Fund that may be downloaded. The website will include additional 
quantitative information updated on a daily basis, including: (1) The 
prior business day's reported NAV, daily trading volume, and a 
calculation of the premium and discount of the Bid/Ask Price against 
the NAV; and (2) data in chart format displaying the frequency 
distribution of discounts and premiums of the daily Bid/Ask Price 
against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. Daily trading volume information for the 
Shares will also be available in the financial section of newspapers, 
through subscription services such as Bloomberg, Thomson Reuters, and 
International Data Corporation, which can be accessed by authorized 
participants and other investors, as well as through other electronic 
services, including major public websites. On each business day, the 
Fund will disclose on its website the identities and quantities of the 
portfolio of securities and other assets in the daily disclosed 
portfolio held by the Fund that formed the basis for the Fund's 
calculation of NAV at the end of the previous business day. The daily 
disclosed portfolio will include, as applicable: The ticker symbol; 
CUSIP number or other identifier, if any; a description of the holding 
(including the type of holding, such as the type of swap); the identity 
of the security, index or other asset or instrument underlying the 
holding, if any; for options, the option strike price; quantity held 
(as measured by, for example, par value, notional value or number of 
shares, contracts, or units); maturity date, if any; coupon rate, if 
any; effective date, if any; market value of the holding; and the 
percentage weighting of the holding in the Fund's portfolio. The 
website and information will be publicly available at no charge.
    In addition, an estimated value, defined in BZX Rule (i)(4)(B)(i) 
as the intraday indicative value (the ``IIV'') that reflects an 
estimated intraday value

[[Page 38693]]

of the Fund's portfolio, will be disseminated. Moreover, the IIV will 
be based upon the current value for the components of the daily 
disclosed portfolio and will be updated and widely disseminated by one 
or more major market data vendors at least every 15 seconds during the 
Exchange's Regular Trading Hours.\31\ In addition, the quotations of 
certain of the Fund's holdings may not be updated during U.S. trading 
hours if updated prices cannot be ascertained.
---------------------------------------------------------------------------

    \31\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IIVs 
published via the CTA or other data feeds.
---------------------------------------------------------------------------

    The dissemination of the IIV, together with the daily disclosed 
portfolio, will allow investors to determine the value of the 
underlying portfolio of the Fund on a daily basis and provide a close 
estimate of that value throughout the trading day.
    Quotation and last sale information for the Shares will be 
available via the CTA high speed line. Price information regarding 
Municipal Securities and other non-exchange traded assets including 
certain derivatives, money market funds and other instruments, and 
repurchase agreements is available from third party pricing services 
and major market data vendors. Price information regarding Municipal 
Securities can also be obtained from the Municipal Securities 
Rulemaking Board's Electronic Municipal Market Access (``EMMA'') 
system. For exchange-traded assets, including futures, and certain 
options, such intraday information is available directly from the 
applicable listing exchange. In addition, price information for U.S. 
exchange-traded options will be available from the Options Price 
Reporting Authority.
Initial and Continued Listing
    The Shares will be subject to Rule 14.11(i), which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and/or continued 
listing, the Fund must be in compliance with Rule 10A-3 under the 
Act.\32\ A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \32\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    The Trust is required to comply with Rule 10A-3 under the Act for 
the initial and continued listing of the Shares of the Fund. In 
addition, the Exchange represents that the Shares of the Fund will 
continue to comply with all other requirements applicable to Managed 
Fund Shares, which include the dissemination of key information such as 
the Disclosed Portfolio,\33\ Net Asset Value,\34\ and the Intraday 
Indicative Value,\35\ suspension of trading or removal,\36\ trading 
halts,\37\ surveillance,\38\ minimum price variation for quoting and 
order entry,\39\ the information circular,\40\ and firewalls \41\ as 
set forth in Exchange rules applicable to Managed Fund Shares and the 
orders approving such rules. All statements and representations made in 
this filing regarding the description of the portfolio or reference 
assets, limitations on portfolio holdings or reference assets, 
dissemination and availability of reference asset and intraday 
indicative values (as applicable), or the applicability of Exchange 
listing rules specified in this filing shall constitute continued 
listing requirements for the Shares. The Fund has represented to the 
Exchange that it will advise the Exchange of any failure by the Fund or 
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. The 
Financial Industry Regulatory Authority (``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 the Fund is 
not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures with respect to the Fund 
under Exchange Rule 14.12.
---------------------------------------------------------------------------

    \33\ See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \34\ See Rule 14.11(i)(4)(A)(ii).
    \35\ See Rule 14.11(i)(4)(B)(i).
    \36\ See Rule 14.11(i)(4)(B)(iii).
    \37\ See Rule 14.11(i)(4)(B)(iv).
    \38\ See Rule 14.11(i)(2)(C).
    \39\ See Rule 14.11(i)(2)(B).
    \40\ See Rule 14.11(i)(6).
    \41\ See Rule 14.11(i)(7).
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. The Exchange will halt trading in 
the Shares under the conditions specified in Rule 11.18. Trading may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the Disclosed 
Portfolio of the Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which trading 
in the Shares of the Fund may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. The Exchange will 
allow trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern 
Time. The Exchange has appropriate rules to facilitate transactions in 
the Shares during all trading sessions. As provided in Rule 11.11(a), 
the minimum price variation for quoting and entry of orders in Managed 
Fund Shares traded on the Exchange is $0.01, with the exception of 
securities that are priced less than $1.00, for which the minimum price 
variation for order entry is $0.0001.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by FINRA on behalf 
of the Exchange, or by regulatory staff 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 federal securities laws applicable to trading on the Exchange.
    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares with other 
markets and other entities that are members of the ISG, and the 
Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in the Shares from such markets

[[Page 38694]]

and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares 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, FINRA, on 
behalf of the Exchange, is able to access, as needed, trade information 
for certain fixed income securities held by the Fund reported to 
FINRA's Trade Reporting and Compliance Engine (``TRACE''). FINRA also 
can access data obtained from the Municipal Securities Rulemaking 
Board's EMMA system relating to municipal bond trading activity for 
surveillance purposes in connection with trading in the Shares.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \42\ in general and Section 6(b)(5) of the Act \43\ 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.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78f.
    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Rule 14.11(i). 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. 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. The 
Adviser is not a registered broker-dealer, but is affiliated with 
multiple broker-dealers and has implemented ``fire walls'' with respect 
to such broker-dealers regarding access to information concerning the 
composition and/or changes to a Fund's portfolio. In addition, 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. The Exchange may 
obtain information regarding trading in the Shares and the underlying 
shares in exchange traded equity securities via the ISG, from other 
exchanges that are members or affiliates of the ISG, or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. In addition, the Exchange, or FINRA, on behalf of the 
Exchange, is able to access, as needed, trade information for certain 
fixed income instruments reported to TRACE and Municipal Securities 
reported to MSRB. 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. The Fund will launch with at 
least 500,000 Shares outstanding. The portfolio will hold a minimum of 
15 different Municipal Securities from at least 15 unique issuers. No 
single obligor will account for more than 10% of the weight of the 
Fund's portfolio and no 10 obligors will account for more than 75% of 
the weight of the Fund's portfolio. The Exchange notes that the 
California AMT-Free municipal bond market value is estimated to be 
~$151 billion and is the second largest as measured by state. As of 
June 5, 2019, California represented 21.02% of all issuances in the 
U.S.\44\ Additionally, as a registered investment company, no more than 
50% of the Fund's assets will be invested in issuers that are more than 
5% of the value of the Fund's assets. In addition, the Fund will not 
invest more than 25% of its assets in any single issuer.
---------------------------------------------------------------------------

    \44\ Statistics are based on the universe included in the S&P 
National AMT-Free Muni Bond Index. New York ($160b) is the largest 
municipal bond market by state, registering 22.07% of all issuances 
in the U.S.
---------------------------------------------------------------------------

    Further, the Exchange represents that: (1) Except for Rule 
14.11(i)(4)(C)(ii)(a), the Fund will satisfy all of the generic listing 
standards under Rule 14.11(i)(4); (2) the continued listing standards 
under Rule 14.11(i), as applicable to Managed Fund Shares that hold 
fixed income securities, will apply to the Shares of the Fund; and (3) 
the issuer of the Fund is required to comply with Rule 10A-3 \45\ under 
the Act for the initial and continued listing of the Shares. In 
addition, the Exchange represents that the Fund will meet and be 
subject to all other requirements of the Generic Listing Rules and 
other applicable continued listing requirements for Managed Fund Shares 
under Exchange Rule 14.11(i), including those requirements regarding 
the Disclosed Portfolio (as defined in the Exchange rules) and the 
requirement that the Disclosed Portfolio and the net asset value 
(``NAV'') will be made available to all market participants at the same 
time,\46\ intraday indicative value,\47\ suspension of trading or 
removal,\48\ trading halts,\49\ disclosure,\50\ and firewalls.\51\ 
Further, at least 100,000 Shares will be outstanding upon the 
commencement of trading of the Fund.\52\
---------------------------------------------------------------------------

    \45\ 17 CFR 240.10A-3.
    \46\ See Exchange Rules 14.11(i)(4)(A)(ii) and 
14.11(i)(4)(B)(ii).
    \47\ See Exchange Rule 14.11(i)(4)(B)(i).
    \48\ See Exchange Rule 14.11(i)(4)(B)(iii).
    \49\ See Exchange Rule 14.11(i)(4)(B)(iv).
    \50\ See Exchange Rule 14.11(i)(6).
    \51\ See Exchange Rule 14.11(i)(7).
    \52\ See Exchange Rule 14.11(i)(4)(A)(i).
---------------------------------------------------------------------------

    The Fund will invest, under Normal Market Conditions, at least 80% 
of its net assets in Municipal Securities, as defined below, issued in 
the State of California by or on behalf of California state or local 
governments or agencies, whose interest payments are exempt from U.S. 
federal, including the federal alternative minimum tax, and California 
state income taxes. Additionally, the Fund may hold up to an aggregate 
amount of 15% of its net assets in illiquid assets (calculated at the 
time of investment), as deemed illiquid by the Adviser under the 1940 
Act. The Fund will monitor its portfolio liquidity on an ongoing basis 
to determine whether, in light of current circumstances, an adequate 
level of liquidity is being maintained, and will consider taking 
appropriate steps in order to maintain adequate liquidity if, through a 
change in values, net assets, or other circumstances, more than 15% of 
the Fund's net assets are held in illiquid assets. Illiquid assets are 
defined by Rule 22e-4.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. Moreover, the Intraday 
Indicative Value will be disseminated by one or more major market data 
vendors at least every 15 seconds during Regular Trading Hours.

[[Page 38695]]

On each business day, before commencement of trading in Shares during 
Regular Trading Hours, the Fund will disclose on its website the 
Disclosed Portfolio that will form the basis for the Fund's calculation 
of NAV at the end of the business day. Pricing information will include 
additional quantitative information updated on a daily basis, 
including, for the Fund: (1) The prior business day's NAV and the 
market closing price or mid-point of the Bid/Ask Price,\53\ and a 
calculation of the premium or discount of the market closing price or 
Bid/Ask Price against the NAV; and (2) data in chart format displaying 
the frequency distribution of discounts and premiums of the daily 
market closing price or Bid/Ask Price against the NAV, within 
appropriate ranges, for each of the four previous calendar quarters. 
Additionally, information regarding market price and trading of the 
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 for the Shares will be available on 
the facilities of the CTA. The website for the Fund will include a form 
of the prospectus for the Fund and additional data relating to NAV and 
other applicable quantitative information. Trading in Shares of a Fund 
will be halted under the conditions specified in Rule 11.18. Trading 
may also be halted because of market conditions or for reasons that, in 
the view of the Exchange, make trading in the Shares inadvisable. 
Finally, trading in the Shares will be subject to Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares 
may be halted. In addition, as noted above, investors will have ready 
access to information regarding the Fund's holdings, the Intraday 
Indicative Value, the Disclosed Portfolio, and quotation and last sale 
information for the Shares.
---------------------------------------------------------------------------

    \53\ The Bid/Ask Price of a Fund will be determined using the 
highest bid and the lowest offer on the Exchange as of the time of 
calculation of the Fund's NAV. The records relating to Bid/Ask 
Prices will be retained by the Fund or its service providers.
---------------------------------------------------------------------------

    Intraday, executable price quotations on assets held by the Fund 
are available from major broker-dealer firms and for exchange-traded 
assets, including investment companies, such intraday information is 
available directly from the applicable listing exchange. All such 
intraday price information is available through subscription services, 
such as Bloomberg, Thomson Reuters and International Data Corporation, 
which can be accessed by authorized participants and other investors.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG, from other exchanges that are members of 
ISG, or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, the Exchange, or FINRA, on 
behalf of the Exchange, is able to access, as needed, trade information 
for certain fixed income instruments reported to TRACE and Municipal 
Securities reported to MSRB. 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. As noted above, 
investors will also have ready access to information regarding the 
Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

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

    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 Comment
     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-2019-068 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-2019-068. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All

[[Page 38696]]

submissions should refer to File Number SR-CboeBZX-2019-068 and should 
be submitted on or before August 28, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
---------------------------------------------------------------------------

    \54\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-16855 Filed 8-6-19; 8:45 am]
BILLING CODE 8011-01-P