Document ID: SEC-2019-0321-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2019-03-22T04:00Z

[Federal Register Volume 84, Number 56 (Friday, March 22, 2019)]
[Notices]
[Pages 10874-10880]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05460]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85349; File No. SR-CboeBZX-2019-016]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Allow the JPMorgan Core Plus Bond 
ETF of the J.P. Morgan Exchange-Traded Fund Trust To Hold Certain 
Instruments in a Manner That May Not Comply With Rule 14.11(i), Managed 
Fund Shares

March 18, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 5, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``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 proposed [sic] rule change to allow the JPMorgan Core 
Plus Bond ETF (the ``Fund'') of the J.P. Morgan Exchange-Traded Fund 
Trust (the ``Trust'' or the ``Issuer'') to hold certain instruments in 
a manner that may not comply with 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 submits this proposal in order to allow the Shares, 
which are currently listed on the Exchange under Rule 14.11(i) \3\ and 
began trading on January 30, 2019, to continue listing and trading on 
the Exchange while holding certain instruments in a manner that may not 
comply with three of the quantitative requirements under the Generic 
Listing Standards, as defined below [sic]. Two such exceptions are 
substantively identical or more restrictive \4\ than representations in 
another rule filing that was approved by the Commission \5\ and one 
exception relates to a de minimis portion of the Fund's holdings and 
therefore also does not raise any substantive issues for the Commission 
to consider. Specifically, the Exchange submits this proposal in order 
to allow the Fund to hold instruments in a manner that may not comply 
with Rule 14.11(i)(4)(C)(ii)(d),\6\

[[Page 10875]]

Rule 14.11(i)(4)(C)(iv)(b),\7\ and/or Rule 14.11(i)(4)(C)(i) as further 
described below.\8\ Otherwise, the Fund will continue to comply with 
all other listing requirements on an initial and continued listing 
basis under Rule 14.11(i).
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    \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\ The Exchange notes that certain of the exceptions and 
substitute requirements approved in the Approval Order are measured 
using mark-to-market. The Exchange is not proposing to measure any 
of the exceptions to the Generic Listing Standards proposed herein 
using mark-to-market and, as such, all of the proposed 
representations about the Fund's holdings are either identical or 
more restrictive than those approved in the Approval Order.
    \5\ See Securities Exchange Act Release No. 84047 (September 6, 
2018), 83 FR 46200 (September 12, 2018) (SR-NASDAQ-2017-128) (the 
``Approval Order'').
    \6\ Rule 14.11(i)(4)(C)(ii)(d) provides that ``component 
securities that in aggregate account for at least 90% of the fixed 
income weight of the portfolio must be either: (a) From issuers that 
are required to file reports pursuant to Sections 13 and 15(d) of 
the Act; (b) from issuers that have a worldwide market value of its 
outstanding common equity held by non-affiliates of $700 million or 
more; (c) from issuers that have outstanding securities that are 
notes, bonds, debentures, or evidence of indebtedness having a total 
remaining principal amount of at least $1 billion; (d) exempted 
securities as defined in Section 3(a)(12) of the Act; or (e) from 
issuers that are a government of a foreign country or a political 
subdivision of a foreign country.'' The Exchange instead is 
proposing that the fixed income portion of the portfolio excluding 
ABS and Private MBS, as defined below, will satisfy this 90% 
requirement.
    \7\ Rule 14.11(i)(4)(C)(iv)(b) provides that ``the aggregate 
gross notional value of listed derivatives based on any five or 
fewer underlying reference assets shall not exceed 65% of the weight 
of the portfolio (including gross notional exposures), and the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset shall not exceed 30% of the weight 
of the portfolio (including gross notional exposures).'' The 
Exchange is proposing that the Fund would meet neither the 65% nor 
the 30% requirements of Rule 14.11(i)(4)(C)(iv)(b). Specifically, 
the Exchange is proposing that the Fund be exempt from this 
requirement as it relates to the Fund's holdings in futures and 
options (including options on futures) referencing Eurodollars and 
sovereign debt issued by the United States (i.e., Treasury 
Securities) and other ``Group of Seven'' countries (Group of Seven 
or G-7 countries include the United States, Canada, France, Germany, 
Italy, Japan and the United Kingdom), where such futures and options 
contracts are listed on an exchange that is an ISG member or an 
exchange with which the Exchange has a comprehensive surveillance 
sharing agreement (``Eurodollar and G-7 Sovereign Futures and 
Options''). The Fund may also hold other listed derivatives, which 
will include only the following: Debt futures, interest rate 
futures, index futures, foreign exchange futures, equity options, 
equity futures, Treasury options, options on Treasury futures, 
interest rate swaps, foreign exchange options, foreign exchange 
swaps, credit default swaps (including single-name and index 
reference pools), loan credit default swap indices, and inflation-
linked swaps, however such holdings will, when calculated 
independently of the Fund's holdings in Eurodollar and G-7 Sovereign 
Futures and Options, meet the requirements of Rule 
14.11(i)(4)(C)(iv)(a) and (b).
    \8\ The Adviser, as defined below, notes that the Fund may by 
virtue of its holdings be issued certain equity instruments 
(``Equity Holdings'') that may not meet the requirements of Rule 
14.11(i)(4)(C)(i). The Fund will not purchase such instruments and 
will dispose of such holdings as the Adviser determines is in the 
best interest of the Fund's shareholders. Such holdings will not 
constitute more than 10% of the Fund's net assets. The Adviser 
expects that the Fund will generally acquire such instruments 
through issuances that it receives by virtue of its other holdings, 
such as corporate actions or convertible securities.
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    The Fund is an actively managed exchange-traded fund that will seek 
a high level of current income by investing primarily in a diversified 
portfolio of high-, medium-, and low-grade debt securities.\9\ The 
Shares are offered by the Trust, which was established as a Delaware 
statutory trust. The Trust is registered with the Commission as an 
open-end investment company and has filed an effective registration 
statement on behalf of the Fund on Form N-1A (``Registration 
Statement'') with the Commission.\10\
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    \9\ The Fund plans to employ a strategy very similar to that 
currently employed by JPMorgan Core Plus Bond Fund, a mutual fund 
operated by the Adviser since March 5th, 1993.
    \10\ See Registration Statement on Form N-1A for the Trust, 
dated January 23, 2019 (File Nos. 333-191837 and 811-22903). The 
descriptions 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''). Investment Company Act 
Release No. 31990 (February 9, 2016) (File No. 812-13761).
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Description of the Shares and the Fund
    The Shares are offered by the Trust, which was established as a 
Delaware statutory trust. J.P Morgan Investment Management, Inc. is the 
investment adviser (the ``Adviser'') to the Fund. JPMorgan Chase Bank, 
N.A. is the administrator, custodian, and transfer agent for the Trust. 
JPMorgan Distribution Services, Inc. serves as the distributor 
(``Distributor'') for the Trust.
    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 and maintain a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\11\ 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 and will maintain ``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 and maintain a fire 
wall with respect to its relevant personnel or such broker-dealer 
affiliate, as applicable, regarding access to information concerning 
the composition and/or changes to the portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
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    \11\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    The Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
JPMorgan Core Plus Bond ETF
    According to the Registration Statement, the Fund is an actively 
managed exchange-traded fund that will seek a high level of current 
income by investing primarily in a diversified portfolio of high-, 
medium-, and low-grade debt securities. The Fund seeks to achieve its 
investment objective by investing, under Normal Market Conditions,\12\ 
at least 80% of its net

[[Page 10876]]

assets in Bonds.\13\ The Adviser will invest across the credit spectrum 
to provide the Fund exposure to various credit ratings. Under Normal 
Market Conditions, at least 65% of the Fund's assets will be invested 
in securities that, at the time of purchase, are rated investment grade 
by a nationally recognized statistical rating organization or in 
securities that are unrated but are deemed by the Adviser to be of 
comparable quality. Among others, such securities include U.S. or 
foreign mortgage-backed securities (``MBS''), which are securities that 
represent direct or indirect participations in, or are collateralized 
and by and payable from, mortgage loans secured by real property and 
which may be issued or guaranteed by government-sponsored entities 
(``GSEs'') \14\ such as Fannie Mae (formally known as the Federal 
National Mortgage Association) or Freddie Mac (formally known as the 
Federal Home Loan Mortgage Corporation) or issued or guaranteed by 
agencies of the U.S. government, such as the Government National 
Mortgage Association (``Ginnie Mae''); \15\ and U.S. or foreign asset-
backed securities (``ABS'').\16\ Under Normal Market Conditions, the 
Fund will not invest more than 35% of its assets in securities rated 
below investment grade. The Fund's average weighted maturity will 
ordinarily range between five and twenty years.
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    \12\ As defined in Rule 14.11(i)(3)(E), the term ``Normal Market 
Conditions'' includes, but is not limited to, the absence of trading 
halts in the applicable financial markets generally; operational 
issues causing dissemination of inaccurate market information or 
system failures; or force majeure type events such as natural or 
man-made disaster, act of God, armed conflict, act of terrorism, 
riot or labor disruption, or any similar intervening circumstance.
    \13\ For purposes of this proposal, the term ``Bond'' includes 
only the following: Corporate bonds, U.S. government and agency debt 
securities, asset-backed securities, municipal securities, credit 
linked notes, participation notes, collateralized debt obligations, 
agency, non-agency and stripped mortgage-related and mortgage-backed 
securities (including adjustable rate mortgage loans), convertible 
securities (including contingent convertible securities), preferred 
stock, loan participations and assignments, commitments to loan 
assignments, variable and floating rate instruments, commercial 
paper, and foreign and emerging market debt securities. The Adviser 
intends to hold asset-backed securities, mortgage-related and 
mortgage-backed securities as part of a strategy designed to manage 
portfolio risk by diversifying away from corporate debt and to take 
advantage of certain market environments.
    \14\ A ``GSE'' is a type of financial services corporation 
created by the United States Congress. GSEs include Fannie Mae and 
Freddie Mac, but not Sallie Mae, which is no longer a government 
entity.
    \15\ MBS include collateralized mortgage obligations (``CMOs''), 
which are debt obligations collateralized by mortgage loans or 
mortgage pass-through securities. Typically, CMOs are collateralized 
by Ginnie Mae, Fannie Mae or Freddie Mac certificates, but they may 
also be collateralized by whole loans or pass-through securities 
issued by private issuers (i.e., issuers other than U.S. government 
agencies or GSEs) (``Private MBS''). Payments of principal and of 
interest on the mortgage-related instruments collateralizing the 
MBS, and any reinvestment income thereon, provide the funds to pay 
debt service on the CMOs. In a CMO, a series of bonds or 
certificates is issued in multiple classes. Each class of CMOs, 
often referred to as a ``tranche'' of securities, is issued at a 
specified fixed or floating coupon rate and has a stated maturity or 
final distribution date.
    \16\ ABS are securitized products in connection with which the 
securities issued, which may be issued by either a U.S. or a foreign 
entity, are collateralized by any type of financial asset, such as a 
consumer or student loan, a lease, or a secured or unsecured 
receivable. For purposes of this filing, ABS exclude: (i) MBS; (ii) 
a small business administration backed ABS traded ``To Be 
Announced'' or in a specified pool transaction as defined in FINRA 
Rule 6710(x); and (iii) U.S. or foreign collateralized debt 
obligations. Consistent with the requirements of Rule 
14.11(i)(4)(C)(ii)(e), the Fund will limit investments in ABS and 
Private MBS (together, ``ABS/Private MBS'') to 20% of the weight of 
the fixed income portion of the Fund's portfolio.
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    Under Normal Market Conditions, the Fund may also invest up to 20% 
of its net assets in the following: Cash and certain Cash Equivalents 
\17\ that are not otherwise captured under the definition of Bond, 
listed derivative instruments, as described above, and OTC derivative 
instruments \18\ The Fund's holdings in Cash Equivalents and OTC 
derivative instruments will be in compliance with the limitations 
provided in Rules 14.11(i)(4)(C)(iii), 14.11(i)(4)(C)(v), and 
14.11(i)(4)(C)(vi).
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    \17\ As defined in Exchange Rule 14.11(i)(4)(C)(iii)(b), Cash 
Equivalents are short-term instruments with maturities of less than 
three months, which includes only the following: (i) U.S. Government 
securities, including bills, notes, and bonds differing as to 
maturity and rates of interest, which are either issued or 
guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities; (ii) certificates of deposit issued against funds 
deposited in a bank or savings and loan association; (iii) bankers 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; (iv) repurchase agreements and reverse 
repurchase agreements; (v) bank time deposits, which are monies kept 
on deposit with banks or savings and loan associations for a stated 
period of time at a fixed rate of interest; (vi) commercial paper, 
which are short-term unsecured promissory notes; and (vii) money 
market funds.
    \18\ For purposes of this filing, OTC derivative instruments 
will include only the following: Index options, foreign exchange 
options, swaptions, credit default swaps (including single-name and 
index reference pools), foreign exchange swaps, loan credit default 
swap indices, inflation-linked swaps, interest rate swaps, non-
dollar swaps, non-deliverable forward contracts and foreign exchange 
forward contracts.
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    The Fund's investments, including derivatives, will be consistent 
with the 1940 Act and the Fund's investment objective and policies and 
will not be used to enhance leverage (although certain derivatives and 
other investments may result in leverage).\19\ That is, while the Fund 
will be permitted to borrow as permitted under the 1940 Act, the Fund's 
investments will not be used to seek performance that is the multiple 
or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's primary broad-
based securities benchmark index (as defined in Form N-1A). The Fund 
will only use those derivatives described above. The Fund's use of 
derivative instruments will be collateralized.
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    \19\ The Fund will include appropriate risk disclosure in its 
offering documents, including leveraging risk. Leveraging risk is 
the risk that certain transactions of a fund, including a fund's use 
of derivatives, may give rise to leverage, causing a fund to be more 
volatile than if it had not been leveraged. To mitigate leveraging 
risk, the Fund will segregate or earmark liquid assets determined to 
be liquid by the Adviser in accordance with procedures established 
by the Trust's Board and in accordance with the 1940 Act (or, as 
permitted by applicable regulations, enter into certain offsetting 
positions) to cover its obligations under derivative instruments. 
These procedures have been adopted consistent with Section 18 of the 
1940 Act and related Commission guidance. See 15 U.S.C. 80a-18; 
Investment Company Act Release No. 10666 (April 18, 1979), 44 FR 
25128 (April 27, 1979); Dreyfus Strategic Investing, Commission No-
Action Letter (June 22, 1987); Merrill Lynch Asset Management, L.P., 
Commission No-Action Letter (July 2, 1996).
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Discussion
    Based on the characteristics of the Fund and the representations 
made above, the Exchange believes it is appropriate to allow the Fund 
to hold certain listed derivatives, fixed income instruments, and 
equity securities in a manner that may not comply with the Generic 
Listing Standards. The Exchange notes that the representations for the 
Fund related to Rule 14.11(i)(4)(C)(ii)(d) and Rule 
14.11(i)(4)(C)(iv)(b) are substantively identical or more restrictive 
than representations in the Approval Order.
    The Fund will not meet the requirements of Rule 
14.11(i)(4)(C)(ii)(d) because certain ABS and Private MBS by their 
nature cannot satisfy the requirements. As described above, the 
Exchange is instead proposing that the fixed income portion of the 
portfolio excluding ABS and Private MBS will satisfy this 90% 
requirement. The Exchange believes that this alternative limitation is 
appropriate because Rule 14.11(i)(4)(C)(ii)(d) is not designed for 
structured finance vehicles such as ABS and Private MBS. The Exchange 
also notes that the Fund's portfolio is consistent with the policy 
issues underlying the rule as a result of the diversification provided 
by the investments and the Adviser's selection process, which closely 
monitors investments to ensure maintenance of credit and liquidity 
standards. As noted above, the other fixed income instruments held by 
the Fund will meet the requirements of Rule 14.11(i)(4)(C)(ii)(d).
    The Exchange is also proposing that the Fund would meet neither the 
65% nor the 30% requirements of Rule 14.11(i)(4)(C)(iv)(b) because the 
Fund

[[Page 10877]]

may maintain significant positions in Eurodollar and G-7 Sovereign 
Futures and Options. Such instruments provide cost efficient methods to 
achieve such exposure. The Exchange notes that Eurodollar and G-7 
Sovereign Futures and Options are highly liquid investments \20\ and 
are not subject to the concentration risk that the rule is intended to 
address because of such liquidity. Further, the Exchange notes that the 
significantly diminished risk of Treasury Securities is reflected in 
their exclusion from the concentration requirements applicable to fixed 
income securities in Rule 14.11(i)(4)(C)(ii)(b). The Exchange proposes 
that the Fund will comply with the concentration requirements in Rule 
14.11(i)(4)(C)(iv)(b) except with respect to the Fund's investment in 
Eurodollar and G-7 Sovereign Futures and Options. The Exchange believes 
that this alternative limitation is appropriate to provide the Fund 
with sufficient flexibility and because of the highly liquid and 
transparent nature of Eurodollar and G-7 Sovereign Futures and Options. 
Further, the G-7 Sovereign Futures and Options in which the Fund 
invests will be listed on an exchange that is an ISG member or an 
exchange with which the Exchange has a comprehensive surveillance 
sharing agreement.
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    \20\ The Exchange notes that the Commission has previously 
granted exemptions under the Act to facilitate the trading of 
futures on sovereign debt issued by each of the Group of Seven 
countries (among other countries) and that such exemptions were 
based in part on the Commission's assessment of the sufficiency of 
the credit ratings and liquidity of such sovereign debt. See 
Approval Order; 17 CFR 240.3a12-8; Securities Exchange Act Release 
No. 41453 (May 26, 1999), 64 FR 29550 (June 2, 1999). According to 
publicly available information, eurodollars and Treasury Securities 
eurodollar futures and options traded through CME Group had an 
average daily open interest of approximately 53 million contracts 
and futures and options on Treasury Securities had an average daily 
open interest of approximately 15 million contracts during the first 
three quarters of 2017. As of September 2017, the open interest in 
futures and options on Canadian sovereign debt traded on The 
Montreal Exchange was approximately 560,000 contracts. As of July 
2015, the open interest in futures on German sovereign debt traded 
on Eurex was approximately 3,000,000 contracts and the open interest 
in options on German sovereign debt futures traded on Eurex was 
approximately 3,000,000 contracts. The open interest peaks in 2017 
for futures on long-term and short-term Italian sovereign debt 
traded on Eurex was approximately 450,000 and 270,000 contracts, 
respectively. As of July 2017, the open interest in futures on long-
term French sovereign debt traded on Eurex was approximately 600,000 
contracts. As of the third quarter of 2014, the open interest in 
futures on long-term British sovereign debt traded on the 
Intercontinental Exchange was approximately 400,000 contracts. As of 
July 2016, the open interest in futures on 10-year Japanese 
sovereign debt traded on the Osaka Exchange was approximately 80,000 
contracts.
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    The Exchange also believes that the exception to Rule 
14.11(i)(4)(C)(i) related to the Fund's equity holdings is de minimis 
and does not raise any substantive issues for the Commission to review 
because: (i) Such holdings will not constitute more than 10% of the 
Fund's net assets; and (ii) the Fund will not purchase equities \21\ 
and will dispose of such holdings as the Adviser determines is in the 
best interest of the Fund's shareholders.
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    \21\ As noted above, the Adviser expects that the Fund will 
generally acquire such instruments through issuances that it 
receives by virtue of its other holdings, such as corporate actions 
or convertible securities.
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    In addition, the Exchange represents that: (1) Except as described 
above, the Fund will continue to satisfy all of the generic listing 
standards under Rule 14.11(i)(4); (2) the continued listing standards 
under Rule 14.11(i) will apply to the shares of the Fund; and (3) the 
issuer of the Fund is required to comply with Rule 10A-3 \22\ 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,\23\ intraday 
indicative value,\24\ suspension of trading or removal,\25\ trading 
halts,\26\ disclosure,\27\ and firewalls.\28\
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    \22\ 17 CFR 240.10A-3.
    \23\ See Exchange Rules 14.11(i)(4)(A)(ii) and 
14.11(i)(4)(B)(ii).
    \24\ See Exchange Rule 14.11(i)(4)(B)(i).
    \25\ See Exchange Rule 14.11(i)(4)(B)(iii).
    \26\ See Exchange Rule 14.11(i)(4)(B)(iv).
    \27\ See Exchange Rule 14.11(i)(6).
    \28\ See Exchange Rule 14.11(i)(7).
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The Shares
    The Fund will issue and redeem Shares on a continuous basis at the 
NAV per Share only in large blocks of a specified number of Shares or 
multiples thereof (``Creation Units'') in transactions with authorized 
participants who have entered into agreements with the Distributor. The 
Fund currently anticipates that a Creation Unit will consist of 50,000 
Shares, though this number may change from time to time. The exact 
number of Shares that will constitute a Creation Unit will be disclosed 
in the respective Registration Statement of the Fund. Once created, 
Shares of the Fund trade on the secondary market in amounts less than a 
Creation Unit.
    Additional information regarding the Shares and the Fund, including 
investment strategies, risks, creation and redemption procedures, fees 
and expenses, portfolio holdings disclosure policies, distributions, 
taxes and reports to be distributed to beneficial owners of the Shares 
can be found in the Registration Statement or on the website for the 
Fund (www.JPMorgan.com), as applicable.
Availability of Information
    As noted above, the Fund will comply with the requirements for 
Managed Fund Shares related to Disclosed Portfolio, NAV, and the 
Intraday Indicative Value. Additionally, the intra-day, closing and 
settlement prices of exchange-traded portfolio assets, including 
futures, swaps, listed options, and certain Equity Holdings, will be 
readily available from the exchanges on which such products are listed, 
automated quotation systems, published or other public sources, or 
online information services such as Bloomberg or Reuters. Quotation and 
last sale information for U.S. exchange-listed options contracts 
cleared by The Options Clearing Corporation will be available via the 
Options Price Reporting Authority. Intraday price quotations on Bonds, 
OTC derivative instruments, and OTC Equity Holdings are available from 
major broker-dealer firms and from third-parties, which may provide 
prices free with a time delay or in real-time for a paid fee. Price 
information for Cash Equivalents will be available from major market 
data vendors.
    The Disclosed Portfolio will be available on the Fund's website 
(www.jpmorgan.com/etfs) free of charge. The Fund's website includes a 
form of the prospectus for the Fund and additional information related 
to NAV and other applicable quantitative information. Information 
regarding market price and trading volume of the Shares will be 
continuously available throughout the day on brokers' computer screens 
and other electronic services. Quotation and last sale information on 
the Shares will be available through the Consolidated Tape Association. 
Information regarding the previous day's closing price and trading 
volume for the Shares will be published daily in the financial section 
of newspapers. Trading in the Shares may be halted for market 
conditions or for reasons that, in the view of the Exchange, make 
trading inadvisable. The Exchange deems the Shares to be equity 
securities, thus rendering trading

[[Page 10878]]

in the Shares subject to the Exchange's existing rules governing the 
trading of equity securities. The Exchange has appropriate rules to 
facilitate trading in the shares during all trading sessions.
Surveillance
    Trading of the Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products, including 
Managed Fund Shares. All of the futures contracts and listed options 
contracts, as well as certain Equity Holdings held by the Fund will 
trade on markets that are a member of Intermarket Surveillance Group 
(``ISG'') or affiliated with a member of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.\29\ The 
Exchange, FINRA, on behalf of the Exchange, or both will communicate 
regarding trading in the Shares and the underlying listed instruments, 
including listed derivatives and certain Equity Holdings, held by the 
Fund with the ISG, other markets or entities who are members or 
affiliates of the ISG, or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. Additionally, the 
Exchange or FINRA, on behalf of the Exchange, are able to access, as 
needed, trade information for certain fixed income instruments reported 
to FINRA's Trade Reporting and Compliance Engine (``TRACE''). Trade 
price and other information relating to municipal securities is 
available through the Municipal Securities Rulemaking Board's (the 
``MSRB'') Electronic Municipal Market Access (``EMMA'') system. 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, and the 
applicability of Exchange rules specified in this filing shall 
constitute continued listing requirements for the Fund. The issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by the Fund or the Shares to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Act, the Exchange will surveil for compliance with the continued 
listing requirements. If the Fund or the Shares are not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under Exchange Rule 14.12.
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    \29\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
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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 a 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 allows 
trading in the Shares from 8:00 a.m. until 8:00 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.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \30\ in general and Section 6(b)(5) of the Act \31\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to 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.
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    \30\ 15 U.S.C. 78f.
    \31\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that excluding ABS and Private MBS in 
calculating Rule 14.11(i)(4)(C)(ii)(d) is consistent with the Act 
because the Fund's portfolio will be consistent with the policy issues 
underlying the rule as a result of the diversification provided by the 
investments and the Adviser's selection process, which closely monitors 
investments to ensure maintenance of credit and liquidity standards. 
Further, the other fixed income instruments, excluding ABS and Private 
MBS, held by the Fund will satisfy the 90% requirement under Rule 
14.11(i)(4)(C)(ii)(d).
    The Exchange believes that the proposal that the Fund would meet 
neither the 65% nor the 30% requirements of Rule 14.11(i)(4)(C)(iv)(b) 
is consistent with the Act because such instruments are highly liquid 
investments and are not subject to the concentration risk that the rule 
is intended to address because of such liquidity. Further, the Exchange 
notes that the significantly diminished risk of Treasury Securities is 
reflected in their exclusion from the concentration requirements 
applicable to fixed income securities in Rule 14.11(i)(4)(C)(ii)(b). 
The Fund will comply with the concentration requirements in Rule 
14.11(i)(4)(C)(iv)(b) except with respect to the Fund's investment in 
Eurodollar and G-7 Sovereign Futures and Options. The Exchange believes 
that this alternative limitation is appropriate to provide the Fund 
with sufficient flexibility and because of the highly liquid and 
transparent nature of Eurodollar and G-7 Sovereign Futures and Options. 
Further, the G-7 Sovereign Futures and Options in which the Fund 
invests will be listed on an exchange that is an ISG member or an 
exchange with which the Exchange has a comprehensive surveillance 
sharing agreement.
    The Exchange also believes that the exception to Rule 
14.11(i)(4)(C)(i) related to the Fund's equity holdings is consistent 
with the Act because it is de minimis and does not raise any 
substantive issues for the Commission to review because: (i) Such 
holdings will not constitute more than 10% of the Fund's net assets; 
and (ii) the Fund will not purchase equities and will dispose of such 
holdings as the Adviser determines is in the best interest of the 
Fund's shareholders.
    The Exchange also believes that the proposal is consistent with the 
Act because the proposed exceptions to the Generic Listing Standards 
for the Fund related to Rule 14.11(i)(4)(C)(ii)(d) and Rule 
14.11(i)(4)(C)(iv)(b) are substantively identical or more

[[Page 10879]]

restrictive than representations that have already been approved by the 
Commission.
    The Exchange further believes that the proposed rule change is 
designed to prevent fraudulent and manipulative acts and practices in 
that the Shares will continue to be listed and traded on the Exchange 
pursuant to the 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 and will maintain ``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. All of the futures contracts and listed options 
contracts, as well as certain Equity Holdings held by the Fund will 
trade on markets that are a member of ISG or affiliated with a member 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\32\ The Exchange, FINRA, on behalf of 
the Exchange, or both will communicate regarding trading in the Shares 
and the underlying listed instruments, including listed derivatives and 
certain Equity Holdings, held by the Fund with the ISG, other markets 
or entities who are members or affiliates of the ISG, or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. Additionally, the Exchange or FINRA, on behalf of the 
Exchange, are able to access, as needed, trade information for certain 
fixed income instruments reported to FINRA's TRACE. Trade price and 
other information relating to municipal securities is available through 
the MSRB EMMA system.
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    \32\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
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    According to the Registration Statement, the Fund will invest, 
under Normal Market Conditions, at least 80% of its net assets in 
Bonds. 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.\33\ 
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 include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
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    \33\ 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).
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    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. 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,\34\ 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.
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    \34\ 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.
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    Additionally, the intra-day, closing and settlement prices of 
exchange-traded portfolio assets, including futures, swaps, listed 
options, and certain Equity Holdings, will be readily available from 
the exchanges on which such products are listed, automated quotation 
systems, published or other public sources, or online information 
services such as Bloomberg or Reuters. Quotation and last sale 
information for U.S. exchange-listed options contracts cleared by The 
Options Clearing Corporation will be available via the Options Price 
Reporting Authority. Intraday price quotations on Bonds,

[[Page 10880]]

OTC derivative instruments, and OTC Equity Holdings are available from 
major broker-dealer firms and from third-parties, which may provide 
prices free with a time delay or in real-time for a paid fee. Price 
information for Cash Equivalents will be available from major market 
data vendors.
    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 the MSRB 
EMMA system. 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 allow the Adviser to fully implement its 
investment strategy, 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 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 Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-016 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-2019-016. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2019-016, and should be 
submitted on or before April 12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05460 Filed 3-21-19; 8:45 am]
 BILLING CODE 8011-01-P