Document ID: SEC-2020-1070-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2020-07-09T04:00Z

[Federal Register Volume 85, Number 132 (Thursday, July 9, 2020)]
[Notices]
[Pages 41263-41265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14742]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89217; File No. SR-CboeBZX-2020-029]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment No. 
1, To List and Trade Shares of the JPMorgan Large Cap Growth ETF Under 
Rule 14.11(k), Managed Portfolio Shares

July 2, 2020.

I. Introduction

    On March 25, 2020, Cboe BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to list and trade shares of the JPMorgan Large Cap 
Growth ETF under Rule 14.11(k), Managed Portfolio Shares. The proposed 
rule change was published for comment in the Federal Register on Apri1 
9, 2020.\4\ On April 29, 2020, the Exchange filed Amendment No. 1 to 
the proposed rule change.\5\ On May 15, 2020, pursuant to Section 
19(b)(2) of the Act,\6\ the Commission designated a longer period 
within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\7\ The Commission has received no 
comments on the proposed rule change. This order approves the proposed 
rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 88551 (April 3, 
2020), 85 FR 19971 (``Notice'').
    \5\ In Amendment No. 1, the Exchange added the word ``each'' to 
clarify that the Adviser has implemented and will maintain a ``fire 
wall'' with respect to each affiliate broker-dealer regarding access 
to information concerning the composition and/or changes to the 
Fund's portfolio and Creation Basket (as defined below). Because the 
change in Amendment No. 1 clarifies a statement in the proposal and 
does not materially alter the substance of the proposed rule change 
or raise any novel regulatory issues, Amendment No. 1 is not subject 
to notice and comment. Amendment No. 1 is available on the 
Commission's website at https://www.sec.gov/comments/sr-cboebzx-2020-029/srcboebzx2020029-7135317-216172.pdf.
    \6\ 15 U.S.C. 78s(b)(2).
    \7\ See Securities Exchange Act Release No. 88888, 85 FR 31016 
(May 21, 2020). The Commission designated July 8, 2020, as the date 
by which the Commission shall approve or disapprove, or institute 
proceedings to determine whether to disapprove, the proposed rule 
change.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1 \8\
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    \8\ For more information regarding the Fund and the Shares, see 
Notice, supra note 4.
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    The Exchange proposes to list and trade shares of the JPMorgan 
Large Cap Growth ETF (``Fund'') under BZX Rule 14.11(k), which governs 
the listing and trading of any series of Managed Portfolio Shares on 
the Exchange.\9\ The shares of the Fund (``Shares'') will be issued by 
J.P. Morgan Exchange-Traded Fund Trust (``Trust''), a statutory trust 
organized under the laws of the State of Delaware and registered with 
the Commission as an open-end management investment company.\10\ The 
investment adviser to the Trust will be J.P. Morgan Investment 
Management Inc. (the ``Adviser''). JPMorgan Distribution Services, Inc. 
will serve as the distributor of the Fund's Shares.
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    \9\ As defined in BZX Rule 14.11(k)(3)(A), the term ``Managed 
Portfolio Share'' means a security that (a) represents an interest 
in an investment company (``Investment Company'') registered under 
the Investment Company Act of 1940 (``1940 Act'') organized as an 
open-end management investment company, that invests in a portfolio 
of securities selected by the Investment Company's investment 
adviser consistent with the Investment Company's investment 
objectives and policies; (b) is issued in a creation unit, or 
multiples thereof, in return for a designated portfolio of 
instruments (and/or an amount of cash) with a value equal to the 
next determined net asset value and delivered to the Authorized 
Participant (as defined in the Investment Company's Form N-1A filed 
with the Commission) through a confidential account; (c) when 
aggregated into a redemption unit, or multiples thereof, may be 
redeemed for a designated portfolio of instruments (and/or an amount 
of cash) with a value equal to the next determined net asset value 
delivered to the confidential account for the benefit of the 
Authorized Participant; and (d) the portfolio holdings for which are 
disclosed within at least 60 days following the end of every fiscal 
quarter.
    \10\ The Trust is registered under the 1940 Act. On February 3, 
2020, the Trust filed a registration statement on Form N-1A relating 
to the Fund (File No. 811-22903) (``Registration Statement''). The 
Trust has submitted an application for exemptive relief (``Exemptive 
Application'') (File No. 812-15093). The Exchange states that the 
Exemptive Application incorporates by reference the terms and 
conditions of the exemptive relief granted to Precidian ETFs Trust, 
et al. See Investment Company Act Release No. 33477, May 20, 2019 
(``Exemptive Order''). The Exchange states that it expects any 
exemptive relief granted to the Trust to be substantively identical 
to the Exemptive Order. The Exchange represents that the Fund will 
not be listed or traded on the Exchange until it receives all 
necessary exemptive relief and its Registration Statement is 
effective.
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A. Description of the Fund

    The Exchange states that the Fund's holdings will conform to the 
permissible investments as set forth in the Exemptive Application and 
Exemptive Order and the holdings will be consistent with all 
requirements in the Exemptive Application and

[[Page 41264]]

Exemptive Order.\11\ According to the Exchange, the Fund will seek 
long-term capital appreciation. The Exchange states that, typically, in 
implementing its strategy, the Fund will invest in common stocks of 
companies with a history of above-average growth or companies expected 
to enter periods of above-average growth.
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    \11\ Pursuant to the Exemptive Order, the permissible 
investments include only the following instruments that trade on a 
U.S. exchange contemporaneously with the Shares: Exchange-traded 
funds (``ETFs'') and exchange-traded notes, common stocks, preferred 
stocks, American depositary receipts, real estate investment trusts, 
commodity pools, metals trusts, currency trusts, and futures for 
which the reference asset the Fund may invest in directly or, in the 
case of an index future, based on an index of a type of asset that 
the Fund could invest in directly; as well as cash and cash 
equivalents (short-term U.S. Treasury securities, government money 
market funds and repurchase agreements).
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B. Investment Restrictions

    The Fund will not purchase any securities that are illiquid 
investments at the time of purchase and the Fund's holdings will be 
consistent with all requirements described in the Exemptive Application 
and Exemptive Order.
    The Shares will conform to the initial and continued listing 
criteria under BZX Rule 14.11(k). The Fund's holdings will be limited 
to and consistent with what is permissible under the Exemptive Order.
    The Fund's investments will be consistent with its investment 
objective and will not be used to enhance leverage.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Act and 
rules and regulations thereunder applicable to a national securities 
exchange.\12\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act,\13\ which requires, among other things, that the 
Exchange's rules be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
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    \12\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal is reasonably designed to 
promote fair disclosure of information that may be necessary to price 
the Shares appropriately and to prevent trading in the Shares when a 
reasonable degree of certain pricing transparency cannot be assured. As 
such, the Commission believes the proposal is reasonably designed to 
maintain a fair and orderly market for trading the Shares. The 
Commission also finds that the proposal is consistent with Section 
11A(a)(1)(C)(iii) of the Act, which sets forth Congress's finding that 
it is in the public interest and appropriate for the protection of 
investors and the maintenance of fair and orderly markets to assure the 
availability to brokers, dealers, and investors of information with 
respect to quotations for, and transactions in, securities.
    Specifically, the Commission notes that the Exchange has obtained a 
representation from the issuer that the net asset value per Share of 
the Fund will be calculated daily and will be made available to all 
market participants at the same time.\14\ Information regarding market 
price and trading volume of the Shares will be continually available on 
a real-time basis throughout the day on brokers' computer screens and 
other electronic services. Quotation and last sale information for the 
Shares will be available via the Consolidated Tape Association high-
speed line. In addition, the Verified Intraday Indicative Value 
(``VIIV'') \15\ will be widely disseminated by the Reporting Authority 
and/or one or more major market data vendors in one-second intervals 
during Regular Trading Hours, and must be disseminated to all market 
participants at the same time.\16\ Moreover, the Fund's website will 
include a form of the prospectus and additional data relating to net 
asset value and other applicable quantitative information for the Fund, 
including any information regarding premiums/discounts that ETFs 
registered under the 1940 Act are required to provide or that are 
otherwise required under the Exemptive Order. Such website and 
information will be publicly available at no charge.
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    \14\ See BZX Rule 14.11(k)(4)(A)(ii).
    \15\ BZX Rule 14.11(k)(3)(B) defines ``Verified Intraday 
Indicative Value'' as the indicative value of a Managed Portfolio 
Share based on all of the holdings of a series of Managed Portfolio 
Shares as of the close of business on the prior business day and, 
for corporate actions, based on the applicable holdings as of the 
opening of business on the current business day, priced and 
disseminated in one second intervals during Regular Trading Hours 
(as defined in BZX Rule 1.5(w)) by the Reporting Authority (as 
defined in BZX Rule 14.11(k)(3)(H)).
    \16\ See BZX Rule 14.11(k)(4)(B)(i).
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    The Commission also notes that the Exchange's rules regarding 
trading halts help to ensure the maintenance of fair and orderly 
markets for the Shares. Specifically, pursuant to its rules, the 
Exchange may consider all relevant factors in exercising its discretion 
to halt trading in the Shares, and will halt trading in the Shares 
under the conditions specified in BZX 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, including (1) the 
extent to which trading is not occurring in the securities and/or the 
financial instruments composing the portfolio; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present.\17\ Trading in the Shares also 
will be subject to BZX Rule 14.11(k)(4)(B)(iii)(b), which sets forth 
additional circumstances under which trading in the Shares will be 
halted.
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    \17\ See BZX Rule 14.11(k)(4)(B)(iii)(a).
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    The Commission also believes that the proposal is reasonably 
designed to help prevent fraudulent and manipulative acts and 
practices. The Exchange represents that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. The Exchange states that the Adviser is not registered as a 
broker-dealer, but is affiliated with multiple broker-dealers and has 
implemented and will maintain a ``fire wall'' with respect to each such 
broker-dealer affiliate regarding access to information concerning the 
composition of and/or changes to the Fund's portfolio and Creation 
Basket.\18\ Further, the Commission notes that any person related to 
the Fund's investment adviser or to the Trust who makes decisions 
pertaining to the Fund's portfolio composition or has access to 
information regarding the Fund's portfolio composition or changes 
thereto or the Creation Basket must be subject to procedures designed 
to prevent the use and dissemination of material nonpublic information 
regarding the Fund's portfolio or changes thereto and the Creation 
Basket.\19\ In addition, any person or entity, including an AP

[[Page 41265]]

Representative,\20\ custodian, Reporting Authority, distributor, or 
administrator, who has access to information regarding the Fund's 
portfolio composition or changes thereto or its Creation Basket, must 
be subject to procedures designed to prevent the use and dissemination 
of material nonpublic information regarding the applicable Fund 
portfolio or changes thereto or the Creation Basket.\21\ Moreover, if 
any such person or entity is registered as a broker-dealer or 
affiliated with a broker-dealer, such person or entity must erect and 
maintain a ``fire wall'' between the person or entity and the broker-
dealer with respect to access to information concerning the composition 
of and/or changes to such Fund's portfolio or Creation Basket.\22\ 
Finally, the Exchange represents that trading of the Shares through the 
Exchange will be subject to the Exchange's surveillance procedures for 
derivative products, including Managed Portfolio Shares,\23\ and 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.
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    \18\ See BZX Rule 14.11(k)(3)(E).
    \19\ See BZX Rule 14.11(k)(2)(D). The Exchange represents that 
any person related to the Adviser or the Trust who makes decisions 
pertaining to the Fund's portfolio composition or that has access to 
information regarding the Fund's portfolio or changes thereto or the 
Creation Basket will be subject to procedures designed to prevent 
the use and dissemination of material non-public information 
regarding such portfolio or changes thereto and the Creation Basket.
    \20\ See BZX Rule 14.11(k)(3)(C).
    \21\ See BZX Rule 14.11(k)(2)(E).
    \22\ See id. The Exchange represents that any person or entity 
who has access to information regarding the Fund's portfolio 
composition or changes thereto or the Creation Basket will be 
subject to procedures designed to prevent the use and dissemination 
of material nonpublic information regarding the portfolio 
composition or changes thereto or the Creation Basket.
    \23\ See BZX Rule 14.11(k)(2)(C), which requires, as part of the 
surveillance procedures for Managed Portfolio Shares, the Fund's 
investment adviser to, upon request by the Exchange or the Financial 
Industry Regulatory Authority (``FINRA''), on behalf of the 
Exchange, make available to the Exchange or FINRA the daily 
portfolio holdings of each series of Managed Portfolio Shares.
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    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. Moreover, prior to 
the commencement of trading, the Exchange will inform its members in an 
Information Circular (``Circular'') of the special characteristics and 
risks associated with trading the Shares.\24\
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    \24\ The Exchange represents that the Circular will discuss the 
following: (1) Procedures for purchases and redemptions of Shares; 
(2) BZX Rule 3.7, which imposes suitability obligations on Exchange 
members with respect to recommending transactions in the Shares to 
customers; (3) how information regarding the VIIV is disseminated; 
(4) the requirement that members deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; (5) trading information; and (6) that 
the portfolio holdings will be disclosed within at least 60 days 
following the end of every fiscal quarter.
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    In support of this proposal, the Exchange represents that:
    (1) The Shares will conform to the initial and continued listing 
criteria under BZX Rule 14.11(k).
    (2) A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.
    (3) The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed, and may obtain trading information, regarding 
trading in the Shares, and the underlying exchange-traded instruments 
with other markets and other entities that are members of the ISG. In 
addition, the Exchange may obtain information regarding trading in the 
Shares and the underlying exchange-traded instruments from markets and 
other entities with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
    (4) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions in which the Shares trade.
    (5) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act.\25\
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    \25\ See 17 CFR 240.10A-3.
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    (6) The Fund's holdings will conform to the permissible investments 
as set forth in the Exemptive Application and Exemptive Order, and 
investments made by the Fund will be consistent with all requirements 
set forth in the Exemptive Application and Exemptive Order. The Fund's 
investments will be consistent with its investment objective and will 
not be used to enhance leverage.
    The Exchange represents that all statements and representations 
made in the filing regarding: (1) The description of the portfolio or 
reference assets; (2) limitations on portfolio holdings or reference 
assets; (3) dissemination and availability of the VIIV, reference 
assets, and intraday indicative values; and (4) the applicability of 
Exchange rules constitute continued listing requirements for listing 
the Shares on the Exchange. In addition, the Exchange represents that 
the issuer will advise the Exchange of any failure by the Fund 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 is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under BZX Rule 14.12.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \26\ and 
Section 11A(a)(1)(C)(iii) of the Act \27\ and the rules and regulations 
thereunder applicable to a national securities exchange.
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    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    It is therefore ordered,pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-CboeBZX-2020-029), as 
modified by Amendment No. 1, be, and it hereby is, approved.
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    \28\ 15 U.S.C. 78s(b)(1).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14742 Filed 7-8-20; 8:45 am]
BILLING CODE 8011-01-P