Document ID: SEC-2018-1449-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2018-09-18T04:00Z

[Federal Register Volume 83, Number 181 (Tuesday, September 18, 2018)]
[Notices]
[Pages 47210-47215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20237]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84107; File No. SR-CboeBZX-2018-070]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To List 
and Trade Shares of the iShares iBonds Dec 2025 Term Muni Bond ETF of 
iShares Trust Under BZX Rule 14.11(c)(4) (Index Fund Shares)

September 13, 2018.
    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 August 30, 2018, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Exchange has designated this 
proposal as a ``non-controversial'' proposed rule change pursuant to 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6)(iii) 
thereunder,\4\ which renders it effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to list and trade under BZX Rule 
14.11(c)(4) the shares of the iShares iBonds Dec 2025 Term Muni Bond 
ETF (the ``Fund'') of iShares Trust (the ``Trust'').
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, 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 parts of such 
statements.

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
Fund under BZX Rule 14.11(c)(4),\5\ which governs the listing and 
trading of index fund shares based on fixed income securities 
indexes.\6\ The Shares will be

[[Page 47211]]

offered by the Trust, which was established as a Delaware statutory 
trust on December 16, 1999. 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.\7\
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    \5\ The Commission approved BZX Rule 14.11(c) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \6\ The Commission previously has approved proposed rule changes 
relating to listing and trading of funds based on municipal bond 
indexes. See Securities Exchange Act Release Nos. 78329 (July 14, 
2016), 81 FR 47217 (July 20, 2016) (SR-BatsBZX-2016-01) (order 
approving the listing and trading of the following series of VanEck 
Vectors ETF Trust: VanEck Vectors AMT-Free 6-8 Year Municipal Index 
ETF; VanEck Vectors AMT-Free 8-12 Year Municipal Index ETF; and 
VanEck Vectors AMT-Free 12-17 Year Municipal Index ETF); 67985 
(October 4, 2012), 77 FR 61804 (October 11, 2012) (SR-NYSEArca-2012-
92) (order approving proposed rule change relating to the listing 
and trading of iShares 2018 S&P AMT-Free Municipal Series and 
iShares 2019 S&P AMT-Free Municipal Series under NYSE Arca, Inc. 
(``NYSE Arca'') Rule 5.2(j)(3), Commentary .02); 72523 (July 2, 
2014), 79 FR 39016 (July 9, 2014) (SR-NYSEArca-2014-37) (order 
approving proposed rule change relating to the listing and trading 
of iShares 2020 S&P AMT-Free Municipal Series under NYSE Arca Rule 
5.2(j)(3), Commentary .02); and 75468 (July 16, 2015), 80 FR 43500 
(July 22, 2015) (SR-NYSEArca-2015-25) (order approving proposed rule 
change relating to the listing and trading of the iShares iBonds Dec 
2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022 AMT-Free 
Muni Bond ETF under NYSE Arca Rule 5.2(j)(3), Commentary .02).
    \7\ See Registration Statement on Form N-1A for the Trust, dated 
[DATE] [sic] (File Nos. 333-92935 and 811-09729). 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''). See Investment Company Act Release No. 28021 
(October 24, 2007) (File No. 812-13426).
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    Rule 14.11(c)(4)(B)(i)(b) requires that component fixed income 
securities that, in the aggregate, account for at least 75% of the 
weight of the index or portfolio shall have a minimum principal amount 
outstanding of $100 million or more. The Exchange submits this proposal 
because the Underlying Index does not meet this requirement. The 
Underlying Index does, however, meet all of the other requirements of 
Rule 14.11(c)(4).
Description of the Shares and the Fund
    BlackRock Fund Advisors (``BFA'') is the investment adviser to the 
Fund.\8\ State Street Bank and Trust Company is the administrator, 
custodian, and transfer agent for the Trust. S&P is the index provider 
(the ``Index Provider'') for the Fund. BlackRock Investments, LLC 
serves as the distributor for the Trust.
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    \8\ BFA is an indirect wholly owned subsidiary of BlackRock, 
Inc.
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S&P AMT-Free Municipal Series Dec 2025 Index
    According to the Registration Statement, the Fund will seek to 
track the investment results, before fees and expenses, of the S&P AMT-
Free Municipal Series Dec 2025 Index (the ``Underlying Index''), which 
measures the performance of investment-grade (as determined by Index 
Provider), non-callable U.S. municipal bonds maturing in 2025. The 
Underlying Index includes municipal bonds from issuers that are state 
or local governments or agencies such that the interest on each such 
bond is exempt from U.S. federal income taxes and the federal 
alternative minimum tax (``AMT'') (``Municipal Securities'').
    As of July 13, 2018, the Underlying Index included 4,823 component 
fixed income municipal bond securities from issuers in 51 different 
states or U.S. territories.\9\ The most heavily weighted security in 
the Underlying Index represented approximately 1.10% of the total 
weight of the Underlying Index and the aggregate weight of the top five 
most heavily weighted securities in the Underlying Index represented 
less than 2.98% of the total weight of the Underlying Index. 
Approximately 6.73% of the weight of the components in the Underlying 
Index had a minimum original principal outstanding of $100 million or 
more and 75.56% of the weight of the components were a constituent of 
an offering where the original offering amount was at least $100 
million. In addition, the total dollar amount outstanding of issues in 
the Underlying Index was approximately $40,600,000,000 and the average 
dollar amount outstanding of issues in the Underlying Index was 
approximately $8,419,000.
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    \9\ Unless otherwise noted, all statistics related to the 
Underlying Index presented hereafter were accurate as of July 13, 
2018.
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Requirement for Index Constituents
    Each bond in the Underlying Index must be denominated in U.S. 
dollars, must have a minimum par amount of $2 million. To remain in the 
Underlying Index, bonds must maintain a minimum par amount greater than 
or equal to $2 million as of the next rebalancing date. The Underlying 
Index includes Municipal Securities from issuers that are state or 
local governments or agencies such that the interest on each such bond 
is exempt from U.S. federal income taxes and the AMT. Each bond in the 
Underlying Index must be investment-grade (i.e., have a rating of at 
least BBB- by S&P Global Ratings, Baa3 by Moody's Investors Service, 
Inc., or BBB- by Fitch Ratings, Inc.). A bond must be rated by at least 
one of these three rating agencies in order to qualify for the 
Underlying Index, and the lowest rating will be used in determining if 
the bond is investment-grade. All bonds in the Underlying Index will 
mature after December 31, 2024 and before December 2, 2025. The 
Underlying Index will also contain at least 500 component securities.
Portfolio Holdings
    The Fund's holdings may include only the following types of 
Municipal Securities: General obligation bonds,\10\ limited obligation 
bonds (or revenue bonds),\11\ municipal notes,\12\ municipal commercial 
paper,\13\ tender option bonds,\14\ variable rate notes and demand 
obligations (``VRDOs''),\15\ municipal lease obligations,\16\ stripped 
securities,\17\ structured securities,\18\ and zero coupon 
securities.\19\
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    \10\ 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.
    \11\ 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).
    \12\ 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.
    \13\ Municipal commercial paper is generally unsecured debt that 
is issued to meet short-term financing needs.
    \14\ 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.
    \15\ 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.
    \16\ 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.
    \17\ 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.
    \18\ 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.
    \19\ 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.

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[[Page 47212]]

    Under normal market conditions,\20\ the Fund will invest at least 
90% of its assets in the component securities of the Underlying Index, 
except during the last months of the Fund's operations. With respect to 
the remaining 10% of its assets, the Fund may invest in certain 
futures, options and swap contracts,\21\ cash and cash equivalents, 
including shares of money market funds advised by BFA or its 
affiliates, as well as in Municipal Securities not included in the 
Underlying Index, but which BFA believes will help the Fund track the 
Underlying Index. From time to time when conditions warrant, however, 
the Fund may invest at least 80% of its assets in the component 
securities of the Underlying Index.
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    \20\ The term ``normal market conditions'' includes, but is not 
limited to, the absence of trading halts in the applicable financial 
markets generally; operational issues (e.g., systems failure) 
causing dissemination of inaccurate market information; or force 
majeure type events such as natural or manmade disaster, act of God, 
armed conflict, act of terrorism, riot or labor disruption or any 
similar intervening circumstance.
    \21\ 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.
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    In the last months of operation, as the bonds held by the Fund 
mature, the proceeds will not be reinvested in bonds but instead will 
be held in cash and cash equivalents, including, without limitation, 
shares of money market funds advised by BFA or its affiliates 
(``BlackRock Cash Funds''), AMT-free tax-exempt municipal notes, 
variable rate demand notes and obligations, tender option bonds and 
municipal commercial paper. These cash equivalents may not be included 
in the Fund's benchmark index.
Discussion
    Based on the characteristics of the Underlying Index and the 
representations made in the Requirements for Index Constituents section 
above, the Exchange believes it is appropriate to allow the listing and 
trading of the Shares. The Underlying Index and Fund satisfy all of the 
generic listing requirements for Index Fund Shares based on a fixed 
income index, except for the minimum principal amount outstanding 
requirement of 14.11(c)(4)(B)(i)(b). The Exchange notes that the 
representations in the Requirements for Index Constituents for the 
Underlying Index are identical to the representations made regarding 
the S&P AMT-Free Municipal Series Dec 2023 Index and the S&P AMT-Free 
Municipal Series Dec 2024 Index (the ``Comparable Indexes''), each 
underlying a series of Index Fund Shares that were previously approved 
for listing and trading by the Commission.\22\
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    \22\ See Securities Exchange Act Release No. 79381 (November 22, 
2016), 81 FR 86044 (November 29, 2016) (SR-BatsBZX-2016-48) (Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendments No. 1 and No. 2 Thereto, To List and Trade Shares of 
the iShares iBonds Dec 2023 Term Muni Bond ETF and iShares iBonds 
Dec 2024 Term Muni Bond ETF of the iShares U.S. ETF Trust Pursuant 
to BZX Rule 14.11(c)(4)) (the ``Approval Order'').
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    The Approval Order included the representation that a bond must be 
investment-grade and must have an outstanding par value of at least $2 
million in order to be included in the Comparable Indexes. To remain in 
the Underlying Index, bonds must be investment-grade and maintain a 
minimum par amount greater than or equal to $2 million and, further, 
BFA has represented that the Underlying Index will have at least 500 
constituents on a continuous basis. As such, the Exchange believes that 
the proposal is consistent with the Act because the representations 
regarding the quality and size of the issuances included in the 
Underlying Index provide a strong degree of protection against index 
manipulation that is consistent with other proposals that have been 
approved for listing and trading by the Commission, which is only 
furthered by the additional representation that the Underlying Index 
will have at least 500 constituents on a continuous basis, which 
ensures diversification among constituent securities.
    In addition, the Exchange represents that: (1) Except for Rule 
14.11(c)(4)(B)(i)(b), the Underlying Index currently satisfies all of 
the generic listing standards under Rule 14.11(c)(4); (2) the continued 
listing standards under Rule 14.11(c), as applicable to Index Fund 
Shares based on fixed income securities, will apply to the Shares; and 
(3) the issuer of the Fund is required to comply with Rule 10A-3 \23\ 
under the Act for the initial and continued listing of the Shares. In 
addition, the Exchange represents that the Fund will comply with all 
other requirements applicable to Index Fund Shares, including, but not 
limited to, requirements relating to the dissemination of key 
information such as the value of the Underlying Index and the Intraday 
Indicative Value (``IIV''),\24\ rules governing the trading of equity 
securities, trading hours, trading halts, surveillance, information 
barriers and the Information Circular, as set forth in the Exchange 
rules applicable to Index Fund Shares and prior Commission orders 
approving the generic listing rules applicable to the listing and 
trading of Index Fund Shares.
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    \23\ 17 CFR 240.10A-3.
    \24\ The IIV will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the Exchange's 
Regular Trading Hours. Currently, it is the Exchange's understanding 
that several major market data vendors display and/or make widely 
available IIVs taken from the Consolidated Tape Association 
(``CTA'') or other data feeds.
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    The current value of the Underlying Index will be widely 
disseminated by one or more major market data vendors at least once per 
day, as required by Rule 14.11(c)(4)(C)(ii). The portfolio of 
securities held by the Fund will be disclosed daily on the Fund's 
website at www.ishares.com. Further, the Fund's website will contain 
the Fund's prospectus and additional data relating to net asset value 
(``NAV'') and other applicable quantitative information. The issuer has 
represented that the NAV will be calculated daily and will be made 
available to all market participants at the same time. The Index 
Provider is not a broker-dealer and is not affiliated with a broker-
dealer. To the extent that the Index Provider becomes a broker-dealer 
or becomes affiliated with a broker-dealer, the Index Provider will 
implement and will maintain a ``fire wall'' around the personnel who 
have access to information concerning changes and adjustments to the 
Underlying Index and the Underlying Index shall be calculated by a 
third party who is not a broker-dealer or fund advisor. In addition, 
any advisory committee, supervisory board or similar entity that 
advises the Index Provider or that makes decisions on the Index, 
methodology and related matters, will implement and maintain, or be 
subject to, procedures designed to prevent the use and dissemination of 
material non-public information regarding the Underlying Index.
    The Exchange's existing rules require that the issuer of the Fund 
notify the Exchange of any material change to the methodology used to 
determine the composition of the Underlying Index and, therefore, if 
the methodology of the Underlying Index was changed in a manner that 
would materially alter its existing composition, the Exchange would 
have advance notice and would evaluate the modifications to determine

[[Page 47213]]

whether the Underlying Index remained sufficiently broad-based and well 
diversified.
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, for the 
Fund: (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. The 
value, components, and percentage weightings of the Underlying Index 
will be calculated and disseminated at least once daily and will be 
available from major market data vendors. Rules governing the 
Underlying Index are available on S&P's website and in the Fund's 
prospectus.
    In addition, an estimated value, defined in BZX Rule 14.11(c)(6)(A) 
as the ``Intraday Indicative Value,'' that reflects an estimated 
intraday value of the Fund's portfolio, will be disseminated. Moreover, 
the Intraday Indicative Value 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.\25\ 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.
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    \25\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Intraday Indicative Values published via the Consolidated Tape 
Association (``CTA'') or other data feeds.
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    The dissemination of the Intraday Indicative Value, 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. 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.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by the Financial 
Industry Regulatory Authority (``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.\26\
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    \26\ FINRA conducts 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.
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    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 
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 a Fund reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE''). FINRA also can 
access data obtained from the Municipal Securities Rulemaking Board's 
Electronic Municipal Market Access (``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 \27\ in general and Section 6(b)(5) of the Act \28\ 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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    \27\ 15 U.S.C. 78f [sic].
    \28\ 15 U.S.C. 78f(b)(5).
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    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 for Index Fund Shares based on a 
fixed income index in Rule 14.11(c)(4), except for the minimum 
principal amount outstanding requirement of 14.11(c)(4)(B)(i)(b). The

[[Page 47214]]

Exchange represents that trading in the Shares will be subject to the 
existing trading surveillances administered by the Exchange as well as 
cross-market surveillances administered by the FINRA on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
federal securities laws applicable to trading on the Exchange. 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 Exchange or FINRA, on 
behalf of the Exchange, or both, will communicate as needed regarding 
trading in the Shares with other markets that are members of the ISG. 
In addition, the Exchange will communicate as needed regarding trading 
in the Shares with other markets that are members of the ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement. FINRA also can access data obtained from the EMMA system 
relating to municipal bond trading activity for surveillance purposes 
in connection with trading in the Shares. FINRA, on behalf of the 
Exchange, is able to access, as needed, trade information for certain 
fixed income securities held by the Fund reported to TRACE.
    As discussed above, the Exchange believes that the Underlying Index 
is sufficiently broad-based to deter potential manipulation. The 
Underlying Index currently includes 4,823 component securities. Whereas 
the Rule 14.11(c)(4)(B)(i)(e) requires that an index contain securities 
from a minimum of 13 non-affiliated issuers, the Underlying Index 
includes securities issued by municipal entities in more than 51 states 
or U.S. territories. Further, whereas the generic listing rules permit 
a single component security to represent up to 30% of the weight of an 
index and the top five component securities to, in aggregate, represent 
up to 65% of the weight of an index, the largest component security in 
the Underlying Index only constitutes 1.10% of the weight of the 
Underlying Index and the largest five component securities represent 
2.98% of the weight of the Underlying Index.
    The Exchange believes that this significant diversification and the 
lack of concentration among constituent securities provide a strong 
degree of protection against index manipulation. The Underlying Index 
and Fund satisfy all of the generic listing requirements for Index Fund 
Shares based on a fixed income index, except for the minimum principal 
amount outstanding requirement of 14.11(c)(4)(B)(i)(b). With this in 
mind, the Exchange notes that the representations in the Requirements 
for Index Constituents for the Underlying Index are identical to the 
representations made regarding the Comparable Indexes, each of which 
are underlying a series of Index Fund Shares that were previously 
approved for listing and trading by the Commission \29\ and, further, 
BFA has made an additional representation regarding diversification 
that was not included in the Approval Order.
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    \29\ See supra note 9 [sic].
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    The Approval Order included the representation that a bond must be 
investment-grade and must have an outstanding par value of at least $2 
million in order to be included in the Comparable Indexes. To remain in 
the Underlying Index, bonds must be investment-grade and maintain a 
minimum par amount greater than or equal to $2 million and, further, 
BFA has represented that the Underlying Index will have at least 500 
constituents on a continuous basis. As such, the Exchange believes that 
the proposal is consistent with the Act because the representations 
regarding the quality and size of the issuances included in the 
Underlying Index provide a strong degree of protection against index 
manipulation that is consistent with other proposals that have been 
approved for listing and trading by the Commission, which is only 
furthered by the additional representation that the Underlying Index 
will have at least 500 constituents on a continuous basis, which 
ensures diversification among constituent securities.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that a large amount of information is publicly available regarding the 
Fund, thereby promoting market transparency. The Fund's portfolio 
holdings will be disclosed on the Fund's website daily after the close 
of trading on the Exchange. Moreover, the IIV for Shares will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Exchange's Regular Trading Hours. The current value 
of the Index will be disseminated by one or more major market data 
vendors at least once per day. Information regarding market price and 
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other 
electronic services, and quotation and last sale information will be 
available via the CTA high-speed line. The website for the Fund will 
include the prospectus for the Fund and additional data relating to NAV 
and other applicable quantitative information.
    If the Exchange becomes aware that the Fund's NAV is not being 
disseminated to all market participants at the same time, it will halt 
trading in the Shares until such time as the NAV is available to all 
market participants. With respect to trading halts, the Exchange may 
consider all relevant factors in exercising its discretion to halt or 
suspend trading in the Shares. Trading also may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the shares the Fund inadvisable. If the IIV and index 
value are not being disseminated for the Fund as required, the Exchange 
may halt trading during the day in which the interruption to the 
dissemination of the IIV or index value occurs. If the interruption to 
the dissemination of an IIV or index value persists past the trading 
day in which it occurred, the Exchange will halt trading. The Exchange 
may consider all relevant factors in exercising its discretion to halt 
or suspend trading in the Shares. The Exchange 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. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the daily 
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(c)(1)(B)(iv), which sets forth circumstances 
under which Shares of a Fund may be halted. In addition, investors will 
have ready access to information regarding the applicable IIV, and 
quotation and last sale information for the Shares. Trade price and 
other information relating to Municipal Securities is available through 
the EMMA system.
    All statements and representations made in this filing regarding 
the Index composition, the description of the portfolio or reference 
assets, limitations on portfolio holdings or reference assets, 
dissemination and availability of Index, reference asset, and intraday 
indicative values (as applicable), or the applicability of Exchange 
listing rules shall constitute continued listing requirements for 
listing the Shares on the Exchange. The issuer is required to

[[Page 47215]]

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 monitor 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 Rule 14.12.
    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 exchange-traded product that principally holds Municipal Securities 
and that will enhance competition among market participants, to the 
benefit of investors and the marketplace. The Exchange has in place 
surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, investors will have ready 
access to information regarding the IIV and quotation and last sale 
information for the 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 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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \30\ and Rule 19b-
4(f)(6) thereunder.\31\
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    \30\ 15 U.S.C. 78s(b)(3)(A).
    \31\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2018-070 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-2018-070. 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-2018-070, and should be 
submitted on or before October 9, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
Eduardo A. Aleman,
Assistant Secretary.
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    \32\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-20237 Filed 9-17-18; 8:45 am]
BILLING CODE 8011-01-P