Document ID: SEC-2019-0336-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc
Posted Date: 2019-03-26T04:00Z

[Federal Register Volume 84, Number 58 (Tuesday, March 26, 2019)]
[Notices]
[Pages 11364-11371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05700]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85370; File No. SR-CboeBZX-2019-017]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule To List and Trade 
Shares of the iShares iBonds Dec 2026 Term Muni Bond ETF, iShares 
iBonds Dec 2027 Term Muni Bond ETF, and iShares iBonds Dec 2028 Term 
Muni Bond ETF Under BZX Rule 14.11(c)(4)

March 20, 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 19, 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 and II below, which Items 
have been prepared by the Exchange. The Exchange filed the proposal as 
a ``non-controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade under BZX Rule 14.11(c)(4) 
the shares of the iShares iBonds Dec 2026

[[Page 11365]]

Term Muni Bond ETF (the ``2026 Fund''), iShares iBonds Dec 2027 Term 
Muni Bond ETF (the ``2027 Fund''), and iShares iBonds Dec 2028 Term 
Muni Bond ETF (the ``2028 Fund'', each a ``Fund'' and, collectively, 
the ``Funds'') of iShares Trust (the ``Trust'').
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
Funds 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 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 Funds 
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 Exchange notes that the Commission has already published 
an immediately effective rule filing allowing the listing and 
trading of shares of a series of Index Fund Shares very similar to 
the Funds on the Exchange. See Securities Exchange Act Release No. 
84107 (September 13, 2018), 83 FR 47210 (September 18, 2018) (SR-
CboeBZX-2018-070) (the ``2025 Filing''). Further, the Commission has 
also approved a proposed rule change allowing the listing and 
trading of shares of two series of Index Fund Shares very similar to 
the Funds on the Exchange. 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''). Finally, the Commission has also published an immediately 
effective rule filing allowing the listing and trading of shares of 
the 2026 Fund on NYSE Arca, Inc. (``NYSE Arca''). See Securities 
Exchange Act Release No. 84396 (October 10, 2018), 83 FR 52266 
(October 16, 2018) (SR-NYSEArca-2018-70) (the ``Arca Filing''). 
While the Arca Filing was published and would have allowed the 
listing and trading of shares of the 2026 Fund on NYSE Arca, the 
shares of the 2026 Fund have not been listed or traded. In addition 
to proposing to list and trade the Shares of each Fund on the 
Exchange, this proposal would change the underlying index associated 
with the 2026 Fund, as described in the Arca Filing, from the S&P 
AMT-Free Municipal Series Dec 2026 Index to the S&P AMT-Free 
Municipal Callable Factor Adjusted 2026 Series Index, which would 
expand the index universe to include certain callable securities, as 
described below.
    \7\ See Registration Statement on Form N-1A for the Trust, dated 
January 11, 2019 (File Nos. 333-92935 and 811-09729). The 
descriptions of the Funds 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. 27661 (January 17, 2007) (File No. 812-13208).
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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 Indexes, as defined below, do not meet this 
requirement. The Underlying Indexes do, however, meet all of the other 
requirements of Rule 14.11(c)(4).
Description of the Shares and the Funds
    BlackRock Fund Advisors (``BFA'') is the investment adviser to the 
Funds.\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 Funds. 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 Callable Factor Adjusted 2026 Series Index
    According to the Registration Statement, the 2026 Fund will seek to 
track the investment results, before fees and expenses, of the S&P AMT-
Free Municipal Callable Factor Adjusted 2026 Series Index (the ``2026 
Underlying Index''), which measures the performance of investment-grade 
(as determined by Index Provider), non-callable and callable U.S. 
municipal bonds which will mature or be redeemed prior to December 1, 
2026. The 2026 Underlying Index includes only municipal bonds from 
issuers that are state, local or federal district 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 December 31, 2018, the 2026 Underlying Index included 12,222 
component fixed income municipal bond securities from issuers in 51 
different states or U.S. territories.\9\ The most heavily weighted 
security in the 2026 Underlying Index represented approximately 0.41% 
of the total weight of the 2026 Underlying Index and the aggregate 
weight of the top five most heavily weighted securities in the 2026 
Underlying Index represented less than 1.33% of the total weight of the 
2026 Underlying Index. Approximately 6.76% of the weight of the 
components in the 2026 Underlying Index had a minimum original 
principal outstanding of $100 million or more and 76.02% 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 2026 Underlying Index was 
approximately $101,777,956,000 and the average dollar amount 
outstanding of issues in the 2026 Underlying Index was approximately 
$8,327,000.
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    \9\ Unless otherwise noted, all statistics related to the 2026 
Underlying Index presented hereafter were accurate as of December 
31, 2018.
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Requirement for Index Constituents
    Each bond in the 2026 Underlying Index must be denominated in U.S. 
dollars and must have a minimum par amount of $2 million. To remain in 
the 2026 Underlying Index, bonds must maintain a minimum par amount 
greater than or equal to $2 million as of the next rebalancing date. 
The 2026 Underlying Index includes Municipal Securities that 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 2026 Underlying Index, and the lowest rating will be 
used in determining if the bond is investment-grade. All non-callable 
bonds in the 2026 Underlying Index will mature after December 31, 2025 
and before December 2, 2026. Callable bonds are eligible subject to the 
following: (i) A final maturity date after December 31, 2025 and before 
December 2, 2026, and a next call date no sooner than two

[[Page 11366]]

years prior to final maturity; or (ii) a final maturity up to four 
years after the index maturity year, if the next call date is within 
the index maturity range. The 2026 Underlying Index will also contain 
at least 500 component securities.
S&P AMT-Free Municipal Callable Factor Adjusted 2027 Series Index
    According to the Registration Statement, the 2027 Fund will seek to 
track the investment results, before fees and expenses, of the S&P AMT-
Free Municipal Callable Factor Adjusted 2027 Series Index (the ``2027 
Underlying Index''), which measures the performance of investment-grade 
(as determined by Index Provider), non-callable and callable U.S. 
municipal bonds which will mature or be redeemed prior to December 1, 
2027. The 2027 Underlying Index includes only Municipal Securities.
    As of December 31, 2018, the 2027 Underlying Index included 9,582 
component fixed income municipal bond securities from issuers in 51 
different states or U.S. territories.\10\ The most heavily weighted 
security in the 2027 Underlying Index represented approximately 0.57% 
of the total weight of the 2027 Underlying Index and the aggregate 
weight of the top five most heavily weighted securities in the 2027 
Underlying Index represented less than 2.56% of the total weight of the 
2027 Underlying Index. Approximately 5.87% of the weight of the 
components in the 2027 Underlying Index had a minimum original 
principal outstanding of $100 million or more and 77.82% 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 2027 Underlying Index was 
approximately $81,765,343,000 and the average dollar amount outstanding 
of issues in the 2027 Underlying Index was approximately $8,533,000.
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    \10\ Unless otherwise noted, all statistics related to the 2027 
Underlying Index presented hereafter were accurate as of December 
31, 2018.
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Requirement for Index Constituents
    Each bond in the 2027 Underlying Index must be denominated in U.S. 
dollars and must have a minimum par amount of $2 million. To remain in 
the 2027 Underlying Index, bonds must maintain a minimum par amount 
greater than or equal to $2 million as of the next rebalancing date. 
The 2027 Underlying Index includes Municipal Securities that 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 
2027 Underlying Index, and the lowest rating will be used in 
determining if the bond is investment-grade. All non-callable bonds in 
the 2027 Underlying Index will mature after December 31, 2026 and 
before December 2, 2027. Callable bonds are eligible subject to the 
following: (i) A final maturity after December 31, 2026 and before 
December 2, 2027, and a next call date no sooner than two years prior 
to final maturity; or (ii) a final maturity up to four years after the 
index maturity year, if the next call date is within the index maturity 
range. The 2027 Underlying Index will also contain at least 500 
component securities.
S&P AMT-Free Municipal Callable Factor Adjusted 2028 Series Index
    According to the Registration Statement, the 2028 Fund will seek to 
track the investment results, before fees and expenses, of the S&P AMT-
Free Municipal Callable Factor Adjusted 2028 Series Index (the ``2028 
Underlying Index'' and, collectively with the 2026 Underlying Index and 
the 2027 Underlying Index, the ``Underlying Indexes''), which measures 
the performance of investment-grade (as determined by Index Provider), 
non-callable and callable U.S. municipal bonds which will mature or be 
redeemed prior to December 1, 2028. The 2028 Underlying Index includes 
only Municipal Securities.
    As of December 31, 2018, the 2028 Underlying Index included 5,852 
component fixed income municipal bond securities from issuers in 51 
different states or U.S. territories.\11\ The most heavily weighted 
security in the 2028 Underlying Index represented approximately 0.85% 
of the total weight of the 2028 Underlying Index and the aggregate 
weight of the top five most heavily weighted securities in the 2028 
Underlying Index represented less than 2.42% of the total weight of the 
2028 Underlying Index. Approximately 6.97% of the weight of the 
components in the 2028 Underlying Index had a minimum original 
principal outstanding of $100 million or more and 80.36% 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 2028 Underlying Index was 
approximately $54,637,103,000 and the average dollar amount outstanding 
of issues in the 2028 Underlying Index was approximately $9,336,000.
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    \11\ Unless otherwise noted, all statistics related to the 2028 
Underlying Index presented hereafter were accurate as of December 
31, 2018.
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Requirement for Index Constituents
    Each bond in the 2028 Underlying Index must be denominated in U.S. 
dollars and must have a minimum par amount of $2 million. To remain in 
the 2028 Underlying Index, bonds must maintain a minimum par amount 
greater than or equal to $2 million as of the next rebalancing date. 
The 2028 Underlying Index includes Municipal Securities that 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 2028 Underlying Index, and the lowest rating will be 
used in determining if the bond is investment-grade. All non-callable 
bonds in the 2028 Underlying Index will mature after December 31, 2027 
and before December 2, 2028. Callable bonds are eligible subject to the 
following: (i) A final maturity after December 31, 2027 and before 
December 2, 2028, and a next call date no sooner than two years prior 
to final maturity; or (ii) a final maturity up to four years after the 
index maturity year, if the next call date is within the index maturity 
range. The 2028 Underlying Index will also contain at least 500 
component securities.
Portfolio Holdings
    Each Fund's holdings may include only the following types of 
Municipal Securities: General obligation bonds,\12\ limited obligation 
bonds (or revenue bonds),\13\ municipal notes,\14\ municipal commercial 
paper,\15\ tender option bonds,\16\ variable rate demand notes and

[[Page 11367]]

demand obligations (``VRDOs''),\17\ municipal lease obligations,\18\ 
stripped securities,\19\ structured securities,\20\ and zero coupon 
securities.\21\
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    \12\ General obligation bonds are obligations involving the 
credit of an issuer possessing taxing power and are payable from 
such issuer's general revenues and not from any particular source.
    \13\ Limited obligation bonds are payable only from the revenues 
derived from a particular facility or class of facilities or, in 
some cases, from the proceeds of a special excise or other specific 
revenue source, and also include industrial development bonds issued 
pursuant to former U.S. federal tax law. Industrial development 
bonds generally are also revenue bonds and thus are not payable from 
the issuer's general revenues. The credit and quality of industrial 
development bonds are usually related to the credit of the corporate 
user of the facilities. Payment of interest on and repayment of 
principal of such bonds is the responsibility of the corporate user 
(and/or any guarantor).
    \14\ Municipal notes are shorter-term municipal debt obligations 
that may provide interim financing in anticipation of tax 
collection, receipt of grants, bond sales, or revenue receipts.
    \15\ Municipal commercial paper is generally unsecured debt that 
is issued to meet short-term financing needs.
    \16\ Tender option bonds are synthetic floating-rate or 
variable-rate securities issued when long-term bonds are purchased 
in the primary or secondary market and then deposited into a trust. 
Custodial receipts are then issued to investors, such as the Fund, 
evidencing ownership interests in the trust.
    \17\ VRDOs are tax-exempt obligations that contain a floating or 
variable interest rate adjustment formula and a right of demand on 
the part of the holder thereof to receive payment of the unpaid 
principal balance plus accrued interest upon a short notice period 
not to exceed seven days.
    \18\ Municipal lease obligations include certificates of 
participation issued by government authorities or entities to 
finance the acquisition or construction of equipment, land, and/or 
facilities.
    \19\ Stripped securities are created when an issuer separates 
the interest and principal components of an instrument and sells 
them as separate securities. In general, one security is entitled to 
receive the interest payments on the underlying assets and the other 
to receive the principal payments.
    \20\ Structured securities are privately negotiated debt 
obligations where the principal and/or interest is determined by 
reference to the performance of an underlying investment, index, or 
reference obligation, and may be issued by governmental agencies. 
While structured securities are part of the principal holdings of 
the Fund, the Issuer represents that such securities, when combined 
with those instruments held as part of the other portfolio holdings 
described below, will not exceed 20% of the Fund's net assets.
    \21\ Zero coupon securities are securities that are sold at a 
discount to par value and do not pay interest during the life of the 
security. The discount approximates the total amount of interest the 
security will accrue and compound over the period until maturity at 
a rate of interest reflecting the market rate of the security at the 
time of issuance. Upon maturity, the holder of a zero coupon 
security is entitled to receive the par value of the security.
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    Under normal market conditions,\22\ each Fund will generally invest 
at least 90% of its assets in the component securities of its 
respective Underlying Index, except during the last months of the 
Fund's operations. With respect to the remaining 10% of its assets, 
each Fund may invest in certain futures, options and swap 
contracts,\23\ 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 its respective Underlying Index, but which 
BFA believes will help the Fund track the Underlying Index. From time 
to time when conditions warrant, however, a Fund may invest at least 
80% of its assets in the component securities of its respective 
Underlying Index.
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    \22\ 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.
    \23\ 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 a Fund mature 
(other than the tender options bonds mentioned below), the proceeds 
will not be reinvested in bonds (except as discussed below) 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 Indexes and the 
representations made in the Requirements for Index Constituents 
sections above, the Exchange believes it is appropriate to allow the 
listing and trading of the Shares. The Underlying Indexes and Funds 
each 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 Indexes include the same 
representations made regarding the S&P AMT-Free Municipal Series Dec 
2023 Index, the S&P AMT-Free Municipal Series Dec 2024 Index, and the 
S&P AMT-Free Municipal Series Dec 2025 Index (collectively, with the 
S&P AMT-Free Municipal Series Dec 2023 Index and the S&P AMT-Free 
Municipal Series Dec 2024 Index, the ``Comparable Indexes''). Further, 
the Requirements for Index Constituents also include an additional 
representation that each Underyling [sic] Index will have at least 500 
constituents on a continuous basis, which was also included in the 
filing related to the S&P AMT-Free Municipal Series Dec 2025 Index. The 
Exchange believes that this representation ensures diversification 
among constituent securities of the Indexes.\24\
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    \24\ See Approval Order and the 2025 Filing. The Exchange notes 
that the only substantive difference between the Comparable Indexes 
and the Underlying Indexes, other than the maturity dates of the 
constituents, is that the Underlying Indexes may include callable 
and non-callable Municipal Securities, while the Comparable Indexes 
include only non-callable Municipal Securities.
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    The Approval Order and 2025 Filing 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. Each Underlying Index requires that, in order 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 each 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 each 
Underlying Index provide a strong degree of protection against index 
manipulation that is consistent with other proposals that have either 
been approved for listing and trading by the Commission or were 
effective upon filing, which is only furthered by the additional 
representation that each Underyling [sic] 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), each Underyling [sic] 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 Funds is required to comply with Rule 10A-3 
\25\ under the Act for the initial and continued listing of the Shares. 
In addition, the Exchange represents that each 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 Indexes and the 
Intraday Indicative Value (``IIV''),\26\ 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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    \25\ 17 CFR 240.10A-3.
    \26\ 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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[[Page 11368]]

    The current value of each 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 and other assets held by each Fund will be disclosed daily 
on its respective website at www.ishares.com. Further, each 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 of each Fund 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 each Underlying Index and each 
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 each 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 Indexes.
    The Exchange's existing rules require that the issuer of the Funds 
notify the Exchange of any material change to the methodology used to 
determine the composition of an Underlying Index and, therefore, if the 
methodology of an Underlying Index was to be changed in a manner that 
would materially alter its existing composition, the Exchange would 
have advance notice and would evaluate the modifications to determine 
whether that Underyling [sic] Index remained sufficiently broad-based 
and well diversified.
Availability of Information
    The Funds' website, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Funds that may be downloaded. The website will include additional 
quantitative information updated on a daily basis, including, for each 
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, each 
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 each Fund's portfolio. The 
website and information will be publicly available at no charge. The 
value, components, and percentage weightings of each Underlying Index 
will be calculated and disseminated at least once daily and will be 
available from major market data vendors. Rules governing each Fund's 
respective Underlying Indexes are available on S&P's website and in the 
applicable Fund's prospectus.
    In addition, an estimated value, defined in BZX Rule 14.11(c)(6)(A) 
as the IIV that reflects an estimated intraday value of each Fund's 
portfolio, will be disseminated. Moreover, the IIV will be based upon 
the current value for the components of the daily disclosed portfolio 
and will be updated and widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Exchange's Regular 
Trading Hours.\27\ In addition, the quotations of certain of a Fund's 
holdings may not be updated during U.S. trading hours if updated prices 
cannot be ascertained.
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    \27\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IIVs 
published via the CTA or other data feeds.
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    The dissemination of the IIV, together with the daily disclosed 
portfolio, will allow investors to determine the value of the 
underlying portfolio of each Fund on a daily basis and provide a close 
estimate of that value throughout the trading day.
    Quotation and last sale information for the Shares will be 
available via the CTA high speed line. Price information regarding 
Municipal Securities and other non-exchange traded assets including 
certain derivatives, money market funds and other instruments, and 
repurchase agreements is available from third party pricing services 
and major market data vendors. Price information regarding Municipal 
Securities can also be obtained from the Municipal Securities 
Rulemaking Board's Electronic Municipal Market Access (``EMMA'') 
system. For exchange-traded assets, including futures, and certain 
options, such intraday information is available directly from the 
applicable listing exchange. In addition, price information for U.S. 
exchange-traded options will be available from the Options Price 
Reporting Authority.
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.\28\
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    \28\ 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

[[Page 11369]]

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 the Funds reported to 
FINRA's Trade Reporting and Compliance Engine (``TRACE''). FINRA also 
can access data obtained from the Municipal Securities Rulemaking 
Board's EMMA system relating to municipal bond trading activity for 
surveillance purposes in connection with trading in the Shares.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \29\ in general and Section 6(b)(5) of the Act \30\ 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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    \29\ 15 U.S.C. 78f.
    \30\ 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 
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 Funds reported to TRACE.
    As discussed above, the Exchange believes that each Underlying 
Index is sufficiently broad-based to deter potential manipulation. The 
Underlying Indexes currently include at least 5,852 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 Indexes each include securities issued by municipal 
entities in at least 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 each Underlying 
Index constitutes no more than 0.85% of the weight of the Underlying 
Index and the largest five component securities represent no more than 
2.56% of the weight of an Underlying Index.
    The Exchange believes that this significant diversification and the 
lack of concentration among constituent securities provide each 
Underlying Index with a strong degree of protection against index 
manipulation. Each 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 each 
Underlying Index are identical to or more robust than the 
representations made regarding the Comparable Indexes and, further, BFA 
has made an additional representation regarding diversification that 
was also included in the 2025 Filing.
    The Approval Order and 2025 Filing 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 an 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 each Underlying Index 
will have at least 500 constituents on a continuous basis, which 
ensures diversification among constituent securities, a representation 
that was also included in the 2025 Filing. 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 each Underlying Index provide a strong degree of protection 
against index manipulation that is consistent with other proposals that 
have either been approved for listing and trading by the Commission or 
were effective upon filing, which is only furthered by the additional 
representation that each Underyling [sic] 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 each 
Fund, thereby promoting market transparency. Each Fund's portfolio 
holdings will be disclosed on its respective website daily after the 
close of trading on the Exchange. Moreover, the IIV for the 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 each Underlying 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 Funds will include the prospectus for each 
Fund and additional data relating to NAV and other applicable 
quantitative information.
    If the Exchange becomes aware that a Fund's NAV is not being 
disseminated to all market participants at the same time, it will halt 
trading in the applicable Fund's Shares until such

[[Page 11370]]

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 
inadvisable. If the IIV and index value are not being disseminated for 
a 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 a Fund; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present. 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 composition of the Underlying Indexes, the description of the 
portfolio or reference assets, limitations on portfolio holdings or 
reference assets, dissemination and availability of index, reference 
asset, and IIV, or the applicability of Exchange listing rules shall 
constitute continued listing requirements for listing the Shares on the 
Exchange. The issuer is required to advise the Exchange of any failure 
by a 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 a 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 
several new exchange-traded products that principally hold 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 three 
additional exchange-traded products 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 \31\ and Rule 19b-
4(f)(6) thereunder.\32\
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    \31\ 15 U.S.C. 78s(b)(3)(A).
    \32\ 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \33\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \34\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. The 
Exchange noted that this proposal includes identical representations 
regarding the requirements for index constituents of each Underlying 
Index as are included in relation to the Comparable Indexes in the 
Approval Order and the 2025 Filing and thus raises no new or novel 
issues. The Exchange noted this proposal further includes an additional 
representation that each Underlying Index will have at least 500 
constituents on a continuous basis, which the Commission believes 
should help ensure diversification among constituent securities in a 
manner similar to the 2025 Filing. Finally, the Exchange notes that 
waiver of the 30-day operative delay will expedite the listing and 
trading of the Shares, which may enhance competition among market 
participants, without undue delay, to the benefit of investors and the 
marketplace. The Commission believes that the proposal raises no new or 
substantive issues and that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\35\
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    \33\ 17 CFR 240.19b-4(f)(6).
    \34\ 17 CFR 240.19b-4(f)(6)(iii).
    \35\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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.

[[Page 11371]]

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-2019-017 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-2019-017. 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-2019-017, and should be 
submitted on or before April 16, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05700 Filed 3-25-19; 8:45 am]
 BILLING CODE 8011-01-P