Document ID: SEC-2018-1607-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2018-10-16T04:00Z

[Federal Register Volume 83, Number 200 (Tuesday, October 16, 2018)]
[Notices]
[Pages 52255-52264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22427]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84394; File No. SR-CboeBZX-2018-072]

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 JPMorgan Municipal ETF and JPMorgan Ultra-Short 
Municipal ETF of the J.P. Morgan Exchange-Traded Fund Trust Under Rule 
14.11(i), Managed Fund Shares

October 10, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 26, 2018, Cboe BZX Exchange, Inc. (the ``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 filed a proposal to list and trade shares of the 
JPMorgan Municipal ETF and JPMorgan Ultra-Short Municipal ETF (each a 
``Fund'' or, collectively, the ``Funds'') of the J.P. Morgan Exchange-
Traded Fund Trust (the ``Trust'' or the ``Issuer'') under Rule 14.11(i) 
(``Managed Fund Shares''). The shares of the Funds are referred to 
herein as the ``Shares.''
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares under Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\5\ The Funds will be actively managed funds. The 
Shares will be offered by the Trust, which was established as a 
Delaware statutory trust. The Trust is registered with the Commission 
as an open-end investment company and has filed a registration 
statement on behalf of the Fund on Form N-1A (``Registration 
Statement'') with the Commission.\6\
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    \5\ The Commission approved Rule 14.11(i) in Securities Exchange 
Act Release No. 65225 (August 30, 2011), 76 FR 55148 (September 6, 
2011) (SR-BATS-2011-018).
    \6\ See Registration Statement on Form N-1A for the Trust, dated 
July 31, 2018 (File Nos. 333-191837 and 811-22903). The descriptions 
of the Fund and the Shares contained herein are based, in part, on 
information in the Registration Statement. The Commission has issued 
an order granting certain exemptive relief to the Trust under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') (the 
``Exemptive Order''). See Investment Company Act Release No. 31990 
(February 9, 2016) (File No. 811-22903).
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    Rule 14.11(i)(4)(C)(ii)(a) requires that component fixed income 
securities that, in the aggregate, account for at least 75% of the 
weight of the portfolio shall have a minimum principal amount 
outstanding of $100 million or more. The Exchange submits this proposal 
because the portfolios of the Funds will not meet this requirement. The 
Fund will, however, meet all of the other requirements of Rule 
14.11(i)(4)(C)(ii), (iii), (iv) and (v), specifically including Rule 
14.11(i)(4)(C)(iv), which provides that non-agency, non-GSE, and 
privately-issued mortgage-related and other asset-backed securities 
components of a portfolio shall not account, in the aggregate, for more 
than 20% of the weight of the fixed income portion of the portfolio, 
and 14.11(i)(4)(C)(iv)(a), which provides that in the aggregate, at 
least 90% of the weight of listed derivatives holdings shall consist of 
futures, options, and swaps for which the Exchange may obtain 
information via the Intermarket Surveillance Group (``ISG'') from other 
members or affiliates of the ISG or for which the principal market is a 
market with which the Exchange has a comprehensive surveillance sharing 
agreement, calculated using the aggregate gross notional value of such 
holdings.
Description of the Shares and the Funds
    J.P. Morgan Investment Management, Inc. is the investment adviser 
(the ``Adviser'') to the Fund. JPMorgan Chase Bank, N.A. is the 
administrator, custodian, and transfer agent (``Administrator,'' 
``Custodian,'' and ``Transfer Agent,'' respectively) for the Trust. 
JPMorgan Distribution Services, Inc. serves as the distributor 
(``Distributor'') for the Trust.
    Rule 14.11(i)(7) provides that, if the investment adviser to the 
investment company issuing Managed Fund Shares is affiliated with a 
broker-dealer, such investment adviser shall erect a ``fire wall'' 
between the investment adviser and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
investment company portfolio.\7\ In addition, Rule 14.11(i)(7) further 
requires that personnel who make decisions on the investment company's 
portfolio composition must be subject to

[[Page 52256]]

procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable investment company 
portfolio. Rule 14.11(i)(7) is similar to Rule 14.11(b)(5)(A)(i), 
however, Rule 14.11(i)(7) in connection with the establishment of a 
``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser is 
not a registered broker-dealer, but is affiliated with multiple broker-
dealers and has implemented ``fire walls'' with respect to such broker-
dealers regarding access to information concerning the composition and/
or changes to a Fund's portfolio. In addition, Adviser personnel who 
make decisions regarding a Fund's portfolio are subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the Fund's portfolio. In the event that (a) the 
Adviser becomes registered as a broker-dealer or newly affiliated with 
another broker-dealer, or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes affiliated with a broker-dealer, it 
will implement a fire wall with respect to its relevant personnel or 
such broker-dealer affiliate, as applicable, regarding access to 
information concerning the composition and/or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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JPMorgan Municipal ETF
    According to the Registration Statement, the Fund will seek to 
provide monthly dividends, which are excluded from gross income, and to 
protect the value of a shareholder's investment by investing primarily 
in municipal obligations. For purposes of the Fund's investment 
objective, ``gross income'' means gross income for federal income tax 
purposes. To achieve its objective, the Fund will invest, under normal 
circumstances,\8\ at least 80% of its net assets in Municipal 
Securities, as defined below, the interest from which is exempt from 
federal income tax. The Fund is not a money market fund and does not 
seek to maintain a stable net asset value of $1.00 per share. The Fund 
will be classified as a ``diversified'' investment company under the 
1940 Act.\9\
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    \8\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of adverse market, economic, political, or 
other conditions, including extreme volatility or trading halts in 
the financial markets; operational issues causing dissemination of 
inaccurate market information; or force majeure type events such as 
systems failure, natural or man-made disaster, act of God, armed 
conflict, act of terrorism, riot, or labor disruption, or any 
similar intervening circumstance.
    \9\ The diversification standard is set forth in Section 5(b)(1) 
of the 1940 Act.
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    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended. The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
Principal Holdings--Municipal Securities
    To achieve its objective, the Fund will invest, under normal 
circumstances, in fixed and variable rate Municipal Securities, as 
defined below. As part of its investments in Municipal Securities, the 
Fund invests primarily in investment grade securities or the unrated 
equivalent. Investment-grade securities are rated a minimum of BBB- or 
higher by Standard & Poor's Ratings Services and/or Fitch, or Baa3 or 
higher by Moody's, or if unrated, determined by the Adviser to be of 
equivalent quality.\10\ Up to 10% of the Fund's total assets may be 
invested in securities rated below investment grade (junk bonds). Junk 
bonds are rated in the fifth or lower rated categories (for example, 
BB+ or lower by Standard & Poor's Ratings Services and Ba1 or lower by 
Moody's). Under normal circumstances, the Fund invests in a portfolio 
of Municipal Securities with an average weighted maturity of three to 
ten years. Average weighted maturity is the average of all the current 
maturities (that is, the term of the securities) of the individual 
bonds in a Fund calculated so as to count most heavily those securities 
with the highest dollar value.
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    \10\ According to the Adviser, the Adviser may determine that 
unrated securities are of ``equivalent quality'' based on such 
credit quality factors that it deems appropriate, which may include 
among other things, performing an analysis similar, to the extent 
possible, to that performed by a nationally recognized statistical 
ratings organization when rating similar securities and issuers. In 
making such a determination, the Adviser may consider internal 
analyses and risk ratings, third party research and analysis, and 
other sources of information, as deemed appropriate by the Adviser. 
The Adviser notes that the Fund may hold up to 10% of its net assets 
in fixed-rate Municipal Securities that are not investment-grade.
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    Municipal securities (``Municipal Securities'') are debt securities 
issued by or on behalf of states, territories and possessions of the 
United States, including the District of Columbia, and their respective 
authorities, political subdivisions, agencies and instrumentalities and 
other groups with the authority to act for the municipalities, the 
interest on which is exempt from federal income tax and will include 
only the following instruments: General obligation bonds,\11\ revenue 
bonds,\12\ municipal notes,\13\ municipal tax exempt commercial 
paper,\14\ tender option bonds,\15\ private activity and industrial 
development bonds, variable rate demand obligations (``VRDOs''),\16\ 
variable rate demand preferred securities, municipal mortgage-backed 
securities and other asset-backed securities, municipal lease 
obligations,\17\ stripped securities,\18\ structured securities,\19\ 
deferred payment securities, when issued

[[Page 52257]]

securities,\20\ and zero coupon securities.\21\ The Fund may invest 
more than 25% of its total assets in municipal obligations, the 
interest upon which is paid from revenues of projects within a single 
sector, such as housing or healthcare.
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    \11\ 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.
    \12\ Revenue bonds are bonds that are secured by a pledge of 
revenues derived from the operations of a revenue producing 
institution (i.e., a hospital or a university), a system (i.e., a 
water system or an airport), a project, or from a special tax levy. 
Industrial development bonds are generally considered revenue bonds, 
and they are typically payable from the revenues of a corporation.
    \13\ 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. 
These include tax anticipation notes, bond anticipation notes and 
revenue anticipation notes.
    \14\ Municipal tax exempt commercial paper is generally 
unsecured debt that is issued to meet short-term financing needs.
    \15\ 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.
    \16\ 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.
    \17\ 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.
    \18\ 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.
    \19\ 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.
    \20\ The Fund may purchase or sell securities that it is 
entitled to receive on a when issued or delayed delivery basis as 
well as through a forward commitment.
    \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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Requirements for Fund Holdings
    The Fund will hold a minimum of 40 different Municipal Securities 
diversified among issuers in at least 8 different states with no more 
than 30% of the Fund's assets comprised of Municipal Securities that 
provide exposure to any single state (collectively, ``Minimum 
Requirement 1''). The Fund will hold a minimum of 75 different 
Municipal Securities when at least four creation units are outstanding 
(``Trigger Number 1A''). The Fund will hold a minimum of 100 different 
Municipal Securities diversified among issuers in at least 20 different 
states when at least eight creation units are outstanding (``Trigger 
Number 1B''). No single Municipal Security held by the Fund will exceed 
4% of the weight of the Fund's portfolio and no single issuer of 
Municipal Securities will account for more than 10% of the weight of 
the Fund's portfolio (collectively, ``Minimum Requirement 2''). The 
Fund will hold Municipal Securities of at least 20 non-affiliated 
issuers (``Minimum Requirement 3''). The Fund will hold Municipal 
Securities of at least 30 non-affiliated issuers when at least four 
creation units are outstanding (``Trigger Number 2'').\22\ To the 
extent that the Fund at one point has sufficient creation units 
outstanding necessary to trigger a diversity requirement laid out above 
(each of Trigger Numbers 1A, 1B and 2, a ``Trigger Number''), but 
subsequently has fewer creation units outstanding than the applicable 
Trigger Number, the Fund may no longer comply with the applicable 
diversity requirement.\23\
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    \22\ For purposes of this filing, each state and each separate 
political subdivision, agency, authority, or instrumentality of such 
state, each multi-state agency or authority, and each guarantor, if 
any, will be treated as separate issuers of Municipal Securities.
    \23\ While the Fund may no longer comply with the diversity 
requirements applicable to the previously applicable Trigger Number, 
the Fund will continue to comply with any diversity requirement for 
which the number of creation units outstanding continues to exceed 
the Trigger Number (i.e., Trigger Number 1A), as well as each of 
Minimum Requirements 1, 2 and 3.
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    In the absence of normal circumstances, the Fund may temporarily 
depart from its normal investment process, provided that such departure 
is, in the opinion of the Adviser, consistent with the Fund's 
investment objective and in the best interest of the Fund. For example, 
the Fund may hold a higher than normal proportion of its assets in cash 
in response to adverse market, economic or political conditions.
Other Portfolio Holdings
    The Fund may also, to a limited extent (under normal circumstances, 
less than 20% of the Fund's net assets), engage in transactions in 
United States bond futures contracts, exchange traded treasury and debt 
futures options, interest rate swaps and zero coupon swaps, interest 
rate futures, interest rate options, and swaps on Municipal Securities 
indexes.\24\ The Fund may also invest to a limited extent (under normal 
circumstances, less than 20% of the Fund's net assets) in auction rate 
securities, commercial paper (other than the municipal tax exempt 
commercial paper described above), corporate debt securities (bonds and 
other debt securities of domestic and foreign issuers), exchange traded 
and non-exchange traded investment companies (including investment 
companies advised by the Adviser or its affiliates),\25\ inflation 
linked debt securities, inverse floating rate instruments, loan 
assignments and participations, short term funding agreements, Treasury 
receipts, United States government obligations, when-issued securities, 
delayed delivery securities, forward commitments, and deferred payment 
securities. The Fund's investments will be consistent with its 
investment objective and will not be used to achieve leveraged returns 
(i.e. two times or three times the Fund's benchmark, as described in 
the Registration Statement).
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    \24\ The derivatives will be centrally cleared and they will be 
collateralized. Derivatives are not a principal investment strategy 
of the Fund.
    \25\ The Fund currently anticipates investing in only registered 
open-end investment companies, including mutual funds and the open-
end investment company funds described in Rule 14.11. The Fund may 
invest in the securities of other investment companies to the extent 
permitted by law.
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    The Fund may also enter into repurchase and reverse repurchase 
agreements (collectively, ``Repurchase Agreements''). Repurchase 
Agreements involve the sale of securities with an agreement to 
repurchase the securities at an agreed-upon price, date and interest 
payment and have the characteristics of borrowing as part of the Fund's 
principal holdings.\26\
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    \26\ The Fund's exposure to reverse repurchase agreements will 
be covered by liquid assets having a value equal to or greater than 
such commitments. The use of reverse repurchase agreements is a form 
of leverage because the proceeds derived from reverse repurchase 
agreements may be invested in additional securities. As further 
stated below, the Fund's investments will be consistent with its 
investment objective and will not be used to achieve leveraged 
returns.
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    The Fund may also invest in cash and Cash Equivalents,\27\ which 
includes shares of exchange traded and non-exchange traded investment 
companies (including investment companies advised by the Adviser or its 
affiliates) that invest principally in money market instruments.
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    \27\ As defined in Exchange Rule 14.11(i)(4)(C)(iii)(b), Cash 
Equivalents are short-term instruments with maturities of less than 
three months, which includes only the following: (i) U.S. Government 
securities, including bills, notes, and bonds differing as to 
maturity and rates of interest, which are either issued or 
guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities; (ii) certificates of deposit issued against funds 
deposited in a bank or savings and loan association; (iii) bankers 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; (iv) repurchase agreements and reverse 
repurchase agreements; (v) bank time deposits, which are monies kept 
on deposit with banks or savings and loan associations for a stated 
period of time at a fixed rate of interest; (vi) commercial paper, 
which are short-term unsecured promissory notes; and (vii) money 
market funds.
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Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), as 
deemed illiquid by the Adviser \28\ under the 1940 Act.\29\ The

[[Page 52258]]

Fund will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
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    \28\ In reaching liquidity decisions, the Adviser may consider 
factors including: The frequency of trades and quotes for the 
security; The number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer); any legal or contractual 
restrictions on the ability to transfer the security or asset; 
significant developments involving the issuer or counterparty 
specifically (e.g., default, bankruptcy, etc.) or the securities 
markets generally; and settlement practices, registration 
procedures, limitations on currency conversion or repatriation, and 
transfer limitations (for foreign securities or other assets).
    \29\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).
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JPMorgan Ultra-Short Municipal ETF
    According to the Registration Statement, the Fund will seek as high 
a level of current income exempt from federal income tax as is 
consistent with relative stability of principal. To achieve its 
objective, the Fund will invest, under normal circumstances,\30\ at 
least 80% of its net assets in Municipal Securities, as defined below, 
the interest from which is exempt from federal income tax. The Fund is 
not a money market fund and does not seek to maintain a stable net 
asset value of $1.00 per share. The Fund will be classified as a 
``diversified'' investment company under the 1940 Act.\31\
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    \30\ The term ``under normal circumstances'' includes, but is 
not limited to, the absence of adverse market, economic, political, 
or other conditions, including extreme volatility or trading halts 
in the financial markets; operational issues causing dissemination 
of inaccurate market information; or force majeure type events such 
as systems failure, natural or man-made disaster, act of God, armed 
conflict, act of terrorism, riot, or labor disruption, or any 
similar intervening circumstance.
    \31\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended. The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
Principal Holdings--Municipal Securities
    To achieve its objective, the Fund will invest, under normal 
circumstances, in fixed and variable rate Municipal Securities, as 
defined below. As part of its investments in Municipal Securities, the 
Fund invests primarily in investment grade securities or the unrated 
equivalent. Investment-grade securities are rated a minimum of BBB- or 
higher by Standard & Poor's Ratings Services and/or Fitch, or Baa3 or 
higher by Moody's, or if unrated, determined by the Adviser to be of 
equivalent quality.\32\ Up to 10% of the Fund's total assets may be 
invested in securities rated below investment grade (junk bonds). Junk 
bonds are rated in the fifth or lower rated categories (for example, 
BB+ or lower by Standard & Poor's Ratings Services and Ba1 or lower by 
Moody's). Under normal circumstances, the Fund invests in a portfolio 
of municipal bonds with an average weighted maturity of two years or 
less. Average weighted maturity is the average of all the current 
maturities (that is, the term of the securities) of the individual 
bonds in a Fund calculated so as to count most heavily those securities 
with the highest dollar value.
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    \32\ According to the Adviser, the Adviser may determine that 
unrated securities are of ``equivalent quality'' based on such 
credit quality factors that it deems appropriate, which may include 
among other things, performing an analysis similar, to the extent 
possible, to that performed by a nationally recognized statistical 
ratings organization when rating similar securities and issuers. In 
making such a determination, the Adviser may consider internal 
analyses and risk ratings, third party research and analysis, and 
other sources of information, as deemed appropriate by the Adviser. 
The Adviser notes that the Fund may hold up to 10% of its net assets 
in fixed-rate Municipal Securities that are not investment-grade.
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    Municipal securities (``Municipal Securities'') are debt securities 
issued by or on behalf of states, territories and possessions of the 
United States, including the District of Columbia, and their respective 
authorities, political subdivisions, agencies and instrumentalities and 
other groups with the authority to act for the municipalities, the 
interest on which is exempt from federal income tax and will include 
only the following instruments: General obligation bonds,\33\ revenue 
bonds,\34\ municipal notes,\35\ municipal tax exempt commercial 
paper,\36\ tender option bonds,\37\ private activity and industrial 
development bonds, variable rate demand obligations (``VRDOs''),\38\ 
variable rate demand preferred securities, municipal mortgage-backed 
securities and other asset-backed securities, municipal lease 
obligations,\39\ stripped securities,\40\ structured securities,\41\ 
deferred payment securities, when issued securities,\42\ and zero 
coupon securities.\43\ The Fund may invest more than 25% of its total 
assets in municipal obligations, the interest upon which is paid from 
revenues of projects within a single sector, such as housing or 
healthcare.
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    \33\ 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.
    \34\ Revenue bonds are bonds that are secured by a pledge of 
revenues derived from the operations of a revenue producing 
institution (i.e., a hospital or a university), a system (i.e., a 
water system or an airport), a project, or from a special tax levy. 
Industrial development bonds are generally considered revenue bonds, 
and they are typically payable from the revenues of a corporation.
    \35\ 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. 
These include tax anticipation notes, bond anticipation notes and 
revenue anticipation notes.
    \36\ Municipal tax exempt commercial paper is generally 
unsecured debt that is issued to meet short-term financing needs.
    \37\ 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.
    \38\ 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.
    \39\ 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.
    \40\ 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.
    \41\ 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.
    \42\ The Fund may purchase or sell securities that it is 
entitled to receive on a when issued or delayed delivery basis as 
well as through a forward commitment.
    \43\ 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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Requirements for Fund Holdings
    The Fund will hold a minimum of 40 different Municipal Securities

[[Page 52259]]

diversified among issuers in at least 8 different states with no more 
than 30% of the Fund's assets comprised of Municipal Securities that 
provide exposure to any single state (collectively, ``Minimum 
Requirement 1''). The Fund will hold a minimum of 75 different 
Municipal Securities when at least four creation units are outstanding 
(``Trigger Number 1A''). The Fund will hold a minimum of 100 different 
Municipal Securities diversified among issuers in at least 20 different 
states when at least eight creation units are outstanding (``Trigger 
Number 1B''). No single Municipal Security held by the Fund will exceed 
4% of the weight of the Fund's portfolio and no single issuer of 
Municipal Securities will account for more than 10% of the weight of 
the Fund's portfolio (collectively, ``Minimum Requirement 2''). The 
Fund will hold Municipal Securities of at least 20 non-affiliated 
issuers (``Minimum Requirement 3''). The Fund will hold Municipal 
Securities of at least 30 non-affiliated issuers when at least four 
creation units are outstanding (``Trigger Number 2'').\44\ To the 
extent that the Fund at one point has sufficient creation units 
outstanding necessary to trigger a diversity requirement laid out above 
(each of Trigger Numbers 1A, 1B and 2, a ``Trigger Number''), but 
subsequently has fewer creation units outstanding than the applicable 
Trigger Number, the Fund may no longer comply with the applicable 
diversity requirement.\45\
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    \44\ For purposes of this filing, each state and each separate 
political subdivision, agency, authority, or instrumentality of such 
state, each multi-state agency or authority, and each guarantor, if 
any, will be treated as separate issuers of Municipal Securities.
    \45\ While the Fund may no longer comply with the diversity 
requirements applicable to the previously applicable Trigger Number, 
the Fund will continue to comply with any diversity requirement for 
which the number of creation units outstanding continues to exceed 
the Trigger Number (i.e., Trigger Number 1A), as well as each of 
Minimum Requirements 1, 2 and 3.
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    In the absence of normal circumstances, the Fund may temporarily 
depart from its normal investment process, provided that such departure 
is, in the opinion of the Adviser, consistent with the Fund's 
investment objective and in the best interest of the Fund. For example, 
the Fund may hold a higher than normal proportion of its assets in cash 
in response to adverse market, economic or political conditions.
Other Portfolio Holdings
    The Fund may also, to a limited extent (under normal circumstances, 
less than 20% of the Fund's net assets), engage in transactions in 
United States bond futures contracts, exchange traded treasury and debt 
futures options, interest rate swaps and zero coupon swaps, interest 
rate futures, interest rate options, and swaps on Municipal Securities 
indexes.\46\ The Fund may also invest to a limited extent (under normal 
circumstances, less than 20% of the Fund's net assets) in auction rate 
securities, commercial paper (other than the municipal tax exempt 
commercial paper described above), corporate debt securities (bonds and 
other debt securities of domestic and foreign issuers), exchange traded 
and non-exchange traded investment companies (including investment 
companies advised by the Adviser or its affiliates),\47\ inflation 
linked debt securities, inverse floating rate instruments, loan 
assignments and participations, short term funding agreements, Treasury 
receipts, United States Government Obligations, when-issued securities, 
delayed delivery securities, forward commitments, and deferred payment 
securities. The Fund's investments will be consistent with its 
investment objective and will not be used to achieve leveraged returns 
(i.e., two times or three times the Fund's benchmark, as described in 
the Registration Statement).
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    \46\ Derivatives might be included in the Fund's investments to 
serve the investment objectives of the Fund. Such derivatives 
include only the following: Interest rate futures, interest rate 
options, interest rate swaps, and swaps on Municipal Securities 
indexes. The derivatives will be centrally cleared and they will be 
collateralized. Derivatives are not a principal investment strategy 
of the Fund.
    \47\ The Fund currently anticipates investing in only registered 
open-end investment companies, including mutual funds and the open-
end investment company funds described in Rule 14.11. The Fund may 
invest in the securities of other investment companies to the extent 
permitted by law.
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    The Fund may also enter into repurchase and reverse repurchase 
agreements (collectively, ``Repurchase Agreements''). Repurchase 
Agreements involve the sale of securities with an agreement to 
repurchase the securities at an agreed-upon price, date and interest 
payment and have the characteristics of borrowing as part of the Fund's 
principal holdings.\48\
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    \48\ The Fund's exposure to reverse repurchase agreements will 
be covered by liquid assets having a value equal to or greater than 
such commitments. The use of reverse repurchase agreements is a form 
of leverage because the proceeds derived from reverse repurchase 
agreements may be invested in additional securities. As further 
stated below, the Fund's investments will be consistent with its 
investment objective and will not be used to achieve leveraged 
returns.
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    The Fund may also invest in cash and Cash Equivalents,\49\ which 
includes shares of exchange traded and non-exchange traded investment 
companies (including investment companies advised by the Adviser or its 
affiliates) that invest principally in money market instruments.
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    \49\ As defined in Exchange Rule 14.11(i)(4)(C)(iii)(b), Cash 
Equivalents are short-term instruments with maturities of less than 
three months, which includes only the following: (i) U.S. Government 
securities, including bills, notes, and bonds differing as to 
maturity and rates of interest, which are either issued or 
guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities; (ii) certificates of deposit issued against funds 
deposited in a bank or savings and loan association; (iii) bankers 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; (iv) repurchase agreements and reverse 
repurchase agreements; (v) bank time deposits, which are monies kept 
on deposit with banks or savings and loan associations for a stated 
period of time at a fixed rate of interest; (vi) commercial paper, 
which are short-term unsecured promissory notes; and (vii) money 
market funds.
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Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), as 
deemed illiquid by the Adviser \50\ under the 1940 Act.\51\ The Fund 
will monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets,

[[Page 52260]]

or other circumstances, more than 15% of the Fund's net assets are held 
in illiquid assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.
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    \50\ In reaching liquidity decisions, the Adviser may consider 
factors including: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer); any legal or contractual 
restrictions on the ability to transfer the security or asset; 
significant developments involving the issuer or counterparty 
specifically (e.g., default, bankruptcy, etc.) or the securities 
markets generally; and settlement practices, registration 
procedures, limitations on currency conversion or repatriation, and 
transfer limitations (for foreign securities or other assets).
    \51\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).
---------------------------------------------------------------------------

    The Fund may also invest up to 100% of its net assets in Municipal 
Securities that pay interest which may be subject to the Alternative 
Minimum Tax for individuals.
Discussion
    Based on the characteristics of the Funds and the representations 
made in each of the Requirements for Fund Holdings sections above, the 
Exchange believes it is appropriate to allow the listing and trading of 
the Shares. The Funds satisfy all of the generic listing requirements 
for Managed Fund Shares that hold fixed income securities, except for 
the minimum principal amount outstanding requirement in 
14.11(i)(4)(C)(ii)(a). The Exchange notes that the representations in 
the Requirements for Fund Holdings for the Funds are identical to the 
representations made regarding the iShares iBonds Dec 2024 AMT Free 
Muni Bond ETF, iShares iBonds Dec 2025 AMT Free Muni Bond ETF, and 
iShares iBonds Dec 2026 AMT Free Muni Bond ETF (collectively, the 
``Comparable Funds''), which were previously approved for listing and 
trading by the Commission.\52\ In the Approval Order, the Commission 
highlighted the representations that holdings of the Comparable Funds 
would meet Minimum Requirement 1 at all times and, as the applicable 
trigger numbers were hit, Minimum Requirement 2 and Minimum Requirement 
3. The Exchange believes that because these representations regarding 
diversification and the lack of concentration among constituent 
securities provides a strong degree of protection against manipulation 
that is consistent with other proposals that have been approved for 
listing and trading by the Commission.
---------------------------------------------------------------------------

    \52\ See Securities Exchange Act Release No. 80399 (April 7, 
2017), 82 FR 17913 (April 13, 2017) (SR-BatsBZX-2017-10) (the 
``Approval Order'').
---------------------------------------------------------------------------

    In addition, the Exchange represents that: (1) Except for Rule 
14.11(i)(4)(C)(ii)(a), the Funds will satisfy all of the generic 
listing standards under Rule 14.11(i)(4); (2) the continued listing 
standards under Rule 14.11(i), as applicable to Managed Fund Shares 
that hold fixed income securities, will apply to the shares of the 
Funds; and (3) the issuer of the Funds is required to comply with Rule 
10A-3 \53\ under the Act for the initial and continued listing of the 
Shares. In addition, the Exchange represents that the Funds will meet 
and be subject to all other requirements of the Generic Listing Rules 
and other applicable continued listing requirements for Managed Fund 
Shares under Exchange Rule 14.11(i), including those requirements 
regarding the Disclosed Portfolio (as defined in the Exchange rules) 
and the requirement that the Disclosed Portfolio and the net asset 
value (``NAV'') will be made available to all market participants at 
the same time,\54\ intraday indicative value,\55\ suspension of trading 
or removal,\56\ trading halts,\57\ disclosure,\58\ and firewalls.\59\ 
Further, at least 100,000 Shares will be outstanding upon the 
commencement of trading of each Fund.\60\
---------------------------------------------------------------------------

    \53\ 17 CFR 240.10A-3.
    \54\ See Exchange Rules 14.11(i)(4)(A)(ii) and 
14.11(i)(4)(B)(ii).
    \55\ See Exchange Rule 14.11(i)(4)(B)(i).
    \56\ See Exchange Rule 14.11(i)(4)(B)(iii).
    \57\ See Exchange Rule 14.11(i)(4)(B)(iv).
    \58\ See Exchange Rule 14.11(i)(6).
    \59\ See Exchange Rule 14.11(i)(7).
    \60\ See Exchange Rule 14.11(i)(4)(A)(i).
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The Shares
    Each Fund will issue and redeem Shares on a continuous basis at the 
NAV per Share only in large blocks of a specified number of Shares or 
multiples thereof (``Creation Units'') in transactions with authorized 
participants who have entered into agreements with the Distributor. 
Each Fund currently anticipates that a Creation Unit will consist of 
50,000 Shares, though this number may change from time to time, 
including prior to listing of the Funds. The exact number of Shares 
that will constitute a Creation Unit will be disclosed in the 
respective Registration Statement of each Fund. Once created, Shares of 
each Fund trade on the secondary market in amounts less than a Creation 
Unit.
    Additional information regarding the Shares and each Fund, 
including investment strategies, risks, creation and redemption 
procedures, fees and expenses, portfolio holdings disclosure policies, 
distributions, taxes and reports to be distributed to beneficial owners 
of the Shares can be found in the Registration Statement or on the 
website for the Funds (www.JPMorgan.com), as applicable.
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 
each Fund that may be downloaded. The website will include additional 
quantitative information updated on a daily basis, including, for each 
Fund: (1) Daily trading volume, the prior business day's reported 
closing price, NAV and mid-point of the bid/ask spread at the time of 
calculation of such NAV (the ``Bid/Ask Price''),\61\ 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. On each business day, before commencement of trading in 
Shares during Regular Trading Hours \62\ on the Exchange, each Fund 
will disclose on its website the identities and quantities of the 
portfolio of securities and other assets (the ``Disclosed Portfolio'') 
held by the Fund that will form the basis for the Fund's calculation of 
NAV at the end of the business day.\63\ The Disclosed Portfolio will 
include, as applicable, the names, quantity, percentage weighting and 
market value of securities and other assets held by the Fund and the 
characteristics of such assets. The website and information will be 
publicly available at no charge.
---------------------------------------------------------------------------

    \61\ The Bid/Ask Price of the Fund will be determined using the 
highest bid and the lowest offer on the Exchange as of the time of 
calculation of the Fund's NAV. The records relating to Bid/Ask 
Prices will be retained by the Fund or its service providers.
    \62\ As defined in Rule 1.5(w), the term ``Regular Trading 
Hours'' means the time between 9:30 a.m. and 4:00 p.m. Eastern Time.
    \63\ Under accounting procedures to be followed by each Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
each Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day.
---------------------------------------------------------------------------

    In addition, for each Fund, an estimated value, defined in Rule 
14.11(i)(3)(C) 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 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.\64\
---------------------------------------------------------------------------

    \64\ 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.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the

[[Page 52261]]

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.
    Intraday, executable price quotations on assets held by each Fund 
are available from major broker-dealer firms and for exchange-traded 
assets, including shares of exchange traded investment companies, such 
intraday information is available directly from the applicable listing 
exchange. All such intraday price information is available through 
subscription services, such as Bloomberg, Thomson Reuters and 
International Data Corporation, which can be accessed by authorized 
participants and other investors. Pricing information for Repurchase 
Agreements and securities not listed on an exchange or national 
securities market will be available from major broker-dealer firms and/
or subscription services, such as Bloomberg, Thomson Reuters and 
International Data Corporation. Trade price and other information 
relating to Municipal Securities is available through the Municipal 
Securities Rulemaking Board's (the ``MSRB'') Electronic Municipal 
Market Access (``EMMA'') system. Quotation and last sale information 
for U.S. exchange-listed options contracts cleared by The Options 
Clearing Corporation will be available via the Options Price Reporting 
Authority.
    Information regarding market price and volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. The previous 
day's closing price and trading volume information for the Shares will 
be published daily in the financial section of newspapers and publicly 
available sources. Quotation and last sale information for the Shares 
will be available on the facilities of the CTA. Price information 
relating to all other securities held by the Funds will be available 
from major market data vendors. Quotations and last sale information 
for the underlying exchange traded investment companies will be 
available through CTA.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are available free upon request from the Trust, and those 
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 
downloaded from the Commission's website at www.sec.gov.
Initial and Continued Listing
    The Shares will be subject to Rule 14.11(i), which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and/or continued 
listing, each Fund must be in compliance with Rule 10A-3 under the 
Act.\65\ A minimum of 100,000 Shares of each Fund will be outstanding 
at the commencement of trading on the Exchange. The Exchange will 
obtain a representation from the issuer of the Shares that the NAV per 
Share will be calculated daily and that the NAV and the Disclosed 
Portfolio will be made available to all market participants at the same 
time.
---------------------------------------------------------------------------

    \65\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of each Fund. The Exchange will halt trading in 
the Shares under the conditions specified in Rule 11.18. Trading may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the Disclosed 
Portfolio of the Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which trading 
in the Shares of a Fund may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. The Exchange will 
allow trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern 
Time. The Exchange has appropriate rules to facilitate transactions in 
the Shares during all trading sessions. As provided in Rule 11.11(a), 
the minimum price variation for quoting and entry of orders in Managed 
Fund Shares traded on the Exchange is $0.01, with the exception of 
securities that are priced less than $1.00, for which the minimum price 
variation for order entry is $0.0001.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. The 
Exchange may obtain information regarding trading in the Shares and the 
underlying shares in exchange traded equity securities via the 
Intermarket Surveillance Group (``ISG''), from other exchanges that are 
members or affiliates of the ISG, or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement.\66\ In 
addition, the Exchange, or FINRA, on behalf of the Exchange is able to 
access, as needed, trade information for certain fixed income 
instruments reported to FINRA's Trade Reporting and Compliance Engine 
(``TRACE'') and Municipal Securities reported to MSRB. FINRA also can 
access data obtained from the MSRB relating to municipal bond trading 
activity for surveillance purposes in connection with trading in the 
Shares.
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    \66\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
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    As it relates to exchange traded investment companies, the Funds 
will only invest in investment companies that trade on markets that are 
a member of the ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
    The Exchange prohibits the distribution of material non-public 
information by its employees.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value is disseminated; (4) the risks involved 
in trading the Shares during the Pre-Opening \67\ and After

[[Page 52262]]

Hours Trading Sessions \68\ when an updated Intraday Indicative Value 
will not be calculated or publicly disseminated; (5) the requirement 
that members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (6) trading information.
---------------------------------------------------------------------------

    \67\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \68\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Funds. Members purchasing Shares from the Funds for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action, and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that each Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Funds and the applicable NAV Calculation 
Time for the Shares. The Information Circular will disclose that 
information about the Shares of the Funds will be publicly available on 
the Funds' website. In addition, the Information Circular will 
reference that the Trust is subject to various fees and expenses 
described in each Fund's Registration Statement.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \69\ in general and Section 6(b)(5) of the Act \70\ 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.
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78f.
    \70\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Rule 14.11(i). The Exchange 
believes that its surveillance procedures are adequate to properly 
monitor the trading of the Shares on the Exchange during all trading 
sessions and to deter and detect violations of Exchange rules and the 
applicable federal securities laws. Rule 14.11(i)(7) provides that, if 
the investment adviser to the investment company issuing Managed Fund 
Shares is affiliated with a broker-dealer, such investment adviser 
shall erect a ``fire wall'' between the investment adviser and the 
broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio. The 
Adviser is not a registered broker-dealer, but is affiliated with 
multiple broker-dealers and has implemented ``fire walls'' with respect 
to such broker-dealers regarding access to information concerning the 
composition and/or changes to a Fund's portfolio. In addition, Adviser 
personnel who make decisions regarding a Fund's portfolio are subject 
to procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the Fund's portfolio. The Exchange may 
obtain information regarding trading in the Shares and the underlying 
shares in exchange traded equity securities via the ISG, from other 
exchanges that are members or affiliates of the ISG, or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. In addition, the Exchange, or FINRA, on behalf of the 
Exchange, is able to access, as needed, trade information for certain 
fixed income instruments reported to TRACE and Municipal Securities 
reported to MSRB. FINRA also can access data obtained from the MSRB 
relating to municipal bond trading activity for surveillance purposes 
in connection with trading in the Shares. Each Fund's investments will 
be well-diversified in that each Fund will hold a minimum of 40 
different Municipal Securities diversified among issuers in at least 8 
different states with no more than 30% of the Fund's assets comprised 
of Municipal Securities that provide exposure to any single state; each 
Fund will hold a minimum of 75 different Municipal Securities when at 
least four creation units are outstanding for that Fund; each Fund will 
hold a minimum of 100 different Municipal Securities diversified among 
issuers in at least 20 different states when at least eight creation 
units are outstanding for that Fund; no single Municipal Security held 
by a Fund will exceed 4% of the weight of that Fund's portfolio and no 
single issuer of Municipal Securities will account for more than 10% of 
the weight of a Fund's portfolio; each Fund will hold Municipal 
Securities of at least 20 non-affiliated issuers; and each Fund will 
hold Municipal Securities of at least 30 non-affiliated issuers when at 
least four creation units are outstanding.
    According to the Registration Statement, each Fund will invest, 
under normal circumstances,\71\ at least 80% of its net assets in 
Municipal Securities such that the interest on each security is exempt 
from U.S. federal income taxes. Additionally, each Fund may hold up to 
an aggregate amount of 15% of its net assets in illiquid assets 
(calculated at the time of investment), as deemed illiquid by the 
Adviser \72\ under the 1940 Act.\73\ Each Fund will monitor its 
portfolio liquidity on an ongoing basis to determine whether, in light 
of current circumstances, an adequate level of liquidity is being 
maintained, and will consider taking appropriate steps in order to 
maintain adequate liquidity if, through a change in values, net assets, 
or other circumstances, more than 15% of the Fund's net assets are held 
in illiquid assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.
---------------------------------------------------------------------------

    \71\ See supra note 9.
    \72\ See supra note 29.
    \73\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).

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[[Page 52263]]

    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Funds and the Shares, 
thereby promoting market transparency. Moreover, the Intraday 
Indicative Value will be disseminated by one or more major market data 
vendors at least every 15 seconds during Regular Trading Hours. On each 
business day, before commencement of trading in Shares during Regular 
Trading Hours, each Fund will disclose on its website the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day. Pricing information will include 
additional quantitative information updated on a daily basis, 
including, for the Fund: (1) The prior business day's NAV and the 
market closing price or mid-point of the Bid/Ask Price,\74\ and a 
calculation of the premium or discount of the market closing price or 
Bid/Ask Price against the NAV; and (2) data in chart format displaying 
the frequency distribution of discounts and premiums of the daily 
market closing price or Bid/Ask Price against the NAV, within 
appropriate ranges, for each of the four previous calendar quarters. 
Additionally, information regarding market price and trading of the 
Shares will be continually available on a real-time basis throughout 
the day on brokers' computer screens and other electronic services, and 
quotation and last sale information for the Shares will be available on 
the facilities of the CTA. The website for each Fund will include a 
form of the prospectus for the Fund and additional data relating to NAV 
and other applicable quantitative information. Trading in Shares of a 
Fund will be halted under the conditions specified in Rule 11.18. 
Trading may also be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. Finally, trading in the Shares will be subject to Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares 
may be halted. In addition, as noted above, investors will have ready 
access to information regarding the Fund's holdings, the Intraday 
Indicative Value, the Disclosed Portfolio, and quotation and last sale 
information for the Shares.
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    \74\ The Bid/Ask Price of a Fund will be determined using the 
highest bid and the lowest offer on the Exchange as of the time of 
calculation of the Fund's NAV. The records relating to Bid/Ask 
Prices will be retained by the Fund or its service providers.
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    Intraday, executable price quotations on assets held by the Funds 
are available from major broker-dealer firms and for exchange-traded 
assets, including investment companies, such intraday information is 
available directly from the applicable listing exchange. All such 
intraday price information is available through subscription services, 
such as Bloomberg, Thomson Reuters and International Data Corporation, 
which can be accessed by authorized participants and other investors.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG, from other exchanges that are members of 
ISG, or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, the Exchange, or FINRA, on 
behalf of the Exchange, is able to access, as needed, trade information 
for certain fixed income instruments reported to TRACE and Municipal 
Securities reported to MSRB. FINRA also can access data obtained from 
the MSRB relating to municipal bond trading activity for surveillance 
purposes in connection with trading in the Shares. As noted above, 
investors will also have ready access to information regarding each 
Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \75\ and Rule 19b-4(f)(6) thereunder.\76\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\77\
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    \75\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \76\ 17 CFR 240.19b-4(f)(6).
    \77\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with 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.
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    A proposed rule change filed under Rule 19b-4(f)(6) \78\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\79\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest. As the Exchange 
states, the Funds raise no new or novel issues and are consistent with 
funds whose shares the Commission has previously approved for listing 
and trading. Accordingly, the Commission hereby waives the 30-day 
operative

[[Page 52264]]

delay and designates the proposed rule change operative upon 
filing.\80\
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    \78\ 17 CFR 240.19b-4(f)(6).
    \79\ 17 CFR 240.19b-4(f)(6)(iii).
    \80\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 such 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \81\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \81\ 15 U.S.C. 78s(b)(2)(B).
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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-2018-072 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-2018-072. 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 this filing will also 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-2018-072 and should be submitted 
on or before November 6, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\82\
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    \82\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22427 Filed 10-15-18; 8:45 am]
 BILLING CODE 8011-01-P