Document ID: SEC-2019-0750-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2019-06-03T04:00Z

[Federal Register Volume 84, Number 106 (Monday, June 3, 2019)]
[Notices]
[Pages 25579-25586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11447]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85948; File No. SR-CboeBZX-2019-044]

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

May 28, 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 May 15, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes a rule change to allow the JPMorgan Core Plus 
Bond ETF (the ``Fund'') of the J.P. Morgan Exchange-Traded Fund Trust 
(the ``Trust'' or the ``Issuer'') to hold certain instruments in a 
manner that may not comply with Rule 14.11(i) (``Managed Fund 
Shares''). The shares of the Fund are referred to herein as the 
``Shares.''
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Shares began trading on the Exchange on January 30, 2019, 
pursuant to the to the generic listing standards applicable to Managed 
Fund Shares under Rule 14.11(i) \3\ (the ``Generic Listing Standards'') 
and are currently listed on the Exchange pursuant to a rule filing that 
was approved by the Commission on April 22, 2019 granting certain 
exceptions to the Generic Listing Standards.\4\ The Original Approval 
Order allows the Fund to hold instruments in a manner that may not 
comply with Rule 14.11(i)(4)(C)(ii)(d),\5\ Rule 
14.11(i)(4)(C)(iv)(b),\6\ and/or Rule 14.11(i)(4)(C)(i).\7\ Otherwise, 
the Fund complies with all other listing requirements on an initial and 
continued listing basis under Rule 14.11(i).
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    \3\ The Commission approved Rule 14.11(i) in Securities Exchange 
Act Release No. 65225 (August 30, 2011), 76 FR 55148 (September 6, 
2011) (SR-BATS-2011-018).
    \4\ See Securities Exchange Act Release No. 85701 (April 22, 
2019) (SR-CboeBZX-2019-016) (the ``Original Approval Order'').
    \5\ Rule 14.11(i)(4)(C)(ii)(d) provides that ``component 
securities that in aggregate account for at least 90% of the fixed 
income weight of the portfolio must be either: (a) From issuers that 
are required to file reports pursuant to Sections 13 and 15(d) of 
the Act; (b) from issuers that have a worldwide market value of its 
outstanding common equity held by non-affiliates of $700 million or 
more; (c) from issuers that have outstanding securities that are 
notes, bonds, debentures, or evidence of indebtedness having a total 
remaining principal amount of at least $1 billion; (d) exempted 
securities as defined in Section 3(a)(12) of the Act; or (e) from 
issuers that are a government of a foreign country or a political 
subdivision of a foreign country.'' The Original Approval Order 
allows the fixed income portion of the portfolio excluding ABS and 
Private MBS, as defined below, to satisfy this 90% requirement.
    \6\ Rule 14.11(i)(4)(C)(iv)(b) provides that ``the aggregate 
gross notional value of listed derivatives based on any five or 
fewer underlying reference assets shall not exceed 65% of the weight 
of the portfolio (including gross notional exposures), and the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset shall not exceed 30% of the weight 
of the portfolio (including gross notional exposures).'' The 
Exchange is proposing that the Fund would meet neither the 65% nor 
the 30% requirements of Rule 14.11(i)(4)(C)(iv)(b). Specifically, 
the Original Approval Order allows the Fund be exempt from this 
requirement as it relates to the Fund's holdings in futures and 
options (including options on futures) referencing Eurodollars and 
sovereign debt issued by the United States (i.e., U.S. Department of 
Treasury Securities (``Treasury Securities'')) and other ``Group of 
Seven'' countries (Group of Seven or G-7 countries include the 
United States, Canada, France, Germany, Italy, Japan and the United 
Kingdom), where such futures and options contracts are listed on an 
exchange that is an Intermarket Surveillance Group (``ISG'') member 
or an exchange with which the Exchange has a comprehensive 
surveillance sharing agreement (``Eurodollar and G-7 Sovereign 
Futures and Options''). The Fund may also hold other listed 
derivatives, which will include only the following: Debt futures, 
interest rate futures, index futures, foreign exchange futures, 
equity options, equity futures, Treasury options, options on 
Treasury futures, interest rate swaps, foreign exchange options, 
foreign exchange swaps, credit default swaps (including single-name 
and index reference pools), loan credit default swap indices, and 
inflation-linked swaps, however such holdings will, when calculated 
independently of the Fund's holdings in Eurodollar and G-7 Sovereign 
Futures and Options, meet the requirements of Rule 
14.11(i)(4)(C)(iv)(b).
    \7\ The Original Approval Order also allows the Fund to be 
issued certain equity instruments (``Equity Holdings'') that may not 
meet the requirements of Rule 14.11(i)(4)(C)(i). The Fund will not 
purchase such instruments and will dispose of such holdings as the 
Adviser determines is in the best interest of the Fund's 
shareholders. Such holdings will not constitute more than 10% of the 
Fund's net assets. The Adviser expects that the Fund will generally 
acquire such instruments through issuances that it receives by 
virtue of its other holdings, such as corporate actions or 
convertible securities.
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    While the Fund currently meets all of the continued listing 
requirements applicable under the Original Approval Order, the Adviser 
would like to increase the flexibility of the Fund's holdings in a way 
that might not meet such requirements. As such, the Exchange submits 
this proposal in order to allow the Shares to continue listing and 
trading on the Exchange while holding certain instruments in a manner 
that, in addition to the exceptions to the Generic Listing Standards 
provided under the Original Approval Order, also may not comply with 
three [sic] of the quantitative requirements under the Generic Listing 
Standards. Specifically, the Exchange submits this proposal in order to 
allow the Fund to hold instruments in a manner that may not comply with 
Rule 14.11(i)(4)(C)(ii)(a) \8\

[[Page 25580]]

and Rule 14.11(i)(4)(C)(ii)(e).\9\ Otherwise, the Fund will continue to 
comply with all other listing requirements applicable under the 
Original Approval Order on an initial and continued listing basis under 
Rule 14.11(i). As noted above, the Fund currently complies with the 
continued listing obligations applicable under the Original Approval 
Order and will continue to meet such obligations until and unless this 
proposal is approved.
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    \8\ Rule 14.11(i)(4)(C)(ii)(a) provides that ``components that 
in the aggregate account for at least 75% of the fixed income weight 
of the portfolio must each have a minimum original principal amount 
outstanding of $100 million or more.'' The Exchange instead is 
proposing that the components that in the aggregate account for at 
least 60% of the fixed income weight of the portfolio will each have 
a minimum original principal outstanding of $100 million or more.
    \9\ Rule 14.11(i)(4)(C)(ii)(e) 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,'' (the ``20% Restriction'') The Exchange 
is proposing that the Fund be permitted to hold up to 40% of the 
weight of the fixed income portion of the portfolio in non-agency, 
non-GSE and privately-issued mortgage-related and other asset-backed 
securities.
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    The Fund is an actively managed exchange-traded fund that seeks a 
high level of current income by investing primarily in a diversified 
portfolio of high-, medium, and low-grade debt securities.\10\ The 
Shares are offered by the Trust, which was established as a Delaware 
statutory trust. The Trust is registered with the Commission as an 
open-end investment company and has filed an effective registration 
statement on behalf of the Fund on Form N-1A (``Registration 
Statement'') with the Commission.\11\
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    \10\ The Fund plans to employ a strategy very similar to that 
currently employed by JPMorgan Core Plus Bond Fund, a mutual fund 
operated by the Adviser since March 5th, 1993.
    \11\ See Registration Statement on Form N-1A for the Trust, 
dated January 23, 2019 (File Nos. 333-191837 and 811-22903). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement. The 
Commission has issued an order granting certain exemptive relief to 
the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a-1) 
(``1940 Act'') (the ``Exemptive Order''). Investment Company Act 
Release No. 31990 (February 9, 2016) (File No. 812-13761).
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Description of the Shares and the Fund
    J.P Morgan Investment Management, Inc. is the investment adviser 
(the ``Adviser'') to the Fund. JPMorgan Chase Bank, N.A. is the 
administrator, custodian, and transfer agent for the Trust. JPMorgan 
Distribution Services, Inc. serves as the distributor (``Distributor'') 
for the Trust.
    Rule 14.11(i)(7) provides that, if the investment adviser to the 
investment company issuing Managed Fund Shares is affiliated with a 
broker-dealer, such investment adviser shall erect and maintain a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\12\ In addition, Rule 
14.11(i)(7) further requires that personnel who make decisions on the 
investment company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable investment company 
portfolio. Rule 14.11(i)(7) is similar to Rule 14.11(b)(5)(A)(i), 
however, Rule 14.11(i)(7) in connection with the establishment of a 
``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser is 
not a registered broker-dealer, but is affiliated with multiple broker-
dealers and has implemented and will maintain ``fire walls'' with 
respect to such broker-dealers regarding access to information 
concerning the composition and/or changes to the Fund's portfolio. In 
addition, Adviser personnel who make decisions regarding the Fund's 
portfolio are subject to procedures designed to prevent the use and 
dissemination of material nonpublic information regarding the Fund's 
portfolio. In the event that (a) the Adviser becomes registered as a 
broker-dealer or newly affiliated with another broker-dealer, or (b) 
any new adviser or sub-adviser is a registered broker-dealer or becomes 
affiliated with a broker-dealer, it will implement and maintain a fire 
wall with respect to its relevant personnel or such broker-dealer 
affiliate, as applicable, regarding access to information concerning 
the composition and/or changes to the portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
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    \12\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    The Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
JPMorgan Core Plus Bond ETF
    According to the Registration Statement, the Fund is an actively 
managed exchange-traded fund that will seek a high level of current 
income by investing primarily in a diversified portfolio of high-, 
medium-, and low-grade debt securities. The Fund seeks to achieve its 
investment objective by investing, under Normal Market Conditions,\13\ 
at least 80% of its net assets in Bonds.\14\ The Adviser will invest 
across the credit spectrum to provide the Fund exposure to various 
credit ratings. Under Normal Market Conditions, at least 65% of the 
Fund's assets will be invested in securities that, at the time of 
purchase, are rated investment grade by a nationally recognized 
statistical rating organization or in securities that are unrated but 
are deemed by the Adviser to be of comparable quality. Among others, 
such securities include U.S. or foreign mortgage-backed securities 
(``MBS''), which are securities that represent direct or indirect 
participations in, or are collateralized and by and payable from, 
mortgage loans secured by real property and which may be issued or 
guaranteed by government-sponsored

[[Page 25581]]

entities (``GSEs'') \15\ such as Fannie Mae (formally known as the 
Federal National Mortgage Association) or Freddie Mac (formally known 
as the Federal Home Loan Mortgage Corporation) or issued or guaranteed 
by agencies of the U.S. government, such as the Government National 
Mortgage Association (``Ginnie Mae''); \16\ and U.S. or foreign asset-
backed securities (``ABS'').\17\ Under Normal Market Conditions, the 
Fund will not invest more than 35% of its assets in securities rated 
below investment grade. The Fund's average weighted maturity will 
ordinarily range between five and twenty years.
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    \13\ As defined in Rule 14.11(i)(3)(E), the term ``Normal Market 
Conditions'' includes, but is not limited to, the absence of trading 
halts in the applicable financial markets generally; operational 
issues causing dissemination of inaccurate market information or 
system failures; or force majeure type events such as natural or 
man-made disaster, act of God, armed conflict, act of terrorism, 
riot or labor disruption, or any similar intervening circumstance. 
In response to adverse market, economic, or political conditions, 
the Fund reserves the right to invest in cash and Cash Equivalents, 
as defined below, without limitation, as determined by the Adviser.
    \14\ For purposes of this proposal, the term ``Bond'' includes 
only the following: Corporate bonds, U.S. government and agency debt 
securities, asset-backed securities, municipal securities, credit 
linked notes, participation notes, collateralized debt obligations, 
agency, non-agency and stripped mortgage-related and mortgage-backed 
securities (including adjustable rate mortgage loans), convertible 
securities (including contingent convertible securities), preferred 
stock, loan participations and assignments, commitments to loan 
assignments, variable and floating rate instruments, commercial 
paper, and foreign and emerging market debt securities. The Adviser 
intends to hold asset-backed securities, mortgage-related and 
mortgage-backed securities as part of a strategy designed to manage 
portfolio risk by diversifying away from corporate debt and to take 
advantage of certain market environments.
    \15\ A ``GSE'' is a type of financial services corporation 
created by the United States Congress. GSEs include Fannie Mae and 
Freddie Mac, but not Sallie Mae, which is no longer a government 
entity.
    \16\ For purposes of this proposal, MBS include only 
collateralized mortgage obligations (``CMOs''), which are debt 
obligations collateralized by mortgage loans or mortgage pass-
through securities. Typically, CMOs are collateralized by Ginnie 
Mae, Fannie Mae or Freddie Mac certificates, but they may also be 
collateralized by whole loans or pass-through securities issued by 
private issuers (i.e., issuers other than U.S. government agencies 
or GSEs) (``Private MBS''). Payments of principal and of interest on 
the mortgage-related instruments collateralizing the MBS, and any 
reinvestment income thereon, provide the funds to pay debt service 
on the CMOs. In a CMO, a series of bonds or certificates is issued 
in multiple classes. Each class of CMOs, often referred to as a 
``tranche'' of securities, is issued at a specified fixed or 
floating coupon rate and has a stated maturity or final distribution 
date.
    \17\ ABS are securitized products in connection with which the 
securities issued, which may be issued by either a U.S. or a foreign 
entity, are collateralized by any type of financial asset, such as a 
consumer or student loan, a lease, or a secured or unsecured 
receivable. For purposes of this filing, ABS exclude: (i) MBS; (ii) 
a small business administration backed ABS traded ``To Be 
Announced'' or in a specified pool transaction as defined in FINRA 
Rule 6710(x); and (iii) U.S. or foreign collateralized debt 
obligations. As described above, the holdings of the Fund may not 
meet the 20% Restriction from Rule 14.11(i)(4)(C)(ii)(e), 
specifically in that the Fund's holdings in ABS and Private MBS 
(together, ``ABS and Private MBS'') may reach up to 40% of the 
weight of the fixed income portion of the Fund's portfolio.
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    Under Normal Market Conditions, the Fund may also invest up to 20% 
of its net assets in the following: Cash and certain Cash Equivalents 
\18\ that are not otherwise captured under the definition of Bond, 
listed derivative instruments,\19\ as described above, and OTC 
derivative instruments.\20\ The Fund's holdings in Cash Equivalents and 
OTC derivative instruments will be in compliance with the limitations 
provided in Rules 14.11(i)(4)(C)(iii), 14.11(i)(4)(C)(v), respectively, 
and both listed and OTC derivative instruments will be in compliance 
with the limitations of Rule 14.11(i)(4)(C)(vi).\21\
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    \18\ 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.
    \19\ See supra note 7 [sic].
    \20\ For purposes of this filing, OTC derivative instruments 
will include only the following: Index options, foreign exchange 
options, swaptions, credit default swaps (including single-name and 
index reference pools), foreign exchange swaps, loan credit default 
swap indices, inflation-linked swaps, interest rate swaps, non-
dollar swaps, non-deliverable forward contracts and foreign exchange 
forward contracts.
    \21\ As noted above and allowed under the Original Approval 
Order, the Fund may by virtue of its Bond holdings be issued certain 
Equity Holdings that may not meet the requirements of Rule 
14.11(i)(4)(C)(i). The Fund will not purchase Equity Holdings and, 
as such, they are excluded from both the 80% and the 20% buckets 
described above. The Fund will dispose of such holdings as the 
Adviser determines is in the best interest of the Fund's 
shareholders and such holdings will not constitute more than 10% of 
the Fund's net assets.
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    The Fund's investments, including derivatives, will be consistent 
with the 1940 Act and the Fund's investment objective and policies and 
will not be used to enhance leverage (although certain derivatives and 
other investments may result in leverage).\22\ That is, while the Fund 
will be permitted to borrow as permitted under the 1940 Act, the Fund's 
investments will not be used to seek performance that is the multiple 
or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's primary broad-
based securities benchmark index (as defined in Form N-1A). The Fund 
will only use those derivatives described above. The Fund's use of 
derivative instruments will be collateralized.
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    \22\ The Fund will include appropriate risk disclosure in its 
offering documents, including leveraging risk. Leveraging risk is 
the risk that certain transactions of a fund, including a fund's use 
of derivatives, may give rise to leverage, causing a fund to be more 
volatile than if it had not been leveraged. To mitigate leveraging 
risk, the Fund will segregate or earmark liquid assets determined to 
be liquid by the Adviser in accordance with procedures established 
by the Trust's Board and in accordance with the 1940 Act (or, as 
permitted by applicable regulations, enter into certain offsetting 
positions) to cover its obligations under derivative instruments. 
These procedures have been adopted consistent with Section 18 of the 
1940 Act and related Commission guidance. See 15 U.S.C. 80a-18; 
Investment Company Act Release No. 10666 (April 18, 1979), 44 FR 
25128 (April 27, 1979); Dreyfus Strategic Investing, Commission No-
Action Letter (June 22, 1987); Merrill Lynch Asset Management, L.P., 
Commission No-Action Letter (July 2, 1996).
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Discussion
    The Exchange submits this proposal because the Adviser does not 
expect that the Fund's fixed income securities holdings will meet all 
of the listing requirements applicable to the Shares under the Original 
Approval Order and Rule 14.11(i)(4)(C)(ii). The Fund will meet all 
requirements under Rule 14.11(i) except for those provided in the 
Original Approval Order \23\ and those exceptions sought under this 
proposal, as described above, including Rule 14.11(i)(4)(C)(ii)(a) \24\ 
and Rule 14.11(i)(4)(C)(ii)(e).
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    \23\ The Original Approval Order provides exceptions to Rule 
14.11(i)(4)(C)(ii)(d), Rule 14.11(i)(4)(C)(iv)(b), and/or Rule 
14.11(i)(4)(C)(i) for the Fund.
    \24\ Rule 14.11(i)(4)(C)(ii)(a) provides that ``components that 
in the aggregate account for at least 75% of the fixed income weight 
of the portfolio must each have a minimum original principal amount 
outstanding of $100 million or more.'' The Exchange instead is 
proposing that the components that in the aggregate account for at 
least 60% of the fixed income weight of the portfolio will each have 
a minimum original principal outstanding of $100 million or more.
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    As it relates to Rule 14.11(i)(4)(C)(ii)(a), the Exchange is 
proposing only to reduce the weight of the fixed income portion of the 
portfolio that would need to have a minimum original principal amount 
outstanding of $100 million or more from 75% to 60%, which, based on 
the types of securities held by the Fund, it believes is not such a 
significant change in the composition of the fixed income portion of 
the portfolio as to meaningfully undercut the policy rationale 
underlying the rule, as outlined below. Rule 14.11(i)(4)(C)(ii)(a) is 
intended to ensure that the fixed income holdings of a series of 
Managed Fund Shares are sufficiently large as to prevent manipulation 
in the underlying holdings. The types of fixed income securities held 
by the Fund will often be in tranches of less than $100 million 
dollars, meaning that the securities would not be included for purposes 
of the calculation, however, many of such securities would be part of a 
deal with an underlying collateral pool well over a $100 million 
dollars, often greater than $500 million, making them less susceptible 
to manipulation than many other securities with a minimum original 
principal greater than $100 million. As such, the total deal size of 
many of the securities held by the Fund are significantly larger than 
the tranches on which the testing for the rule is based and would 
mitigate the concerns that rule 14.11(i)(4)(C)(ii)(a) is intended to 
address. Finally, the proposed change only represents a slight 
reduction to the applicable standard, which, combined

[[Page 25582]]

with the other reasons described above, the Exchange believes will 
continue to mitigate the policy concerns that Rule 
14.11(i)(4)(C)(ii)(a) is intended to address.
    The Fund will also hold certain ABS and Private MBS in a manner 
that may not comply with Rule 14.11(i)(4)(C)(ii)(e). Such holdings are 
part of a strategy designed to manage the Fund's portfolio risk by 
diversifying away from corporate debt and to take advantage of certain 
market environments. This strategy will be actively managed by the 
Adviser and will adapt to both changing market environments and shifts 
in the underlying holdings of the Fund, but would be overly limited by 
the 20% Restriction under Rule 14.11(i)(4)(C)(ii)(e) that prevents the 
Fund from holding more than 20% of the fixed income portion of its 
portfolio in ABS and Private MBS. As such, the Exchange is proposing to 
allow the Fund to hold up to 40% of the weight of the fixed income 
portion of its portfolio in ABS and Private MBS. The Fund will utilize 
ABS and Private MBS as a means to diversify its portfolio of Bonds, 
which is intended to lower the volatility of the portfolio through a 
market cycle (typically three to five years). Greater exposure to the 
ABS and Private MBS would allow the Fund the flexibility to fully 
implement its risk mitigation strategy, while still limiting the Fund's 
holdings in ABS and Private MBS to 40% of the fixed income portion of 
the portfolio.
    Further, because the Exchange is proposing to allow the Fund's 
holdings in ABS and Private MBS to increase (from 20% to 40% of the 
fixed income portion of the portfolio, as described above), the 
circumstances under which the exception to Rule 14.11(i)(4)(C)(ii)(d) 
was approved in the Original Approval Order are changing. The Original 
Approval Order provides that, instead of 90% of the weight of the 
Fund's holdings in fixed income securities meeting at least one of sub-
paragraphs (a)-(e) in Rule 14.11(i)(4)(C)(ii)(d), Rule 
14.11(i)(4)(C)(ii)(d) would apply only to the Fund's holdings in fixed 
income securities that are not ABS and Private MBS, which are currently 
limited to 20% of the fixed income portion of the portfolio by the 20% 
Restriction.
    The Exchange believes that keeping this continued listing 
requirement from the Original Approval Order is consistent with the Act 
because the risk of manipulation of the Fund's investments in ABS and 
Private MBS are mitigated because the Adviser expects that all of its 
fixed income holdings will issue Statements to Noteholders on a no less 
frequent than quarterly basis.\25\ Further, the Adviser represents that 
permitting limited investments in ABS and Private MBS, as described 
above, would be in the best interest of the Fund's shareholders because 
such investments have the potential to reduce the overall risk profile 
of the Fund's portfolio through diversification while ensuring that the 
policy concerns that Rule 14.11(i)(4)(C)(ii)(d) is intended to address 
are mitigated. As such, while the Fund will not technically meet the 
requirements of Rule 14.11(i)(4)(C)(ii)(d)(a), the policy concerns 
related to the transparency and availability of information regarding 
the fixed income securities held by a fund that the rule is intended to 
address are otherwise mitigated both by the availability of Statements 
to Noteholders.
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    \25\ While the Adviser expects that all of its fixed income 
holdings will issue Statements to Noteholders, it cannot guarantee 
that the holdings will issue Statements to Noteholders. While Rule 
14.11(i)(4)(C)(ii)(d) subparagraph (a) includes in the 90% 
calculation all fixed income securities that are required to file 
reports pursuant to Sections 13 or 15(d) of the Act, many fixed 
income securities include in the bond indenture a requirement that 
the issuer make a public disclosure of a Statement to Noteholders 
even where they are not required to file such reports. Rule 
14.11(i)(4)(C)(ii)(d) is intended to ensure that there is sufficient 
public information about the issuances and/or issuers of the fixed 
income securities held by a series of Managed Fund Shares. A 
Statement to Noteholders generally includes the same pieces of 
information about an issuer and issuance that would be included in 
Form 10D. Statements to Noteholders also typically include the 
following types of information: (1) The amount of the 
distribution(s) allocable to interest on the notes; (2) the amount 
of the distribution(s) allocable to principal of the notes; (3) the 
note balance, after taking into account all payments to be made on 
such distribution date; (4) the servicing fee paid and/or due but 
unpaid as of such distribution date; (5) the pool balance and 
required overcollateralization amount as of the close of business on 
the last day of the related collection period; (6) the reserve fund 
amount, the reserve fund required amount and the reserve fund draw 
amount; (7) the amount of the aggregate realized losses on the 
loans, if any, for the preceding collection period and the 
cumulative default ratio; (8) whether an amortization event will 
exist as of such distribution date; (9) the aggregate repurchase 
prices for loans, if any, that were repurchased by the seller during 
the related collection period; (10) the amount of fees payable to 
all parties pursuant to the indenture; (11) any and all other fees, 
expenses, indemnities or taxes payable by the issuer or the grantor 
trust (including reserved amounts for payments required to be made 
before the next distribution date); (12) the payments to the 
certificate holders; and (13) during a pre-funding period, the 
amount on deposit in the pre-funding account as of the close of 
business on the last day of the related collection period, and the 
pool balance of subsequent loans purchased during the related 
collection period, and following the pre-funding period, the amount 
of principal payments made on each class of notes from amounts on 
deposit in the pre-funding account.
---------------------------------------------------------------------------

    In addition, the Exchange represents that: (1) Except as described 
above, the Fund will continue to satisfy all of the continued listing 
obligations applicable under the Original Approval Order; (2) the 
continued listing standards under Rule 14.11(i) will apply to the 
Shares of the Fund; (3) the Fund will adhere to its stated investment 
objective under Normal Market Conditions; and (4) the issuer of the 
Fund is required to comply with Rule 10A-3 \26\ under the Act for the 
initial and continued listing of the Shares. In addition, the Exchange 
represents that the Fund will meet and be subject to all other 
requirements of the Generic Listing Standards 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,\27\ intraday 
indicative value,\28\ suspension of trading or removal,\29\ trading 
halts,\30\ disclosure,\31\ and firewalls.\32\
---------------------------------------------------------------------------

    \26\ 17 CFR 240.10A-3.
    \27\ See Exchange Rules 14.11(i)(4)(A)(ii) and 
14.11(i)(4)(B)(ii).
    \28\ See Exchange Rule 14.11(i)(4)(B)(i).
    \29\ See Exchange Rule 14.11(i)(4)(B)(iii).
    \30\ See Exchange Rule 14.11(i)(4)(B)(iv).
    \31\ See Exchange Rule 14.11(i)(6).
    \32\ See Exchange Rule 14.11(i)(7).
---------------------------------------------------------------------------

The Shares
    The Fund will issue and redeem Shares on a continuous basis at the 
NAV per Share only in large blocks of a specified number of Shares or 
multiples thereof (``Creation Units'') in transactions with authorized 
participants who have entered into agreements with the Distributor. A 
Creation Unit currently consists of 50,000 Shares, though this number 
may change from time to time. The exact number of Shares that will 
constitute a Creation Unit will be disclosed in the Registration 
Statement of the Fund. Once created, Shares of the Fund trade on the 
secondary market in amounts less than a Creation Unit.
    Additional information regarding the Shares and the Fund, including 
investment strategies, risks, creation and redemption procedures, fees 
and expenses, portfolio holdings disclosure policies, distributions, 
taxes and reports to be distributed to beneficial owners of the Shares 
can be found in the Registration Statement or on the website for the 
Fund (www.JPMorgan.com/etfs), as applicable.

[[Page 25583]]

Availability of Information
    As noted above, the Fund will comply with the requirements for 
Managed Fund Shares related to Disclosed Portfolio, NAV, and the 
Intraday Indicative Value, as defined in Rule 14.11(i)(3)(C). 
Additionally, the intra-day, closing and settlement prices of exchange-
traded portfolio assets, including futures, listed swaps, listed 
options, and certain Equity Holdings, will be readily available from 
the exchanges on which such products are listed, automated quotation 
systems, published or other public sources, or online information 
services such as Bloomberg or Reuters. Quotation and last sale 
information for U.S. exchange-listed options contracts cleared by The 
Options Clearing Corporation will be available via the Options Price 
Reporting Authority. Intraday price quotations on Bonds, OTC derivative 
instruments, and OTC Equity Holdings are available from major broker-
dealer firms and from third-parties, which may provide prices free with 
a time delay or in real-time for a paid fee. Price information for Cash 
Equivalents will be available from major market data vendors.
    The Disclosed Portfolio will be available on the Fund's website 
(www.jpmorgan.com/etfs) free of charge. The Fund's website includes a 
form of the prospectus for the Fund and additional information related 
to NAV and other applicable quantitative information. Information 
regarding market price and trading volume of the Shares will be 
continuously available throughout the day on brokers' computer screens 
and other electronic services. Quotation and last sale information on 
the Shares will be available through the Consolidated Tape Association. 
Information regarding the previous day's closing price and trading 
volume for the Shares will be published daily in the financial section 
of newspapers. Trading in the Shares may be halted for market 
conditions or for reasons that, in the view of the Exchange, make 
trading inadvisable. The Exchange deems the Shares to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
The Exchange has appropriate rules to facilitate trading in the shares 
during all trading sessions.
Surveillance
    Trading of the Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products, including 
Managed Fund Shares. All of the futures contracts and listed options 
contracts, as well as certain Equity Holdings held by the Fund will 
trade on markets that are a member of ISG or affiliated with a member 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\33\ The Exchange, FINRA, on behalf of 
the Exchange, or both will communicate regarding trading in the Shares 
and the underlying listed instruments, including listed derivatives and 
certain Equity Holdings, held by the Fund with the ISG, other markets 
or entities who are members or affiliates of the ISG, or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. In addition, the Exchange or FINRA may obtain information 
regarding trading in the Shares and the underlying listed instruments, 
including listed derivatives and certain Equity Holdings, held by the 
Fund from markets and other entities that are members of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement. Additionally, the Exchange or FINRA, on behalf of the 
Exchange, are able to access, as needed, trade information for certain 
fixed income instruments reported to FINRA's Trade Reporting and 
Compliance Engine (``TRACE''). Trade price and other information 
relating to municipal securities is available through the Municipal 
Securities Rulemaking Board's (the ``MSRB'') Electronic Municipal 
Market Access (``EMMA'') system. All statements and representations 
made in this filing regarding the description of the portfolio or 
reference assets, limitations on portfolio holdings or reference 
assets, dissemination and availability of reference asset, and intraday 
indicative values, and the applicability of Exchange rules specified in 
this filing shall constitute continued listing requirements for the 
Fund. The issuer has represented to the Exchange that it will advise 
the Exchange of any failure by the Fund or the Shares to comply with 
the continued listing requirements, and, pursuant to its obligations 
under Section 19(g)(1) of the Act, the Exchange will surveil for 
compliance with the continued listing requirements. If the Fund or the 
Shares are not in compliance with the applicable listing requirements, 
the Exchange will commence delisting procedures under Exchange Rule 
14.12.
---------------------------------------------------------------------------

    \33\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. The Exchange will halt trading in 
the Shares under the conditions specified in Rule 11.18. Trading may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the Disclosed 
Portfolio of the Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which trading 
in the Shares of a Fund may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. The Exchange allows 
trading in the Shares from 8:00 a.m. until 8:00 p.m. Eastern Time. The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in Rule 11.11(a), the minimum 
price variation for quoting and entry of orders in Managed Fund Shares 
traded on the Exchange is $0.01, with the exception of securities that 
are priced less than $1.00, for which the minimum price variation for 
order entry is $0.0001.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \34\ in general and Section 6(b)(5) of the Act \35\ 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.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f.
    \35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange is proposing that the Fund will not meet Rule 
14.11(i)(4)(C)(ii)(a), which requires that

[[Page 25584]]

the at least 75% of the weight of the fixed income portion of a fund's 
portfolio has a minimum original principal amount outstanding of $100 
million or more. Instead, the Exchange is proposing to reduce the 
weight of the fixed income portion of the portfolio from 75% to 60%, 
which, based on the types of securities held by the Fund, the Exchange 
believes is not such a significant change in the composition of the 
fixed income portion of the portfolio as to meaningfully undercut the 
policy rationale underlying the rule. Rule 14.11(i)(4)(C)(ii)(a) is 
intended to ensure that the fixed income holdings of a series of 
Managed Fund Shares are sufficiently large as to prevent manipulation 
in the underlying holdings. The types of fixed income securities held 
by the Fund will often be in tranches of less than $100 million 
dollars, meaning that the securities would not be included for purposes 
of the calculation, however, many of such securities would be part of a 
deal with an underlying collateral pool well over a $100 million 
dollars, often greater than $500 million, making them less susceptible 
to manipulation than many other securities with a minimum original 
principal greater than $100 million. As such, the total deal size of 
many of the securities held by the Fund are significantly larger than 
the tranches on which the testing for the rule is based and would 
mitigate the concerns that rule 14.11(i)(4)(C)(ii)(a) is intended to 
address. Finally, the proposed change only represents a slight 
reduction to the applicable standard, which, combined with the other 
reasons described above, the Exchange believes will continue to 
mitigate the policy concerns that Rule 14.11(i)(4)(C)(ii)(a) is 
intended to address.
    The Fund will also hold certain ABS and Private MBS in a manner 
that may not comply with Rule 14.11(i)(4)(C)(ii)(e). Such holdings are 
part of a strategy designed to manage the Fund's portfolio risk by 
diversifying away from corporate debt and to take advantage of certain 
market environments. This strategy will be actively managed by the 
Adviser and will adapt to both changing market environments and shifts 
in the underlying holdings of the Fund, but would be overly limited by 
the 20% Restriction under Rule 14.11(i)(4)(C)(ii)(e) that prevents the 
Fund from holding more than 20% of the fixed income portion of its 
portfolio in ABS and Private MBS. As such, the Exchange is proposing to 
allow the Fund to hold up to 40% of the weight of the fixed income 
portion of its portfolio in ABS and Private MBS. The Fund will utilize 
ABS and Private MBS as a means to diversify its portfolio of Bonds, 
which is intended to lower the volatility of the portfolio through a 
market cycle (typically three to five years). Greater exposure to the 
ABS and Private MBS would allow the Fund the flexibility to fully 
implement its risk mitigation strategy, while still limiting the Fund's 
holdings in ABS and Private MBS to 40% of the fixed income portion of 
the portfolio.
    Further, because the Exchange is proposing to allow the Fund's 
holdings in ABS and Private MBS to increase (from 20% to 40% of the 
fixed income portion of the portfolio, as described above), the 
circumstances under which the exception to Rule 14.11(i)(4)(C)(ii)(d) 
was approved in the Original Approval Order are changing. The Original 
Approval Order provides that, instead of 90% of the weight of the 
Fund's holdings in fixed income securities meeting at least one of sub-
paragraphs (a)-(e) in Rule 14.11(i)(4)(C)(ii)(d), Rule 
14.11(i)(4)(C)(ii)(d) would apply only to the Fund's holdings in fixed 
income securities that are not ABS and Private MBS, which are currently 
limited to 20% of the fixed income portion of the portfolio by the 20% 
Restriction.
    The Exchange believes that keeping this continued listing 
requirement from the Original Approval Order is consistent with the Act 
because the risk of manipulation of the Fund's investments in ABS and 
Private MBS are mitigated because the Adviser expects that all of its 
fixed income holdings will issue Statements to Noteholders on a no less 
frequent than quarterly basis.\36\ Further, the Adviser represents that 
permitting limited investments in ABS and Private MBS, as described 
above, would be in the best interest of the Fund's shareholders because 
such investments have the potential to reduce the overall risk profile 
of the Fund's portfolio through diversification while ensuring that the 
policy concerns that Rule 14.11(i)(4)(C)(ii)(d) is intended to address 
are mitigated. As such, while the Fund will not technically meet the 
requirements of Rule 14.11(i)(4)(C)(ii)(d)(a), the policy concerns 
related to the transparency and availability of information regarding 
the fixed income securities held by a fund that the rule is intended to 
address are otherwise mitigated both by the availability of Statements 
to Noteholders.
---------------------------------------------------------------------------

    \36\ While the Adviser expects that all of its fixed income 
holdings will issue Statements to Noteholders, it cannot guarantee 
that the holdings will issue Statements to Noteholders. While Rule 
14.11(i)(4)(C)(ii)(d) subparagraph (a) includes in the 90% 
calculation all fixed income securities that are required to file 
reports pursuant to Sections 13 or 15(d) of the Act, many fixed 
income securities include in the bond indenture a requirement that 
the issuer make a public disclosure of a Statement to Noteholders 
even where they are not required to file such reports. Rule 
14.11(i)(4)(C)(ii)(d) is intended to ensure that there is sufficient 
public information about the issuances and/or issuers of the fixed 
income securities held by a series of Managed Fund Shares. A 
Statement to Noteholders generally includes the same pieces of 
information about an issuer and issuance that would be included in 
Form 10D. Statements to Noteholders also typically include the 
following types of information: (1) The amount of the 
distribution(s) allocable to interest on the notes; (2) the amount 
of the distribution(s) allocable to principal of the notes; (3) the 
note balance, after taking into account all payments to be made on 
such distribution date; (4) the servicing fee paid and/or due but 
unpaid as of such distribution date; (5) the pool balance and 
required overcollateralization amount as of the close of business on 
the last day of the related collection period; (6) the reserve fund 
amount, the reserve fund required amount and the reserve fund draw 
amount; (7) the amount of the aggregate realized losses on the 
loans, if any, for the preceding collection period and the 
cumulative default ratio; (8) whether an amortization event will 
exist as of such distribution date; (9) the aggregate repurchase 
prices for loans, if any, that were repurchased by the seller during 
the related collection period; (10) the amount of fees payable to 
all parties pursuant to the indenture; (11) any and all other fees, 
expenses, indemnities or taxes payable by the issuer or the grantor 
trust (including reserved amounts for payments required to be made 
before the next distribution date); (12) the payments to the 
certificate holders; and (13) during a pre-funding period, the 
amount on deposit in the pre-funding account as of the close of 
business on the last day of the related collection period, and the 
pool balance of subsequent loans purchased during the related 
collection period, and following the pre-funding period, the amount 
of principal payments made on each class of notes from amounts on 
deposit in the pre-funding account.
---------------------------------------------------------------------------

    In addition, the Exchange represents that: (1) Except as described 
above, the Fund will continue to satisfy all of the continued listing 
obligations applicable under the Original Approval Order; (2) the 
continued listing standards under Rule 14.11(i) will apply to the 
Shares of the Fund; (3) the Fund will adhere to its stated investment 
objective under Normal Market Conditions; and (4) the issuer of the 
Fund is required to comply with Rule 10A-3 \37\ under the Act for the 
initial and continued listing of the Shares. In addition, the Exchange 
represents that the Fund will meet and be subject to all other 
requirements of the Generic Listing Standards 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

[[Page 25585]]

the same time,\38\ intraday indicative value,\39\ suspension of trading 
or removal,\40\ trading halts,\41\ disclosure,\42\ and firewalls.\43\
---------------------------------------------------------------------------

    \37\ 17 CFR 240.10A-3.
    \38\ See Exchange Rules 14.11(i)(4)(A)(ii) and 
14.11(i)(4)(B)(ii).
    \39\ See Exchange Rule 14.11(i)(4)(B)(i).
    \40\ See Exchange Rule 14.11(i)(4)(B)(iii).
    \41\ See Exchange Rule 14.11(i)(4)(B)(iv).
    \42\ See Exchange Rule 14.11(i)(6).
    \43\ See Exchange Rule 14.11(i)(7).
---------------------------------------------------------------------------

    The Exchange further believes that the proposed rule change is 
designed to prevent fraudulent and manipulative acts and practices in 
that the Shares will continue to be listed and traded on the Exchange 
pursuant to the continued listing criteria in Rule 14.11(i). The 
Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on the Exchange during all 
trading sessions and to deter and detect violations of Exchange rules 
and the applicable federal securities laws. Rule 14.11(i)(7) provides 
that, if the investment adviser to the investment company issuing 
Managed Fund Shares is affiliated with a broker-dealer, such investment 
adviser shall erect a ``fire wall'' between the investment adviser and 
the broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio. The 
Adviser is not a registered broker-dealer, but is affiliated with 
multiple broker-dealers and has implemented and will maintain ``fire 
walls'' with respect to such broker-dealers regarding access to 
information concerning the composition and/or changes to the Fund's 
portfolio. In addition, Adviser personnel who make decisions regarding 
the Fund's portfolio are subject to procedures designed to prevent the 
use and dissemination of material nonpublic information regarding the 
Fund's portfolio. All of the futures contracts and listed options 
contracts, as well as certain Equity Holdings held by the Fund will 
trade on markets that are a member of ISG or affiliated with a member 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\44\ The Exchange, FINRA, on behalf of 
the Exchange, or both may obtain information and will communicate 
regarding trading in the Shares and the underlying listed instruments, 
including listed derivatives and certain Equity Holdings, held by the 
Fund with the ISG, other markets or entities who are members or 
affiliates of the ISG, or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. Additionally, the 
Exchange or FINRA, on behalf of the Exchange, are able to access, as 
needed, trade information for certain fixed income instruments reported 
to FINRA's TRACE. Trade price and other information relating to 
municipal securities is available through the MSRB EMMA system.
---------------------------------------------------------------------------

    \44\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund will invest, 
under Normal Market Conditions, at least 80% of its net assets in 
Bonds. Additionally, the Fund may hold up to an aggregate amount of 15% 
of its net assets in illiquid assets (calculated at the time of 
investment), as deemed illiquid by the Adviser under the 1940 Act.\45\ 
The Fund will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
---------------------------------------------------------------------------

    \45\ 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 proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. Moreover, the Intraday 
Indicative Value will be disseminated by one or more major market data 
vendors at least every 15 seconds during Regular Trading Hours. On each 
business day, before commencement of trading in Shares during Regular 
Trading Hours, the Fund will disclose on its website the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day. The Fund's website 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,\46\ 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 Consolidated Tape 
Association. The website for the Fund will include a form of the 
prospectus for the Fund and additional data relating to NAV and other 
applicable quantitative information. Trading in Shares of a Fund will 
be halted under the conditions specified in Rule 11.18. Trading may 
also be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable. Finally, 
trading in the Shares will be subject to Rule 14.11(i)(4)(B)(iv), which 
sets forth circumstances under which Shares may be halted. In addition, 
as noted above, investors will have ready access to information 
regarding the Fund's holdings, the Intraday Indicative Value, the 
Disclosed Portfolio, and quotation and last sale information for the 
Shares.
---------------------------------------------------------------------------

    \46\ 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.
---------------------------------------------------------------------------

    Additionally, the intra-day, closing and settlement prices of 
exchange-traded portfolio assets, including futures, swaps, listed 
options, and certain Equity Holdings, will be readily available from 
the exchanges on which such products are listed, automated quotation 
systems, published or other

[[Page 25586]]

public sources, or online information services such as Bloomberg or 
Reuters. Quotation and last sale information for U.S. exchange-listed 
options contracts cleared by The Options Clearing Corporation will be 
available via the Options Price Reporting Authority. Intraday price 
quotations on Bonds, OTC derivative instruments, and OTC Equity 
Holdings are available from major broker-dealer firms and from third-
parties, which may provide prices free with a time delay or in real-
time for a paid fee. Price information for Cash Equivalents will be 
available from major market data vendors.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG, from other exchanges that are members of 
ISG, or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, the Exchange, or FINRA, on 
behalf of the Exchange, is able to access, as needed, trade information 
for certain fixed income instruments reported to TRACE and the MSRB 
EMMA system. As noted above, investors will also have ready access to 
information regarding the Fund's holdings, the Intraday Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will allow the Adviser to fully implement its 
investment strategy, which will enhance competition among market 
participants, to the benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-044 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-2019-044. 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-2019-044, and should be 
submitted on or before June 24, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
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    \47\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11447 Filed 5-31-19; 8:45 am]
BILLING CODE 8011-01-P