Document ID: SEC-2019-1192-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2019-08-20T04:00Z

[Federal Register Volume 84, Number 161 (Tuesday, August 20, 2019)]
[Notices]
[Pages 43194-43196]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17860]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86664; File No. SR-CboeBZX-2019-031]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
to Clarify Portions of Rule 14.11 (Other Securities) Related to the 
Applicability of Certain Disclosure Requirements

August 14, 2019.
    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 July 31, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to 
clarify portions of rule 14.11 (Other Securities) related to the 
applicability of certain disclosure requirements. The text of the 
proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to clarify portions of Rule 14.11 related to 
the applicability of certain disclosure requirements, as well as make 
non-substantive changes to correct an inadvertent spelling error 
throughout Rule 14.11(a) and (b).
    Currently, under Rule 14.11(b) (Portfolio Depositary Receipts), 
Rule 14.11(c) (Index Fund Shares), and Rule 14.11(j) (Derivative 
Securities Traded under Unlisted Trading Privileges) a Member is 
required to provide to all purchasers a written description of the 
terms and characteristics of the applicable securities (or a ``product 
description''). In addition, Members also have a separate prospectus 
delivery requirement under Section 24(d) of the Investment Company Act 
of 1940 (``1940 Act''). A Member, however, is not required to send a 
Section 24(d) prospectus for a security if such security is subject of 
an order by the Securities and Exchange Commission (``Commission'') 
exempting it from Section 24(d) prospectus delivery requirements, and 
is not otherwise subject to prospectus delivery requirements under the 
Securities Act of 1933 (``1933 Act''). As such, the Exchange provides 
rules requiring Members to deliver a product description for securities 
exempt from the prospectus delivery requirements. The Exchange notes 
that a product description is a written description of the terms and 
characteristics of a security in a form prepared or approved by the 
Exchange, whereas a prospectus is a legal document required by and 
filed with the Commission which contains detailed disclosers about a 
security.
    Currently, subparagraphs (j)(3), (b)(2), and (c)(2) to Rule 14.11 
govern the written description disclosure requirements for derivative 
securities traded under unlisted trading privileges (``UTP Derivative 
Securities''), series of Portfolio Depositary Receipts, or series of 
Index Fund Shares, respectively. As written, these subparagraphs under 
14.11 do not make it explicit to Members that the product description 
requirements are applicable only to prospectus-exempt products. 
Furthermore, current subparagraphs (b)(2) and (c)(2) to Rule 14.11 do 
not contain a provision (like that of subparagraph (j)(3)(B)) that the 
Exchange will inform its Members by means of an information circular 
when the product description delivery requirements apply. Therefore, in 
order to provide Members with better understanding of the provisions in 
connection these requirements, the Exchange now proposes to amend its 
rules to explicitly state that the product description delivery 
requirements apply only to the respective products that are exempt from 
the 1940 Act prospectus delivery requirements and are not otherwise 
subject to the prospectus delivery requirements under the 1933 Act. The 
Exchange also proposes to add language to subparagraphs (b)(2) and 
(c)(2) to inform Members that the Exchange will announce the 
applicability of the product description delivery requirements to 
particular series of Portfolio Depositary Receipts or Index Fund Shares 
via information circular. This change is intended to provide clarity to 
Members regarding when and how the Exchange will notify Members of 
their product delivery obligations. The Exchange notes that Rule 
14.11(j)(3)(B) currently provides that the Exchange informs its Members 
of the application of product description delivery requirements related 
to UTP Derivative Securities by means of information circular. The 
Exchange also notes that the proposed amendments are substantially 
similar to the disclosure requirement provision currently applicable to 
Managed Fund Shares.\5\
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    \5\ See Rule 14.11(i)(6).
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    The Exchange proposes to update the heading of Rule 14.11(j)(3)(A), 
which currently states ``Prospectus Delivery'', to ``Scope of Product 
Description'' as it believes this better aligns with the requirements 
provided for under paragraph (j)(3), thus provides further clarity 
regarding the product description requirements contained within this 
paragraph.

[[Page 43195]]

    Additionally, the Exchange proposes to correct an inadvertent 
spelling mistake throughout Rule 14.11(b). Current Rule 14.11(b) spells 
the term ``Depositary'' incorrectly as ``Depository'', therefore the 
Exchange proposes to correct this spelling where applicable throughout 
Rule 14.11(b).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ requirements that the rules of an exchange be 
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 regulating, clearing, 
settling, processing information with respect to, and 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange also believes the proposed rule 
change is consistent with Section 6(b)(1) of the Act, which provides 
that the Exchange be organized and have the capacity to be able to 
carry out the purposes of the Act and to enforce compliance by the 
Exchange's Members and persons associated with its Members with the 
Act, the rules and regulations thereunder, and the rules of the 
Exchange.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    In particular, the Exchange believes that this proposal benefits 
and protects investors because it is designed to bolster Member 
understanding of its rules and the applicability of the subparagraphs 
providing for written description disclosure requirements to certain 
products. Because current subparagraphs (j)(3), (b)(2), and (c)(2) to 
Rule 14.11 currently do not explicitly state under what circumstances 
they will apply to the respective products under each subparagraph, the 
Exchange has found that it is unclear to Members the subparagraphs in 
connection with required written descriptions only apply to securities 
or series that are exempt from the Section 24(d) prospectus delivery 
requirements, and otherwise not subject to prospectus delivery 
requirements under the 1933 Act. The Exchange thus believes this 
proposed change will enhance Members' understanding with respect to 
when and to which products the relevant subparagraphs are applicable, 
thereby protecting investors and the public interest. The Exchange 
notes that this proposal does not alter any of the disclosure 
requirements applicable to market participants, but merely intends to 
make explicit when the written disclosure provisions apply, as well as 
establish that the Exchange will notify Members via information 
circular of their product description obligations for particular series 
Portfolio Depositary Receipts and Index Fund Shares. Additionally, the 
Exchange believes that providing clear rules regarding the 
applicability of provisions requiring written product description 
deliveries will enable the Exchange to be organized and have the 
capacity to enforce compliance its Members with the Act and the rules 
of Exchange. The Exchange notes that the proposed changes are 
substantially similar to Rule 14.11(i)(6), which covers the disclosure 
requirements applicable to Managed Fund Shares.
    Additionally, the Exchange makes corrective changes to an 
inadvertent incorrect spelling of the term ``Depositary'' throughout 
Rule 14.11(b), which it believes will protect investors by alleviating 
any potential confusion.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. On 
the contrary, the proposed rule change is not designed to address any 
competitive issues but is only intended to bolster Member understanding 
of its rules with respect to the applicability of certain disclosure 
requirement provisions.

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

    No comments were solicited or received on the proposed rule change.

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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \9\ and 
Rule 19b-4(f)(6) \10\ thereunder. At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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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 rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-031 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-2019-031. 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

[[Page 43196]]

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-2019-031 and should be submitted 
on or before September 10, 2019.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17860 Filed 8-19-19; 8:45 am]
BILLING CODE 8011-01-P