Document ID: SEC-2019-0394-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2019-04-04T04:00Z

[Federal Register Volume 84, Number 65 (Thursday, April 4, 2019)]
[Notices]
[Pages 13371-13376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06528]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85474; File No. SR-CboeBZX-2019-019]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Make Certain Changes to the Listing Rule Governing the Listing and 
Trading of the Shares of the WisdomTree Japan Multifactor Fund and the 
WisdomTree Europe Multifactor Fund of the WisdomTree in Order for Such 
Funds To Be Listed and Traded on the Exchange Under Rule 14.11(i) 
(``Managed Fund Shares'')

March 29, 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 March 15, 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 and II 
below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposal 
to make certain changes to the listing rule governing the listing and 
trading of the shares of the WisdomTree Japan Multifactor Fund and the 
WisdomTree Europe Multifactor Fund of the WisdomTree in order for 
[these] Funds to be listed and traded on the Exchange under Rule 
14.11(i) (``Managed Fund 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The shares of the Funds (the ``Shares'') are currently listed and 
traded on the Exchange pursuant to the generic listing standards under 
Rule 14.11(c), which governs the listing and trading of Index Fund 
Shares on the Exchange. The Exchange is proposing to continue listing 
and trading the Shares on the Exchange with certain changes to each 
Fund's potential holdings, but under Rule 14.11(i), which governs the 
listing and trading of Managed Fund Shares on the Exchange. The 
Exchange submits this proposal in order to allow the Funds to hold OTC 
currency swaps in a manner that does not comply with Exchange Rule 
14.11(i)(4)(C)(v).
    The Shares are offered by the WisdomTree Trust, which was 
established as a Delaware statutory trust on December 15, 2005. 
WisdomTree Asset Management, Inc. (the ``Adviser'') acts as adviser to 
the Funds. Mellon Investments Corporation acts as sub-adviser (the 
``Sub-Adviser'') to the Funds. The Trust is registered with the 
Commission as an investment company and has filed two Form 497 
Supplements to its registration statement on Form N-1A (``Registration 
Statement'') with the Commission on behalf of the Funds outlining the 
changes described herein.\5\
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    \5\ See Registration Statement for the Trust (File Nos. 333-
132380 811-21864) and Form 497 Supplements dated January 18, 2019. 
The descriptions of the Funds and the Shares contained herein are 
based on information in the Registration Statement.
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    Exchange 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

[[Page 13372]]

broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio.\6\ In 
addition, Exchange 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. Exchange Rule 14.11(i)(7) is similar to Exchange 
Rule 14.11(b)(5)(A)(i) (which applies to index-based funds); however, 
Exchange 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 and is not affiliated with any broker-
dealers that are in the business of buying or selling securities. The 
Sub-Adviser is affiliated with multiple broker-dealers and has 
implemented and will maintain a ``fire wall'' with respect to such 
broker-dealers and their personnel regarding access to information 
concerning the composition and/or changes to a Fund's portfolio. In 
addition, Sub-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 such Fund's 
portfolio. In the event that (a) the Adviser or the Sub-Adviser becomes 
registered as a broker-dealer or newly affiliated with a 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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    \6\ 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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    Each Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
    The Exchange submits this proposal in order to allow the Funds to 
hold OTC currency swaps in a manner that does not comply with Exchange 
Rule 14.11(i)(4)(C)(v),\7\ Otherwise, the Funds will comply with all 
other listing requirements on an initial and continued listing basis 
under Exchange Rule 14.11(i) for Managed Fund Shares (the ``Generic 
Listing Standards'').
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    \7\ In particular, the Funds may not meet the requirement under 
Exchange Rule 14.11(i)(4)(C)(v) that the aggregate gross notional 
value of OTC derivatives shall not exceed 20% of the weight of the 
portfolio (including gross notional exposures).
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WisdomTree Japan Multifactor Fund
    As amended in the applicable Form 497 Supplement, the Japan Fund 
will seek income and capital appreciation. The Japan Fund will be 
actively managed using a model-based approach and will seek to achieve 
its investment objective by investing primarily in Japanese equity 
securities that exhibit certain characteristics that the Adviser 
believes to be indicative of positive future returns based on a model 
developed by the Adviser. The Adviser will seek to identify equity 
securities that have the highest potential for returns based on 
proprietary measures of fundamental factors, such as value and quality, 
and technical factors, such as momentum and correlation. The Adviser 
will employ a quantitative model to identify which securities the Japan 
Fund might purchase and sell and opportune times for purchases and 
sales. At a minimum, the Japan Fund's portfolio will be rebalanced 
quarterly according to the Adviser's quantitative model, although a 
more active approach may be taken depending on such factors as market 
conditions and investment opportunities, and the number of holdings in 
the Japan Fund may vary.
    The Adviser will seek to manage the Japan Fund's currency risk by 
dynamically hedging currency fluctuations in the relative value of the 
Japanese yen against the U.S. dollar (the ``Japan Currency Hedge''), 
ranging from a 0% to 100% hedge. The hedge ratios are adjusted as 
frequently as weekly utilizing signals such as interest rate 
differentials, momentum, and value.
    Under Normal Market Conditions,\8\ the Japan Fund will hold only 
the following instruments: Non-U.S. Component Stocks,\9\ American 
Depositary Receipts (``ADRs''), U.S. exchange-listed ETFs,\10\ cash and 
Cash Equivalents,\11\ and OTC currency swaps. As noted above, all of 
the Japan Fund's holdings will meet the Generic Listing Standards with 
the exception of its holdings in OTC currency swaps, which may not meet 
the requirement under Rule 14.11(i)(4)(C)(v) that prevents the 
aggregate gross notional value of OTC derivatives from exceeding 20% of 
the weight of the portfolio (including gross notional exposures).
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    \8\ 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, 
political, or other conditions, the Fund reserves the right to 
invest in U.S. government securities, other money market instruments 
(as defined below), and cash, without limitation, as determined by 
the Adviser or Sub-Adviser. In the event the Fund engages in these 
temporary defensive strategies that are inconsistent with its 
investment strategies, the Fund's ability to achieve its investment 
objectives may be limited.
    \9\ As defined in Rule 14.11(c)(1)(E), the term ``Non-U.S. 
Component Stock'' shall mean an equity security that (a) is not 
registered under Sections 12(b) or 12(g) of the Act, (b) is issued 
by an entity that is not organized, domiciled or incorporated in the 
United States, and (c) is issued by an entity that is an operating 
company (including Real Estate Investment Trusts (REITs) and income 
trusts, but excluding investment trusts, unit trusts, mutual funds, 
and derivatives).
    \10\ For purposes of this filing the term ETF shall mean 
Portfolio Depository Receipts as defined in Rule 14.11(b), Index 
Fund Shares as defined in Rule 14.11(c), and Managed Fund Shares as 
defined in Rule 14.11(i), or the equivalent product type on other 
national securities exchanges. With respect to Index Fund Shares, 
the underlying index shall be referred to herein as an ``Index.''
    \11\ As defined in Rule 14.11(i)(4)(C)(iii), Cash Equivalents 
are short-term instruments with maturities of less than three months 
that are: (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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[[Page 13373]]

WisdomTree Europe Multifactor Fund
    As amended in the applicable Form 497 Supplement, the Europe Fund 
will seek income and capital appreciation. The Europe Fund will be 
actively managed using a model-based approach and will seek to achieve 
its investment objective by investing primarily in European equity 
securities that exhibit certain characteristics that the Adviser 
believes to be indicative of positive future returns based on a model 
developed by the Adviser. The Adviser will seek to identify equity 
securities that have the highest potential for returns based on 
proprietary measures of fundamental factors, such as value and quality, 
and technical factors, such as momentum and correlation. The Adviser 
will employ a quantitative model to identify which securities the 
Europe Fund might purchase and sell and opportune times for purchases 
and sales. At a minimum, the Europe Fund's portfolio will be rebalanced 
quarterly according to the Adviser's quantitative model, although a 
more active approach may be taken depending on such factors as market 
conditions and investment opportunities, and the number of holdings in 
the Europe Fund may vary.
    The Adviser will seek to manage the Europe Fund's currency risk by 
dynamically hedging currency fluctuations in the relative value of the 
euro against the U.S. dollar (collectively, with the Japan Currency 
Hedge, the ``Currency Hedge''), ranging from a 0% to 100% hedge. The 
hedge ratios are adjusted as frequently as weekly utilizing signals 
such as interest rate differentials, momentum, and value.
    Under Normal Market Conditions, the Europe Fund will hold only the 
following instruments: Non-U.S. Component Stocks, ADRs, U.S. exchange-
listed ETFs, cash and Cash Equivalents, and OTC currency swaps. As 
noted above, the Europe Fund's holdings will meet the Generic Listing 
Standards with the exception of its holdings in OTC currency swaps, 
which may not meet the requirement under Rule 14.11(i)(4)(C)(v) that 
prevents the aggregate gross notional value of OTC derivatives from 
exceeding 20% of the weight of the portfolio (including gross notional 
exposures).
    The Trust is required to comply with Rule 10A-3 under the Act \12\ 
for the initial and continued listing of the Shares of each Fund. In 
addition, the Exchange represents that the Shares of each Fund will 
meet and be subject to all other requirements of the Generic Listing 
Rules and 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,\13\ intraday indicative value,\14\ suspension of trading or 
removal,\15\ trading halts,\16\ disclosure,\17\ firewalls,\18\ and 
surveillance.\19\ 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 assets and intraday indicative values, 
and the applicability of Exchange listing rules specified in this 
filing shall constitute continued listing requirements for the Funds. 
The Trust, on behalf of the Funds, has represented to the Exchange that 
it will advise the Exchange of any failure by a 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 a 
Fund or the Shares are not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under 
Exchange Rule 14.12.
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    \12\ 17 CFR 240.10A-3.
    \13\ See Exchange Rules 14.11(i)(4)(A)(ii) and 
14.11(i)(4)(B)(ii).
    \14\ See Exchange Rule 14.11(i)(4)(B)(i).
    \15\ See Exchange Rule 14.11(i)(4)(B)(iii).
    \16\ See Exchange Rule 14.11(i)(4)(B)(iv).
    \17\ See Exchange Rule 14.11(i)(6).
    \18\ See Exchange Rule 14.11(i)(7).
    \19\ See Exchange Rules 14.11(i)(2)(C).
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Precedent and Policy Discussion
    As described above, the Funds meet all of the Generic Listing 
Standards except as it may relate to their holdings in OTC currency 
swaps, which would be used to achieve their respective Currency Hedge. 
The Exchange believes that this proposal does not raise any substantive 
issues for the Commission to review because there are numerous 
instances in which the Commission has approved the listing and trading 
of series of Managed Fund Shares that employ nearly identical or 
substantially similar hedging strategies,\20\ especially when compared 
to the Hedged ADR Approval Order. Specifically, the Hedged ADR Approval 
Order approved the listing and trading of eighteen series of Managed 
Fund Shares (the ``Hedged ADR Funds''), each of which consisted of only 
two components: (i) A single ADR; and (ii) OTC currency swaps used to 
hedge against fluctuations in the exchange rate between the U.S. dollar 
and the local currency of the foreign security underlying the ADR. In 
addition to not meeting Rule 14.11(i)(4)(C)(v) related to the OTC 
currency swaps used to hedge currency exposure, each series of the 
Hedged ADR Funds also did not meet the concentration \21\ and diversity 
\22\ requirements related to their respective equity holdings. Stated 
another way, the Funds are proposing to implement a Currency Hedge 
using the same instruments as the Hedged ADR Funds with the same limits 
on such instruments, but do not require the additional relief from the 
equity holdings portion of the Generic Listing Standards that was 
necessary for the Hedged ADR Funds to list and trade.
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    \20\ See Securities Exchange Act Release Nos. 84143 (September 
14, 2018), 83 FR 47659 (September 20, 2018) (SR-CboeBZX-2018-019) 
(order approving the listing and trading of eighteen series of 
Managed Fund Shares that allowed each series to hedge its foreign 
equity position with up to 50% gross notional exposure to OTC 
currency swaps) (the ``Hedged ADR Approval Order''); 84818 (December 
13, 2018), 83 FR 65189 (December 19, 2018) (SR-NYSEArca-2018-75) 
(order approving the listing and trading of a series of Managed Fund 
Shares that may hold up to 50% of the aggregate gross notional value 
of the fund's portfolio in OTC derivatives for the purpose of 
reducing currency, interest rate, credit, or duration risk, in 
addition to allowing the fund to hold an additional 20% of non-
hedging OTC derivatives); 82591 (January 26, 2018) 83 FR 4707 
(February 1, 2018) (SR-BatsBZX-2017-54) (the ``Inflation Hedged 
Fund'') (order approving the listing and trading of a series of 
Managed Fund Shares that could gain up to 50% gross notional 
exposure to OTC derivatives in order to hedge against inflation in 
the fund's portfolio); and 83363 (June 1, 2018), 83 FR 26531 (June 
7, 2018) (SR-CboeBZX-2018-036) (notice of filing and immediate 
effectiveness of a proposal to allow the Inflation Hedged Fund to 
move increase its potential exposure to OTC derivative instruments 
from 50% to 60% of the fund's gross notional value).
    \21\ See Rule 14.11(i)(4)(C)(i)(a)(3).
    \22\ See Rule 14.11(i)(4)(C)(i)(a)(4).
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    Further, the Exchange believes that, while the portfolios of the 
Funds might not meet Rule 14.11(i)(4)(C)(v), the policy issues that the 
rule is intended to address are otherwise mitigated by the structure 
and purpose of the Currency Hedge within the Funds.\23\ Specifically, 
the Exchange believes that the policy issues that Rule 
14.11(i)(4)(C)(v) is intended to address are mitigated by the way that 
the Funds would use OTC currency swaps. The rule is intended to 
mitigate concerns around the manipulability of a particular underlying 
reference asset or derivatives contract and to minimize counterparty 
risk. While the Currency Hedge

[[Page 13374]]

positions taken by the Funds may not meet the Generic Listing Standards 
related to OTC derivatives holdings, the policy concerns about limiting 
exposure to potentially manipulable underlying reference assets that 
the Generic Listing Standards are intended to address are otherwise 
mitigated by the liquidity in the underlying spot currency market that 
prevents manipulation of the reference prices used by the Currency 
Hedge.\24\ The Funds will attempt to limit counterparty risk in OTC 
currency swaps by: (i) Entering into such contracts only with 
counterparties the Adviser and/or Sub-Adviser believes are 
creditworthy; (ii) limiting a Fund's exposure to each counterparty; and 
(iii) monitoring the creditworthiness of each counterparty and the 
Fund's exposure to each counterparty on an ongoing basis.
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    \23\ Each Fund expects to invest in excess of 80% of its net 
assets in Non-U.S. Component Stocks in a manner that will comply 
with the Generic Listing Standards.
    \24\ Based on statistics reported by the Bank for International 
Settlements, there is significant liquidity in the spot market for 
the euro and the Japanese yen. See ``Turnover of OTC foreign 
exchange instruments, by currency'' available at: https://stats.bis.org/statx/srs/table/d11.3.
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Availability of Information
    As noted above, the Funds will each comply with the requirements 
for Managed Fund Shares related to Disclosed Portfolio, Net Asset 
Value, and the Intraday Indicative Value. Additionally, the intra-day, 
closing and settlement prices of Non-U.S. Component Stocks, ADRs, and 
ETFs will be readily available from the securities exchanges on which 
such securities are traded, as well as published or other public 
sources, or online information services such as Bloomberg or Reuters. 
Intraday price quotations on OTC currency swaps 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. Each Fund's Disclosed Portfolio will be available on the 
issuer's website (www.WisdomTree.com) free of charge. Each Fund's 
website will include the prospectus for the applicable 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. 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
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Funds 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 Funds 
through the Exchange will continue to be subject to the Exchange's 
surveillance procedures for derivative products, including Managed Fund 
Shares. The issuer has represented to the Exchange that it will advise 
the Exchange of any failure by a Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will surveil for compliance with the 
continued listing requirements. If a Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
proceedings under Rule 14.12. The Exchange may obtain information 
regarding trading in the Funds, ADRs, ETFs, and certain of the Non-U.S. 
Component Stocks that are held by each Fund 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. 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 TRACE.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \25\ in general and Section 6(b)(5) of the Act \26\ 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. Specifically, the Exchange believes that the proposal 
is consistent with Rule 6(b)(5) of the Act in that is designed to 
prevent fraudulent and manipulative acts and practices because the 
policy concerns about limiting exposure to potentially manipulable 
underlying reference assets that the Generic Listing Standards are 
intended to address, specifically Rule 14.11(i)(4)(C)(v) related to OTC 
derivatives holdings, are otherwise mitigated by the liquidity in the 
underlying spot currency market that prevents manipulation of the 
reference prices used by the Currency Hedge. Specifically, the Exchange 
believes that the policy issues that Rule 14.11(i)(4)(C)(v) is intended 
to address are mitigated by the way that the Funds would use OTC 
currency swaps. The rule is intended to mitigate concerns around the 
manipulability of a particular underlying reference asset or 
derivatives contract and to minimize counterparty risk. As noted above, 
while the Currency Hedge positions that might be taken by the Funds may 
not meet the Generic Listing Standards related to OTC derivatives 
holdings, the policy concerns about limiting exposure to potentially 
manipulable underlying reference assets that the Generic Listing 
Standards are intended to address are otherwise mitigated by the 
liquidity in the underlying spot currency market that prevents 
manipulation of the reference prices used by the Currency Hedge. The 
Funds will attempt to limit counterparty risk in OTC currency swaps by: 
(i) Entering into such contracts only with counterparties the Adviser 
and/or Sub-Adviser believes are creditworthy; (ii) limiting a Fund's 
exposure to each counterparty; and (iii) monitoring the 
creditworthiness of each counterparty and the Fund's exposure to each 
counterparty on an ongoing basis.
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    \25\ 15 U.S.C. 78f.
    \26\ 15 U.S.C. 78f(b)(5).
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    The Exchange also notes that there are numerous instances in which 
the Commission has approved the listing and trading of series of 
Managed Fund Shares that employ nearly identical or substantially 
similar hedging strategies.\27\ Specifically, the Hedged

[[Page 13375]]

ADR Approval Order approved the listing and trading of eighteen series 
of Managed Fund Shares (the ``Hedged ADR Funds''), each of which 
consisted of only two components: (i) A single ADR; and (ii) OTC 
currency swaps used to hedge against fluctuations in the exchange rate 
between the U.S. dollar and the local currency of the foreign security 
underlying the ADR. In addition to not meeting Rule 14.11(i)(4)(C)(v) 
related to the OTC currency swaps used to hedge currency exposure, each 
series of the Hedged ADR Funds also did not meet the concentration \28\ 
and diversity \29\ requirements related to their respective equity 
holdings. Stated another way, the Funds are proposing to implement a 
Currency Hedge using the same instruments as the Hedged ADR Funds with 
the same limits on such instruments, but do not require the additional 
relief from the equity holdings portion of the Generic Listing 
Standards that was necessary for the Hedged ADR Funds to list and 
trade.
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    \27\ See Securities Exchange Act Release Nos. 84143 (September 
14, 2018), 83 FR 47659 (September 20, 2018) (SR-CboeBZX-2018-019) 
(order approving the listing and trading of eighteen series of 
Managed Fund Shares that allowed each series to hedge its foreign 
equity position with up to 50% gross notional exposure to OTC 
currency swaps) (the ``Hedged ADR Approval Order''); 84818 (December 
13, 2018), 83 FR 65189 (December 19, 2018) (SR-NYSEArca-2018-75) 
(order approving the listing and trading of a series of Managed Fund 
Shares that may hold up to 50% of the aggregate gross notional value 
of the fund's portfolio in OTC derivatives for the purpose of 
reducing currency, interest rate, credit, or duration risk, in 
addition to allowing the fund to hold an additional 20% of non-
hedging OTC derivatives); 82591 (January 26, 2018) 83 FR 4707 
(February 1, 2018) (SR-BatsBZX-2017-54) (the ``Inflation Hedged 
Fund'') (order approving the listing and trading of a series of 
Managed Fund Shares that could gain up to 50% gross notional 
exposure to OTC derivatives in order to hedge against inflation in 
the fund's portfolio); and 83363 (June 1, 2018), 83 FR 26531 (June 
7, 2018) (SR-CboeBZX-2018-036) (notice of filing and immediate 
effectiveness of a proposal to allow the Inflation Hedged Fund to 
move increase its potential exposure to OTC derivative instruments 
from 50% to 60% of the fund's gross notional value).
    \28\ See Rule 14.11(i)(4)(C)(i)(a)(3).
    \29\ See Rule 14.11(i)(4)(C)(i)(a)(4).
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    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Funds 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 Funds 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. 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 assets and intraday indicative values, and the 
applicability of Exchange listing rules specified in this filing shall 
constitute continued listing requirements for the Funds. The Trust, on 
behalf of the Funds, has represented to the Exchange that it will 
advise the Exchange of any failure by a 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 a 
Fund or the Shares are not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under 
Exchange Rule 14.12.
    As described above, all ADRs and ETFs will be listed on a U.S. 
national securities exchange, all of which are members of ISG or are 
exchanges with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\30\ The Exchange may obtain information 
regarding trading in the Funds, ADRs, ETFs, and certain Non-U.S. 
Component Stocks held by each Fund 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. 
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 TRACE.
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    \30\ 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.
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    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 series of Managed Fund Shares that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace.

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

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

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \31\ and Rule 19b-
4(f)(6) thereunder.\32\
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    \31\ 15 U.S.C. 78s(b)(3)(A).
    \32\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \33\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \34\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. The 
Exchange asserts that there is no reason for delay because, as noted 
above, the Funds are proposing to implement a Currency Hedge using the 
same instruments as the Hedged ADR Funds with the same limits on such 
instruments and requiring the 30-day delay before the filing becomes 
operative will not further any underlying policy goals related to the 
protection of investors and the public interest. According to the 
Exchange, waiver of the 30-day operative delay would more quickly 
facilitate the Adviser's ability to fully implement its Currency Hedge, 
which would enhance competition among market participants, to the 
benefit of investors and the marketplace. For those reasons, the 
Exchange asserts that waiver of the operative delay would be consistent 
with the protection of investors and the public interest. The 
Commission believes that the proposal raises no new or substantive 
issues and that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest. The Commission 
hereby waives the operative delay and designates the proposed rule 
change operative upon filing.\35\
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    \33\ 17 CFR 240.19b-4(f)(6).
    \34\ 17 CFR 240.19b-4(f)(6)(iii).
    \35\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the

[[Page 13376]]

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.

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-2019-019 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-2019-019. 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-2019-019 and should be submitted 
on or before April 25, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06528 Filed 4-3-19; 8:45 am]
 BILLING CODE 8011-01-P