Document ID: SEC-2018-0415-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2018-03-14T04:00Z

[Federal Register Volume 83, Number 50 (Wednesday, March 14, 2018)]
[Notices]
[Pages 11283-11286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05161]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82844; File No. SR-CboeBZX-2018-016]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Delist 
the Shares of the iShares Edge U.S. Fixed Income Balanced Risk ETF From 
Listing Pursuant to Rule 14.11(i) and Approval Orders Issued by the 
Commission as a Series of Managed Fund Shares, and To Re-List Pursuant 
to Rule 14.11(c)(4) as a Series of Index Fund Shares

March 9, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 28, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule

[[Page 11284]]

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

    The Exchange filed a proposal to delist the shares of the iShares 
Edge U.S. Fixed Income Balanced Risk ETF (the ``Fund'') from listing 
pursuant to Rule 14.11(i) and approval orders issued by the Commission 
as a series of Managed Fund Shares, and to re-list pursuant to Rule 
14.11(c)(4) as a series of Index Fund Shares.
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to delist the shares of the Fund (the 
``Shares'') from listing pursuant to an approval order issued by the 
Commission under Rule 14.11(i) related to Managed Fund Shares and re-
listing pursuant to Rule 14.11(c)(4) related to Index Fund Shares \5\ 
based on Fixed Income Securities.6 7 The Exchange is 
submitting this proposal because the index that the Fund proposes to 
track meets all of the generic listing standards of Rule 
14.11(c)(4)(B)(i) except that the Index includes exposure to U.S. 
Treasury futures contracts, which are not contemplated as Index 
constituents under Rule 14.11(c).
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    \5\ As provided in Rule 14.11(c)(1)(A)(i), the term ``Index Fund 
Share'' means a security that is issued by an open-end management 
investment company based on a portfolio of stocks or fixed income 
securities or a combination thereof, that seeks to provide 
investment results that correspond generally to the price and yield 
performance or total return performance of a specified foreign or 
domestic stock index, fixed income securities index, or combination 
thereof.
    \6\ The Exchange notes that all necessary steps to delist and 
re-list the Fund have been taken, including but not limited to: (1) 
filing an information statement and prospectus on Form N-14 with the 
SEC that notified shareholders of the reorganization and 
specifically of the background and reasons for the reorganization, 
the financial highlights of the Fund, the principal investment 
risks, shareholder rights and obligations and the form of the 
Agreement and Plan of Reorganization; and (2) obtaining the board 
approval for the reorganization.
    \7\ As defined in Rule 14.11(c)(4), ``Fixed Income Securities'' 
are debt securities that are notes, bonds, debentures or evidence of 
indebtedness that include, but are not limited to U.S. Department of 
Treasury securities, government-sponsored entity securities (``GSE 
Securities''), municipal securities, trust preferred securities, 
supranational debt and debt of a foreign country or subdivision 
thereof.
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    The Shares began trading on the Exchange on February 26, 2015 after 
the Commission issued an order \8\ approving the listing and trading of 
the Shares on the Exchange,\9\ which included a number of Continued 
Listing Representations.\10\ At that time, the Exchange was required to 
file separate proposals under Section 19(b) of the Act before the 
listing of any funds listed pursuant to Rule 14.11(i) (``Managed Fund 
Shares''). While the Shares would be listed as a series of Index Fund 
Shares instead of Managed Fund Shares, the Fund's holdings will 
continue meet the applicable Continued Listing Representations from the 
Order, except that the Fund plans to track the investment results of an 
index, specifically the Bloomberg Barclays U.S. Fixed Income Balanced 
Risk Index (the ``Index'').\11\
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    \8\ See Securities Exchange Act Release No. 74297 (February 18, 
2015), 80 FR 9788 (February 24, 2015) (SR-BATS-2014-056) (the 
``Order'').
    \9\ The Order states that ``the Fund is an actively-managed fund 
that does not seek to replicate the performance of a specified 
index.''
    \10\ As defined in Rule 14.11(a), ``Continued Listing 
Representations'' means any of the statements or representations 
regarding the index composition, the description of the portfolio or 
reference assets, limitations on portfolio holdings or reference 
assets, dissemination and availability of index, reference asset, 
and intraday indicative values (as applicable), or the applicability 
of Exchange listing rules specified in any filing to list a series 
of Other Securities.
    \11\ The Index measures the performance of the corporate and 
mortgage portion of the Bloomberg Barclays U.S. Universal Index (the 
``Parent Index'') while targeting an equal allocation between 
interest rate and credit spread risk.
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    The Index uses a rules-based approach to calculate an equal 
volatility-weighted allocation to each of five segments of the Parent 
Index: (1) Investment-grade corporate bonds 1-5 year; (2) investment-
grade corporate bonds 5-10 year; (3) high yield corporate bonds rated 
BB or higher; (4) high yield corporate bonds rated below BB; and (5) 
U.S. agency mortgage-backed securities. Segments with lower credit 
spread volatility receive a higher weighting, and segments with higher 
credit spread volatility receive a lower weighting, with the result 
that the contribution of each segment to overall credit spread 
volatility is approximately equal. The Index adjusts interest rate risk 
so that it equals credit spread risk by adding either long positions in 
U.S. Treasury bonds or short positions in U.S. Treasury futures.
    The Index meets all of the generic listing standards of Rule 
14.11(c)(4)(B)(i) except that the Index includes exposure to U.S. 
Treasury futures contracts. The Index also meets all of the generic 
listing standards applicable to Managed Fund Shares under Rule 
14.11(i), including the exposure to U.S. Treasury futures contracts. 
The Index also meets the Continued Listing Representations from the 
Order related to portfolio holdings. As noted above, the Exchange is 
submitting this proposal because the Index contains futures contracts 
(U.S. Treasury futures contracts) in a manner permitted pursuant to the 
Order, but for which Rule 14.11(c) does not currently contemplate. All 
U.S. Treasury futures contracts held by the Fund will trade on markets 
that are a member of the Intermarket Surveillance Group (``ISG'') or 
affiliated with a member of ISG or with which the Exchange has in place 
a comprehensive surveillance sharing agreement.\12\
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    \12\ 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 Fund's holdings 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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    Based on the foregoing, the Exchange believes that the proposal is 
non-controversial and should be effective upon filing. Specifically, 
because: (i) The Index meets the generic listing standards applicable 
to Index Fund Shares except the portion of the Index that includes 
exposure to U.S. Treasury futures contracts, which are not contemplated 
as Index constituents under Rule 14.11(c); (ii) the Index would meet 
the generic listing standards for Managed Fund Shares under Rule 
14.11(i)(4)(C), including the exposure to U.S. Treasury futures 
contracts under

[[Page 11285]]

Rule 14.11(i)(4)(C)(iv); \13\ (iii) the Index would meet all of the 
Continued Listing Representations, which formed the basis for the 
Commission's approval in the Order; \14\ (iv) all of the U.S. Treasury 
futures contracts included in the Index will be traded 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; and (v) the Index is largely a memorialization of the 
strategy previously employed by the Fund and the de-listing and re-
listing is a technical matter of form without substantive change.
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    \13\ The Exchange believes that, while there are certain 
differences between Index Fund Shares and Managed Fund Shares, the 
policy considerations underpinning the approval of the generic 
listing standards for Managed Fund Shares, particularly related to a 
portfolio's holdings in listed derivatives, are identical between 
Managed Fund Shares and Index Fund Shares, and, as such, an index 
underlying a series of Index Fund Shares that holds derivatives in a 
manner compliant with Rule 14.11(i)(4)(C)(iv) does not raise any 
issues that have not previously been contemplated by the Commission. 
See Securities Exchange Act Release No. 78396 (July 22, 2016), 81 FR 
49698 (July 28, 2016) (SR-BATS-2015-100).
    \14\ As originally approved by the Commission for the listing 
and trading of the Fund as a series of Managed Fund Shares, the 
Commission determined in the Order that the proposal was consistent 
with the Act, stating that ``the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act, which 
requires, among other things, that the Exchange's rules 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 facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest.''
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \15\ in general and Section 6(b)(5) of the Act \16\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to, and perfect the 
mechanism of a free and open market and, in general, to protect 
investors and the public interest. Specifically, the Exchange believes 
that the proposal is designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to remove impediments to, and perfect the mechanism of a free and open 
market and, in general, to protect investors and the public interest.
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    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(5).
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    The Index meets all of the generic listing standards of Rule 
14.11(c)(4)(B)(i) except that the Index includes exposure to U.S. 
Treasury futures contracts. The Index also meets all of the generic 
listing standards applicable to Managed Fund Shares under Rule 
14.11(i), including the exposure to U.S. Treasury futures contracts. 
The Index also meets the Continued Listing Representations from the 
Order related to portfolio holdings. As noted above, the Exchange is 
submitting this proposal because the Index contains futures contracts 
(U.S. Treasury futures contracts) in a manner permitted pursuant to the 
Order, but for which Rule 14.11(c) does not currently contemplate. All 
U.S. Treasury futures contracts 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.
    Based on the foregoing, the Exchange believes that the proposal is 
non-controversial and should be effective upon filing. Specifically, 
because: (i) The Index meets the generic listing standards applicable 
to Index Fund Shares except the portion of the Index that includes 
exposure to U.S. Treasury futures contracts, which are not contemplated 
as Index constituents under Rule 14.11(c); (ii) the Index would meet 
the generic listing standards for Managed Fund Shares under Rule 
14.11(i)(4)(C), including the exposure to U.S. Treasury futures 
contracts under Rule 14.11(i)(4)(C)(iv); \17\ (iii) the Index would 
meet all of the Continued Listing Representations, which formed the 
basis for the Commission's approval in the Order; \18\ (iv) all of the 
U.S. Treasury futures contracts included in the Index will be traded 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; and (v) the Index is largely a memorialization of 
the strategy previously employed by the Fund and the de-listing and re-
listing is a technical matter of form without substantive change.
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    \17\ The Exchange believes that, while there are certain 
differences between Index Fund Shares and Managed Fund Shares, the 
policy considerations underpinning the approval of the generic 
listing standards for Managed Fund Shares, particularly related to a 
portfolio's holdings in listed derivatives, are identical between 
Managed Fund Shares and Index Fund Shares, and, as such, an index 
underlying a series of Index Fund Shares that holds derivatives in a 
manner compliant with Rule 14.11(i)(4)(C)(iv) does not raise any 
issues that have not previously been contemplated by the Commission. 
See Securities Exchange Act Release No. 78396 (July 22, 2016), 81 FR 
49698 (July 28, 2016) (SR-BATS-2015-100).
    \18\ As originally approved by the Commission for the listing 
and trading of the Fund as a series of Managed Fund Shares, the 
Commission determined in the Order that the proposal was consistent 
with the Act, stating that ``the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act, which 
requires, among other things, that the Exchange's rules 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 facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest.''
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    As such, the Exchange believes that the proposal is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, 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 because 
there are no substantive issues raised by this proposal that were not 
otherwise addressed by the Order.

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 believes that 
the proposal to allow the Fund to be listed on the Exchange pursuant to 
the generic listing standards under Rule 14.11(i)(4)(C) will have no 
impact on competition.

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)(iii) of the Act \19\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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[[Page 11286]]

    A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\22\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requests 
that the Commission waive the 30-day operative delay to allow the 
Shares to immediately be listed and traded on the Exchange pursuant to 
Rule 14.11(c)(4) instead of Rule 14.11(i). The Exchange represents that 
the Index would meet the generic listing standards for Managed Fund 
Shares under Rule 14.11(i)(4)(C), including the exposure to U.S. 
Treasury futures contracts under Rule 14.11(i)(4)(C)(iv) \23\ and the 
Index would meet all of the Continued Listing Representations, which 
formed the basis for the Commission's approval in the Order.\24\ The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission hereby waives the 30-day operative delay 
and designates the proposed rule change operative upon filing.\25\
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ See supra text accompanying note 17.
    \24\ See supra text accompanying note 18.
    \25\ For purposes only of waiving the 30-day operative delay, 
the Commission 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule 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-2018-016 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2018-016. 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-2018-016, and should be 
submitted on or before April 4, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05161 Filed 3-13-18; 8:45 am]
 BILLING CODE 8011-01-P