[Federal Register Volume 83, Number 189 (Friday, September 28, 2018)]
[Notices]
[Pages 49142-49143]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21107]



[[Page 49142]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84275; File No. SR-NYSEArca-2018-40]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change Regarding Investments of the REX BKCM ETF

September 24, 2018.
    On June 26, 2018, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change 
seeking to modify certain investments of the REX BKCM ETF (``Fund''), a 
series of the Exchange Listed Funds Trust (``Trust''), the shares 
(``Shares'') of which are currently listed and traded on the Exchange 
under NYSE Arca Rule 8.600-E, Managed Fund Shares. The proposed rule 
change was published for comment in the Federal Register on July 3, 
2018.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83546 (June 28, 
2018), 83 FR 31214 (July 3, 2018) (``Notice'').
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    On August 14, 2018, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ The Commission has received no comment letters on the 
proposed rule change. This order institutes proceedings under Section 
19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove the proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 83844 (Aug. 14, 
2018), 83 FR 42178 (Aug. 20, 2018). The Commission designated 
October 1, 2018, as the date by which it should approve, disapprove, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal \7\
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    \7\ The Commission notes that additional information regarding, 
among other things, the Shares, Fund, investment objective, 
permitted investments, investment strategies and methodology, 
investment restrictions, investment adviser and subadviser, creation 
and redemption procedures, availability of information, trading 
rules and halts, and surveillance procedures, can be found in the 
Notice (see supra note 3) and the Registration Statement (see infra 
note 8), as applicable.
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    The Trust is registered under the Investment Company Act of 1940 
(``1940 Act'').\8\ The Shares are listed and traded on the Exchange 
under Commentary .01 to NYSE Arca Rule 8.600-E,\9\ which sets forth the 
generic criteria applicable to the listing and trading of Managed Fund 
Shares on the Exchange.\10\ According to the Exchange, the investment 
objective of the Fund is to seek total return. The Fund will seek to 
achieve its investment objective, under normal market conditions, by 
obtaining investment exposure to an actively managed portfolio 
consisting of equity securities of cryptocurrency-related and other 
blockchain technology-related companies.\11\
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    \8\ On May 7, 2018, the Trust filed with the Commission an 
amendment to its registration statement on Form N-1A under the 
Securities Act of 1933 and the 1940 Act relating to the Fund (File 
Nos. 333-180871 and 811-22700) (``Registration Statement''). The 
Exchange states that the Commission has issued an order granting 
certain exemptive relief to the Trust under the 1940 Act. See 
Investment Company Act Release No. 30445 (Apr. 2, 2013) (File No. 
812-13969).
    \9\ The Shares commenced trading on the Exchange on May 16, 
2018. See Notice, supra note 3, 83 FR at 31215.
    \10\ See NYSE Arca Rule 8.600-E (permitting the listing and 
trading of ``Managed Fund Shares,'' defined as a security that (a) 
represents an interest in a registered investment Company 
(``Investment Company'') organized as an open-ended management 
investment company or similar entity, that invests in a portfolio of 
securities selected by the Investment Company's investment adviser 
consistent with the Investment Company's investment objectives and 
policies; (b) is issued in a specified aggregate minimum number in 
return for a deposit of a specified portfolio of securities and/or a 
cash amount with a value equal to the next determined net asset 
value; and (c) when aggregated in the same specified minimum number, 
may be redeemed at a holder's request, which holder will be paid a 
specified portfolio of securities and/or cash with a value equal to 
the next determined net asset value).
    \11\ See Notice, supra note 3, 83 FR at 31215.
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    The Fund intends to change its investment strategy such that the 
Shares would no longer qualify for generic listing on the Exchange. 
Specifically, the Fund's portfolio would continue to satisfy all of the 
generic listing requirements except that:
     The Fund, through its Subsidiary,\12\ would be able to 
invest up to 15% of its total assets in shares of the Bitcoin 
Investment Trust (``GBTC''), an over-the-counter (``OTC'') equity 
security, which investments would not meet the requirements of 
Commentary .01(a)(1)(E) to Rule 8.600-E; and
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    \12\ According to the Exchange, the Fund expects to obtain 
exposure to certain investments by investing up to 25% of its total 
assets, as measured at the end of every quarter of the Fund's 
taxable year, in a wholly-owned and controlled Cayman Islands 
subsidiary (``Subsidiary''). See id. at 31216.
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     the Fund and the Subsidiary would be able to invest in the 
securities of non-exchange-traded open-end investment companies (i.e., 
mutual funds), which investments would not meet the requirements of 
Commentary .01(a)(1)(A)-(E) to Rule 8.600-E.\13\
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    \13\ See id. at 31216, 31218. The Exchange represents that the 
Fund will not hold listed or OTC derivatives based on bitcoin or 
other cryptocurrencies. See id. at 31216 nn.10-11.
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    According to the Exchange, GBTC is a private, open-ended trust 
available to accredited investors that derives its value from the price 
of bitcoin.\14\ The Subsidiary's investment in GBTC will be reflected 
in the net asset value of the Fund's Shares based on the closing price 
of GBTC on OTC Markets Group, Inc.'s (``OTC Markets'') OTCQX Best 
Marketplace.\15\ According to the Exchange, GBTC has demonstrated 
significant liquidity and the liquid market in the shares of GBTC 
alleviates valuation concerns. In addition, the Exchange represents 
that substantial and sustained trading volume in shares of GBTC, as 
well as the limitation of such investment to 15% of the Fund's assets, 
would help to limit any adverse effect on the Fund's arbitrage 
mechanism.\16\
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    \14\ See id. at 31216 n.9. The Exchange states that GBTC's 
investment objective is for the net asset value per share to reflect 
the performance of the market price of bitcoin, less GBTC's 
expenses. See id. at 31218.
    \15\ See id. at 31216.
    \16\ See id. at 31218. According to the Exchange, shares of GBTC 
have a minimum monthly trading volume of 250,000 shares, or a 
minimum notional volume traded per month of $25 million, averaged 
over the last six months, and a market value in excess of the 
required $75 million. Shares of GBTC have been quoted on OTC 
Markets' OTCQX Best Marketplace under the symbol ``GBTC'' since 
March 26, 2015. The Exchange represents that, as of May 7, 2018, 
approximately 187,572,000 shares of GBTC were outstanding, with a 
market capitalization of $2,807,852,840 based on the last traded 
price. Average trading volume for the 6 months ended May 7, 2018, 
was 7,107,650 shares per day, and total trading volume for 2017 was 
1,576,551,613 shares. See id.
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    The Exchange represents that the investments in securities of non-
exchange-traded open-end investment companies will not be principal 
investments of the Fund. These investments, which may include mutual 
funds that invest, for example, principally in fixed income securities, 
would be utilized to help the Fund meet its investment objective and to 
equitize cash in the short term. According to the Exchange, such 
securities have a net asset value based on the value of securities and 
financial assets the investment company holds.\17\
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    \17\ See id. at 31218-19.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2018-40 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section

[[Page 49143]]

19(b)(2)(B) of the Act \18\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
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    \18\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\19\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \20\
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    \19\ Id.
    \20\ 15 U.S.C. 78f(b)(5).
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    According to the Exchange, the Fund, through its Subsidiary, may 
invest up to 15% of its total assets in OTC shares of GBTC. In 
addition, the Exchange represents that the liquid market in the shares 
of GBTC alleviates valuation concerns, and that the substantial and 
sustained trading volume in shares of GBTC would help to limit any 
adverse effect on the Fund's arbitrage mechanism. What are commenters' 
views on the Exchange's assertions that the liquid market in the shares 
of GBTC alleviates valuation and arbitrage concerns? What are 
commenters' views on whether any premium or discount in the market 
price of GBTC compared to the value of its portfolio assets would 
affect valuation and arbitrage concerns? What are commenters' views, 
generally, on whether exposure to spot bitcoin markets through 
investment in GBTC would render the Shares of the Fund susceptible to 
manipulation?

III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\21\
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    \21\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by October 19, 2018. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
November 2, 2018. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal, 
which are set forth in the Notice,\22\ in addition to any other 
comments they may wish to submit about the proposed rule change.
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    \22\ See Notice, supra note 3.
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    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-NYSEArca-2018-40 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-NYSEArca-2018-40. 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-NYSEArca-2018-40 and should be submitted 
by October 19, 2018. Rebuttal comments should be submitted by November 
2, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21107 Filed 9-27-18; 8:45 am]
 BILLING CODE 8011-01-P


