[Federal Register Volume 83, Number 225 (Wednesday, November 21, 2018)]
[Notices]
[Pages 58789-58794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25344]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84604; File No. SR-CboeBZX-2018-077]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the 
JPMorgan Inflation Managed Bond ETF of the J.P. Morgan Exchange-Traded 
Fund Trust Under Rule 14.11(i), Managed Fund Shares

November 15, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 2, 2018, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to list and trade shares of the 
JPMorgan Inflation Managed Bond ETF (the ``Fund'') of the J.P. Morgan 
Exchange-Traded Fund Trust (the ``Trust'' or the ``Issuer'') under Rule 
14.11(i) (``Managed Fund Shares''). The shares of the Fund are referred 
to herein as the ``Shares.''
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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 list and trade the Shares under Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\3\ The Fund will be an actively managed exchange-
traded fund that seeks to maximize inflation protected total return. 
The Exchange submits this proposal in order to allow the Fund to hold 
Inflation Swaps and Other Derivatives, as each is defined below, in a 
manner that may not comply with Rule 14.11(i)(4)(C)(iv)(a),\4\ Rule 
14.11(i)(4)(C)(iv)(b),\5\ and/or Rule 14.11(i)(4)(C)(v),\6\ as further 
described below.\7\ Otherwise, the Fund will comply with all other 
listing requirements on an initial and continued listing basis under 
Rule 14.11(i).
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    \3\ The Commission originally approved BZX Rule 14.11(i) in 
Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR 
55148 (September 6, 2011) (SR-BATS-2011-018) and subsequently 
approved generic listing standards for Managed Fund Shares under 
Rule 14.11(i) in Securities Exchange Act Release No. 78396 (July 22, 
2016), 81 FR 49698 (July 28, 2016) (SR-BATS-2015-100).
    \4\ Rule 14.11(i)(4)(C)(iv)(a) provides that ``there shall be no 
limitation to the percentage of the portfolio invested in such 
holdings; provided, however, that in the aggregate, at least 90% of 
the weight of such holdings invested in futures, exchange-traded 
options, and listed swaps shall, on both an initial and continuing 
basis, consist of futures, options, and swaps for which the Exchange 
may obtain information via the Intermarket Surveillance Group 
(``ISG'') from other members or affiliates of the ISG or for which 
the principal market is a market with which the Exchange has a 
comprehensive surveillance sharing agreement, calculated using the 
aggregate gross notional value of such holdings.'' The Exchange is 
proposing that the Fund be exempt from this requirement only as it 
relates to the Fund's holdings in certain credit default swaps, 
interest rate swaps, and Inflation Swaps, as further described 
below.
    \5\ Rule 14.11(i)(4)(C)(iv)(b) provides that ``the aggregate 
gross notional value of listed derivatives based on any five or 
fewer underlying reference assets shall not exceed 65% of the weight 
of the portfolio (including gross notional exposures), and the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset shall not exceed 30% of the weight 
of the portfolio (including gross notional exposures).'' The 
Exchange is proposing that the Fund would meet neither the 65% nor 
the 30% requirements of Rule 14.11(i)(4)(C)(iv)(b). Specifically, 
the Exchange is proposing that the Fund be exempt from this 
requirement as it relates to the Fund's holdings in listed 
derivatives, which include U.S. Treasury futures, Eurodollar 
futures, options on U.S. Treasuries and Treasury futures, credit 
default swaps, and certain Inflation Swaps and interest rate swaps, 
as further described below, which could constitute as much as 100% 
of the weight of the portfolio (including gross notional exposures) 
based on a single underlying reference asset.
    \6\ Rule 14.11(i)(4)(C)(v) provides that ``the portfolio may, on 
both an initial and continuing basis, hold OTC derivatives, 
including forwards, options, and swaps on commodities, currencies 
and financial instruments (e.g., stocks, fixed income, interest 
rates, and volatility) or a basket or index of any of the foregoing, 
however the aggregate gross notional value of OTC derivatives shall 
not exceed 20% of the weight of the portfolio (including gross 
notional exposures).'' The Exchange is proposing that the Fund be 
exempt from this requirement as it relates to the Fund's holdings in 
OTC derivatives, which could constitute as much as 75% of the weight 
of the portfolio (including gross notional exposures).
    \7\ The Adviser, as defined below, notes that the Fund may by 
virtue of its holdings be issued certain equity instruments 
(``Equity Holdings'') that may not meet the requirements of Rule 
14.11(i)(4)(C)(i). The Fund will not purchase such instruments and 
will dispose of such holdings as the Adviser determines is in the 
best interest of the Fund's shareholders. Such holdings will not 
constitute more than 10% of the Fund's net assets. The Adviser 
expects that the Fund will generally acquire such instruments 
through issuances that it receives by virtue of its other holdings, 
such as corporate actions or convertible securities.
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    The Fund will be an actively managed fund. The Shares will be 
offered by the Trust, which was established as a Delaware statutory 
trust. J.P Morgan Investment Management, Inc. is the investment adviser 
(the ``Adviser'') and the administrator (``Administrator'') to the 
Fund. JPMorgan Chase Bank, N.A. is the custodian and transfer agent 
(``Custodian'' and ``Transfer Agent,'' respectively) for the Trust. 
JPMorgan Distribution Services, Inc. serves as the distributor 
(``Distributor'') for the Trust. The Trust is registered with the 
Commission as an open-end investment company and has filed a 
registration statement on behalf of the Fund on Form N-1A 
(``Registration Statement'') with the Commission.\8\
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    \8\ See Registration Statement on Form N-1A for the Trust, dated 
July 31, 2018 (File Nos. 333-191837 and 811-22903). The descriptions 
of the Fund and the Shares contained herein are based, in part, on 
information in the Registration Statement. The Commission has issued 
an order granting certain exemptive relief to the Trust under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') (the 
``Exemptive Order''). Investment Company Act Release No. 31990 
(February 9, 2016) (File No. 811-22903).

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[[Page 58790]]

    Rule 14.11(i)(7) provides that, if the investment adviser to the 
investment company issuing Managed Fund Shares is affiliated with a 
broker-dealer, such investment adviser shall erect and maintain a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\9\ In addition, Rule 
14.11(i)(7) further requires that personnel who make decisions on the 
investment company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable investment company 
portfolio. Rule 14.11(i)(7) is similar to Rule 14.11(b)(5)(A)(i), 
however, Rule 14.11(i)(7) in connection with the establishment of a 
``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser is 
not a registered broker-dealer, but is affiliated with multiple broker-
dealers and has implemented and will maintain ``fire walls'' with 
respect to such broker-dealers regarding access to information 
concerning the composition and/or changes to the Fund's portfolio. In 
addition, Adviser personnel who make decisions regarding the Fund's 
portfolio are subject to procedures designed to prevent the use and 
dissemination of material nonpublic information regarding the Fund's 
portfolio. In the event that (a) the Adviser becomes registered as a 
broker-dealer or newly affiliated with another broker-dealer, or (b) 
any new adviser or sub-adviser is a registered broker-dealer or becomes 
affiliated with a broker-dealer, it will implement and maintain a fire 
wall with respect to its relevant personnel or such broker-dealer 
affiliate, as applicable, regarding access to information concerning 
the composition and/or changes to the portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
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    \9\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    The Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
JPMorgan Inflation Managed Bond ETF
    According to the Registration Statement, the Fund will be an 
actively managed exchange-traded fund that will seek to maximize 
inflation protected total return. The Fund is designed to protect the 
total return generated by its fixed income holdings from inflation 
risk. Total return includes income and capital appreciation. The Fund 
seeks to achieve its investment objective by investing, under Normal 
Market Conditions,\10\ at least 80% of its net assets in Bonds,\11\ 
Inflation Hedging Instruments, and Other Derivatives, as defined below. 
The Fund will gain exposure to U.S. dollar-denominated bonds primarily 
through investing directly in Bonds. Up to 10% of the Fund's total 
assets may be invested in securities rated below investment grade (junk 
bonds). Junk bonds are rated in the fifth or lower rated categories 
(for example, BB+ or lower by Standard & Poor's Ratings Services and 
Ba1 or lower by Moody's). The Fund may also use the following 
instruments to gain exposure to credit or interest rates: credit 
default swaps,\12\ interest rate swaps,\13\ Eurodollar futures,\14\ 
U.S. Treasury futures,\15\ options on U.S. Treasury Futures,\16\ and 
options on U.S. Treasuries \17\ (collectively, ``Other Derivatives'').
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    \10\ As defined in Rule 14.11(i)(3)(E), the term ``Normal Market 
Conditions'' includes, but is not limited to, the absence of trading 
halts in the applicable financial markets generally; operational 
issues causing dissemination of inaccurate market information or 
system failures; or force majeure type events such as natural or 
man-made disaster, act of God, armed conflict, act of terrorism, 
riot or labor disruption, or any similar intervening circumstance.
    \11\ For purposes of this proposal, the term ``Bond'' includes 
only the following U.S. dollar denominated instruments issued by the 
U.S. Government or its agencies and instrumentalities, a domestic or 
a foreign corporation or a municipality: corporate bonds, U.S. 
government and agency debt securities (excluding Treasury Inflation 
Protected Securities (``TIPS''), which, as described below, may be 
held by the Fund in order to attempt to mitigate inflation risk), 
asset-backed securities, and mortgage-related and mortgage-backed 
securities. Mortgage-related and mortgage-backed securities may be 
structured as collateralized mortgage obligations (agency and non-
agency), stripped mortgage-backed securities (interest-only or 
principal-only), commercial mortgage-backed securities, mortgage 
pass-through securities, collateralized mortgage obligations, 
adjustable rate mortgages, convertible bonds and zero-coupon 
obligations. The Exchange notes that the Fund's holdings in Bonds 
will meet the requirements of Rule 14.11(i)(4)(C)(ii)(a)-(e) related 
to the fixed income securities portion of the Fund, including the 
requirement that non-agency, non-GSE, and privately-issued mortgage-
related and other asset-backed securities components of a portfolio 
shall not account, in the aggregate, for more than 20% of the weight 
of the fixed income portion of the portfolio. The Fund will 
generally hold investment-grade Bonds, but may hold up to 10% of its 
net assets in Bonds that are not investment-grade at the time of 
purchase.
    \12\ See supra notes 4 and 5. Credit default swaps held by the 
Fund will be traded on a U.S. Swap Execution Facility registered 
with the Commodity Futures Trading Commission. The Fund may hold up 
to 10% of its net assets in credit default swaps that are not 
investment-grade at the time of purchase.
    \13\ See supra notes 4, 5, and 6. Interest rate swaps held by 
the Fund may include listed swaps, centrally cleared OTC swaps, or 
non-cleared OTC swaps. The Fund will attempt to limit counterparty 
risk in non-listed and non-cleared OTC swap contracts by entering 
into such contracts only with counterparties the Adviser believes 
are creditworthy and by limiting the Fund's exposure to each 
counterparty. The Adviser will monitor the creditworthiness of each 
counterparty and the Fund's exposure to each counterparty on an 
ongoing basis. To the extent that the Fund holds listed interest 
rate swaps, all such listed swaps held by the Fund will be traded on 
a U.S. Swap Execution Facility registered with the Commodity Futures 
Trading Commission.
    \14\ See supra note 5.
    \15\ See supra note 5.
    \16\ See supra note 5.
    \17\ See supra notes 4, 5, and 6. Options on U.S. Treasuries 
held by the Fund may include listed or OTC options. The Fund will 
attempt to limit counterparty risk in non-listed and non-cleared OTC 
options contracts by entering into such contracts only with 
counterparties the Adviser believes are creditworthy and by limiting 
the Fund's exposure to each counterparty. The Adviser will monitor 
the creditworthiness of each counterparty and the Fund's exposure to 
each counterparty on an ongoing basis.
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    The Fund will attempt to mitigate the inflation risk of the Fund's 
exposure to Bonds primarily through the use of either OTC or listed 
inflation swaps (``Inflation Swaps''),\18\ which are

[[Page 58791]]

managed on an active basis. Additionally, the Fund may also attempt to 
mitigate inflation risk through investing in TIPS (collectively, with 
Inflation Swaps, ``Inflation Hedging Instruments''). The Exchange is 
proposing to allow the Fund to hold up to 100% of the weight of its 
portfolio (including gross notional exposure) in Inflation Swaps and 
Other Derivatives, collectively, in a manner that may not comply with 
Rules 14.11(i)(4)(C)(iv)(a),\19\ 14.11(i)(4)(C)(iv)(b),\20\ and/or 
14.11(i)(4)(C)(v).\21\
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    \18\ See supra notes 4, 5, and 6. The Fund will attempt to limit 
counterparty risk in non-listed and non-cleared OTC swap contracts 
by entering into such contracts only with counterparties the Adviser 
believes are creditworthy and by limiting the Fund's exposure to 
each counterparty. The Adviser will monitor the creditworthiness of 
each counterparty and the Fund's exposure to each counterparty on an 
ongoing basis. To the extent that the Fund holds listed Inflation 
Swaps, all such listed Inflation Swaps held by the Fund will be 
traded on a U.S. Swap Execution Facility registered with the 
Commodity Futures Trading Commission. Inflation Swaps held by the 
Fund will reference the Consumer Price Index For All Urban Consumers 
(CPI-U).
    \19\ See supra note 4.
    \20\ See supra note 5.
    \21\ See supra note 6.
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    The Fund's investments, including derivatives, will be consistent 
with the 1940 Act and the Fund's investment objective and policies and 
will not be used to enhance leverage (although certain derivatives and 
other investments may result in leverage).\22\ That is, while the Fund 
will be permitted to borrow as permitted under the 1940 Act, the Fund's 
investments will not be used to seek performance that is the multiple 
or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's primary broad-
based securities benchmark index (as defined in Form N-1A). The Fund 
will only use those derivatives included in the defined terms Inflation 
Swaps and Other Derivatives. The Fund's use of derivative instruments 
will be collateralized. In addition to the use described above, the 
Fund will also use derivative holdings for efficient portfolio 
management, profit and gain for the Fund, interest rate hedging, and 
managing credit risk.
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    \22\ The Fund will include appropriate risk disclosure in its 
offering documents, including leveraging risk. Leveraging risk is 
the risk that certain transactions of a fund, including a fund's use 
of derivatives, may give rise to leverage, causing a fund to be more 
volatile than if it had not been leveraged. The Fund's investments 
in derivative instruments will be made in accordance with the 1940 
Act and consistent with the Fund's investment objective and 
policies. To mitigate leveraging risk, the Fund will segregate or 
earmark liquid assets determined to be liquid by the Adviser in 
accordance with procedures established by the Trust's Board and in 
accordance with the 1940 Act (or, as permitted by applicable 
regulations, enter into certain offsetting positions) to cover its 
obligations under derivative instruments. These procedures have been 
adopted consistent with Section 18 of the 1940 Act and related 
Commission guidance. See 15 U.S.C. 80a-18; Investment Company Act 
Release No. 10666 (April 18, 1979), 44 FR 25128 (April 27, 1979); 
Dreyfus Strategic Investing, Commission No-Action Letter (June 22, 
1987); Merrill Lynch Asset Management, L.P., Commission No-Action 
Letter (July 2, 1996).
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Other Investments
    Under Normal Market Conditions, the Fund may also invest up to 20% 
of its net assets in the following: One or more ETFs,\23\ money market 
mutual funds, including affiliated money market mutual funds, bank 
obligations, common and preferred stock, convertible securities 
(including contingent convertible securities), loan assignment and 
participations, commitments to purchase loan assignments, auction rate 
securities, commercial paper, common stock warrants and rights, 
custodial receipts, inverse floating rate instruments, non-ETF 
investment company securities, securities issued by real estate 
investment trusts, repurchase and reverse repurchase agreements, short-
term funding agreements, structured investments, synthetic variable 
rate instruments, trust preferred securities, when-issued securities, 
delayed delivery securities, forward commitments, pay-in-kind 
securities, and deferred payment securities (collectively, excluding 
ETFs, ``20% OTC Instruments''). The Fund may also engage in securities 
lending.
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    \23\ For purposes of this proposal, the term ``ETF'' includes 
Portfolio Depositary Receipts, Index Fund Shares, and Managed Fund 
Shares as defined in Rule 14.11(b), (c), and (i), respectively, and 
their equivalents on other national securities exchanges.
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    The Exchange represents that, except for the exceptions to BZX Rule 
14.11(i)(4)(C) described above, the Fund's proposed investments will 
satisfy, on an initial and continued listing basis, all of the generic 
listing standards under BZX Rule 14.11(i)(4)(C) (the ``Generic Listing 
Rules'') and all other applicable requirements for Managed Fund Shares 
under Rule 14.11(i). The Trust is required to comply with Rule 10A-3 
under the Act for the initial and continued listing of the Shares of 
the Fund. In addition, the Exchange represents that the Shares of the 
Fund will comply with all other requirements applicable to Managed Fund 
Shares including, but not limited to, requirements relating to the 
dissemination of key information such as the Disclosed Portfolio, net 
asset value (``NAV''), and the Intraday Indicative Value, rules 
governing the trading of equity securities, trading hours, trading 
halts, surveillance, firewalls, and the information circular, as set 
forth in Exchange rules applicable to Managed Fund Shares and the 
orders approving such rules. At least 100,000 Shares will be 
outstanding upon the commencement of trading.
    Moreover, all of the ETFs, futures contracts, and listed options 
contracts, and certain of the Equity Holdings held by the Fund will 
trade on markets that are a member of ISG or affiliated with a member 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\24\ Additionally, the Exchange or 
FINRA, on behalf of the Exchange, are able to access, as needed, trade 
information for certain fixed income instruments reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE'') and municipal 
securities reported to the Municipal Securities Rulemaking Board's (the 
``MSRB'') Electronic Municipal Market Access system. FINRA also can 
access data obtained from the MSRB relating to municipal bond trading 
activity for surveillance purposes in connection with trading in the 
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 index, reference asset, and intraday indicative 
values, and the applicability of Exchange rules specified in this 
filing shall constitute continued listing requirements for the Fund. 
The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund or the Shares to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Act, the Exchange will surveil for compliance 
with the continued listing requirements. If the Fund or the Shares are 
not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under Exchange Rule 14.12.
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    \24\ 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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Availability of Information
    As noted above, the Fund will 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 exchange-traded portfolio assets, including 
common stock, preferred stock, warrants, rights, exchange-listed Equity 
Holdings, ETFs, options, and futures, will be readily available from 
the securities exchanges and futures exchanges trading such securities 
and futures, as the case may be, automated quotation systems, published 
or other public sources, or online information services such as 
Bloomberg or Reuters. Intraday price quotations on both listed and OTC 
swaps, TIPS, 20% OTC Instruments, and fixed income instruments are

[[Page 58792]]

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. Trade price and other information relating to Municipal Securities 
is available through the MSRB. Price information for cash equivalents 
will be available from major market data vendors. The Disclosed 
Portfolio will be available on the issuer's website free of charge. The 
Fund's website includes a form of the prospectus for the Fund and 
additional information related to NAV and other applicable quantitative 
information. Information regarding market price and trading volume of 
the Shares will be continuously available throughout the day on 
brokers' computer screens and other electronic services. Quotation and 
last sale information on the Shares will be available through the 
Consolidated Tape Association. Information regarding the previous day's 
closing price and trading volume for the Shares will be published daily 
in the financial section of newspapers. Quotation and last sale 
information for listed options contracts cleared by the Options 
Clearing Corporation will be available via the Options Price Reporting 
Authority. 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.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) BZX Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value and the Disclosed Portfolio is 
disseminated; (4) the risks involved in trading the Shares during the 
Pre-Opening \25\ and After Hours Trading Sessions \26\ when an updated 
Intraday Indicative Value will not be calculated or publicly 
disseminated; (5) the requirement that members deliver a prospectus to 
investors purchasing newly issued Shares prior to or concurrently with 
the confirmation of a transaction; and (6) trading information.
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    \25\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \26\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
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    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV calculation time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
website.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \27\ in general and Section 6(b)(5) of the Act \28\ 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.
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    \27\ 15 U.S.C. 78f.
    \28\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change 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 in that the Shares will meet 
each of the initial and continued listing criteria in BZX Rule 14.11(i) 
except that the Fund may not comply with Rules 
14.11(i)(4)(C)(iv)(a),\29\ 14.11(i)(4)(C)(iv)(b),\30\ and/or 
14.11(i)(4)(C)(v).\31\ The Exchange believes that the liquidity in the 
Treasury futures,\32\ Eurodollar futures,\33\ and TIPS \34\ markets 
mitigates the concerns that Rule 14.11(i)(4)(C)(iv)(b) is intended to 
address and that such liquidity would help prevent the Shares from 
being susceptible to manipulation. Further, the Exchange believes that 
for listed swaps, including credit default swaps, interest rate swaps, 
and Inflation Swaps, the price transparency and surveillance performed 
by the applicable swap execution facility would similarly act to 
mitigate the risk of manipulation of the Shares. The Exchange also 
believes that the size of the inflation swaps market,\35\ which would 
include all of the Inflation Swaps that the Fund intends to invest in, 
also mitigates manipulation concerns relating to both listed and OTC 
Inflation Swaps held by the Fund.\36\
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    \29\ See supra note 4.
    \30\ See supra note 5.
    \31\ See supra note 6.
    \32\ In 2017, there were approximately 744 million Treasury 
futures contracts traded.
    \33\ In 2017, there were approximately 367 million Eurodollar 
futures contracts traded.
    \34\ In 2017, there were approximately $17 billion worth of TIPS 
traded at primary dealers on a daily basis.
    \35\ For purposes of this discussion, the term ``inflation swaps 
market'' means any swap contract that references either a measure of 
inflation, an inflation index, or an instrument designed to transfer 
inflation risk from one party to another.
    \36\ According to publicly available numbers from LCH. Clearnet 
Limited, which clears both listed and OTC swaps, as of October 26, 
2018, there had been approximately $637 billion in U.S. dollar-
denominated inflation swaps traded year-to-date, which would include 
the Inflation Swaps that the Fund intends to invest in, cleared 
through their platform alone.
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    As it relates to addressing the policy concerns that Rule 
14.11(i)(4)(C)(v) is intended to address, which provides that the 
notional value of OTC derivatives shall not exceed 20% of the weight of 
the portfolio (including gross notional exposures), in an effort to 
minimize exposure to potentially illiquid and manipulable derivatives 
contracts, the Exchange notes that the inflation swap market,\37\ which 
would include all of the listed and OTC Inflation Swaps that the Fund 
intends to invest in, is large and liquid, which the Exchange believes 
further mitigates the concerns which Rule 14.11(i)(4)(C)(v) is intended 
to address. The Exchange also notes that the Fund will attempt to limit 
counterparty risk in non-cleared OTC swap contracts, OTC Inflation 
Swaps, and interest rate swaps, by entering into

[[Page 58793]]

such contracts only with counterparties the Adviser believes are 
creditworthy and by limiting the Fund's exposure to each counterparty. 
The Adviser will monitor the creditworthiness of each counterparty and 
the Fund's exposure to each counterparty on an ongoing basis. Further, 
the Exchange notes that notional principal never changes hands in such 
swaps transactions, and it is a theoretical value used to base the 
exchanged payments. A more accurate representation of the swaps value 
in order to monitor total counterparty risk would be the mark-to market 
value of the swap since inception, which the Adviser generally expects 
to remain below 15% of the Fund's net assets.
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    \37\ See supra note 35.
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    As it relates to the requirement in Rule 14.11(i)(4)(C)(iv)(a) that 
at least 90% of the weight of the listed derivatives portion of the 
portfolio be in listed derivatives for which the Exchange may obtain 
information via ISG or for which the principal market is a market with 
which the Exchange has a comprehensive surveillance sharing agreement, 
the Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on the Exchange during all 
trading sessions and to deter and detect violations of Exchange rules 
and the applicable federal securities laws. Additionally, all of the 
listed instruments that would not meet this requirement would 
nevertheless have a primary market that is a swap execution facility 
that is registered with and under the regulatory oversight of the 
CFTC.\38\
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    \38\ The Exchange represents that not all CFTC registered swap 
execution facilities are members or affiliates of members of the 
ISG.
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    Trading of the Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products, including 
Managed Fund Shares. All of the futures contracts, listed options, 
ETFs, and certain of the listed Inflation Swaps, listed credit default 
swaps, Equity Holdings, and listed interest rate swaps 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. The Exchange, FINRA, on behalf of the 
Exchange, or both will communicate regarding trading in the Shares and 
the underlying futures contracts, listed options, ETFs, and certain of 
the listed Inflation Swaps, credit default swaps, Equity Holdings, and 
listed interest rate swaps held by the Fund with the ISG, other markets 
or entities who are members or affiliates of the ISG, or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement.\39\ The Exchange, FINRA, on behalf of the Exchange, or both 
may obtain information regarding trading in the Shares and the 
underlying futures contracts, listed options, ETFs, and certain of the 
listed Inflation Swaps, credit default swaps, Equity Holdings, and 
listed interest rate swaps held by the Fund via the ISG from other 
markets or entities who are members or affiliates of the ISG or with 
which the Exchange has entered into a comprehensive surveillance 
sharing agreement.\40\ Additionally, the Exchange or FINRA, on behalf 
of the Exchange, may access, as needed, trade information for certain 
fixed income instruments reported to TRACE and municipal securities 
reported to the MSRB. FINRA also can access data obtained from the MSRB 
relating to municipal bond trading activity for surveillance purposes 
in connection with trading in the Shares. The Exchange has a policy 
prohibiting the distribution of material non-public information by its 
employees.
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    \39\ See supra note 23 [sic].
    \40\ See supra note 23 [sic].
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    The Exchange notes that the Fund will meet and be subject to all 
other requirements of the Generic Listing Rules and other applicable 
continued listing requirements for Managed Fund Shares under Rule 
14.11(i), including those requirements regarding the Disclosed 
Portfolio and the requirement that the Disclosed Portfolio and the NAV 
will be made available to all market participants at the same time,\41\ 
Intraday Indicative Value,\42\ suspension of trading or removal,\43\ 
trading halts,\44\ disclosure,\45\ and firewalls.\46\ Further, at least 
100,000 Shares will be outstanding upon the commencement of 
trading.\47\
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    \41\ See Rules 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \42\ See Rule 14.11(i)(4)(B)(i).
    \43\ See Rule 14.11(i)(4)(B)(iii).
    \44\ See Rule 14.11(i)(4)(B)(iv).
    \45\ See Rule 14.11(i)(6).
    \46\ See Rule 14.11(i)(7).
    \47\ See Rule 14.11(i)(4)(A)(i).
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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, rather will facilitate the listing and trading of 
an additional actively-managed exchange-traded product that will 
enhance competition among both market participants and listing venues, 
to the benefit of investors and the marketplace.

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2018-077 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-2018-077. 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

[[Page 58794]]

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-2018-077 and should 
be submitted on or before December 12, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-25344 Filed 11-20-18; 8:45 am]
BILLING CODE 8011-01-P


