[Federal Register Volume 84, Number 81 (Friday, April 26, 2019)]
[Notices]
[Pages 17902-17906]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-08400]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85701; File No. SR-CboeBZX-2019-016]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Allow the 
JPMorgan Core Plus Bond ETF of the J.P. Morgan Exchange-Traded Fund 
Trust To Hold Certain Instruments in a Manner That May Not Comply With 
Rule 14.11(i), Managed Fund Shares

April 22, 2019.

I. Introduction

    On March 5, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
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 to 
amend the listing requirements applicable to shares (``Shares'') of the 
JPMorgan Core Plus Bond ETF (``Fund''), which Shares are currently 
listed on the Exchange pursuant to the generic listing standards 
applicable to Managed Fund Shares under BZX Rule 14.11(i) (Managed Fund 
Shares). The proposed rule change was published for comment in the 
Federal Register on March 22, 2019.\3\ On March 28, 2019, the Exchange 
filed Amendment No. 1 to the proposed rule change, which amended and 
replaced the proposed rule change as originally filed.\4\ The 
Commission has received no comments on the proposed rule change. The 
Commission is publishing this notice to solicit comments on Amendment 
No. 1 from interested persons, and is approving the proposed rule 
change, as modified by Amendment No. 1, on an accelerated basis.
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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. 85349 (March 18, 
2019), 84 FR 10874.
    \4\ In Amendment No. 1, the Exchange: (a) Clarified that (i) the 
Shares are currently listed and traded on the Exchange pursuant to 
the generic listing standards applicable to Managed Fund Shares 
under BZX Rule 14.11(i) (``Generic Listing Standards''), (ii) the 
Fund currently meets the Generic Listing Standards, and (iii) the 
Fund will continue to meet the Generic Listing Standards unless and 
until the proposed rule change is approved; (b) clarified that the 
Exchange will measure derivatives holdings using gross notional 
value of the derivatives as required by the Generic Listing 
Standards (rather than using mark-to-market value of derivatives); 
(c) stated that in response to adverse market, economic, or 
political conditions, the Fund reserves the right to invest in cash 
and Cash Equivalents (as defined below), without limitation, as 
determined by the Adviser; (d) clarified the types of mortgage-
backed securities that are permitted investments of the Fund; (e) 
clarified that, consistent with the requirements of BZX Rule 
14.11(i)(4)(C)(ii)(e), the Fund will limit aggregate investments in 
asset-backed securities and Private MBS (as defined below) to 20% of 
the weight of the fixed income portion of the Fund's portfolio; (f) 
represented that the Fund's holdings in Cash Equivalents and over-
the-counter (``OTC'') derivative instruments will be in compliance 
with the limitations provided in BZX Rules 14.11(i)(4)(C)(iii) and 
14.11(i)(4)(C)(v), respectively, and that both listed and OTC 
derivative instruments will be in compliance with the limitations of 
BZX Rule 14.11(i)(4)(C)(vi); (g) clarified that because the Fund 
will not purchase Equity Holdings (as defined below) and will only 
hold such instruments if they are issued to the Fund by virtue of 
its holdings in Bonds (as defined below), Equity Holdings are 
excluded from the description of the Fund's permitted investments; 
(h) clarified that while listed derivatives positions are limited to 
20% of the Fund's net assets, the gross notional exposure related to 
such positions can be significantly larger, and thus, the Fund may 
have gross notional exposure to Eurodollar and G-7 Sovereign Futures 
and Options (as defined below) in excess of 65%; (i) provided 
updated data on open interest in Eurodollar and G-7 Sovereign 
Futures and Options; (j) represented that the Fund will adhere to 
its stated investment objective under Normal Market Conditions (as 
defined below); (k) represented that the Exchange, the Financial 
Industry Regulatory Authority, Inc. (``FINRA''), on behalf of the 
Exchange, or both may obtain information regarding trading in the 
Shares and the underlying listed instruments held by the Fund with 
the Intermarket Surveillance Group (``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; (l) provided additional justification as to why the 
proposed changes to the Fund's investments are consistent with the 
Act even though the Fund's proposed holdings would no longer meet 
certain of the Generic Listing Standards; and (m) made other 
clarifications, corrections, and technical changes to the proposal. 
Amendment No. 1 to the proposed rule change is available at: https://www.sec.gov/comments/sr-cboebzx-2019-016/srcboebzx2019016-5299386-183807.pdf.
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II. Description of the Proposal, as Modified by Amendment No. 1 
5
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    \5\ Additional information regarding the Fund, the Trust (as 
defined below), and the Shares can be found in Amendment No. 1 and 
the Registration Statement. See supra note 4 and infra note 6.
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    The Shares are currently listed on the Exchange pursuant to the 
Generic Listing Standards and began trading on January 30, 2019. The 
Shares are offered by the J.P. Morgan Exchange-Traded Fund Trust 
(``Trust''), which is registered as an open-end management investment 
company under the Investment Company Act of 1940 (``1940 Act'').\6\ J.P 
Morgan Investment Management, Inc. is the investment adviser 
(``Adviser'') to the Fund.\7\ JPMorgan Chase Bank, N.A. is the 
administrator, custodian, and transfer agent for the Trust. JPMorgan 
Distribution Services, Inc. serves as the distributor for the Trust.
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    \6\ According to the Exchange, on January 23, 2019, the Trust 
filed with the Commission its registration statement on Form N-1A 
under the Securities Act of 1933 (15 U.S.C. 77a), and under the 1940 
Act relating to the Fund (File Nos. 333-191837 and 811-22903) 
(``Registration Statement''). In addition, according to the 
Exchange, the Commission has issued an order granting certain 
exemptive relief to the Trust under the 1940 Act. See Investment 
Company Act Release No.31990 (February 9, 2016) (File No. 812-
13761).
    \7\ The Exchange represents that 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 of and/or changes to the Fund's portfolio. In addition, 
the Exchange represents that the Adviser's 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 of 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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    The Exchange states that the Fund is an actively managed exchange-
traded fund that seeks a high level of current income by investing 
primarily in a diversified portfolio of high-, medium-, and low-grade 
debt securities.\8\ The Exchange states that, while the Fund currently 
meets all of the Generic Listing Standards, the Adviser would like to 
increase the flexibility of the Fund's holdings in a way that might not 
meet such requirements. As such, the Exchange has submitted this 
proposal in order to allow the Shares to continue listing and trading 
on the Exchange while holding certain instruments in a manner that may 
not comply with the Generic Listing Standards, as further described 
below.
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    \8\ The Exchange states that the Fund plans to employ a strategy 
very similar to that currently employed by JPMorgan Core Plus Bond 
Fund, a mutual fund operated by the Adviser since March 5, 1993.
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A. The Fund's Primary Investments

    The Fund seeks to achieve its investment objective by investing, 
under

[[Page 17903]]

Normal Market Conditions,\9\ at least 80% of its net assets in 
``Bonds,'' as defined herein. For purposes of the proposal, the 
Exchange defines the term ``Bond'' to include only the following 
instruments:
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    \9\ 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. 
The Exchange states that in response to adverse market, economic, or 
political conditions, the Fund reserves the right to invest in cash 
and Cash Equivalents, as defined below, without limitation, as 
determined by the Adviser.

 Corporate bonds;
 U.S. government and agency debt securities;
 asset-backed securities (``ABS''); \10\
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    \10\ According to the Exchange, ABS are securitized products in 
connection with which the securities issued, which may be issued by 
either a U.S. or a foreign entity, are collateralized by any type of 
financial asset, such as a consumer or student loan, a lease, or a 
secured or unsecured receivable. The Exchange states that for 
purposes of the filing, ABS exclude: (i) MBS (as defined below); 
(ii) a small business administration backed ABS traded ``To Be 
Announced'' or in a specified pool transaction as defined in FINRA 
Rule 6710(x); and (iii) U.S. or foreign collateralized debt 
obligations.
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 municipal securities;
 credit linked notes;
 participation notes;
 collateralized debt obligations;
 agency, non-agency, and stripped mortgage-related and 
mortgage-backed securities (``MBS'') (including adjustable rate 
mortgage loans); \11\
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    \11\ The Exchange states that MBS are securities that represent 
direct or indirect participations in, or are collateralized by and 
payable from, mortgage loans secured by real property and which may 
be issued or guaranteed by government-sponsored entities (``GSEs''), 
such as Fannie Mae or Freddie Mac, or issued or guaranteed by 
agencies of the U.S. government, such as the Government National 
Mortgage Association (``Ginnie Mae''). The Exchange states that for 
purposes of the proposal, MBS include only collateralized mortgage 
obligations (``CMOs''), which are debt obligations collateralized by 
mortgage loans or mortgage pass-through securities. Typically, CMOs 
are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac 
certificates, but they may also be collateralized by whole loans or 
pass-through securities issued by private issuers (i.e., issuers 
other than U.S. government agencies or GSEs) (``Private MBS''). 
Payments of principal and of interest on the mortgage-related 
instruments collateralizing the MBS, and any reinvestment income 
thereon, provide the funds to pay debt service on the CMOs. In a 
CMO, a series of bonds or certificates is issued in multiple 
classes. Each class of CMOs, often referred to as a ``tranche'' of 
securities, is issued at a specified fixed or floating coupon rate 
and has a stated maturity or final distribution date.
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 convertible securities (including contingent convertible 
securities);
 preferred stock;
 loan participations and assignments;
 commitments to loan assignments;
 variable and floating rate instruments;
 commercial paper; and
 foreign and emerging market debt securities.

    The Exchange states that the Adviser intends to hold ABS and MBS as 
part of a strategy designed to manage portfolio risk by diversifying 
away from corporate debt and to take advantage of certain market 
environments. Consistent with the requirements of BZX Rule 
14.11(i)(4)(C)(ii)(e), the Fund will limit aggregate investments in ABS 
and Private MBS (together, ``ABS/Private MBS'') to 20% of the weight of 
the fixed income portion of the Fund's portfolio.
    The Adviser will invest across the credit spectrum to provide the 
Fund exposure to various credit ratings. Under Normal Market 
Conditions, at least 65% of the Fund's assets will be invested in 
securities that, at the time of purchase, are rated investment grade by 
a nationally recognized statistical rating organization or in 
securities that are unrated but are deemed by the Adviser to be of 
comparable quality. Among others, such securities include U.S. or 
foreign MBS and U.S. or foreign ABS. Under Normal Market Conditions, 
the Fund will not invest more than 35% of its assets in securities 
rated below investment grade. The Fund's average weighted maturity will 
ordinarily range between five and twenty years.

B. Other Permitted Investments of the Fund

    Under Normal Market Conditions, the Fund may also invest up to 20% 
of its net assets in the following:

 Cash and certain Cash Equivalents \12\ that are not otherwise 
captured under the definition of Bond;
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    \12\ As defined in Exchange Rule 14.11(i)(4)(C)(iii)(b), Cash 
Equivalents are short-term instruments with maturities of less than 
three months, which includes only the following: (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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 the following listed derivative instruments:
    [cir] Futures and options (including options on futures) 
referencing Eurodollars and sovereign debt issued by the United States 
(i.e., treasury securities) and other ``Group of Seven'' countries,\13\ 
where such futures and options contracts are listed on an exchange that 
is an ISG member or an exchange with which the Exchange has a 
comprehensive surveillance sharing agreement (``Eurodollar and G-7 
Sovereign Futures and Options'');
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    \13\ The Exchange states that Group of Seven (or ``G-7'') 
countries include the United States, Canada, France, Germany, Italy, 
Japan and the United Kingdom.
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    [cir] the following additional types of futures: Debt futures, 
interest rate futures, index futures, foreign exchange futures, and 
equity futures;
    [cir] the following additional types of options: Equity options, 
Treasury options, options on Treasury futures, and foreign exchange 
options; and
    [cir] the following types of swaps: Interest rate swaps, foreign 
exchange swaps, credit default swaps (including single-name and index 
reference pools) (``CDS''), loan credit default swap indices, and 
inflation-linked swaps; and

 the following OTC derivative instruments:
    [cir] The following types of options: Index options and foreign 
exchange options;
    [cir] swaptions;
    [cir] the following types of swaps: CDS, foreign exchange swaps, 
loan credit default swap indices, inflation-linked swaps, interest rate 
swaps, and non-dollar swaps;
    [cir] non-deliverable forward contracts; and
    [cir] foreign exchange forward contracts.

    The Exchange states that the Fund's holdings in Cash Equivalents 
and OTC derivative instruments will be in compliance with the 
limitations provided in BZX Rules 14.11(i)(4)(C)(iii) \14\ and 
14.11(i)(4)(C)(v),\15\ respectively. In addition, the Exchange states 
that the Fund's holdings in both listed and OTC derivative instruments 
will be in compliance with the limitations of BZX Rule 
14.11(i)(4)(C)(vi).\16\
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    \14\ Rule 14.11(i)(4)(C)(iii) contains Generic Listing Standards 
for cash and Cash Equivalents.
    \15\ Rule 14.11(i)(4)(C)(v) requires that the aggregate gross 
notional value of OTC derivatives not exceed 20% of the weight of 
the portfolio (including gross notional exposures).
    \16\ Rule 14.11(i)(4)(C)(iv) provides that to the extent listed 
or OTC derivatives are used to gain exposure to individual equities 
and/or fixed income securities, or to indexes of equities and/or 
indexes of fixed income securities, the aggregate gross notional 
value of such exposure will meet the Generic Listing Standards 
applicable to equities and fixed income securities (including gross 
notional exposures), respectively.
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    The Exchange states that the Fund, by virtue of its Bond holdings, 
may be issued certain equity instruments (``Equity Holdings'') that may 
not meet the requirements of Rule

[[Page 17904]]

14.11(i)(4)(C)(i).\17\ 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. The Exchange states that the Fund will not purchase such 
instruments and the Fund will dispose of such holdings as the Adviser 
determines is in the best interest of the Fund's shareholders. The 
Exchange states that such Equity Holdings will not constitute more than 
10% of the Fund's net assets.\18\
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    \17\ Rule 14.11(i)(4)(C)(i) contains Generic Listing Standards 
for equity securities.
    \18\ The Exchange states that the Fund will not purchase Equity 
Holdings and, as such, they are excluded from both the 80% and the 
20% buckets described above.
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C. The Fund's Investment Restrictions

    The Exchange states that 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).\19\ 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 the 
derivatives described above and the Fund's use of derivative 
instruments will be collateralized.
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    \19\ The Exchange states that 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. 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 of 
directors 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. The Exchange 
states that these procedures have been adopted consistent with 
Section 18 of the 1940 Act and related Commission guidance.
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D. Application of the Generic Listing Standards

    The Exchange has submitted this proposal in order to allow the Fund 
to hold instruments in a manner that may not comply with the Generic 
Listing Standards, as further described below. The Exchange represents 
that, except as described below, the Fund would continue to satisfy all 
of the Generic Listing Standards under BZX Rule 14.11(i)(4)(C) and to 
comply with all other applicable continued listing requirements for 
Managed Fund Shares under BZX Rule 14.11(i). The Exchange represents 
that the Fund, which is currently listed and trading pursuant to the 
Generic Listing Standards, will continue to meet the Generic Listing 
Standards unless and until this proposal is approved.
    The Exchange proposes that the Fund will not comply with Rule 
14.11(i)(4)(C)(ii)(d), which requires that ``component securities that 
in aggregate account for at least 90% of the fixed income weight of the 
portfolio must be either: (a) From issuers that are required to file 
reports pursuant to Sections 13 and 15(d) of the Act; (b) from issuers 
that have a worldwide market value of its outstanding common equity 
held by non-affiliates of $700 million or more; (c) from issuers that 
have outstanding securities that are notes, bonds, debentures, or 
evidence of indebtedness having a total remaining principal amount of 
at least $1 billion; (d) exempted securities as defined in Section 
3(a)(12) of the Act; or (e) from issuers that are a government of a 
foreign country or a political subdivision of a foreign country.'' The 
Exchange instead proposes that the fixed income portion of the 
portfolio, excluding ABS and Private MBS, will satisfy this 90% 
requirement.
    In addition, the Exchange proposes that the Fund will not comply 
with Rule 14.11(i)(4)(C)(iv)(b), which 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).'' Specifically, the Exchange 
proposes that the Fund be exempt from these requirements as they relate 
to the Fund's holdings in Eurodollar and G-7 Sovereign Futures and 
Options.\20\ The Exchange states that the Fund's holdings in other 
listed derivatives, when calculated independently of the Fund's 
holdings in Eurodollar and G-7 Sovereign Futures and Options, will meet 
the requirements of Rule 14.11(i)(4)(C)(iv)(b).
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    \20\ The Exchange states that, while listed derivatives 
positions are limited to 20% of the Fund's net assets, the gross 
notional exposure related to such positions can be significantly 
larger. As such, the Fund may have gross notional exposure to 
Eurodollar and G-7 Sovereign Futures and Options in excess of 65%.
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    Finally, the exchange proposes that the Fund will not comply with 
Rule 14.11(i)(4)(C)(i), which contains Generic Listing Standards for 
equity securities in the portfolio. As discussed above, the Fund, by 
virtue of its other holdings, may be issued Equity Holdings that may 
not meet the requirements of Rule 14.11(i)(4)(C)(i). The Exchange 
represents that 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. In addition, the Exchange 
represents that the Equity Holdings will not constitute more than 10% 
of the Fund's net assets.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\21\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with Section 6(b)(5) of the Act,\22\ 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 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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    \21\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \22\ 15 U.S.C. 78f(b)(5).
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    The Shares would continue to satisfy all of the Generic Listing 
Standards except for the requirements of Rule 14.11(i)(4)(C)(ii)(d), 
Rule 14.11(i)(4)(C)(iv)(b), and Rule 14.11(i)(4)(C)(i), as described 
specifically herein.\23\
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    \23\ See supra Section II.D.
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    As discussed above, the Fund will not meet the requirement that 
securities comprising at least 90% of the fixed income weight of the 
Fund's portfolio meet one of the criteria set forth in BZX Rule 
14.11(i)(4)(C)(ii)(d) because the ABS/Private MBS that the Fund may 
invest in would not satisfy such requirement.\24\ Instead, the Exchange 
proposes that the fixed income portion

[[Page 17905]]

of the portfolio excluding ABS/Private MBS would satisfy this 90% 
requirement. The Exchange states that the Fund's investment portfolio 
will be diverse, and that the Adviser closely monitors investments to 
ensure maintenance of credit and liquidity standards.\25\ The 
Commission believes the diversification of the Fund's portfolio, and 
the fact that the fixed income portion of the portfolio, excluding ABS 
and Private MBS, will comply with Rule 14.11(i)(4)(C)(ii)(d), should 
mitigate manipulation concerns relating to the Shares. The Commission 
notes that it recently approved a similar exception to the Generic 
Listing Standards for an issue of Managed Fund Shares permitted to 
invest in fixed income securities.\26\ The Commission also notes that, 
consistent with the requirements of BZX Rule 14.11(i)(4)(C)(ii)(e), the 
Fund will limit aggregate investments in ABS/Private MBS to 20% of the 
weight of the fixed income portion of the Fund's portfolio.
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    \24\ The Exchange states that ABS/Private MBS are generally 
issued by special purpose vehicles, so the criteria in Rule 
14.11(i)(4)(C)(ii)(d) regarding an issuer's market capitalization 
and the remaining principal amount of an issuer's securities are 
typically unavailable with respect to ABS/Private MBS, even though 
such ABS/Private MBS may own significant assets. See Amendment No. 
1, at 46, n. 36.
    \25\ See Amendment No. 1, at 46-47.
    \26\ See Securities Exchange Act Release No. 84047 (September 6, 
2018), 83 FR 46200 (September 12, 2018) (SR-Nasdaq-2017-128) 
(approving the listing and trading of shares of the Western Asset 
Total Return ETF).
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    Also as discussed above, the Fund's investments in Eurodollar and 
G-7 Sovereign Futures and Options will not comply with the 65% and 35% 
concentration limits in BZX Rule 14.11(4)(C)(iv)(b). The Commission 
believes that manipulation concerns relating to the Shares are 
sufficiently mitigated because Eurodollar and G-7 Sovereign Futures and 
Options are highly liquid and will be listed on an exchange that is an 
ISG member or an exchange with which the Exchange has a comprehensive 
surveillance sharing agreement. In addition, the Exchange represents 
that all other listed derivatives that the Fund may invest in will 
comply with the concentration requirements set forth in the Generic 
Listing Standards.\27\ The Commission notes that it recently approved a 
similar exception to the Generic Listing Standards for an issue of 
Managed Fund Shares permitted to invest in Eurodollar and G-7 Sovereign 
Futures and Options.\28\
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    \27\ See Amendment No. 1, at 47-48.
    \28\ See supra note 26.
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    Finally, the Fund's investments in Equity Holdings will not comply 
with the Generic Listing Standards for equity securities set forth in 
BZX Rule 14.11(i)(4)(C)(i). The Commission believes that manipulation 
concerns relating to the Shares are sufficiently mitigated because the 
Equity Holdings would be acquired only by virtue of the Fund's other 
holdings and the Fund would not purchase the Equity Holdings, the Fund 
would dispose of the Equity Holdings as the Adviser determines is in 
the best interest of the Fund's shareholders, and the Equity Holdings 
would be limited to 10% of the Fund's assets.\29\
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    \29\ See Amendment No. 1, at 48.
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    In support of this proposal, the Exchange has also made the 
following representations:
    (1) The Shares will be subject to BZX Rule 14.11(i), which sets 
forth the continued listing criteria applicable to Managed Fund Shares. 
Other than as described above, the Fund will continue to satisfy all of 
the Generic Listing Standards under BZX Rule 14.11(i)(4)(c) and all 
other continued listing requirements of BZX Rule 14.11(i).
    (2) The Exchange's 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.
    (3) The Exchange, FINRA, on behalf of the Exchange, or both will 
communicate, and may obtain information, regarding trading in the 
Shares and the underlying listed instruments, including listed 
derivatives and certain Equity Holdings, 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. 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. Trade price and other information relating to 
municipal securities is available through the Municipal Securities 
Rulemaking Board's Electronic Municipal Market Access system.
    (4) 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). 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 described above and the 
Fund's use of derivative instruments will be collateralized.
    (5) 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 asset, and intraday indicative values, 
and the applicability of Exchange rules specified in this filing shall 
constitute continued listing requirements for the Fund.
    (6) The issuer 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.
    (7) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (8) The issuer of the Fund is required to comply with Rule 10A-3 
under the Act \30\ for the initial and continued listing of the Shares.
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    \30\ See 17 CFR 240.10A-3.
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    This approval order is based on all of the Exchange's 
representations, including those set forth above and in Amendment No. 
1.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act \31\ and Section 11A(a)(1)(C)(iii) of the Act \32\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.
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    \31\ 15 U.S.C. 78f(b)(5).
    \32\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 to 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-2019-016 on the subject line.

[[Page 17906]]

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-2019-016. 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-2019-016, and should be 
submitted on or before May 17, 2019.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. The Commission notes that Amendment No. 1 
clarifies the proposed investments of the Fund, including any 
limitations on such investments. Amendment No. 1 also provides other 
clarifications and additional information to the proposed rule 
change.\33\ The changes and additional information in Amendment No. 1 
assist the Commission in finding that the proposal is consistent with 
the Act. Accordingly, the Commission finds good cause, pursuant to 
Section 19(b)(2) of the Act,\34\ to approve the proposed rule change, 
as modified by Amendment No. 1, on an accelerated basis.
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    \33\ See supra note 4.
    \34\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\35\ that the proposed rule change (SR-CboeBZX-2019-016), as 
modified by Amendment No. 1, be, and it hereby is, approved on an 
accelerated basis.
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    \35\ 15 U.S.C. 78s(b)(2).

    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. 2019-08400 Filed 4-25-19; 8:45 am]
 BILLING CODE 8011-01-P


