[Federal Register Volume 84, Number 167 (Wednesday, August 28, 2019)]
[Notices]
[Pages 45184-45188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18484]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86737; File No. SR-CboeBZX-2019-044]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change 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

August 22, 2019.

I. Introduction

    On May 15, 2019, Cboe BZX Exchange, Inc. (``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 allow the 
JPMorgan Core Plus Bond ETF of the J.P. Morgan Exchange-Traded Fund 
Trust (``Trust'') to hold certain instruments in a manner that may not 
comply with BZX Rule 14.11(i), Managed Fund Shares. The proposed rule 
change was published for comment in the Federal Register on June 3, 
2019.\3\ On July 10, 2019, pursuant to Section 19(b)(2) of the Act,\4\ 
the Commission extended the time period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change.\5\ The Commission has received no comment letters on the 
proposed rule change. The Commission is publishing this order to 
institute proceedings pursuant to Section 19(b)(2)(B) of the Act \6\ to 
determine whether to approve or disapprove the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 85948 (May 28, 
2019), 84 FR 25579 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 86348, 84 FR 34040 
(July 16, 2019). The Commission designated September 1, 2019, as the 
date by which the Commission shall approve, disapprove, or institute 
proceedings to determine whether to approve or disapprove the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Description of the Proposal

    The Shares began trading on the Exchange on January 30, 2019, 
pursuant to the generic listing standards applicable to Managed Fund 
Shares under Rule 14.11(i) (``Generic Listing Standards'') and are 
currently listed on the Exchange pursuant to a rule filing that was 
approved by the Commission on April 22, 2019 granting certain 
exceptions to the Generic Listing Standards.\7\ The Original Approval 
Order allows the Fund to hold instruments in a manner that may not 
comply with Rule 14.11(i)(4)(C)(ii)(d),\8\ Rule 
14.11(i)(4)(C)(iv)(b),\9\ and Rule 14.11(i)(4)(C)(i).\10\ Otherwise, 
the Exchange represents that the Fund complies with all other listing 
requirements on an initial and continued listing basis under Rule 
14.11(i).
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 85701 (April 22, 
2019) (SR-CboeBZX-2019-016) (``Original Approval Order'').
    \8\ Rule 14.11(i)(4)(C)(ii)(d) provides 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 Original Approval Order 
allows the fixed income portion of the portfolio excluding ABS and 
Private MBS, as defined below, to satisfy this 90% requirement.
    \9\ 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 
Original Approval Order allows the Fund to be exempt from this 
requirement as it relates to the Fund's holdings in Eurodollar and 
G-7 Sovereign Futures and Options (as defined in the Original 
Approval Order). Pursuant to the Original Approval Order, the Fund 
may also hold other listed derivatives, which include only the 
following: Debt futures, interest rate futures, index futures, 
foreign exchange futures, equity options, equity futures, Treasury 
options, options on Treasury futures, interest rate swaps, foreign 
exchange options, foreign exchange swaps, credit default swaps 
(including single-name and index reference pools), loan credit 
default swap indices, and inflation-linked swaps; however such 
holdings will, 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).
    \10\ The Original Approval Order allows the Fund to be issued 
certain equity instruments (``Equity Holdings'') that may not meet 
the requirements of Rule 14.11(i)(4)(C)(i), which sets forth generic 
listing standards for equity securities held by a fund listed under 
Rule 14.11(i). Pursuant to the Original Approval Order, the Fund 
will not purchase Equity Holdings and will dispose of such holdings 
as the Adviser determines is in the best interest of the Fund's 
shareholders, and 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.
---------------------------------------------------------------------------

    While the Fund currently meets all of the continued listing 
requirements

[[Page 45185]]

applicable under the Original Approval Order, the Exchange states that 
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 certain requirements 
under the Generic Listing Standards, in addition to the ones described 
in the Original Approval Order, as further described below. The 
Exchange states that the Fund will continue to meet the continued 
listing obligations under the Original Approval Order until and unless 
this proposal is approved.

A. Description of the Fund

    The Shares are offered by the Trust, which was established as a 
Delaware statutory trust.\11\ J.P Morgan Investment Management, Inc. is 
the investment adviser (``Adviser'') to the Fund.\12\ JPMorgan Chase 
Bank, N.A. is the administrator, custodian, and transfer agent for the 
Trust and JPMorgan Distribution Services, Inc. serves as the 
distributor for the Trust.
---------------------------------------------------------------------------

    \11\ The Exchange represents that the Trust is registered under 
the Investment Company Act of 1940 (``1940 Act''). On January 23, 
2019, the Trust filed with the Commission its registration statement 
(``Registration Statement'') on Form N-1A under the Securities Act 
of 1933 and under the 1940 Act relating to the Fund (File Nos. 333-
191837 and 811-22903). In addition, the Exchange represents that the 
Trust has obtained an order from the Commission granting certain 
exemptive relief under the 1940 Act. See Investment Company Act 
Release No. 30029 (February 9, 2016) (File No. 812-13761).
    \12\ According to the Exchange, 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.
---------------------------------------------------------------------------

    According to the Exchange, the Fund is an actively managed 
exchange-traded fund that will seek a high level of current income by 
investing primarily in a diversified portfolio of high, medium, and 
low-grade debt securities. The Fund seeks to achieve its investment 
objective by investing, under Normal Market Conditions,\13\ at least 
80% of its net assets in Bonds.\14\ Among others, such securities 
include (i) U.S. or foreign mortgage-backed securities (``MBS''); \15\ 
and (ii) U.S. or foreign asset-backed securities (``ABS'').\16\
---------------------------------------------------------------------------

    \13\ 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. 
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.
    \14\ For purposes of the proposal, the term ``Bond'' includes 
only the following: Corporate bonds, U.S. government and agency debt 
securities, asset-backed securities, municipal securities, credit 
linked notes, participation notes, collateralized debt obligations, 
agency, non-agency and stripped mortgage-related and mortgage-backed 
securities (including adjustable rate mortgage loans), 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 Adviser 
intends to hold asset-backed securities, mortgage-related and 
mortgage-backed securities as part of a strategy designed to manage 
portfolio risk by diversifying away from corporate debt and to take 
advantage of certain market environments.
    \15\ The Exchange states that for purposes of this 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 government-sponsored entities) (``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.
    \16\ 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 this filing, ABS exclude: (i) MBS; (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. As described 
below, the holdings of the Fund may not meet from the requirements 
of Rule 14.11(i)(4)(C)(ii)(e) in that the Fund's holdings in ABS and 
Private MBS (together, ``ABS and Private MBS'') may reach up to 40% 
of the weight of the fixed income portion of the Fund's portfolio.
---------------------------------------------------------------------------

    Under Normal Market Conditions, the Fund may also invest up to 20% 
of its net assets in (i) cash and certain Cash Equivalents\17\ that are 
not otherwise captured under the definition of Bond, (ii) listed 
derivative instruments,\18\ and OTC derivative instruments.\19\ The 
Fund's holdings in Cash Equivalents and OTC derivative instruments will 
be in compliance with the limitations provided in Rules 
14.11(i)(4)(C)(iii) and 14.11(i)(4)(C)(v), respectively, and both 
listed and OTC derivative instruments will be in compliance with the 
limitations of Rule 14.11(i)(4)(C)(vi).\20\
---------------------------------------------------------------------------

    \17\ ``Cash Equivalents'' are defined in BZX Rule 
14.11(i)(4)(C)(iii)(b).
    \18\ See supra note 9.
    \19\ The Exchange states that for purposes of this filing, OTC 
derivative instruments include only the following: Index options, 
foreign exchange options, swaptions, credit default swaps (including 
single-name and index reference pools), foreign exchange swaps, loan 
credit default swap indices, inflation-linked swaps, interest rate 
swaps, non-dollar swaps, non-deliverable forward contracts and 
foreign exchange forward contracts.
    \20\ As noted above and allowed under the Original Approval 
Order, the Fund may by virtue of its Bond holdings be issued certain 
Equity Holdings that may not meet the requirements of Rule 
14.11(i)(4)(C)(i). See supra note 10.
---------------------------------------------------------------------------

    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. 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.
    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).\21\ 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

[[Page 45186]]

(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. The Fund's use of derivative instruments 
will be collateralized.
---------------------------------------------------------------------------

    \21\ 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 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.
---------------------------------------------------------------------------

B. Proposed Modifications to the Application of Generic Listing 
Standards

    The Exchange states that it is submitting this proposal in order to 
allow the Fund to hold instruments in a manner that may not comply with 
Rule 14.11(i)(4)(C)(ii)(a) \22\ and Rule 14.11(i)(4)(C)(ii)(e).\23\ 
Except for such requirements and except for the exceptions to the 
Generic Listing Standards provided in the Original Approval Order,\24\ 
the Exchange states that the Fund will meet all requirements under Rule 
14.11(i).
---------------------------------------------------------------------------

    \22\ Rule 14.11(i)(4)(C)(ii)(a) provides that ``components that 
in the aggregate account for at least 75% of the fixed income weight 
of the portfolio must each have a minimum original principal amount 
outstanding of $100 million or more.'' The Exchange instead is 
proposing that the components that in the aggregate account for at 
least 60% of the fixed income weight of the portfolio will each have 
a minimum original principal outstanding of $100 million or more.
    \23\ Rule 14.11(i)(4)(C)(ii)(e) provides 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,'' (``20% Restriction''). The Exchange is 
proposing that the Fund be permitted to hold up to 40% of the weight 
of the fixed income portion of the portfolio in non-agency, non-GSE 
and privately-issued mortgage-related and other asset-backed 
securities.
    \24\ As discussed above, the Original Approval Order provides 
exceptions to Rules 14.11(i)(4)(C)(ii)(d), 14.11(i)(4)(C)(iv)(b), 
and 14.11(i)(4)(C)(i) for the Fund.
---------------------------------------------------------------------------

    With respect to Rule 14.11(i)(4)(C)(ii)(a), the Exchange is 
proposing to reduce from 75% to 60% the weight of the fixed income 
portion of the portfolio that would be required to have a minimum 
original principal amount outstanding of $100 million or more. The 
Exchange states that, based on the types of securities held by the 
Fund, it believes such a proposal is not such a significant change in 
the composition of the fixed income portion of the portfolio as to 
meaningfully undercut the policy rationale underlying the rule. The 
Exchange states that Rule 14.11(i)(4)(C)(ii)(a) is intended to ensure 
that the fixed income holdings of a series of Managed Fund Shares are 
sufficiently large as to prevent manipulation in the underlying 
holdings. The Exchange states that the types of fixed income securities 
held by the Fund will often be in tranches of less than $100 million 
dollars; however, many such securities would be part of a deal with an 
underlying collateral pool well over a $100 million dollars, and often 
greater than $500 million, making them less susceptible to manipulation 
than many other securities with a minimum original principal greater 
than $100 million. The Exchange states that the total deal size of many 
of the securities held by the Fund are significantly larger than the 
tranches on which the testing for the rule is based and would mitigate 
the concerns that Rule 14.11(i)(4)(C)(ii)(a) is intended to address. 
The Exchange further states that the proposed change represents a 
slight reduction to the applicable standard, which, combined with the 
other reasons described above, the Exchange believes will continue to 
mitigate the policy concerns that Rule 14.11(i)(4)(C)(ii)(a) is 
intended to address.
    The Exchange is also proposing to allow the Fund to hold up to 40% 
of the weight of the fixed income portion of its portfolio in ABS and 
Private MBS. The Exchange states that such holdings are part of a 
strategy designed to manage the Fund's portfolio risk by diversifying 
away from corporate debt and to take advantage of certain market 
environments. The Exchange states that this strategy will be actively 
managed by the Adviser and will adapt to both changing market 
environments and shifts in the underlying holdings of the Fund, but 
would be overly limited by the restriction in Rule 
14.11(i)(4)(C)(ii)(e) that prevents the Fund from holding more than 20% 
of the portfolio in ABS and Private MBS. The Exchange states that the 
Fund will utilize ABS and Private MBS as a means to diversify its 
portfolio of Bonds, which is intended to lower the volatility of the 
portfolio through a market cycle (typically three to five years). The 
Exchange also states that greater exposure to the ABS and Private MBS 
would allow the Fund the flexibility to fully implement its risk 
mitigation strategy, while still limiting the Fund's holdings in ABS 
and Private MBS to 40% of the fixed income portion of the portfolio.
    Further, because the Exchange is proposing to allow the Fund's 
holdings in ABS and Private MBS to increase from 20% to 40% of the 
fixed income portion of the portfolio, as described above, the 
circumstances under which the exception to Rule 14.11(i)(4)(C)(ii)(d) 
was approved in the Original Approval Order would also be changed. The 
Original Approval Order provided that the requirements of Rule 
14.11(i)(4)(C)(ii)(d) \25\ would apply only to the Fund's holdings in 
fixed income securities that are not ABS and Private MBS, and holdings 
in ABS and Private MBS would be limited to 20% of the fixed income 
portion of the portfolio. The Exchange states that it believes 
continuing to allow this exception to the Generic Listing Requirements 
is consistent with the Act even though the Exchange is proposing to 
increase the Fund's permitted holdings in ABS and Private MBS to 40% of 
the weight of the fixed income portion of the portfolio. The Exchange 
states that the risk of manipulation of the Fund's investments in ABS 
and Private MBS is mitigated because the Adviser expects that all of 
its fixed income holdings will issue Statements to Noteholders on a no 
less frequent than quarterly basis.\26\ Further, the Adviser represents 
that permitting limited investments in ABS and Private MBS, as 
described above, would be in

[[Page 45187]]

the best interest of the Fund's shareholders because such investments 
have the potential to reduce the overall risk profile of the Fund's 
portfolio through diversification while ensuring that the policy 
concerns that Rule 14.11(i)(4)(C)(ii)(d) is intended to address are 
mitigated. As such, the Exchange states that while the Fund would not 
technically meet the requirements of Rule 14.11(i)(4)(C)(ii)(d), the 
policy concerns related to the transparency and availability of 
information regarding the fixed income securities held by a fund that 
the rule is intended to address are otherwise mitigated by the 
availability of Statements to Noteholders.
---------------------------------------------------------------------------

    \25\ See supra note 8.
    \26\ While the Adviser expects that all of its fixed income 
holdings will issue Statements to Noteholders, it cannot guarantee 
that the holdings will issue Statements to Noteholders. While Rule 
14.11(i)(4)(C)(ii)(d) subparagraph (a) includes in the 90% 
calculation all fixed income securities that are required to file 
reports pursuant to Sections 13 or 15(d) of the Act, many fixed 
income securities include in the bond indenture a requirement that 
the issuer make a public disclosure of a Statement to Noteholders 
even where they are not required to file such reports. Rule 
14.11(i)(4)(C)(ii)(d) is intended to ensure that there is sufficient 
public information about the issuances and/or issuers of the fixed 
income securities held by a series of Managed Fund Shares. A 
Statement to Noteholders generally includes the same pieces of 
information about an issuer and issuance that would be included in 
Form 10D. Statements to Noteholders also typically include the 
following types of information: (1) The amount of the 
distribution(s) allocable to interest on the notes; (2) the amount 
of the distribution(s) allocable to principal of the notes; (3) the 
note balance, after taking into account all payments to be made on 
such distribution date; (4) the servicing fee paid and/or due but 
unpaid as of such distribution date; (5) the pool balance and 
required overcollateralization amount as of the close of business on 
the last day of the related collection period; (6) the reserve fund 
amount, the reserve fund required amount and the reserve fund draw 
amount; (7) the amount of the aggregate realized losses on the 
loans, if any, for the preceding collection period and the 
cumulative default ratio; (8) whether an amortization event will 
exist as of such distribution date; (9) the aggregate repurchase 
prices for loans, if any, that were repurchased by the seller during 
the related collection period; (10) the amount of fees payable to 
all parties pursuant to the indenture; (11) any and all other fees, 
expenses, indemnities or taxes payable by the issuer or the grantor 
trust (including reserved amounts for payments required to be made 
before the next distribution date); (12) the payments to the 
certificate holders; and (13) during a pre-funding period, the 
amount on deposit in the pre-funding account as of the close of 
business on the last day of the related collection period, and the 
pool balance of subsequent loans purchased during the related 
collection period, and following the pre-funding period, the amount 
of principal payments made on each class of notes from amounts on 
deposit in the pre-funding account.
---------------------------------------------------------------------------

    The Exchange represents that: (1) Except as described above, the 
Fund will continue to satisfy all of the continued listing obligations 
applicable under the Original Approval Order; (2) the continued listing 
standards under Rule 14.11(i) will apply to the Shares of the Fund; (3) 
the Fund will adhere to its stated investment objective under Normal 
Market Conditions; and (4) the issuer of the Fund is required to comply 
with Rule 10A-3 under the Act \27\ for the initial and continued 
listing of the Shares. In addition, the Exchange represents that the 
Fund will meet and be subject to all other requirements of the Generic 
Listing Standards and other applicable continued listing requirements 
for Managed Fund Shares under Exchange Rule 14.11(i), including those 
requirements regarding the Disclosed Portfolio (as defined in the 
Exchange rules) and the requirement that the Disclosed Portfolio and 
the net asset value will be made available to all market participants 
at the same time,\28\ intraday indicative value,\29\ suspension of 
trading or removal,\30\ trading halts,\31\ disclosure,\32\ and 
firewalls.\33\
---------------------------------------------------------------------------

    \27\ 17 CFR 240.10A-3.
    \28\ See Exchange Rules 14.11(i)(4)(A)(ii) and 
14.11(i)(4)(B)(ii).
    \29\ See Exchange Rule 14.11(i)(4)(B)(i).
    \30\ See Exchange Rule 14.11(i)(4)(B)(iii).
    \31\ See Exchange Rule 14.11(i)(4)(B)(iv).
    \32\ See Exchange Rule 14.11(i)(6).
    \33\ See Exchange Rule 14.11(i)(7).
---------------------------------------------------------------------------

III. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2019-044 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \34\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the proposal. 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.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\35\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposal'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.'' \36\
---------------------------------------------------------------------------

    \35\ Id.
    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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,\37\ in addition to any other comments they may wish to 
submit about the proposed rule change. In particular, the Commission 
seeks comment on the following questions and asks commenters to submit 
data where appropriate to support their views.
---------------------------------------------------------------------------

    \37\ See Notice, supra note 3.
---------------------------------------------------------------------------

    If the listing rule for the Shares were amended as proposed, would 
the listing rule continue to ensure that a substantial portion of the 
Fund's portfolio consists of fixed income securities for which 
information is publicly available? If not, are there reasons why it may 
not be necessary that information be publicly available for ABS and 
Private MBS (as distinguished from other types of fixed income 
securities)?
    Would the proposed increased investment in ABS and Private MBS by 
the Fund increase the susceptibility of the Shares to manipulation? If 
so, why; if not, why not? If the Fund's permitted investments were 
expanded to the extent proposed, would any other restrictions on the 
Fund's permitted investments be appropriate in order for the proposed 
rule change to be consistent with Section 6(b)(5) of the Act?
    Would the proposal to lower the application of the requirement to 
have a minimum original principal amount outstanding of $100 million 
from 75% to 60% of the weight of the fixed income portion of the Fund's 
portfolio increase the susceptibility of the Shares to manipulation? If 
so, why; if not, why not?

IV. 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 proposed rule change 
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 under the Act,\38\ any 
request for an opportunity to make an oral presentation.\39\
---------------------------------------------------------------------------

    \38\ 17 CFR 240.19b-4.
    \39\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts 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 Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by September 18, 2019. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
October 2, 2019.
    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 rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-044 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CboeBZX-2019-044. 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

[[Page 45188]]

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 a.m. and 3 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-2019-044 and should be submitted by September 18, 2019. 
Rebuttal comments should be submitted by October 2, 2019.
---------------------------------------------------------------------------

    \40\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18484 Filed 8-27-19; 8:45 am]
 BILLING CODE 8011-01-P


