[Federal Register Volume 84, Number 236 (Monday, December 9, 2019)]
[Notices]
[Pages 67327-67332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26406]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87651; File No. SR-CboeBZX-2019-099]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Allow 
the Hartford Short Duration ETF To Hold Certain Fixed Income 
Instruments in a Manner That Does Not Comply With Rule 14.11(i)

December 3, 2019.
    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 20, 2019, Cboe BZX Exchange, Inc. (``Exchange'') 
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 Exchange filed the proposal as 
a ``non-controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The 
Commission is publishing this notice to solicit

[[Page 67328]]

comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to allow the Hartford Short Duration ETF (the ``Fund''), a 
series of Hartford Funds Exchange-Traded Trust (the ``Trust''), to hold 
certain fixed income instruments in a manner that does not comply with 
Rule 14.11(i) (``Managed Fund Shares'').
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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 Shares are currently listed on the Exchange pursuant to the 
generic listing standards under Rule 14.11(i) governing Managed Fund 
Shares and comply with the generic listing standards.\5\ The Exchange 
proposes to continue listing and trading the Shares. The Shares would 
continue to comply with all of the generic listing standards after 
effectiveness of this proposal with the exception of the requirement of 
Rule 14.11(i)(4)(C)(ii)(d), that requires that component securities 
that in aggregate account for at least 90% of the fixed income weight 
of the portfolio to satisfy at least one of five conditions. 
Specifically, the Exchange submits 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)(d),\6\ as further described below. The Exchange 
notes that this proposed exception to Rule 14.11(i)(4)(C)(ii)(d) is 
substantively identical to an exception included in two other rule 
filings that have been approved by the Commission.\7\
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    \5\ 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).
    \6\ 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 Exchange instead is 
proposing that the fixed income portion of the portfolio excluding 
Non-Agency ABS, as defined below, will satisfy this 90% requirement.
    \7\ See Securities Exchange Act Release Nos. 84047 (September 6, 
2018), 83 FR 46200 (September 12, 2018) (SR-NASDAQ-2017-128) (the 
``Nasdaq Approval Order''); and 85701 (April 22, 2019), 84 FR 17902 
(April 26, 2019) (SR-CboeBZX-2019-016) (the ``Exchange Approval 
Order'').
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    The Shares are offered by the Trust, which was established as a 
Delaware statutory trust on September 20, 2010. 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 with the 
Commission.\8\ Hartford Funds Management Company LLC acts as adviser to 
the Fund (the ``Adviser'').
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    \8\ The Trust filed a post-effective amendment to the 
Registration Statement on March 1, 2019 (the ``Registration 
Statement''). See Registration Statement on Form N-1A for the Trust 
(File Nos. 333-215165 and 811-23222). The descriptions of the Fund 
and the Shares contained herein are based, in part, on information 
included in the Registration Statement. The Commission has issued an 
order granting certain exemptive relief to the Trust and affiliated 
persons under the Investment Company Act of 1940 (the ``1940 Act'') 
(15 U.S.C. 80a-1). See Investment Company Act Release No. 30695 
(September 24, 2013) (File No. 812-14178).
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    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 a broker-dealer 
and has implemented and will maintain ``fire walls'' with respect to 
such broker-dealer 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

[[Page 67329]]

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 Exchange represents that the Shares of the Fund will continue 
to comply with all other requirements applicable to Managed Fund 
Shares, which include the dissemination of key information such as the 
Disclosed Portfolio,\10\ Net Asset Value,\11\ and the Intraday 
Indicative Value,\12\ suspension of trading or removal,\13\ trading 
halts,\14\ surveillance,\15\ minimum price variation for quoting and 
order entry,\16\ the information circular,\17\ and firewalls \18\ as 
set forth in Exchange rules applicable to Managed Fund Shares and the 
orders approving such rules. The Trust is also required to comply with 
Rule 10A-3 under the Act for the continued listing of the Shares of the 
Fund. The Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
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    \10\ See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \11\ See Rule 14.11(i)(4)(A)(ii).
    \12\ See Rule 14.11(i)(4)(B)(i).
    \13\ See Rule 14.11(i)(4)(B)(iii).
    \14\ See Rule 14.11(i)(4)(B)(iv).
    \15\ See Rule 14.11(i)(2)(C).
    \16\ See Rule 14.11(i)(2)(B).
    \17\ See Rule 14.11(i)(6).
    \18\ See Rule 14.11(i)(7).
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Hartford Short Duration ETF
    The Fund seeks to provide current income and long-term total 
return. In order to achieve its investment objective, under Normal 
Market Conditions,\19\ the Fund will invest primarily in investment 
grade and non-investment grade fixed income securities, as described in 
Rule 14.11(i)(4)(C)(ii). Under Normal Market Conditions, the Fund will 
invest the majority of its net assets in fixed income securities, 
including bank loans or loan participations. Such holdings in fixed 
income securities currently meet the requirements for fixed income 
instruments in Rule 14.11(i)(4)(C)(ii) and will continue to meet all of 
the requirements of Rule 14.11(i)(4)(C)(ii) except for Rule 
14.11(i)(4)(C)(ii)(d), as discussed in more detail below.
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    \19\ As provided 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.
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    Among others, such fixed income securities that may be held by the 
Fund include non-agency, non-GSE,\20\ and privately-issued mortgage-
related and other asset-backed securities (collectively, ``Non-Agency 
ABS''), which it generally expects to include (but not be limited to) 
the following sectors: Private mortgage backed securities, commercial 
mortgage backed securities, asset-backed securities (including autos, 
credit cards, equipment, consumer loans), and collateralized loan 
obligations. In accordance with Rule 14.11(i)(4)(C)(ii)(e), the Fund's 
holdings in Non-Agency ABS do not currently and will not in the future 
account for more than 20% of the weight of the fixed income portion of 
the portfolio, in the aggregate.
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    \20\ A ``GSE'' is a type of financial services corporation 
created by the United States Congress. GSEs include Fannie Mae and 
Freddie Mac, but not Sallie Mae, which is no longer a government 
entity.
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    The Fund will also generally invest up to 20% of its assets in cash 
and Cash Equivalents,\21\ listed derivatives,\22\ and OTC 
derivatives,\23\ although such holdings may exceed 20%. The Fund's 
holdings in cash and Cash Equivalents, listed derivatives, and OTC 
derivatives will be in compliance with all generic listing standards, 
including those in Rules 14.11(i)(4)(C)(iii), 14.11(i)(4)(C)(iv), 
14.11(i)(4)(C)(v), and 14.11(i)(4)(C)(vi), respectively.
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    \21\ 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.
    \22\ For purposes of this filing, listed derivatives include 
only the following instruments: Treasury futures, U.S. interest rate 
futures, and Eurodollar futures.
    \23\ For purposes of this filing, OTC derivatives include only 
the following instruments: Interest rate swaps, currency forwards, 
and credit default swap indices.
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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).\24\ 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. The Fund's use of 
derivative instruments will be collateralized.
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    \24\ 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. 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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Discussion
    While the Fund currently meets all of the generic listing standards 
under Rule 14.11(i), if the Fund had full flexibility to invest in a 
manner consistent with its investment strategy, it might not meet the 
requirements of Rule 14.11(i)(4)(C)(ii)(d) because certain Non-Agency 
ABS by their nature cannot satisfy these requirements. As described 
above, the Exchange is instead proposing that the fixed income portion 
of the portfolio excluding Non-Agency ABS will satisfy this 90% 
requirement. The Exchange believes that this alternative limitation is 
appropriate because Rule 14.11(i)(4)(C)(ii)(d) is not designed for 
structured finance vehicles such as Non-Agency ABS and the overall 
weight of the Non-Agency ABS held by the Fund will be limited to 20% of 
the fixed income portion of the Fund's portfolio as required under Rule 
14.11(i)(4)(C)(ii)(e). The Exchange also notes that the Fund's 
portfolio is consistent with the policy issues underlying the rule as a 
result of the diversification provided by the investments and the 
Adviser's selection process, which closely monitors investments to 
ensure maintenance of credit and liquidity standards. As noted above, 
the remainder of the fixed income securities held by the Fund will 
satisfy the requirements of Rule 14.11(i)(4)(C)(ii)(d) and the 
remainder of the Fund's portfolio, including fixed income securities, 
will meet all other applicable generic listing standards under Rule 
14.11(i)(4)(C). Further, allowing the Fund full flexibility to 
implement its fixed income strategy and further diversify its holdings 
to provide

[[Page 67330]]

exposure to a broader array of fixed income securities would allow the 
Fund to better achieve its investment objective and, as such, benefit 
both existing and future investors in the Fund.
    The Exchange represents that the Shares of the Fund will continue 
to comply with all other requirements applicable to Managed Fund 
Shares, which include the dissemination of key information such as the 
Disclosed Portfolio,\25\ Net Asset Value,\26\ and the Intraday 
Indicative Value,\27\ suspension of trading or removal,\28\ trading 
halts,\29\ surveillance,\30\ minimum price variation for quoting and 
order entry,\31\ the information circular,\32\ and firewalls \33\ as 
set forth in Exchange rules applicable to Managed Fund Shares and the 
orders approving such rules. The Exchange may obtain information 
regarding trading in the Shares and the underlying futures contracts 
via the Intermarket Surveillance Group (``ISG'') from other exchanges 
who are a member of ISG or affiliated with a member of ISG or with 
which the Exchange has entered into a comprehensive surveillance 
sharing agreement.\34\ 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''). 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 (as applicable), or the applicability of Exchange 
listing rules specified in this filing shall constitute continued 
listing requirements for the Shares. The Fund has represented to the 
Exchange that it will advise the Exchange of any failure by the Fund or 
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. FINRA 
conducts certain cross-market surveillances on behalf of the Exchange 
pursuant to a regulatory services agreement. The Exchange is 
responsible for FINRA's performance under this regulatory services 
agreement. If the Fund is not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures with 
respect to such Fund under Exchange Rule 14.12.
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    \25\ See Rule 14.11(i)(4)(A)(ii) and 14.11(i)(4)(B)(ii).
    \26\ See Rule 14.11(i)(4)(A)(ii).
    \27\ See Rule 14.11(i)(4)(B)(i).
    \28\ See Rule 14.11(i)(4)(B)(iii).
    \29\ See Rule 14.11(i)(4)(B)(iv).
    \30\ See Rule 14.11(i)(2)(C).
    \31\ See Rule 14.11(i)(2)(B).
    \32\ See Rule 14.11(i)(6).
    \33\ See Rule 14.11(i)(7).
    \34\ 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 under 
Rule 14.11(i) related to Disclosed Portfolio, NAV, and the intraday 
indicative value. Intraday price quotations on fixed income securities 
and OTC derivative instruments are 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. Additionally, the intraday, 
closing and settlement prices of futures contracts held by the Fund 
will be readily available from the exchanges on which such products are 
listed, automated quotation systems, published or other public sources, 
or online information services such as Bloomberg or Reuters. Price 
information for Cash Equivalents will be available from major market 
data vendors. The Disclosed Portfolio will be available on the Fund's 
website (www.hartfordfunds.com) free of charge. The Fund's website will 
include 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. Information regarding the previous day's 
closing price and trading volume for the Shares will be published daily 
in the financial section of newspapers. 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. The Exchange prohibits the distribution of 
material non-public information by its employees. Quotation and last 
sale information for the Shares will be available via the CTA high-
speed line.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \35\ in general and Section 6(b)(5) of the Act \36\ 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 in that the Shares will meet each of the continued 
listing criteria in BZX Rule 14.11(i) with the exception of Rule 
14.11(i)(4)(C)(ii)(d) as specifically discussed herein.
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    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(5).
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    While the Fund currently meets all of the generic listing standards 
under Rule 14.11(i), if the Fund were permitted full flexibility to 
invest consistent with its investment strategy, it might not meet the 
requirements of Rule 14.11(i)(4)(C)(ii)(d) because certain Non-Agency 
ABS by their nature cannot satisfy these requirements. The Exchange 
believes that excluding Non-Agency ABS from this calculation is 
consistent with the Act because the Fund's portfolio will minimize the 
risk associated with any particular holding of the Fund as a result of 
the diversification provided by the investments and the Adviser's 
selection process, which closely monitors investments to ensure 
maintenance of credit and liquidity standards. Further, the Exchange 
believes that this alternative limitation is appropriate because Rule 
14.11(i)(4)(C)(ii)(d) is not designed for structured finance vehicles 
such as Non-Agency ABS and the overall weight of the Non-Agency ABS 
held by the Fund will be limited to 20% of the fixed income portion of 
the Fund's portfolio as required under Rule 14.11(i)(4)(C)(ii)(e). The 
Exchange also notes that the Fund's portfolio will meet all of the 
other generic listing standards applicable under Rule 14.11(i), which 
will further act to mitigate the manipulation concerns which the rules 
are intended to address. Further, the other fixed income instruments, 
excluding Non-Agency ABS, held by the Fund will satisfy the 90% 
requirement under Rule 14.11(i)(4)(C)(ii)(d). Consistent with Rule 
14.11(i)(4)(C)(ii)(e), the Non-Agency ABS held by the Fund will not 
account, in the aggregate, for more than 20% of

[[Page 67331]]

the weight of the fixed income portion of the portfolio.
    As noted above, the remainder of the Fund's portfolio, including 
fixed income securities, will meet all other applicable generic listing 
standards under Rule 14.11(i)(4)(C). Allowing the Fund full flexibility 
to implement its fixed income strategy and further diversify its 
holdings to provide exposure to a broader array of fixed income 
securities would allow the Fund to better achieve its investment 
objective and, as such, benefit both existing and future investors in 
the Fund.
    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. 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 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. The Adviser is not a registered broker-dealer, but is 
affiliated with a broker-dealer and has implemented and will maintain 
``fire walls'' with respect to such broker-dealer 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. 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 TRACE. The Exchange may obtain 
information regarding trading in the Shares via the ISG from other 
exchanges who are a member of ISG or affiliated with a member of ISG or 
with which the Exchange has entered into a comprehensive surveillance 
sharing agreement. The Exchange further 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 
dissemination of key information such as the Disclosed Portfolio, Net 
Asset Value, and the Intraday Indicative Value, suspension of trading 
or removal, trading halts, surveillance, minimum price variation for 
quoting and order entry, the information circular, and firewalls as set 
forth in Exchange rules applicable to Managed Fund Shares.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. Moreover, the Intraday 
Indicative Value will be disseminated by one or more major market data 
vendors at least every 15 seconds during Regular Trading Hours. On each 
business day, before commencement of trading in Shares during Regular 
Trading Hours, the Fund will disclose on its website the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day. The Fund's website will include additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior business day's NAV and the market closing price or 
mid-point of the Bid/Ask Price,\37\ and a calculation of the premium or 
discount of the market closing price or Bid/Ask Price against the NAV; 
and (2) data in chart format displaying the frequency distribution of 
discounts and premiums of the daily market closing price or Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. Additionally, information regarding market 
price and trading of the Shares will be continually available on a 
real-time basis throughout the day on brokers' computer screens and 
other electronic services, and quotation and last sale information for 
the Shares will be available on the facilities of the Consolidated Tape 
Association. The website for the Fund will include a form of the 
prospectus for the Fund and additional data relating to NAV and other 
applicable quantitative information. Trading in Shares of a Fund will 
be halted under the conditions specified in Rule 11.18. Trading may 
also be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable. Finally, 
trading in the Shares will be subject to Rule 14.11(i)(4)(B)(iv), which 
sets forth circumstances under which Shares may be halted. In addition, 
as noted above, investors will have ready access to information 
regarding the Fund's holdings, the Intraday Indicative Value, the 
Disclosed Portfolio, and quotation and last sale information for the 
Shares.
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    \37\ The Bid/Ask Price of a Fund will be determined using the 
highest bid and the lowest offer on the Exchange as of the time of 
calculation of the Fund's NAV. The records relating to Bid/Ask 
Prices will be retained by the Fund or its service providers.
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    Intraday price quotations on fixed income securities and OTC 
derivative instruments are 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. Additionally, the intraday, closing and 
settlement prices of futures contracts held by the Fund will be readily 
available from the exchanges on which such products are listed, 
automated quotation systems, published or other public sources, or 
online information services such as Bloomberg or Reuters. Price 
information for Cash Equivalents will be available from major market 
data vendors. The Exchange prohibits the distribution of material non-
public information by its employees.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the continued listing and 
trading of an actively-managed exchange traded product that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG, from other exchanges that are members of 
ISG, or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, the Exchange, or FINRA, on 
behalf of the Exchange, is able to access, as needed, trade information 
for certain fixed income instruments reported to TRACE. FINRA can also 
access data obtained from the Municipal Securities Rulemaking Board's 
Electronic Municipal Market Access system relating to municipal bond 
trading activity for surveillance purposes in connection with trading 
in the Shares. As noted above, investors will also have ready access to 
information regarding the Fund's holdings, the Intraday Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares.
    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.

[[Page 67332]]

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 fixed income strategy 
of an actively-managed exchange-traded product that will allow the Fund 
to better compete in the marketplace, thus enhancing 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

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \38\ and Rule 19b-4(f)(6) thereunder.\39\
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    \38\ 15 U.S.C. 78s(b)(3)(A).
    \39\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \40\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \41\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing.
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    \40\ 17 CFR 240.19b-4(f)(6).
    \41\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange represents that the Shares are currently listed on the 
Exchange pursuant to the generic listing standards under BZX Rule 
14.11(i) governing Managed Fund Shares and comply with the generic 
listing standards. The Exchange further represents that the Shares 
would continue to comply with all of the generic listing standards 
after effectiveness of this proposal, with the exception of BZX 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 to satisfy at least one of five conditions.\42\ The 
Commission notes that, in the context of holdings in Non-Agency ABS, 
the proposed exception to BZX Rule 14.11(i)(4)(C)(ii)(d) is consistent 
with an exception applied in other proposed rule changes that have been 
approved by the Commission.\43\ Accordingly, the Commission believes 
that the proposal raises no new or novel regulatory issues and that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest. The Commission therefore waives 
the 30-day operative delay and designates the proposed rule change to 
be operative upon filing.\44\
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    \42\ The Exchange also represents that the Shares of the Fund 
will continue to comply with all other requirements applicable to 
Managed Fund Shares, which include the dissemination of key 
information such as the Disclosed Portfolio, Net Asset Value, and 
the Intraday Indicative Value, suspension of trading or removal, 
trading halts, surveillance, minimum price variation for quoting and 
order entry, the information circular, and firewalls as set forth in 
Exchange rules applicable to Managed Fund Shares and the orders 
approving such rules. See supra notes 10-18 and accompanying text.
    \43\ See supra note 7.
    \44\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-099 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-2019-099. 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-2019-099 and should be submitted 
on or before December 30, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26406 Filed 12-6-19; 8:45 am]
 BILLING CODE 8011-01-P


