[Federal Register Volume 85, Number 12 (Friday, January 17, 2020)]
[Notices]
[Pages 3099-3101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00683]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87951; File No. SR-CboeBZX-2019-076]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade 
Shares of the Clearbridge Small Cap Value ETF Under BZX Rule 14.11(k)

January 13, 2020.
    On September 26, 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 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the Clearbridge Small Cap Value ETF (``Fund'') under 
BZX Rule 14.11(k) (Managed Portfolio Shares). On October 9, 2019, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
amended and replaced the rule change in its entirety. The proposed rule 
change, as modified by Amendment No. 1, was published for comment in 
the Federal Register on October 17, 2019.\3\ On November 21, 2019, 
pursuant to Section 19(b)(2) of the Exchange Act,\4\ the Commission 
designated a longer period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to disapprove the proposed rule change.\5\ The 
Commission has received no comments on the proposed rule change. This 
order institutes proceedings under Section 19(b)(2)(B) of the Exchange 
Act \6\ to determine whether to approve or disapprove the proposed rule 
change, as modified by Amendment No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 87286 (October 10, 
2019), 84 FR 55608 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 87581, 84 FR 65434 
(November 27, 2019). The Commission designated January 15, 2020, as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

I. Summary of the Exchange's Description of the Proposed Rule Change, 
as Modified by Amendment No. 1 \7\
---------------------------------------------------------------------------

    \7\ For a complete description of the Exchange's proposal, see 
the Notice, supra note 3.
---------------------------------------------------------------------------

    The Exchange proposes to list and trade Shares of the Fund under 
BZX Rule 14.11(k).\8\ The Shares will be issued by Precidian ETF Trust 
II (``Trust''), a statutory trust organized under the laws of the State 
of Delaware and registered with the Commission as an open-end 
management investment company.\9\ The investment adviser to the Trust 
will be Precidian Funds LLC (``Adviser'') and the sub-adviser to the 
Fund will be ClearBridge Investments, LLC (``Sub-Adviser'').\10\ Legg 
Mason Investor Services, LLC will serve as the distributor of the 
Shares.
---------------------------------------------------------------------------

    \8\ The Commission recently approved the Exchange's proposed 
rule change to adopt BZX Rule 14.11(k) to permit the listing and 
trading of Managed Portfolio Shares. See Securities Exchange Act 
Release No. 87759 (December 16, 2019), 84 FR 70223 (December 20, 
2019) (SR-CboeBZX-2019-047).
    \9\ According to the Exchange, the Trust is registered under the 
Investment Company Act of 1940 (``1940 Act'') and plans to file a 
registration statement on Form N-1A relating to the Fund. An order 
granting exemptive relief to the Trust was issued on May 20, 2019 
(File No. 812-14405) (``Exemptive Order''). The Exchange states that 
investments made by the Fund will comply with the conditions set 
forth in the Exemptive Order.
    \10\ The Exchange states that the Adviser is not registered as a 
broker-dealer or affiliated with a broker-dealer. The Exchange 
states that the Sub-Adviser is not registered as a broker-dealer, 
but is affiliated with a broker-dealer and has implemented and will 
maintain a ``fire wall'' with respect to such broker-dealer 
regarding access to information concerning the composition of and/or 
changes to the Fund's portfolio and Creation Basket (as such term is 
defined in BZX Rule 14.11(k). The Exchange further states that in 
the event (a) the Adviser or Sub-Adviser becomes registered as a 
broker-dealer or becomes newly affiliated with a 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 its 
broker-dealer affiliate regarding access to information concerning 
the composition of and/or changes to the portfolio and the Creation 
Basket, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding 
such portfolio or Creation Basket.
---------------------------------------------------------------------------

A. Description of the Fund

    The Exchange states that the Fund seeks long-term capital growth. 
The Exchange states that Fund's holdings will be limited to and 
consistent with what is permissible under the Exemptive Order and 
described in the Notice. Under Normal Market Conditions,\11\ the Fund 
will invest at

[[Page 3100]]

least 80% of its net assets, plus borrowings for investment purposes, 
in U.S. exchange-listed common stocks and other equity securities of 
small capitalization U.S. companies or in other U.S. exchange-listed 
investments with similar economic characteristics, including only the 
following U.S. exchange-listed securities: Common stocks, preferred 
securities, securities of other investment companies and of real estate 
investment companies (``REITs''), and warrants and rights.
---------------------------------------------------------------------------

    \11\ 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 addition, the Fund may also invest up to 20% of its net assets, 
plus borrowings for investment purposes, in common stocks, preferred 
securities, and warrants and rights of U.S. exchange-listed companies 
with larger market capitalizations, U.S. ETFs,\12\ U.S. exchange-listed 
ADRs, U.S. exchange-listed equity futures contracts, and U.S. exchange-
listed equity index futures contracts. The Fund may also hold cash 
without limitation.
---------------------------------------------------------------------------

    \12\ For purposes of describing the holdings of the Fund, ETFs 
include Portfolio Depository Receipts (as described in BZX Rule 
14.11(b)); Index Fund Shares (as described in BZX Rule 14.11(c)); 
and Managed Fund Shares (as described in BZX Rule 14.11(i)). The 
ETFs in which the Fund may invest all will be listed and traded on 
U.S. national securities exchanges. While the Fund may invest in 
inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 
3X or -3X) ETFs.
---------------------------------------------------------------------------

B. Investment Restrictions

    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets. Illiquid securities and other illiquid 
assets include those subject to contractual or other restrictions on 
resale and other instruments or assets that lack readily available 
markets as determined in accordance with Commission staff guidance. The 
Exchange states that the Fund will monitor its portfolio liquidity on 
an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity. In any event, the Fund will not purchase any securities that 
are illiquid investments at the time of purchase.
    The Shares will conform to the initial and continued listing 
criteria under BZX Rule 14.11(k). The Fund's investments will be 
consistent with its investment objective and will not be used to 
enhance leverage. While the Fund may invest in inverse ETFs, the Fund 
will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
    The Exchange states that the Fund's holdings will also meet the 
generic listing standards applicable to series of Managed Fund Shares 
under BZX Rule 14.11(i)(4)(C). While such standards do not apply 
directly to series of Managed Portfolio Shares, the Exchange believes 
that the overarching policy issues related to liquidity, market 
capitalization, diversity, and concentration of portfolio holdings that 
BZX Rule 14.11(i)(4)(C) is intended to address are equally applicable 
to series of Managed Portfolio Shares.

II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2019-076 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act \13\ to determine whether the proposed 
rule change, as modified by Amendment No. 1, should be approved or 
disapproved. Institution of such proceedings is appropriate at this 
time in view of the legal and policy issues raised by the proposed rule 
change. Institution of proceedings does not indicate that the 
Commission has reached any conclusions with respect to any of the 
issues involved. Rather, as described below, the Commission seeks and 
encourages interested persons to provide comments on the proposed rule 
change.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\14\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of the proposed rule change's consistency with 
Section 6(b)(5) of the Exchange 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, . . . 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.'' \15\
---------------------------------------------------------------------------

    \14\ Id.
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Exchange 
Act, or the rules and regulations thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval that would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4, any request for 
an opportunity to make an oral presentation.\16\
---------------------------------------------------------------------------

    \16\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975), 
grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Act Amendments of 
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 
75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by February 7, 2020. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
February 21, 2020.
    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,\17\ and any other issues raised by the proposed rule 
change under the Exchange Act. In particular, the Commission seeks 
commenters' views regarding whether the Exchange's proposal to list and 
trade the Fund under BZX Rule 14.11(k) (Managed Portfolio Shares), 
which are actively managed exchange-traded products for which the 
portfolio holdings are disclosed on a quarterly, rather than daily, 
basis, is adequately 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, and is consistent 
with the maintenance of a fair and orderly market under the Exchange 
Act.
---------------------------------------------------------------------------

    \17\ See supra note 3.
---------------------------------------------------------------------------

    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-2019-076 on the subject line.

[[Page 3101]]

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-2019-076. 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-2019-076 and should be submitted 
on or before February 7, 2020. Rebuttal comments should be submitted by 
February 21, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00683 Filed 1-16-20; 8:45 am]
BILLING CODE 8011-01-P


