[Federal Register Volume 85, Number 23 (Tuesday, February 4, 2020)]
[Notices]
[Pages 6240-6241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-02048]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88075; File No. SR-CboeBZX-2020-010]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Provide 
an Exemption to Certain Governance Requirements for Series of Managed 
Portfolio Shares Listed on the Exchange Pursuant to Rule 14.11(k)

January 29, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 22, 2020, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``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 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 provide an exemption to certain governance requirements 
for series of Managed Portfolio Shares listed on the Exchange pursuant 
to Rule 14.11(k).
    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
    On December 16, 2019, the Commission approved an Exchange proposal 
to adopt BZX Rule 14.11(k) related to the listing and trading of 
Managed Portfolio Shares \5\ on the Exchange.\6\ Currently, Rule 
14.10(e)(1)(E) provides an exemption to certain audit committee 
requirements provided under Rule 14.10(c)(3) for funds listed on the 
Exchange that are Index Fund Shares and Managed Fund Shares. 
Specifically, Rule 14.10(e)(1)(E) provides that ``management investment 
companies that are Index Fund Shares and Managed Fund Shares, as 
defined in Rules 14.11(c) and 14.11(i), are exempt from the Audit 
Committee requirements set forth in Rule 14.10(c)(3), except for the 
applicable requirements of SEC Rule 10A-3.''
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    \5\ The term ``Managed Portfolio Share'' means a security that 
(a) represents an interest in an investment company registered under 
the Investment Company Act of 1940 (``Investment Company'') 
organized as an open-end management investment company, that invests 
in a portfolio of securities selected by the Investment Company's 
investment adviser consistent with the Investment Company's 
investment objectives and policies; (b) is issued in a Creation Unit 
(as defined in Rule 14.11(k)(3)(F)), or multiples thereof, in return 
for a designated portfolio of instruments (and/or an amount of cash) 
with a value equal to the next determined net asset value and 
delivered to the Authorized Participant (as defined in the 
Investment Company's Form N-1A filed with the Commission) through a 
Confidential Account (as defined in Rule 14.11(k)(3)(D)); (c) when 
aggregated into a Redemption Unit (as defined in Rule 
14.11(k)(3)(G)), or multiples thereof, may be redeemed for a 
designated portfolio of instruments (and/or an amount of cash) with 
a value equal to the next determined net asset value delivered to 
the Confidential Account for the benefit of the Authorized 
Participant; and (d) the portfolio holdings for which are disclosed 
within at least 60 days following the end of every fiscal quarter.
    \6\ See Securities Exchange Act Release No. 87759 (December 16, 
2019), 84 FR 70223 (December 20, 2019) (SR-CboeBZX-2019-047) (the 
``MPS Approval Order''). The Exchange notes that it does not 
currently list any series of Managed Portfolio Shares, so the 
proposed change would only have an impact if the Exchange listed 
Managed Portfolio Shares in the future.
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    Managed Fund Shares and Index Fund Shares are exempted from the 
requirements of Rule 14.10(c)(3) because they are otherwise subject to 
the accounting and auditing requirements of the Investment Company Act 
of 1940 (the ``1940 Act''), including Section 32(a).\7\ Because Managed 
Portfolio Shares are also subject to the accounting and auditing 
requirements under the 1940 Act and are so similarly situated to 
Managed Fund Shares and only to a slightly lesser extent Index Fund 
Shares,\8\ the Exchange believes that Managed Portfolio Shares should 
be subject to and exempt from the same corporate governance 
requirements associated with listing on the Exchange. As such, the 
Exchange is proposing to make a change to amend Rule 14.10(e)(1)(E) in 
order to add Managed Portfolio Shares to the list of product types 
listed on the Exchange that are exempted from the Audit Committee 
requirements set forth in Rule 14.10(c)(3), except for the applicable 
requirements of SEC Rule 10A-3.\9\
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    \7\ 15 U.S.C. 80a-31.
    \8\ For each of Managed Fund Shares and Managed Portfolio Shares 
a share represents an interest in an Investment Company organized as 
an open-end management investment company that invests in a 
portfolio of securities selected by the Investment Company's 
investment adviser consistent with the Investment Company's 
investment objectives and policies. See MPS Approval Order at 70224 
for additional information. For Index Fund Shares, the primary 
difference is that the Investment Company seeks to provide 
investment results that correspond generally to the price and yield 
performance or total return performance of a specified index, rather 
than simply a portfolio selected by the Investment Company's 
investment adviser.
    \9\ 17 CFR 240.10A-3.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \10\ in general and Section 6(b)(5) of the Act \11\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that this change to amend Rule 14.10(e)(1)(E) 
in order to add Managed Portfolio Shares to a list of product types 
listed on the Exchange, including Index Fund Shares and Managed Fund 
Shares, that are exempted from the Audit Committee requirements set 
forth in Rule

[[Page 6241]]

14.10(c)(3), except for the applicable requirements of SEC Rule 10A-3 
is consistent with the Act because it is meant only to subject Managed 
Portfolio Shares to the same corporate governance requirements 
currently applicable to the very similar product structures of Managed 
Fund Shares and Index Fund Shares.\12\
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    \12\ See supra note 7.
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    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. To the contrary, the Exchange 
believes that the proposed rule change would better allow issuers of 
Managed Portfolio Shares to comply with the Exchange's governance 
requirements in a manner generally consistent with other product types, 
which the Exchange believes will help promote competition among 
products listed on the Exchange.

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 foregoing 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 \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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 \15\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \16\ 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 proposal may become operative upon filing. The Exchange stated 
that it believes that waiving the operative delay will allow any series 
of Managed Portfolio Shares that lists on the Exchange in the near 
future to take advantage of this exemption to certain audit committee 
requirements and not have to either delay launch or take short-term 
remedial measures to comply with all requirements of Rule 14.10(c)(3).
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiver of the operative delay is 
appropriate because, as the Exchange stated, the rule proposal is 
requesting an exemption to certain audit committee requirements that is 
currently granted to Managed Fund Shares and Index Fund Shares, and 
there are no unique issues associated with proving such an exemption to 
Managed Portfolio Shares that have not already been considered by the 
Commission or that would warrant disparate treatment. Accordingly, the 
Commission designates the proposed rule change to be operative upon 
filing.\17\
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    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission also has 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-2020-010 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-2020-010. 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-2020-010 and should be submitted 
on or before February 25, 2020.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-02048 Filed 2-3-20; 8:45 am]
 BILLING CODE 8011-01-P


