[Federal Register Volume 85, Number 26 (Friday, February 7, 2020)]
[Notices]
[Pages 7352-7364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-02417]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88112; File No. SR-CboeBYX-2020-003]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt 
Rule 14.11 To Permit the Trading, Pursuant to Unlisted Trading 
Privileges, of Managed Portfolio Shares, Which Are Shares of Actively 
Managed Exchange-Traded Funds for Which the Portfolio Is Disclosed in 
Accordance With Standard Mutual Fund Disclosure Rules

February 3, 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 21, 2020, Cboe BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to adopt Rule 14.11 to permit the trading, pursuant to 
unlisted trading privileges, of Managed Portfolio Shares, which are 
shares of actively managed exchange-traded funds for which the 
portfolio is disclosed in accordance with standard mutual fund 
disclosure rules. Additionally, the Exchange proposes to make 
corresponding changes to Rule 14.1(a) to reference Managed Portfolio 
Shares and proposed Rule 14.11, where applicable. The text of the 
proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/byx/), 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 Exchange proposes to adopt Rule 14.11 to permit the trading, 
pursuant to unlisted trading privileges (``UTP''), of Managed Portfolio 
Shares,\5\ which substantially conforms to Cboe BZX Exchange, Inc. 
(``BZX'') Rule 14.11(k).\6\ Additionally, the Exchange proposes to make 
corresponding changes to Rule 14.1(a) to reference Managed Portfolio 
Shares and proposed Rule 14.11, where applicable.
---------------------------------------------------------------------------

    \5\ Managed Portfolio Shares are actively managed exchange-
traded funds for which the portfolio is disclosed in accordance with 
standard mutual fund disclosure rules.
    \6\ See Securities and Exchange Act Release No. 87759 (December 
16, 2019) 84 FR 70223 (December 20, 2019) (SR-CboeBZX-2019-047) (the 
``BZX Approval Order'').
---------------------------------------------------------------------------

    The Exchange does not currently list any securities as a primary 
listing market. Consistent with this fact, Exchange Rule 14.1(a) 
currently states that all securities traded on the Exchange are traded 
pursuant to UTP and that the Exchange will not list any securities 
before first filing and obtaining Commission approval of rules that 
incorporate qualitative listing criteria and comply with Rules 10A-3 
\7\ (``Rule 10A-3'') and 10C-1 \8\ (``Rule 10C-1'') under the Act. 
Therefore, the provisions of existing Rules 14.2 through 14.9 and 
proposed Rule 14.11 that permit the listing of certain Equity 
Securities \9\ will not be effective until the Exchange files a 
proposed rule change under Section 19(b)(2) under the Exchange Act to 
amend its rules to comply with Rule 10A-3 and 10C-1 under the Exchange 
Act and to incorporate qualitative listing criteria, and such proposed 
rule change is approved by the Commission. Considering the foregoing, 
the Exchange proposes to adopt Rule 14.11 as set forth below.
---------------------------------------------------------------------------

    \7\ Rule 10A-3 obligates the Exchange to prohibit the initial or 
continued listing of any security of an issuer that is not in 
compliance with certain required standards. See 17 CFR 240.10A-3.
    \8\ Rule 10C-1 obligates the Exchange to establish listing 
standards that require each member of a listed issuer's compensation 
committee to be a member of the issuer's board and to be 
independent, as well as establish certain factors that an issuer 
must consider when evaluating the independence of a director. See 17 
CFR 240.10C-1.
    \9\ As provided in Rule 14.1(a), the term ``Equity Security'' 
means, but is not limited to, common stock, secondary classes of 
common stock, preferred stock and similar issues, shares or 
certificates of beneficial interest of trusts, notes, limited 
partnership interests, warrants, certificates of deposit for common 
stock, convertible debt securities, ADRs, CVRs, Investment Company 
Units, Trust Issued Receipts (including those based on Investment 
Shares), Commodity-Based Trust Shares, Currency Trust Shares, 
Partnership Units, Equity-Linked Securities, Commodity-Linked 
Securities, Currency-Linked Securities, Portfolio Depositary 
Receipts and Equity-Linked Debt Securities. Further, the Exchange 
now proposes to include the term ``Managed Portfolio Shares'' to the 
definition of Equity Security.
---------------------------------------------------------------------------

Proposed Listing Rules
    Proposed Rule 14.11(a) provides that the Exchange will consider for 
trading, whether by listing or pursuant to UTP, Managed Portfolio 
Shares that meet the criteria of Rule 14.11.\10\
---------------------------------------------------------------------------

    \10\ The Exchange notes that the unique components of Managed 
Portfolio Shares were addressed in an amended application for 
exemptive relief that was filed on April 4, 2019 (the 
``Application'') and for which public notice was issued on April 8, 
2019 (the ``Notice'') (File No. 812-14405) and subsequent order 
granting certain exemptive relief to Precidian Funds LLC 
(``Precidian''); Precidian ETFs Trust and Precidian ETF Trust II; 
and Foreside Fund Services, LLC issued on May 20, 2019 (the 
``Order'' and, collectively, with the Application and the Notice, 
the ``Exemptive Order''). Specifically, the Notice stated that the 
Commission ``believes that the alternative arbitrage mechanism 
proposed by Applicants can also work in an efficient manner to 
maintain an ActiveShares ETF's secondary market prices close to its 
NAV. The Commission recognizes, however, that the lack of full 
transparency may cause the ActiveShares ETFs to trade with spreads 
and premiums/discounts that are larger than those of comparable, 
fully transparent ETFs. Nonetheless, as long as arbitrage continues 
to keep the ActiveShares ETF's secondary market price and NAV close, 
and does so efficiently so that spreads remain narrow, the 
Commission believes that investors would benefit from the 
opportunity to invest in active strategies through a vehicle that 
offers the traditional benefits of ETFs.'' See Investment Company 
Act Release Nos. 33440.

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

[[Page 7353]]

    Proposed Rule 14.11(b) provides that Rule 14.11 is applicable only 
to Managed Portfolio Shares and that, except to the extent inconsistent 
with Rule 14.11, or unless the context otherwise requires, the rules 
and procedures of the Exchange's Board of Directors shall be applicable 
to the trading on the Exchange of such securities. Proposed Rule 
14.11(b) provides further that Managed Portfolio Shares are included 
within the definition of ``security'' or ``securities'' as such terms 
are used in the Rules of the Exchange.
    Proposed Rule 14.11(b)(1) provides that the Exchange will file 
separate proposals under Section 19(b) of the Act before the listing 
and trading of a series of Managed Portfolio Shares.
    Proposed Rule 14.11(b)(2) provides that transactions in Managed 
Portfolio Shares will occur only during Regular Trading Hours.\11\
---------------------------------------------------------------------------

    \11\ As defined in Rule 1.5(w), the term ``Regular Trading 
Hours'' means the time between 9:30 a.m. and 4:00 p.m. Eastern Time.
---------------------------------------------------------------------------

    Proposed Rule 14.11(b)(3) provides that the Exchange will implement 
and maintain written surveillance procedures for Managed Portfolio 
Shares. As part of these surveillance procedures, the Investment 
Company's investment adviser will upon request by the Exchange or 
FINRA, on behalf of the Exchange, make available to the Exchange or 
FINRA the daily portfolio holdings of each series of Managed Portfolio 
Shares.
    Proposed Rule 14.11(b)(4) provides that, if the investment adviser 
to the Investment Company issuing Managed Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition of and/or changes to such Investment Company 
portfolio and/or the Creation Basket. Any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's portfolio composition or has access to 
information regarding the Investment Company's portfolio composition or 
changes thereto or the Creation Basket must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the applicable Investment Company portfolio or 
changes thereto or the Creation Basket.
    Proposed Rule 14.11(b)(5) provides that any person or entity, 
including an AP Representative, custodian, Reporting Authority, 
distributor, or administrator, who has access to information regarding 
the Investment Company's portfolio composition or changes thereto or 
the Creation Basket, must be subject to procedures designed to prevent 
the use and dissemination of material nonpublic information regarding 
the applicable Investment Company portfolio or changes thereto or the 
Creation Basket. Moreover, if any such person or entity is registered 
as a broker-dealer or affiliated with a broker-dealer, such person or 
entity will erect and maintain a ``fire wall'' between the person or 
entity and the broker-dealer with respect to access to information 
concerning the composition and/or changes to such Investment Company 
portfolio or Creation Basket.
    Proposed Rule 14.11(c)(1) defines the term ``Managed Portfolio 
Share'' as 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, 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; (c) when 
aggregated into a Redemption Unit, 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.\12\
---------------------------------------------------------------------------

    \12\ For purposes of this filing, references to a series of 
Managed Portfolio Shares are referred to interchangeably as a series 
of Managed Portfolio Shares or as a ``Fund'' and shares of a series 
of Managed Portfolio Shares are generally referred to as the 
``Shares''.
---------------------------------------------------------------------------

    Proposed Rule 14.11(c)(2) defines the term ``Verified Intraday 
Indicative Value'' (``VIIV'') as the indicative value of a Managed 
Portfolio Share based on all of the holdings of a series of Managed 
Portfolio Shares as of the close of business on the prior business day 
and, for corporate actions, based on the applicable holdings as of the 
opening of business on the current business day, priced and 
disseminated in one second intervals during Regular Trading Hours by 
the Reporting Authority.
    Proposed Rule 14.11(c)(3) defines the term ``AP Representative'' as 
an unaffiliated broker-dealer with which an Authorized Participant has 
signed an agreement to establish a Confidential Account for the benefit 
of such Authorized Participant, that will deliver or receive, on behalf 
of the Authorized Participant, all consideration to or from the 
Investment Company in a creation or redemption. An AP Representative 
will not be permitted to disclose the Creation Basket to any person, 
including the Authorized Participants.
    Proposed Rule 14.11(c)(4) defines the term ``Confidential Account'' 
as an account owned by an Authorized Participant and held with an AP 
Representative on behalf of the Authorized Participant. The account 
will be established and governed by contractual agreement between the 
AP Representative and the Authorized Participant solely for the 
purposes of creation and redemption, while keeping confidential the 
Creation Basket constituents of each series of Managed Portfolio 
Shares, including from the Authorized Participant. The books and 
records of the Confidential Account will be maintained by the AP 
Representative on behalf of the Authorized Participant.
    Proposed Rule 14.11(c)(5) defines the term ``Creation Basket'' as 
on any given business day the names and quantities of the specified 
instruments (and/or an amount of cash) that are required for an AP 
Representative to deposit in-kind on behalf of an Authorized 
Participant in exchange for a Creation Unit and the names and 
quantities of the specified instruments (and/or an amount of cash) that 
will be transferred in-kind to an AP Representative on behalf of an 
Authorized Participant in exchange for a Redemption Unit, which will be 
identical and will be transmitted to each AP Representative before the 
commencement of trading.
    Proposed Rule 14.11(c)(6) defines the term ``Creation Unit'' as a 
specified minimum number of Managed Portfolio Shares issued by an 
Investment Company at the request of an Authorized Participant in 
return for a

[[Page 7354]]

designated portfolio of instruments and/or cash.
    Proposed Rule 14.11(c)(7) defines the term ``Redemption Unit'' as a 
specified minimum number of Managed Portfolio Shares that may be 
redeemed to an Investment Company at the request of an AP in return for 
a portfolio of instruments and/or cash.
    Proposed Rule 14.11(c)(8) defines the term ``Reporting Authority'' 
in respect of a particular series of Managed Portfolio Shares as the 
Exchange, the exchange that lists a particular series of Managed 
Portfolio Shares (if the Exchange is trading such series pursuant to 
UTP), an institution, or a reporting service designated by the 
Investment Company as the official source for calculating and reporting 
information relating to such series, including, the net asset value 
(the ``NAV''), the VIIV, or other information relating to the issuance, 
redemption or trading of Managed Portfolio Shares. A series of Managed 
Portfolio Shares may have more than one Reporting Authority, each 
having different functions.
    Proposed Rule 14.11(c)(9) provides that the term ``Normal Market 
Conditions'' includes, but is not limited to, the absence of trading 
halts in the applicable financial markets generally; operational issues 
(e.g., systems failure) causing dissemination of inaccurate market 
information; or force majeure type events such as natural or manmade 
disaster, act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance.
    Proposed Rule 14.11(d)(1) sets forth initial listing criteria 
applicable to Managed Portfolio Shares. Proposed Rule 14.11(d)(1)(A) 
provides that, for each series of Managed Portfolio Shares, the 
Exchange will establish a minimum number of Managed Portfolio Shares 
required to be outstanding at the time of commencement of trading on 
the Exchange. In addition, proposed Rule 14.11(d)(1)(B) provides that 
the Exchange will obtain a representation from the Investment Company 
that issues each series of Managed Portfolio Shares that the NAV per 
share for the series will be calculated daily and that the NAV will be 
made available to all market participants at the same time. Proposed 
Rule 14.11(d)(1)(C) provides that all Managed Portfolio Shares shall 
have a stated investment objective, which shall be adhered to under 
Normal Market Conditions.
    Proposed Rule 14.11(d)(2) provides that each series of Managed 
Portfolio Shares will be listed and traded subject to application of 
the following continued listing criteria. Proposed Rule 14.11(d)(2)(A) 
provides that the VIIV for Managed Portfolio Shares will be widely 
disseminated by the Reporting Authority and/or by one or more major 
market data vendors in one second intervals during Regular Trading 
Hours and will be disseminated to all market participants at the same 
time. Proposed Rule 14.11(d)(2)(B) provides that the Exchange will 
consider the suspension of trading in or removal from listing of or 
termination of UTP for a series of Managed Portfolio Shares under any 
of the following circumstances: (i) If, following the initial twelve-
month period after commencement of trading on the Exchange of a series 
of Managed Portfolio Shares, there are fewer than 50 beneficial holders 
of the series of Managed Portfolio Shares for 30 or more consecutive 
trading days; (ii) if the Exchange has halted trading in a series of 
Managed Portfolio Shares because the VIIV is interrupted pursuant to 
Rule 14.11(d)(2)(C)(ii) and such interruption persists past the trading 
day in which it occurred or is no longer available; (iii) if the 
Exchange has halted trading in a series of Managed Portfolio Shares 
because the NAV with respect to such series of Managed Portfolio Shares 
is not disseminated to all market participants at the same time, the 
holdings of such series of Managed Portfolio Shares are not made 
available on at least a quarterly basis as required under the 
Investment Company Act of 1940 (the ``1940 Act''), or such holdings are 
not made available to all market participants at the same time pursuant 
to Rule 14.11(d)(2)(C)(ii) and such issue persists past the trading day 
in which it occurred; (iv) if the Exchange has halted trading in a 
series of Managed Portfolio Shares pursuant to 14.11(d)(2)(C)(i), such 
issue persists past the trading day in which it occurred; (v) if the 
Investment Company issuing the Managed Portfolio Shares has failed to 
file any filings required by the Commission or if the Exchange is aware 
that the Investment Company is not in compliance with the conditions of 
any currently applicable exemptive order or no-action relief granted by 
the Commission or Commission staff to the Investment Company with 
respect to the series of Managed Portfolio Shares; (vi) if any of the 
continued listing requirements set forth in Rule 14.11 are not 
continuously maintained; or (vii) if such other event shall occur or 
condition exists which, in the opinion of the Exchange, makes further 
dealings on the Exchange inadvisable.
    Proposed Rule 14.11(d)(2)(C)(i) provides that the Exchange may 
consider all relevant factors in exercising its discretion to halt 
trading in a series of Managed Portfolio Shares. Trading may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the series of Managed Portfolio Shares 
inadvisable. These may include: (a) The extent to which trading is not 
occurring in the securities and/or the financial instruments composing 
the portfolio; or (b) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.\13\
---------------------------------------------------------------------------

    \13\ The Exchange notes that the Application provides that the 
Investment Company or their agent will request that the Exchange 
halt trading in the applicable series of Managed Portfolio Shares 
where: (i) The intraday indicative values calculated by the 
calculation engine(s) differ by more than 25 basis points for 60 
seconds in connection with pricing of the Verified Intraday 
Indicative Value; or (ii) holdings representing 10% or more of a 
series of Managed Portfolio Shares' portfolio have become subject to 
a trading halt or otherwise do not have readily available market 
quotations. Any such requests will be one of many factors considered 
in order to determine whether to halt trading in a series of Managed 
Portfolio Shares and the Exchange retains sole discretion in 
determining whether trading should be halted. As provided in the 
Application and Notice, each series of Managed Portfolio Shares 
would employ a pricing verification agent to continuously compare 
two intraday indicative values during Regular Trading Hours in order 
to ensure the accuracy of the Verified Intraday Indicative Value.
---------------------------------------------------------------------------

    Proposed Rule 14.11(d)(2)(C)(ii) provides that, if the Exchange 
becomes aware that: (a) The Verified Intraday Indicative Value of a 
series of Managed Portfolio Shares is not being calculated or 
disseminated in one second intervals, as required; (b) the net asset 
value with respect to a series of Managed Portfolio Shares is not 
disseminated to all market participants at the same time; (c) the 
holdings of a series of Managed Portfolio Shares are not made available 
on at least a quarterly basis as required under the 1940 Act; or (d) 
such holdings are not made available to all market participants at the 
same time, (except as otherwise permitted under the currently 
applicable exemptive order or no-action relief granted by the 
Commission or Commission staff to the Investment Company with respect 
to the series of Managed Portfolio Shares), it will halt trading in 
such series until such time as the Verified Intraday Indicative Value, 
the net asset value, or the holdings are available, as required.
    Proposed Rule 14.11(d)(2)(D) provides that, upon termination of an 
Investment Company, the Exchange requires that Managed Portfolio Shares 
issued in connection with such entity be removed from Exchange listing.
    Proposed Rule 14.11(d)(2)(E) provides that voting rights shall be 
as set forth in the applicable Investment Company

[[Page 7355]]

prospectus and/or statement of additional information.
    Proposed Rule 14.11(e), which relates to limitation of Exchange 
liability, provides that neither the Exchange, the Reporting Authority, 
when the Exchange is acting in the capacity of a Reporting Authority, 
nor any agent of the Exchange shall have any liability for damages, 
claims, losses or expenses caused by any errors, omissions, or delays 
in calculating or disseminating any current portfolio value; the 
current value of the portfolio of securities required to be deposited 
to the open-end management investment company in connection with 
issuance of Managed Portfolio Shares; the VIIV; the amount of any 
dividend equivalent payment or cash distribution to holders of Managed 
Portfolio Shares; NAV; or other information relating to the purchase, 
redemption, or trading of Managed Portfolio Shares, resulting from any 
negligent act or omission by the Exchange, the Reporting Authority when 
the Exchange is acting in the capacity of a Reporting Authority, or any 
agent of the Exchange, or any act, condition, or cause beyond the 
reasonable control of the Exchange, its agent, or the Reporting 
Authority, when the Exchange is acting in the capacity of a Reporting 
Authority, including, but not limited to, an act of God; fire; flood; 
extraordinary weather conditions; war; insurrection; riot; strike; 
accident; action of government; communications or power failure; 
equipment or software malfunction; or any error, omission, or delay in 
the reports of transactions in one or more underlying securities.
    Proposed Rule 14.11(f), which relates to disclosures, provides that 
the provisions of paragraph (f) apply only to series of Managed 
Portfolio Shares that are the subject of an order by the Commission 
exempting such series from certain prospectus delivery requirements 
under Section 24(d) of the Investment Company Act of 1940 and are not 
otherwise subject to prospectus delivery requirements under the 
Securities Act of 1933. The Exchange will inform its Members regarding 
application of this subparagraph to a particular series of Managed 
Portfolio Shares by means of an information circular prior to 
commencement of trading in such series.
    The Exchange requires that members provide to all purchasers of a 
series of Managed Portfolio Shares a written description of the terms 
and characteristics of those securities, in a form prepared by the 
open-end management investment company issuing such securities, not 
later than the time a confirmation of the first transaction in such 
series is delivered to such purchaser. In addition, members shall 
include such a written description with any sales material relating to 
a series of Managed Portfolio Shares that is provided to customers or 
the public. Any other written materials provided by a member to 
customers or the public making specific reference to a series of 
Managed Portfolio Shares as an investment vehicle must include a 
statement in substantially the following form: ``A circular describing 
the terms and characteristics of (the series of Managed Portfolio 
Shares) has been prepared by the (open-end management investment 
company name) and is available from your broker. It is recommended that 
you obtain and review such circular before purchasing (the series of 
Managed Portfolio Shares).''
    A member carrying an omnibus account for a non-member broker-dealer 
is required to inform such non-member that execution of an order to 
purchase a series of Managed Portfolio Shares for such omnibus account 
will be deemed to constitute agreement by the non-member to make such 
written description available to its customers on the same terms as are 
directly applicable to members under this rule.
    Upon request of a customer, a member shall also provide a 
prospectus for the particular series of Managed Portfolio Shares.
Key Features of Managed Portfolio Shares
    While each series of Managed Portfolio Shares will be actively 
managed and, to that extent, similar to Investment Company Units (as 
defined in Rule 14.2), and more specifically managed fund shares.\14\ 
Managed Portfolio Shares differ from managed fund shares in the 
following important respects.\15\ The primary listing market for a 
series of managed fund shares generally requires daily dissemination of 
the ``disclosed portfolio''.\16\ In contrast to managed fund shares, 
the portfolio for a series of Managed Portfolio Shares will be 
disclosed at least quarterly in accordance with normal disclosure 
requirements otherwise applicable to open-end investment companies 
registered under the 1940 Act.\17\ The composition of the portfolio of 
a series of Managed Portfolio Shares would not be available at 
commencement of Exchange listing and/or trading. Second, in connection 
with the creation and redemption of shares in Creation Unit or 
Redemption Unit size (as described below), the delivery of any 
portfolio securities in kind will be effected through a Confidential 
Account (as described below) for the benefit of the creating or 
redeeming AP (as described further below in ``Creation and Redemption 
of Shares'') without disclosing the identity of such securities to the 
AP.
---------------------------------------------------------------------------

    \14\ ``Managed fund shares'' are a type of Investment Company 
Unit. While not defined by Exchange Rules, BZX Rule 14.11(i) defines 
a managed fund share as ``a security that (i) represents an interest 
in a registered investment company (``Investment Company'') 
organized as an open-end management investment company or similar 
entity, 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; (ii) is 
issued in a specified aggregate minimum number in return for a 
deposit of a specified portfolio of securities and/or a cash amount 
with a value equal to the next determined net asset value; and (iii) 
when aggregated in the same specified minimum number, may be 
redeemed at a holder's request, which holder will be paid a 
specified portfolio of securities and/or cash with a value equal to 
the next determined net asset value.''
    \15\ The Exchange notes that these unique components of Managed 
Portfolio Shares were addressed in an amended application for 
exemptive relief that was filed on April 4, 2019 (the 
``Application'') and for which public notice was issued on April 8, 
2019 (the ``Notice'') (File No. 812-14405) and subsequent order 
granting certain exemptive relief to Precidian Funds LLC 
(``Precidian''); Precidian ETFs Trust and Precidian ETF Trust II; 
and Foreside Fund Services, LLC issued on May 20, 2019 (the 
``Order'' and, collectively, with the Application and the Notice, 
the ``Exemptive Order''). Specifically, the Notice stated that the 
Commission ``believes that the alternative arbitrage mechanism 
proposed by Applicants can also work in an efficient manner to 
maintain an ActiveShares ETF's secondary market prices close to its 
NAV. The Commission recognizes, however, that the lack of full 
transparency may cause the ActiveShares ETFs to trade with spreads 
and premiums/discounts that are larger than those of comparable, 
fully transparent ETFs. Nonetheless, as long as arbitrage continues 
to keep the ActiveShares ETF's secondary market price and NAV close, 
and does so efficiently so that spreads remain narrow, the 
Commission believes that investors would benefit from the 
opportunity to invest in active strategies through a vehicle that 
offers the traditional benefits of ETFs.'' See Investment Company 
Act Release Nos. 33440 and 33477.
    \16\ See e.g., BZX Rule 14.11(i)(3)(B) which defines the term 
``Disclosed Portfolio'' as the identities and quantities of the 
securities and other assets held by the Investment Company that will 
form the basis for the Investment Company's calculation of NAV at 
the end of the business day. BZX Rule 14.11(i)(4)(B)(ii)(a) requires 
that the Disclosed Portfolio will be disseminated at least once 
daily and will be made available to all market participants at the 
same time.
    \17\ Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly 
basis within 60 days after fiscal quarter end. Investors can obtain 
a fund's Statement of Additional Information, its Shareholder 
Reports, its Form N-CSR, filed twice a year, and its Form N-CEN, 
filed annually. A fund's SAI and Shareholder Reports are available 
free upon request from the Investment Company, and those documents 
and the Form N-PORT, Form N-CSR, and Form N-CEN may be viewed on-
screen or downloaded from the Commission's website at www.sec.gov.

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

[[Page 7356]]

    For each series of Managed Portfolio Shares, an estimated value--
the VIIV--that reflects an estimated intraday value of a fund's 
portfolio will be disseminated. Specifically, the VIIV will be based 
upon all of a series' holdings as of the close of the prior business 
day and, for corporate actions, based on the applicable holdings as of 
the opening of business on the current business day, and will be widely 
disseminated by the Reporting Authority and/or one or more major market 
data vendors in one second intervals during Regular Trading Hours. The 
dissemination of the VIIV will allow investors to determine the 
estimated intra-day value of the underlying portfolio of a series of 
Managed Portfolio Shares and will provide a close estimate of that 
value throughout the trading day.
    The Exchange believes that market makers will be able to make 
efficient and liquid markets priced near the ETF's intraday value as 
long as a VIIV is disseminated in one second intervals,\18\ and market 
makers employ market making techniques such as ``statistical 
arbitrage,'' including correlation hedging, beta hedging, and 
dispersion trading, which is currently used throughout the financial 
services industry, to make efficient markets in exchange-traded 
products.\19\ For Managed Portfolio Shares, market makers may use the 
knowledge of a Fund's means of achieving its investment objective, as 
described in the applicable Fund registration statement (the 
``Registration Statement''), to construct a hedging proxy for a Fund to 
manage a market maker's quoting risk in connection with trading Fund 
Shares. Market makers can then conduct statistical arbitrage between 
their hedging proxy (for example, the Russell 1000 Index) and Shares of 
a Fund, buying and selling one against the other over the course of the 
trading day. This ability should permit market makers to make efficient 
markets in an issue of Managed Portfolio Shares without precise 
knowledge \20\ of a fund's underlying portfolio.\21\ This is similar to 
certain other existing exchange traded products (for example, ETFs that 
invest in foreign securities that do not trade during U.S. trading 
hours), in which spreads may be generally wider in the early days of 
trading and then narrow as market makers gain more confidence in their 
real-time hedges.
---------------------------------------------------------------------------

    \18\ The Exchange notes that the Commission reached the same 
conclusion in the Notice, specifically stating: ``The Commission 
believes that the alternative arbitrage mechanism proposed by 
Applicants can also work in an efficient manner to maintain an 
ActiveShares ETF's secondary market prices close to its NAV.'' See 
the Notice at 19.
    \19\ Statistical arbitrage enables a trader to construct an 
accurate proxy for another instrument, allowing it to hedge the 
other instrument or buy or sell the instrument when it is cheap or 
expensive in relation to the proxy. Statistical analysis permits 
traders to discover correlations based purely on trading data 
without regard to other fundamental drivers. These correlations are 
a function of differentials, over time, between one instrument or 
group of instruments and one or more other instruments. Once the 
nature of these price deviations have been quantified, a universe of 
securities is searched in an effort to, in the case of a hedging 
strategy, minimize the differential. Once a suitable hedging proxy 
has been identified, a trader can minimize portfolio risk by 
executing the hedging basket. The trader then can monitor the 
performance of this hedge throughout the trade period making 
corrections where warranted. In the case of correlation hedging, the 
analysis seeks to find a proxy that matches the pricing behavior of 
a fund. In the case of beta hedging, the analysis seeks to determine 
the relationship between the price movement over time of a fund and 
that of another stock. Dispersion trading is a hedged strategy 
designed to take advantage of relative value differences in implied 
volatilities between an index and the component stocks of that 
index. Such trading strategies will allow market participants to 
engage in arbitrage between series of Managed Portfolio Shares and 
other instruments, both through the creation and redemption process 
and strictly through arbitrage without such processes.
    \20\ Using the various trading methodologies described above, 
both APs and other market participants will be able to hedge 
exposures by trading correlative portfolios, securities or other 
proxy instruments, thereby enabling an arbitrage functionality 
throughout the trading day. For example, if an AP believes that 
Shares of a Fund are trading at a price that is higher than the 
value of its underlying portfolio based on the VIIV, the AP may sell 
Shares short and purchase securities that the AP believes will track 
the movements of a Fund's portfolio until the spread narrows and the 
AP executes offsetting orders or the AP enters an order through its 
AP Representative to create Fund Shares. Upon the completion of the 
Creation Unit, the AP will unwind its correlative hedge. Similarly, 
a non-AP market participant would be able to perform an identical 
function but, because it would not be able to create or redeem 
directly, would have to employ an AP to create or redeem Shares on 
its behalf.
    \21\ APs that enter into their own separate Confidential 
Accounts shall have enough information to ensure that they are able 
to comply with applicable regulatory requirements. For example, for 
purposes of net capital requirements, the maximum Securities Haircut 
applicable to the securities in a Creation Basket, as determined 
under Rule 15c3-1, will be disclosed daily on each Fund's website.
---------------------------------------------------------------------------

    To protect the identity and weightings of the portfolio holdings, a 
series of Managed Portfolio Shares would sell and redeem their shares 
in Creation Units and Redemption Units to APs only through an AP 
Representative. As such, on each business day, before commencement of 
trading in Shares on the Exchange, each series of Managed Portfolio 
Shares will provide to an AP Representative of each AP the names and 
quantities of the instruments comprising a Creation Basket, i.e., the 
Deposit Instruments or ``Redemption Instruments'' and the estimated 
``Balancing Amount'' (if any),\22\ for that day (as further described 
below). This information will permit APs to purchase Creation Units or 
redeem Redemption Units through an in-kind transaction with a Fund, as 
described below.
---------------------------------------------------------------------------

    \22\ The Balancing Amount is the cash amount necessary for the 
applicable Fund to receive or pay to compensate for the difference 
between the value of the securities delivered as part of a 
redemption and the NAV, to the extent that such values are 
different.
---------------------------------------------------------------------------

Creations and Redemptions of Shares
    In connection with the creation and redemption of Creation Units 
and Redemption Units, the delivery or receipt of any portfolio 
securities in-kind will be required to be effected through a 
Confidential Account \23\ with an AP Representative,\24\ which will be 
a broker-dealer such as broker-dealer affiliates of JP Morgan Chase, 
State Street Bank and Trust, or Bank of New York Mellon, for the 
benefit of an AP.\25\ An AP must be a Depository Trust Company 
(``DTC'') Participant that has executed a ``Participant Agreement'' 
with the applicable distributor (the ``Distributor'') with respect to 
the creation and redemption of Creation Units and Redemption Units and 
formed a Confidential Account for its benefit in accordance with the 
terms of the Participant Agreement. For purposes of creations or 
redemptions, all transactions will be effected through the respective 
AP's Confidential Account, for the benefit of the AP without disclosing 
the identity of such securities to the AP. The Funds will offer and

[[Page 7357]]

redeem Creation Units and Redemption Units on a continuous basis at the 
NAV per Share next determined after receipt of an order in proper form. 
The NAV per Share of each Fund will be determined as of the close of 
regular trading each business day. Funds will sell and redeem Creation 
Units and Redemption Units only on business days.
---------------------------------------------------------------------------

    \23\ Transacting through a Confidential Account is designed to 
be very similar to transacting through any broker-dealer account, 
except that the AP Representative will be bound to keep the names 
and weights of the portfolio securities confidential. Each service 
provider that has access to the identity and weightings of 
securities in a Fund's Creation Basket or portfolio securities, such 
as a Fund's custodian or pricing verification agent, shall be 
restricted contractually from disclosing that information to any 
other person, or using that information for any purpose other than 
providing services to the Fund. To comply with certain recordkeeping 
requirements applicable to APs, the AP Representative will maintain 
and preserve, and make available to the Commission, certain required 
records related to the securities held in the Confidential Account.
    \24\ Each AP shall enter into its own separate Confidential 
Account with an AP Representative.
    \25\ Each Fund will identify one or more entities to enter into 
a contractual arrangement with the Fund to serve as an AP 
Representative. In selecting entities to serve as AP 
Representatives, a Fund will obtain representations from the entity 
related to the confidentiality of the Fund's Creation Basket and 
portfolio securities, the effectiveness of information barriers, and 
the adequacy of insider trading policies and procedures. In 
addition, as a broker-dealer, Section 15(g) of the Act requires the 
AP Representative to establish, maintain, and enforce written 
policies and procedures reasonably designed to prevent the misuse of 
material, nonpublic information by the AP Representative or any 
person associated with the AP Representative.
---------------------------------------------------------------------------

    Each AP Representative will be given, before the commencement of 
trading each business day, the Creation Basket for that day. The 
published Creation Basket will apply until a new Creation Basket is 
announced on the following business day, and there will be no intra-day 
changes to the Creation Basket except to correct errors in the 
published Creation Basket. In order to keep costs low and permit Funds 
to be as fully invested as possible, Shares will be purchased and 
redeemed in Creation Units and Redemption Units and generally on an in-
kind basis. Accordingly, except where the purchase or redemption will 
include cash under the circumstances required or determined permissible 
by the Fund, APs will be required to purchase Creation Units by making 
an in-kind deposit of specified instruments (``Deposit Instruments''), 
and APs redeeming their Shares will receive an in-kind transfer of 
Redemption Instruments through the AP Representative in their 
Confidential Account.\26\
---------------------------------------------------------------------------

    \26\ Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the 1933 Act.
---------------------------------------------------------------------------

    In the case of a creation, the AP \27\ would enter into an 
irrevocable creation order with a Fund and then direct the AP 
Representative to purchase the necessary basket of portfolio 
securities. The AP Representative would then purchase the necessary 
securities in the Confidential Account. In purchasing the necessary 
securities, the AP Representative would use methods such as breaking 
the purchase into multiple purchases and transacting in multiple 
marketplaces. Once the necessary basket of securities has been 
acquired, the purchased securities held in the Confidential Account 
would be contributed in-kind to the applicable Fund.
---------------------------------------------------------------------------

    \27\ An AP will issue execution instructions to the AP 
Representative and be responsible for all associated profit or 
losses. Like a traditional ETF, the AP has the ability to sell the 
basket securities at any point during Regular Trading Hours.
---------------------------------------------------------------------------

    Other market participants that are not APs will not have the 
ability to create or redeem shares directly with a Fund. Rather, if 
other market participants wish to create or redeem Shares in a Fund, 
they will have to do so through an AP.
Placement of Purchase Orders
    Each Fund will issue Shares through the Distributor on a continuous 
basis at NAV. The Exchange represents that the issuance of Shares will 
operate in a manner substantially similar to that of other ETFs. Each 
Fund will issue Shares only at the NAV per Share next determined after 
an order in proper form is received.
    The Distributor will furnish acknowledgements to those placing 
orders that the orders have been accepted, but the Distributor may 
reject any order which is not submitted in proper form, as described in 
a Fund's prospectus or Statement of Additional Information (``SAI''). 
The NAV of each Fund is expected to be determined once each business 
day at a time determined by the board of the Investment Company 
(``Board''), currently anticipated to be as of the close of the regular 
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) (the 
``Valuation Time''). Each Fund will establish a cut-off time (``Order 
Cut-Off Time'') for purchase orders in proper form. To initiate a 
purchase of Shares, an AP must submit to the Distributor an irrevocable 
order to purchase such Shares after the most recent prior Valuation 
Time.
    Purchases of Shares will be settled in-kind and/or cash for an 
amount equal to the applicable NAV per Share purchased plus applicable 
``Transaction Fees,'' as discussed below.
    Generally, all orders to purchase Creation Units must be received 
by the Distributor no later than the end of Regular Trading Hours on 
the date such order is placed (``Transmittal Date'') in order for the 
purchaser to receive the NAV per Share determined on the Transmittal 
Date. In the case of custom orders made in connection with creations or 
redemptions in whole or in part in cash, the order must be received by 
the Distributor, no later than the Order Cut-Off Time.\28\
---------------------------------------------------------------------------

    \28\ A ``custom order'' is any purchase or redemption of Shares 
made in whole or in part on a cash basis, as provided in the 
Registration Statement.
---------------------------------------------------------------------------

Authorized Participant Redemption
    The Shares may be redeemed to a Fund in Redemption Unit size or 
multiples thereof as described below. Redemption orders of Redemption 
Units must be placed by or through an AP (``AP Redemption Order''). 
Each Fund will establish an Order Cut-Off Time for redemption orders of 
Redemption Units in proper form. Redemption Units of a Fund will be 
redeemable at their NAV per Share next determined after receipt of a 
request for redemption by the Investment Company in the manner 
specified below before the Order Cut-Off Time. To initiate an AP 
Redemption Order, an AP must submit to the Distributor an irrevocable 
order to redeem such Redemption Unit after the most recent prior 
Valuation Time but not later than the Order Cut-Off Time.
    In the case of a redemption, the AP would enter into an irrevocable 
redemption order, and then instruct the AP Representative to sell the 
underlying basket of securities that it will receive in the redemption. 
As with the purchase of securities, the AP Representative would be 
required to obfuscate the sale of the portfolio securities it will 
receive as redemption proceeds using similar tactics.
    Consistent with the provisions of Section 22(e) of the 1940 Act and 
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor 
payment upon redemption delayed, except for: (1) Any period during 
which the Exchange is closed other than customary weekend and holiday 
closings, (2) any period during which trading on the Exchange is 
restricted, (3) any period during which an emergency exists as a result 
of which disposal by a Fund of securities owned by it is not reasonably 
practicable or it is not reasonably practicable for a Fund to determine 
its NAV, and (4) for such other periods as the Commission may by order 
permit for the protection of shareholders.
    It is expected that redemptions will occur primarily in-kind, 
although redemption payments may also be made partly or wholly in cash. 
The Participant Agreement signed by each AP will require establishment 
of a Confidential Account to receive distributions of securities in-
kind upon redemption.\29\ Each AP will be required to open a 
Confidential Account with an AP Representative in order to facilitate 
orderly processing of redemptions.
---------------------------------------------------------------------------

    \29\ The terms of each Confidential Account will be set forth as 
an exhibit to the applicable Participant Agreement, which will be 
signed by each AP. The Authorized Participant will be free to choose 
an AP Representative for its Confidential Account from a list of 
broker-dealers that have signed confidentiality agreements with the 
Fund. The Authorized Participant will be free to negotiate account 
fees and brokerage charges with its selected AP Representative. The 
Authorized Participant will be responsible to pay all fees and 
expenses charged by the AP Representative of its Confidential 
Account.
---------------------------------------------------------------------------

    After receipt of a Redemption Order, a Fund's custodian 
(``Custodian'') will typically deliver securities to the Confidential 
Account with a value

[[Page 7358]]

approximately equal to the value of the Shares \30\ tendered for 
redemption at the Cut-Off time. The Custodian will make delivery of the 
securities by appropriate entries on its books and records transferring 
ownership of the securities to the AP's Confidential Account, subject 
to delivery of the Shares redeemed. The AP Representative of the 
Confidential Account will in turn liquidate the securities based on 
instructions from the AP. The AP Representative will pay the 
liquidation proceeds net of expenses plus or minus any cash Balancing 
Amount to the AP through DTC. The redemption securities that the 
Confidential Account receives are expected to mirror the portfolio 
holdings of a Fund pro rata. To the extent a Fund distributes portfolio 
securities through an in-kind distribution to more than one 
Confidential Account for the benefit of the accounts' respective APs, 
each Fund expects to distribute a pro rata portion of the portfolio 
securities selected for distribution to each redeeming AP.
---------------------------------------------------------------------------

    \30\ If the NAV of the Shares redeemed differs from the value of 
the securities delivered to the applicable Confidential Account, the 
applicable Fund will receive or pay a cash Balancing Amount to 
compensate for the difference between the value of the securities 
delivered and the NAV.
---------------------------------------------------------------------------

    If the AP would receive a security that it is restricted from 
receiving, for example if the AP is engaged in a distribution of the 
security, a Fund will deliver cash equal to the value of that security. 
APs will provide the AP Representative with a list of restricted 
securities applicable to the AP on a daily basis, and a Fund will 
substitute cash for those securities in the applicable Confidential 
Account.
    The Investment Company will accept a Redemption Order in proper 
form. A Redemption Order is subject to acceptance by the Investment 
Company and must be preceded or accompanied by an irrevocable 
commitment to deliver the requisite number of Shares. At the time of 
settlement, an AP will initiate a delivery of the Shares plus or minus 
any cash Balancing Amounts, and less the expenses of liquidation.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of Managed Portfolio Shares on the 
Exchange during all trading sessions and to deter and detect violations 
of Exchange rules and the applicable federal securities laws. Trading 
of Managed Portfolio Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products. The 
Exchange will require the issuer of each series of Managed Portfolio 
Shares listed on the Exchange to represent to the Exchange that it will 
advise the Exchange of any failure by a Fund to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Exchange Act, the Exchange will surveil for 
compliance with the continued listing requirements.
    Specifically, the Exchange will implement real-time surveillances 
that monitor for the continued dissemination of the VIIV. The Exchange 
will also have surveillances designed to alert Exchange personnel where 
shares of a series of Managed Portfolio Shares are trading away from 
the VIIV. As noted in proposed Rule 14.11(b)(3), the Investment 
Company's investment adviser will upon request make available to the 
Exchange and/or FINRA, on behalf of the Exchange, the daily portfolio 
holdings of each series of Managed Portfolio Shares. The Exchange 
believes that this is appropriate because it will provide the Exchange 
or FINRA, on behalf of the Exchange, with access to the daily portfolio 
holdings of any series of Managed Portfolio Shares upon request on an 
as needed basis. The Exchange believes that the ability to access the 
information on an as needed basis will provide it with sufficient 
information to perform the necessary regulatory functions associated 
with listing and trading series of Managed Portfolio Shares on the 
Exchange, including the ability to monitor compliance with the initial 
and continued listing requirements as well as the ability to surveil 
for manipulation of the shares.
    The Exchange notes that the Exemptive Order restricts the 
investable universe for a series of Managed Portfolio Shares to include 
only certain instruments that trade on a U.S. exchange, 
contemporaneously with the Shares, and in cash and cash 
equivalents.\31\ As such, any equity instruments or futures held by a 
Fund operating under the Exemptive Order or a substantively identical 
exemptive order would trade on markets that are a member of Intermarket 
Surveillance Group (``ISG'') or affiliated with a member of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.\32\ While future exemptive relief applicable to Managed 
Portfolio Shares may expand the investable universe, the Exchange notes 
that proposed Rule 14.11(b)(1) would require the Exchange to file 
separate proposals under Section 19(b) of the Act before listing and 
trading any series of Managed Portfolio Shares and such proposal would 
describe the investable universe for any such series of Managed 
Portfolio Shares along with the Exchange's surveillance procedures 
applicable to such series.
---------------------------------------------------------------------------

    \31\ As described in the Notice, each series would invest only 
in ETFs and exchange-traded notes, common stocks, preferred stocks, 
American depositary receipts, real estate investment trusts, 
commodity pools, metals trusts, currency trusts and futures. All of 
these instruments will trade on a U.S. exchange contemporaneously 
with the Shares. The reference assets of the exchange-traded futures 
in which a Fund may invest would be assets that the Fund could 
invest in directly, or in the case of an index future, based on an 
index of a type of asset that the Fund could invest in directly. A 
Fund may also invest in cash and cash equivalents. No Fund would buy 
securities that are illiquid investments (as defined in rule 22e-
4(a)(8) under the 1940 Act) at the time of purchase, borrow for 
investment purposes or hold short positions. See Notice at 12, 
footnote 24.
    \32\ For a list of the current members of ISG, see 
www.isgportal.com. The Exchange notes that cash equivalents may 
trade on markets that are members of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Trading Halts
    As proposed above, the Exchange may consider all relevant factors 
in exercising its discretion to halt trading in a series of Managed 
Portfolio Shares. Trading may be halted because of market conditions or 
for reasons that, in the view of the Exchange, make trading in the 
series of Managed Portfolio Shares inadvisable. These may include: (i) 
The extent to which trading is not occurring in the securities and/or 
the financial instruments composing the portfolio; or (ii) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Additionally, the 
Exchange would halt trading as soon as practicable where the Exchange 
becomes aware that: (i) The VIIV of a series of Managed Portfolio 
Shares is not being calculated or disseminated in one second intervals, 
as required; (ii) the net asset value with respect to a series of 
Managed Portfolio Shares is not disseminated to all market participants 
at the same time; (iii) the holdings of a series of Managed Portfolio 
Shares are not made available on at least a quarterly basis as required 
under the 1940 Act; or (iv) such holdings are not made available to all 
market participants at the same time, (except as otherwise permitted 
under the currently applicable exemptive order or no-action relief 
granted by the Commission or Commission staff to the Investment Company 
with respect to the series of Managed Portfolio Shares) (collectively,

[[Page 7359]]

``Availability of Information Halts''). The Exchange would halt trading 
in such series of Managed Portfolio Shares until such time as the VIIV, 
the NAV, or the holdings are available, as required.
Availability of Information
    As noted above, Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly basis 
within 60 days after fiscal quarter end. Investors can obtain a fund's 
Statement of Additional Information, its Shareholder Reports, its Form 
N-CSR, filed twice a year, and its Form N-CEN, filed annually. A fund's 
SAI and Shareholder Reports are available free upon request from the 
Investment Company, and those documents and the Form N-PORT, Form N-
CSR, and Form N-CEN may be viewed on-screen or downloaded from the 
Commission's website at www.sec.gov.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares will be available via the Consolidated Tape Association 
(``CTA'') high-speed line. In addition, the VIIV, as defined in 
proposed Rule 14.11(c)(2), will be widely disseminated by the Reporting 
Authority and/or one or more major market data vendors in one second 
intervals during Regular Trading Hours.
Trading Rules
    The Exchange deems Managed Portfolio Shares to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
Managed Portfolio Shares will trade on the Exchange only during Regular 
Trading Hours as provided in proposed Rule 14.11(b)(2). As provided in 
Exchange Rule 11.11(a), the minimum price variation for quoting and 
entry of orders in securities traded on the Exchange is $0.01, with the 
exception of securities that are priced less than $1.00, for which the 
minimum price variation for order entry is $0.0001.
Information Circular
    Prior to the commencement of trading of a series of Managed 
Portfolio Shares, the Exchange will inform its members in an 
Information Circular (``Circular'') of the special characteristics and 
risks associated with trading the Shares. Specifically, the Circular 
will discuss the following: (1) The procedures for purchases and 
redemptions of Shares; (2) BYX Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the VIIV is disseminated; (4) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; (5) trading 
information; and (6) that the portfolio holdings of the Shares are not 
disclosed on a daily basis.
    In addition, the Circular will reference that Funds are subject to 
various fees and expenses described in the Registration Statement. The 
Circular will discuss any exemptive, no-action, and interpretive relief 
granted by the Commission from any rules under the Act. The Circular 
will also disclose that the NAV for the Shares will be calculated after 
4:00 p.m. Eastern Time each trading day.
Proposed Amendments to Rule 14.1(a)
    Based on the Exchange's proposal to adopt Rule 14.11, the Exchange 
also seeks to make corresponding changes to Rule 14.1(a). Specifically, 
Rule 14.1(a) currently provides that the provisions of Rules 14.2 
through 14.9 that permit the listing of certain Equity Securities will 
not be effective until the Exchange files a proposed rule change under 
Section 19(b)(2) under the Exchange Act to amend its rules to comply 
with Rule 10A-3 and 10C-1 under the Exchange Act and to incorporate 
qualitative listing criteria, and such proposed rule change is approved 
by the Commission. Therefore, the Exchange proposes to amend Rule 
14.1(a) to include Rule 14.11 in the aforementioned provision.\33\ The 
Exchange proposes to amend Rule 14.1(a) to include Managed Portfolio 
Shares in the list of specified Equity Securities.
---------------------------------------------------------------------------

    \33\ All relevant securities are listed under Exchange Rule 
14.1(a).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \34\ in general and Section 6(b)(5) of the Act \35\ 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.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f.
    \35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 14.11 will remove 
impediments to and perfect the mechanism of a free and open market a 
national market system. Specifically, the proposed amendment raises no 
substantive issues that have not otherwise been considered by the 
Commission in the BZX Approval Order, because this proposal is 
substantively identical to that proposal, with the exception that the 
Exchange is only proposing to trade series of Managed Portfolio Shares 
pursuant to unlisted trading privileges, while BZX is proposing to both 
list and trade series of Managed Portfolio Shares.
    The Exchange also believes that proposed Rule 14.11 is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Managed Portfolio 
Shares provide specific initial and continued listing criteria required 
to be met by such securities. Proposed Rule 14.11(d) sets forth initial 
and continued listing criteria applicable to Managed Portfolio Shares. 
Proposed Rule 14.11(d)(1)(A) provides that, for each series of Managed 
Portfolio Shares, the Exchange will establish a minimum number of 
Managed Portfolio Shares required to be outstanding at the time of 
commencement of trading on the Exchange. In addition, proposed Rule 
14.11(d)(1)(B) provides that the Exchange will obtain a representation 
from the Investment Company that issues each series of Managed 
Portfolio Shares that the NAV per share for the series will be 
calculated daily and that the NAV will be made available to all market 
participants at the same time.\36\ Proposed Rule 14.11(d)(1)(C) 
provides that all Managed Portfolio Shares shall have a stated 
investment objective, which shall be adhered to under normal market 
conditions.
---------------------------------------------------------------------------

    \36\ Proposed Rule 14.11(d)(2)(C)(ii) provides that if the 
Exchange becomes aware that the NAV with respect to a series of 
Managed Portfolio Shares is not disseminated to all market 
participants at the same time, it will halt trading in such series 
until such time as the NAV is available to all market participants 
at the same time.
---------------------------------------------------------------------------

    Proposed Rule 14.11(d)(2) provides that each series of Managed 
Portfolio Shares will be listed and traded subject to application of 
the specified continued listing criteria, as described above. Proposed 
Rule 14.11(d)(2)(A) provides that the VIIV for Managed Portfolio Shares 
will be widely disseminated by the Reporting Authority and/or one or 
more major market data vendors in one second intervals during Regular 
Trading Hours and will be disseminated to all

[[Page 7360]]

market participants at the same time. Proposed Rule 14.11(d)(2)(B) 
provides that the Exchange will consider the suspension of trading in 
or removal of listing of or termination of UTP for a series of Managed 
Portfolio Shares under any of the following circumstances: (i) If, 
following the initial twelve-month period after commencement of trading 
on the Exchange of a series of Managed Portfolio Shares, there are 
fewer than 50 beneficial holders of the series of Managed Portfolio 
Shares for 30 or more consecutive trading days; (ii) if the Exchange 
has halted trading in a series of Managed Portfolio Shares because the 
Verified Intraday Indicative Value is interrupted pursuant to Rule 
14.11(d)(2)(C)(ii) and such interruption persists past the trading day 
in which it occurred or is no longer available; (iii) if the Exchange 
has halted trading in a series of Managed Portfolio Shares because the 
net asset value with respect to such series of Managed Portfolio Shares 
is not disseminated to all market participants at the same time, the 
holdings of such series of Managed Portfolio Shares are not made 
available on at least a quarterly basis as required under the 1940 Act, 
or such holdings are not made available to all market participants at 
the same time pursuant to Rule 14.11(d)(2)(C)(ii) and such issue 
persists past the trading day in which it occurred; (iv) if the 
Exchange has halted trading in a series of Managed Portfolio Shares 
pursuant to Rule 14.11(d)(2)(C)(i), such issue persists past the 
trading day in which it occurred; (v) if the Investment Company issuing 
the Managed Portfolio Shares has failed to file any filings required by 
the Commission or if the Exchange is aware that the Investment Company 
is not in compliance with the conditions of any currently applicable 
exemptive order or no-action relief granted by the Commission or 
Commission staff to the Investment Company with respect to the series 
of Managed Portfolio Shares; (vi) if any of the continued listing 
requirements set forth in Rule 14.11 are not continuously maintained; 
or (vii) if such other event shall occur or condition exists which, in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable. Proposed Rule 14.11(d)(2)(C)(i) provides that the Exchange 
may consider all relevant factors in exercising its discretion to halt 
trading in the series of Managed Portfolio Shares. Trading may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the series of Managed Portfolio Shares 
inadvisable. These may include: (a) The extent to which trading is not 
occurring in the securities and/or the financial instruments composing 
the portfolio; or (b) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.\37\
---------------------------------------------------------------------------

    \37\ The Exchange notes that the Application provides that the 
Investment Company or their agent will request that the Exchange 
halt trading in the applicable series of Managed Portfolio Shares 
where: (i) The intraday indicative values calculated by the 
calculation engine(s) differ by more than 25 basis points for 60 
seconds in connection with pricing of the Verified Intraday 
Indicative Value; or (ii) holdings representing 10% or more of a 
series of Managed Portfolio Shares' portfolio have become subject to 
a trading halt or otherwise do not have readily available market 
quotations. Any such requests will be one of many factors considered 
in order to determine whether to halt trading in a series of Managed 
Portfolio Shares and the Exchange retains sole discretion in 
determining whether trading should be halted.
---------------------------------------------------------------------------

    Proposed Rule 14.11(d)(2)(C)(ii) provides that, if the Exchange 
becomes aware that: (a) The VIIV of a series of Managed Portfolio 
Shares is not being calculated or disseminated in one second intervals, 
as required; (b) the net asset value with respect to a series of 
Managed Portfolio Shares is not disseminated to all market participants 
at the same time; (c) the holdings of a series of Managed Portfolio 
Shares are not made available on at least a quarterly basis as required 
under the 1940 Act; or (d) such holdings are not made available to all 
market participants at the same time (except as otherwise permitted 
under the currently applicable exemptive order or no-action relief 
granted by the Commission or Commission staff to the Investment Company 
with respect to the series of Managed Portfolio Shares), it will halt 
trading in such series until such time as the VIIV, the net asset 
value, or the holdings are available, as required. Proposed Rule 
14.11(d)(2)(D) provides that, upon termination of an Investment 
Company, the Exchange requires that Managed Portfolio Shares issued in 
connection with such entity be removed from Exchange listing. Proposed 
Rule 14.11(d)(2)(E) provides that voting rights shall be as set forth 
in the applicable Investment Company prospectus and/or Statement of 
Additional Information. The Exchange also notes that the Notice 
provides that an issuer will comply with Regulation Fair Disclosure, 
which prohibits selective disclosure of any material non-public 
information, which otherwise do not apply to issuers of Managed 
Portfolio Shares.\38\
---------------------------------------------------------------------------

    \38\ See Notice at 15.
---------------------------------------------------------------------------

    Proposed Rule 14.11(b)(4) provides that, if the investment adviser 
to the Investment Company issuing Managed Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition of and/or changes to such Investment Company 
portfolio and/or the Creation Basket. Any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's portfolio composition or has access to 
information regarding the Investment Company's portfolio composition or 
changes thereto or the Creation Basket must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the applicable Investment Company portfolio or 
changes thereto or the Creation Basket. Proposed Rule 14.11(b)(5) 
provides that, any person or entity, including an AP Representative, 
custodian, Reporting Authority, distributor, or administrator, who has 
access to information regarding the Investment Company's portfolio 
composition or changes thereto or the Creation Basket, must be subject 
to procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable Investment Company 
portfolio or changes thereto or the Creation Basket. Moreover, if any 
such person or entity is registered as a broker-dealer or affiliated 
with a broker-dealer, such person or entity will erect and maintain a 
``fire wall'' between the person or entity and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such Investment Company portfolio or Creation Basket.\39\
---------------------------------------------------------------------------

    \39\ The Exchange notes that the Order dismissed concerns raised 
by a third party related to potential violation of Section 10(b) of 
the Act, stating that ``Contrary to the contentions advanced in the 
third-party submissions, the provision of the basket composition 
information to the AP Representative or use of that information by 
the AP Representative as provided for in the Application should not 
give rise to insider trading violations under section 10(b) of the 
Exchange Act.'' The notice goes on to say that an AP Representative 
``acting as an agent of another broker-dealer (``AP'') will be given 
information concerning the identity and weightings of the basket of 
securities that the ETF would exchange for its shares (but not 
information concerning the issuers of those underlying securities). 
The AP Representative is provided this information by the ETF so 
that, pursuant to instructions received from an AP, the AP 
Representative may undertake the purchase or redemption of the ETF's 
Shares (in the form of creation units) and the purchase or sale of 
the basket of securities that are exchanged for creation units. The 
ETFs will provide this information to an AP Representative on a 
confidential basis, the AP Representative is subject to a duty of 
non-disclosure (which includes an obligation not to provide this 
information to an AP), and the AP Representative may not use the 
information in any way except to facilitate the operation of the ETF 
by purchasing or selling the basket of securities and to exchange it 
with the ETF to complete an AP's orders to purchase or redeem the 
ETF's Shares. Furthermore, section 15(g) of the Exchange Act 
requires an AP Representative, as a registered broker, to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to prevent the misuse of material nonpublic information by 
the AP Representative or any person associated with the AP 
Representative.'' The Order goes on to say ``For the foregoing 
reasons, it is found that granting the requested exemptions is 
appropriate in and consistent with the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act. It is further 
found that the terms of the proposed transactions, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching on the part of any person concerned, and 
that the proposed transactions are consistent with the policy of 
each registered investment company concerned and with the general 
purposes of the Act.'' See Order at 2, 3, and 4.

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

[[Page 7361]]

    The Exchange believes that these proposed rules are designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Managed Portfolio Shares because they provide 
meaningful requirements about both the data that will be made publicly 
available about the Shares as well as the information that will only be 
available to certain parties and the controls on such information. 
Specifically, the Exchange believes that the requirements related to 
information protection enumerated under proposed Rule 14.11(b)(5) \40\ 
will act as a strong safeguard against any misuse and improper 
dissemination of information related to a Fund's portfolio composition, 
the Creation Basket, or changes thereto. The requirement that any 
person or entity implement procedures to prevent the use and 
dissemination of material nonpublic information regarding the portfolio 
or Creation Basket will act to prevent any individual or entity from 
sharing such information externally and the internal ``fire wall'' 
requirements applicable where an entity is a registered broker-dealer 
or affiliated with a broker-dealer will act to make sure that no entity 
will be able to misuse the data for their own purposes. As such, the 
Exchange believes that this proposal is designed to prevent fraudulent 
and manipulative acts and practices.
---------------------------------------------------------------------------

    \40\ As described above, proposed Rule 14.11(b)(5) provides that 
any person or entity, including an AP Representative, custodian, 
Reporting Authority, distributor, or administrator, who has access 
to information regarding the Investment Company's portfolio 
composition or changes thereto or the Creation Basket, must be 
subject to procedures designed to prevent the use and dissemination 
of material nonpublic information regarding the applicable 
Investment Company portfolio or changes thereto or the Creation 
Basket. Moreover, if any such person or entity is registered as a 
broker-dealer or affiliated with a broker-dealer, such person or 
entity will erect and maintain a ``fire wall'' between the person or 
entity and the broker-dealer with respect to access to information 
concerning the composition and/or changes to such Investment Company 
portfolio or Creation Basket.
---------------------------------------------------------------------------

    The Exchange believes that market makers will be able to make 
efficient and liquid markets priced near the VIIV, as long as market 
makers have knowledge of a Fund's means of achieving its investment 
objective, even without daily disclosure of a fund's underlying 
portfolio.\41\ The Exchange believes that market makers will employ 
risk-management techniques to make efficient markets in exchange traded 
products. This ability should permit market makers to make efficient 
markets in shares without knowledge of a fund's underlying portfolio.
---------------------------------------------------------------------------

    \41\ The Exchange notes that the Commission reached the same 
conclusion in the Notice, specifically stating: ``The Commission 
believes that the alternative arbitrage mechanism proposed by 
Applicants can also work in an efficient manner to maintain an 
ActiveShares ETF's secondary market prices close to its NAV.'' See 
the Notice at 19.
---------------------------------------------------------------------------

    The Exchange understands that traders use statistical analysis to 
derive correlations between different sets of instruments to identify 
opportunities to buy or sell one set of instruments when it is 
mispriced relative to the others. For Managed Portfolio Shares, market 
makers utilizing statistical arbitrage use the knowledge of a fund's 
means of achieving its investment objective, as described in the 
applicable fund registration statement, to construct a hedging proxy 
for a fund to manage a market maker's quoting risk in connection with 
trading fund shares. Market makers will then conduct statistical 
arbitrage between their hedging proxy (for example, the Russell 1000 
Index) and shares of a fund, buying and selling one against the other 
over the course of the trading day. Eventually, at the end of each day, 
they will evaluate how their proxy performed in comparison to the price 
of a fund's shares, and use that analysis as well as knowledge of risk 
metrics, such as volatility and turnover, to enhance their proxy 
calculation to make it a more efficient hedge.
    Market makers have indicated that there will be sufficient data to 
run a statistical analysis which will lead to spreads being tightened 
substantially around the VIIV. This is similar to certain other 
existing exchange traded products (for example, ETFs that invest in 
foreign securities that do not trade during U.S. trading hours), in 
which spreads may be generally wider in the early days of trading and 
then narrow as market makers gain more confidence in their real-time 
hedges.
    Market makers also indicated that, as with some other new exchange-
traded products, spreads would tend to narrow as market makers gain 
more confidence in the accuracy of their hedges and their ability to 
adjust these hedges in real-time relative to the published VIIV and 
gain an understanding of the applicable market risk metrics such as 
volatility and turnover, and as natural buyers and sellers enter the 
market. Other relevant factors cited by market makers were that a 
fund's investment objectives are clearly disclosed in the applicable 
prospectus, the existence of quarterly portfolio disclosure and the 
ability to create shares in creation unit size or redeem in redemption 
unit size through an AP.
    The real-time dissemination of a Fund's VIIV together with the 
right of APs to create and redeem each day at the NAV will be 
sufficient for market participants to value and trade Shares in a 
manner that will not lead to significant deviations between the shares' 
Bid/Ask Price and NAV.
    The pricing efficiency with respect to trading a series of Managed 
Portfolio Shares will generally rest on the ability of market 
participants to arbitrage between the Shares and a fund's portfolio, in 
addition to the ability of market participants to assess a fund's 
underlying value accurately enough throughout the trading day in order 
to hedge positions in shares effectively. Professional traders can buy 
Shares that they perceive to be trading at a price less than that which 
will be available at a subsequent time, and sell Shares they perceive 
to be trading at a price higher than that which will be available at a 
subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to Shares by the Exchange, 
off-exchange market makers, firms that specialize in electronic 
trading, hedge funds and other professionals specializing in short-
term, non-fundamental trading strategies will assume the risk of being 
``long'' or ``short'' shares through such trading and will hedge such 
risk wholly or partly by simultaneously taking positions in correlated 
assets \42\ or by

[[Page 7362]]

netting the exposure against other, offsetting trading positions--much 
as such firms do with existing ETFs and other equities. Disclosure of a 
fund's investment objective and principal investment strategies in its 
prospectus and SAI, along with the dissemination of the VIIV in one 
second intervals, should permit professional investors to engage easily 
in this type of hedging activity.\43\
---------------------------------------------------------------------------

    \42\ Price correlation trading is used throughout the financial 
industry. It is used to discover both trading opportunities to be 
exploited, such as currency pairs and statistical arbitrage, as well 
as for risk mitigation such as dispersion trading and beta hedging. 
These correlations are a function of differentials, over time, 
between one or multiple securities pricing. Once the nature of these 
price deviations have been quantified, a universe of securities is 
searched in an effort to, in the case of a hedging strategy, 
minimize the differential. Once a suitable hedging basket has been 
identified, a trader can minimize portfolio risk by executing the 
hedging basket. The trader then can monitor the performance of this 
hedge throughout the trade period, making corrections where 
warranted.
    \43\ With respect to trading in the Shares, market participants 
would manage risk in a variety of ways. It is expected that market 
participants will be able to determine how to trade Shares at levels 
approximating the VIIV without taking undue risk by gaining 
experience with how various market factors (e.g., general market 
movements, sensitivity of the VIIV to intraday movements in interest 
rates or commodity prices, etc.) affect VIIV, and by finding hedges 
for their long or short positions in Shares using instruments 
correlated with such factors. Market participants will likely 
initially determine the VIIV's correlation to a major large 
capitalization equity benchmark with active derivative contracts, 
such as the Russell 1000 Index, and the degree of sensitivity of the 
VIIV to changes in that benchmark. For example, using hypothetical 
numbers for illustrative purposes, market participants should be 
able to determine quickly that price movements in the Russell 1000 
Index predict movements in a Fund's VIIV 95% of the time (an 
acceptably high correlation) but that the VIIV generally moves 
approximately half as much as the Russell 1000 Index with each price 
movement. This information is sufficient for market participants to 
construct a reasonable hedge--buy or sell an amount of futures, 
swaps or ETFs that track the Russell 1000 equal to half the opposite 
exposure taken with respect to Shares. Market participants will also 
continuously compare the intraday performance of their hedge to a 
Fund's VIIV. If the intraday performance of the hedge is correlated 
with the VIIV to the expected degree, market participants will feel 
comfortable they are appropriately hedged and can rely on the VIIV 
as appropriately indicative of a Fund's performance.
---------------------------------------------------------------------------

    With respect to trading of the Shares, the ability of market 
participants to buy and sell Shares at prices near the VIIV is 
dependent upon their assessment that the VIIV is a reliable, indicative 
real-time value for a Fund's underlying holdings. Market participants 
are expected to accept the VIIV as a reliable, indicative real-time 
value because (1) the VIIV will be calculated and disseminated based on 
a Fund's actual portfolio holdings, (2) the securities in which a Fund 
plans to invest are generally highly liquid and actively traded and 
therefore generally have accurate real time pricing available, and (3) 
market participants will have a daily opportunity to evaluate whether 
the VIIV at or near the close of trading is indeed predictive of the 
actual NAV.\44\
---------------------------------------------------------------------------

    \44\ The statements in the Statutory Basis section of this 
filing relating to pricing efficiency, arbitrage, and activities of 
market participants, including market makers and APs, are based on 
statements in the Exemptive Order, representations by Precidian, and 
review by the Exchange.
---------------------------------------------------------------------------

    In a typical index-based ETF, it is standard for APs to know what 
securities must be delivered in a creation or will be received in a 
redemption. For Managed Portfolio Shares, however, APs do not need to 
know the securities comprising the portfolio of a Fund since creations 
and redemptions are handled through the Confidential Account mechanism. 
In-kind creations and redemptions through a Confidential Account are 
expected to preserve the integrity of the active investment strategy 
and reduce the potential for ``free riding'' or ``front-running,'' 
while still providing investors with the advantages of the ETF 
structure.
    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 Investment 
Company that issues each series of Managed Portfolio Shares that the 
NAV per share of a fund will be calculated daily and that the NAV will 
be made available to all market participants at the same time. 
Investors can also obtain a fund's Statement of Additional Information, 
its Shareholder Reports, its Form N-CSR, filed twice a year, and its 
Form N-CEN, filed annually. A fund's SAI and Shareholder Reports are 
available free upon request from the Investment Company, and those 
documents and the Form N-PORT, Form N-CSR, and Form N-CEN may be viewed 
on-screen or downloaded from the Commission's website at www.sec.gov. 
In addition, a large amount of information will be publicly available 
regarding the Funds and the Shares, thereby promoting market 
transparency. Quotation and last sale information for the Shares will 
be available via the CTA high-speed line. Information regarding the 
VIIV will be widely disseminated in one second intervals throughout 
Regular Trading Hours by the Reporting Authority and/or one or more 
major market data vendors. The website for each Fund will include a 
form of the prospectus for the Fund that may be downloaded, and 
additional data relating to NAV and other applicable quantitative 
information, updated on a daily basis. Moreover, prior to the 
commencement of trading, the Exchange will inform its members in a 
Circular of the special characteristics and risks associated with 
trading the Shares.
    The Exchange further believes that the proposal is designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Managed Portfolio Shares and to promote just and 
equitable principles of trade and to protect investors and the public 
interest in that the Exchange would halt trading under certain 
circumstances under which trading in the shares of a Fund may be 
inadvisable. Specifically, the Exchange may consider all relevant 
factors in exercising its discretion to halt trading in a series of 
Managed Portfolio Shares. Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the series of Managed Portfolio Shares inadvisable. These 
may include: (a) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the portfolio; or 
(b) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Additionally, 
the Exchange would halt trading as soon as practicable where the 
Exchange becomes aware that: (a) The VIIV of a series of Managed 
Portfolio Shares is not being calculated or disseminated in one second 
intervals, as required; (b) the net asset value with respect to a 
series of Managed Portfolio Shares is not disseminated to all market 
participants at the same time; (c) the holdings of a series of Managed 
Portfolio Shares are not made available on at least a quarterly basis 
as required under the 1940 Act; or (d) such holdings are not made 
available to all market participants at the same time, (except as 
otherwise permitted under the currently applicable exemptive order or 
no-action relief granted by the Commission or Commission staff to the 
Investment Company with respect to the series of Managed Portfolio 
Shares). The Exchange would halt trading in such series of Managed 
Portfolio Shares until such time as the VIIV, the NAV, or the holdings 
are available, as required.
    The Exchange is proposing to retain discretion to halt trading in a 
series of Managed Portfolio Shares based on market conditions or where 
the Exchange determines that trading in such series is inadvisable 
(each a ``Discretionary Halt'') and is also proposing the four 
Availability of Information Halts described above. The Exchange 
believes that retaining discretion to implement a Discretionary Halt as 
specified is consistent with the Act. The proposed rule retaining 
discretion related to halts is designed to ensure the maintenance of a 
fair and orderly market and protect investors and the public interest 
in that it provides the Exchange with the ability

[[Page 7363]]

to halt when it determines that trading in the shares is inadvisable. 
This could be based on the Exchange's own analysis of market conditions 
being detrimental to a fair and orderly market and/or information 
provided by the Investment Company or its agent. There are certain 
circumstances related to the trading and dissemination of information 
related to the underlying holdings of a series of Managed Portfolio 
Shares, such as the extent to which trading is not occurring in the 
securities and/or financial instruments composing the portfolio, that 
the Exchange may not be in a position to know or become aware of as 
expeditiously as the Investment Company or its agent. Also, as noted 
above, there are certain circumstances in which the Application 
provides that the Investment Company or their agent will request that 
the Exchange halt trading in the applicable series of Managed Portfolio 
Shares.\45\ Upon receipt of information and/or a request from the 
Investment Company, the Exchange would consider the information and/or 
circumstances leading to the request as well as other factors both 
specific to such issue of Managed Portfolio Shares and the broader 
market in determining whether trading in the series of Managed 
Portfolio Shares is inadvisable and that halting trading is necessary 
in order to maintain a fair and orderly market. As such, the Exchange 
believes that the proposal to provide the Exchange with discretion to 
implement a Discretionary Halt is consistent with the Act.
---------------------------------------------------------------------------

    \45\ Specifically, such circumstances include where: (i) The 
intraday indicative values calculated by the calculation engine(s) 
differ by more than 25 basis points for 60 seconds in connection 
with pricing of the Verified Intraday Indicative Value; or (ii) 
holdings representing 10% or more of a series of Managed Portfolio 
Shares' portfolio have become subject to a trading halt or otherwise 
do not have readily available market quotations.
---------------------------------------------------------------------------

    The Exchange believes that the proposed Availability of Information 
Halts to halt trading in shares of a series of Managed Portfolio Shares 
are consistent with the Act because: (i) The Commission has already 
determined that the requirement that the VIIV be disseminated every 
second is appropriate; \46\ (ii) the other Availability of Information 
Halts are generally consistent with and designed to address the same 
concerns about asymmetry of information that Rule 14.1(c)(4)(B) related 
to trading halts in managed fund shares \47\ is intended to address, 
specifically that the availability of such information is intended to 
reduce the potential for manipulation and help ensure a fair and 
orderly market in Managed Portfolio Shares; \48\ and (iii) the 
quarterly disclosure of portfolio holdings is a fundamental component 
of Managed Portfolio Shares that allows market participants to better 
understand the strategy of the funds and to monitor how closely trading 
in the funds is tracking the value of the underlying portfolio and when 
such information is not being disclosed as required, trading in the 
shares is inadvisable and it is necessary and appropriate to halt 
trading. 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 listing and trading of 
an additional type of 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. The Exemptive Order also restricts the 
investable universe for a series of Managed Portfolio Shares to include 
only certain instruments that trade on a U.S. exchange, 
contemporaneously with the Shares, and in cash and cash 
equivalents.\49\ As such, any equity instruments or futures held by a 
Fund operating under the Exemptive Order or substantively identical 
exemptive order would trade on markets that are a member of Intermarket 
Surveillance Group (``ISG'') or affiliated with a member of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.\50\ While future exemptive relief applicable to Managed 
Portfolio Shares may expand the investable universe, the Exchange notes 
that proposed Rule 14.11(b)(1) would require the Exchange to file 
separate proposals under Section 19(b) of the Act before listing any 
series of Managed Portfolio Shares and such proposal would describe the 
investable universe for any such series of Managed Portfolio Shares 
along with the Exchange's surveillance procedures applicable to such 
series. In addition, as noted above, investors will have ready access 
to information regarding the VIIV and quotation and last sale 
information for the Shares. The Exchange believes that the proposed 
amendments to Rule 14.1(a) 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 clarify that the provisions of proposed 
Rule 14.11 that permit the listing of Equity Securities will not be 
effective until the Exchange files a proposed rule change under Section 
19(b)(2) under the Exchange Act to amend its rules to comply with Rule 
10A-3 and 10C-1 under the Exchange Act and to incorporate qualitative 
listing criteria, and such proposed rule change is approved by the 
Commission. Further, the proposed amendment will clarify that Managed 
Portfolio Shares meets the definition of Equity Security under Exchange 
Rules.
---------------------------------------------------------------------------

    \46\ See Application at 4 and Notice at 11.
    \47\ Rule 14.1(c)(4)(B) provides that ``For a UTP Derivative 
Security where a net asset value (and, in the case of managed fund 
shares or actively managed exchange-traded funds, a ``disclosed 
portfolio'') is disseminated, the Exchange will immediately halt 
trading in such security upon notification by the listing market 
that the net asset value and, if applicable, such disclosed 
portfolio, is not being disseminated to all market participants at 
the same time. The Exchange may resume trading in the UTP Derivative 
Security only when trading in the UTP Derivative Security resumes on 
the listing market.''
    \48\ See, e.g., Securities Exchange Act Release No. 80169 (March 
7, 2017), 82 FR 13536 (March 13, 2017); Securities Exchange Act 
Release Nos. 54739 (November 9, 2006), 71 FR 66993, 66997 (November 
17, 2006) (SR-AMEX-2006-78) (approving generic listing standards for 
Portfolio Depositary Receipts and Index Fund Shares based on 
international or global indexes, and stating that ``the proposed 
listing standards are designed to preclude ETFs from becoming 
surrogates for trading in unregistered securities'' and that ``the 
requirement that each component security underlying an ETF be listed 
on an exchange and subject to last-sale reporting should contribute 
to the transparency of the market for ETFs'' and that ``by requiring 
pricing information for both the relevant underlying index and the 
ETF to be readily available and disseminated, the proposal is 
designed to ensure a fair and orderly market for ETFs''); 53142 
(January 19, 2006), 71 FR 4180, 4186 (January 25, 2006) (SR-NASD-
2006-001) (approving generic listing standards for Index-Linked 
Securities and stating that ``[t]he Commission believes that by 
requiring pricing information for both the relevant underlying index 
or indexes and the Index Security to be readily available and 
disseminated, the proposed listing standards should help ensure a 
fair and orderly market for Index Securities'').
    \49\ As described in the Notice, each series would invest only 
in ETFs and exchange-traded notes, common stocks, preferred stocks, 
American depositary receipts, real estate investment trusts, 
commodity pools, metals trusts, currency trusts and futures. All of 
these instruments will trade on a U.S. exchange contemporaneously 
with the Shares. The reference assets of the exchange-traded futures 
in which a Fund may invest would be assets that the Fund could 
invest in directly, or in the case of an index future, based on an 
index of a type of asset that the Fund could invest in directly. A 
Fund may also invest in cash and cash equivalents. No Fund would buy 
securities that are illiquid investments (as defined in rule 22e-
4(a)(8) under the 1940 Act) at the time of purchase, borrow for 
investment purposes or hold short positions.
    \50\ The Exchange notes that cash equivalents may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    For the above reasons, the Exchange believes that the proposed rule 
change

[[Page 7364]]

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. The Exchange notes that the 
proposed rule change, rather will facilitate the trading, pursuant to 
UTP, of a new type of actively-managed exchange-traded products that 
will enhance 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 neither solicited nor received 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 \51\ and Rule 19b-4(f)(6) thereunder.\52\
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78s(b)(3)(A).
    \52\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-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.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \53\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \54\ 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 asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative upon filing. The Exchange states that 
a waiver of the operative delay is consistent with the protection of 
investors and the public interest because it would allow for the 
immediate trading, pursuant to UTP, of Managed Portfolio Shares on the 
Exchange and therefore would provide investors with an additional 
trading venue option. The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Therefore, the Commission hereby waives the operative 
delay and designates the proposed rule change operative upon 
filing.\55\
---------------------------------------------------------------------------

    \53\ 17 CFR 240.19b-4(f)(6).
    \54\ 17 CFR 240.19b-4(f)(6)(iii).
    \55\ 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).
---------------------------------------------------------------------------

    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-CboeBYX-2020-003 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-CboeBYX-20-20-003. 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-CboeBYX-2020-003 and should be submitted 
on or before February 28, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\56\
---------------------------------------------------------------------------

    \56\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-02417 Filed 2-6-20; 8:45 am]
 BILLING CODE 8011-01-P


