[Federal Register Volume 85, Number 42 (Tuesday, March 3, 2020)]
[Notices]
[Pages 12639-12644]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04285]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88283; File No. SR-CboeBZX-2020-018]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Allow 
the Franklin Liberty International Aggregate Bond Fund To Hold Certain 
Instruments in a Manner That May Not Comply With the Generic Listing 
Requirements of Rule 14.11(i)

February 26, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 13, 2020, Cboe BZX Exchange, Inc. (``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to allow the Franklin Liberty International Aggregate Bond 
Fund (the ``Fund'') of the Franklin Templeton ETF Trust (the ``Trust'') 
to hold certain instruments in a manner that may not comply with Rule 
14.11(i) (``Managed Fund Shares'').
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set

[[Page 12640]]

forth in sections A, B, and C below, of the most significant aspects of 
such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The shares of the Fund (the ``Shares'') are currently listed and 
traded on the Exchange pursuant to the generic listing standards 
applicable to Managed Fund Shares under Rule 14.11(i) (the ``Generic 
Listing Standards'') and began trading on June 1, 2018. While the Fund 
currently meets all of the Generic Listing Standards, Franklin 
Templeton Investment Management Limited, the Fund's investment adviser 
(the ``Adviser''), and Franklin Advisers, Inc., the Fund's sub-adviser 
(the ``Sub-Adviser'' and collectively with the Adviser, the 
``Advisers'') would like to increase the flexibility of the Fund's 
holdings in a way that might not meet such requirements. As such, the 
Exchange submits this proposal in order to allow the Shares to continue 
listing and trading on the Exchange while holding over-the-counter 
(``OTC'') Currency Derivatives, as defined below, in a manner that may 
not comply with Exchange Rule 14.11(i)(4)(C)(v) \3\ of the Generic 
Listing Standards.
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    \3\ Rule 14.11(i)(4)(C)(v) provides that a fund's portfolio may, 
on both an initial and continuing basis, hold OTC derivatives, 
including forwards, options, and swaps on commodities, currencies 
and financial instruments (e.g., stocks, fixed income, interest 
rates, and volatility) or a basket or index of any of the foregoing, 
however the aggregate gross notional value of OTC derivatives shall 
not exceed 20% of the weight of the portfolio (including gross 
notional exposures).
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    The Shares are offered by the Franklin Templeton ETF Trust, which 
was established as a Delaware statutory trust on October 9, 2015. 
Franklin Templeton Investment Management Limited acts as adviser to the 
Fund. Franklin Advisers, Inc. acts as sub-adviser to the Fund. The 
Trust is registered with the Commission as an investment company and 
has filed a registration statement on Form N-1A (``Registration 
Statement'') with the Commission on behalf of the Fund.\4\
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    \4\ See Registration Statement for the Trust (File Nos. 333-
208873 and 811-23124). The Exchange notes that the Trust will file a 
Form 497 Supplement to its Registration Statement in connection with 
the proposed changes contained herein.
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    Exchange Rule 14.11(i)(7) provides that, if the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect and maintain 
a ``fire wall'' between the investment adviser and the broker-dealer 
with respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\5\ In addition, Exchange 
Rule 14.11(i)(7) further requires that personnel who make decisions on 
the investment company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable investment company 
portfolio. The Exchange notes that the Advisers are not registered as 
broker-dealers but are affiliated with a broker-dealer and have 
implemented and will maintain a fire wall with respect to such broker-
dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio. In addition, Adviser 
personnel who make decisions regarding the Fund's portfolio are subject 
to procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the Fund's portfolio. In the event that 
(a) the Adviser or the Sub-Adviser becomes registered as a broker-
dealer or newly affiliated with a broker-dealer, or (b) any new adviser 
or sub-adviser is a registered broker-dealer or becomes affiliated with 
a broker-dealer, it will implement and maintain a fire wall with 
respect to its relevant personnel or such broker-dealer affiliate, as 
applicable, regarding access to information concerning the composition 
and/or changes to the portfolio, and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio.
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    \5\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    The Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.
    While the Fund seeks to hold both exchange-listed derivatives and 
OTC derivatives, it does not seek an exemption for its holdings in 
exchange-listed derivatives under Rule 14.11(i)(4)(C)(iv). 
Specifically, the Exchange submits this proposal in order to allow the 
Fund to hold only OTC Currency Derivatives, as defined below, in a 
manner that does not comply with Exchange Rule 14.11(i)(4)(C)(v).\6\ 
Otherwise, the Fund will comply with all other listing requirements on 
an initial and continued listing basis under the Generic Listings 
Standards.
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    \6\ In particular, the Fund may not meet the requirement under 
Exchange Rule 14.11(i)(4)(C)(v) that the aggregate gross notional 
value of OTC currency derivatives shall not exceed 20% of the weight 
of the portfolio (including gross notional exposures).
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Franklin Liberty International Aggregate Bond Fund
    As set forth in the Registration Statement, the Fund is an actively 
managed exchange-traded fund that will seek total investment return 
consisting of a combination of interest income and capital 
appreciation. When choosing investments for the Fund, the Advisers 
allocate the Fund's assets based upon their assessment of changing 
market, political and economic conditions. The Advisers consider 
various factors, including evaluation of interest rates, currency 
exchange rate changes and credit risks.
    The Fund seeks to achieve its investment objective by investing, 
under Normal Market Conditions,\7\ at least 80% of its net assets in 
bonds \8\ and investments that provide exposure to bonds.\9\ The Fund 
invests predominantly in fixed and floating-rate

[[Page 12641]]

bonds issued by governments, government agencies and governmental-
related or corporate issuers located outside the U.S. The Fund may also 
invest in securities or structured products that are linked to or 
derive their value from another security, asset or currency of any 
nation. The Fund may invest in debt securities of any maturity or 
duration. Although the Fund may buy bonds rated in any category, 
including securities in default, it focuses on ``investment grade'' 
bonds.\10\ The Fund may only invest up to 20% of its total assets in 
bonds that are rated below investment grade or, if unrated, determined 
by the Advisers to be of comparable quality.
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    \7\ The term ``Normal Market Conditions'' includes, but is not 
limited to, the absence of trading halts in the applicable financial 
markets generally; operational issues causing dissemination of 
inaccurate market information or system failures; or force majeure 
type events such as natural or man-made disaster, act of God, armed 
conflict, act of terrorism, riot or labor disruption, or any similar 
intervening circumstance. In response to adverse market, economic, 
political, or other conditions, the Fund reserves the right to 
invest in U.S. government securities, other money market instruments 
(as defined below), and cash, without limitation, as determined by 
the Advisers. In the event the Fund engages in these temporary 
defensive strategies that are inconsistent with its investment 
strategies, the Fund's ability to achieve its investment objectives 
may be limited.
    \8\ For purposes of this proposal, the term ``bonds'' include 
debt obligations of any maturity, such as bonds, notes, bills and 
debentures.
    \9\ As noted in the Fund's prospectus, derivatives that provide 
exposure to bonds may be used to satisfy the Fund's 80% policy.
    \10\ ``Investment grade'' bonds refer to issues rated in the top 
four rating categories at the time of purchase by at least one 
independent rating agency, such as Standard & Poor's (S&P[supreg]) 
or Moody's Investors Service (Moody's) or, if unrated, determined by 
the Fund's Advisers to be of comparable quality.
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    Currently, under Normal Market Conditions, the Fund holds only the 
following instruments:
     Fixed income instruments; \11\
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    \11\ As provided in Rule 14.11(i)(4)(C)(ii), the term ``fixed 
income'' securities are debt securities that are notes, bonds, 
debentures, or evidence of indebtedness that include, but are not 
limited to, U.S. Department of Treasury securities (``Treasury 
Securities''), government-sponsored entity securities (``GSE 
Securities''), municipal securities, trust preferred securities, 
supranational debt and debt of a foreign country or a subdivision 
thereof, investment grade and high yield corporate debt, bank loans, 
mortgage and asset backed securities, and commercial paper. To the 
extent that a portfolio includes convertible securities, the fixed 
income security into which such security is converted shall meet the 
criteria of Rule 14.11(i)(4)(C)(ii) after converting.
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     Cash and Cash Equivalents; \12\
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    \12\ As defined in Exchange Rule 14.11(i)(4)(C)(iii)(b), Cash 
Equivalents are short-term instruments with maturities of less than 
three months, which includes only the following: (i) U.S. Government 
securities, including bills, notes, and bonds differing as to 
maturity and rates of interest, which are either issued or 
guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities; (ii) certificates of deposit issued against funds 
deposited in a bank or savings and loan association; (iii) bankers 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; (iv) repurchase agreements and reverse 
repurchase agreements; (v) bank time deposits, which are monies kept 
on deposit with banks or savings and loan associations for a stated 
period of time at a fixed rate of interest; (vi) commercial paper, 
which are short-term unsecured promissory notes; and (vii) money 
market funds.
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     Exchange-listed currency futures;
     Interest rate/bond futures;
     Equity securities and investments including convertible 
securities, preferred stock, warrants, and rights;
     Depository receipts;
     Securities of other investment companies, including ETFs;
     Deliverable currency forwards;
     Non-deliverable currency forwards; and
     OTC interest rate swap agreements.
    As stated previously, the Fund's holdings set forth above meet all 
of the generic listing standards of rule 14.11(i)(4)(C)(v). Thus, the 
OTC interest rate swap agreements noted above will not exceed 20% of 
the weight of the portfolio (including gross notional exposures).
    However, the Advisers now seek to manage the Fund's currency risk 
by hedging substantially all of the Fund's foreign currency exposure in 
its portfolio (the ``Currency Hedge''), up to a 100% hedge.\13\ Under 
Normal Market Conditions,\14\ the Fund will primarily achieve the 
Currency Hedge by using OTC deliverable and non-deliverable currency 
forwards and exchange-listed currency futures. In certain conditions, 
the Fund may also achieve the Currency Hedge by using exchange-listed 
currency options, including exchange-listed and OTC options on currency 
futures, OTC synthetic non-deliverable currency forwards, currency 
swaps, and OTC currency options (collectively, with OTC deliverable and 
non-deliverable currency forwards and exchange-listed currency futures, 
referred to as the ``Currency Derivatives'').
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    \13\ The Fund expects to primarily invest its net assets in 
fixed and floating-rate bonds issued by governments, government 
agencies and governmental-related or corporate issuers located 
outside the U.S. The Fund expects that the gross notional value of 
the Currency Hedge would be equal to the value of the unhedged 
currency exposure associated with its primary holdings, which would 
be approximately 50% of the weight of the portfolio (including gross 
notional exposures).
    \14\ See Exchange Rule 14.11(i)(3)(E).
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    As noted above, all of the Fund's holdings will meet the Generic 
Listing Standards with the exception of its holdings in OTC Currency 
Derivatives, which may not meet the requirement under Rule 
14.11(i)(4)(C)(v) that prevents the aggregate gross notional value of 
OTC derivatives from exceeding 20% of the weight of the portfolio 
(including gross notional exposures).
Precedent and Policy Discussion
    As described above, the Fund will meet all of the Generic Listing 
Standards except as it may relate to its holdings in OTC Currency 
Derivatives, which will be used, in conjunction with its holdings in 
exchange-listed Currency Derivatives, to achieve its Currency 
Hedge.\15\ The Exchange believes that this proposal does not raise any 
substantive issues for the Commission to review because there are 
numerous instances in which the Commission has approved the listing and 
trading of series of Managed Fund Shares that employ substantially 
similar hedging strategies,\16\ especially when compared to the Hedged 
ADR Approval Order. Specifically, the Hedged ADR Approval Order 
approved the listing and trading of eighteen series of Managed Fund 
Shares (the ``Hedged ADR Funds''), each of which consisted of only two 
components: (i) A single ADR; and (ii) OTC currency swaps used to hedge 
against fluctuations in the exchange rate between the U.S. dollar and 
the local currency of the foreign security underlying the ADR. In 
addition to not meeting Rule 14.11(i)(4)(C)(v) related to the OTC 
derivatives used to hedge currency exposure, each series of the Hedged 
ADR Funds also did not meet the concentration \17\ and diversity \18\ 
requirements related to their respective equity holdings. Stated 
another way, the Fund is proposing to implement a Currency Hedge using 
similar instruments as the Hedged ADR Funds, but does not require the 
additional relief from the fixed income concentration \19\ and 
diversity \20\ requirements holdings portion of the Generic Listing 
Standards that was necessary (as it pertained to equity holdings) for 
the Hedged ADR Funds to list and trade. While the Fund intends to use 
primarily OTC deliverable and non-deliverable currency forwards and 
exchange-listed currency futures to hedge its currency

[[Page 12642]]

risk rather than currency swaps, the policy concerns surrounding the 
fact that the Fund will not meet Rule 14.11(i)(4)(C)(v) are the same, 
and those concerns are mitigated for the same reasons, as discussed 
below.
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    \15\ The Exchange notes that the Fund's holdings in exchange-
listed derivatives will meet the requirements set forth in Exchange 
Rule 14.11(i)(4)(C)(iv).
    \16\ See Securities Exchange Act Release Nos. 84143 (September 
14, 2018), 83 FR 47659 (September 20, 2018) (SR-CboeBZX-2018-019) 
(order approving the listing and trading of eighteen series of 
Managed Fund Shares that allowed each series to hedge its foreign 
equity position with up to 50% gross notional exposure to OTC 
currency swaps) (the ``Hedged ADR Approval Order''); 85474 (March 
29, 2019), 84 FR 13371 (April 4, 2019) (SR-CboeBZX-2019-019); 84818 
(December 13, 2018), 83 FR 65189 (December 19, 2018) (SR-NYSEArca-
2018-75) (order approving the listing and trading of a series of 
Managed Fund Shares that may hold up to 50% of the aggregate gross 
notional value of the fund's portfolio in OTC derivatives for the 
purpose of reducing currency, interest rate, credit, or duration 
risk, in addition to allowing the fund to hold an additional 20% of 
non-hedging OTC derivatives); 82591 (January 26, 2018) 83 FR 4707 
(February 1, 2018) (SR-BatsBZX-2017-54) (the ``Inflation Hedged 
Fund'') (order approving the listing and trading of a series of 
Managed Fund Shares that could gain up to 50% gross notional 
exposure to OTC derivatives in order to hedge against inflation in 
the fund's portfolio); and 83363 (June 1, 2018), 83 FR 26531 (June 
7, 2018) (SR-CboeBZX-2018-036) (notice of filing and immediate 
effectiveness of a proposal to allow the Inflation Hedged Fund to 
increase its potential exposure to OTC derivative instruments from 
50% to 60% of the fund's gross notional value).
    \17\ See Rule 14.11(i)(4)(C)(i)(a)(3).
    \18\ See Rule 14.11(i)(4)(C)(i)(a)(4).
    \19\ See Rule 14.11(i)(4)(C)(ii)(c).
    \20\ See Rule 14.11(i)(4)(C)(ii)(d).
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    The Exchange believes that, while the portfolio of the Fund might 
not meet Rule 14.11(i)(4)(C)(v), the policy issues that the rule is 
intended to address are otherwise mitigated by the structure and 
purpose of the Currency Hedge within the Fund.\21\ Specifically, the 
Exchange believes that the policy issues that Rule 14.11(i)(4)(C)(v) is 
intended to address are mitigated by the way that the Fund will use OTC 
Currency Derivatives. The rule is intended to mitigate concerns around 
the manipulability of a particular underlying reference asset or 
derivatives contract. While the Currency Hedge positions taken by the 
Fund may not meet the Generic Listing Standards related to OTC 
derivatives holdings, the policy concerns about limiting exposure to 
potentially manipulable underlying reference assets that the Generic 
Listing Standards are intended to address are otherwise mitigated by 
the liquidity in the underlying spot currency market that prevents 
manipulation of the reference prices used by the Currency Hedge.\22\ 
The Fund will attempt to limit counterparty risk in OTC derivatives by: 
(i) Entering into such contracts only with counterparties the Advisers 
believe are creditworthy; (ii) limiting the Fund's exposure to each 
counterparty; and (iii) monitoring the creditworthiness of each 
counterparty and the Fund's exposure to each counterparty on an ongoing 
basis.
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    \21\ As described above, the Fund expects to invest in excess of 
80% of its net assets in bonds and investments that provide exposure 
to bonds in a manner that will comply with the Generic Listing 
Standards.
    \22\ Based on statistics reported by the Bank for International 
Settlements, there is significant liquidity in the spot market. See 
``Turnover of OTC foreign exchange instruments, by currency'' 
available at: https://stats.bis.org/statx/srs/table/d11.3.
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Availability of Information
    As noted above, the Fund will each comply with the requirements for 
Managed Fund Shares related to Disclosed Portfolio, Net Asset Value, 
and the Intraday Indicative Value. Additionally, the intra-day, closing 
and settlement prices of the component fixed income securities will be 
readily available from the securities exchanges on which such 
securities are traded, as well as published or other public sources, or 
online information services such as Bloomberg or Reuters. Intraday 
price quotations on the OTC Currency Derivatives are available from 
major broker-dealer firms and from third-parties, which may provide 
prices free with a time delay or in real-time for a paid fee. Price 
information for cash equivalents will be available from major market 
data vendors. The Fund's Disclosed Portfolio will be available on the 
issuer's website (https://www.franklintempleton.com/) free of charge. 
The Fund's website will include the prospectus and additional 
information related to NAV and other applicable quantitative 
information. Information regarding market price and trading volume of 
the Shares will be continuously available throughout the day on 
brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume for the 
Shares will be published daily in the financial section of newspapers. 
Trading in the Shares may be halted for market conditions or for 
reasons that, in the view of the Exchange, make trading inadvisable. 
The Exchange deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to the Exchange's existing rules 
governing the trading of equity securities. The Exchange has 
appropriate rules to facilitate trading in the shares during all 
trading sessions.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Fund on the Exchange during all 
trading sessions and to deter and detect violations of Exchange rules 
and the applicable federal securities laws. Trading of the Fund through 
the Exchange will continue to be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. The 
issuer has represented to the Exchange that it will advise the Exchange 
of any failure by the Fund to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Act, the Exchange will surveil for compliance with the continued 
listing requirements. If the Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
proceedings under Rule 14.12. The Exchange may obtain information 
regarding trading in the Fund via the ISG, from other exchanges that 
are members or affiliates of the ISG, or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. 
Additionally, the Exchange or FINRA, on behalf of the Exchange, are 
able to access, as needed, trade information for certain fixed income 
instruments reported to TRACE.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \23\ in general and Section 6(b)(5) of the Act \24\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest. Specifically, the Exchange believes that the proposal 
is consistent with Rule 6(b)(5) of the Act in that is designed to 
prevent fraudulent and manipulative acts and practices because the 
policy concerns about limiting exposure to potentially manipulable 
underlying reference assets that the Generic Listing Standards are 
intended to address, specifically Rule 14.11(i)(4)(C)(v) related to OTC 
holdings, are otherwise mitigated by the liquidity in the underlying 
spot currency market that prevents manipulation of the reference prices 
used by the Currency Hedge. Specifically, the Exchange believes that 
the policy issues that Rule 14.11(i)(4)(C)(v) is intended to address 
are mitigated by the way that the Fund will use OTC Currency 
Derivatives. The rule is intended to mitigate concerns around the 
manipulability of a particular underlying reference asset or 
derivatives contract. As noted above, while the Currency Hedge 
positions that might be taken by the Fund may not meet the Generic 
Listing Standards related to OTC derivatives holdings, the policy 
concerns about limiting exposure to potentially manipulable underlying 
reference assets that the Generic Listing Standards are intended to 
address are otherwise mitigated by the liquidity in the underlying spot 
currency market that prevents manipulation of the reference prices used 
by the Currency Hedge. The Fund will attempt to limit counterparty risk 
in OTC derivatives by: (i) Entering into such contracts only with 
counterparties the Advisers believe are creditworthy; (ii) limiting the 
Fund's exposure to each counterparty; and (iii) monitoring the 
creditworthiness of each counterparty and the Fund's exposure to each 
counterparty on an ongoing basis.
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    \23\ 15 U.S.C. 78f.
    \24\ 15 U.S.C. 78f(b)(5).
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    The Exchange also notes that there are numerous instances in which 
the Commission has approved the listing and trading of series of 
Managed Fund

[[Page 12643]]

Shares that employ nearly identical or substantially similar hedging 
strategies.\25\ Specifically, the Hedged ADR Approval Order approved 
the listing and trading the Hedged ADR Funds, each of which consisted 
of only two components: (i) A single ADR; and (ii) OTC currency swaps 
used to hedge against fluctuations in the exchange rate between the 
U.S. dollar and the local currency of the foreign security underlying 
the ADR. In addition to not meeting Rule 14.11(i)(4)(C)(v) related to 
the OTC currency swaps used to hedge currency exposure, each series of 
the Hedged ADR Funds also did not meet the concentration \26\ and 
diversity \27\ requirements related to their respective equity 
holdings. Stated another way, the Fund is proposing to implement a 
Currency Hedge using similar instruments as the Hedged ADR Funds, but 
do not require the additional relief from the fixed income 
concentration \28\ and diversity \29\ requirements holdings portion of 
the Generic Listing Standards that was necessary (as it pertained to 
equity holdings) for the Hedged ADR Funds to list and trade.
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    \25\ See Securities Exchange Act Release Nos. 84143 (September 
14, 2018), 83 FR 47659 (September 20, 2018) (SR-CboeBZX-2018-019) 
(order approving the listing and trading of eighteen series of 
Managed Fund Shares that allowed each series to hedge its foreign 
equity position with up to 50% gross notional exposure to OTC 
currency swaps) (the ``Hedged ADR Approval Order''); 84818 (December 
13, 2018), 83 FR 65189 (December 19, 2018) (SR-NYSEArca-2018-75) 
(order approving the listing and trading of a series of Managed Fund 
Shares that may hold up to 50% of the aggregate gross notional value 
of the fund's portfolio in OTC derivatives for the purpose of 
reducing currency, interest rate, credit, or duration risk, in 
addition to allowing the fund to hold an additional 20% of non-
hedging OTC derivatives); 82591 (January 26, 2018) 83 FR 4707 
(February 1, 2018) (SR-BatsBZX-2017-54) (the ``Inflation Hedged 
Fund'') (order approving the listing and trading of a series of 
Managed Fund Shares that could gain up to 50% gross notional 
exposure to OTC derivatives in order to hedge against inflation in 
the fund's portfolio); and 83363 (June 1, 2018), 83 FR 26531 (June 
7, 2018) (SR-CboeBZX-2018-036) (notice of filing and immediate 
effectiveness of a proposal to allow the Inflation Hedged Fund to 
move increase its potential exposure to OTC derivative instruments 
from 50% to 60% of the fund's gross notional value).
    \26\ See Rule 14.11(i)(4)(C)(i)(a)(3).
    \27\ See Rule 14.11(i)(4)(C)(i)(a)(4).
    \28\ See Rule 14.11(i)(4)(C)(ii)(c).
    \29\ See Rule 14.11(i)(4)(C)(ii)(d).
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    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Fund on the Exchange during all 
trading sessions and to deter and detect violations of Exchange rules 
and the applicable federal securities laws. Trading of the Fund through 
the Exchange will be subject to the Exchange's surveillance procedures 
for derivative products, including Managed Fund Shares. All statements 
and representations made in this filing regarding the description of 
the portfolio or reference assets, limitations on portfolio holdings or 
reference assets, dissemination and availability of reference assets 
and intraday indicative values, and the applicability of Exchange 
listing rules specified in this filing shall constitute continued 
listing requirements for the Fund. The Trust, on behalf of the Fund, 
has represented to the Exchange that it will advise the Exchange of any 
failure by the Fund or the Shares to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Act, the Exchange will surveil for compliance with the continued 
listing requirements. If the Fund or the Shares are not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under Exchange Rule 14.12.
    As described above, the Exchange may obtain information regarding 
trading in the Fund via the ISG, from other exchanges that are members 
or affiliates of the ISG, or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. Additionally, the 
Exchange or FINRA, on behalf of the Exchange, are able to access, as 
needed, trade information for certain fixed income instruments reported 
to TRACE.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of 
additional series of Managed Fund Shares that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \30\ and Rule 19b-4(f)(6) thereunder.\31\ 
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, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \32\ and Rule 19b-
4(f)(6) thereunder.\33\
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    \30\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \31\ 17 CFR 240.19b-4(f)(6).
    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \34\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\35\ the Commission may 
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 to allow the Fund to 
fully implement its Currency Hedge without unnecessary delay. The 
Exchange states that the Fund is proposing to implement a Currency 
Hedge using similar instruments as the Hedged ADR Funds, and that 
waiver of the 30-day operative delay would more quickly facilitate the 
Advisers' ability to fully implement its Currency Hedge, which would 
enhance competition among market participants to the benefit of 
investors and the marketplace. The Commission believes that the 
proposal raises no substantive issues and that therefore waiver of the 
30-day operative delay is consistent with the protection of investors 
and the public interest. Accordingly, the Commission hereby waives the 
30-day operative delay and designates the proposed rule change 
operative upon filing.\36\
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    \34\ 17 CFR 240.19b-4(f)(6).
    \35\ 17 CFR 240.19b-4(f)(6)(iii).
    \36\ For purposes only of waiving the operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such

[[Page 12644]]

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 shall 
institute proceedings to determine whether the proposed rule change 
should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2020-018 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CboeBZX-2020-018. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2020-018, and should be 
submitted on or before March 24, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(12)
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04285 Filed 3-2-20; 8:45 am]
 BILLING CODE 8011-01-P


