[Federal Register Volume 85, Number 59 (Thursday, March 26, 2020)]
[Notices]
[Pages 17148-17151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06301]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88439; File No. SR-LTSE-2020-06]


Self-Regulatory Organizations; Long-Term Stock Exchange; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change Relating 
to the Trading of Exchange Traded Products on an Unlisted Trading 
Privileges Basis

March 20, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on March 11, 2020, Long-Term Stock Exchange (``LTSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    LTSE proposes a rule change to adopt rules relating to the trading 
of Exchange Traded Products (``ETPs'') on an unlisted trading 
privileges (``UTP'') basis.
    The text of the proposed rule change is available at the Exchange's 
website at https://longtermstockexchange.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

[[Page 17149]]

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

    In its filing with the Commission, the self-regulatory organization 
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 those statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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 on the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt rules to allow for trading 
securities on a UTP basis. The Exchange proposes to adopt LTSE Rule 
14.350, which would address securities traded pursuant to UTP and would 
set standards for certain equity derivative securities that are 
identical to the rules of other equity exchanges,\4\ but for changes to 
the terminology used by the Exchange (i.e., ``Member'' instead of ``ETP 
Holder'') and the placement of two definitions directly within the rule 
(i.e., the definitions of ``Exchange Traded Product'' and ``UTP 
Exchange Traded Product'' in proposed Rule 14.350(b)).
---------------------------------------------------------------------------

    \4\ See NYSE National Rule 5.1; see also Securities Exchange Act 
Release No. 83289 (May 17, 2018), 83 FR 23968 (May 23, 2018) (SR-
NYSENAT-2018-02) (approving NYSE National Rule 5.1).
---------------------------------------------------------------------------

    Proposed Rule 14.350(a) would allow the Exchange to extend UTP to 
any security that is an NMS Stock (as defined in Rule 600 under 
Regulation NMS) that is listed on another national securities exchange 
or with respect to which UTP may otherwise be extended in accordance 
with Section 12(f) of the Exchange Act.\5\ Any such security to which 
UTP is extended would be subject to all of the Exchange's rules 
applicable to trading on the Exchange, unless otherwise noted.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78l(f). See also 17 CFR 242.600.
---------------------------------------------------------------------------

    Proposed Rule 14.350(b) would adopt a definition of ``Exchange 
Traded Product'' to mean a security that meets the definition of 
``derivative securities product'' in Rule 19b-4(e) under the Exchange 
Act. The proposed rule also would adopt a definition of ``UTP Exchange 
Traded Product'' to mean one of the following Exchange Traded Products 
that trades on the Exchange pursuant to unlisted trading privileges: 
Equity Linked Notes, Investment Company Units, Index-Linked 
Exchangeable Notes, Equity Gold Shares, Equity Index-Linked Securities, 
Commodity-Linked Securities, Currency-Linked Securities, Fixed-Income 
Index-Linked Securities, Futures-Linked Securities, Multifactor-Index-
Linked Securities, Trust Certificates, Currency and Index Warrants, 
Portfolio Depository Receipts, Trust Issued Receipts, Commodity-Based 
Trust Shares, Currency Trust Shares, Commodity Index Trust Shares, 
Commodity Futures Trust Shares, Partnership Units, Paired Trust Shares, 
Trust Units, Managed Fund Shares, and Managed Trust Securities.\6\
---------------------------------------------------------------------------

    \6\ The terms ``Exchange Traded Product'' and ``UTP Exchange 
Traded Product'' are identical to those terms as they are used in 
NYSE National Rule 5.1 and defined in NYSE National Rule 1.1(m). See 
supra text accompanying note 4.
---------------------------------------------------------------------------

    Any UTP Security \7\ that is a UTP Exchange Traded Product would be 
subject to the additional requirements set forth in the proposed 
subsections of Rule 14.350(b).
---------------------------------------------------------------------------

    \7\ ``UTP Security'' is defined as ``any security that is not 
listed on the Exchange, but is traded on the Exchange pursuant to 
unlisted trading privileges.'' LTSE Rule 1.160(vv).
---------------------------------------------------------------------------

    Specifically, proposed Rule 14.350(b)(1) would provide that the 
Exchange distribute an information circular prior to the commencement 
of trading in each UTP Exchange Traded Product that generally includes 
the same information as is contained in the information circular 
provided by the listing exchange, including (a) the special risks of 
trading the new Exchange Traded Product, (b) the Exchange's rules that 
apply to the new Exchange Traded Product, and (c) information about the 
dissemination of value of the underlying assets or indices.
    Proposed Rule 14.350(b)(2)(A) would set forth requirements 
regarding prospectus delivery requirements. Members would be subject to 
the prospectus delivery requirements under the Securities Act of 1933, 
unless the UTP Exchange Traded Product is the subject of an order by 
the Securities and Exchange Commission exempting the product from 
certain prospectus delivery requirements under Section 24(d) of the 
Investment Company Act of 1940 \8\ and the product is not otherwise 
subject to prospectus delivery requirements under the Securities Act of 
1933.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 80a-24.
---------------------------------------------------------------------------

    Proposed Rule 14.350(b)(2)(B) would require the Exchange to inform 
Members of the application of the provisions of this subparagraph to 
UTP Exchange Traded Products by means of an information circular. It 
also would require the Exchange to require that a Member of the 
Exchange provide each purchaser of UTP Exchange Traded Products a 
written description of the terms and characteristics of those 
securities, in a form approved by the Exchange or prepared by the open-
ended management company issuing such securities, not later than the 
time a confirmation of the first transaction in such securities is 
delivered to the purchaser. In addition, a Member would need to include 
a written description of the terms and characteristics of these 
securities with any sales material relating to UTP Exchange Traded 
Products 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 the UTP Exchange Traded Products as an investment 
vehicle would need to include a statement substantially in the 
following form: ``A circular describing the terms and characteristics 
of [the UTP Exchange Traded Products] has been prepared by the [open-
ended management investment company name] and is available from your 
broker. It is recommended that you obtain and review such circular 
before purchasing [the UTP Exchange Traded Products].'' A Member 
carrying an omnibus account for a non-Member would be required to 
inform such non-Member that execution of an order to purchase UTP 
Exchange Traded Products for such omnibus account would be deemed to 
constitute an agreement by the non-Member to make such written 
description available to its customers on the same terms that are 
directly applicable to the Member under this proposed rule.
    Proposed Rule 14.350(b)(2)(C) would provide that, upon request of a 
customer, a Member would need to provide to the customer a prospectus 
for the particular UTP Exchange Traded Product.
    Proposed Rule 14.350(b)(3) would govern trading halts and would 
provide that the Exchange would halt trading in a UTP Exchange Traded 
Product as provided for in Exchange Rule 11.271. Nothing in proposed 
Rule 14.350(b)(3) would be intended to limit the power of the Exchange 
under its rules or procedures with respect to its ability to suspend 
trading in any securities if such suspension is necessary for the 
protection of investors or in the public interest.
    Proposed Rule 14.350(b)(4) would set forth restrictions on Members 
acting as Market Makers on the Exchange in a UTP Exchange Traded 
Product that derives its value from one or more

[[Page 17150]]

currencies, commodities, or derivatives based on one or more currencies 
or commodities, or is based on a basket or index composed of currencies 
or commodities (collectively, ``Reference Assets'').
    First, under proposed Rule 14.350(b)(A), Market Makers would need 
to file with the Exchange, in a manner prescribed by the Exchange, and 
keep current a list identifying all accounts for trading the underlying 
physical asset or commodity, related futures or options on futures, or 
any other related derivatives (collectively with Reference Assets, 
``Related Instruments''), which the Member acting as a registered 
Market Maker on the Exchange may have or over which it may exercise 
investment discretion. No Market Maker would be permitted to trade in 
the underlying physical asset or commodity, related futures or options 
on futures, or any other related derivatives, in an account in which a 
Member acting as a registered Market Maker on the Exchange, directly or 
indirectly, controls trading activities, or has a direct interest in 
the profits or losses thereof, which has not been reported to the 
Exchange as required by proposed Rule 14.350.
    Second, under proposed Rule 14.350(b)(B), a Market Maker on the 
Exchange would, in a manner prescribed by the Exchange, be required to 
file with the Exchange and keep current a list identifying any accounts 
(``Related Instrument Trading Accounts'') for which Related Instruments 
are traded: (i) In which the Market Maker holds an interest; (ii) over 
which it has investment discretion; or (iii) in which it shares in the 
profits and/or losses. A Market Maker on the Exchange would not be 
permitted to have an interest in, exercise investment discretion over, 
or share in the profits and/or losses of a Related Instrument Trading 
Account that has not been reported to the Exchange as required by 
proposed Rule 14.350.
    Third, under proposed Rule 14.350(b)(C), in addition to the 
existing obligations under Exchange rules regarding the production of 
books and records, a Market Maker on the Exchange would be required to, 
upon request by the Exchange, make available to the Exchange any books, 
records, or other information pertaining to any Related Instrument 
Trading Account or to the account of any registered or non-registered 
employee affiliated with the Market Maker on the Exchange for which 
Related Instruments are traded.
    Fourth, under proposed Rule 14.350(b)(D), a Market Maker on the 
Exchange would not be allowed to use any material nonpublic information 
in connection with trading a Related Instrument.
    Finally, proposed Rule 14.350(b)(5) would provide that the Exchange 
will enter into comprehensive surveillance sharing agreements with 
markets that trade components of the index or portfolio on which the 
UTP Exchange Traded Product is based to the same extent as the listing 
exchange's rules require the listing exchange to enter into 
comprehensive surveillance sharing agreements with such markets.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\9\ in general, and 
furthers the objectives of Section 6(b)(5) of the Act,\10\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, 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 mechanisms of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that proposed Rule 14.350 would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, would protect 
investors and the public interest by providing for the trading of 
securities, including UTP Exchange Traded Products, on the Exchange 
pursuant to UTP, subject to consistent and reasonable standards. 
Accordingly, the proposed rule change would contribute to the 
protection of investors and the public interest because it may provide 
a better trading environment for investors and, generally, encourage 
greater competition between markets.
    The proposal is designed to remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
adopting rules that will ultimately lead to the trading pursuant to UTP 
of the proposed products on the Exchange, just as they are currently 
traded on other exchanges. The proposed changes do nothing more than 
match Exchange rules with what is currently available on other 
exchanges.\11\ The Exchange believes that by conforming its rules and 
allowing trading opportunities on the Exchange that are already allowed 
by rule on another market, the proposed rule change would offer another 
venue for trading Exchange Traded Products and thereby promote broader 
competition among exchanges. The Exchange also believes that 
individuals and entities that are allowed to make markets on the 
Exchange in the proposed new products should enhance competition within 
the mechanism of a free and open market and a national market system, 
and customers and other investors in the national market system should 
benefit from more depth and liquidity in the market for the proposed 
new products.
---------------------------------------------------------------------------

    \11\ See supra note 4.
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 14.350, which would 
enumerate the categories of UTP Exchange Traded Products that the 
Exchange proposes to trade and would specify additional requirements 
relating to UTP Exchange Traded Products, would ensure the maintenance 
of a fair and orderly market and provide for mechanisms for the 
regulatory oversight of securities trading on a UTP basis on the 
Exchange, in compliance with Rule 12f-5 under the Act.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 240.12f-5.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed rule change supports 
the principles of Section 11A(a)(1) of the Act \13\ in that it seeks to 
ensure the economically efficient execution of securities transactions 
and fair competition among brokers and dealers, and among exchange 
markets. The proposed rule change also supports the principles of 
Section 12(f) of the Act, which govern the trading of securities 
pursuant to a grant of unlisted trading privileges consistent with the 
maintenance of fair and orderly markets, the protection of investors 
and the public interest, and the impact of extending the existing 
markets for such securities.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

    By providing for the trading of securities on the Exchange on a UTP 
basis, the Exchange believes its proposal will lead to the addition of 
liquidity to the broader market for these securities and to increased 
competition among the existing group of liquidity providers. The 
Exchange also believes that, by so doing, the proposed rule change 
would encourage the additional utilization of, and interaction with, 
the exchange market, and provide market participants with improved 
price discovery, increased liquidity, more competitive quotes, and 
greater price improvement for securities traded pursuant to UTP.
    The Exchange further believes that enhancing liquidity by trading 
securities

[[Page 17151]]

on a UTP basis would help raise investors' confidence in the fairness 
of the market, generally, and their transactions, in particular. As 
such, the general UTP trading rule would foster cooperation and 
coordination with persons engaged in facilitating securities 
transactions, enhance the mechanism of a free and open market, and 
promote fair and orderly markets in securities on the Exchange.

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

    LTSE does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    Written comments were neither solicited nor received.

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 \14\ and Rule 19b-4(f)(6) thereunder.\15\ 
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 prior to 
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, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6) 
thereunder.\17\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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 shall institute proceedings under 
Section 19(b)(2)(B) \18\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-LTSE-2020-06 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-LTSE-2020-06. 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-LTSE-2020-06 and should be submitted on 
or before April 16, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06301 Filed 3-25-20; 8:45 am]
 BILLING CODE 8011-01-P


