[Federal Register Volume 84, Number 188 (Friday, September 27, 2019)]
[Notices]
[Pages 51193-51205]
[FR Doc No: 2019-20970]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87062; File No. SR-CboeBZX-2019-047]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of Amendment No. 2 and Order Instituting Proceedings To
Determine Whether To Approve or Disapprove a Proposed Rule Change To
Adopt BZX Rule 14.11(k) To Permit the Listing and Trading of Managed
Portfolio Shares

September 23, 2019.

I. Introduction

    On June 6, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to adopt BZX Rule 14.11(k) to permit the listing and trading 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. The proposed
rule change was published for comment in the Federal Register on June
25, 2019.\3\ On August 2, 2019, pursuant to Section 19(b)(2) of the
Exchange Act,\4\ the Commission designated a longer period within which
to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ On September 20, 2019, the Exchange filed
Amendment No. 1 to the proposed rule change, which replaced and
superseded the proposed rule change as originally filed. On September
23, 2019, the Exchange filed Amendment No. 2 to the proposed rule
change, which replaced and superseded the proposed rule change as
amended by Amendment No. 1.\6\ The Commission has received no comments
on the proposed rule change. The Commission is publishing this notice
and order to solicit comments on the proposed rule change, as modified
by Amendment No. 2, from interested persons and to institute
proceedings pursuant to Section 19(b)(2)(B) of the Act \7\ to determine
whether to approve or disapprove the proposed rule change, as modified
by Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 86157 (June 19,
2019), 84 FR 29892.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 86157, 84 FR 39046
(August 8, 2019). The Commission designated September 23, 2019, as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
    \6\ Amendments No. 1 and No. 2 are available on the Commission's
website at www.sec.gov.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. The Exchange's Description of 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 Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

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

1. Purpose
    This Amendment No. 2 to SR-CboeBZX-2019-047 amends and replaces in
its entirety the proposal as amended by Amendment No. 1, which was
submitted on September 20, 2019, which amended and replaced in its
entirety the proposal as originally submitted on June 5, 2019. The
Exchange submits this Amendment No. 2 in order to clarify certain
points and add additional details to the proposal. The Exchange submits
this Amendment No. 2 in order to clarify certain points and add
additional details to the proposal.
    The Exchange proposes to add new Rule 14.11(k) for the purpose of
permitting the listing and trading, or trading pursuant to unlisted
trading privileges, of Managed Portfolio Shares, which are securities
issued by an actively managed open-end management investment
company.\8\
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    \8\ The basis of this proposal is 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''). The Order specifically notes 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 Investment
Company Act Release Nos. 33440 and 33477.
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Proposed Listing Rules
    The proposed change to Rule 14.11(a) would amend the rule to
include any statements or representations regarding the Verified
Intraday Indicative Values included in any filing to list a series of
Managed Portfolio Shares as constituting continued listing requirements
for such securities listed on the Exchange.
    Proposed Rule 14.11(k)(1) provides that the Exchange will consider
for trading, whether by listing or pursuant to unlisted trading
privileges, Managed Portfolio Shares that meet the criteria of Rule
14.11(k).
    Proposed Rule 14.11(k)(2) provides that Rule 14.11(k) is applicable
only to Managed Portfolio Shares and that, except to the extent
inconsistent with Rule 14.11(k), 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(k)(2) 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(k)(2)(A) 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(k)(2)(B) provides that transactions in Managed
Portfolio Shares will occur only during Regular Trading Hours.\9\
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    \9\ 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.
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    Proposed Rule 14.11(k)(2)(C) 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 make
available to the Exchange and/or FINRA, on behalf of the Exchange, the
daily portfolio holdings of each series of Managed Portfolio Shares.
    Proposed Rule 14.11(k)(2)(D) 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 and/or changes to such Investment Company
portfolio and/or 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, Creation
Basket, or changes thereto, must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the applicable Investment Company portfolio or Creation
Basket.
    Proposed Rule 14.11(k)(2)(E) provides that person or entity,
including an AP Representative, custodian, pricing verification agent,
reporting authority, distributor, or administrator, who has access to
information regarding the Investment Company's portfolio composition,
the Creation Basket, or changes thereto, must be subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding the applicable Investment Company portfolio or
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(k)(3)(A) 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 SEC) 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 calendar quarter.\10\
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    \10\ 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''.
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    Proposed Rule 14.11(k)(3)(B) 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(k)(3)(C) 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 all
consideration to or from the Investment Company in a creation or
redemption. An AP Representative will be restricted from disclosing the
Creation Basket.
    Proposed Rule 14.11(k)(3)(D) 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(k)(3)(E) defines the term ``Creation Basket''
as on any given business day the names and quantities of the specified
instruments 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 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(k)(3)(F) 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 designated portfolio of instruments and/or cash.
    Proposed Rule 14.11(k)(3)(G) 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(k)(3)(H) 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 unlisted trading privileges), 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 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(k)(3)(I) 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(k)(4)(A) sets forth initial listing criteria
applicable to Managed Portfolio Shares. Proposed Rule 14.11(k)(4)(A)(i)
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(k)(4)(A)(ii) 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(k)(4)(A)(iii) 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(k)(4)(B) 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(k)(4)(B)(i) 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(k)(4)(B)(ii) provides that the
Exchange will consider the suspension of trading in, and will commence
delisting proceedings under Rule 14.12 for, a series of Managed
Portfolio Shares under any of the following circumstances: (a) 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; (b) if the Exchange has
halted trading in a series of Managed Portfolio Shares because the VIIV
is interrupted pursuant to Rule 14.11(k)(4)(B)(iii) and such
interruption persists past the trading day in which it occurred or is
no longer available; (c) 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(k)(4)(B)(iii) and
such issue persists past the trading day in which it occurred; (d) 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; (e) if
any of the continued listing requirements set forth in Rule 14.11(k)
are not continuously maintained; (f) if any of the applicable Continued
Listing Representations, as defined in Rule 14.11(a), for the issue of
Managed Portfolio Shares are not continuously met; or (g) 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(k)(4)(B)(iii)(a) provides that, upon
notification to the Exchange by the Investment Company or its agent of
the existence of any condition or set of conditions specified in any
currently applicable exemptive order or no-action relief granted by the
Commission or Commission staff that would require the Investment
Company's investment adviser to request that the Exchange halt trading
in the Managed Portfolio Shares, the Exchange shall halt trading in the
Managed Portfolio Shares as soon as practicable. Such halt in trading
shall continue until the Investment Company or its agent notifies the
Exchange that the condition or conditions necessary for the resumption
of trading have been met.\11\
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    \11\ As provided in the Application, such conditions would exist
where either: (i) The intraday indicative values calculated by the
pricing verification agent(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 shall halt trading in the Managed Portfolio
Shares as soon as practicable after receipt of notification of the
existence of such conditions. Such halt in trading shall continue
until the Investment Company or its agent notifies the Exchange that
these conditions no longer exist.
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    Proposed Rule 14.11(k)(4)(B)(iii)(b) provides that, if the Exchange
becomes aware that: (i) The Verified Intraday Indicative Value 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, 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 to all market participants as required.
    Proposed Rule 14.11(k)(4)(B)(iv) 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(k)(4)(B)(v) provides that voting rights shall
be as set forth in the applicable Investment Company prospectus and/or
statement of additional information.
    Proposed Rule 14.11(k)(5), 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, 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(k)(6), which relates to disclosures, provides
that the provisions of subparagraph (k)(6) 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 Managed Fund Shares (as defined
in Rule 14.11(i)),\12\ Managed Portfolio Shares differ from Managed
Fund Shares in the following important respects.\13\ First, in contrast
to Managed Fund Shares, which require a ``Disclosed Portfolio'' to be
disseminated at least once daily,\14\ 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.\15\ 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.
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    \12\ The Commission approved a proposed rule change to adopt
generic listing standards for Managed Fund Shares. See Securities
Exchange Act Release No. 78396 (July 22, 2016), 81 FR 49698 (July
28, 2016 (SR-BATS-2015-100) (order approving proposed rule change to
amend Rule 14.11(i) to adopt generic listing standards for Managed
Fund Shares).
    \13\ The Exchange notes that these unique components of Managed
Portfolio Shares were addressed in the Exemptive Order (specifically
in the Application and Notice). 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 Application at 19-20.
    \14\ BZX Rule 14.11(i)(3)(B) 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. 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.
    \15\ 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.
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    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, after consulting with various Lead Market Makers
(``LMMs'') \16\ that trade exchange-traded funds (``ETFs'') on 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,\17\ 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.\18\ 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 \19\ of a fund's underlying portfolio.\20\ 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.
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    \16\ As defined in Exchange Rule 11.8(e)(1)(B), the term LMM
means a Market Maker registered with the Exchange for a particular
LMM Security that has committed to maintain Minimum Performance
Standards in the LMM Security. As defined in Exchange Rule
11.8(e)(1)(C), the term ``LMM Security'' means an ETP that has an
LMM. As defined in Rule 11.8(e)(1)(D), the term ``Minimum
Performance Standards means a set of standards applicable to an LMM
that may be determined from time to time by the Exchange. Such
standards will vary between LMM Securities depending on the price,
liquidity, and volatility of the LMM Security in which the LMM is
registered. The performance measurements will include: (A) Percent
of time at the NBBO; (B) percent of executions better than the NBBO;
(C) average displayed size; and (D) average quoted spread.
    \17\ 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.
    \18\ 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.
    \19\ 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.
    \20\ 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),\21\ 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.
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    \21\ 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.
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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 \22\ with an AP Representative,\23\ 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.\24\ 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
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.
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    \22\ 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.
    \23\ Each AP shall enter into its own separate Confidential
Account with an AP Representative.
    \24\ 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.\25\
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    \25\ 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 \26\ 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.
---------------------------------------------------------------------------

    \26\ 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.\27\
---------------------------------------------------------------------------

    \27\ 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.\28\ Each AP will be required to open a
Confidential Account with an AP Representative in order to facilitate
orderly processing of redemptions.
---------------------------------------------------------------------------

    \28\ 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 approximately equal to the value of the Shares
\29\ 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.
---------------------------------------------------------------------------

    \29\ 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 and non-AP market participants will provide the AP Representative
with a list of restricted securities applicable to the AP or non-AP
market participants 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. If a Fund is not in compliance with the applicable
listing requirements, the Exchange will commence delisting procedures
under Exchange Rule 14.12.
    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(k)(2)(C), 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, while the Exchange can
envision circumstances under which such information would be useful to
the Exchange, specifically in testing for a Fund's compliance with any
continued listing representations in the rule filing under Section
19(b) of the Act pursuant to which the Fund is listed on the Exchange,
among others, the Exchange does not believe that there is value in the
Exchange receiving such information every day, given its sensitivity.
The Exchange does not believe that any of its real-time surveillances
or reasons for halting a security, as further described below, would be
enhanced by receiving such information and in addition does not believe
that it makes sense to default to sharing the portfolio holdings
unnecessarily on a daily basis.
    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.\30\ 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.\31\ While future exemptive relief applicable to Managed
Portfolio Shares may expand the investable universe, the Exchange notes
that proposed Rule 14.11(k)(2)(A) 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.
---------------------------------------------------------------------------

    \30\ 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.
    \31\ 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 would halt trading as soon as
practicable under the following circumstances: (a) Upon notification to
the Exchange by the Investment Company or its agent of the existence of
any condition or set of conditions specified in any currently
applicable exemptive order or no-action relief granted by the
Commission or Commission staff that would require the Investment
Company's investment adviser to request that the Exchange halt trading
in the Managed Portfolio Shares; and (b) 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 NAV 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, and will not resume trading in such series until such time
as the VIIV, the net asset value, or the holdings are available to all
market participants, as required (collectively, ``Publicly Available
Information Halts'').
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(k)(3)(B), 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(k)(2)(B). As provided
in BZX 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) BZX 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., E.T. each trading day.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section
6(b) of the Act \32\ in general and Section 6(b)(5) of the Act \33\ 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.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78f.
    \33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 14.11(k) 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(k)(4) sets forth
initial and continued listing criteria applicable to Managed Portfolio
Shares. Proposed Rule 14.11(k)(4)(A)(i) 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(k)(4)(A)(ii) 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.\34\ Proposed Rule 14.11(k)(4)(A)(iii)
provides that all Managed Portfolio Shares shall have a stated
investment objective, which shall be adhered to under normal market
conditions.
---------------------------------------------------------------------------

    \34\ Proposed Rule 14.11(k)(4)(B)(iii)(b) 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(k)(4)(B) 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(k)(4)(B)(i) 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 market
participants at the same time. Proposed Rule 14.11(k)(4)(B)(ii)
provides that the Exchange will consider the suspension of trading in,
and will commence delisting proceedings under Rule 14.12 for, a series
of Managed Portfolio Shares under any of the following circumstances:
(a) 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; (b) 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(k)(4)(B)(iii) and such interruption persists past the trading day
in which it occurred or is no longer available; (c) 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(k)(4)(B)(iii) and such issue
persists past the trading day in which it occurred; (d) 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; (e) if any of the
continued listing requirements set forth in Rule 14.11(k) are not
continuously maintained; (f) if any of the applicable Continued Listing
Representations, as defined in Rule 14.11(a), for the issue of Managed
Portfolio Shares are not continuously met; or (g) 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(k)(4)(B)(iii)(a) provides that, upon notification to the Exchange
by the Investment Company or its agent of the existence of any
condition or set of conditions specified in any currently applicable
exemptive order or no-action relief granted by the Commission or
Commission staff that would require the Investment Company's investment
adviser to request that the Exchange halt trading in the Managed
Portfolio Shares, the Exchange shall halt trading in the Managed
Portfolio Shares as soon as practicable. Such halt in trading shall
continue until the Investment Company or its agent notifies the
Exchange that the condition or conditions necessary for the resumption
of trading have been met.\35\
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    \35\ As provided in the Application, such conditions would exist
where either: (i) The intraday indicative values calculated by the
pricing verification agent(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 shall halt trading in the Managed Portfolio
Shares as soon as practicable after receipt of notification of the
existence of such conditions. Such halt in trading shall continue
until the Investment Company or its agent notifies the Exchange that
these conditions no longer exist.
---------------------------------------------------------------------------

    Proposed Rule 14.11(k)(4)(B)(iii)(b) provides that, if the Exchange
becomes aware that: (i) The Verified Intraday Indicative Value 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, 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 to all market participants as required. Proposed
Rule 14.11(k)(4)(B)(iv) 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(k)(4)(B)(v) 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.\36\
---------------------------------------------------------------------------

    \36\ See Notice at 15.
---------------------------------------------------------------------------

    Proposed Rule 14.11(k)(2)(D) 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 and/or changes to such Investment Company
portfolio and/or 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, the Creation
Basket, or changes thereto, must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the applicable Investment Company portfolio or Creation
Basket. Proposed Rule 14.11(k)(2)(E) provides that, any person or
entity, including an AP Representative, custodian, pricing verification
agent, reporting authority, distributor, or administrator, who has
access to information regarding the Investment Company's portfolio
composition, the Creation Basket, or changes thereto, must be subject
to procedures designed to prevent the use and dissemination of material
nonpublic information regarding the applicable Investment Company
portfolio or 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.\37\
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    \37\ 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.
---------------------------------------------------------------------------

    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(k)(2)(E)
\38\ 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.
---------------------------------------------------------------------------

    \38\ As described above, proposed Rule 14.11(k)(2)(E) provides
that any person or entity, including an AP Representative,
custodian, pricing verification agent, reporting authority,
distributor, or administrator, who has access to information
regarding the Investment Company's portfolio composition, the
Creation Basket, or changes thereto, must be subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding the applicable Investment Company portfolio or
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, after consulting with various LMMs that trade ETFs on
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.\39\ 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.
---------------------------------------------------------------------------

    \39\ 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 to the Exchange 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.
    The LMMs 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 LMMs 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 \40\ or by 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.\41\
---------------------------------------------------------------------------

    \40\ 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.
    \41\ 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.\42\
---------------------------------------------------------------------------

    \42\ 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 would halt trading as soon as
practicable under the following circumstances: (a) Upon notification to
the Exchange by the Investment Company or its agent of the existence of
any condition or set of conditions specified in any currently
applicable exemptive order or no-action relief granted by the
Commission or Commission staff that would require the Investment
Company's investment adviser to request that the Exchange halt trading
in the Managed Portfolio Shares; and (b) 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 NAV 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, and will not resume trading in such series until such time
as the VIIV, the net asset value, or the holdings are available to all
market participants, as required.
    The Exchange is proposing to rely on notice from the Investment
Company or its agent of certain circumstances provided under the
Investment Company's exemptive order or no-action relief to halt
trading in a series of Managed Portfolio Shares (an ``Exemptive Halt'')
and four scenarios under which the Exchange would halt trading upon
becoming aware of certain circumstances. Specifically, the Exchange is
proposing to rely on notice from the Investment Company or its agent to
halt for an Exemptive Halt because the Exchange is not in a position to
know or become aware of such circumstances without the Investment
Company or its agent. As it relates to the Exemptive Halts provided in
the Application and described above, the Exchange does not expect to
act as a pricing verification agent and, as such, would not have access
to such information without notice from the Investment Company or its
agent and similarly will not have direct access to whether the pricing
verification agent has readily available market quotations necessary to
calculate the VIIV. Even if the Investment Company was providing the
Exchange with the portfolio holdings on a daily basis,\43\ the Exchange
would not be in a position to determine whether market quotations are
readily available to the Investment Company or its agent and whether
such quotations are unavailable in holdings representing 10% or more of
a Fund's portfolio. Further, the Exchange believes that it is
appropriate for the Exchange to halt under such circumstances because
prior to listing on the Exchange, the Commission would have issued an
order determining that it is appropriate to halt in those
scenarios.\44\
---------------------------------------------------------------------------

    \43\ As described above under ``Surveillance,'' proposed Rule
14.11(k)(2)(C), 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, but it will not necessarily be providing
such holdings on a daily basis.
    \44\ The Exemptive Halts are included in the Application and
Notice on which the Order is based. See Application at 23 and 24,
footnote 57, respectively, and Notice at 12, Footnote 25.
---------------------------------------------------------------------------

    For each of the Publicly Available Information Halts, the scenario
that triggers a halt is based on information that is available to the
Exchange, either because the information is publicly available, the
information will flow through the Exchange prior to being publicly
disseminated, or both, and, thus, the Exchange is proposing that these
halts should be subject to the Exchange becoming aware of such
circumstances. The Exchange notes, however, that this is in addition to
an Investment Company's obligation of disclosure of noncompliance under
Rule 14.11(a), which requires that a ``Company with securities listed
on the Exchange must provide the Exchange with prompt notification
after the Company becomes aware of any noncompliance by the Company
with the requirements of Rule 14.11.'' With this in mind, the Exchange
becoming aware of any issue that would require a Publicly Available
Information Halt could come through its own surveillances or through
disclosure by an Investment Company. The Exchange further believes that
these proposed reasons 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; \45\ (ii) the other Publicly
Available Information Halts are generally consistent with and designed
to address the same concerns about asymmetry of information that Rule
14.11(i)(4)(iv) related to trading halts in Managed Fund Shares \46\ 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; \47\
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.
---------------------------------------------------------------------------

    \45\ See Application at 4 and Notice at 11.
    \46\ Rule 14.11(i)(4)(iv) provides that ``If the Intraday
Indicative Value of a series of Managed Fund Shares is not being
disseminated as required, the Exchange may halt trading during the
day in which the interruption to the dissemination of the Intraday
Indicative Value occurs. If the interruption to the dissemination of
the Intraday Indicative Value persists past the trading day in which
it occurred, the Exchange will halt trading no later than the
beginning of the trading day following the interruption. In
addition, if the Exchange becomes aware that the net asset value or
the Disclosed Portfolio with respect to a series of Managed Fund
Shares is not disseminated to all market participants at the same
time, it will halt trading in such series until such time as the net
asset value or the Disclosed Portfolio is available to all market
participants.'' These are generally consistent with the proposed
Publicly Available Information Halts, specifically as it relates to
whether the NAV or Disclosed Portfolio is not being made available
to all market participants at the same time.
    \47\ 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'').
---------------------------------------------------------------------------

    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.\48\ 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.\49\ While future exemptive relief applicable to Managed
Portfolio Shares may expand the investable universe, the Exchange notes
that proposed Rule 14.11(k)(2)(A) 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. In addition, as noted above, investors will
have ready access to information regarding the VIIV and quotation and
last sale information for the Shares.
---------------------------------------------------------------------------

    \48\ 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.
    \49\ 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 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 listing and trading 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 has neither solicited nor received written comments on
the proposed rule change.

III. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2019-047, as Modified by Amendment No. 2, and Grounds for
Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \50\ to determine whether the proposed
rule change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\51\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of the proposed rule change's consistency with
Section 6(b)(5) of the Exchange Act, which requires, among other
things, that the rules of a national securities exchange be ``designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, . . . to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest.'' \52\
---------------------------------------------------------------------------

    \51\ Id.
    \52\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule
change, as modified by Amendment No. 2, is consistent with Section
6(b)(5) or any other provision of the Exchange Act, or the rules and
regulations thereunder. Although there do not appear to be any issues
relevant to approval or disapproval that would be facilitated by an
oral presentation of views, data, and arguments, the Commission will
consider, pursuant to Rule 19b-4, any request for an opportunity to
make an oral presentation.\53\
---------------------------------------------------------------------------

    \53\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975),
grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 2, should be approved or disapproved by October 18, 2019.
Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by November 1, 2019.
    The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in Amendment No. 2,\54\ and any other issues raised by the proposed
rule change, as modified by Amendment No. 2, under the Exchange Act. In
this regard, the Commission seeks

commenters' views regarding whether the Exchange's proposed rule to
list and trade Managed Portfolio Shares, which are actively managed
exchange-traded products for which the portfolio holdings would be
disclosed on a quarterly, rather than daily, basis, is adequately
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, and to protect
investors and the public interest, and is consistent with the
maintenance of a fair and orderly market under the Exchange Act.
---------------------------------------------------------------------------

    \54\ See supra note 7.
---------------------------------------------------------------------------

    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<EMAIL_ADDRESS>Please include
File Number SR-CboeBZX-2019-047 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-2019-047. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2019-047 and should be submitted
on or before October 18, 2019. Rebuttal comments should be submitted by
November 1, 2019.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
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    \55\ 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20970 Filed 9-26-19; 8:45 am]
 BILLING CODE 8011-01-P