[Federal Register Volume 83, Number 89 (Tuesday, May 8, 2018)]
[Notices]
[Pages 20892-20898]
[FR Doc No: 2018-09692]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83152; File No. SR-CboeBZX-2018-018]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the
Principal Morley Short Duration Index ETF Under Rule 14.11(c)(4)

May 2, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 23, 2018, Cboe BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange filed a proposal to list and trade under BZX Rule
14.11(c)(4) the shares of the Principal Morley Short Duration Index ETF
(the ``Fund'') of Principal Exchange-Traded Funds (the ``Trust'').
    The text of the proposed rule change is available at the Exchange's
website at www.markets.cboe.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares of the Fund
(``Shares'') under BZX Rule 14.11(c)(4),\3\ which governs the listing
and trading of index fund shares based on fixed income securities
indexes.\4\ The Shares will be offered by the Trust, which was
established as a Delaware statutory trust on March 05, 2013. The Trust
is registered with the Commission as an open-end investment company and
has filed a registration statement on behalf of the Fund on Form N-1A
(``Registration Statement'') with the Commission.\5\ All statements and

representations made in this filing regarding the index composition,
the description of the portfolio or reference assets, limitations on
portfolio holdings or reference assets, dissemination and availability
of index, reference asset, and intraday indicative values, and the
applicability of Exchange rules specified in this filing shall
constitute continued listing requirements for the Fund.
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    \3\ The Commission approved BZX Rule 14.11(c) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
    \4\ The Commission previously has approved proposed rule changes
relating to listing and trading of funds based on municipal bond
indexes. See Securities Exchange Act Release Nos. 78329 (July 14,
2016), 81 FR 47217 (July 20, 2016) (SR-BatsBZX-2016-01) (order
approving the listing and trading of the following series of VanEck
Vectors ETF Trust: VanEck Vectors AMT-Free 6-8 Year Municipal Index
ETF; VanEck Vectors AMT-Free 8-12 Year Municipal Index ETF; and
VanEck Vectors AMT-Free 12-17 Year Municipal Index ETF); 67985
(October 4, 2012), 77 FR 61804 (October 11, 2012) (SR-NYSEArca-2012-
92) (order approving proposed rule change relating to the listing
and trading of iShares 2018 S&P AMT-Free Municipal Series and
iShares 2019 S&P AMT-Free Municipal Series under NYSE Arca, Inc.
(``NYSE Arca'') Rule 5.2(j)(3), Commentary .02); 72523 (July 2,
2014), 79 FR 39016 (July 9, 2014) (SR-NYSEArca-2014-37) (order
approving proposed rule change relating to the listing and trading
of iShares 2020 S&P AMT-Free Municipal Series under NYSE Arca Rule
5.2(j)(3), Commentary .02); and 75468 (July 16, 2015), 80 FR 43500
(July 22, 2015) (SR-NYSEArca-2015-25) (order approving proposed rule
change relating to the listing and trading of the iShares iBonds Dec
2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022 AMT-Free
Muni Bond ETF under NYSE Arca Rule 5.2(j)(3), Commentary .02). The
Commission also has issued a notice of filing and immediate
effectiveness of a proposed rule change relating to listing and
trading on NYSE Arca of the iShares Taxable Municipal Bond Fund. See
Securities Exchange Act Release No. 63176 (October 25, 2010), 75 FR
66815 (October 29, 2010) (SR-NYSEArca-2010-94). The Commission has
approved two actively managed funds of the PIMCO ETF Trust that hold
municipal bonds. See Securities Exchange Act Release No. 60981
(November 10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-
2009-79) (order approving listing and trading of PIMCO ShortTerm
Municipal Bond Strategy Fund and PIMCO Intermediate Municipal Bond
Strategy Fund, among others). The Commission also has approved
listing and trading of the SPDR Nuveen S&P High Yield Municipal Bond
Fund. See Securities Exchange Act Release No.63881 (February 9,
2011), 76 FR 9065 (February 16, 2011) (SR-NYSEArca-2010-120).
    \5\ See Registration Statement on Form N-1A for the Trust, dated
September 1, 2017 (File Nos. 333-201935 and 811-23029). The
descriptions of the Fund and the Shares contained herein are based,
in part, on information in the Registration Statement. The
Commission has issued an order granting certain exemptive relief to
the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a-1)
(``1940 Act'') (the ``Exemptive Order''). See Investment Company Act
Release No. 31872 (October 19, 2015) (File No. 812-14509).
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Description of the Shares and the Fund
    Principal Global Investors, LLC will be the investment adviser (the
``Adviser'') to the Fund and Morley Capital Management will be the sub-
adviser (the ``Sub-Adviser'') to the Fund.\6\ The Adviser will serve as
the administrator for the Fund (the ``Administrator''). The State
Street Bank and Trust Company will serve as the custodian
(``Custodian''), transfer agent (``Transfer Agent'') and sub-
administrator (``Sub-Administrator) for the Fund. ALPS Distributors,
Inc. (the ``Distributor'') will be the distributor of the Shares.
Neither the Adviser nor the Sub-Adviser is registered as a broker-
dealer, but they are affiliated with broker-dealers, [sic] Both the
Advisor and Sub-Advisor has [sic] implemented and will maintain a fire
wall with respect to such broker-dealer affiliates regarding access to
information concerning the composition and/or changes to the portfolio,
and will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio. Adviser and Sub-Adviser personnel who make decisions
regarding the Fund's portfolio are subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the Fund's portfolio. In the event that (a) the Adviser or
Sub-Adviser becomes registered as a broker-dealer or newly affiliated
with a broker-dealer; or (b) any new adviser or sub-adviser is a
registered broker-dealer or becomes affiliated with a broker-dealer;
the Adviser and Sub-Adviser will implement a fire wall with respect to
relevant personnel or such broker-dealer affiliate, as applicable,
regarding access to information concerning the composition and/or
changes to the portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding such portfolio.
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    \6\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with all applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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The ICE BofA Merrill Lynch Low Duration U.S. ABS & CMBS Equal Par Index
    The Fund seeks to provide investment results that seek to
replicate, before expenses, to [sic] the performance of The ICE BofA
Merrill Lynch Low Duration U.S. ABS & CMBS Equal Par Index (the
``Index''). The Index is designed to provide exposure to investment-
grade securitized products issued in the U.S., including ABS \7\ and
CMBS.\8\ To qualify for inclusion in the Index, eligible securities
must be a component of the The ICE BofA Merrill Lynch US ABS & CMBS
Index (the ``Feeder Index''). Such securities are then selected and
weighted based upon the Index methodology discussed below.
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    \7\ For purposes of this filing, the term ``ABS'' shall mean
fixed and floating rate debt securities secured by non-mortgage
assets.
    \8\ For purposes of this filing, the term ``CMBS'' shall mean
fixed rate debt securities secured by first mortgages on commercial
real estate.
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Feeder Index
    In order to be included in the Feeder Index, a security (whether
ABS or CMBS) must meet the following criteria (the ``Basic Criteria''):
     be rated investment-grade (based on an average of Moody's,
S&P Global, and Fitch);
     have a term of at least one year remaining until final
stated maturity; and have at least one month to the last expected cash
flow; and
     inverse floating rate, interest only, and principal only
securities are excluded.
    In addition to the Basic Criteria, an ABS must meet the following
criteria:
     must issue a fixed or floating rate coupon;
     must have an original deal size for the collateral group
\9\ of at least $250 million;
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    \9\ A collateral group describes the assets (receivables) that
are held by the special purpose vehicle (``SPV'') issuing the ABS
securities. The collateral group provides the source of payment for
the SPV's liabilities (i.e. ABS securities). Typically, an SPV will
include assets greater than its liabilities as a form of credit
enhancement.
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     must have a current outstanding deal size for the
collateral group greater than or equal to 10% of the original deal
size; and
     a minimum current outstanding tranche size of $50 million
for senior tranches and $10 million current amount outstanding for
mezzanine and subordinated tranches.
    In addition to the Basic Criteria, a CMBS (which may include U.S.
agency CMBS) must also meet the following criteria:
     must issue a fixed coupon schedule;
     must have an original deal size for the collateral group
of at least $250 million;
     must have a current outstanding deal size for the
collateral group that is greater than or equal to 10% of the original
deal size; and
     must have a minimum outstanding tranche size of $50
million for senior tranches and $10 million for mezzanine and
subordinated tranches.
Index Methodology
    All securities in the Feeder Index are screened for inclusion/
exclusion in the Index based on the following criteria:
     ABS related to home equity and manufactured housing are
excluded;
     CMBS securities that are rated less than AAA credit
quality (based on an average of Moody's, S&P Global and Fitch) are
excluded;
     CMBS securities that are issued prior to December 31, 2010
are excluded;
     Securities must have a modified duration to worst that is
less than or equal to 5 years for intial [sic] inclusion in the Index,
although once included, the security remains in the Index provided the
remaining criteria are met.

The qualifying securities are assigned equal par amounts with a 70%
allocation given to ABS securities and a 30% allocation given to CMBS
securities. The Index rebalances on a monthly basis.
    The Exchange is submitting this proposed rule change because the
Index for the Fund does not meet all of the ``generic'' listing
requirements of Rule 14.11(c)(4) applicable to the listing of index
fund shares based on fixed

income securities indexes. The Index meets all such requirements except
for those set forth in Rule 14.11(c)(4)(B)(i)(b) \10\ and
14.11(c)(4)(B)(i)(f).\11\ Specifically, as of February 22, 2018, 57.9%
of the weight of the Index components have a minimum original principal
amount outstanding of $100 million or more and 68.0% of the weight of
the Index components met the requirements of Rule 14.11(c)(4)(B)(i)(f).
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    \10\ Rule 14.11(c)(4)(B)(i)(b) provides that components that in
the aggregate account for at least 75% of the weight of the index or
portfolio each shall have a minimum original principal amount
outstanding of $100 million or more.
    \11\ Rule 14.11(c)(4)(B)(i)(f) provides that component
securities that in aggregate account for at least 90% of the Fixed
Income Securities portion of the weight of the index or portfolio
must be either: (1) from issuers that are required to file reports
pursuant to Sections 13 and 15(d) of the Act; (2) from issuers that
have a worldwide market value of its outstanding common equity held
by non-affiliates of $700 million or more; (3) from issuers that
have outstanding securities that are notes, bonds, debentures, or
evidence of indebtedness having a total remaining principal amount
of at least $1 billion; (4) exempted securities as defined in
section 3(a)(12) of the Act; or (5) from issuers that are a
government of a foreign country or a political subdivision of a
foreign country.
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    As of February 22, 2018, there were 2,693 constituents in the
Index.
Principal Morley Short Duration Index ETF
    According to the Registration Statement, the Fund will seek to
provide investment results that closely correspond, before expenses, to
the performance of the Index. Under Normal Market Conditions,\12\ the
Fund will invest at least 80% of its net assets, plus any borrowings
for investment purposes, in ABS and CMBS that compose the Index at the
time of purchase.
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    \12\ The term ``Normal Market Conditions'' includes, but is not
limited to, the absence of trading halts in the applicable financial
markets generally; operational issues causing dissemination of
inaccurate market information or system failures; or force majeure
type events such as natural or man-made disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption, or any similar
intervening circumstance.
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Other Portfolio Holdings
    While the Fund normally will invest at least 80% of its net assets,
plus any borrowings for investment purposes, in ABS and CMBS that
compose the Index, as described above, the Fund may invest its
remaining assets in securities not included in the Index including only
the following instruments: ABS and CMBS not included in the Index; cash
and cash equivalents; \13\ Treasury Securities with a maturity of three
months or greater; centrally cleared, index-based credit default swaps;
\14\ and, to the extent permitted by the 1940 Act, other exchange-
traded funds (``ETFs'').\15\
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    \13\ For purposes of this filing, cash equivalents are short-
term instruments with maturities of less than three months,
including: (i) U.S. Government securities, including bills, notes,
and bonds differing as to maturity and rates of interest, which are
either issued or guaranteed by the U.S. Treasury or by U.S.
Government agencies or instrumentalities; (ii) certificates of
deposit issued against funds deposited in a bank or savings and loan
association; (iii) bankers acceptances, which are short-term credit
instruments used to finance commercial transactions; (iv) repurchase
agreements and reverse repurchase agreements; (v) bank time
deposits, which are monies kept on deposit with banks or savings and
loan associations for a stated period of time at a fixed rate of
interest; (vi) commercial paper, which are short-term unsecured
promissory notes; and (vii) money market funds.
    \14\ Centrally cleared swaps are cleared through a central
clearinghouse and, as such, the counterparty risk traditionally
associated with over-the-counter swaps is eliminated.
    \15\ For purposes of this filing, ETFs include Index Fund Shares
(as described in Rule 14.11(c)); Portfolio Depositary Receipts (as
described in Rule 14.11(b)); and Managed Fund Shares (as described
in Rule 14.11(i)). The ETFs all will be listed and traded in the
U.S. on registered exchanges. The Fund may invest in the securities
of ETFs registered under the 1940 Act consistent with the
requirements of Section 12(d)(1) of the 1940 Act, or any rule,
regulation or order of the Commission or interpretation thereof. The
Fund will not invest in leveraged or inverse leveraged (e.g., 2X, -
2X, 3X or -3X) ETFs.
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Discussion
    The Exchange is submitting this proposed rule change because the
Index for the Fund does not meet all of the ``generic'' listing
requirements of Rule 14.11(c)(4) applicable to the listing of index
fund shares based on fixed income securities indexes. The Index meets
all such requirements except for those set forth in Rule
14.11(c)(4)(B)(i)(b) \16\ and 14.11(c)(4)(B)(i)(f).\17\ Specifically,
as of February 22, 2018, 57.9% of the weight of the Index components
have a minimum original principal amount outstanding of $100 million or
more and 68.0% of the weight of the Index components met the
requirements of Rule 14.11(c)(4)(B)(i)(f). The Exchange notes that at
least 90% of the weight of the Index will be comprised of securities
that have a minimum par amount of $10 million and were a constituent of
an offering where the original deal size was at least $250 million.
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    \16\ Rule 14.11(c)(4)(B)(i)(b) provides that components that in
the aggregate account for at least 75% of the weight of the index or
portfolio each shall have a minimum original principal amount
outstanding of $100 million or more.
    \17\ Rule 14.11(c)(4)(B)(i)(f) provides that component
securities that in aggregate account for at least 90% of the Fixed
Income Securities portion of the weight of the index or portfolio
must be either: (1) From issuers that are required to file reports
pursuant to Sections 13 and 15(d) of the Act; (2) from issuers that
have a worldwide market value of its outstanding common equity held
by non-affiliates of $700 million or more; (3) from issuers that
have outstanding securities that are notes, bonds, debentures, or
evidence of indebtedness having a total remaining principal amount
of at least $1 billion; (4) exempted securities as defined in
section 3(a)(12) of the Act; or (5) from issuers that are a
government of a foreign country or a political subdivision of a
foreign country.
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    While the Index will not meet certain provisions of Rule
14.11(c)(4), as described above, the Exchange believes that the policy
issues which such provisions are intended to address are otherwise
mitigated. Specifically, the concerns around the size and
manipulability of the underlying Fixed Income Securities that Rule
14.11(c)(4)(B)(i)(b) is intended to address are mitigated by the fact
that at least 90% of the weight of the Index will be comprised of
securities that have a minimum par amount of $10 million and were a
constituent of an offering where the original deal size was at least
$250 million. Similar standards have been applied for other comparably
situated funds and the Exchange believes that there is no reason that
this standard should not be applied for the Fund.\18\
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    \18\ The Commission has previously approved a proposed rule
change relating to the listing and trading of twelve series of Index
Fund Shares based on municipal bond indexes that did not satisfy the
requirement that component fixed income securities that, in the
aggregate, account for at least 75% of the weight of the index or
portfolio have a minimum principal amount outstanding of $100
million or more, provided that such municipal bond index contained
at least 500 component securities on a continuous basis. See
Securities Exchange Act Release No. 82295 (December 12, 2017), 82 FR
60056 (December 18, 2017) (SR-NYSEArca-2017-56).
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    Further, the concerns around the availability of information that
Rule 14.11(c)(4)(B)(i)(f) is intended to address are also mitigated as
it relates to the ABS and CMBS that populate the Index. While only
68.0% of the weight of the portfolio meets the requirements of Rule
14.11(c)(4)(B)(i)(f), the Index's inability to meet the 90% threshold
is largely based on a technicality in the rule text. Part (1) of the
Rule includes in the calculation of percentage ``issuers that are
required [emphasis added] to file reports pursuant to Sections 13 and
15(d) of the Act.'' The technicality is that, while only certain
registered issuances of ABS and CMBS are required to file reports
pursuant to Sections 13 or 15(d) of the Act, many ABS and CMBS
issuances include in the bond indenture a requirement that the issuer
make a public disclosure of a Statement to Noteholders. To this point,
the Fund will only hold ABS and CMBS

for which the bond indenture requires the public disclosure of a
Statement to Noteholders on a no less frequent than quarterly
basis.\19\ As such, while the Fund will not technically meet the
requirements of Rule 14.11(c)(4)(B)(i)(f)(1), the policy concerns
related to the transparency and availability of information regarding
the Fixed Income Securities held by a fund that the Rule is intended to
address are otherwise mitigated.
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    \19\ A Statement to Noteholders generally includes the same
pieces of information about an issuer and issuance of ABS or CMBS
that would be included in Form 10D. All ABS and CMBS held by the
Fund will issue Statements to Noteholders that will include, at a
minimum, a remittance report that will show monthly or quarterly
cash flows of the assets and liabilities for the issuance.
Statements to Noteholders also typically include the following types
of information: (1) The amount of the distribution(s) allocable to
interest on the notes; (2) the amount of the distribution(s)
allocable to principal of the notes; (3) the note balance, after
taking into account all payments to be made on such distribution
date; (4) the servicing fee paid and/or due but unpaid as of such
distribution date; (5) the pool balance and required
overcollateralization amount as of the close of business on the last
day of the related collection period; (6) the reserve fund amount,
the reserve fund required amount and the reserve fund draw amount;
(7) the amount of the aggregate realized losses on the loans, if
any, for the preceding collection period and the cumulative default
ratio; (8) whether an amortization event will exist as of such
distribution date; (9) the aggregate repurchase prices for loans, if
any, that were repurchased by the seller during the related
collection period; (10) the amount of fees payable to all parties
pursuant to the indenture; (11) any and all other fees, expenses,
indemnities or taxes payable by the issuer or the grantor trust
(including reserved amounts for payments required to be made before
the next distribution date); (12) the payments to the certificate
holders; and (13) during a pre-funding period, the amount on deposit
in the pre-funding account as of the close of business on the last
day of the related collection period, and the pool balance of
subsequent loans purchased during the related collection period, and
following the pre-funding period, the amount of principal payments
made on each class of notes from amounts on deposit in the pre-
funding account.
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    Further, the Index is broad-based and currently includes 2,693
component securities. Whereas the generic listing rules permit a single
component security to represent up to 30% of the weight of an index and
the top five component securities to, in aggregate, represent up to 65%
of the weight of an index, the largest component security in the
Underyling Index only constitutes 0.044% of the weight of the Index and
the largest five component securities represent 0.22% of the weight of
the Index. The Exchange believes that this significant diversification
and the lack of concentration among constituent securities provides a
strong degree of protection against index manipulation. On a continuous
basis, the Index will (i) contain at least 500 component securities and
(ii) comply with the index methodology description provided above.
Additional Information
    The Index value, calculated and disseminated at least once daily,
as well as the components of the Index and their percentage weighting,
will be available from major market data vendors. In addition, the
portfolio of securities held by the Fund will be disclosed on the
Fund's website at www.PrincipalETFs.com.
    The Exchange represents that: (1) Except as described above, the
Index currently satisfies and will continue to satisfy all of the
generic listing standards under Rule 14.11(c)(4); (2) the continued
listing standards under BZX Rule 14.11(c) applicable to index fund
shares shall apply to the Shares of the Fund; and (3) the Trust is
required to comply with Rule 10A-3 \20\ under the Act for the initial
and continued listing of the Shares of the Fund. In addition, the
Exchange represents that the Shares of the Fund will comply with all
other requirements applicable to index fund shares including, but not
limited to, requirements relating to the dissemination of key
information such as the value of the Index and the Intraday Indicative
Value (``IIV''), rules governing the trading of equity securities,
trading hours, trading halts, surveillance, and the information
circular, as set forth in Exchange rules applicable to index fund
shares and the orders approving such rules.
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    \20\ See 17 CFR 240.10A-3.
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Availability of Information
    The Fund's website, which will be publicly available prior to the
public offering of Shares, will include a form of the prospectus for
the Fund that may be downloaded. The website will include additional
quantitative information updated on a daily basis, including, for the
Fund: (1) The prior business day's reported NAV, daily trading volume,
and a calculation of the premium and discount of the Bid/Ask Price
against the NAV; and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. Daily trading volume information for the
Fund will also be available in the financial section of newspapers,
through subscription services such as Bloomberg, Thomson Reuters, and
International Data Corporation, which can be accessed by authorized
participants and other investors, as well as through other electronic
services, including major public websites. On each business day, before
commencement of trading in Shares during Regular Trading Hours \21\ on
the Exchange, the Fund will disclose on its website the identities and
quantities of the portfolio of securities and other assets in the
portfolio held by the Fund that will form the basis for the Fund's
calculation of NAV at the end of the business day. The portfolio
description will include, as applicable: The ticker symbol; CUSIP
number or other identifier, if any; a description of the holding
(including the type of holding, such as the type of swap); the identity
of the security, index or other asset or instrument underlying the
holding, if any; for options, the option strike price; quantity held
(as measured by, for example, par value, notional value or number of
shares, contracts, or units); maturity date, if any; coupon rate, if
any; effective date, if any; market value of the holding; and the
percentage weighting of the holding in the Fund's portfolio. The
website and information will be publicly available at no charge. The
value, components, and percentage weightings of the Index will be
calculated and disseminated at least once daily and will be available
from major market data vendors. Rules governing the Index are available
on the Index Provider's website and in the Fund's prospectus.
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    \21\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern
Time.
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    In addition, an estimated value, defined in BZX Rule 14.11(c)(6)(A)
as the ``Intraday Indicative Value,'' that reflects an estimated
intraday value of the Fund's portfolio, will be disseminated. Moreover,
the Intraday Indicative Value will be based upon the current value for
the components of the daily disclosed portfolio and will be updated and
widely disseminated by one or more major market data vendors at least
every 15 seconds during the Exchange's Regular Trading Hours.\22\ In
addition, the quotations of certain of the Fund's holdings may not be
updated during U.S. trading hours if updated prices cannot be
ascertained.
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    \22\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Intraday Indicative Values published via the Consolidated Tape
Association (``CTA'') or other data feeds.
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    The dissemination of the Intraday Indicative Value, together with
the daily disclosed portfolio, will allow investors to determine the
value of the underlying portfolio of the Fund on a daily basis and
provide a close estimate of that value throughout the trading day.
    Quotation and last sale information for the Shares of the Fund will
be

available via the CTA high speed line. Price information regarding ABS,
CMBS, and other non-exchange traded assets, including the types of
swaps held by the Fund, cash and cash equivalents, and other Treasury
Securities, is available from third party pricing services and major
market data vendors. For exchange-traded assets, including ETFs, such
intraday information is available directly from the applicable listing
exchange.
Initial and Continued Listing
    The Shares of the Fund will conform to the initial and continued
listing criteria under BZX Rule 14.11(c)(4), except as described above.
The Exchange represents that, for initial and/or continued listing, the
Fund and the Trust must be in compliance with Rule 10A-3 under the
Act.\23\ A minimum of 100,000 Shares of the Fund will be outstanding at
the commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share for
the Fund will be calculated daily and will be made available to all
market participants at the same time.
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    \23\ See 17 CFR 240.10A-3.
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Trading Halts
    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. The Exchange will halt trading in
the Shares under the conditions specified in BZX Rule 11.18. Trading
may be halted because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable. These may
include: (1) The extent to which trading is not occurring in the
securities and/or the financial instruments composing the daily
disclosed portfolio of the Fund; or (2) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present. Trading in the Shares also will be
subject to Rule 14.11(c)(1)(B)(iv), which sets forth circumstances
under which Shares of the Fund may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. The Exchange will
allow trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time
and has the appropriate rules to facilitate transactions in the Shares
during all trading sessions. 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.
Surveillance
    The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the 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 the Shares
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Index Fund Shares. The
issuer has represented to the Exchange that it will advise the Exchange
of any failure by the Fund to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. FINRA conducts certain cross-market
surveillances on behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for FINRA's performance
under this regulatory services agreement. If the Fund is not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 14.12. The Exchange,
or FINRA on behalf of the Exchange, may obtain information regarding
trading in the Shares and the underlying shares in exchange traded
equity securities, including ETFs, via the ISG, from other exchanges
that are members or affiliates of the ISG, and the Exchange may obtain
such information from markets with which the Exchange has entered into
a comprehensive surveillance sharing agreement.\24\ In addition, the
Exchange, or FINRA on behalf of the Exchange, is able to access, as
needed, trade information for certain fixed income instruments reported
to FINRA's Trade Reporting and Compliance Engine (``TRACE''). The
Exchange prohibits the distribution of material non-public information
by its employees.
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    \24\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
portfolio for the Fund may trade on markets that are members of ISG
or with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section
6(b) of the Act \25\ in general and Section 6(b)(5) of the Act \26\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
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    \25\ 15 U.S.C. 78f.
    \26\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
shares of the Fund will be listed and traded on the Exchange pursuant
to the initial and continued listing criteria for Index Fund Shares
based on a fixed income index in Rule 14.11(c)(4), except for the
requirements of Rule 14.11(c)(4)(B)(i)(b) and Rule
14.11(c)(4)(B)(i)(f). The Exchange represents that trading in the
shares of the Fund will be subject to the existing trading
surveillances administered by the Exchange as well as cross-market
surveillances administered by the FINRA on behalf of the Exchange,
which are designed to detect violations of Exchange rules and federal
securities laws applicable to trading on the Exchange. The Exchange
represents that these procedures are adequate to properly monitor
Exchange trading of the shares of the Fund in all trading sessions and
to deter and detect violations of Exchange rules and federal securities
laws applicable to trading on the Exchange. The Exchange or FINRA, on
behalf of the Exchange, or both, will communicate as needed regarding
trading in the shares of the Fund with other markets that are members
of the ISG. In addition, the Exchange will communicate as needed
regarding trading in the shares of the Fund with other markets that are
members of the ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. FINRA, on behalf of the
Exchange, is able to access, as needed, trade information for certain
fixed income securities held by the Fund reported to TRACE.
    Further, the Index is broad-based and currently includes 2,693
component securities. Whereas the generic listing rules permit a single
component security to represent up to 30% of the weight of an index and
the top five component securities to, in aggregate, represent up to 65%
of the weight of an index, the largest component security in the
Underyling Index only constitutes

0.044% of the weight of the Index and the largest five component
securities represent 0.22% of the weight of the Index. The Exchange
believes that this significant diversification and the lack of
concentration among constituent securities provides a strong degree of
protection against index manipulation. On a continuous basis, the Index
will (i) contain at least 500 component securities and (ii) comply with
the index methodology description provided above.
    As of February 22, 2018, 57.9% of the weight of the Index
components have a minimum original principal amount outstanding of $100
million or more and 68.0% of the weight of the Index components met the
requirements of Rule 14.11(c)(4)(B)(i)(f). The Exchange notes that at
least 90% of the weight of the Index will be comprised of securities
that have a minimum par amount of $25 million and were a constituent of
an offering where the original deal size was at least $250 million.
    While the Index will not meet certain provisions of Rule
14.11(c)(4), as described above, the Exchange believes that the policy
issues which such provisions are intended to address are otherwise
mitigated. Specifically, the concerns around the size and
manipulability of the underlying Fixed Income Securities that Rule
14.11(c)(4)(B)(i)(b) is intended to address are mitigated by the fact
that at least 90% of the weight of the Index will be comprised of
securities that have a minimum par amount of $25 million and were a
constituent of an offering where the original deal size was at least
$250 million. Similar standards have been applied for other comparably
situated funds and the Exchange believes that there is no reason that
this standard should not be applied for the Fund.\27\
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    \27\ The Commission has previously approved a proposed rule
change relating to the listing and trading of twelve series of Index
Fund Shares based on municipal bond indexes that did not satisfy the
requirement that component fixed income securities that, in the
aggregate, account for at least 75% of the weight of the index or
portfolio have a minimum principal amount outstanding of $100
million or more, provided that such municipal bond index contained
at least 500 component securities on a continuous basis. See
Securities Exchange Act Release No. 82295 (December 12, 2017), 82 FR
60056 (December 18, 2017) (SR-NYSEArca-2017-56).
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    Further, the concerns around the availability of information that
Rule 14.11(c)(4)(B)(i)(f) is intended to address are also mitigated as
it relates to the ABS and CMBS that populate the Index. While only
68.0% of the weight of the portfolio meets the requirements of Rule
14.11(c)(4)(B)(i)(f), the Index's inability to meet the 90% threshold
is largely based on a technicality in the rule text. Part (1) of the
Rule includes in the calculation of percentage ``issuers that are
required [emphasis added] to file reports pursuant to Sections 13 and
15(d) of the Act.'' The technicality is that, while only certain
registered issuances of ABS and CMBS are required to file reports
pursuant to Sections 13 or 15(d) of the Act, many ABS and CMBS
issuances include in the bond indenture a requirement that the issuer
make a public disclosure of a Statement to Noteholders.\28\ To this
point, the Fund will only hold ABS and CMBS for which the bond
indenture requires the public disclosure of a Statement to Noteholders
on a no less frequent than quarterly basis. As such, while the Fund
will not technically meet the requirements of Rule
14.11(c)(4)(B)(i)(f)(1), the policy concerns related to the
transparency and availability of information regarding the Fixed Income
Securities held by a fund that the Rule is intended to address are
otherwise mitigated.
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    \28\ A Statement to Noteholders generally includes the same
pieces of information about an issuer and issuance of ABS or CMBS
that would be included in Form 10D. All Statements to Noteholders
issued by ABS and CMBS held by the Fund will include, at a minimum,
a remittance report that will show monthly or quarterly cash flows
of the assets and liabilities for the issuance. Statements to
Noteholders also typically include the following types of
information: (1) The amount of the distribution(s) allocable to
interest on the notes; (2) the amount of the distribution(s)
allocable to principal of the notes; (3) the note balance, after
taking into account all payments to be made on such distribution
date; (4) the servicing fee paid and/or due but unpaid as of such
distribution date; (5) the pool balance and required
overcollateralization amount as of the close of business on the last
day of the related collection period; (6) the reserve fund amount,
the reserve fund required amount and the reserve fund draw amount;
(7) the amount of the aggregate realized losses on the loans, if
any, for the preceding collection period and the cumulative default
ratio; (8) whether an amortization event will exist as of such
distribution date; (9) the aggregate repurchase prices for loans, if
any, that were repurchased by the seller during the related
collection period; (10) the amount of fees payable to all parties
pursuant to the indenture; (11) any and all other fees, expenses,
indemnities or taxes payable by the issuer or the grantor trust
(including reserved amounts for payments required to be made before
the next distribution date); (12) the payments to the certificate
holders; and (13) during a pre-funding period, the amount on deposit
in the pre-funding account as of the close of business on the last
day of the related collection period, and the pool balance of
subsequent loans purchased during the related collection period, and
following the pre- funding period, the amount of principal payments
made on each class of notes from amounts on deposit in the pre-
funding account.
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    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that a large amount of information is publicly available regarding the
Funds, thereby promoting market transparency. The Fund's portfolio
holdings will be disclosed on the Fund's website daily after the close
of trading on the Exchange and prior to the opening of trading on the
Exchange the following day. Moreover, the IIV for shares of the Fund
will be widely disseminated by one or more major market data vendors at
least every 15 seconds during the Exchange's Regular Trading Hours. The
current value of the Index will be disseminated by one or more major
market data vendors at least once per day. Information regarding market
price and trading volume of the shares of the Fund will be continually
available on a real-time basis throughout the day on brokers' computer
screens and other electronic services, and quotation and last sale
information will be available via the CTA high-speed line. The website
for the Fund will include the prospectus for the Fund and additional
data relating to NAV and other applicable quantitative information.
    If the Exchange becomes aware that the Fund's NAV is not being
disseminated to all market participants at the same time, it will halt
trading in the shares of the Fund until such time as the NAV is
available to all market participants. With respect to trading halts,
the Exchange may consider all relevant factors in exercising its
discretion to halt or suspend trading in the shares of the Fund.
Trading also may be halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in the shares the Fund
inadvisable. If the IIV and index value are not being disseminated for
the Fund as required, the Exchange may halt trading during the day in
which the interruption to the dissemination of the IIV or index value
occurs. If the interruption to the dissemination of an IIV or index
value persists past the trading day in which it occurred, the Exchange
will halt trading. The Exchange may consider all relevant factors in
exercising its discretion to halt or suspend trading in the Shares of
the Fund. The Exchange will halt trading in the Shares under the
conditions specified in BZX Rule 11.18. Trading may be halted because
of market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. These may include: (1) The
extent to which trading is not occurring in the securities and/or the
financial instruments composing the daily disclosed portfolio of the
Funds; or (2) whether other unusual conditions or circumstances
detrimental to the

maintenance of a fair and orderly market are present. Trading in the
Shares also will be subject to Rule 14.11(c)(1)(B)(iv), which sets
forth circumstances under which Shares of a Fund may be halted. In
addition, investors will have ready access to information regarding the
applicable IIV, and quotation and last sale information for the shares
of the Fund.
    All statements and representations made in this filing regarding
the index composition, the description of the portfolio or reference
assets, limitations on portfolio holdings or reference assets,
dissemination and availability of index, reference asset, and intraday
indicative values (as applicable), or the applicability of Exchange
listing rules shall constitute continued listing requirements for
listing the Shares on the Exchange. The issuer is required to advise
the Exchange of any failure by the Fund to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Fund is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under Rule 14.12.
    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 exchange-traded product that principally holds ABS and CMBS and that
will enhance competition among market participants, to the benefit of
investors and the marketplace. The Exchange has in place surveillance
procedures relating to trading in the shares of the Fund 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. In addition, investors will have ready access to
information regarding the IIV and quotation and last sale information
for the shares of the Fund.
    For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.

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

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

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

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

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

    Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-CboeBZX-2018-018 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CboeBZX-2018-018. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2018-018 and should be submitted
on or before May 29, 2018.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09692 Filed 5-7-18; 8:45 am]
 BILLING CODE 8011-01-P