shares traded at a premium or discount during the most recently
completed calendar year and calendar quarters of the current year;
\334\
---------------------------------------------------------------------------

    \334\ This requirement is similar to a current requirement in
Item 11(g)(2) of Form N-1A, which requires disclosed percentages to
be rounded to the nearest hundredth of one percent. See Current
Instruction 2 to Item 11(g)(2) of Form N-1A. ETFs may similarly
round percentages disclosed in response to this provision of rule
6c-11.
---------------------------------------------------------------------------

     For ETFs whose premium or discount was greater than 2% for
more than seven consecutive trading days, disclosure that the premium
or discount was greater than 2%, along with a discussion of the factors
that are reasonably believed to have materially contributed to the
premium or discount; and
     Median bid-ask spread over the most recent thirty calendar
days.
a. Disclosure of Prior Business Day's NAV, Market Price, and Premium or
Discount
    As proposed, rule 6c-11 will require an ETF to post on its website
the ETF's current NAV per share, market price, and premium or discount,
each as of the end of the prior business day.\335\ This disclosure
provides investors with a ``snapshot'' view of the difference between
an ETF's NAV per share and market price on a daily basis.
---------------------------------------------------------------------------

    \335\ Rule 6c-11(c)(1)(ii); 2018 ETF Proposing Release, supra
footnote 7, at section II.C.6. Proposed rule 6c-11 would have
required this information ``as of the prior business day.'' Proposed
rule 6c-11(c)(1)(ii). For clarity, the final rule will specify that
the information be provided ``as of the end of the prior business
day.'' Rule 6c-11(c)(1)(ii). This is consistent with our existing
exemptive orders.
---------------------------------------------------------------------------

    Commenters generally supported this requirement, observing that the
investors should have easy access to the required information.\336\
Some commenters, however, questioned the benefits of the premium or
discount disclosure requirement. One such commenter stated that premium
and discount disclosures do not provide the same benefit to
shareholders as NAV per share and market price.\337\ Another commenter,
while not objecting to the posting of daily premiums or discounts,
opined that emphasizing this information would be unnecessary and--to
the extent that a discount might be understood by prospective investors
as a bargain--potentially misleading.\338\
---------------------------------------------------------------------------

    \336\ See ETF.com Comment Letter; ICI Comment Letter (stating
that the commenter does ``not object to'' the requirement); NYSE
Comment Letter (stating that the website disclosure requirements in
rule 6c-11 ``sufficiently address Commission concerns about
investors' better understanding trading costs''); Virtu Comment
Letter; CSIM Comment Letter.
    \337\ See Invesco Comment Letter.
    \338\ See SSGA Comment Letter I (``Similarly, investors may
choose not to buy ETF shares because of a premium, when in fact the
NAV is based on stale prices from an earlier close.''). One
commenter recommended that we also require footnote disclosure when
premium or discount information is known to include inaccurate data
due to exchange-hours overlap issues (i.e., when the ETF does not
trade contemporaneously with its underlying holdings). See ETF.com
Comment Letter. Rule 6c-11 as adopted will not require additional
footnote disclosure in these circumstances because a majority of
ETFs do not have this type of timing issue and the recommended
disclosure may not capture other circumstances where an ETF's
premium or discount reflects inaccurate data. ETFs may include this
context alongside the premium/discount disclosures on their websites
as applicable.
---------------------------------------------------------------------------

    We continue to believe that daily website disclosure of NAV per
share and market price will promote transparency and alert investors to
the relationship between NAV per share and market price. We also
believe that this information will help investors better understand the
risk that an ETF's market price may be higher or lower than the ETF's
NAV per share and compare this information across ETFs. Daily premium/
discount disclosures also will provide investors with useful
information regarding ETFs that frequently trade at a premium or
discount to NAV per share.\339\ We believe that ETF investors use this
information today.\340\
---------------------------------------------------------------------------

    \339\ Some ETFs have frequent deviations between closing market
price and NAV per share. These ETFs typically hold non-U.S.
securities and trade during hours when the markets for their non-
U.S. holdings are closed, allowing the trading price of ETF shares
to reflect expected changes in the next opening price of the non-
U.S. holdings (i.e., to help ``discover'' the price of the
holdings). ETFs also may have greater premiums and discounts to the
extent that there are greater transaction costs associated with
assembling baskets. In addition, an ETF with less liquid portfolio
holdings also may show a deviation between closing market price and
NAV per share, and an ETF with a less efficient arbitrage mechanism
may frequently show this type of end of day deviation.
    \340\ One commenter suggested that investors are more likely to
look for information on the website of the entity with which they
interact, such as a broker-dealer. See JPMAM Comment Letter.
However, we believe that ETF issuers, as the entities that are the
subject of this rule's relief, should provide investors with this
information to assist those shareholders who visit the ETF's website
in the first instance. Moreover, another commenter stated that
smaller investors rely predominantly on website disclosures for
their investment analysis. See ETF.com Comment Letter.
---------------------------------------------------------------------------

    These disclosures are consistent with our exemptive orders except
that rule 6c-11 includes a definition of ``market price'' that differs
from the definition applicable to those orders. Rule 6c-11 defines
``market price'' as: (A) The official closing price of an ETF share; or
(B) if it more accurately reflects the market value of an ETF share at
the time as of which the ETF calculates current NAV per share, the
price that is the midpoint of the national best bid and national best
offer (``NBBO'') as of that time.\341\
---------------------------------------------------------------------------

    \341\ See rule 6c-11(a)(1).
---------------------------------------------------------------------------

    One commenter addressed our proposed definition of ``market price''
and asserted that the rule should permit ETFs to use the midpoint of
the NBBO without evaluating whether it more accurately reflects the
market value of the ETF's shares.\342\ We continue to believe, however,
that using the ``official closing price'' provides a more precise
measurement of an ETF's market price than other alternatives, including
during disruptive market events.\343\ Requiring use of the midpoint of
the NBBO only if it more accurately reflects market value also provides
an appropriate degree of flexibility to an ETF when its closing price
may be stale or otherwise does not reflect the ETF share's market
value, while at the same time providing a consistent and verifiable
methodology for how ETFs determine market

price.\344\ Therefore, we have determined to adopt the definition of
``market price'' for purposes of this website disclosure requirement as
proposed.
---------------------------------------------------------------------------

    \342\ See WisdomTree Comment Letter. An ETF uses the market
price of an ETF share in calculating premiums and discounts. See
rule 6c-11(a)(1) (defining ``premium or discount'' to mean the
positive or negative difference between the market price of an ETF
share and the ETF's current NAV per share, expressed as a percentage
of the ETF's current NAV per share).
    \343\ See 2018 ETF Proposing Release, supra footnote 7, at n.281
and accompanying text. We believe that using the ``official closing
price'' is a better measure than, for example, only the last price
at which ETF shares traded on their principal U.S. trading market
during a regular trading session, particularly in situations where
the last trade of the day was not reflective of the actual market
price (e.g., due to an erroneous order). Exchanges have detailed
rules regarding the determination of the official closing price of a
security.
    \344\ Use of the midpoint of the NBBO, for example, mitigates
the potential for gaming practices that could inaccurately minimize
a deviation between market price and NAV per share when showing
premiums and discounts. Because security information processors
calculate NBBO continuously during the trading day, NBBO has the
benefit of being a verifiable third-party quote.
---------------------------------------------------------------------------

b. Disclosure of Table and Line Graphs of the ETF's Premiums and
Discounts
    As proposed, rule 6c-11 will require an ETF to post on its website
both a table and line graph showing the ETF's premiums and discounts
for the most recently completed calendar year and the most recently
completed calendar quarters of the current year.\345\ For new ETFs that
do not yet have this information, the rule will require the ETF to post
this information for the life of the fund.\346\ We believe that
presenting the data as both a table and a line graph will provide
investors with useful information in formats that are easy to view and
understand, depending on the investor's preference.\347\ This
disclosure is similar to current requirements that allow an ETF to omit
certain premium/discount disclosures from its prospectus and annual
report if the ETF posts on its website a table showing the number of
trading days the ETF traded at a premium and the number of days it
traded at a discount.\348\
---------------------------------------------------------------------------

    \345\ Rule 6c-11(c)(1)(iii)-(iv).
    \346\ For example, an ETF that has been in existence for 4
months should provide this disclosure for its first quarter of
operations.
    \347\ While past performance cannot predict how an ETF will
trade in the future, it is important that investors, and
particularly retail investors, understand that certain classes of
ETFs could have a larger and more persistent deviation from NAV,
which could result in a higher cost to investors and a potential
drag on returns.
    \348\ See 2018 ETF Proposing Release, supra footnote 7, at n.300
and accompanying text; see also infra section II.H.2.c. (discussing
the elimination of this requirement in Form N-1A for funds relying
on rule 6c-11).
---------------------------------------------------------------------------

    Commenters were generally supportive of this requirement.\349\
However, some commenters recommended that the rule require only one of
the two presentations.\350\ We recognize, as commenters observed, that
the same information underlies both presentations. However, each
presentation highlights different information, as illustrated in Figure
1 and Table 1 below. The tabular disclosure shows investors how often
the ETF traded at a premium or discount. The graphic disclosure shows
investors the degree of those deviations, particularly during periods
of market stress, and could assist some investors with understanding
how the arbitrage mechanism performs for an ETF under various market
conditions.\351\ Different audiences also may find one presentation
more effective.\352\ Therefore, we continue to believe that the rule
should require both disclosures, and are adopting this aspect of the
rule as proposed.
---------------------------------------------------------------------------

    \349\ See, e.g., JPMAM Comment Letter; ETF.com Comment Letter;
ICI Comment Letter (does not object to requirements).
    \350\ John Hancock Comment Letter (recommending elimination of
the proposed line graph requirement as it would result in disclosure
duplicative of the table); WisdomTree Comment Letter (stating the
line graph requirement would be adequate and that the required table
would be too detailed).
    \351\ For example, two ETFs may have traded at a discount for
the same number of days. One ETF's daily deviations could have been
small with little effect on investors trading on those days, whereas
the other ETF could have had significant discounts. These
distinctions would not be apparent based on the required tabular
disclosure, but would be observable with the graphic disclosure.
    \352\ Another commenter recommended that we require ETFs to
provide a separate line graph showing an ETF's market price and NAV
per share over the most recently completed calendar year and
quarters. See JPMAM Comment Letter. While we agree that this context
could be informative, we believe that the rule as proposed
appropriately balances the usefulness of the line graph disclosure
with the costs of preparation. Of course, ETFs may include this
context alongside the required disclosures on their websites, so
long as the information is not misleading.
[GRAPHIC] [TIFF OMITTED] TR24OC19.018

               Table 1--Sample Premium and Discount Table
------------------------------------------------------------------------
                                           Calendar year   First quarter
                                               2018           of 2019
------------------------------------------------------------------------
Days traded at premium..................             202              59
Days traded at discount.................              47               2
------------------------------------------------------------------------

    The rule will require historical premium/discount information for
the most recently completed calendar year and the most recently
completed calendar quarters of the current year as proposed. Some
commenters recommended that we require ETFs to update this information
on a daily basis or require ETFs to present intra-day premiums or
discounts in certain circumstances.\353\ However, after considering the
usefulness of timely information for investors and other data users and
the costs of more frequent collection and publication of the
information, we continue to believe the rule should require disclosure
of this information only on a quarterly basis. First, this period is
consistent with existing prospectus disclosure requirements, and we
believe the time period will allow investors to readily observe the
extent and frequency of deviations from NAV per share in a graphic
format. Second, as discussed above, although the trailing historical
data is subject to a less frequent quarterly updating requirement, the
current premium or discount is required to be disclosed daily.
---------------------------------------------------------------------------

    \353\ See CFA Comment Letter; Eaton Vance Comment Letter;
Comment Letter of Hagens Berman (Oct. 1, 2018) (``Hagens Berman
Comment Letter''). (``[T]he new rule should require disclosure of
the gross discount spreads that have reoccurred during times of high
volatility or lack of liquidity.'').
---------------------------------------------------------------------------

c. Disclosure of ETF Premiums or Discounts Greater Than 2%
    As proposed, rule 6c-11 will require an ETF whose premium or
discount was greater than 2% for more than seven consecutive trading
days to post that information on its website,\354\ along with a
discussion of the factors that are reasonably believed to have
materially contributed to the premium or discount.\355\ We continue to
believe that disclosure of such periods will promote transparency about
the significance and persistence of deviations between market price and
NAV per share, and may help investors to make more informed investment
decisions.\356\
---------------------------------------------------------------------------

    \354\ We have modified the proposed rule text to further clarify
that an ETF must post a statement that the ETF's premium or
discount, as applicable, was greater than 2%--and not only the
factors reasonably believed to have materially contributed to the
premium or discount. See rule 6c-11(c)(1)(vi).
    \355\ Rule 6c-11(c)(1)(vi). The rule will require ETFs to post
this information on their websites on the trading day immediately
following the day on which the ETF's premium or discount triggered
this provision (i.e., on the trading day immediately following the
eighth consecutive trading day on which the ETF had a premium or
discount greater than 2%) and maintain it on their websites for at
least one year following the first day it was posted.
    \356\ 2018 ETF Proposing Release, supra footnote 7, at text
preceding n.307 (stating that the proposed information also may
provide the market (and the Commission) with information regarding
the efficiency of an ETF's arbitrage mechanism).
---------------------------------------------------------------------------

    One commenter supported this requirement, stating that daily
premium and discount information is an important metric for
investors.\357\ This commenter stated that its internal metrics suggest
that it would be unusual for ETFs to trigger the proposed disclosure
requirement, and therefore the disclosure ``would not be burdensome''
for ETFs. Other commenters, however, opposed the proposed requirement,
expressing concern that ETFs holding certain asset classes are more
likely to trigger the requirement than others, and that disclosure by
ETFs that frequently trigger the requirement could become
inappropriately repetitive.\358\
---------------------------------------------------------------------------

    \357\ See Invesco Comment Letter.
    \358\ See, e.g., ICI Comment Letter; Nasdaq Comment Letter;
WisdomTree Comment Letter.
---------------------------------------------------------------------------

    We recognize that this disclosure requirement may affect certain
categories of ETFs more than others. An ETF that invests in foreign
securities, for example, may be more likely to experience a persistent
deviation between market price and NAV per share given that many
foreign markets are closed during the U.S. trading day. Such deviations
may be pronounced if the market on which the ETF's underlying
securities trade is closed for an extended period of time. We believe
that this information could help to inform investors about the nature
of these ETFs and the potential for frequent deviations.
    However, we believe this requirement will affect a broader range of
ETFs than just those investing in certain foreign markets. For example,
we estimate that, out of a total 2,046 ETFs, 11 alternative ETFs, 20
international equity ETFs, 2 sector equity ETFs, 1 taxable bond ETF,
and 15 U.S. equity ETFs would have triggered the 2% premium or discount
disclosure requirement in 2018.\359\ In addition, during the period
from 2008 to 2018, we estimate that the percentage of ETFs that would
have triggered the reporting requirement at least once varied from 1.5%
to 10%.\360\ Even if certain ETFs make the disclosure more frequently
or predictably than others because of this variation, we believe that
the requirement will promote transparency regarding the significance
and persistence of deviations between market price and NAV per share,
and thus may permit investors to make more informed investment
decisions. Moreover, we believe that this disclosure helps inform
investors that certain types of ETFs are more likely to experience
persistent premiums or discounts than others.
---------------------------------------------------------------------------

    \359\ These figures are based on Bloomberg and Morningstar data
for calendar year 2018 and estimate the number of ETFs with at least
one instance that would have triggered the 2% premium or discount
reporting requirement. As discussed in detail below, on a percentage
basis, we estimate that 0.3% of taxable bond ETFs, 0.6% of sector
equity ETFs, 3.1% of U.S. equity ETFs, 4.2% of international equity
ETFs, and 4.8% of alternative ETFs would have triggered this
disclosure requirement in 2018.
    \360\ See infra footnote 598 and accompanying text.
---------------------------------------------------------------------------

    Other commenters expressed concern with the requirement that an ETF
include a discussion of the factors that are reasonably believed to
have contributed to the premium or discount.\361\ These commenters
stated that an ETF may have difficulty identifying these factors before
it makes the required disclosure. Although the required information
will be subjective in some cases, we believe that this requirement can
provide secondary market investors with useful context for the
disclosed deviations. For example, the identification of factors that
are reasonably believed to contribute to the premium or discount at
that time may inform ETF investors and other market participants about
factors potentially contributing to the premium or discount, even if
additional contributing factors may later be identified. Such disclosed
factors might include, for example, that many of an ETF's portfolio
securities are traded on foreign markets that are closed during the
U.S. trading day or that the markets on

which the ETF's underlying securities are traded were closed due to
extended holidays or for other reasons. Because the requirement to
disclose these factors will continue to apply while the premium or
discount persists, the disclosure may change and become better
developed over time as the ETF refines its analysis of what it
reasonably believes is causing the persistent premium or discount. As a
result, such a disclosure also could inform ETF investors and other
market participants about the premium's or discount's persistence.
---------------------------------------------------------------------------

    \361\ See ICI Comment Letter; SSGA Comment Letter I.
---------------------------------------------------------------------------

    Another commenter recommended that we shorten the time an ETF is
required to maintain the disclosure on its website (to, e.g., 45 days),
asserting that the required information is likely to be most useful
when it is most recent and grows less important over time.\362\ Rule
6c-11, however, will require ETFs to maintain the disclosure on their
website for at least one year following the first day it was posted to
help investors identify ETFs that historically have had persistent
deviations between market price and NAV per share. Additionally,
although we are requiring maintenance of this disclosure for at least
one year, the requirement to post the information will continue to
apply as the premium or discount persists--that is, the one-year
maintenance requirements will not obviate the need for an ETF to post
more current information if otherwise required.\363\ Thus, the
continued availability of the posted information over the required one-
year period will not substitute for or prevent more current and timely
disclosure.
---------------------------------------------------------------------------

    \362\ CSIM Comment Letter.
    \363\ Rule 6c-11(c)(1)(vi).
---------------------------------------------------------------------------

    Finally, some commenters expressed concerns with the 2%
threshold.\364\ For example, one commenter recommended a materiality
standard instead of a 2% threshold.\365\ Another commenter recommended
raising the threshold to 5 or 10% and shortening the period over which
it is measured.\366\ As discussed above, in the Commission's
experience, the deviation between the market price of ETFs and NAV per
share, averaged across broad categories of ETF investment strategies
and over time periods of several months, has been relatively
small.\367\ We therefore believe that limiting this disclosure to ETFs
that have a premium or discount of greater than 2% for more than seven
consecutive trading days will serve to highlight potentially unusual
circumstances of an ETF with a persistent premium or discount. In Table
2 below, we summarize the effect that different variations on the
proposed threshold recommended by the commenter would have had on the
number of ETFs that would have triggered the requirement in 2018.
---------------------------------------------------------------------------

    \364\ See John Hancock Comment Letter; Nasdaq Comment Letter;
WisdomTree Comment Letter (asserting that the proposed threshold was
``arbitrary'').
    \365\ See John Hancock Comment Letter.
    \366\ See Nasdaq Comment Letter.
    \367\ See supra footnote 360 and accompanying text; 2018 ETF
Proposing Release, supra footnote 7, at nn.119-120, 307 and
accompanying text (discussing the relatively small size of historic
deviations between ETF market prices and NAV per share in the
context of calibrating the threshold).

                                        Table 2--Number of ETFs That Would Have Triggered the Requirement in 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           3-Day period                                    7-Day period
                        Category                         -----------------------------------------------------------------------------------------------
                                                                2%              5%              10%             2%              5%              10%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Allocation..............................................               2  ..............  ..............  ..............  ..............  ..............
Alternative.............................................              15               2  ..............              11  ..............  ..............
Commodities.............................................  ..............  ..............  ..............  ..............  ..............  ..............
International Equity....................................              48               4  ..............              20               1  ..............
Municipal Bond..........................................  ..............  ..............  ..............  ..............  ..............  ..............
Sector Equity...........................................              10               1  ..............               2               1  ..............
Taxable Bond............................................               3  ..............  ..............               1  ..............  ..............
U.S. Equity.............................................              29               5  ..............              15               3  ..............
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................             107              12            None              49               5            None
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As shown above, a 10% threshold would not have required any ETFs to
provide this information in 2018, and a 5% threshold, even over just a
three-day period, would have only required disclosure by 12 ETFs. After
considering the commenter's recommended modifications to the threshold,
we believe that the proposed threshold of 2% over more than seven
consecutive trading days will more effectively highlight those patterns
of sustained premiums or discounts that will be informative to
investors than will the recommended alternatives. We also believe that
in this circumstance the objective 2% threshold will result in more
consistent application of the disclosure requirement than would a more
subjective materiality standard. Furthermore, deviations that do not
meet the objective 2% threshold, but that would be material to an
investment decision, must be disclosed.\368\
---------------------------------------------------------------------------

    \368\ See rule 10b-5 under the Exchange Act [17 CFR 240.10b-5];
see also section 34(b) of the Act [15 U.S.C. 80a-33].
---------------------------------------------------------------------------

d. Median Bid-Ask Spread
    Rule 6c-11 will require daily website disclosure of the ETF's
median bid-ask spread calculated over the most recent 30-day
period.\369\ The bid-ask spread information is designed to inform
investors that they may bear bid-ask spread costs when trading ETFs on
the secondary market, which ultimately could impact the overall cost of
the investment. We have modified this requirement from our proposal,
which would have required an ETF to disclose the median bid-ask spread
for the ETF's most recent fiscal year on its website and in its
prospectus.\370\
---------------------------------------------------------------------------

    \369\ Rule 6c-11(c)(1)(v). In calculating the median bid-ask
spread, an ETF would be required to: (i) Identify the ETF's NBBO as
of the end of each 10 second interval during each trading day of the
last 30 calendar days; (ii) divide the difference between each such
bid and offer by the midpoint of the NBBO; and (iii) identify the
median of those values.
    \370\ Although we proposed these bid-ask spread disclosure
requirements as amendments to Forms N-1A and N-8B-2, rule 6c-11 will
require ETFs relying on it to provide median bid-ask spread
disclosure on its website as a condition to the rule. Our amendments
to Form N-1A will provide an ETF that does not rely on rule 6c-11
with the option of providing the information required by rule 6c-11
on its website or the median bid-ask spread over the ETF's most
recent fiscal year in its prospectus. See infra section II.H.2.b.
---------------------------------------------------------------------------

    Comments on the proposed website disclosure of an ETF's bid-ask
spread were mixed. Many commenters opposed this requirement, asserting
that the proposed disclosures would require ETFs to bear costs and
liability for data

collected by third parties,\371\ and that other sources (e.g.,
financial intermediaries, the Commission) were in a better position to
provide bid-ask spread information.\372\ Some commenters noted that the
bid-ask spread information may be misleading to investors if the
historical information is not representative of current execution costs
or if the bid-ask spread information is overemphasized.\373\ Others
expressed concern that there is no uniform method for computing bid-ask
spread, which could make bid-ask spreads difficult to compare across
different investment options.\374\ Still others supported it as an
alternative to the parallel proposed prospectus disclosure
requirements.\375\ For example, some commenters stated that providing
more recent bid-ask spread data on an ETF's website alongside other ETF
trading data would give investors more useful and timely
information.\376\ Commenters also expressed concern about potential
liability under section 11 of the Securities Act for bid-ask spread
data included in the prospectus if an investor's actual bid-ask spread
costs differ materially from the bid-ask spread disclosed in the
prospectus.\377\
---------------------------------------------------------------------------

    \371\ See, e.g., BNY Mellon Comment Letter; John Hancock Comment
Letter.
    \372\ See, e.g., IDC Comment Letter; Invesco Comment Letter;
SSGA Comment Letter I.
    \373\ See, e.g., John Hancock Comment Letter; CSIM Comment
Letter.
    \374\ See, e.g., IDC Comment Letter; John Hancock Comment
Letter.
    \375\ See, e.g., Fidelity Comment Letter (expressing support for
website disclosure with a rolling 30-day median calculation
methodology); Dechert Comment Letter; Thomson Hine Comment Letter.
    \376\ See, e.g., OppenheimerFunds Comment Letter; SIFMA AMG
Comment Letter I.
    \377\ See, e.g., ABA Comment Letter; CSIM Comment Letter;
Dechert Comment Letter; 15 U.S.C. 77k.
---------------------------------------------------------------------------

    While we recognize the costs for ETFs to collect and publish this
bid-ask spread data, we believe that quantitative information regarding
median bid-ask spreads will provide ETF investors with greater
understanding of the costs associated with investing in ETFs. This will
help investors make more informed investment decisions. We acknowledge
that historical bid-ask spread data may reflect differences that result
from varying methods of computing bid-ask spread. However, we have
modified the proposal in several respects, such as using NBBO for
computing the bid-ask spread, to make the computation more uniform. We
therefore do not believe that the variance will be large enough to
outweigh the importance of giving investors a greater understanding of
these potential trading costs. We similarly understand that bid-ask
spread may not reflect an individual investor's actual spread, as an
individual's spread may depend on the execution strategies employed by
an intermediary (such as mid-point pricing), the size of a particular
order, or other factors. We nonetheless believe that the bid-ask spread
is a helpful tool for investors making better informed trading
decisions and that website disclosure can provide that information in a
format that is easily accessible and relied upon by investors.
    Based on comments we received, however, we are modifying certain of
the bid-ask spread requirements to make the disclosure more cost-
effective for ETFs, while maintaining or enhancing the utility for
investors. First, the rule will require an ETF to disclose its median
bid-ask spread only on its website, instead of requiring disclosure
both on an ETF's website and in its prospectus as proposed.\378\ ETFs
will present the median bid-ask spread disclosure alongside other ETF-
specific disclosures, such as premium and discount and market price,
which should mitigate some commenters' concerns relating to the
overemphasis of bid-ask spread data.
---------------------------------------------------------------------------

    \378\ See infra section II.H.3. (discussing our determination
not to adopt certain prospectus disclosure requirements that we
proposed).
---------------------------------------------------------------------------

    Second, some commenters suggested shortening the look-back period
for calculating the bid-ask spread metric, such as to a 30- or 45-day
rolling period.\379\ One commenter noted that a shorter look-back
period may show a more representative spread level, particularly for a
newly launched ETF, as spreads are likely to tighten as the ETF
matures.\380\ Several commenters also suggested that the Commission
require ETFs to provide a time-weighted average bid-ask spread rather
than the proposed median bid-ask spread.\381\ These commenters stated
that a time-weighted average is more helpful for investors because it
represents a ``typical'' bid-ask spread.
---------------------------------------------------------------------------

    \379\ See, e.g., BlackRock Comment Letter (30-day period); BNY
Mellon Comment Letter (30-day period); Cboe Comment Letter (45-day
period); ETF.com Comment Letter (45-day period).
    \380\ See BlackRock Comment Letter (providing an example showing
an ETF that saw its spread improve from 35 basis points at inception
in January 2016 to 4.03 basis points in July 2018, and observing
that its median bid-ask spread over the prior fiscal year ending
July 31, 2018 was 6.34 basis points, while its median bid-ask spread
over the prior month was 4.03 basis points).
    \381\ See, e.g., Fidelity Comment Letter; JPMAM Comment Letter.
---------------------------------------------------------------------------

    We agree that a bid-ask spread metric based on the more recent
inputs from the last 30 days may provide a better representation of the
costs that an investor may incur when trading ETF shares. Accordingly,
we are shortening the look-back period for calculating the bid-ask
spread from the most recent fiscal year to the most recent 30-day
period on a rolling basis.\382\ We think the 30-day look-back period
strikes an appropriate balance between reflecting only very short term
fluctuations and reflecting information that is no longer
representative of current execution costs. We do not think it is
necessary to require a time-weighted average rather than the proposed
median, however, because rule 6c-11 requires an ETF to determine the
median by first identifying the exchange-traded fund's national best
bid and national best offer as of the end of each 10 second interval
during each trading day. This methodology (and the resulting number of
data points) has the same effect as time-weighting. In addition,
requiring an ETF to disclose the median of bid-ask spreads is less
likely to give disproportionate effect to outlier values than a time-
weighted average.
---------------------------------------------------------------------------

    \382\ Rule 6c-11(c)(1)(v).
---------------------------------------------------------------------------

    Finally, we are modifying the proposal to require that an ETF use
the NBBO in calculating median bid-ask spreads.\383\ While the proposal
did not specify that the NBBO must be used, after considering comments
recommending more uniformity regarding bid-ask spread disclosures,\384\
we believe that requiring ETFs to use the NBBO when calculating the
median will increase consistency and comparability of the resulting
disclosure across ETFs.\385\ In addition, we believe that requiring use
of NBBO will help to reduce costs associated with obtaining the
required information, because the NBBO also is an input to the market
price disclosure requirement.
---------------------------------------------------------------------------

    \383\ Rule 6c-11(c)(1)(v)(A)-(B).
    \384\ See supra footnote 375 and accompanying text.
    \385\ The NBBO also is used in the definition of market price in
rule 6c-11. Rule 6c-11(a)(1); see also supra section II.C.6.a.
Requiring NBBO is likely to result in more uniform and comparable
calculations across funds.
---------------------------------------------------------------------------

    We also proposed related amendments to Form N-1A that would have
required an ETF to provide: (i) Examples in the ETF's prospectus
showing how bid-ask spreads impact the return on a hypothetical
investment for both buy-and-hold and frequent traders; and (ii) an
interactive calculator in a clear and prominent format on the ETF's
website that would allow an investor to customize the hypothetical bid-
ask spread calculations to its specific investing situation.\386\ These

requirements were designed to allow secondary market investors to see
the impact that bid-ask spreads can have on the investor's trading
expenses and ultimately the return on investment.
---------------------------------------------------------------------------

    \386\ See proposed amendment to Item 3 of Form N-1A. The
proposed spread costs example would demonstrate the hypothetical
impact of the ETF's bid-ask spread for one $10,000 ``round-trip''
trade (i.e., one buy and sell transaction) and, to illustrate that
more frequent trading can significantly increase costs, it would
demonstrate the costs associated with 25 $10,000 round-trip trades
(50 total trades). 2018 ETF Proposing Release, supra footnote 7, at
section II.H.2.
---------------------------------------------------------------------------

    Commenters generally opposed requiring bid-ask spread examples in
the summary prospectus or summary section. For example, some commenters
expressed concerns regarding the costs of obtaining the underlying bid-
ask spread data from third parties.\387\ Some commenters also noted
that the historical bid-ask spread data, which ETFs would use to
calculate the examples, is not representative of current trading costs
and could mislead investors if disclosures overemphasize this
information.\388\ Other commenters suggested alternatives to the
proposed examples such as using hypothetical brokerage commissions and
bid-ask spreads, rather than using actual historical bid-ask
spreads.\389\ However one commenter supported this aspect of the
proposal, stating that it would yield ``relevant and helpful''
information.\390\
---------------------------------------------------------------------------

    \387\ See, e.g., BNY Mellon Comment Letter; ICI Comment Letter;
John Hancock Comment Letter; OppenheimerFunds Comment Letter.
    \388\ See, e.g., Vanguard Comment Letter (noting that in the
second quarter of 2018, Vanguard's retail brokerage clients paid
less than 5% of the bid-ask spread when trading Vanguard ETFs with
an effective spread/quoted spread of 1.89%, and approximately 97% of
those market orders were executed inside the NBBO, with 94% of those
orders at midpoint or better). See also ABA Comment Letter;
BlackRock Comment Letter; CSIM Comment Letter.
    \389\ See, e.g., SIFMA AMG Comment Letter II.
    \390\ See FIMSAC Comment Letter.
---------------------------------------------------------------------------

    Many commenters raised similar concerns regarding the proposed
interactive calculator, including that varying data sources and
calculation methodologies may result in an inconsistent investor
experience across ETFs.\391\ Other commenters noted that the
interactive calculator was limited to bid-ask spread data, which placed
undue emphasis on spreads as a component of an ETF investor's trading
costs.\392\ Commenters also noted that the proposed requirement may
result in additional vendor and licensing costs.\393\
---------------------------------------------------------------------------

    \391\ Fidelity Comment Letter; Invesco Comment Letter; SIFMA
Comment Letter I; Vanguard Comment Letter.
    \392\ See, e.g., Vanguard Comment Letter. See also Eaton Vance
Comment Letter (recommending replacing the proposed interactive
calculator with new requirements for website trading information).
    \393\ See, e.g.; ICI Comment Letter; JPMAM Comment Letter. See
also WisdomTree Comment Letter (stating that broker-dealers are
better suited to provide the information required by the proposed
interactive calculator).
---------------------------------------------------------------------------

    After considering comments, we are not adopting the proposed bid-
ask spread examples or interactive calculator requirements. We are
instead requiring ETFs relying on rule 6c-11 to provide more recent
bid-ask spread information on their website. We believe that
streamlining the required bid-ask spread disclosures will mitigate
commenters' concerns that investors may fail to understand the
relevance of the bid-ask spread information or the potential impact of
bid-ask spreads on their specific trading situations. We are also
persuaded by commenters that an interactive calculator focused solely
on bid-ask spread costs may overemphasize those costs and thereby
obscure the effect of other costs of investing in ETFs.
7. Marketing
    As proposed, rule 6c-11 will not include certain requirements
related to ETF marketing, which were included in our exemptive orders.
Specifically, rule 6c-11 will not require an ETF to: (i) Identify
itself in its sales literature as an ETF that does not sell or redeem
individual shares, and (ii) explain that investors may purchase or sell
individual ETF shares through a broker via a national securities
exchange.\394\ Our exemptive orders included a condition requiring this
information to help prevent investors, particularly retail investors,
from confusing ETFs with mutual funds, at a time when ETFs were not a
well-known investment product.
---------------------------------------------------------------------------

    \394\ See 2018 ETF Proposing Release, supra footnote 7.
---------------------------------------------------------------------------

    The comments on this aspect of the proposal were mixed. Commenters
who supported the proposal generally agreed that the market has
developed a familiarity with ETFs and that retail investors generally
understand that, unlike mutual funds, individual ETF shares may be
purchased and sold only on secondary markets.\395\ One commenter
disagreed, asserting that many investors do not understand the
distinctions between ETFs and mutual funds.\396\ This commenter
suggested that the rule require an ETF to include a statement in its
sales literature noting that buyers of ETF shares may pay more than the
shares' current value and that sellers of ETF shares may receive less
than current value. Another commenter noted that requiring this type of
disclosure in ETF sales literature would help put investors on notice
that the ETF pricing mechanism works differently than that of mutual
funds.\397\
---------------------------------------------------------------------------

    \395\ See, e.g., Invesco Comment Letter; ICI Comment Letter.
    \396\ Eaton Vance Comment Letter.
    \397\ CFA Comment Letter.
---------------------------------------------------------------------------

    We continue to believe that ETF investors have grown familiar with
ETFs and the fundamental distinctions between ETFs and mutual funds,
and that this disclosure is now unnecessary. The disclosure
requirements we are adopting also should provide ETF investors,
including retail investors, with useful information regarding the
exchange-traded nature of ETFs and ETF pricing, including the potential
for market price to deviate from NAV per share.\398\
---------------------------------------------------------------------------

    \398\ The website disclosure requirements are described in
section II.C.6 and the amendments to Form N-1A are described in
section II.H.
---------------------------------------------------------------------------

8. ETF and ETP Nomenclature
    We requested comment on whether the Commission should address
possible investor confusion arising from the nomenclature that has
developed for identifying ETPs, including confusion between ETFs and
other types of ETPs that are not registered under the Act.\399\ We
asked, for example, whether the Commission should consider proposing to
require a naming convention or other identification scheme to assist
investors in distinguishing ETFs from other ETPs in a future
rulemaking. We also asked whether we could address investor confusion
by restricting certain sales practices, such as by proposing
restrictions on how intermediaries communicate with retail investors
about ETPs unless they disclose certain information designed to clearly
differentiate ETPs that are not subject to the Act from ETFs that are
registered investment companies.
---------------------------------------------------------------------------

    \399\ See 2018 ETF Proposing Release, supra footnote 7, at
section II.C.7. See also supra footnote 16 (describing differences
between ETFs and other types of ETPs, such as exchange-traded notes
and commodity pools).
---------------------------------------------------------------------------

    Several commenters generally supported a classification system for
ETPs to assist investors in distinguishing among these different
products.\400\ One commenter stated that leveraged/inverse ETFs,
commodity pools, and exchange-traded notes have differences that
investors should understand prior to making investment decisions.\401\
Commenters expressed varying views, however, regarding

which types of ETPs should call themselves ETFs under an ETP
classification system. One commenter asserted that the Commission
should permit only ETFs that fall squarely within proposed rule 6c-11
to call themselves ETFs.\402\ Two commenters provided examples of
comprehensive classification systems for ETPs that would not permit
``exchange-traded notes,'' ``exchange-traded commodities,'' or
``exchange-traded instruments'' (including leveraged/inverse ETFs) to
refer to themselves as ETFs.\403\ One commenter opined that the
Commission should not preclude leveraged/inverse ETFs from calling
themselves ETFs, as that would ``confuse investors and muddle both the
existing regulatory framework applicable to ETFs and fund naming
conventions.'' \404\ Another commenter asserted that UITs and other
ETFs that fall outside the scope of the rule should nonetheless be
permitted to call themselves ETFs.\405\
---------------------------------------------------------------------------

    \400\ See, e.g., BlackRock Comment Letter; Invesco Comment
Letter; Cboe Comment Letter; FIMSAC Comment Letter; Hu and Morely
Comment Letter (incorporating article by comment letter's authors
suggesting that ETFs can be categorized into three groups,
``Investment Company ETFs,'' ``Commodity Pool ETFs,'' and
``Operating Company ETFs,'' based on the applicable regulatory
framework, but not suggesting a related nomenclature system).
    \401\ See Invesco Comment Letter. See also BlackRock Comment
Letter.
    \402\ See Invesco Comment Letter.
    \403\ See BlackRock Comment Letter; FIMSAC Comment Letter.
    \404\ See ProShares Comment Letter.
    \405\ See SIFMA AMG Comment Letter I.
---------------------------------------------------------------------------

    One commenter asserted that Commission action relating to ETP
naming is premature at the present time.\406\ This commenter encouraged
ETF market participants to engage in a dialogue ``around refining
existing ETP disclosures, adding new elements as useful to investors,
and developing an industry-led standard ETP disclosure approach
beneficial to investors and all market participants.''
---------------------------------------------------------------------------

    \406\ See Comment Letter of State Street Global Advisors (Feb.
4, 2019).
---------------------------------------------------------------------------

    We agree that these issues need to be examined and discussed in
more depth before the implementation of an ETP naming system. We will
continue to consider the comments we received and, if appropriate, will
take steps to address investor confusion relating to ETF and ETP
nomenclature. At present, we believe that the term ``ETF'' is generally
associated with ETPs regulated under the Investment Company Act.
Leveraged/inverse ETFs, for example, are regulated under the Act and
are structurally and operationally similar to ETFs that will rely on
rule 6c-11. As a result, we do not believe it is appropriate to require
leveraged/inverse ETFs to use a naming convention that does not include
the term ``ETF.'' Similarly, because UIT ETFs are subject to a
substantially similar regulatory regime as ETFs structured as open-end
funds (and subject to similar regulatory safeguards), we do not find it
appropriate to require UIT ETFs to utilize a naming convention that
does not include the term ``ETF.'' We encourage ETP market participants
to continue engaging with their investors, with each other, and with
the Commission on these issues.

D. Recordkeeping

    We are adopting, as proposed, an express requirement that ETFs
relying on rule 6c-11 preserve and maintain copies of all written
agreements between an authorized participant and the ETF (or one of the
ETF's service providers) that allow the authorized participant to
purchase or redeem creation units (``authorized participant
agreements'').\407\ One commenter supported this aspect of the
proposal.\408\ Another commenter, however, stated that this requirement
is unnecessary because ETFs already generally implement robust
recordkeeping programs pursuant to their policies and procedures.\409\
---------------------------------------------------------------------------

    \407\ See rule 6c-11(d)(1). For example, an authorized
participant and the ETF's principal underwriter may enter into the
authorized participant agreement.
    \408\ See ICI Comment Letter.
    \409\ See Invesco Comment Letter.
---------------------------------------------------------------------------

    After considering these comments, we believe it is appropriate for
rule 6c-11 to specifically require that ETFs preserve and maintain
authorized participant agreements. Authorized participants play a
central role in the proper functioning of the ETF marketplace and
authorized participant agreements are critical to understanding the
relationship between an authorized participant and an ETF. Requiring
the preservation of authorized participant agreements is designed to
provide our examination staff with a basis to determine whether the
relationship between the ETF and the authorized participant is in
compliance with the requirements of rule 6c-11 and other provisions of
the Act and rules thereunder, based on the specific terms of their
written agreement. While we believe that most ETFs are currently
preserving copies of their written authorized participant agreements
pursuant to our current recordkeeping rules, for avoidance of doubt, we
believe it is appropriate to expressly require that ETFs relying on
rule 6c-11 preserve and maintain copies of all such agreements.
    We also are adopting, largely as proposed, a requirement that ETFs
maintain information regarding the baskets exchanged with authorized
participants. Rule 6c-11 will require an ETF to maintain records
setting forth the following information for each basket exchanged with
an authorized participant: (i) Ticker symbol, CUSIP or other
identifier, description of holding, quantity of each holding, and
percentage weight of each holding composing the basket exchanged for
creation units; \410\ (ii) if applicable, an identification of the
basket as a ``custom basket'' and a record stating that the custom
basket complies with the ETF's custom basket policies and procedures;
(iii) cash balancing amounts (if any); and (iv) the identity of the
authorized participant conducting the transaction.\411\
---------------------------------------------------------------------------

    \410\ As discussed below, proposed rule 6c-11 would have
required ETFs to maintain the ``names and quantities of the
positions composing the basket'' exchanged for creation units and
did not require additional information about the ticker symbol,
CUSIP or other identifier, or a description of the holding. See
proposed rule 6c-11(d)(2).
    \411\ See rule 6c-11(d)(2).
---------------------------------------------------------------------------

    Commenters generally supported requiring ETFs to maintain records
regarding baskets.\412\ One commenter stated that clear, auditable
records would help Commission staff monitor custom basket usage and its
impact on the ETF arbitrage process.\413\ Another agreed that the
records would provide Commission staff with a basis to understand how
baskets are being used by ETFs and to evaluate compliance with the rule
and other requirements.\414\ As noted above, one commenter stated that
it is unnecessary for the rule to contain any recordkeeping
provisions.\415\
---------------------------------------------------------------------------

    \412\ See ICI Comment Letter; Nasdaq Comment Letter; SIFMA AMG
Comment Letter I.
    \413\ See SIFMA AMG Comment Letter I.
    \414\ See ICI Comment Letter.
    \415\ See Invesco Comment Letter.
---------------------------------------------------------------------------

    After considering these comments, we believe that requiring ETFs to
maintain records regarding each basket exchanged with authorized
participants will provide our examination staff with a basis to
understand how baskets are being used by ETFs, particularly with
respect to custom baskets. In order to provide our examination staff
with detailed information regarding basket composition, however, we
have modified rule 6c-11 to require the ticker symbol, CUSIP or other
identifier, description of holding, quantity of each holding, and
percentage weight of each holding composing the basket exchanged for
creation units as part of the basket records, instead of the name and
quantities of each position as proposed.\416\ We believe that this
additional information will better enable our examination staff to
evaluate compliance with the rule and other applicable provisions of
the federal securities laws. Moreover, we do not believe that requiring
ETFs to maintain

detailed information regarding basket composition will create
operational challenges or unduly burden ETFs because rule 6c-11 already
requires ETFs to disclose the same information for each portfolio
holding as part of the portfolio transparency requirements.\417\
---------------------------------------------------------------------------

    \416\ See proposed rule 6c-11(d)(2).
    \417\ This modification aligns the rule's recordkeeping
requirements in paragraph (d) with the information the ETF must
already collect and disclose as part of the portfolio transparency
requirements. Proposed rule 6c-11 would have required an ETF to post
on its website information regarding a published basket at the
beginning of each business day and to present the description,
amount, value and unrealized gain/loss in the manner prescribed by
Article 12 of Regulation S-X for each basket asset. As discussed
above, we are not adopting a basket publication requirement as part
of rule 6c-11, and therefore the rule does not set forth
recordkeeping requirements relating to the proposed basket
publication requirement. See supra section II.C.5.c.
---------------------------------------------------------------------------

    As proposed, the rule will require ETFs to maintain these records
for at least five years, the first two years in an easily accessible
place. The retention period is consistent with the period provided in
rules 22e-4 and 38a-1(d) under the Act. Funds currently have compliance
program-related recordkeeping procedures in place that incorporate this
type of retention period and we believe consistency with that period
will minimize any compliance burdens to ETFs subject to rule 6c-11. The
commenter that addressed this aspect of the recordkeeping requirement
supported the proposed retention period.\418\
---------------------------------------------------------------------------

    \418\ See Invesco Comment Letter (agreeing with the five-year
retention timeline despite generally objecting to the rule's
recordkeeping requirements).
---------------------------------------------------------------------------

E. Share Class ETFs

    As proposed, rule 6c-11 does not provide relief from sections
18(f)(1) or 18(i) of the Act or expand the scope of 17 CFR 270.18f-3
(rule 18f-3) (the multiple class rule).\419\ Sections 18(f) and (i) of
the Act were intended, in large part, to protect investors from certain
abuses associated with complex investment company capital structures,
including conflicts of interest among a fund's share classes.\420\
These provisions also were designed to address certain inequitable and
discriminatory shareholder voting provisions that were associated with
many investment company securities before the enactment of the
Act.\421\ Rule 18f-3 created a limited exception from sections 18(f)(1)
and 18(i) for certain funds but requires, among other things, that each
share class of a fund have the same rights and obligations as each
other class.\422\ An ETF cannot rely on rule 18f-3 to operate as a
share class within a fund, however, because the rights and obligations
of the ETF shareholders would differ from those of investors in the
fund's mutual fund share classes.\423\ Therefore, absent any separate
relief from sections 18(f)(1) or 18(i) of the Act, an ETF structured as
a share class of a fund that issues multiple classes of shares
representing interests in the same portfolio cannot operate in reliance
on rule 6c-11.
---------------------------------------------------------------------------

    \419\ See 15 U.S.C. 80a-18(f)(1) and (i). Section 18(f)(1) of
the Act generally prohibits a registered open-end company from
issuing a class of ``senior security,'' which is defined in section
18(g) to include any stock of a class having priority over any other
class as to distribution of assets or payment of dividends. See 15
U.S.C. 80a-18(g). Section 18(i) of the Act provides that all shares
of stock issued by a registered management company must have equal
voting rights.
    \420\ See Exemption for Open-End Management Investment Companies
Issuing Multiple Classes of Shares, Investment Company Act Release
No. 19955 (Dec. 15, 1993) [58 FR 68074 (Dec. 23, 1993)] (proposing
release), at nn.20 and 21 and accompanying text.
    \421\ See id.
    \422\ See 17 CFR 270.18f-3(a)(4); Exemption for Open-End
Management Companies Issuing Multiple Classes of Shares, Investment
Company Act Release No. 20915 (Feb. 23, 1995) [60 FR 11876 (Mar. 2,
1995)] (adopting release) (``Multiple Class Adopting Release''), at
n.8 and accompanying text.
    \423\ For example, ETF shares would be redeemable only in
creation units, while the investors in the fund's mutual fund share
classes would be individually redeemable. Similarly, ETF shares are
tradeable on the secondary market, whereas mutual fund shares
classes would not be traded.
---------------------------------------------------------------------------

    We recognize that the Commission has previously granted ETFs
exemptive relief from the provisions of section 18 of the Act in the
past, subject to various conditions.\424\ However, relief from section
18 raises policy considerations that are different from those we are
seeking to address in this rule. For example, an ETF share class that
transacts with authorized participants on an in-kind basis and a mutual
fund share class that transacts with shareholders on a cash basis may
give rise to differing costs to the portfolio. As a result, while
certain of these costs may result from the features of one share class
or another, all shareholders would generally bear these portfolio
costs.\425\
---------------------------------------------------------------------------

    \424\ See Vanguard Index Funds, et al., Investment Company Act
Release Nos. 24680 (Oct. 6, 2000) [65 FR 61005 (Oct. 13, 2000)]
(notice) and 24789 (Dec. 12, 2000) (order) and related application;
Vanguard Index Funds, et al., Investment Company Act Release Nos.
26282 (Dec. 2, 2003) [68 FR 68430 (Dec. 8, 2003)] (notice) and 26317
(Dec. 29, 2003) (order) and related application; Vanguard
International Equity Index Funds, et al., Investment Company Act
Release Nos. 26246 (Nov. 3, 2003) [68 FR 63135 (Nov. 7, 2003)]
(notice) and 26281 (Dec. 1, 2003) (order) and related application;
Vanguard Bond Index Funds, et. al., Investment Company Act Release
Nos. 27750 (Mar. 9, 2007) [72 FR 12227 (Mar. 15, 2007)] (notice) and
27773 (Apr. 25, 2007) (order) and related application (collectively,
the ``Vanguard orders'').
    \425\ These costs can include brokerage and other costs
associated with buying and selling portfolio securities in response
to mutual fund share class cash inflows and outflows, cash drag
associated with holding the cash necessary to satisfy mutual fund
share class redemptions, and distributable capital gains associated
with portfolio transactions.
---------------------------------------------------------------------------

    Three commenters stated that it was unnecessary for rule 6c-11 to
provide relief for share class ETFs.\426\ One commenter, a sponsor of
share class ETFs, stated that it is unnecessary for the rule to
encompass share class ETFs because it is currently uncommon for ETF
issuers to seek the exemptive relief necessary for such ETFs.\427\
Another stated that our proposed treatment is appropriate given the
nuances associated with those products, \428\ and the third similarly
indicated that share class ETFs present issues that would be more
appropriately addressed through means other than rule 6c-11.\429\
---------------------------------------------------------------------------

    \426\ See Vanguard Comment Letter; Invesco Comment Letter; SSGA
Comment Letter I.
    \427\ See Vanguard Comment Letter.
    \428\ See Invesco Comment Letter.
    \429\ See SSGA Comment Letter I.
---------------------------------------------------------------------------

    Two other commenters, however, opined that rule 6c-11 (or a
separate future rule) should provide relief for share class ETFs in
order to create a more level ETF playing field.\430\ Additional
commenters echoed the importance of leveling the ETF playing field
without specifically addressing share class ETFs.\431\ Another
commenter urged the Commission to explore granting relief from the
relevant provisions of section 18 broadly to the fund industry.\432\
---------------------------------------------------------------------------

    \430\ See BNY Mellon Comment Letter; OppenheimerFunds Comment
Letter.
    \431\ See ETF.com Comment Letter (stating that the disclosure
requirements of any final rule should apply to all ETFs, regardless
of whether the ETFs rely on the final rule); Invesco Comment Letter
(indicating that the Commission should generally abstain from
regulatory actions that allow only certain market participants to
benefit from innovation).
    \432\ See MFDF Comment Letter.
---------------------------------------------------------------------------

    Leveling the ETF playing field is a goal for rule 6c-11, and we
acknowledge that our approach will result in there being a segment of
ETF assets that are unable to rely on the rule. At the same time, we
continue to believe that share class ETFs raise policy considerations
that are different from those we seek to address in the rule. With such
concerns unresolved, we do not believe it is appropriate to broadly
grant relief from sections 18(f)(1) and 18(i) of the Act for share
class ETFs at this time. Share class ETFs are structurally and
operationally different from the other types of ETFs within the scope
of rule 6c-11.\433\ We

therefore continue to believe it is appropriate for share class ETFs to
request relief from sections 18(f)(1) and 18(i) of the Act through our
exemptive application process, and for the Commission to continue to
assess all relevant policy considerations in the context of the facts
and circumstances of each particular applicant. We are not rescinding
exemptive relief previously granted to share class ETFs.
---------------------------------------------------------------------------

    \433\ For example, when an ETF is structured as a share class of
an open-end fund, the open-end fund has other share classes
representing interests in the same portfolio. These interests (and
the cash flows associated with the other share classes) can impact
the fund's portfolio. In addition, share class ETFs do not provide
daily portfolio transparency. See Vanguard orders, supra footnote
425.
---------------------------------------------------------------------------

    We also are adopting amendments to Form N-1A that will require
share class ETFs to provide certain additional disclosures regarding
ETF trading costs. As discussed in more detail below in section II.H.,
these disclosure amendments are designed to help ensure consistent
disclosures to investors between ETFs relying on proposed rule 6c-11
and share class ETFs operating pursuant to individualized exemptive
relief. The rule and form amendments require all ETFs that are subject
to the Investment Company Act to provide similar disclosures in order
to help investors compare products.

F. Master-Feeder ETFs

    Many of our recent ETF orders allow ETFs to operate as feeder funds
in a master-feeder structure.\434\ In general, an ETF that operates as
a feeder fund in a master-feeder structure functions like any other
ETF. An authorized participant deposits a basket with the ETF and
receives a creation unit of ETF shares in return for those assets.
Conversely, an authorized participant that redeems a creation unit of
ETF shares receives a basket from the ETF. In a master-feeder
arrangement, however, the feeder ETF then also enters into a
corresponding transaction with its master fund. The ETF may use the
basket assets it receives from an authorized participant to purchase
additional shares of the master fund, or it may redeem shares of the
master fund in order to obtain basket assets and satisfy a redemption
request.
---------------------------------------------------------------------------

    \434\ See, e.g., T. Rowe Price Associates, Inc., et al.,
Investment Company Act Release Nos. 30299 (Dec. 7, 2012) [77 FR
74237 (Dec. 13, 2012)] (notice) and 30336 (Jan. 2, 2013) (order) and
related application; SSgA Funds Management, Inc., et al., Investment
Company Act Release Nos. 29499 (Nov. 17, 2010) [75 FR 71753 (Nov.
24, 2010)] (notice) and 29524 (Dec. 13, 2010) (order) and related
application (``SSgA'').
---------------------------------------------------------------------------

    Because the feeder ETF may, in the course of these transactions,
temporarily hold the basket assets, it would not be able to rely on
section 12(d)(1)(E) of the Act, which requires that a feeder fund hold
no investment securities other than securities of the master fund.\435\
To accommodate the unique operational characteristics of these ETFs,
our recent exemptive orders have allowed a feeder ETF to rely on
section 12(d)(1)(E) without complying with section 12(d)(1)(E)(ii) of
the Act to the extent that the ETF temporarily holds investment
securities other than the master fund's shares for use as basket
assets. These orders also provided the feeder ETF and its master fund
with relief from sections 17(a)(1) and 17(a)(2) of the Act, with regard
to the deposit by the feeder ETF with the master fund and the receipt
by the feeder ETF from the master fund of basket assets in connection
with the issuance or redemption of creation units,\436\ and section
22(e) of the Act if the feeder ETF includes a foreign security in its
basket assets and a foreign holiday (or a series of consecutive
holidays) prevents timely delivery of the foreign security.\437\
---------------------------------------------------------------------------

    \435\ Section 12(d)(1) of the Act limits the ability of a fund
to invest substantially in shares of another fund. See sections
12(d)(1)(A)-(C) of the Act. Section 12(d)(1)(E) of the Act allows an
investment company to invest all of its assets in one other fund so
that the acquiring fund is, in effect, a conduit through which
investors may access the acquired fund. See section 12(d)(1)(E)(ii)
of the Act.
    \436\ Relief from the affiliated transaction prohibitions in
sections 17(a)(1) and 17(a)(2) of the Act is necessary because these
sections would otherwise prohibit the feeder ETF and its master fund
from selling to or buying from each other the basket assets in
exchange for securities of the master fund. See 15 U.S.C. 80a-
17(a)(1)-(2).
    \437\ See 15 U.S.C. 80a-22(e) (generally requiring the
satisfaction of redemptions within seven days). See also supra
section II.B.4.
---------------------------------------------------------------------------

    The exemptive orders we have granted to master-feeder ETFs,
however, do not include relief from section 18 under the Act inasmuch
as investment by several feeder funds or by mutual fund and ETF feeder
funds in the same class of securities issued by a master fund generally
does not involve a senior security subject to section 18. We are
concerned, as discussed above, that if an ETF feeder fund transacts
with a master fund on an in-kind basis, but non-ETF feeder funds
transact with the master fund on a cash basis, all feeder fund
shareholders would bear costs associated with the cash
transactions.\438\ Due to these concerns, and the lack of market
interest in this structure, we proposed to rescind the master-feeder
relief granted to ETFs that did not rely on the relief as of the date
of the proposal (June 28, 2018). We also proposed to grandfather
existing master-feeder arrangements involving ETF feeder funds, but
prevent the formation of new ones, by amending relevant exemptive
orders.
---------------------------------------------------------------------------

    \438\ See supra footnote 426 and accompanying text.
---------------------------------------------------------------------------

    One commenter stated that it did not object to preventing the
formation of new master-feeder arrangements and rescinding master-
feeder relief (with the exception of master-feeder relief that funds
actively relied on as of the date of the Proposing Release).\439\ Other
commenters, however, indicated that the rule should provide relief for
master-feeder structures \440\ or that the Commission should not
rescind existing master-feeder relief.\441\ Some of these commenters
indicated that failing to provide relief for master-feeder structures
would cause an uneven playing field among ETFs but did not address the
concerns discussed above.\442\
---------------------------------------------------------------------------

    \439\ See ICI Comment Letter.
    \440\ See ETF.com Comment Letter; BNY Mellon Comment Letter;
Dechert Comment Letter.
    \441\ See Fidelity Comment Letter; Eaton Vance Comment Letter.
    \442\ See ETF.com Comment Letter; BNY Mellon Comment Letter.
---------------------------------------------------------------------------

    Other commenters set forth potential methods for mitigating such
concerns. For example, one commenter indicated that the Commission
could address its concerns regarding potential cross-subsidization by
requiring master funds to impose certain transaction fees,\443\ while
another indicated that the Commission should address these concerns by
requiring each feeder fund in a master-feeder structure to transact
with the master fund consistently (i.e., only in cash or only in
kind).\444\ An additional commenter suggested that an ETF's board
should evaluate whether a master-feeder structure's overall benefits
outweigh its overall costs in order to address these concerns.\445\
Another commenter indicated that it has already invested resources
exploring various approaches to an ETF master-feeder structure,
including models that it believed would address the Commission's
concerns.\446\
---------------------------------------------------------------------------

    \443\ See Eaton Vance Comment Letter.
    \444\ See Fidelity Comment Letter.
    \445\ See Dechert Comment Letter. This commenter also opposed
excluding exemptive relief for master-feeder structures based on a
lack of market interest because the ETF industry is dynamic and
interest in master-feeder structures may develop in the future. Id.
    \446\ See Fidelity Comment Letter.
---------------------------------------------------------------------------

    As discussed in the context of share class ETFs, leveling the ETF
playing field is a goal for rule 6c-11, and we acknowledge that our
approach will result in there being a segment of ETF assets that are
unable to rely on the rule. Like share class ETFs, however, we continue
to believe that master-feeder funds raise policy considerations that
are different from those we seek to

address in the rule and are structurally and operationally distinct
from other ETFs within the scope of rule 6c-11. We do not believe it is
appropriate to broadly grant exemptive relief for master-feeder funds.
Instead, we continue to believe that the Commission should consider the
special concerns presented by ETFs in master-feeder structures in the
context of the facts and circumstances of each particular applicant
through individualized exemptive applications. The Commission's
exemptive relief process is well-suited for applicants to set forth
novel methods of mitigating the Commission's concerns, such as the
methods suggested above. The process allows applicants to experiment
with many different approaches, and may eventually assist the
Commission in identifying a particular solution that is appropriate for
a broader rule. Any ETF that is exploring a particular approach is free
to bring its methodology forward in an exemptive application, which
should help mitigate commenters' concerns about future changes in the
ETF industry and resources already committed to such research. As
proposed, therefore, we will rescind the master-feeder relief granted
to ETFs that did not rely on the relief as of the date of the proposal
(June 28, 2018).\447\
---------------------------------------------------------------------------

    \447\ One commenter indicated that this date provided an
insufficient notice period for ETFs interested in pursuing the
master-feeder structure and recommended ``a sunset provision of at
least 3 years from the effective date of the final rule to allow
ETFs that have been developing this structure sufficient time to
test and implement it.'' See id. Exemptive orders for existing ETF
master-feeder structures that rely on the relief will not be
rescinded, however, and ETFs interested in pursuing a master-feeder
structure in the future may apply for individualized exemptive
relief. We therefore believe that such a 3-year sunset provision is
unnecessary.
---------------------------------------------------------------------------

    Only one fund complex had established as of June 28, 2018 master-
feeder arrangements involving ETF feeder funds, and each arrangement
involves an ETF as the sole feeder fund. We understand that all but one
of the complex's original ETF feeder funds has discontinued its use of
a master-feeder structure.\448\ Because this arrangement involves only
one ETF feeder fund for its master fund, we do not believe it will
raise the policy concerns discussed above without new, additional
feeders, and therefore do not believe it is necessary to require this
structure to change its existing investment practices by rescinding the
relief.\449\ Instead, as proposed, we are amending this fund complex's
existing exemptive orders to prevent the complex from forming new
master-feeder ETFs.\450\
---------------------------------------------------------------------------

    \448\ See, e.g., SSGA Active Trust Prospectus (Oct. 31, 2017),
available at https://www.sec.gov/Archives/edgar/data/1516212/000119312518313788/d635918d497.htm.
    \449\ See 2018 ETF Proposing Release, supra footnote 7, at n.342
(noting that rescinding the relief for existing master-feeder ETFs
would require them to change the manner in which they invest).
    \450\ The amendment to the exemptive order will expressly
provide that the complex cannot create new master-feeder structures
as of June 28, 2018.
---------------------------------------------------------------------------

G. Effect of Rule 6c-11 on Prior Orders

    As proposed, we have determined to exercise our authority under the
Act to amend and rescind the exemptive relief we have issued to ETFs
that will be permitted to operate in reliance on rule 6c-11.\451\
Accordingly, one year following the effective date of rule 6c-11, we
will rescind those portions of our prior ETF exemptive orders that
grant relief related to the formation and operation of an ETF,
including master-feeder relief except as described in section II.F. We
will not rescind the exemptive orders of UIT ETFs, leveraged/inverse
ETFs, share class ETFs, or non-transparent ETFs. We also are not
rescinding the relief we have provided to ETFs from section 12(d)(1)
and sections 17(a)(1) and (a)(2) under the Act related to fund of funds
arrangements involving ETFs as discussed below.
---------------------------------------------------------------------------

    \451\ See section 38(a) of the Act, 15 U.S.C. 80a-37(a).
---------------------------------------------------------------------------

    Commenters generally supported the rescission of the exemptive
relief granted to ETFs that fall within the scope of rule 6c-11,\452\
while permitting ETFs that could not rely on rule 6c-11 to continue to
rely on their individual exemptive orders.\453\ One commenter stated
that rescission of these orders will further the Commission's
regulatory goal to create a consistent, transparent, and efficient
regulatory framework for ETFs.\454\
---------------------------------------------------------------------------

    \452\ See, e.g., ABA Comment Letter; ICI Comment Letter.
    \453\ See, e.g., ICI Comment Letter; Eaton Vance Comment Letter.
In addition, one commenter stated that, because the commenter has
designed its ETFs around the basket flexibility afforded by its
exemptive orders, it would oppose the rescission of prior orders if
the final rule limits ETFs' ability to use custom baskets. See
Invesco Comment Letter. As discussed above, rule 6c-11 will permit
an ETF to use custom baskets if it meets certain conditions. See
supra section II.C.5.b.
    \454\ See ABA Comment Letter. One commenter, a sponsor of ETMFs
as well as ETFs, requested that the Commission amend the terms and
conditions relating to custom baskets in the ETMF orders to
correspond to the treatment of custom baskets in rule 6c-11. See
Eaton Vance Comment Letter. We believe this request is beyond the
scope of the proposal. However, the commenter may seek to amend its
order as part of the exemptive application process.
---------------------------------------------------------------------------

    After reviewing comments, we continue to believe that rescinding
ETF exemptive relief in connection with rule 6c-11 will result in a
consistent, transparent, and efficient framework for ETFs that operate
in reliance on rule 6c-11, as those ETFs would no longer be subject to
differing and sometimes inconsistent provisions of their exemptive
relief. Moreover, investment companies that seek to operate an ETF
under conditions that differ from those in rule 6c-11 are able to
request exemptive relief from the Commission.
    In addition, approximately 200 of our current ETF exemptive orders
automatically expire on the effective date of any Commission rule that
provides relief permitting the operation of ETFs.\455\ We have
determined, as proposed, to amend those orders to provide that the ETF
relief contained therein will terminate one year following the
effective date of rule 6c-11 to allow time for these ETFs to make any
adjustments necessary to rely on rule 6c-11.
---------------------------------------------------------------------------

    \455\ See 2018 ETF Proposing Release, supra footnote 7, at n.348
and accompanying text (noting that the Commission began including a
condition in its exemptive orders in 2008 stating that the relief
permitting the operation of ETFs would expire on the effective date
of any Commission rule that provides relief permitting the operation
of ETFs).
---------------------------------------------------------------------------

    We continue to believe that the one-year period for the termination
of our ETF exemptive relief is sufficient to give ETFs that are
operating under exemptive orders time to bring their operations into
conformity with the requirements of rule 6c-11. We did not receive any
comments on this aspect of the proposal. We also did not receive any
comments stating that the need to comply with the requirements of rule
6c-11, as opposed to their exemptive relief, would significantly
negatively affect the operations of existing ETFs.
    Finally, we did not propose to rescind the fund of funds exemptive
relief included in our ETF exemptive orders.\456\ This relief permits
an ETF to create fund of funds structures, subject to certain
conditions set forth in the ETF's exemptive application, designed to
prevent the abuses that led Congress to enact section 12(d)(1),
including abuses associated with undue influence and control by
acquiring fund shareholders, the payment of duplicative or excessive
fees, and the creation of complex structures. The conditions for fund
of funds relief for ETFs are substantially similar across our exemptive
orders.
---------------------------------------------------------------------------

    \456\ See id. at n.344 and accompanying text.
---------------------------------------------------------------------------

    Commenters generally agreed that we should not rescind the fund of
funds exemptive relief, but asserted that the Commission should include
fund of funds relief in a final rule or provide such relief through
other means.\457\

Some commenters stated that because fund of funds relief is part of
standard ETF exemptive orders, the Commission also should permit new
ETFs to rely on the terms and conditions of fund of funds relief
previously granted to existing ETFs.\458\ These commenters stated that
failing to provide this relief would frustrate the Commission's purpose
of allowing new ETFs to enter the market without obtaining an exemptive
order from the Commission.
---------------------------------------------------------------------------

    \457\ See, e.g., Dechert Comment Letter; ABA Comment Letter;
MFDF Comment Letter; SSGA Comment Letter; WisdomTree Comment Letter;
OppenheimerFunds Comment Letter. Commenters also suggested that the
Commission should permit funds relying on sections 3(c)(l) and
3(c)(7) under the Act to be acquiring funds under any future fund of
funds relief. See Dechert Comment Letter; OppenheimerFunds Comment
Letter. While the subject matter of these comments falls outside the
scope of the proposal of rule 6c-11, this issue is addressed as part
of the proposed fund of funds rules. See FOF Proposing Release,
supra footnote 40.
    \458\ See, e.g., ABA Comment Letter; Dechert Comment Letter.
---------------------------------------------------------------------------

    In December 2018, we proposed new rule 12d1-4 under the Act to
streamline and enhance the regulatory framework applicable to fund of
funds arrangements for registered investment companies, including
ETFs.\459\ In connection with that proposed rule, we also proposed to
rescind our exemptive orders granting relief to certain fund of funds
arrangements, including the relief from sections 12(d)(1)(A) and (B)
that, as discussed above, has been included in our ETF exemptive
orders. The Commission has not yet acted upon this proposal and is not
rescinding the fund of funds relief in existing exemptive orders in
connection with this rulemaking.
---------------------------------------------------------------------------

    \459\ See FOF Proposing Release, supra footnote 40, at nn.236-
237 and accompanying text.
---------------------------------------------------------------------------

    We agree with commenters, however, that new entrants to the ETF
market would be at disadvantage to existing ETFs without fund of funds
relief. Accordingly, ETFs relying on rule 6c-11 that do not have
exemptive relief from sections 12(d)(1)(A) and (B) and section 17(a)(1)
and (2) of the Act may enter into fund of funds arrangements as set
forth in our recent ETF exemptive orders, provided that they satisfy
the terms and conditions for fund of funds relief in those orders.\460\
This relief will be available only until the effective date of a new
Commission rule permitting registered funds to acquire the securities
of other registered funds in excess of the limits in section 12(d)(1),
including rule 12d1-4 if adopted.\461\
---------------------------------------------------------------------------

    \460\ See Salt Financial, supra footnote 248. Our exemptive
orders permitting ETFs to enter into fund of funds arrangements
include relief from section 17(a) of the Act. Section 17(a) would
prohibit an ETF that is an acquiring fund that holds 5% or more of
an acquired fund's securities from making any additional investments
in the acquired fund. In addition, fund of funds arrangements
involving funds that are part of the same group of investment
companies or that have the same investment adviser (or affiliated
investment advisers) implicate section 17(a), regardless of whether
an acquiring fund exceeds the 5% threshold. Furthermore, where an
ETF is an acquired fund, section 17(a) would prohibit the delivery
or deposit of basket assets on an in-kind basis by an affiliated
fund (that is, by exchanging certain assets from the ETF's
portfolio, rather than in cash). See FOF Proposing Release, supra
footnote 40, at nn.60-64 and accompanying text. The relief we are
providing from section 17(a) does not extend beyond the scope of the
relief we have provided in our exemptive orders to ETFs. We are
providing the relief from sections 12(d)(1)(A) and (B) and section
17(a) in accordance with our authority under sections 6(c),
12(d)(1)(J), and 17(b) of the Act. See 15 U.S.C. 80a-6(c), 15 U.S.C.
80a-12(d)(1)(J), and 15 U.S.C. 80a-17(b).
    \461\ For the reasons discussed above, we find that this relief
is necessary or appropriate in the public interest and consistent
with the protection of investors and the purposes fairly intended by
the policy and provisions of the Investment Company Act. See 15
U.S.C. 80a-6(c). We similarly find that such an exemption is
consistent with the public interest and the protection of investors.
See 15 U.S.C. 80a-12(d)(1)(J).
---------------------------------------------------------------------------

H. Amendments to Form N-1A

    We are adopting several amendments to Form N-1A, the registration
form used by open-end funds to register under the Act and to offer
their securities under the Securities Act, that are designed to provide
ETF investors with additional information regarding ETF trading and
associated costs. Commenters generally supported providing additional
information to investors regarding ETF trading, but many suggested
specific modifications to the proposals.\462\ After considering these
comments, we are adopting the following amendments to Form N-1A:
---------------------------------------------------------------------------

    \462\ We also received a comment requesting that we confirm the
applicability of the civil liability provisions in sections 11 and
12 of the Securities Act to investors that purchase ETF shares on
the secondary markets. See Hagens Berman Comment Letter. This
rulemaking is intended to codify existing relief for ETFs relating
to the formation and operation of ETFs under the Investment Company
Act. Accordingly, the applicability of those Securities Act
provisions is beyond the scope of this rulemaking.
---------------------------------------------------------------------------

     Adding the term ``selling'' to current narrative
disclosure requirements to clarify that the fees and expenses reflected
in the expense table may be higher for investors if they buy, hold, and
sell shares of the fund (Item 3);
     Streamlined narrative disclosures relating to ETF trading
costs, including bid-ask spreads (Item 6);
     Requiring ETFs that do not rely on rule 6c-11 to disclose
median bid-ask spread information on their websites or in their
prospectus (Item 6);
     Excluding ETFs that provide premium/discount disclosures
in accordance with rule 6c-11 from the premium and discount disclosure
requirements in Form N-1A (Items 11 and 27); and
     Eliminating disclosures relating to creation unit size and
disclosures applying only to ETFs with creation unit sizes of less than
25,000 shares (Items 3, 6, 11 and 27).
1. Fee Disclosures for Mutual Funds and ETFs (Item 3)
    As proposed, we are adopting a narrative disclosure that will
specify that the fees and expenses reflected in the Item 3 expense
table also may be higher for investors if they sell shares of the
fund.\463\ Currently, this item requires disclosure indicating only
that the table describes fees and expenses investors may pay if they
buy and hold shares of the fund. However, both mutual funds and ETF
investors also may incur expenses other than redemption fees when
selling fund shares.\464\ We are therefore amending this disclosure to
specify that investors may pay the fees and expenses described in Item
3 if they buy, hold, and sell shares of the fund.\465\ Commenters who
addressed this proposed change supported it because it will help
investors better understand that they may incur costs in addition to
those in the fee table.\466\
---------------------------------------------------------------------------

    \463\ Item 3 of Form N-1A (requiring, for example, disclosure of
sales loads, exchange fees, maximum account fees, and redemption
fees that funds charge directly to shareholders). We also are
amending Instruction 1(e) of Item 3, as proposed, to eliminate: (i)
The requirement that ETFs modify the narrative explanation for the
fee table to state that investors may pay brokerage commissions on
their purchase and sale of ETF shares, which are not reflected in
the example; and (ii) the instruction to exclude fees charged for
the purchase and redemption of the fund's creation units if the fund
issues or redeems shares in creation units of not less than 25,000
shares. Thus, as proposed, an ETF may exclude from the fee table any
fees charged for the purchase and redemption of the Fund's creation
units regardless of the number of shares. See also Instruction
1(e)(ii) to Item 27(d)(1) (adopting the same modification for the
expense example in an ETF's annual and semi-annual reports).
    \464\ For example, an investor may incur a back-end sales load
when selling a mutual fund share. Likewise, an investor may bear
costs associated with bid-ask spreads when selling ETF shares.
    \465\ See Item 3 of Form N-1A.
    \466\ See, e.g., CSIM Comment Letter; FIMSAC Comment Letter; IDC
Comment Letter.
---------------------------------------------------------------------------

    We also are adopting, as proposed, a requirement to include a
statement that investors may be subject to other fees not reflected in
the table, such as brokerage commissions and fees to financial
intermediaries.\467\ Commenters who addressed this proposed requirement
supported it.\468\ We continue to believe this is an appropriate
disclosure for both ETFs

and mutual funds, as investors in ETFs and mutual funds alike may incur
brokerage commissions and fees to financial intermediaries.
---------------------------------------------------------------------------

    \467\ Item 3 of Form N-1A.
    \468\ See, e.g., IDC Comment Letter; Invesco Comment Letter.
---------------------------------------------------------------------------

2. Disclosures Regarding ETF Trading and Associated Costs (Item 6)
    We are adopting amendments to Item 6 of Form N-1A that: (i) Will
require an ETF to provide narrative disclosure identifying specific
costs associated with buying and selling ETF shares and directing
investors to its website for additional information; and (ii) allow an
ETF that is not subject to rule 6c-11 the option to provide disclosure
regarding the ETF's median bid-ask spread on its website or in its
prospectus.\469\ These form amendments differ in several respects from
our proposal, which would have required an ETF to disclose information
regarding how ETF shares trade and the associated costs, including
information regarding bid-ask spreads, as part of the fund's fee table
disclosure.
---------------------------------------------------------------------------

    \469\ Rule 6c-11 will require an ETF to disclose its median bid-
ask spread for the last thirty calendar days on its website as a
condition to the rule. Rule 6c-11(c)(1)(v). We also are amending the
definition of ``Exchange-Traded Fund'' in Form N-1A to add a
specific reference to rule 6c-11. See General Instruction A of Form
N-1A (defining ``exchange-traded fund'' as a fund or class, the
shares of which are listed and traded on a national securities
exchange, and that has formed and operates under an exemptive order
granted by the Commission or in reliance on rule 6c-11 under the
Act). We are adopting this definition as proposed.
---------------------------------------------------------------------------

a. Narrative Disclosures
    Secondary market investors in ETF shares are subject to trading
costs when purchasing and selling ETF shares that ETFs are not
currently required to disclose in their prospectuses. Trading costs,
like all costs and expenses, affect investors' returns on their
investment.\470\ In addition, some investors use ETFs more heavily as
trading vehicles compared to mutual funds and may thus incur
substantial trading costs. We believe that investors could overlook
these costs and that additional disclosure would help them better
understand these costs when purchasing or selling ETF shares.
---------------------------------------------------------------------------

    \470\ See SEC Office of Investor Education and Advocacy,
Investor Bulletin: How Fees and Expenses Affect Your Investment
Portfolio (Feb. 2014), available at https://www.sec.gov/investor/alerts/ib_fees_expenses.pdf, at 2 (``As with any fee, transaction
fees will reduce the overall amount of your investment
portfolio.''); see also Andrea Coombes, Calculating the Costs of an
ETF, The Wall Street Journal (Oct. 23, 2012), available at https://www.wsj.com/articles/SB10000872396390444024204578044293008576204 .
---------------------------------------------------------------------------

    As a result, we proposed to require ETFs to include a series of
questions and answers--or Q&As--in Item 3 that would have provided
investors with narrative disclosure regarding ETF trading and
associated costs, as well as quantitative disclosures regarding bid-ask
spreads.\471\ Although many commenters supported providing information
regarding trading costs to investors, commenters raised concerns
regarding the quantitative aspects of the bid-ask spread
disclosures.\472\ In addition, comments on the proposed Q&A format were
mixed. Some commenters supported the format, stating that it provided a
user-friendly method for identifying certain costs.\473\ Many others
expressed concerns that this format would significantly lengthen the
summary prospectus, potentially resulting in less investor-friendly
formats or increased printing costs.\474\ Some commenters asserted that
the proposed Q&A format may be more appropriate for inclusion in the
statutory prospectus rather than the summary prospectus.\475\
---------------------------------------------------------------------------

    \471\ We also proposed to move certain disclosure regarding the
purchase of ETF shares from Item 6 to Item 3, consolidating relevant
disclosures regarding the fees and trading costs that an ETF
investor may bear in one place. 2018 ETF Proposing Release, supra
footnote 7, at text accompanying nn.391-394.
    \472\ See also supra section II.C.6.d. (discussing median bid-
ask spread disclosure requirements in rule 6c-11 and our
determination not to adopt amendments that would have required an
ETF to provide: (i) Hypothetical examples in its prospectus of how
the bid-ask spread impacts return on investment; and (ii) an
interactive calculator on its website to allow investors the ability
to customize those hypothetical calculations).
    \473\ See, e.g., CFA Institute Comment Letter; FIMSAC Comment
Letter.
    \474\ See, e.g., CSIM Comment Letter (stating the that proposed
format would require ETFs to rethink the presentation of the
summary); Fidelity Comment Letter (stating that the proposed format
would subsume other more important information and that concise
narrative disclosure would be preferable); Vanguard Comment Letter
(stating the sponsors should be permitted to determine how best to
present this information).
    \475\ BlackRock Comment Letter; CSIM Comment Letter.
---------------------------------------------------------------------------

    We continue to believe that investors could overlook certain
trading costs when buying or selling ETF shares and that additional
disclosure will help them better understand these costs. However, we
agree with commenters that the extent of trading cost disclosures we
proposed to require in Item 3 could obscure other key information
regarding other fees and expenses and potentially give bid-ask spread
disclosures undue prominence. We also agree that ETFs and their
investors may benefit from flexibility in the manner of presenting the
required information, especially if the proposed format would unduly
distract from other key information. We therefore are permitting ETFs
to use formats other than Q&As to present this information.\476\ In
addition, we are moving the narrative disclosures regarding trading
costs to Item 6 of Form N-1A, which provides investors with information
regarding the purchase and sale of fund shares to avoid overemphasizing
these costs.
---------------------------------------------------------------------------

    \476\ See Item 6(c) of Form N-1A. An ETF must provide the
required information using plain English principles under rule
421(d) under the Securities Act. See General Instructions to Form N-
1A. The applicable standards provide ETFs and other funds with
flexibility, for example, in determining whether to use headings in
a question-and-answer format. Enhanced Disclosure and New Prospectus
Delivery Option for Open-End Management Investment Companies,
Investment Company Act Release No. 28584 (Jan. 13, 2009) [74 FR
4546, 4549 n.39 (Jan. 26, 2009)] (``Summary Prospectus Adopting
Release'').
---------------------------------------------------------------------------

    We also are streamlining several of the narrative disclosure
requirements we proposed. First, we are adopting a requirement that the
ETF's summary prospectus or summary section cross-reference the ETF's
website.\477\ Rule 6c-11 will require daily website disclosure of
several items, including the NAV per share, market price, premium or
discount, and bid-ask spread information. Form N-1A also will permit
ETFs to omit certain information from their registration statements if
they satisfy certain of the rule's website disclosure conditions.\478\
This disclosure will inform investors how to access this information.
---------------------------------------------------------------------------

    \477\ Item 6(c)(4) of Form N-1A. The form amendments permit an
ETF to combine the information required by this website cross-
reference requirement into the information required by Item 1(b)(1)
of Form N-1A and 17 CFR 230.498(b)(1)(v) (rule 498(b)(1)(v)) in
order to avoid duplicative references to the ETF's website.
Instruction 4 to Item 6 of Form N-1A (referring to the website
cross-reference disclosure requirements in the summary prospectus
cover page and the statutory prospectus back cover page). However,
by requiring a cross-reference to the ETF's website, the Commission
does not intend for such information to be incorporated by reference
into the prospectus.
    \478\ See, e.g., Instruction 1 to Item 6 of Form N-1A. Item
11(g) currently requires an ETF to provide a website address in its
prospectus if the ETF omits the historical premium/discount
information from the prospectus and includes this information on its
website instead. As a result, many ETFs already include a website
address in their prospectus.
---------------------------------------------------------------------------

    Commenters did not specifically address this proposed requirement.
However, in general, commenters expressed support for website
disclosure requirements, including as a substitute for certain
registration statement disclosure requirements.\479\ We believe a
cross-reference in Form N-1A to the required website disclosures will
enable investors to receive timely and granular information that could
assist with making an investment decision and are therefore adopting
the

requirement substantially as proposed in Item 6.
---------------------------------------------------------------------------

    \479\ See, e.g., SIFMA AMG Comment Letter I; Fidelity Comment
Letter.
---------------------------------------------------------------------------

    We also are adopting a requirement to provide narrative disclosure
regarding bid-ask spreads.\480\ As noted above, commenters generally
did not address the substance of the disclosures, but raised concerns
regarding the length of the disclosures. One commenter, however,
asserted that the proposed requirement to disclose certain additional
costs associated with buying and selling ETF shares would be redundant
of information required by Item 3.\481\
---------------------------------------------------------------------------

    \480\ Our proposal would have required an ETF to: (i) Describe
the bid-ask spread as the difference between the highest price a
buyer is willing to pay to purchase shares of the ETF (bid) and the
lowest price a seller is willing to accept for shares of the ETF
(ask); (ii) explain that the bid-ask spread can change throughout
the day due to the supply of or demand for ETF shares, the quantity
of shares traded, and the time of day the trade is executed, among
other factors; and (iii) identify a set of specific costs, including
bid-ask spreads, associated with buying and selling ETF shares. See
2018 ETF Proposing Release, supra footnote 7, at section II.H.2.
    \481\ See ABA Comment Letter.
---------------------------------------------------------------------------

    We continue to believe that narrative bid-ask spread disclosure
will inform investors regarding the potential impact of spread costs
and provide investors with additional context to understand that the
costs attributable to the bid-ask spread may increase or decrease when
certain market conditions exist or certain factors are present.
However, streamlining this disclosure to provide investors with key
information regarding bid-ask spreads will both aid investor
understanding and eliminate some of the length associated with the
proposed disclosure requirement. Accordingly, our amendments to Form N-
1A will require an ETF to state that an investor may incur costs
attributable to the difference between the highest price a buyer is
willing to pay to purchase shares of the ETF (bid) and the lowest price
a seller is willing to accept for shares of the ETF (ask) when buying
or selling shares in the secondary market (``the bid-ask
spread'').\482\ This information, combined with the website cross-
reference requirement, will direct ETF investors to website disclosures
regarding median bid-ask spreads.
---------------------------------------------------------------------------

    \482\ See Item 6(c)(3) of Form N-1A.
---------------------------------------------------------------------------

    Finally, Item 6 will continue to require ETFs to disclose: (i) That
individual shares may only be purchased and sold on secondary markets
through a broker-dealer; and (ii) the price of ETF shares is based on
market price, and since ETFs trade at market prices rather than at net
asset value, shares may trade at a price greater than net asset value
(premium) or less than net asset value (discount).\483\
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    \483\ Item 6(c) of Form N-1A. We proposed to move this
disclosure to Item 3 to consolidate background information relating
to ETF trading in one place. 2018 ETF Proposing Release, supra
footnote 7, at section II.H.3. However, we are not adopting the
proposed amendments to Item 3 and instead adding additional
disclosures regarding ETF trading costs to Item 6. As proposed,
amended Item 6 also will replace the current reference to ``national
securities exchange'' with ``secondary markets'' because ETFs can
also be bought and sold over the counter.
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b. Median Bid-Ask Spread Requirement
    Rule 6c-11 will require an ETF to provide website disclosure of
median bid-ask spreads.\484\ We believe that this disclosure will
provide ETF investors with greater understanding of the costs
associated with investing in ETFs. In order to provide similar
disclosures to investors in ETFs that are outside the scope of rule 6c-
11, we are adopting amendments to Form N-1A requiring the disclosure of
median bid-ask spreads.
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    \484\ See rule 6(c)(1)(v).
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    We proposed amendments to Form N-1A that would have required all
open-end ETFs to disclose quantitative information about bid-ask
spreads, both in an ETF's prospectus and on its website.\485\ As
discussed above, some commenters expressed concerns with these
requirements, and we have made several modifications to mitigate those
concerns while maintaining or enhancing the usefulness of the required
disclosures. Those modifications include not adopting the proposed
requirement for hypothetical bid-ask spread examples in the ETF's
prospectus and interactive calculator, and instead only requiring ETFs
relying on rule 6c-11 to provide disclosure of median bid-ask spread on
their website.\486\
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    \485\ See 2018 ETF Proposing Release, supra footnote 7, at
sections II.H.2.b and II.I.
    \486\ See supra section II.C.6.d.
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    However, we continue to believe that all ETF investors should
receive key information about bid-ask spread costs, and appreciate that
ETFs that are not relying on rule 6c-11 may want the flexibility to
provide more timely bid-ask spread information on their websites.\487\
We are therefore amending Form N-1A to require an ETF that is not
subject to rule 6c-11 to: (i) Provide the ETF's median bid-ask spread
for its most recent fiscal year in its prospectus; or (ii) comply with
the bid-ask spread website disclosure requirements in rule 6c-
11(c)(1)(v).\488\ We believe that this disclosure requirement will
provide all ETF investors with quantitative bid-ask spread information,
while providing ETFs not subject to rule 6c-11 with the flexibility to
provide either website or prospectus disclosure.\489\ This requirement
also is consistent with our current approach to the disclosure of
premiums and discounts in Form N-1A and, based on our experience with
that disclosure, we believe most ETFs will opt to post bid-ask spread
information on their websites as some ETFs do today on a voluntary
basis.\490\
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    \487\ See infra section II.I. (discussing similar changes for
Form N-8B-2).
    \488\ See Item 6(c)(5) of Form N-1A (requiring disclosure of the
median bid-ask spread for the ETF's most recent fiscal year in the
summary prospectus or summary section of the prospectus);
Instruction 1 to Item 6(c)(5) of Form N-1A (permitting an ETF to
omit the information required if the ETF satisfies the requirements
of paragraph (c)(1)(v) of rule 6c-11). As with the parallel website
disclosure requirement, we are modifying the proposed methodology to
clarify that the observations must be based on trades on the primary
listing exchange and that the observations should be as of the end
of each ten-second interval. Instruction 2 to Item 6(c)(5) of Form
N-1A. We also are making similar amendments to Form N-8B-2 in order
to extend this requirement to UIT ETFs. See infra section II.I.
    \489\ Item 6(c)(5) of Form N-1A. See 2018 ETF Proposing Release,
supra footnote 7, at section II.H.2.b.
    \490\ See Items 11(g)(2) and 27(b)(7)(iv) of Form N-1A.
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    Although rule 6c-11 contemplates more current website disclosure
for ETFs relying on rule 6c-11, we are adopting a lookback period of
the ETF's most recent fiscal year for the prospectus bid-ask spread
disclosure requirement. We are adopting this period for consistency
with other disclosures in Form N-1A and to avoid establishing a
requirement that would require more frequent updating of an ETF's
prospectus. ETFs that opt to provide this information on their website,
however, will provide median bid-ask spread information for the most
recent thirty-day period on a rolling basis. Finally, newly launched
ETFs subject to this prospectus requirement with less than a year of
trading data will be required to provide a brief statement to the
effect that the ETF does not have sufficient trading history to report
trading information and related costs as proposed.\491\
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    \491\ Instruction 1 to Item 6(c) of Form N-1A. Newly launched
ETFs seeking to satisfy the requirements of paragraph (c)(1)(v) of
the rule should provide median bid-ask spread information for the
most recent thirty-day period once the ETF has more than 30-days of
trading data.information.
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c. Historical Premium and Discount Disclosures (Items 11 and 27)
    Rule 6c-11 will require ETFs to provide certain disclosures
regarding premiums and discounts on their websites.\492\ We believe
premium/discount disclosure will help investors

better understand that an ETF's market price may be higher or lower
than the ETF's NAV per share and will provide investors with useful
information regarding ETFs that frequently trade at a premium or
discount to NAV. We are adopting amendments to Form N-1A that will
exclude only those ETFs that provide premium/discount disclosures in
accordance with rule 6c-11 from the premium and discount disclosure
requirements in Form N-1A.
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    \492\ See rule 6c-11(c)(1).
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    We proposed to eliminate existing disclosure requirements regarding
premiums and discounts in Form N-1A since rule 6c-11 would require an
ETF to provide more timely information on its website.\493\ One
commenter supported this amendment, stating that information relevant
to premiums and discounts is already disclosed on a timely basis on ETF
websites and therefore a duplicative registration statement requirement
is not necessary.\494\ Another commenter, however, stated that the
Commission should apply disclosure requirements to all ETFs, including
those that cannot rely on rule 6c-11, so that all ETF investors receive
the same information.\495\
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    \493\ Item 11(g)(2) of Form N-1A currently requires an ETF to
provide a table showing the number of days the market price of the
ETF's shares was greater than the ETF's NAV per share for certain
time periods. Item 27(b)(7)(iv) of Form N-1A requires an ETF to
include a table with premium/discount information in its annual
reports for the five most recently completed fiscal years. ETFs
currently are permitted to omit both disclosures by providing on
their websites the premium/discount information required by Item
11(g)(2).
    \494\ See Invesco Comment Letter.
    \495\ See ETF.com Comment Letter.
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    After considering comments, we are eliminating the premium and
discount requirements in Items 11(g)(2) and 27(b)(7)(iv) for ETFs
relying on rule 6c-11.\496\ However, ETFs not relying on rule 6c-11
must include premium and discount information in both the prospectus
and annual report unless they choose to comply with the website
disclosure requirements in rule 6c-11(c)(1)(ii)-(iv) and
(c)(1)(vi).\497\ We agree that all ETF investors should receive similar
premium/discount disclosure, regardless of the form of exemptive
relief.
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    \496\ Item 11(g)(2) of Form N-1A; Item 27(b)(7) of Form N-1A.
    \497\ Items 11(g)(2) and 27(g)(2) of Form N-1A.
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    We acknowledge that the premium and discount disclosure
requirements under rule 6c-11 are broader than what was required under
Form N-1A.\498\ However, to ensure consistency of website disclosure
across ETFs, we are amending Form N-1A to require that if an ETF not
relying on rule 6c-11 chooses to disclose the premium and discount
disclosures on its website to satisfy the Form N-1A requirement, it
must conform with the requirements in rule 6c-11.\499\ Nonetheless,
consistent with our experience with the current Form N-1A requirement,
we believe that most ETFs not relying on rule 6c-11 will choose to
comply with the website disclosure requirements in rule 6c-11.
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    \498\ Unlike current Form N-1A, rule 6c-11 will require
disclosure of a line graph showing exchange-traded fund share
premiums or discounts for the most recently completed calendar year
and the most recently completed calendar quarters since that year
and disclosure regarding persistent premium or discount of greater
than 2%, in addition to a table showing premiums and discounts, in
order to omit the premium/discount disclosures in the ETF's
prospectus and annual report.
    \499\ We also are retaining the definition of the term ``Market
Price'' in Form N-1A and amending it to reference the market price
definition in rule 6c-11 as a result of the premium/discount
disclosure requirements in the form. See General Instruction A to
Form N-1A. Harmonizing the definition of market price in Form N-1A
and rule 6c-11 will reduce regulatory confusion and will result in a
more uniform methodology for calculating premiums and discounts for
ETFs that provide premium/discount disclosure in accordance with
rule 6c-11 and ETFs that provide premium/discount disclosures in
their prospectuses and annual reports pursuant to these disclosure
requirements. See id.; rule 6c-11(a)(1). We are making similar
amendments to Form N-8B-2 in order to extend the premium/discount
disclosure requirements to UIT ETFs. See infra section II.I.
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3. Eliminated Disclosures
    We are adopting the removal of certain disclosure requirements from
Form N-1A relating to ETFs. We are removing the requirement that an ETF
specify the number of shares it will issue or redeem in exchange for
the deposit or delivery of basket assets.\500\ The number of shares the
ETF issues or redeems in exchange for the deposit or delivery of
baskets is largely duplicative of information provided in reports on
Form N-CEN.\501\ Commenters did not address this aspect of the
proposal, and we are adopting it as proposed.
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    \500\ Item 6(c)(i) of current Form N-1A.
    \501\ See Item E.3.a of Form N-CEN.
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    We also are eliminating several disclosure requirements in Items 6
and 11 that applied only to ETFs that issue or redeem shares in
creation units of less than 25,000 shares.\502\ When we adopted these
requirements, we reasoned that individual investors may be more likely
to indirectly transact in creation units through authorized
participants if the creation unit size was less than 25,000
shares.\503\ Based on staff experience, however, we believe that these
disclosures are unnecessary as retail investors generally do not engage
in primary transactions through authorized participants and the current
flow of information about the purchase and redemption process is
robust.\504\ One commenter supported eliminating these disclosure
requirements, and we are eliminating these requirements as
proposed.\505\
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    \502\ Item 6(c)(ii) currently requires ETFs issuing shares in
creation units of less than 25,000 to disclose the information
required by Items 6(a) and (b). Items 6(a) and (b) require funds to:
(i) Disclose the minimum initial or subsequent investment
requirements; (ii) disclose that the shares are redeemable; and
(iii) describe the procedures for redeeming shares. Item 11(g)(1)
currently provides that an ETF may omit information required by
Items 11(a)(2), (b) and (c) if the ETF issues or redeems shares in
creation units of not less than 25,000 shares each. Item 11(a)
requires a fund to disclose when calculations of NAV are made and
that the price at which a purchase or redemption is effected is
based on the next calculation of NAV after the order is placed.
Items 11(b) and (c) require a fund to describe the procedures used
when purchasing and redeeming the fund's shares.
    \503\ Summary Prospectus Adopting Release, supra footnote 477.
    \504\ We believe the parties who purchase or redeem shares from
the ETF directly would either have the knowledge necessary to do so
without additional procedural disclosure or the ability to request
such information.
    \505\ See Invesco Comment Letter.
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I. Amendments to Form N-8B-2

    Form N-8B-2 is the registration form under the Investment Company
Act for UITs that are currently issuing securities, and it is used for
registration of ETFs organized as UITs.\506\ Because Form S-6 requires
UIT prospectuses to include disclosure required by specified provisions
of Form N-8B-2, the disclosure requirements of Form N-8B-2 also apply
to prospectuses on Form S-6. We are adopting several amendments to Form
N-8B-2 that will mirror requirements we are adopting in Form N-1A.
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    \506\ While open-end funds register with the Commission on Form
N-1A, UITs must register on two forms: Form S-6, which is used for
registering the offering of the UITs' units under the Securities
Act, and Form N-8B-2, which is used for registration under the
Investment Company Act. Form S-6, which must be filed with the
Commission every 16 months, requires certain content, mainly by
reference to the disclosure requirements in Form N-8B-2.
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    Although we are not including UIT ETFs within the scope of rule 6c-
11, we believe that it is important for investors to receive consistent
disclosures for ETF investments, regardless of the ETF's form of
organization. Secondary market investors in UIT ETFs, like other ETFs,
are subject to trading costs that unit holders could overlook. We
believe that additional disclosure will help investors better
understand the total costs of investing in a UIT ETF. We therefore
proposed to amend Form N-8B-2 to require UIT ETFs to provide the same
disclosures regarding ETF trading and the associated costs as ETFs
organized

as open-end funds would disclose on Form N-1A.
    Commenters that addressed this proposed provision generally
supported these changes,\507\ and we are amending Form N-8B-2 to mirror
the amendments to Form N-1A with the modifications discussed
above.\508\ As with other ETFs that are not within the scope of rule
6c-11, these amendments will give UIT ETFs the option to forego certain
disclosures relating to bid-ask spreads and premiums and discounts
provided that the ETF conforms with rule 6c-11's corresponding website
disclosure requirements.\509\
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    \507\ See ICI Comment Letter (supporting mirroring proposed
disclosure changes in Form N-1A, subject to comments regarding the
amendments to Form N-1A).
    \508\ Items I.13(h) and (i) of Form N-8B-2. See also supra
section II.H. (describing the ETF trading information and related
costs disclosure requirements).
    \509\ Although UIT ETFs currently are not subject to website
disclosure requirements regarding trading costs or other
information, UIT ETFs generally disclose information regarding
market price, NAV per share, premium and discounts, and spreads on
their websites today.
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    Below, Table 3 summarizes the amendments to Form N-8B-2 and the
corresponding requirements in Form N-1A.
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    \510\ The definition of the term ``exchange-traded fund'' in
Form N-1A covers ETFs organized as open-end funds and includes ETFs
relying on either exemptive orders or rule 6c-11 to operate. Form N-
8B-2, on the other hand, is for UITs, which cannot rely on rule 6c-
11 to operate. Accordingly, the definition of ``exchange-traded
fund'' in Form N-8B-2 omits the reference to rule 6c-11.

                                 Table 3
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                                  Form N-1A ETF     Corresponding Form N-
      Disclosure topic             disclosure          8B-2 disclosure
                                   requirement           requirement
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Definitions for Exchange-     General Instructions  General Instructions