predict.\149\ Moreover, given that certain local market holidays may
last for up to seven business days, we agree with commenters that
settlement within seven days may continue to pose challenges even in
light of continued technological progress and changes in market
operations.\150\ We therefore are not adopting a sunset provision to
limit the relief from section 22(e) to ten years from the rule's
effective date.
---------------------------------------------------------------------------

    \148\ See 2018 ETF Proposing Release, supra footnote 7, at n.156
and accompanying text (proposing that the exemption from section
22(e) for postponement of delivering redemption proceeds expire ten
years from the rule's effective date).
    \149\ See, e.g., Dechert Comment Letter; CSIM Comment Letter;
ICI Comment Letter; Invesco Comment Letter; Fidelity Comment Letter;
WisdomTree Comment Letter; ABA Comment Letter.
    \150\ See, e.g., Invesco Comment Letter (citing Taiwan market
holidays); CSIM Comment Letter; Fidelity Comment Letter; ICI Comment
Letter; John Hancock Comment Letter.
---------------------------------------------------------------------------

    The rule will define ``foreign investment'' as any security, asset
or other position of the ETF issued by a foreign issuer (as defined by
rule 3b-4 under the Exchange Act), and that is traded on a trading
market outside of the U.S.\151\ As under the proposal, this definition
is not limited to ``foreign securities,'' but also includes other
investments that may not be considered securities. Although these other
investments may not be securities, they may present the same challenges
for timely settlement as foreign securities if they are transferred in
kind. This approach is consistent with the terms of some recent
exemptive orders that provide relief from section 22(e) for the
delivery of foreign investments that may not be securities.\152\ We
received no comments on this aspect of the definition of ``foreign
investment.''
---------------------------------------------------------------------------

    \151\ See rule 6c-11(a)(1). We believe this approach is
appropriate because it creates consistency with a long-accepted
definition under Exchange Act rules.
    \152\ See, e.g., Redwood Investment Management, LLC, et al.,
Investment Company Act Release Nos. 33076A (Apr. 26, 2018) [83 FR
19367 (May 2, 2018)] (notice) and 33100 (May 21, 2018) (order) and
related application.
---------------------------------------------------------------------------

    Unlike our proposal, we are not defining ``foreign investment'' as
an investment for which there is no ``established U.S. public trading
market.'' \153\ A number of commenters recommended that we modify or
eliminate this aspect of the definition.\154\ These commenters
expressed concern that this requirement could make the exemption from
section 22(e) unavailable whenever a foreign issuer has issued a
security in the U.S. Commenters stated that ETFs investing in certain
foreign markets typically hold the security that is traded in the
foreign issuer's local trading market (``foreign-traded security'')
rather than its U.S.-traded equivalent.\155\ These commenters explained
that this is particularly true for ETFs tracking certain international
indexes because those indexes often include foreign-traded securities,
which

generally have greater liquidity and trading volume than their U.S.-
traded equivalents. Several commenters cited potential compliance
costs, operational considerations (e.g., transacting in the foreign-
traded security may entail lower transaction costs for the ETF), and
possible disruptions to their investment strategy (e.g., tracking
error) that might result due to this requirement.\156\
---------------------------------------------------------------------------

    \153\ See 2018 ETF Proposing Release, supra footnote 7, at n.166
and accompanying text (proposing to define ``foreign investment'' as
any security, asset or other position of the ETF issued by a foreign
issuer (as defined by rule 3b-4 under the Exchange Act) for which
there is no established U.S. public trading market (as that term is
used in Regulation S-K)).
    \154\ See ICI Comment letter; SIFMA AMG Comment Letter I; SSGA
Comment Letter I; BlackRock Comment Letter; Invesco Comment Letter.
    \155\ See, e.g., ICI Comment Letter; SIFMA Comment Letter I.
    \156\ See, e.g., BlackRock Comment Letter (stating that ``ETFs
currently do not monitor whether a foreign issuer has equivalent
securities that both trade on a US market and the foreign issuer's
local market since our primary investment practices are to invest in
the securities of the underlying index.''); Invesco Comment Letter;
SSGA Comment Letter I.
---------------------------------------------------------------------------

    The proposed definition of foreign investment was designed to make
relief from section 22(e) unavailable to an ETF that included a foreign
issuer's U.S.-traded investment in its basket, thereby avoiding the
settlement delay that is the basis for the relief.\157\ It was not
intended to require an ETF to buy and sell the U.S.-traded equivalent
of a foreign-traded security when one is available, nor was it intended
to deny section 22(e) relief to an ETF that includes a foreign-traded
security in its basket because a U.S.-traded equivalent exists. In
order to address commenters' concerns and potential confusion, however,
we have eliminated the requirement that the foreign investment have
``no established U.S. public trading market.'' Instead, in relevant
part, rule 6c-11(a)(1) will define ``foreign investment'' as an
investment that ``is traded on a trading market outside of the U.S.''
\158\ We believe this definition will capture the foreign investments
that may experience settlement delays without creating unintended
consequences for ETF portfolio management. Under rule 6c-11, a delay in
settlement is permitted only to the extent that additional time for
settlement is actually required due to a local market holiday or the
extended delivery cycles in a foreign market. As a result, the
exemption from section 22(e) already is unavailable where an ETF could
readily trade an investment in its basket on a U.S. market.
---------------------------------------------------------------------------

    \157\ See 2018 ETF Proposing Release, supra footnote 7, at n.166
and accompanying discussion. As proposed, the rule will not rely on
registration status because an unregistered large foreign private
issuer may have an active U.S. market for its securities, in which
case the ETF should be able to meet redemption requests in a timely
manner. See Termination of a Foreign Private Issuer's Registration
of a Class of Securities Under Section 12(g) and Duty to File
Reports Under Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, Exchange Act Release No. 55540 (Mar. 27, 2007) [72 FR 16934
(Apr. 5, 2007)].
    \158\ See, e.g., BlackRock Comment Letter (recommending that
``foreign investment'' be defined by reference to whether ``there is
an established trading market [. . .] outside of the US''). As
proposed, we also are not requiring an ETF to disclose in its
registration statement the foreign holidays that it expects may
prevent timely delivery of foreign securities, and the maximum
number of days that it anticipates it will need to deliver the
foreign securities. See 2018 ETF Proposing Release, supra footnote
7, at n.161 and accompanying discussion. No commenters disagreed
with this aspect of the proposal.
---------------------------------------------------------------------------

C. Conditions for Reliance on Rule 6c-11

    Rule 6c-11 requires ETFs to comply with certain conditions designed
to protect investors and to be consistent with the purposes fairly
intended by the policy and provisions of the Act in order to operate
within the scope of the Act. These conditions generally are consistent
with the conditions in our exemptive orders, which we believe have
effectively accommodated the unique structural and operational features
of ETFs while maintaining appropriate protections for ETF investors.
The conditions also reflect certain modifications that, based on our
experience regulating ETFs and comments we received on the proposal, we
believe will improve the overall regulatory framework for these
products.
1. Issuance and Redemption of Shares
    As proposed, the definition of exchange-traded fund under rule 6c-
11 will require that an ETF issue (and redeem) creation units to (and
from) authorized participants in exchange for baskets and a cash
balancing amount (if any).\159\ This definition is designed to preserve
the existing ETF structure, reflected in our exemptive orders, which
permit only an authorized participant of an ETF to purchase creation
units from (or sell creation units to) the ETF. An orderly creation
unit issuance and redemption process is essential to a properly
functioning arbitrage mechanism. Commenters supported the proposed
definition of exchange-traded fund.\160\
---------------------------------------------------------------------------

    \159\ See rule 6c-11(a)(1). See also infra section II.C.4.c.
(discussing definitions of baskets and cash balancing amount).
    \160\ See, e.g., Invesco Comment Letter.
---------------------------------------------------------------------------

    Rule 6c-11 will define an authorized participant to mean a member
or participant of a clearing agency registered with the Commission that
has a written agreement with the ETF or one of its service providers
that allows the authorized participant to place orders for the purchase
and redemption of creation units, as proposed.\161\ This definition
differs from the definition of ``authorized participant'' in the
Commission's exemptive orders and Form N-CEN because it does not
include a specific reference to an authorized participant's
participation in DTC, as DTC is itself a clearing agency.\162\ We
proposed to amend Form N-CEN to make the two definitions consistent. We
believe the definition that we are adopting remains largely consistent
with the exemptive relief we have granted to ETFs, while eliminating
unnecessary terms.
---------------------------------------------------------------------------

    \161\ See rule 6c-11(a)(1).
    \162\ See 2018 ETF Proposing Release, supra footnote 7, at
nn.170-171. Form N-CEN, in relevant part, defined the term as a
broker-dealer that is also a member of a clearing agency registered
with the Commission or a DTC Participant and has a written agreement
with the ETF or one of its service providers that allows the
authorized participant to place orders to purchase and redeem
creation units of the ETF. See Form N-CEN, Item E.2.
---------------------------------------------------------------------------

    Several commenters expressed support for the proposed definition of
authorized participant.\163\ One commenter, however, asserted that rule
6c-11 should use the existing definition of authorized participant in
Form N-CEN to avoid confusion and regulatory inconsistency.\164\ We
believe that amending Form N-CEN to make the definition of authorized
participant consistent with the definition in rule 6c-11 addresses this
commenter's concern.\165\
---------------------------------------------------------------------------

    \163\ See SSGA Comment Letter I; ICI Comment Letter; Cboe
Comment Letter.
    \164\ See Invesco Comment Letter.
    \165\ See infra section II.J.
---------------------------------------------------------------------------

    We also received several comments on issues relating to authorized
participants more generally. One commenter, for example, suggested that
the Commission confirm that authorized participants who buy and sell
ETF shares in creation units are not considered, for that reason alone,
``principal underwriters'' under the Investment Company Act.\166\ The
commenter stated that the plain language of section 2(a)(29) of the Act
would exclude an authorized participant from the definition of
principal underwriter when the authorized participant purchases ETF
shares through a principal underwriter acting as agent for the
ETF.\167\ We agree that an authorized participant that purchases ETF
shares from the ETF's principal underwriter is not a principal
underwriter as defined in section 2(a)(29) of the Act solely because it
buys and sells ETF shares in creation units.
---------------------------------------------------------------------------

    \166\ See ABA Comment Letter.
    \167\ Id. (noting that the definition of principal underwriter
excludes ``a dealer who purchases from such company through a
principal underwriter acting as agent.'').
---------------------------------------------------------------------------

    Another commenter suggested that the Commission require an ETF to
have a minimum number of authorized participants (i.e., 2 or 3) to
reduce the risk of anti-competitive behavior and to

safeguard the arbitrage mechanism.\168\ This commenter, however, also
pointed to data indicating that large ETFs (with more than $790 million
in assets) typically have an average of nine active authorized
participants, and that smaller ETFs (with less than $27 million in
assets) have an average of two active authorized participants.\169\
This commenter further noted that it has observed ETFs using single
authorized participants in ``some markets outside of the United
States'' but that this type of arrangement is ``less common within the
United States.'' \170\ We have not observed the types of ``excessive
deviations'' between ETFs' NAV and market price that, according to this
commenter, could indicate that ETFs' use of one authorized participant
is a persistent problem.\171\ Additionally, based upon Form N-CEN data
through September 5, 2019, we found that out of 1672 funds reviewed
that could rely on rule 6c-11, only 30 (approximately 1.8% of the funds
reviewed) reported having fewer than 2 authorized participants. We
therefore do not believe that it is appropriate at this time to
prescribe a minimum number of authorized participants that an ETF may
use.
---------------------------------------------------------------------------

    \168\ See Comment Letter of Jane Street Capital, LLC (Oct. 1,
2018) (``Jane Street Comment Letter''). Another commenter suggested
that the Commission should provide guidance regarding ETF sponsors
giving certain APs special treatment in the negotiation of baskets.
See Comment Letter of Bluefin Trading, LLC (Oct. 19, 2018)
(``Bluefin Comment Letter''). We address this comment in our
discussion of custom basket policies and procedures, infra, in
section II.C.5.a.
    \169\ See Jane Street Comment Letter (citing ``The Role and
Activities of Authorized Participants of Exchange-Traded Funds,''
Investment Company Institute, March 2015).
    \170\ See id.
    \171\ See, e.g., 2018 ETF Proposing Release, supra footnote, at
section II.B.2.
---------------------------------------------------------------------------

    As proposed, rule 6c-11 will define ``creation unit,'' to mean a
specified number of ETF shares that the ETF will issue to (or redeem
from) an authorized participant in exchange for the deposit (or
delivery) of a basket and a cash balancing amount (if any).\172\ Rule
6c-11 will not mandate a maximum or minimum creation unit size or
otherwise place requirements on creation unit size. We continue to
believe, and commenters agreed, that ETFs are incentivized to establish
creation unit sizes that are appropriate for market demand pursuant to
their investment strategies and objectives.\173\ Thus, ETFs are not
likely to set very large or very small creation unit sizes that could
disrupt the arbitrage mechanism or prevent the use of in-kind baskets
when in-kind baskets would otherwise be desirable for an ETF to obtain
the typical efficiencies of ETFs. We also believe that the conditions
in rule 6c-11, as adopted, are better suited to promote effective
arbitrage than conditions related to creation unit size.\174\
---------------------------------------------------------------------------

    \172\ See rule 6c-11(a)(1).
    \173\ See 2018 ETF Proposing Release, supra footnote 7, at
nn.175-176 and accompanying text (noting that an ETF tracking a
narrowly focused niche strategy may establish a smaller creation
unit size than an ETF tracking a broad-based index, such as the S&P
500, in order to facilitate arbitrage). See, e.g., ICI Comment
Letter; SIFMA AMG Comment Letter I; Vanguard Comment Letter. See
also Nasdaq Comment Letter (noting that minimum creation unit size
requirement can lead to wider spreads, particularly for newer,
thinly-traded ETFs).
    \174\ One commenter also suggested that the rule should not
require an ETF to define a specific creation unit size, noting that
permitting variable creation unit sizes could help further
facilitate market making and reduce transaction costs. See Nasdaq
Comment Letter. The rule's definition of ``creation unit'' will
require an ETF to specify a single number of ETF shares composing a
creation unit. Although an ETF could not use variable creation unit
sizes under this definition, an ETF could change its specified
creation unit size as conditions change over time.
---------------------------------------------------------------------------

    An ETF generally would issue and redeem shares in creation unit
size aggregations, rather than as individual shares, under the rule. We
proposed to permit an ETF to sell or redeem individual shares on the
day of consummation of a reorganization, merger, conversion, or
liquidation.\175\ In these limited circumstances, an ETF may need to
issue or redeem individual shares, and may need to transact without
utilizing authorized participants. Commenters that addressed this
aspect of the proposal generally supported it.\176\ One commenter,
however, suggested that the rule should explicitly provide that an ETF
may transact with investors other than authorized participants in these
limited circumstances.\177\ We agree and have modified rule 6c-11 to
clarify that, on the day of a reorganization, merger, conversion, or
liquidation, an ETF may sell or redeem individual shares and is not
limited to transacting with authorized participants.\178\ We believe
that permitting ETFs to conduct redemptions with investors other than
authorized participants in these circumstances is operationally
necessary to facilitate these transactions and will allow an ETF to
compensate individual shareholders exiting the reorganized, merged,
converted or liquidated ETF--activities likely to involve small amounts
and to be outside the scope of an authorized participant's expected
role of transacting in creation units.
---------------------------------------------------------------------------

    \175\ See 2018 ETF Proposing Release, supra footnote 7, at text
preceding n.82 (discussing proposed rule 6c-11(c)(5)).
    \176\ See, e.g., BlackRock Comment Letter; Thompson Hine Comment
Letter.
    \177\ See Thompson Hine Comment Letter. This commenter also
suggested moving this exception to the definition of exchange-traded
fund because it is not a condition to reliance on the rule. We agree
and have moved this exception to rule 6c-11(a)(2).
    \178\ See rule 6c-11(a)(2).
---------------------------------------------------------------------------

    Commenters also addressed the Commission's proposed guidance
concerning the extent to which an ETF may directly or indirectly
suspend the issuance or redemption of ETF shares.\179\ An ETF that
suspends the issuance or redemption of creation units indefinitely
could cause a breakdown of the arbitrage mechanism, resulting in
significant deviations between market price and NAV per share. Such
deviations may harm investors that purchase shares at market prices
above NAV per share and/or sell shares at market prices below NAV per
share.
---------------------------------------------------------------------------

    \179\ See 2018 ETF Proposing Release, supra footnote 7, at
section II.C.1.
---------------------------------------------------------------------------

    With respect to redemptions, an ETF may suspend the redemption of
creation units only in accordance with section 22(e) of the Act,\180\
and may charge transaction fees on these redemptions only in accordance
with rule 22c-2.\181\ While no commenters disagreed with our statement
in the 2018 ETF Proposing Release that an ETF may suspend redemptions
only in compliance with section 22(e), several commenters requested
that we eliminate the 2% cap on redemption fees for ETFs.\182\ One
commenter asserted that, unlike the mutual fund redemption fees that
were the Commission's focus in adopting rule 22c-2, the transaction
fees charged by an ETF on redemptions are not intended to inhibit
frequent trading of the ETF's shares, but are primarily designed to
protect shareholders against the costs of certain cash
redemptions.\183\

This commenter further stated that an ETF's inability to pass through
certain incremental costs to an authorized participant could adversely
impact performance and result in dilution of the interests of the ETF's
remaining shareholders.
---------------------------------------------------------------------------

    \180\ Section 22(e) of the Act permits open-end funds to suspend
redemptions and postpone payment for redemptions already tendered
for any period during which the New York Stock Exchange is closed
(other than customary weekend and holiday closings) and in three
additional situations if the Commission has made certain
determinations. See LRM Adopting Release, supra footnote 123, at
n.36.
    \181\ 17 CFR 270.22c-2 (rule 22c-2) limits redemption fees to no
more than 2% of the value of shares redeemed. See rule 22c-
2(a)(1)(i).
    \182\ See, e.g., Dechert Comment Letter; WisdomTree Comment
Letter; Invesco Comment Letter (noting that the redemption fee
framework for ETFs under rule 22c-2 is ``workable'' in most
circumstances, but that in certain circumstances greater flexibility
to charge redemption fees in excess of 2% would benefit ETFs).
Commenters did not provide any fee-related data in support of their
contention that the 2% limit on redemption fees should be eliminated
for ETFs.
    \183\ See Dechert Comment Letter. See also Invesco Comment
Letter (noting that these fees include the difference between the
cash in-lieu amount calculated on the trade date and the actual sale
price of the security (reflecting market movement)).
---------------------------------------------------------------------------

    As discussed above, we believe that ETFs should be regulated as
open-end funds and that ETF shares are most appropriately classified as
redeemable securities under the relevant provisions of the Act. In
adopting the 2% limit on redemption fees under rule 22c-2, we stated
that higher redemption fees would impose an undue restriction on the
redeemability of shares.\184\ Consistent with this belief, our
exemptive orders permitting ETFs to operate as open-end funds have not
permitted ETFs to charge transaction fees in excess of the 2% limit. We
believe the 2% limit allows ETFs to pass on certain costs related to
the redemption transaction to authorized participants, while preserving
the redeemability of ETF shares.\185\ Accordingly, we believe that ETFs
may charge transaction fees on the redemption of creation units only in
accordance with rule 22c-2.
---------------------------------------------------------------------------

    \184\ See Mutual Fund Redemption Fees, Investment Company Act
Release No. 26782 (March 11, 2005) [70 FR 13328 (March 18, 2005)]
(noting that a goal of the Commission under the Act is to preserve
the redeemability of mutual fund shares).
    \185\ See id. at text accompanying nn. 29-30. Mutual funds,
particularly those that invest in foreign markets, may face similar
types of costs and are subject to the 2% cap in rule 22c-2.
---------------------------------------------------------------------------

    We also stated in the 2018 ETF Proposing Release that we believe
that an ETF generally may suspend the issuance of creation units only
for a limited time and only due to extraordinary circumstances, such as
when the markets on which the ETF's portfolio holdings are traded are
closed for a limited period of time.\186\ Some commenters agreed that
an ETF may suspend creations only for a limited time and only due to
extraordinary circumstances, but requested that we provide
clarification regarding the specific circumstances under which an ETF
may suspend creations.\187\ Other commenters did not support our
position on this issue. For example, one commenter stated that current
ETF practices for suspending creations have proven effective and
advocated against limiting or imposing restrictions on the
circumstances in which ETFs may suspend creations.\188\ Another
commenter recommended that, rather than precluding an ETF from
suspending the issuance of creation units, the Commission should
require ETFs that suspend creations to add supplemental disclosures
addressing the risk that the ETF's market price may deviate from NAV
per share.\189\
---------------------------------------------------------------------------

    \186\ See 2018 ETF Proposing Release, supra footnote 7, at n.185
and accompanying text. In addition, we stated that an ETF could not
set transaction fees so high as to effectively suspend the issuance
of creation units. See id. One commenter addressed this issue,
stating that ETFs generally do not set transaction fees at a level
that would effectively suspend creations ``in lieu of transparently
informing the market that creations are halted.'' Jane Street
Comment Letter.
    \187\ See, e.g., BlackRock Comment Letter; SIFMA AMG Comment
Letter I; SSGA Comment Letter I; Vanguard Comment Letter; Invesco
Comment Letter.
    \188\ See Comment Letter of ETF BILD LLC (Oct. 1, 2018) (``ETF
BILD Comment Letter'') (``[T]here may be a variety of reasons to
suspend creations and limiting them or [restricting] certain
activity will not allow for differentiation of the circumstances
related to the underlying securities. . . . [C]urrent practices
developed in the ETF industry allow for the flexibility needed to
address this issue.'').
    \189\ See Eaton Vance Comment Letter. Another commenter
suggested requiring any ETF that suspends creations, or otherwise
has its creation process halted, to immediately notify the market
via a Form 8-K or other mechanism. See Jane Street Comment Letter.
---------------------------------------------------------------------------

    As discussed above, however, the expected close tie between an
ETF's market price and NAV per share provides a basis for our relief
from section 22(d) and rule 22c-1 under rule 6c-11 (as well as our
prior exemptive orders).\190\ If a suspension of creations impairs the
arbitrage mechanism, it could lead to significant deviations between
what retail investors pay (or receive) in the secondary market and the
ETF's approximate NAV. Such a result would run counter to the basis for
relief from section 22(d) and rule 22c-1 and therefore would be
inconsistent with rule 6c-11.
---------------------------------------------------------------------------

    \190\ See supra section II.B.2 (discussing the potential
concerns regarding shareholder dilution, unjust discrimination and
preferential treatment among investors purchasing and redeeming fund
shares that section 22(e) and rule 22c-1 were designed to address).
---------------------------------------------------------------------------

2. Listing on a National Securities Exchange
    As proposed, rule 6c-11 will define an ``exchange-traded fund,'' in
part, to mean a fund that issues shares that are listed on a national
securities exchange and traded at market-determined prices.\191\
Exchange-listing is one of the fundamental characteristics that
distinguishes ETFs from other types of open-end funds (and UITs) and is
one reason that ETFs need certain exemptions from the Act and the rules
thereunder. Exchange-listing provides an organized and ongoing trading
market for the ETF shares at market-determined prices, and therefore is
important to a functioning arbitrage mechanism.\192\ The Commission has
premised all of its previous exemptive orders on an ETF listing its
shares for trading on a national securities exchange.
---------------------------------------------------------------------------

    \191\ Rule 6c-11(a)(1). As proposed, rule 6c-11(a)(1) also will
define a ``national securities exchange'' as an exchange that is
registered with the Commission under section 6 of the Exchange Act.
    \192\ As proposed, the definition also requires that an ETF's
shares trade at market-determined prices. This requirement is not
designed to establish a minimum level of trading volume for ETFs
necessary in order to rely on the rule, but rather to distinguish
ETFs from other products that are listed on exchanges but trade at
NAV-based prices (i.e., exchange-traded managed funds (``ETMFs'')).
See 2018 ETF Proposing Release, supra footnote 7, at text
accompanying n.192. Commenters did not address this aspect of the
definition of exchange-traded fund.
---------------------------------------------------------------------------

    Several commenters generally supported the requirement that an ETF
list its shares on a national securities exchange.\193\ On the other
hand, one commenter stated that ETFs that are temporarily suspended
from listing or engaged in an orderly delisting and liquidation process
should not fall outside of the scope of the proposed rule.\194\ Another
commenter opined that delisted ETFs should remain within the rule to
prevent a possible race to redeem the ETF's shares that could result
from confusion about the ETF's regulatory status.\195\ This commenter
stated the definition of exchange-traded fund instead should include
ETFs that have been listed within the past 90 days. Other commenters
requested that we clarify the specific circumstances that constitute a
``delisting,'' citing trading suspensions and trading halts as examples
of circumstances that should not disqualify an ETF from relying on rule
6c-11.\196\ These commenters also urged the Commission to clarify that
a temporary non-compliance notice from an exchange for failure to
continuously meet the exchange's listing standards would not disqualify
an ETF from relying on the rule.
---------------------------------------------------------------------------

    \193\ See, e.g., ICI Comment Letter; SSGA Comment Letter I.
    \194\ SIFMA AMG Comment Letter I.
    \195\ Thompson Hine Comment Letter (``[D]eeming the former ETF
to no longer have [status as an ETF under the rule] may lead to
confusion and a possible race to redeeming shares by remaining
shareholders while liquid assets are still available.'').
    \196\ See SSGA Comment Letter I; ICI Comment Letter; Invesco
Comment Letter. See also FINRA, Investor Alert, When Trading Halts:
What You Need to Know About Halts, Suspensions and Other
Interruptions (February 7, 2013), available at http://www.finra.org/investors/alerts/when-trading-stops-halts-suspensions-other-interruptions (describing trading halts and trading suspensions).
---------------------------------------------------------------------------

    As noted above, the listing requirement was designed to ensure that
all ETF shares have an organized and ongoing secondary trading market
to support an effective arbitrage mechanism. We therefore continue to
believe that an ETF should no longer be

eligible to rely on rule 6c-11 and must meet individual redemption
requests within seven days pursuant to section 22(e) of the Act or
liquidate if it is not listed on an exchange.\197\ In response to
commenters' request that we clarify the specific circumstances
constituting a ``delisting'' for purposes of rule 6c-11, an ETF is
considered no longer listed on an exchange as of the effective date of
the removal of the ETF's shares from listing pursuant to rule 12d2-2
under the Exchange Act.\198\ Circumstances such as a trading
suspension, a trading halt, or a temporary non-compliance notice from
the exchange therefore would not constitute a ``delisting'' for
purposes of rule 6c-11. An ETF also may request temporary relief from
the Commission to permit the ETF to suspend redemptions for a limited
period of time where necessary to protect ETF shareholders.\199\
---------------------------------------------------------------------------

    \197\ Indeed, an ETF that does not comply with the provisions of
the rule would be required to comply with the Investment Company Act
in all respects unless it was relying on other relief.
    \198\ See 17 CFR 240.12d2-2 (rule 12d2-2 under the Exchange Act)
(requiring a national securities exchange to file with the
Commission an application on Form 25 (17 CFR 249.25) to strike a
class of securities from listing on a national securities exchange
and/or registration under section 12(b) of the Exchange Act).
    \199\ See section 22(e)(3) of the Act.
---------------------------------------------------------------------------

3. Intraday Indicative Value (``IIV'')
    As proposed, rule 6c-11 will not require ETFs to disseminate an
intraday estimate of their NAV per share (an ``intraday indicative
value'' or ``IIV'') as a condition for reliance on the rule. Our orders
require the dissemination of an IIV, and ETFs have stated in their
exemptive applications that an ETF's IIV is useful to investors because
it allows them to determine (by comparing the IIV to the market value
of the ETF's shares) whether and to what extent the ETF's shares are
trading at a premium or discount on an intraday basis.\200\ The
exchange listing standards also currently require ETFs to disseminate
an IIV at least every 15 seconds during regular trading hours.\201\
---------------------------------------------------------------------------

    \200\ See, e.g., WisdomTree Investments, Inc., et al.,
Investment Company Act Release Nos. 27324 (May 18, 2006) [71 FR
29995 (May 24, 2006)] (notice) and 27391 (June 12, 2006) (order) and
related application (``2006 WisdomTree Investments'').
    \201\ See, e.g., NYSE Arca Equities Rule 5.2E(j)(3), Commentary
.01(c) (stating that IIV may be based upon ``current information
regarding the required deposit of securities and cash amount to
permit creation of new shares of the series or upon the index
value''). The IIV is also sometimes referred to as the ``iNAV''
(indicative net asset value) or the ``PIV'' (portfolio indicative
value).
---------------------------------------------------------------------------

    We did not propose, however, an IIV dissemination requirement under
rule 6c-11 because of our concerns regarding the accuracy of IIV
estimates for certain ETFs.\202\ For example, the IIV may not
accurately reflect the value of an ETF that holds securities that trade
less frequently. The IIV can be stale or inaccurate for ETFs with
foreign securities or less liquid debt instruments. For such ETFs,
there may be a difference between the IIV, which is constructed using
the last available market quotations or stale prices, and the ETF's
NAV, which uses fair value when market quotations are not readily
available.\203\ Conversely, in today's fast moving markets, given the
dissemination lags, the IIV may not accurately reflect the value of an
ETF that holds frequently traded component securities.\204\ Because
there are no uniform methodology requirements, the IIV also can be
calculated in different and potentially inconsistent ways.
---------------------------------------------------------------------------

    \202\ See 2018 ETF Proposing Release, supra footnote 7, at
section II.C.3. The exemptive relief we provided to certain non-
transparent ETFs included a condition requiring those ETFs to
provide a verified intraday indicative value (``VIIV'') throughout
the trading day. See 2019 Precidian, supra footnote 8. Those ETFs'
VIIV, considering their limited investment strategies, addressed the
Commission's concerns regarding the traditional IIV. See id.
    \203\ Section 2(a)(41)(B) of the Act defines ``value'' as: ``(i)
with respect to securities for which market quotations are readily
available, the market value of such securities; and (ii) with
respect to other securities and assets, fair value as determined in
good faith by the board of directors.'' This definition also is used
in rule 2a-4 under the Act as the required basis for computing a
fund's current NAV per share. With daily portfolio disclosure,
market participants can estimate fair value on their own for the
ETF's current holdings. 15 U.S.C. 80a-2(a)(41)(B).
    \204\ An ETF's current portfolio value changes every time the
value of any underlying component of the ETF changes. The IIV for an
ETF that includes a more frequently traded component security might
not reflect the most recent trading information for that underlying
security.
---------------------------------------------------------------------------

    In addition, we understand that market makers and authorized
participants no longer use IIV to evaluate arbitrage opportunities for
ETFs that provide full portfolio transparency.\205\ These market
participants typically calculate their own intraday value of an ETF's
portfolio with proprietary algorithms that use an ETF's daily portfolio
disclosure and available pricing information about the assets held in
the ETF's portfolio and generally use the IIV as a secondary or
tertiary check on the value that their proprietary algorithms generate.
---------------------------------------------------------------------------

    \205\ See ETF Handbook, supra footnote 25.
---------------------------------------------------------------------------

    The majority of commenters that addressed IIV requirements
supported our proposed approach. For example, commenters agreed that
authorized participants and other market participants calculate their
own intraday values based on other sources of information such as an
ETF's published baskets and portfolio holdings.\206\ Some of these
commenters stated, therefore, that the proposed rule's conditions
regarding daily portfolio holdings information would provide more
useful information to market participants than IIV.\207\ Commenters
also agreed that IIV can have significant limitations depending on the
types of securities the ETF holds. For example, one commenter stated
that these limitations for ETFs holding fixed income securities are the
result of market structure issues and that increasing the frequency of
the IIV publication would not change these limitations.\208\
---------------------------------------------------------------------------

    \206\ See, e.g., Jane Street Comment Letter; Invesco Comment
Letter; WisdomTree Comment Letter; Vanguard Comment Letter (``These
other sources of data include the ETF's published basket, its last
published portfolio holdings list, the index tracked by the ETF, and
data from third party vendors'').
    \207\ See Comment Letter of Legg Mason, Inc. (Oct. 1, 2018)
(``Legg Mason Comment Letter''); Cboe Comment Letter. See also SSGA
Comment Letter I (``[t]o the extent there is market demand for
information similar to the IIV by market participants absent a
regulatory mandate, we expect industry-led solutions will be
available, perhaps as part of a broader discussion around market
price validation.'').
    \208\ See Legg Mason Comment Letter (noting, for example, that
fixed-income securities are predominantly traded by dealers and not
on exchanges). See also ICI Comment Letter.
---------------------------------------------------------------------------

    Commenters also noted that under current regulatory requirements,
IIV can be confusing or misleading to market participants. For example,
one commenter stated that current requirements for IIV actually reduce
ETF transparency, because the IIV does not reflect the true value of an
ETF due to dissemination delays, stale pricing for underlying holdings,
and inconsistent calculation methodologies.\209\ One commenter opined
that IIV is inaccurate for 80% of all ETFs and the rule should not
require its dissemination.\210\ Another commenter stated that ``[IIV]
is, at best, slow and likely stale and, at worst confusing, inaccurate,
and misleading.'' \211\ In addition, several of these commenters stated
that the IIV requirements across regulatory regimes applicable to ETFs
should be harmonized.\212\ Specifically, these commenters noted that,
even if rule 6c-11 were to omit an IIV requirement, existing relief
under the Exchange Act

and certain exchange listing requirements would require ETFs to
continue disseminating IIV. They encouraged the Commission to work with
the exchanges to remove these listing requirements.
---------------------------------------------------------------------------

    \209\ See SSGA Comment Letter I.
    \210\ Comment Letter of ETF.com (Aug. 28, 2018) (``ETF.com
Comment Letter'') (stating that ``the idea of contemporaneous
measure of fair value is enticing'' but IIV ``is not accurate enough
for authorized participants to use in arbitrage analysis.'').
    \211\ Cboe Comment Letter.
    \212\ See, e.g., Invesco Comment Letter; SIFMA AMG Comment
Letter I; WisdomTree Comment Letter; SSGA Comment Letter I; ETF.com
Comment Letter.
---------------------------------------------------------------------------

    Some commenters disagreed with this aspect of the proposal and
encouraged the Commission to require ETFs to disseminate IIV as a
requirement of the rule. These commenters generally asserted that IIV--
despite its limitations--can be useful to retail investors.\213\ One
such commenter stated that IIV is important for informed trading of
ETFs (and other ETPs) by retail investors because it is an ``important
signal of the value of the underlying portfolio.'' \214\ One commenter
stated that IIV allows investors to screen for significant price
deviations that could signal breakdowns in the market maker arbitrage
process.\215\
---------------------------------------------------------------------------

    \213\ See, e.g., Angel Comment Letter; Nasdaq Comment Letter;
IDS Comment Letter.
    \214\ See Angel Comment Letter.
    \215\ See Nasdaq Comment Letter.
---------------------------------------------------------------------------

    Some of these commenters noted that an ETF's IIV may be the only
source of pricing information publicly available to retail
investors.\216\ Another commenter asserted that the rule should include
an IIV requirement, but that market participants, particularly retail
investors, also would benefit from an explanation of the potential
limitations of IIV.\217\ Many of the commenters who recommended that
the Commission retain an IIV requirement also recommended that the
Commission standardize and otherwise improve the IIV calculation.\218\
---------------------------------------------------------------------------

    \216\ See IDS Comment Letter. See also CFA Comment Letter; Eaton
Vance Comment Letter.
    \217\ See FIMSAC Comment Letter.
    \218\ See, e.g., NYSE Comment Letter; IDS Comment Letter; Nasdaq
Comment Letter; Eaton Vance Comment Letter. See also Angel Comment
Letter (recommending dissemination on standard CQS and UTP feeds,
one-second updates, and standardization of IIV suffixes).
---------------------------------------------------------------------------

    After considering these comments, we continue to believe that rule
6c-11 should not require ETFs to disseminate IIV as IIV is not
necessary to support the arbitrage mechanism for ETFs that provide
daily portfolio holdings disclosure. Instead, rule 6c-11's portfolio
holdings disclosure will provide market participants with the relevant
data to input into their internal algorithms and thus allow them to
determine if arbitrage opportunities exist.
    We also do not believe that IIV will provide a reliable metric for
retail investors to assess all ETFs relying on rule 6c-11 given the
breadth of asset classes that ETFs may hold (and the particular
shortcomings of IIV when an ETF holds assets that do not trade
contemporaneously with the ETF or are traded less frequently).
Furthermore, retail investors do not have easy access to IIV through
free, publicly available websites today even for those asset classes
where an IIV may be more reliable. A staff review of the websites for
the ten largest ETFs by assets under management found that none
provides a real-time IIV on its website. Some of these ETFs disclose a
specific ticker symbol for the ETF's IIV (as opposed to the ticker
symbol for the ETF itself) on their websites, others provide the IIV
with a delay of up to 45 minutes, while others provide no information
about the ETF's IIV at all.\219\ A review of several publicly
available, free financial websites also found that not all of these
websites provide an ETF's IIV.\220\ Where these websites did provide
the IIV, it was delayed by at least 15 minutes.\221\ We believe this
raises a significant risk that retail investors using these websites
may be receiving stale IIVs for ETFs. We have noted, and commenters
agreed, that even the 15-second interval for dissemination of an ETF's
IIV required under the exchange listing standards may be too infrequent
to effectively reflect the full trading activity for component
securities, and therefore to reflect the actual value of the ETF.
Therefore, we do not believe that adopting rule 6c-11 without an IIV
requirement would remove information from the market that retail
investors could reliably use when making investment decisions.
---------------------------------------------------------------------------

    \219\ Fewer than half of the ETFs included in the review use a
specific ticker symbol that allows an investor to locate the ETF's
IIV (e.g., the ETF's ticker symbol followed by ``.iv'' or ``-iv'').
    \220\ When input into a free financial website, the IIV was
provided with a delay of at least 15 minutes.
    \221\ See, e.g., https://finance.yahoo.com/quote/%5ESPY-IV/;
https://www.morningstar.com/etfs/arcx/spy/betaquote.html.
---------------------------------------------------------------------------

    We considered whether to require an ETF to publicly disseminate a
modified IIV on its website on a real time basis as a condition to rule
6c-11, requiring ETFs to calculate IIVs more frequently and in a more
accessible manner. We also considered creating a methodology that takes
into account circumstances when market prices for underlying assets are
not available or should not be used to reflect the ETF's intraday
value. However, we believe that these modifications are not necessary
given that an ETF operating in reliance on rule 6c-11 will provide full
portfolio transparency on its website.
    We recognize that intraday information accurately reflecting the
current value of an ETF's shares can be important to retail investors
and encourage the ETF industry to undertake efforts to develop intraday
value metrics targeted at these investors.\222\ We believe that ETFs
are in a position to consider and develop tailored metrics for ETFs
holding different asset classes in a format that is useful for retail
investors. As one commenter noted, rule 6c-11's portfolio holdings
disclosure requirements may promote a market-based solution to today's
IIV shortcomings by making the information required to calculate
intraday values broadly available in a standardized,
user[hyphen]friendly format, which could ``encourage pricing services
and other potential providers to develop commercial ETF intraday
valuation services that would compete in the market on the basis of
timeliness, accuracy, reliability and price.'' \223\
---------------------------------------------------------------------------

    \222\ One commenter noted that a lack of disclosure regarding
potential intraday deviations could, in some circumstances, be
misleading. See Comment Letter of Henry Hu and John Morley, Yale Law
School (Aug, 27, 2018) ``(Hu and Morley Comment Letter'')
(incorporating article by Henry T. C. Hu, University of Texas Law
School and John D. Morley, A Regulatory Framework for Exchange-
Traded Funds, 91 S. Cal. Law Review 839-941 (July 2018) at 920,
which describes a particular ETF that ``suffered extraordinary
[intraday] departures from NAV on August 24, 2015'' and noting how
``[in looking] only at the close and not intra-day performance, the
result was an emphatically reassuring picture being presented to
investors. As a result, an investor may have a misleading sense as
to the true risks and returns of the ETF.'').
    \223\ See Eaton Vance Comment Letter.
---------------------------------------------------------------------------

4. Portfolio Holdings Disclosure
    Since the first exemptive order for an ETF, the Commission has
relied on the existence of an arbitrage mechanism to keep market prices
of ETF shares at or close to the NAV per share of the ETF. One
mechanism that facilitates the arbitrage mechanism is daily portfolio
transparency.\224\ Portfolio transparency provides authorized
participants and other market participants with a tool to facilitate
valuing the ETF's portfolio on an intraday basis, which, in turn,
enables them to identify arbitrage opportunities and to effectively
hedge their positions. Accordingly, as proposed, rule 6c-11 will
require an ETF to disclose prominently on its website, publicly
available and free of charge, the portfolio holdings that will

form the basis for each calculation of NAV per share.\225\
---------------------------------------------------------------------------

    \224\ Our exemptive orders for actively managed ETFs and recent
orders for self-indexed ETFs have required full portfolio
transparency. Exemptive orders for index-based ETFs with an
unaffiliated index provider have required publication of the ETF's
baskets. We understand, however, that all ETFs that can rely on rule
6c-11 currently provide full transparency as a matter of industry
practice.
    \225\ Rule 6c-11(c)(1)(i). For purposes of this requirement, as
well as other requirements to disclose information on a publicly
available website under rule 6c-11, an ETF should not establish
restrictive terms of use that would effectively make the disclosures
unavailable to the public or otherwise difficult to locate. For
example, the required website disclosure should be easily accessible
on the website, presented without encumbrance by user name,
password, or other access constraints, and should not be subject to
usage restrictions on access, retrieval, distribution or reuse.
However, this requirement does not preclude the ETF from making
other, unrelated sections of its website private or password
protected. We also encourage ETFs to consider whether there are
technological means to make the disclosures more accessible. For
example, today, ETFs could include the portfolio holdings
information in a downloadable or machine-readable format, such as
comma-delimited or similar format.
---------------------------------------------------------------------------

    We received numerous comments on this aspect of the proposal. Many
commenters generally supported requiring full, daily portfolio holdings
disclosure on the ETF's website as a condition for reliance on rule 6c-
11.\226\ These commenters agreed with our view that portfolio
transparency supports an efficient arbitrage mechanism and thus helps
maintain the close tie between the market price of an ETF's shares and
the value of its portfolio. One commenter stated that portfolio
transparency is important to individual investors because it allows
them to better discern differences between ETFs that purport to track
similar indexes or have similar investment objectives.\227\
---------------------------------------------------------------------------

    \226\ See, e.g., Comment Letter of Stuart Cary (July 3, 2018)
(``Cary Comment Letter''); ETF.com Comment Letter; Comment Letter of
Jack Reagan (July 12, 2018) (``Reagan Comment Letter''); BlackRock
Comment Letter; Cboe Comment Letter; BNY Mellon Comment Letter;
Fidelity Comment Letter; SIFMA AMG Comment Letter I; CSIM Comment
Letter; Virtu Comment Letter; Eaton Vance Comment Letter.
    \227\ See CSIM Comment Letter.
---------------------------------------------------------------------------

    On the other hand, one commenter did not support daily disclosure
of an ETF's full portfolio, opining that an effective arbitrage
mechanism is sufficiently supported by disclosure of well-constructed
baskets with performance that closely tracks the performance of both
the fund and its index.\228\ This commenter further asserted that daily
portfolio transparency may harm ETF investors by permitting market
participants to front-run index funds, which could negatively impact
the prices at which the ETF trades portfolio holdings and thus reduce
investors' returns. This commenter recommended, as an alternative to
the proposed requirement, that the Commission require ETFs to provide
daily disclosure of portfolio holdings, with an exception for the
portion of holdings that are ``subject to sensitive trading
strategies,'' such as those related to index changes.\229\
---------------------------------------------------------------------------

    \228\ Vanguard Comment Letter.
    \229\ Id. (recommending that the rule permit ETFs to disseminate
a list of index securities that, when combined with disclosed
portfolio holdings, would be reasonably designed to track the ETF's
(and the index's) performance).
---------------------------------------------------------------------------

    One commenter supported requiring daily portfolio transparency for
index-based ETFs, but opposed requiring it for actively managed ETFs,
due to the risk of market participants using the portfolio holdings
disclosures to front-run or piggyback on actively managed
strategies.\230\ Similarly, another commenter asserted that daily
portfolio transparency is not a necessary condition for effective
arbitrage, and noted that the risks of front-running and ``free
riding'' that arise from portfolio transparency were preventing it from
offering more actively managed ETFs.\231\
---------------------------------------------------------------------------

    \230\ See Invesco Comment Letter (recommending that the rule
permit actively managed ETFs to delay disclosure of portfolio
holdings at least two days).
    \231\ See JPMAM Comment Letter. See also Dechert Comment Letter
(urging the Commission to consider moving to a more uniform,
standardized approach in determining whether to grant exemptive
relief for non-fully transparent ETFs).
---------------------------------------------------------------------------

    We continue to believe ETFs relying on rule 6c-11 should provide
full daily portfolio transparency in order to facilitate an efficient
arbitrage process. Notably, we believe it is likely that all current
ETFs that may rely on the rule already provide full portfolio
transparency as a matter of market practice and this approach will
eliminate regulatory distinctions between index-based and actively
managed ETFs that rely on rule 6c-11. Moreover, although we recognize
there are alternative approaches to facilitate efficient arbitrage, the
Commission has limited experience with such approaches, which are new
and continuing to evolve and we therefore believe that these
alternatives should be considered within our exemptive applications
process.
    Accordingly, rule 6c-11 will require full, daily portfolio holdings
disclosure for ETFs relying on the rule. As discussed below, however,
the portfolio transparency requirement we are adopting includes several
modifications from the proposed rule, including modifications regarding
the required timing and presentation of the portfolio holdings
disclosure.
a. Timing of Portfolio Holdings Disclosure
    Rule 6c-11 will require website disclosure of an ETF's portfolio
holdings on each business day before the opening of regular trading on
the primary listing exchange of the ETF's shares.\232\ Our proposal
also would have required an ETF to disclose its portfolio holdings
before the ETF starts accepting orders for the purchase or redemption
of creation units.\233\ The proposed rule's timing requirements were
designed to prevent an ETF from disclosing its portfolio holdings only
after the beginning of trading or after the ETF has begun accepting
orders for the next business day.\234\
---------------------------------------------------------------------------

    \232\ Rule 6c-11(c)(1)(i).
    \233\ See proposed rule 6c-11(c)(1)(i).
    \234\ See 2018 Proposing Release, supra footnote 7, at n.209 and
accompanying text.
---------------------------------------------------------------------------

    We received several comments on this aspect of the proposal,
particularly on the proposed requirement that an ETF disclose its
portfolio holdings before the ETF starts accepting orders on a given
business day. Several commenters opposed the proposed timing
requirement because it could prevent certain ETFs from accepting
creation and redemption orders shortly after the US market closes (``T-
1 orders'').\235\ These commenters explained that T-1 orders allow
ETFs, authorized participants, and other market participants to place
orders for the purchase and sale of portfolio securities in non-U.S.
markets with hours that do not overlap (or have limited overlap) with
U.S. market hours when those markets are open.\236\ An ETF that holds
Japanese equities, for example, may permit authorized participants to
submit T-1 orders (between 4:00 p.m. ET and 5:00 p.m. ET) to allow for
trading in the underlying Japanese securities before the Japanese
market closes (2:00 a.m. ET).\237\ Some commenters explained that the
operational steps necessary to disclose an ETF's portfolio holdings
would take 2-3 hours after NAV calculation (typically 4:00 p.m. ET) and
the requirement to disclose portfolio holdings before accepting orders
therefore would eliminate the T-1 order window.\238\
---------------------------------------------------------------------------

    \235\ See, e.g., ICI Comment Letter; BlackRock Comment Letter.
    \236\ See, e.g., Invesco Comment Letter.
    \237\ See ICI Comment Letter.
    \238\ See Invesco Comment Letter.
---------------------------------------------------------------------------

    Several commenters discussed the benefits of permitting ETFs to
accept T-1 orders. Commenters stated that T-1 orders allow market
participants to align the execution time of underlying securities
transactions with the NAV calculation of the order, and thus minimize
costs and support effective arbitrage.\239\ Some commenters stated

that eliminating the T-1 order window may lead to wider bid-ask
spreads, larger premiums/discounts, and greater tracking differences
for these ETFs.\240\ One commenter stated that, without T-1 orders, an
ETF may have uninvested cash for longer periods of time (leading to
increased tracking error) and authorized participants may need to hedge
their exposures for longer than usual due to the delay between when the
creation order is placed and when the ETF acquires the portfolio
securities (leading to wider bid-ask spreads).\241\ Another commenter
noted that moving the T-1 order window later into the evening to allow
the ETF to calculate and disclose its portfolio holdings before
accepting T-1 orders would require an additional staffing shift, and
thus would impose additional staffing costs on sponsors, custodians,
and other market participants.\242\
---------------------------------------------------------------------------

    \239\ See, e.g., ICI Comment Letter (discussing the importance
to authorized participants of the ability to trade or hedge the
underlying exposures at the same time the ETF strikes its NAV);
BlackRock Comment Letter; Jane Street Comment Letter (stating that
``market participants have found that that benefits of agreeing to
an order shortly after market close outweighs] the costs imposed by
lack of certainty'').
    \240\ See, e.g., ICI Comment Letter (asserting that inability to
trade at T-1 could introduce slippage, which in turn may lead to
wider bid-ask spreads and larger premium/discounts); CSIM Comment
Letter; Comment Letter of OppenheimerFunds (Oct. 1, 2018)
(``OppenheimerFunds Comment Letter''). See also BlackRock Comment
Letter (``Many ETFs in the marketplace currently take orders prior
to publication of basket or portfolio holdings information and
operate efficiently and with tight spreads.'').
    \241\ See Dechert Comment Letter.
    \242\ See Invesco Comment Letter.
---------------------------------------------------------------------------

    Commenters recommended alternatives to the proposed rule's timing
requirements. Several commenters suggested we require portfolio
holdings disclosure only before the opening of regular trading on the
primary listing exchange.\243\ These commenters asserted that
authorized participants placing purchase or redemption orders on a T-1
basis are able to assess and hedge market risk associated with
transacting in underlying foreign securities prior to regular trading
in U.S. equity markets. Other alternatives suggested by commenters
included: (i) Carving out ETFs investing in foreign markets from the
proposed timing requirements; \244\ and (ii) permitting ETFs to accept
T-1 orders provided that they first share certain standardized
information with authorized participants.\245\
---------------------------------------------------------------------------

    \243\ See NYSE Comment Letter; CSIM Comment Letter; WisdomTree
Comment Letter.
    \244\ See Nasdaq Comment Letter.
    \245\ See Invesco Comment Letter (suggesting that, as a
condition for accepting T-1 orders, ETFs be required to provide APs
with (1) the last-published portfolio holdings, (2) applicable
corporate action information, (3) data relating to index changes,
and (4) an updated basket file).
---------------------------------------------------------------------------

    After considering these comments, we are not adopting the proposed
requirement that an ETF disclose its portfolio holdings before it
starts accepting orders for the purchase or redemption of creation
units. Instead, rule 6c-11 will require an ETF to disclose the
portfolio holdings that will form the basis for the ETF's next
calculation of NAV per share each business day before the opening of
regular trading on the primary listing exchange of the exchange-traded
fund shares.\246\ This will accommodate T-1 orders, as requested by
commenters, and is consistent with our existing exemptive orders.\247\
---------------------------------------------------------------------------

    \246\ For these purposes, ``business day'' is defined as any day
the ETF is open for business, including any day when it satisfies
redemption requests as required by section 22(e) of the Act. See
rule 6c-11(a)(1).
    \247\ See, e.g., Salt Financial, LLC, et al., Investment Company
Act Release Nos. 32974 (Jan. 23, 2018) [83 FR 4097 (Jan. 29, 2018)]
(notice) and 33007 (Feb. 21, 2018) (order), and related application
(``Salt Financial'') (requiring disclosure of portfolio holdings
before commencement of trading on the exchange).
---------------------------------------------------------------------------

    The goal of our proposed timing requirement was to facilitate
effective arbitrage by providing authorized participants and other
market participants buying and selling ETF shares with portfolio
holdings information at the time of the transaction. We believe that
accommodating T-1 orders, but requiring disclosure before the opening
of regular trading on the primary listing exchange of the ETF's shares,
will nonetheless allow for effective arbitrage. Commenters stated that
ETFs utilizing T-1 orders have shown relatively narrow bid-ask spreads
and small premiums and discounts, and stated that precluding T-1 orders
could have the unintended effect of actually widening bid-ask spreads
and disrupting existing market practices.\248\ Moreover, staff review
of the websites of several ETFs that disclose that they use T-1 orders
indicates that these ETFs' bid-ask spreads and premiums and discounts
fall approximately within the same range as ETFs that do not use T-1
orders.
---------------------------------------------------------------------------

    \248\ See, e.g., Jane Street Comment Letter; ICI comment Letter;
BlackRock Comment Letter; SIFMA AMG Comment Letter I.
---------------------------------------------------------------------------

    We considered whether to impose other conditions for the acceptance
of T-1 orders, such as disclosure of the last published portfolio
holdings. However, given the information already available to market
participants and the data demonstrating that existing market practices
have led to effective arbitrage, we do not believe additional
conditions are currently necessary to facilitate arbitrage for these
orders.
b. Presentation of Portfolio Holdings Disclosure
    Rule 6c-11 will require an ETF to disclose standardized information
regarding each portfolio holding.\249\ The rule, however, will not
require this information to be presented and contain information in the
manner prescribed within Article 12 of Regulation S-X as proposed.\250\
In response to concerns and suggestions of commenters, we have modified
this condition to require ETFs to disclose a limited set of information
for each portfolio holding.\251\
---------------------------------------------------------------------------

    \249\ Rule 6c-11(c)(1)(i). As proposed, the term ``portfolio
holdings'' is defined to mean an ETF's securities, assets, or other
positions. See rule 6c-11(a)(1). As a result, ETFs relying on rule
6c-11 are required to disclose securities, their cash holdings, as
well as holdings that are not securities or assets, including short
positions or written options. For example, an ETF will have to
disclose that it entered into a written call option, under which it
would sacrifice potential gains that would result from the price of
the reference asset increasing above the price at which the call may
be exercised (i.e., the strike price). Unless the ETF discloses the
presence of these and similar liabilities, authorized participants
and other investors may not be able to fully evaluate the
portfolio's exposure. We did not receive any comments on this
definition.
    \250\ See 2018 ETF Proposing Release, supra footnote 7, at
nn.220-221 (noting that a staff review of ETF websites found little
consistency in how portfolio holdings information was presented,
particularly with respect to derivatives, which could lead to
investor confusion).
    \251\ See infra footnotes 257-260 and accompanying text.
---------------------------------------------------------------------------

    Commenters on this aspect of the proposal agreed that there
currently is little consistency in the presentation of holdings
information by ETFs,\252\ and generally agreed this disclosure should
be standardized.\253\ Several commenters, however, stated that the
specific presentation standard included in the proposed rule (i.e.,
Article 12 of Regulation S-X) is not an appropriate framework for daily
portfolio holdings disclosures by ETFs.\254\ Commenters

asserted that certain of the Article 12 requirements are overly
burdensome for daily disclosure or unnecessary to achieve the
Commission's goal of facilitating effective arbitrage.\255\
---------------------------------------------------------------------------

    \252\ See, e.g., Cary Comment Letter; ETF.com Comment Letter.
    \253\ See, e.g., BlackRock Comment Letter; BNY Mellon Comment
Letter; Fidelity Comment Letter.
    \254\ See, e.g., Fidelity Comment Letter; ICI Comment Letter.
The proposed Article 12 presentation requirements would have
required an ETF to include the name of issuer and title of issue (as
prescribed within the S-X schedules including any related footnotes
on the description columns), balance held at close of period, number
of shares, principal amount of bonds, and value of each item at
close of period for the ETF's investments in securities, securities
sold short, and other investments. For derivatives, Article 12 would
require disclosure that includes the description (as prescribed
within the S-X schedules including any related footnotes), number of
contracts, value, expiration date (as applicable), unrealized
appreciation/depreciation (as applicable), and amount and
description of currency to be purchased and to be sold (as
applicable). See 17 CFR 210.12-12; 210.12-12A; 210.12-13; 210.12-
13A; 210.12-13B; 210.12-13C; and 210.12-13D.
    \255\ See, e.g., WisdomTree Comment Letter (explaining that
Article 12 requires detailed categorization of investments by
investment type, industry, and country or geographic region and also
requires identification of fair valued and non-income producing
securities); SIFMA AMG Comment Letter I (stating that information
such as appreciation and depreciation for derivatives, as required
under Article 12, would be difficult and impractical to calculate
and disseminate on a daily basis); Comment Letter of Franklin
Resources, Inc. (Oct. 1, 2018) (``Franklin Templeton Comment
Letter'') (noting that certain data required under Article 12 is
updated only on a quarterly basis and would not be easily accessible
on a daily basis); BlackRock Comment Letter; ICI Comment Letter.
---------------------------------------------------------------------------

    Some commenters recommended alternative approaches. Several
commenters, for example, suggested using disclosure requirements based
on the generic listing standards for actively managed ETFs.\256\ One of
these commenters stated that using the generic listing standards would
provide ``more streamlined portfolio holdings disclosure that includes
a subset of the items required by Article 12 that is most relevant and
useful for investors.'' \257\ Other commenters stated that the
Commission should consider a more limited set of requirements, such as:
(i) The name of the security; (ii) the size of the position; (iii) the
percentage exposure to such security; and (iv) the security's
value.\258\ Some commenters also recommended that, in addition to
website disclosure, rule 6c-11 require ETFs to file portfolio holdings
information in a central public location, such as EDGAR.\259\
---------------------------------------------------------------------------

    \256\ See, e.g., BlackRock Comment Letter; Fidelity Comment
Letter; Eaton Vance Comment Letter. See also ICI Comment Letter
(noting that standardizing ``the presentation formats based on
exchange listing requirements would obviate the need for two
separate schedules, a costly and largely redundant exercise with no
additional benefit''). The listing exchanges' current generic
listing standards for actively managed ETFs require disclosure of
ticker symbol; CUSIP or other identifier; description of the
holding; identity of the asset upon which the derivative is based;
strike price for any options; quantity of each security or other
asset held as measured by (i) par value, (ii) notional value, (iii)
number of shares, (iv) number of contracts, and (v) number of units;
maturity date; coupon rate; effective date; market value; and
percentage weight of the holding in the portfolio. See, e.g., NYSE
Arca Rule 8.600-E(c)(2); Nasdaq Rule 5735(c)(2); Cboe BZX Rule
14.11(i)(3)(B).
    \257\ See BlackRock Comment Letter.
    \258\ See, e.g., WisdomTree Comment Letter. See also CSIM
Comment Letter (suggesting that Commission adopt an ETF holdings
disclosure requirement similar to what money market funds report on
fund websites); Cary Comment Letter (recommending disclosure of the
portfolio holding's ticker symbol and weighting in the portfolio as
minimum requirements); Comment Letter of ICE Data Services,
Intercontinental Exchange (Oct. 1, 2018) (``IDS Comment Letter'')
(stating that Commission should consider a standardized nomenclature
for ETFs' description of derivative holdings).
    \259\ See, e.g., Reagan Comment Letter. See also Morningstar
Comment Letter (recommending that the Commission also require ETFs
to disclose the information and other website disclosure
requirements in structured format for analysis and comparison
purposes); FIMSAC Comment Letter (recommending the rule require ETFs
to file certain website disclosures on EDGAR or another public,
centralized database).
---------------------------------------------------------------------------

    We proposed the Article 12 framework because ETFs are already
required to comply with Article 12 for periodic financial reporting
purposes and therefore we believed that it would provide an efficient
way to standardize daily portfolio holdings disclosure. After
considering comments, however, we believe that a more streamlined
requirement will provide standardized portfolio holdings disclosure in
a more efficient, less costly, and less burdensome format, while still
providing market participants with relevant information. Accordingly,
rule 6c-11 will require an ETF to post a subset of the information
required by the listing exchanges' current generic listing standards
for actively managed ETFs. Rule 6c-11 will require ETFs to disclose the
following information for each portfolio holding on a daily basis: (1)
Ticker symbol; (2) CUSIP or other identifier; (3) description of
holding; (4) quantity of each security or other asset held; and (5)
percentage weight of the holding in the portfolio.\260\ We believe that
this framework will provide market participants with the information
necessary to support an effective arbitrage mechanism and eliminate
potential investor confusion due to a lack of standardization.
---------------------------------------------------------------------------

    \260\ Article 12 of Regulation S-X also generally requires
disclosure of these items, but does not require a ticker, CUSIP, or
other identifier for a holding. See, e.g., 17 CFR 210.12-12, 210.12-
12A (requiring disclosure of name of issuer and title of issue). We
believe that such identifiers can allow market participants to
efficiently identify the asset or security held, and thus we
included this requirement, which is required under the current
generic listing standards for actively managed ETFs.
---------------------------------------------------------------------------

    As commenters suggested, to arbitrage an ETF's holdings, market
participants generally must be able to identify the security or asset
held, the quantity held, and percentage weighting of the holding in the
ETF's portfolio.\261\ To enable market participants to identify the
investment held, we are requiring the ETF to disclose the ticker, CUSIP
or other identifier (where applicable) of the holding, and to provide a
description of the holding. Because certain investments may not have
been assigned a common securities identifier, we are requiring the ETF
to provide a brief description of the investment to allow an investor
to effectively hedge the ETF.\262\ For example, ETFs holding debt
securities should include the security's name, maturity date, coupon
rate, and effective date, where applicable, to assist investors in
identifying the specific security held.\263\ To indicate the quantity
of a security or other asset held, the ETF generally should use the
measure typically associated with quantifying that class of security,
such as number of shares for equity securities, par value for debt
securities, number of units for securities, such as UITs, that are
measured in units, and dollar value for cash. With respect to
derivatives, the ETF generally should provide both the notional value
of the derivative and number of contracts, as well as a general
description of the investment, which should include the type of
derivative (i.e., swap, option, forward). ETFs also may want to
consider several of the other reporting fields in Form N-PORT, for
example, depending on the type of investment the ETF holds, in order to
provide investors with the necessary information.
---------------------------------------------------------------------------

    \261\ See, e.g., WisdomTree Comment Letter.
    \262\ See, e.g., Investment Company Reporting Modernization
Adopting Release, Investment Company Act Release No. 32314 (Oct. 13,
2016) [81 FR 81870 (Nov. 18, 2016)] (``Reporting Modernization
Adopting Release''), at section II.A.4.g.i. (discussing use of
unique securities identifiers for portfolio holdings and observing
that some holdings lack such identifiers).
    \263\ Based on our experience with structured portfolio
reporting, such as Form N-PORT, we believe that this information
will provide a sufficient amount of data for a market participant to
understand the payment profile of the investment and therefore
arbitrage the ETF's portfolio holdings. See id., at section
II.A.4.g.ii.
---------------------------------------------------------------------------

    We continue to believe that the ETF's website is the most effective
location for the disclosure of portfolio holdings information. By
posting the portfolio information on its website, free of charge, the
ETF makes the information available to a broad range of investors,
including retail investors, and other market participants.\264\ We
further believe, and commenters agreed, that requiring ETFs to file
their portfolio holdings information on EDGAR would impose additional
costs on ETFs that are not justified in light of other available
disclosure methods.\265\ Moreover, the purpose of this requirement is
to allow ETF investors to understand and potentially arbitrage the
ETF's holdings. We therefore do not believe that requiring ETFs to file
daily portfolio

holding disclosure on EDGAR or other centralized location in order to
provide potentially greater comparability across ETFs is justified in
light of current market practices and the additional costs associated
with such a requirement.\266\ In addition, other documents, such as
reports on Form N-PORT or Form N-CEN, registration statements on Form
N-1A, and consolidated structured datasets derived from those
submissions, provide centralized, structured information, including
information about portfolio holdings, that can be analyzed and compared
across ETFs, albeit on a less frequent basis.\267\
---------------------------------------------------------------------------

    \264\ See 2018 ETF Proposing Release, supra footnote 7, at n.271
and accompanying text (discussing advantages of website posting over
use of National Securities Clearing Corporation (``NSCC'') portfolio
composition file).
    \265\ See, e.g., Invesco Comment Letter (stating that additional
dissemination requirements, such as EDGAR, would be costly).
    \266\ As stated above, however, we encourage ETFs to consider
whether there are technological means, such as including portfolio
holdings information in a machine-readable format, to make these
disclosures more accessible. See supra footnote 226.
    \267\ See, e.g., Part C of Form N-PORT.
---------------------------------------------------------------------------

c. Portfolio Holdings That Will Form the Basis for the ETF's NAV
Calculation
    As proposed, rule 6c-11 will require the portfolio holdings that
form the basis for the ETF's NAV calculation to be the ETF's portfolio
holdings as of the close of business on the prior business day.\268\
Changes in an ETF's holdings of portfolio securities would therefore be
reflected on a T+1 basis. We did not receive any comments on this
proposed condition, which is consistent with current ETF practices. We
continue to believe that requiring an ETF to disclose the portfolio
that will form the basis for the next NAV calculation at the beginning
of the business day will help to facilitate the efficient functioning
of the arbitrage process while protecting against potential front-
running of the ETF's trades.
---------------------------------------------------------------------------

    \268\ See rule 6c-11(c)(1)(i). See also 2018 Proposing Release,
supra footnote 7, at nn.210-211 and accompanying text.
---------------------------------------------------------------------------

    Accordingly, rule 6c-11 will not require ETFs to disclose intraday
changes in portfolio holdings because these changes would not affect
the portfolio composition serving as a basis for NAV calculation until
the next business day.\269\ We continue to believe that the selective
disclosure of nonpublic information regarding intraday changes in
portfolio holdings (or any advance disclosure of portfolio trades)
could result in the front-running of an ETF's trades, causing the ETF
to pay more to obtain a security.\270\ We have stated that registered
investment companies' compliance policies and procedures required by
rule 38a-1 under the Act should address potential misuses of nonpublic
information, including the disclosure to third parties of material
information about a fund's portfolio, its trading strategies, or
pending transactions, and the purchase or sale of fund shares by
advisory personnel based on material, nonpublic information about the
fund's portfolio.\271\ ETFs also are required to describe their
policies and procedures on portfolio security disclosure in the
Statement of Additional Information and post such policies and
procedures on their websites.\272\
---------------------------------------------------------------------------

    \269\ See 2018 ETF Proposing Release, supra footnote 7, at note
222 and accompanying text.
    \270\ We also requested comment in the proposal on whether we
should amend Regulation FD to apply to ETFs. Regulation FD prohibits
the selective disclosure of material information by publicly traded
companies and other issuers. See 2018 ETF Proposing Release, supra
footnote 7, at n.228. We received two comments stating that ETFs
should be subject to Regulation FD. See Eaton Vance Comment Letter;
Jane Street Comment Letter. However, we are not amending Regulation
FD at this time in order to further explore certain aspects of
applying Regulation FD to ETFs, which unlike other entities subject
to this regulation, are continuously offered.
    \271\ Rule 38a-1 Adopting Release, supra footnote 134. Pursuant
to rule 6c-11, ETFs are required to disclose portfolio holdings
information with greater frequency than other open-end funds, which
are generally required to publicly disclose holdings on a quarterly
basis. However, we have previously noted that a fund or investment
adviser that discloses the fund's portfolio securities may only do
so consistent with the antifraud provisions of the federal
securities laws and the adviser's fiduciary duties. See Disclosure
Regarding Market Timing and Selective Disclosure of Portfolio
Holdings, Investment Company Act Release No. 26418 (Apr. 20, 2004)
[69 FR 22299 (Apr. 23, 2004)] (``Disclosure of Portfolio Holdings
Release''), at section II.C. Moreover, divulging nonpublic portfolio
holdings to selected third parties is permissible only when the fund
has legitimate business purposes for doing so and the recipients are
subject to a duty of confidentiality, including a duty not to trade
on the nonpublic information. Id.
    \272\ See Items 9(d) and 16(f) of Form N-1A; see also Disclosure
of Portfolio Holdings Release, supra footnote 272, at section II.C.
---------------------------------------------------------------------------

5. Baskets
    As proposed, rule 6c-11 will require an ETF relying on the rule to
adopt and implement written policies and procedures governing the
construction of baskets and the process that the ETF will use for the
acceptance of baskets.\273\ In addition, as proposed, the rule will
provide an ETF with flexibility to use ``custom baskets'' if the ETF
has adopted written policies and procedures that: (i) Set forth
detailed parameters for the construction and acceptance of custom
baskets that are in the best interests of the ETF and its shareholders,
including the process for any revisions to, or deviations from, those
parameters; and (ii) specify the titles or roles of employees of the
ETF's investment adviser who are required to review each custom basket
for compliance with those parameters (``custom basket policies and
procedures'').\274\
---------------------------------------------------------------------------

    \273\ See rule 6c-11(c)(3). The rule will define ``basket'' to
mean the securities, assets or other positions in exchange for which
an ETF issues (or in return for which it redeems) creation units.
See rule 6c-11(a)(1).
    \274\ See rule 6c-11(c)(3); see also infra footnote 299 and
accompanying text.
---------------------------------------------------------------------------

a. Basket Policies and Procedures
    When an ETF uses in-kind creations and redemptions, the composition
of the basket is an important aspect of the efficient functioning of
the arbitrage mechanism. Basket composition affects the costs of
assembling and delivering the baskets exchanged for creation units as
well as the costs of liquidating basket securities when redeeming
creation units.\275\ Basket composition also is important to ETF
portfolio management, as each in-kind creation or redemption increases
or decreases positions in the ETF's portfolio, and allows portfolio
managers to add or remove certain portfolio holdings. This can be an
efficient way for a portfolio manager to execute changes in the ETF's
portfolio because the manager can make the changes without incurring
the additional expenses of trades in the market. When an ETF does not
have flexibility to manage basket composition, however, undesired
changes to the portfolio may result, such as the loss of desirable
bonds when paying redemptions in kind.
---------------------------------------------------------------------------

    \275\ For example, the number of positions included in a basket,
as well as the difficulty and cost of trading those positions, will
affect the cost of basket transactions.
---------------------------------------------------------------------------

    The exemptive relief relating to baskets evolved over time. Early
orders for ETFs organized as open-end funds included few explicit
restrictions on baskets, and these orders did not expressly limit ETFs'
baskets to a pro rata representation of the ETF's portfolio
holdings.\276\ Since approximately 2006, however, our orders placed
tighter restrictions on an open-end ETF's composition of baskets.\277\
These orders expressly require that an ETF's basket generally
correspond pro rata to its portfolio holdings, while identifying
certain limited circumstances under which an ETF may use a non-pro rata
basket.\278\
---------------------------------------------------------------------------

    \276\ See WEBs Index Fund, Inc., et al., Investment Company Act
Release Nos. 23860 (June 7, 1999) [64 FR 31658 (June 11, 1999)]
(notice) and 23890 (July 6, 1999) (order) and related application.
Our earliest ETF orders for ETFs organized as UITs provide that in-
kind purchases of creation units were to be made using a basket of
securities substantially similar to the composition and weighting of
the ETF's underlying index. Given the unmanaged nature of the UIT
structure, a UIT ETF's basket generally reflected a pro rata
representation of the ETF's portfolio. See SPDR, supra footnote 51.
    \277\ See, e.g., 2006 WisdomTree Investments, supra footnote
201.
    \278\ See id.; see also 2018 ETF Proposing Release, supra
footnote 7, at nn. 238-242 and accompanying text (describing the
circumstances when a basket could deviate from a pro rata
representation of the ETF's portfolio under recent exemptive
orders).

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

    The requirement that baskets correspond pro rata to the ETF's
portfolio holdings, and the increasingly limited exceptions to the pro
rata requirement, were designed to address the risk that an authorized
participant could take advantage of its relationship with the ETF and
pressure the ETF to construct a basket that favors an authorized
participant to the detriment of the ETF's shareholders. For example,
because ETFs rely on authorized participants to maintain the secondary
market by promoting an effective arbitrage mechanism, an authorized
participant holding less liquid or less desirable securities
potentially could pressure an ETF into accepting those securities in
its basket in exchange for liquid ETF shares (i.e., dumping). An
authorized participant also could pressure the ETF into including in
its basket certain desirable securities in exchange for ETF shares
tendered for redemption (i.e., cherry-picking). In either case, the
ETF's other investors would be disadvantaged and would be left holding
shares of an ETF with a less liquid or less desirable portfolio of
securities.\279\
---------------------------------------------------------------------------

    \279\ These abuses also could occur when a liquidity provider or
other market participant engages in primary market transactions with
the ETF by using an authorized participant as an agent.
---------------------------------------------------------------------------

    Based on our experience with ETFs, however, we believe there are
many circumstances, in addition to the specific circumstances
enumerated in our orders, where allowing basket assets to differ from a
pro rata representation or allowing the use of different baskets could
benefit the ETF and its shareholders. For instance, ETFs without basket
flexibility typically are required to include a greater number of
individual securities within their basket when transacting in kind,
making it more difficult and costly for authorized participants and
other market participants to assemble or liquidate baskets. This could
result in wider bid-ask spreads and potentially less efficient
arbitrage. In such circumstances, these ETFs may be at a competitive
disadvantage to ETFs with greater flexibility. As a result, these
differing conditions and requirements for basket composition in our
exemptive orders may have created a disadvantage for newer ETFs that
are subject to our later, more stringent restrictions on baskets.
    Moreover, certain exceptions to a pro rata basket requirement may
help ETFs operate more efficiently. For example, ETFs, particularly
fixed-income ETFs, that do not have basket flexibility may satisfy
redemption requests entirely in cash in order to avoid losing hard-to-
find securities and to preserve the ETF's ability to achieve its
investment objectives.\280\ ETFs that meet redemptions in cash may
maintain larger cash positions to meet redemption obligations,
potentially resulting in cash drag on the ETF's performance. The use of
cash baskets also may be less tax-efficient than using in-kind baskets
to satisfy redemptions, and may result in additional transaction costs
for the purchase and sale of portfolio holdings.\281\
---------------------------------------------------------------------------

    \280\ Many ETFs, including fixed-income ETFs, are permitted
under their exemptive orders to satisfy redemptions entirely in cash
where the ETF holds thinly traded securities, among other
circumstances. See, e.g., Pacific Investment Management Company
LLCP, et al., Investment Company Act Release Nos. 28723 (May 11,
2009) [74 FR 22772 (May 14, 2009)] (notice) and 28752 (June 1, 2009)
(order) and related application.
    \281\ In-kind redemptions allow ETFs to avoid taxable events and
certain transaction costs that arise when selling securities for
cash within the ETF. See, e.g., Prudential Investments LLC, et al.,
Investment Company Act Release Nos. 32351 (Nov. 1, 2016) (notice)
[81 FR 78228 (Nov. 7, 2016)] and 32374 (Nov. 30, 2016) (order) and
related application (stating that cash redemptions may result in
adverse tax consequences and higher transaction costs, such as
brokerage costs, than in-kind redemptions). Additionally, based upon
Form N-CEN data through September 5, 2019, the median transaction
fee charged to an authorized participant for the use of an in-kind
basket to satisfy a redemption was approximately $350.00, while the
median transaction fee for the use of a basket that was partially or
fully composed of cash was approximately $375.00, when charged on a
per-creation-unit basis.
---------------------------------------------------------------------------

    We therefore proposed to provide additional basket flexibility,
subject to conditions designed to address concerns regarding the
potential risk of overreaching. Specifically we proposed to require
ETFs to adopt: (i) Policies and procedures governing the construction
of baskets and the process that would be used for the acceptance of
baskets generally; and (ii) heightened process requirements for ETFs
using custom baskets, including policies and procedures specifically
covering the use of custom baskets.\282\
---------------------------------------------------------------------------

    \282\ See 2018 ETF Proposing Release, supra footnote 7, at
section II.5.a.
---------------------------------------------------------------------------

    Commenters generally supported requiring ETFs to adopt policies and
procedures governing the construction of baskets.\283\ One commenter
stated, for example, that this requirement is consistent with other
investment and portfolio management processes that require guidelines,
oversight and recordkeeping.\284\ Commenters also generally supported
our proposal to permit ETFs relying on the rule to use custom baskets
provided they adopt certain heightened process requirements.\285\ These
commenters agreed that providing ETFs with the flexibility to use
custom baskets potentially could benefit ETF investors through more
effective arbitrage and more efficient portfolio management.\286\ One
commenter provided the results of an analysis it performed indicating
that fixed-income ETFs with basket flexibility had narrower bid-ask
spreads, had lower tracking differentials (i.e., the difference between
the ETF's daily return and the daily return of its benchmark), and
traded at smaller discounts than fixed-income ETFs without basket
flexibility.\287\
---------------------------------------------------------------------------

    \283\ See, e.g., ICI Comment Letter; BlackRock Comment Letter;
SIFMA AMG Comment Letter I.
    \284\ See SIFMA AMG Comment Letter I.
    \285\ See, e.g., ICI Comment Letter; BlackRock Comment Letter;
Invesco Comment Letter; BNY Mellon Comment Letter; IDC Comment
Letter; Fidelity Comment Letter.
    \286\ See, e.g., BlackRock Comment Letter.
    \287\ See ICI Comment Letter. See also infra footnotes 574-575
and accompanying text.
---------------------------------------------------------------------------

    One commenter, however, asserted that the rule should not afford
custom basket flexibility to all ETFs relying on it.\288\ Rather, this
commenter opined that the rule should require fixed-income ETFs to make
in-kind, pro rata redemptions upon shareholder request (with limited
substitutions for holdings that cannot be settled or transferred)
because, under certain market conditions, custom baskets can lead to
greater price volatility and dislocation from NAV for these ETFs.
---------------------------------------------------------------------------

    \288\ See Bluefin Comment Letter.
---------------------------------------------------------------------------

    Some commenters, although generally supporting custom basket
flexibility and the proposed heightened process requirements, requested
that we modify or clarify certain aspects of the proposed
condition.\289\ For example, one commenter did not support requiring
``detailed parameters'' for the construction and acceptance of custom
baskets, stating that the rule should permit ETF sponsors to develop
broad policies and procedures to cover the wide range of circumstances
that may arise relating to custom baskets.\290\ Another commenter
stated that the Commission should explicitly set forth the appropriate
considerations for custom basket policies and procedures, such as
periodic monitoring and testing and oversight of the custom basket
process.\291\ This commenter also stated that the Commission should
clarify that an ETF has discretion to tailor its custom basket policies
and procedures to address different risks, considerations, and
requirements for

different types of custom baskets, particularly those involving cash
substitutions.
---------------------------------------------------------------------------

    \289\ See, e.g., ICI Comment Letter; BlackRock Comment Letter;
Invesco Comment Letter; BNY Mellon Comment Letter; IDC Comment
Letter; Fidelity Comment Letter; Dechert Comment Letter.
    \290\ See Invesco Comment Letter.
    \291\ See BlackRock Comment Letter.
---------------------------------------------------------------------------

    We are adopting the basket conditions under rule 6c-11 as proposed.
Rule 6c-11 therefore will require an ETF to adopt and implement written
policies and procedures that govern the construction of baskets and the
process that will be used for the acceptance of baskets as
proposed.\292\ These policies and procedures must cover the methodology
that the ETF will use to construct baskets. For example, the policies
and procedures should detail the circumstances under which the basket
may omit positions that are not operationally feasible to transfer in
kind. The policies and procedures also should detail when the ETF would
use representative sampling of its portfolio to create its basket, and
how the ETF would sample in those circumstances. The policies and
procedures also should detail how the ETF would replicate changes in
the ETF's portfolio holdings as a result of the rebalancing or
reconstitution of the ETF's underlying securities market index, if
applicable. We believe this policies and procedures requirement will
protect against overreaching and other abusive practices in
circumstances where an ETF uses a basket that does not reflect a pro
rata slice of the ETF's portfolio holdings, but does not meet the
definition of custom basket.
---------------------------------------------------------------------------

    \292\ See rule 6c-11(c)(3).
---------------------------------------------------------------------------

    Rule 6c-11 also will require the policies and procedures to (i) set
forth detailed parameters for the construction and acceptance of custom
baskets that are in the best interests of the ETF and its shareholders,
including the process for any revisions to, or deviations from, those
parameters; and (ii) specify the titles or roles of the employees of
the ETF's investment adviser who are required to review each custom
basket for compliance with those parameters.\293\ We continue to
believe that an ETF and its shareholders may benefit from custom
baskets and that the heightened process requirements for custom baskets
in rule 6c-11 serve to protect the ETF and its shareholders from the
risks that custom baskets may present.
---------------------------------------------------------------------------

    \293\ Rule 6c-11(c)(3)(i) and (ii).
---------------------------------------------------------------------------

    Effective custom basket policies and procedures should provide
specific parameters regarding the methodology and process that the ETF
would use to construct or accept each custom basket. They also should
describe the ETF's approach for testing compliance with the custom
basket policies and procedures and assessing (including through back
testing or other periodic reviews) whether the parameters continue to
result in custom baskets that are in the best interests of the ETF and
its shareholders. An ETF should consistently apply the custom basket
policies and procedures and must establish a process that the ETF will
adhere to if it wishes to make any revisions to, or deviate from, the
parameters. In addition, an ETF's custom basket policies and procedures
should include reasonable controls designed to prevent inappropriate
differential treatment among authorized participants.
    We do not believe that the requirement for ``detailed parameters''
would prevent an ETF sponsor from developing policies and procedures to
cover the wide range of circumstances that may arise relating to custom
baskets.\294\ ETFs may tailor their custom basket policies and
procedures to address different risks and requirements for different
types of custom baskets. For example, an ETF could develop tailored
procedures when it uses cash substitutions that differ from the
procedures it uses when substituting securities and other positions. An
ETF's custom basket policies and procedures also could address the
differing considerations for custom baskets depending on the direction
of the trade (i.e., whether the custom basket is being used for a
creation or a redemption).\295\ This condition provides ETFs with
flexibility to cover operational circumstances that make the inclusion
of certain portfolio securities and other positions in a basket
operationally difficult (or impossible), while facilitating portfolio
management changes in a cost- and tax-efficient manner.
---------------------------------------------------------------------------

    \294\ See Invesco Comment Letter.
    \295\ See BlackRock Comment Letter.
---------------------------------------------------------------------------

    Although one commenter opined that fixed-income ETFs present unique
concerns, we believe that requiring fixed-income ETFs to establish
detailed parameters for the construction and acceptance of custom
baskets that are in the best interests of the ETF and its shareholders
will address the risks associated with custom baskets. As discussed
above, we also believe that fixed-income ETFs (and their shareholders)
may experience the most pronounced benefits from basket
flexibility.\296\ As a result, all ETFs that comply with the conditions
in rule 6c-11 will have basket flexibility.
---------------------------------------------------------------------------

    \296\ See supra footnotes 281-282 and accompanying text and
footnote 288 and accompanying text.
---------------------------------------------------------------------------

    One commenter stated that the Commission should confirm that the
``best interests of the ETF and its shareholders'' standard included in
rule 6c-11(c)(3)(i) includes the ETF's shareholders generally rather
than individually, on the basis that the adviser to an ETF owes a
fiduciary duty only to the ETF, and that ETFs cannot evaluate the
interests of individual shareholders.\297\ The ``best interests of the
ETF and its shareholders'' in this context is not intended to apply to
each ETF shareholder individually, but rather to the ETF's shareholders
generally. This formulation is consistent with other Commission
rules.\298\
---------------------------------------------------------------------------

    \297\ See SIFMA AMG Comment Letter I.
    \298\ See, e.g., 17 CFR 270.12b-1 (rule 12b-1 under the Act)
(providing that fund board may approve distribution plan under rule
12b-1 only if, among other things, the board concludes ``that there
is a reasonable likelihood that the plan will benefit the company
and its shareholders''); 17 CFR 270.2a-7 (rule 2a-7 under the Act)
(providing that board of a money market fund, in order to use
certain share price calculation methods, must determine ``that it is
in the best interests of the fund and its shareholders'' to maintain
a stable net asset value per share).
---------------------------------------------------------------------------

    As proposed, rule 6c-11 also will require an ETF, as part of its
custom basket policies and procedures, to specify the titles or roles
of employees of the ETF's investment adviser who are required to review
each custom basket for compliance with the parameters set forth in
those policies and procedures. Several commenters did not support this
requirement as proposed.\299\ One of these commenters stated that the
rule should require ETFs to identify only the employees that are
responsible for approving custom baskets that deviate from the
parameters set forth in the policies and procedures.\300\ Another
commenter stated that the review requirement is overly prescriptive and
could cause operational challenges when an ETF is sub-advised.\301\
---------------------------------------------------------------------------

    \299\ See, e.g., SIFMA AMG Comment Letter I; WisdomTree Comment
Letter I.
    \300\ See SIFMA AMG Comment Letter I.
    \301\ See WisdomTree Comment Letter.
---------------------------------------------------------------------------

    In addition, several commenters did not support the statement in
the 2018 ETF Proposing Release that an ETF may want to consider whether
employees outside of portfolio management should review the components
of custom baskets before approving a creation or redemption.\302\
Commenters stated that approval of custom baskets is a typical
portfolio management function, and that requiring non-investment
personnel to review custom baskets before approving a creation or
redemption would be

impractical, burdensome, and would detract from the flexibility custom
baskets provide.\303\ One commenter requested that the Commission
clarify that the requirement to approve custom baskets applies only to
employees with discretionary or direct supervisory authority over
custom baskets, and not to employees responsible for governance, back-
testing, or periodic reviews.\304\
---------------------------------------------------------------------------

    \302\ See, e.g., Dechert Comment Letter; Fidelity Comment
Letter; JPMAM Comment Letter; SIFMA AMG Comment Letter I; Invesco
Comment Letter; CSIM Comment Letter; SSGA Comment Letter I.
    \303\ See, e.g., Dechert Comment Letter; Fidelity Comment
Letter; JPMAM Comment Letter; Invesco Comment Letter; CSIM Comment
Letter.
    \304\ See BlackRock Comment Letter.
---------------------------------------------------------------------------

    We continue to believe that the ETF's investment adviser is in the
best position to design and administer the custom basket policies and
procedures and to establish parameters that are in the best interests
of the ETF and its shareholders.\305\ We also believe that the adviser
is in the best position to determine which employee (or employees) are
responsible for determining whether an ETF's custom baskets comply with
the custom basket policies and procedures depending on its own
structure, strategy, and other relevant circumstances (including
whether the ETF is sub-advised). The ETF's adviser (and personnel) are
familiar with the ETF's portfolio holdings and are able to assess
whether the process and methodology used to construct or accept a
custom basket is in the best interests of the ETF and its shareholders
and whether a particular custom basket complies with the parameters set
forth in the custom basket policies and procedures. We believe that
these requirements will allow an ETF to establish a tailored framework
for the use of custom baskets, while also requiring the ETF to put into
place safeguards against abusive practices related to basket
composition.
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    \305\ An investment adviser has a fiduciary duty to act in the
best interests of a fund it advises. See section 36(a) under the
Act. See also, e.g., Rosenfeld v. Black, 445 F.2d 1337 (2d Cir.
1971); Brown v. Bullock, 194 F. Supp. 207, 229, 234 (S.D.N.Y.),
aff'd, 294 F.2d 415 (2d Cir. 1961); In re Provident Management
Corp., Securities Act Release No. 5155 (Dec. 1, 1970), at text
accompanying n.12; Rule 38a-1 Adopting Release, supra footnote 64,
at n.68. See also supra footnote 64 (discussing certain other
obligations for registered investment advisers).
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    To the extent that a particular ETF's investment adviser determines
that its portfolio management employees are the appropriate employees
to be responsible for compliance with the custom basket policies and
procedures, we believe that the requirements of rule 38a-1 under the
Act provide appropriate safeguards to address possible conflicts of
interest that could arise from such an arrangement. For example, ETFs
currently are required by rule 38a-1 under the Act to adopt, implement,
and periodically review written policies and procedures reasonably
designed to prevent violations of the federal securities laws.\306\ An
ETF's compliance policies and procedures should be appropriately
tailored to reflect its particular compliance risks. An ETF's basket
policies and procedures (including its custom basket policies and
procedures), therefore, should be covered by the ETF's compliance
program and other requirements under rule 38a-1.\307\ For example, an
ETF would be required to preserve the basket policies and procedures
pursuant to the requirements of rule 38a-1(d)(1). Also, we believe that
the ETF's board of directors' oversight of the ETF's compliance
policies and procedures, as well as their general oversight of the ETF,
would provide an additional layer of protection for an ETF's use of
custom baskets.\308\
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    \306\ See Rule 38a-1 Adopting Release, supra footnote 134. Among
other things, rule 38a-1 requires a fund's chief compliance officer
to provide a written report to the fund's board of directors, no
less frequently than annually, that addresses, among other things,
the operation of the fund's compliance policies and procedures and
any material changes made to those policies and procedures since the
date of the last report and any material changes to the policies and
procedures recommended as a result of the annual review of the
policies and procedures. See rule 38a-1(a)(4)(iii)(A).
    \307\ The compliance policies and procedures could require, for
example, the ETF's chief compliance officer or other compliance
professionals to conduct a post hoc, periodic review of a sample of
custom baskets used by the ETF.
    \308\ Several commenters expressed support for the description
in the 2018 ETF Proposing Release of the oversight role of ETF
boards, including with respect to custom basket policies and
procedures. See ETF.com Comment Letter; IDC Comment Letter; Nasdaq
Comment Letter.
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b. Definition of Custom Baskets
    As proposed, rule 6c-11 will define ``custom baskets'' to include
two categories of baskets. First, a basket containing a non-
representative selection of the ETF's portfolio holdings would
constitute a custom basket.\309\ These types of custom baskets include,
but are not limited to, baskets that do not reflect: (i) A pro rata
representation of the ETF's portfolio holdings; (ii) a representative
sampling of the ETF's portfolio holdings; or (iii) changes due to a
rebalancing or reconstitution of the ETF's securities market index, if
applicable.\310\
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    \309\ Rule 6c-11(a)(1).
    \310\ A basket that is a pro rata representation of the ETF's
portfolio holdings, except for minor deviations when it is not
operationally feasible to include a particular instrument within the
basket, generally would not be considered a ``custom basket'' except
to the extent different baskets are used in transactions on the same
business day.
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    Second, if different baskets are used in transactions on the same
business day, each basket after the initial basket would constitute a
custom basket. For example, if an ETF exchanges a basket with either
the same or another authorized participant that reflects a
representative sampling that differs from the initial basket, that
basket (and any such subsequent baskets) would be a custom basket.\311\
Similarly, if an ETF substitutes cash in lieu of a portion of basket
assets for a single authorized participant, that basket would be a
custom basket.
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    \311\ When making the best interest determination for such
custom baskets, the ETF should consider how this change in sampling
affects the ETF's portfolio.
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    We received a number of comments on the proposed definition of
custom basket. Several commenters asserted that baskets including cash
substitutions should not be subject to the heightened policies and
procedures requirement for custom baskets, and thus should be excluded
from the definition of custom baskets.\312\ These commenters asserted
that baskets with cash substitutions do not raise the same concerns
about conflicts or overreach as securities substitutions.\313\
Commenters also contended that the use of cash substitutions as part of
standard (i.e., non-custom) baskets is a routine portfolio management
matter that is necessary for the efficient operation of ETFs.\314\ One
commenter suggested several technical changes to the proposed
definition of custom basket in rule 6c-11 to treat cash substitutions
as part of a non-custom, pro rata basket under certain enumerated
circumstances.\315\
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    \312\ See, e.g., ICI Comment Letter; BlackRock Comment Letter;
Fidelity Comment Letter; Dechert Comment Letter; SIFMA AMG Comment
Letter I; SSGA Comment Letter I.
    \313\ See, e.g., Fidelity Comment Letter (``Purchasing or
redeeming using a cash basket does not create opportunities for
`cherry picking,' `dumping' or other abuses . . . and therefore does
not give rise to the risk of overreaching that the proposed custom
basket policies and procedures were designed to prevent.''); ICI
Comment Letter; BlackRock Comment Letter; SIFMA AMG Comment Letter
I; JPMAM Comment Letter.
    \314\ See, e.g., SIFMA AMG Comment Letter I (asserting that
``the use of cash is driven by restrictions applicable to authorized
participants, restrictions on in-kind transactions in certain
markets, or authorized participants' inability to access individual
securities.''); JPMAM Comment Letter. See also CSIM Comment Letter
(recommending that the standard basket policies and procedures,
rather than the custom basket policies and procedures, cover cash
substitutions).
    \315\ See BlackRock Comment Letter (recommending that we deem a
basket to be pro rata if it: (1) Substitutes cash for odd lot
positions or as a result of minimum trade sizes; (2) substitutes
cash due to security specific restrictions, such as corporate
actions or regulatory reasons; (3) substitutes cash for positions or
other instruments that cannot be delivered in-kind (e.g.,
derivatives, to-be-announced (or ``TBA'') transactions); or (4) is
otherwise representative of the ETF).

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

    After consideration of these comments, we are adopting the
definition of ``custom basket'' as proposed. While we generally agree
with commenters that cash substitutions may not raise the same concerns
as securities substitutions, an ETF's use of cash substitutions may
raise concerns regarding the potential for an authorized participant to
overreach, particularly in connection with redemptions. For example,
during periods of market stress, an authorized participant may demand
cash from the ETF instead of less liquid securities in exchange for ETF
shares, impacting the liquidity of the ETF's portfolio and the ability
of the ETF to satisfy additional cash redemption requests from
authorized participants.\316\
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    \316\ See generally LRM Adopting Release, supra footnote 123.
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    We also considered excluding certain types of cash substitutions
from the definition of custom baskets where authorized participant
overreach is unlikely, consistent with the approach taken in our recent
exemptive orders.\317\ However, we are concerned that such an approach
may fail to effectively capture all circumstances in which an ETF may
substitute cash. We believe that the policies and procedures
requirements for custom baskets will provide ETFs with sufficient
flexibility to design custom basket policies and procedures that are
tailored to address the different risks that cash substitutions and
securities substitutions may present. An ETF could, for example, design
custom basket policies and procedures with more streamlined
requirements for certain cash substitutions that present lower
risks.\318\
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    \317\ For example, authorized participant overreach is unlikely
where the ETF substitutes cash for odd lot positions or as a result
of minimum trade sizes.
    \318\ See BlackRock Comment Letter.
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c. Basket Publication Requirement
    Proposed rule 6c-11 would have required an ETF to post information
regarding one basket that it would exchange for orders to purchase or
redeem creation units to be priced based on the ETF's next calculation
of NAV per share (a ``published basket'') on its website each business
day.\319\ This proposed disclosure requirement was designed to: (i)
Facilitate arbitrage by providing authorized participants and other
market participants with timely information regarding the contents of a
basket that the ETF will accept each day; and (ii) allow market
participants that do not have access to an ETF's daily portfolio
composition file to compare the ETF's basket with its portfolio
holdings, assist in building intraday hedges, and estimate the cash
balancing amount. After considering comments, however, the Commission
is not including a basket publication requirement in rule 6c-11.
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    \319\ See proposed rule 6c-11(c)(1)(i).
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    Commenters generally did not support requiring disclosure of a
published basket on the ETF's website.\320\ For example, one commenter
asserted that the proposed published basket was ``speculative,'' and
had little value, particularly for certain types of fixed-income
ETFs.\321\ Several commenters contended that the contents of an ETF's
basket are irrelevant for secondary market investors and publication of
an ETF's basket could result in confusion, particularly if the basket
is mistaken for portfolio holdings information.\322\ Other commenters
stated that the publication requirement could delay the process by
which the ETF and an authorized participant negotiate the contents of a
custom creation or redemption basket.\323\ Another commenter stated
that we should require an ETF to provide its published basket through
the NSCC, rather than through its website, because the market
participants that would use the published basket currently are able to
access it either directly through the NSCC or through
intermediaries.\324\
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    \320\ See, e.g., SIFMA AMG Comment Letter I; Invesco Comment
Letter I; Nasdaq Comment Letter; CSIM Comment Letter.
    \321\ See, e.g., SIFMA AMG Comment Letter I; see also CSIM
Comment Letter (``CSIM does not believe that disclosure of one
standard basket for orders to create or redeem creation units on an
ETF's website would be useful disclosure to either individual
investors or authorized participants as proposed.'').
    \322\ See, e.g., CSIM Comment Letter; ICI Comment Letter. One
commenter also noted that the proposed amendments to Form N-1A
eliminated other disclosure that were relevant only to authorized
participants and potentially confusing to secondary market
investors. See ICI Comment Letter.
    \323\ See, e.g., Invesco Comment Letter; Nasdaq Comment Letter.
    \324\ See OppenheimerFunds Comment Letter.
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    After considering these comments, the Commission is not including
in rule 6c-11 a requirement that an ETF post information regarding one
published basket that it would exchange for orders to purchase or
redeem creation units. We proposed this condition, in part, because we
were concerned that certain market participants that needed access to
basket information for arbitrage purposes would not have access to ETF
portfolio composition files.\325\ However, we understand from
commenters that market participants that use basket information,
including those seeking to hedge exposure to an ETF, currently have
access to this information through the NSCC, an intermediary, or the
ETF itself. We are, however, requiring ETFs to provide daily website
disclosure of portfolio holdings, which we believe will provide market
participants with the necessary tools to determine if an arbitrage
opportunity exists and to hedge the ETF's portfolio.\326\ As a result,
we believe that the publication of a single published basket would
provide little additional value to market participants assessing the
existence of arbitrage opportunities. We also agree with commenters'
concerns that some investors may confuse the published basket
information with an ETF's portfolio holdings information.
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    \325\ See 2018 ETF Proposing Release, supra footnote 7, at
section II.5.b.
    \326\ See rule 6c-11(c)(1); see also 2018 ETF Proposing Release,
supra footnote 7, at section II.C.4. (stating that without the
ability to hedge, market makers may widen spreads or be reluctant to
make markets because doing so may require taking on greater market
risk than the firm is willing to bear).
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    We requested comment on whether we should require an ETF to publish
certain information regarding each basket used by the ETF to ameliorate
some of the limitations associated with publication of a single basket
each day and to serve as an additional check against overreaching by
authorized participants.\327\ However, commenters stated that such a
requirement would be costly to implement and unnecessarily burdensome,
particularly because basket composition information is not used by
secondary market investors.\328\ In addition, commenters asserted that
publication of each basket could raise the risk that market
participants front-run trades in basket securities or attempt to
replicate authorized participants' or other market makers' trading
strategies, particularly for those ETFs that have more frequent primary
market transactions.\329\ Rule 6c-11 as adopted instead will require
ETFs to maintain certain information regarding each basket exchanged
with an authorized participant.\330\ We believe that this record
keeping requirement is a more efficient way to ensure compliance with
the rule, while

mitigating concerns regarding potential overreaching by authorized
participants.
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    \327\ See 2018 ETF Proposing Release, supra footnote 7, text
following nn.269 and 272.
    \328\ See, e.g., ICI Comment Letter; SSGA Comment Letter I;
Vanguard Comment Letter.
    \329\ See, e.g., ICI Comment Letter; SSGA Comment Letter I;
SIFMA Comment Letter; Vanguard Comment Letter (also opining that
publication of each custom basket could confuse investors); but see
Morningstar Comment Letter (advocating for disclosure of all baskets
in a structured format).
    \330\ See infra section II.D.
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6. Website Disclosure
    There has been a significant increase in the use of the internet as
a tool for disseminating information, and many investors obtain
information regarding ETFs on ETF websites.\331\ Rule 6c-11 therefore
will require ETFs to disclose certain information on their websites as
a condition to the rule.\332\ The website disclosure requirements are
designed to provide investors with key metrics to evaluate their
investment and trading decisions in a format that is easily accessible
and frequently updated.
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    \331\ See, e.g., Reporting Modernization Adopting Release supra
footnote 263.
    \332\ Rule 6c-11(c)(1).
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    Specifically, under rule 6c-11 the following information must be
disclosed publicly and prominently on the ETF's website: \333\
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    \333\ See rule 6c-11(c)(1); see also supra footnote 226.
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     NAV per share, market price, and premium or discount, each
as of the end of the prior business day;
     A table and chart showing the number of days the ETF's