[Federal Register Volume 85, Number 112 (Wednesday, June 10, 2020)]
[Notices]
[Pages 35461-35467]
[FR Doc No: 2020-12524]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89019; File No. SR-CboeEDGA-2020-016]

Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Adopt Rule 14.13 To Permit the Trading, Pursuant to Unlisted Trading
Privileges, of Tracking Fund Shares

June 4, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 3, 2020, Cboe EDGA Exchange, Inc. (``Exchange'' or ``EDGA'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Exchange filed the proposal as
a ``non-controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    Cboe EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to adopt Rule 14.13 to permit the trading, pursuant to
unlisted trading privileges, of Tracking Fund Shares. The text of the
proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/edga/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to adopt Rule 14.13 to permit the trading,
pursuant to unlisted trading privileges (``UTP''), of Tracking Fund
Shares,\5\ which substantially conforms to Cboe BZX Exchange, Inc.
(``BZX'') Rule 14.11(m).\6\ Additionally, the Exchange proposes to make
corresponding changes to Rule 14.1(a) to reference Tracking Fund Shares
and proposed Rule 14.13, where applicable. The Exchange also proposes
to correct a typographical error in Exchange Rule 14.1.
---------------------------------------------------------------------------

    \5\ The term ``Tracking Fund Share'' means a security that: (i)
Represents an interest in an investment company registered under the
Investment Company Act of 1940 (``Investment Company'') organized as
an open-end management investment company, that invests in a
portfolio of securities selected by the Investment Company's
investment adviser consistent with the Investment Company's
investment objectives and policies; (ii) is issued in a specified
aggregate minimum number in return for a deposit of a specified
Tracking Basket and/or a cash amount with a value equal to the next
determined net asset value; (iii) when aggregated in the same
specified minimum number, may be redeemed at a holder's request,
which holder will be paid a specified Tracking Basket and/or a cash
amount with a value equal to the next determined net asset value;
and (iv) the portfolio holdings for which are disclosed within at
least 60 days following the end of every fiscal quarter. See
proposed Rule 14.13(c)(1).
    \6\ See Securities and Exchange Act Release No. 88887 (May 15,
2020) 85 FR 30990 (May 21, 2020) (SR-CboeBZX-2019-107) (the ``BZX
Approval Order''). The BZX proposal resulting in the BZX Approval
Order involved several applications for exemptive relief that were
filed with the Commission and for which public notice was issued on
November 14, 2019 and a subsequent order granting certain exemptive
relief to, among others, Fidelity Management & Research Company and
FMR Co., Inc., Fidelity Beach Street Trust, and Fidelity
Distributors Corporation (File No. 812-14364), issued on December
10, 2019 (the ``Application,'' ``Notice,'' and ``Order,''
respectively, and, collectively, the ``Exemptive Order''). See
Investment Company Act Release Nos. 33683 (November 14, 2019), 84 FR
64140 (November 20, 2019) (the Notice) and 33712 (the Order). The
Order specifically notes that ``granting the requested exemptions is
appropriate in and consistent with the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act. It is further
found that the terms of the proposed transactions, including the
consideration to be paid or received, are reasonable and fair and do
not involve overreaching on the part of any person concerned, and
that the proposed transactions are consistent with the policy of
each registered investment company concerned and with the general
purposes of the Act.'' The Exchange notes that it also referred to
the application for exemptive relief orders (collectively, with the
Application, the ``Proxy Applications'') and notices thereof
(collectively, with the Notice, the ``Proxy Notices'') for T. Rowe
Price Associates, Inc. and T. Rowe Price Equity Series, Inc. (File
No. 812-14214 and Investment Company Act Release Nos. 33685 and
33713), Natixis ETF Trust II, et al. (File No. 812-14870 and
Investment Company Act Release Nos. 33684 and 33711), Blue Tractor
ETF Trust and Blue Tractor Group, LLC (File No. 812-14625 and
Investment Company Act Release Nos. 33682 and 33710), and Gabelli
ETFs Trust, et al. (File No. 812-15036 and Investment Company Act
Release Nos. 33681 and 33708). While there are certain differences
between the applications, the Exchange believes that each would
qualify as Tracking Fund Shares under BZX Rule 14.11(m).
---------------------------------------------------------------------------

    The Exchange does not currently list any securities as a primary
listing market.\7\ Consistent with this fact, Exchange Rule 14.1(a)
currently states that all securities traded on the Exchange are traded
pursuant to UTP and that the Exchange will not list any securities
before first filing and obtaining Commission approval of rules that
incorporate qualitative listing criteria and comply with Rules 10A-3
\8\ (``Rule 10A-3'') and 10C-1 \9\ (``Rule 10C-1'') under the Act.
Therefore, the provisions of existing Rules 14.2 through 14.9, 14.11
through 14.12, and proposed Rule 14.13 that permit the listing of
certain Equity Securities \10\ will not be effective until the Exchange
files a proposed rule change under Section 19(b)(2) under the Act to
amend its rules to comply with Rule 10A-3 and 10C-1 under the Exchange
Act and to incorporate qualitative listing criteria, and such proposed
rule change is approved by the Commission.

Considering the foregoing, the Exchange proposes to adopt Rule 14.13 as
set forth below.
---------------------------------------------------------------------------

    \7\ The Exchange notes that it does not currently list any
securities nor does it intend to list any securities in the
foreseeable future and, accordingly, plans to submit in the near
future a proposal to amend its applicable Rules set forth in Chapter
XIV in order to reflect this fact.
    \8\ Rule 10A-3 obligates the Exchange to prohibit the initial or
continued listing of any security of an issuer that is not in
compliance with certain required standards. See 17 CFR 240.10A-3.
    \9\ Rule 10C-1 obligates the Exchange to establish listing
standards that require each member of a listed issuer's compensation
committee to be a member of the issuer's board and to be
independent, as well as establish certain factors that an issuer
must consider when evaluating the independence of a director. See 17
CFR 240.10C-1.
    \10\ As provided in Rule 14.1(a), the term ``Equity Security''
means, but is not limited to, common stock, secondary classes of
common stock, preferred stock and similar issues, shares or
certificates of beneficial interest of trusts, notes, limited
partnership interests, warrants, certificates of deposit for common
stock, convertible debt securities, ADRs, CVRs, Investment Company
Units, Trust Issued Receipts (including those based on Investment
Shares), Commodity-Based Trust Shares, Currency Trust Shares,
Partnership Units, Equity-Linked Securities, Commodity-Linked
Securities, Currency-Linked Securities, Portfolio Depositary
Receipts, Equity-Linked Debt Securities, Managed Portfolio Shares,
and Exchange-Traded Funds. Further, the Exchange now proposes to
include the term ``Tracking Fund Shares'' to the definition of
Equity Security.
---------------------------------------------------------------------------

Proposed Listing Rules
    Proposed Rule 14.13 is substantially similar to BZX Rule 14.11(m)
with the exception that BZX Rules provide for the delisting of
securities,\11\ while the Exchange only trades securities pursuant to
UTP.\12\ Accordingly, the proposed Rule \13\ provides that the Exchange
will consider the termination of UTP for a series of Tracking Fund
Shares under certain circumstances,\14\ while no such provision is
provided in BZX Rule 14.11(m). Nonetheless, the Exchange believes the
proposal will not significantly affect the protection of investors or
the public interest and will not impose any significant burden on
competition as it is substantially similar to Exchange Rules applicable
to other product types which allow for the termination of UTP in those
products.\15\ As such, the Exchange believes the proposal raises no
novel issues.
---------------------------------------------------------------------------

    \11\ See BZX Rule 14.11(m)(4)(B)(iii).
    \12\ See proposed Exchange Rule 14.13(d)(2)(C).
    \13\ See proposed Exchange Rule 14.13(d)(2)(C).
    \14\ See proposed Exchange Rules 14.13(d)(2)(C)(i) through
14.13(d)(2)(C)(vi).
    \15\ See Exchange Rules 14.3(g)(2), 14.11(d)(2)(B), and
14.12(d)(2)(A).
---------------------------------------------------------------------------

Policy Discussion
    The purpose of the structure of Tracking Fund Shares is to provide
investors with the traditional benefits of Exchange-Traded Funds
(``ETFs'') \16\ while protecting funds from the potential for front
running or free riding of portfolio transactions, which could adversely
impact the performance of a fund. While each series of Tracking Fund
Shares will be actively managed and, to that extent, similar to certain
Investment Company Units (as defined in Rule 14.2), Tracking Fund
Shares differ from Investment Company Units in one key way.\17\ A
series of Tracking Fund Shares will disclose the Tracking Basket on a
daily basis which, as described above, is designed to closely track the
performance of the holdings of the Investment Company, instead of the
actual holdings of the Investment Company, as provided by a series of
Investment Company Units.\18\
---------------------------------------------------------------------------

    \16\ For purposes of this filing, the term ETF will include only
Portfolio Depositary Receipts as defined in Rule 14.8, Investment
Company Units as defined in Rule 14.2, and Exchange-Traded Fund
Shares as defined in Rule 14.12, along with the equivalent products
defined in the rules of other national securities exchanges.
    \17\ The Exchange notes that there is one additional substantive
difference between proposed Rule 14.13 and Rule 14.2: Proposed Rule
14.13 would require a rule filing under Section 19(b) prior to
listing any product on the Exchange meaning that no series of
Tracking Fund Shares could be listed on the Exchange pursuant to
Rule 19b-4(e) and there are no proposed rules comparable to the
quantitative portfolio holdings standards from Rule 14.2.
    \18\ Proposed Rule 14.13(d)(2)(C) will, however, require each
series of Tracking Fund Shares to at a minimum disclose the entirety
of its portfolio holdings within at least 60 days following the end
of every fiscal quarter in accordance with normal disclosure
requirements otherwise applicable to open-end investment companies
registered under the Investment Company Act of 1940 (the ``1940
Act'').
    Form N-PORT requires reporting of a fund's complete portfolio
holdings on a position-by-position basis on a quarterly basis within
60 days after fiscal quarter end. Investors can obtain a fund's
Statement of Additional Information, its Shareholder Reports, its
Form N-CSR, filed twice a year, and its Form N-CEN, filed annually.
A fund's SAI and Shareholder Reports are available free upon request
from the Investment Company, and those documents and the Form N-
PORT, Form N-CSR, and Form N-CEN may be viewed on-screen or
downloaded from the Commission's website at www.sec.gov.
---------------------------------------------------------------------------

    For the arbitrage mechanism for any ETF to function effectively,
authorized participants, arbitrageurs, and other market participants
(collectively, ``Market Makers'') need sufficient information to
accurately value shares of a fund to transact in both the primary and
secondary market. The Tracking Basket is designed to closely track the
daily performance of the Fund Portfolio.
    Given the correlation between the Tracking Basket and the Fund
Portfolio,\19\ the Exchange believes that the Tracking Basket would
serve as a pricing signal to identify arbitrage opportunities when its
value and the secondary market price of the shares of a series of
Tracking Fund Shares diverge. If shares began trading at a discount to
the Tracking Basket, an authorized participant could purchase the
shares in secondary market transactions and, after accumulating enough
shares to comprise a creation unit,\20\ redeem them in exchange for a
redemption basket reflecting the NAV per share of the Fund Portfolio.
The purchases of shares would reduce the supply of shares in the
market, and thus tend to drive up the shares' market price closer to
the fund's NAV. Alternatively, if shares are trading at a premium, the
transactions in the arbitrage process are reversed. Market Makers also
can engage in arbitrage without using the creation or redemption
processes. For example, if a fund is trading at a premium to the
Tracking Basket, Market Makers may sell shares short and take a long
position in the Tracking Basket securities, wait for the trading prices
to move toward parity, and then close out the positions in both the
shares and the securities, to realize a profit from the relative
movement of their trading prices. Similarly, a Market Maker could buy
shares and take a short position in the Tracking Basket securities in
an attempt to profit when shares are trading at a discount to the
Tracking Basket.
---------------------------------------------------------------------------

    \19\ As provided in the Proxy Notices, funds and their
respective advisers will take remedial actions as necessary if the
funds do not function as anticipated. For the first three years
after a launch, a fund will establish certain thresholds for its
level of tracking error, premiums/discounts, and spreads, so that,
upon the fund's crossing a threshold, the adviser will promptly call
a meeting of the fund's board of directors and will present the
board or committee with recommendations for appropriate remedial
measures. The board would then consider the continuing viability of
the fund, whether shareholders are being harmed, and what, if any,
action would be appropriate. Specifically, the Proxy Applications
and Proxy Notices provide that such a meeting would occur: (1) If
the tracking error exceeds 1%; or (2) if, for 30 or more days in any
quarter or 15 days in a row (a) the absolute difference between
either the market closing price or bid/ask price, on one hand, and
NAV, on the other, exceeds 2%, or (b) the bid/ask spread exceeds 2%.
    \20\ Tracking Fund Shares will be purchased or redeemed only in
large aggregations, or ``creation units,'' and the Tracking Basket
will constitute the names and quantities of instruments for both
purchases and redemptions of Creation Units.
---------------------------------------------------------------------------

    Overall, the Exchange believes that the arbitrage process would
operate similarly to the arbitrage process in place today for existing
ETFs that use in-kind baskets for creations and redemptions that do not
reflect the ETF's complete holdings but nonetheless produce performance
that is highly correlated to the performance of the ETF's actual
portfolio. The Exchange has observed highly efficient trading of ETFs
that invest in markets where security values are not fully known at the
time of ETF trading, and where a perfect hedge is not possible, such as
international equity and fixed-income ETFs. While the ability to value
and hedge many of these existing ETFs in the market may be limited,
such ETFs have generally maintained an effective arbitrage mechanism
and traded efficiently.
    As provided in the Notice, the Commission believes that an
arbitrage mechanism based largely on the combination of a daily
disclosed Tracking Basket and at a minimum quarterly disclosure of the
Fund Portfolio can work in an efficient manner to maintain a fund's
secondary market prices close to its NAV.\21\ Consistent with the
Commission's view, the Exchange believes that the arbitrage mechanism
for Tracking Fund Shares

will be sufficient to keep secondary market prices in line with NAV.
---------------------------------------------------------------------------

    \21\ See Notice at 64144. The Commission also notes that as long
as arbitrage continues to keep the Fund's secondary market price and
NAV close, and does so efficiently so that spreads remain narrow,
that investors would benefit from the opportunity to invest in
active strategies through a vehicle that offers the traditional
benefits of ETFs. See Id., at 64145.
---------------------------------------------------------------------------

    The Exchange notes that a significant amount of information about
each fund and its Fund Portfolio will be publicly available at all
times. Each series will disclose the Tracking Basket, which is designed
to closely track the daily performance of the Fund Portfolio, on a
daily basis. Each series of Tracking Fund Shares will at a minimum
publicly disclose the entirety of its portfolio holdings, including the
name, identifier, market value and weight of each security and
instrument in the portfolio within at least 60 days following the end
of every fiscal quarter in a manner consistent with normal disclosure
requirements otherwise applicable to open-end investment companies
registered under the 1940 Act. The website will include additional
quantitative information updated on a daily basis, including, on a per
share basis for each fund, the prior business day's NAV and the closing
price or bid/ask price at the time of calculation of such NAV, and a
calculation of the premium or discount of the closing price or bid/ask
price against such NAV. The website will also disclose the percentage
weight overlap between the holdings of the Tracking Basket compared to
the Fund Holdings for the prior business day and any information
regarding the bid/ask spread for each fund as may be required for other
ETFs under Rule 6c-11 under the 1940 Act, as amended. The website and
information will be publicly available at no charge.
    While not providing daily disclosure of the Fund Portfolio could
open the door to potential information leakage and misuse of material
non-public information, the Exchange believes that proposed Rules
14.13(b)(5) and (6) provide sufficient safeguards to prevent such
leakage and misuse of information. The Exchange believes that these
proposed rules are designed to prevent fraudulent and manipulative acts
and practices related to the listing and trading of Tracking Fund
Shares because they provide meaningful requirements about both the data
that will be made publicly available about the Shares as well as the
information that will only be available to certain parties and the
controls on such information. Specifically, the Exchange believes that
the requirements related to information protection enumerated under
proposed Rule 14.13(d)(6) will act as a strong safeguard against any
misuse and improper dissemination of information related to a Fund
Portfolio, the Tracking Basket, or changes thereto. The requirement
that any person or entity, including a custodian, Reporting Authority,
distributor, or administrator, who has access to nonpublic information
regarding the Fund Portfolio or the Tracking Basket or changes thereto,
must be subject to procedures designed to prevent the use and
dissemination of material nonpublic information regarding the
applicable Fund Portfolio or the Tracking Basket or changes thereto
will act to prevent any individual or entity from sharing such
information externally. Additionally, the requirement that any such
person or entity that is registered as a broker-dealer or affiliated
with a broker-dealer will erect and maintain a ``fire wall'' between
the person or entity and the broker-dealer with respect to access to
information concerning the composition and/or changes to such Fund
Portfolio or Tracking Basket will act to make sure that no entity will
be able to misuse the data for their own purposes. As such, the
Exchange believes that this proposal is designed to prevent fraudulent
and manipulative acts and practices.
Surveillance
    The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of Tracking Fund Shares on the Exchange
during all trading sessions and to deter and detect violations of
Exchange rules and the applicable federal securities laws. Trading of
Tracking Fund Shares through the Exchange will be subject to the
Exchange's surveillance procedures for derivative products. The
Exchange will require the issuer of each series of Tracking Fund Shares
traded on the Exchange to represent to the Exchange that it will advise
the Exchange of any failure by a Fund to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Exchange Act, the Exchange will surveil for compliance
with the continued listing requirements. In addition, the Exchange also
has a general policy prohibiting the distribution of material, non-
public information by its employees.
    As noted in proposed Rule 14.13(b)(4), the Investment Company's
investment adviser will upon request make available to the Exchange
and/or FINRA, on behalf of the Exchange, the daily Fund Portfolio of
each series of Tracking Fund Shares. The Exchange believes that this is
appropriate because it will provide the Exchange or FINRA, on behalf of
the Exchange, with access to the daily Fund Portfolio of any series of
Tracking Fund Shares upon request on an as needed basis. The Exchange
believes that the ability to access the information on an as needed
basis will provide it with sufficient information to perform the
necessary regulatory functions associated with trading series of
Tracking Fund Shares on the Exchange, including the ability to monitor
compliance with the initial and continued listing requirements as well
as the ability to surveil for manipulation of the shares.
Trading Halts
    As described above, proposed Rule 14.13(d)(2)(D) provides that (i)
the Exchange may consider all relevant factors in exercising its
discretion to halt trading in a series of Tracking Fund Shares. Trading
may be halted because of market conditions or for reasons that, in the
view of the Exchange, make trading in the series of Tracking Fund
Shares inadvisable. These may include: The extent to which trading is
not occurring in the securities and/or the financial instruments
composing the Tracking Basket or Fund Portfolio; or whether other
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present; and (ii) if the Exchange becomes
aware that one of the following is not being made available to all
market participants at the same time: The net asset value, the Tracking
Basket, or the Fund Portfolio with respect to a series of Tracking Fund
Shares, then the Exchange will halt trading in such series until such
time as the net asset value, the Tracking Basket, or the Fund Portfolio
is available to all market participants, as applicable.
Availability of Information
    As noted above, Form N-PORT requires reporting of a fund's complete
portfolio holdings on a position-by-position basis on a quarterly basis
within 60 days after fiscal quarter end. Investors can obtain a fund's
Statement of Additional Information, its Shareholder Reports, its Form
N-CSR, filed twice a year, and its Form N-CEN, filed annually. A fund's
SAI and Shareholder Reports are available free upon request from the
Investment Company, and those documents and the Form N-PORT, Form N-
CSR, and Form N-CEN may be viewed on-screen or downloaded from the
Commission's website at www.sec.gov. The Exchange also notes that the
Proxy Applications provide that an issuer will comply with Regulation
Fair Disclosure, which prohibits selective disclosure of any material
non-public information, which otherwise do not apply to issuers of
Tracking Fund Shares.
    Information regarding market price and trading volume of the shares
will be

continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the shares will be published daily in the financial
section of newspapers. Quotation and last sale information for the
shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line.
Trading Rules
    The Exchange deems Tracking Fund Shares to be equity securities,
thus rendering trading in the shares subject to the Exchange's existing
rules governing the trading of equity securities.\22\ As provided in
proposed Rule 14.13(b)(3), the minimum price variation for quoting and
entry of orders in securities traded on the Exchange is $0.01. The
Exchange has appropriate rules to facilitate trading in Tracking Fund
Shares during all trading sessions.
---------------------------------------------------------------------------

    \22\ With respect to trading in Tracking Fund Shares, all of the
EDGA Member obligations relating to product description and
prospectus delivery requirements will continue to apply in
accordance with Exchange rules and federal securities laws, and the
Exchange will continue to monitor its Members for compliance with
such requirements.
---------------------------------------------------------------------------

    The Exchange also proposes to correct a typographical error by
removing a duplicate (a) in Exchange Rule 14.1.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section
6(b) of the Act \23\ in general and Section 6(b)(5) of the Act \24\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f.
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 14.13 is designed to
prevent fraudulent and manipulative acts and practices in that the
proposed rules relating to listing and trading of Tracking Fund Shares
provide specific initial and continued listing criteria required to be
met by such securities. Proposed Rule 14.13(d)(1) provides the initial
listing criteria for a series of Tracking Fund Shares, which include
the following: (i) For each series, the Exchange will establish a
minimum number of Tracking Fund Shares required to be outstanding at
the time of commencement of trading on the Exchange; (ii) the Exchange
will obtain a representation from the issuer of each series of Tracking
Fund Shares that the NAV per share for the series will be calculated
daily and that each of the following will be made available to all
market participants at the same time when disclosed: The NAV, the
Tracking Basket, and the Fund Portfolio; and (iii) all Tracking Fund
Shares will have a stated investment objective which shall be adhered
to under Normal Market Conditions.\25\
---------------------------------------------------------------------------

    \25\ See proposed Rule 14.13(c)(4).
---------------------------------------------------------------------------

    Proposed Rule 14.13(d)(2) provides that each series of Tracking
Fund Shares will be listed and traded (including trading pursuant to
UTP) on the Exchange subject to application of the following continued
listing criteria: (i) The Tracking Basket will be disseminated at least
once daily and will be made available to all market participants at the
same time; (ii) the Fund Portfolio will at a minimum be publicly
disclosed within at least 60 days following the end of every fiscal
quarter and will be made available to all market participants at the
same time; (iii) upon termination of an Investment Company, the
Exchange requires that Tracking Fund Shares issued in connection with
such entity be removed from listing on the Exchange; and (iv) voting
rights shall be as set forth in the applicable Investment Company
prospectus or Statement of Additional Information.
    Additionally, proposed Rule 14.13(d)(2)(C) provides that the
Exchange will consider the suspension of trading in or removal from
listing of or termination of UTP for a series of Tracking Fund Shares
under any of the following circumstances: (i) If, following the initial
twelve-month period after commencement of trading on the Exchange of a
series of Tracking Fund Shares, there are fewer than 50 beneficial
holders of the series of Tracking Fund Shares for 30 or more
consecutive trading days; (ii) if either the Tracking Basket or Fund
Portfolio is not made available to all market participants at the same
time; (iii) if the Investment Company issuing the Tracking Fund Shares
has failed to file any filings required by the Commission or if the
Exchange is aware that the Investment Company is not in compliance with
the conditions of any exemptive order or no-action relief granted by
the Commission to the Investment Company with respect to the series of
Tracking Fund Shares; (iv) if any of the requirements set forth in this
rule are not continuously maintained; (v) if any of the applicable
Continued Listing Representations for the issue of Tracking Fund Shares
are not continuously met; or (vi) if such other event shall occur or
condition exists which, in the opinion of the Exchange, makes further
dealings on the Exchange inadvisable.
    Proposed Rule 14.13(d)(2)(D)(i) provides that the Exchange may
consider all relevant factors in exercising its discretion to halt
trading in a series of Tracking Fund Shares. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the series of Tracking Fund Shares
inadvisable. These may include: (i) The extent to which trading is not
occurring in the securities and/or the financial instruments composing
the Tracking Basket or Fund Portfolio; or (ii) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present. Proposed Rule 14.13(d)(2)(D)(ii) if the
Exchange becomes aware that one of the following is not being made
available to all market participants at the same time: The net asset
value, the Tracking Basket, or the Fund Portfolio with respect to a
series of Tracking Fund Shares, then the Exchange will halt trading in
such series until such time as the net asset value, the Tracking
Basket, or the Fund Portfolio is available to all market participants,
as applicable.
    While not providing daily disclosure of the Fund Portfolio could
open the door to potential information leakage and misuse of material
non-public information, the Exchange believes that proposed Rules
14.13(b)(5) and (6) provide sufficient safeguards to prevent such
leakage and misuse of information. The Exchange believes that these
proposed rules are designed to prevent fraudulent and manipulative acts
and practices related to the listing and trading of Tracking Fund
Shares because they provide meaningful requirements about both the data
that will be made publicly available about the Shares as well as the
information that will only be available to certain parties and the
controls on such information. Specifically, the Exchange believes that
the requirements related to information protection enumerated under
proposed Rule 14.13(b)(6) will act as a strong safeguard against any
misuse and improper dissemination of information related to a Fund
Portfolio, the Tracking Basket, or changes thereto. The requirement
that any person or entity, including a custodian, Reporting Authority,
distributor, or administrator, who has access to nonpublic information
regarding the Fund Portfolio or the Tracking Basket or changes thereto,
must be subject to

procedures designed to prevent the use and dissemination of material
nonpublic information regarding the applicable Fund Portfolio or the
Tracking Basket or changes thereto will act to prevent any individual
or entity from sharing such information externally. Additionally, the
requirement that any such person or entity that is registered as a
broker-dealer or affiliated with a broker-dealer will erect and
maintain a ``fire wall'' between the person or entity and the broker-
dealer with respect to access to information concerning the composition
and/or changes to such Fund Portfolio or Tracking Basket will act to
make sure that no entity will be able to misuse the data for their own
purposes. As such, the Exchange believes that this proposal is designed
to prevent fraudulent and manipulative acts and practices.
    The Exchange believes that these proposed rules are designed to
prevent fraudulent and manipulative acts and practices related to the
listing and trading of Tracking Fund Shares because they provide
meaningful requirements about both the data that will be made publicly
available about Tracking Fund Shares (the Tracking Basket) as well as
the information that will only be available to certain parties and the
controls on such information. Specifically, the Exchange believes that
the requirements related to firewalls and information protection will
act as a strong safeguard against any misuse and improper dissemination
of information related to the securities included in or changes made to
the Fund Portfolio and/or the Tracking Basket.
    As noted above, the purpose of the structure of Tracking Fund
Shares is to provide investors with the traditional benefits of ETFs
while protecting funds from the potential for front running or free
riding of portfolio transactions, which could adversely impact the
performance of a fund. While each series of Tracking Fund Shares will
be actively managed and, to that extent, similar to certain Investment
Company Units (as defined in Rule 14.2), Tracking Fund Shares differ
from Investment Company Units in one key way.\26\ A series of Tracking
Fund Shares will disclose the Tracking Basket on a daily basis which,
as described above, is designed to closely track the performance of the
holdings of the Investment Company, instead of the actual holdings of
the Investment Company, as provided by a series of Managed Fund
Shares.\27\
---------------------------------------------------------------------------

    \26\ See supra note 11.
    \27\ See supra note 12.
---------------------------------------------------------------------------

    For the arbitrage mechanism for any ETF to function effectively,
Market Makers need sufficient information to accurately value shares of
a fund to transact in both the primary and secondary market. The
Tracking Basket is designed to closely track the daily performance of
the holdings of a series of Tracking Fund Shares.
    Given the correlation between the Tracking Basket and the Fund
Portfolio,\28\ the Exchange believes that the Tracking Basket would
serve as a pricing signal to identify arbitrage opportunities when its
value and the secondary market price of the shares of a series of
Tracking Fund Shares diverge. If shares began trading at a discount to
the Tracking Basket, an authorized participant could purchase the
shares in secondary market transactions and, after accumulating enough
shares to comprise a creation unit,\29\ redeem them in exchange for a
redemption basket reflecting the NAV per share of the fund's portfolio
holdings. The purchases of shares would reduce the supply of shares in
the market, and thus tend to drive up the shares' market price closer
to the fund's NAV. Alternatively, if shares are trading at a premium,
the transactions in the arbitrage process are reversed. Market Makers
also can engage in arbitrage without using the creation or redemption
processes. For example, if a fund is trading at a premium to the
Tracking Basket, Market Makers may sell shares short and take a long
position in the Tracking Basket securities, wait for the trading prices
to move toward parity, and then close out the positions in both the
shares and the securities, to realize a profit from the relative
movement of their trading prices. Similarly, a Market Maker could buy
shares and take a short position in the Tracking Basket securities in
an attempt to profit when shares are trading at a discount to the
Tracking Basket.
---------------------------------------------------------------------------

    \28\ See supra note 13.
    \29\ See supra note 14.
---------------------------------------------------------------------------

    Overall, the Exchange believes that the arbitrage process would
operate similarly to the arbitrage process in place today for existing
ETFs that use in-kind baskets for creations and redemptions that do not
reflect the ETF's complete holdings but nonetheless produce performance
that is highly correlated to the performance of the ETF's actual
portfolio. The Exchange has observed highly efficient trading of ETFs
that invest in markets where security values are not fully known at the
time of ETF trading, and where a perfect hedge is not possible, such as
international equity and fixed-income ETFs. While the ability to value
and hedge many of these existing ETFs in the market may be limited,
such ETFs have generally maintained an effective arbitrage mechanism
and traded efficiently.
    As provided in the Notice, the Commission believes that an
arbitrage mechanism based largely on the combination of a daily
disclosed Tracking Basket and at a minimum quarterly disclosure of the
Fund Portfolio can work in an efficient manner to maintain a fund's
secondary market prices close to its NAV.\30\ Consistent with the
Commission's view, the Exchange believes that the arbitrage mechanism
for Tracking Fund Shares will be sufficient to keep secondary market
prices in line with NAV.
---------------------------------------------------------------------------

    \30\ See supra note 15.
---------------------------------------------------------------------------

    The Exchange notes that a significant amount of information about
each series of Tracking Fund Shares and its Fund Portfolio will be
required to be made publicly available at all times. Each series of
Tracking Fund Shares will be required to disclose the Tracking Basket,
which is designed to closely track the daily performance of the Fund
Portfolio, on a daily basis. Each series of Tracking Fund Shares will
at a minimum be required to publicly disclose the entirety of its
portfolio holdings, including the name, identifier, market value and
weight of each security and instrument in the portfolio within at least
60 days following the end of every fiscal quarter in a manner
consistent with normal disclosure requirements otherwise applicable to
open-end investment companies registered under the 1940 Act. The
website for each series of Tracking Fund Shares will be required to
include additional quantitative information updated on a daily basis,
including, on a per share basis for each Fund, the prior business day's
NAV and the closing price or bid/ask price at the time of calculation
of such NAV, and a calculation of the premium or discount of the
closing price or bid/ask price against such NAV. The website for each
series of Tracking Fund Shares will also be required disclose the
percentage weight overlap between the holdings of the Tracking Basket
compared to the Fund Holdings for the prior business day and any
information regarding the bid/ask spread for each series of Tracking
Fund Shares as may be required for other ETFs under Rule 6c-11 under
the 1940 Act, as amended.
    The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of Tracking Fund Shares on the Exchange
during all

trading sessions and to deter and detect violations of Exchange rules
and the applicable federal securities laws. Trading of Tracking Fund
Shares through the Exchange will be subject to the Exchange's
surveillance procedures for derivative products. The Exchange will
require the issuer of each series of Tracking Fund Shares traded on the
Exchange to represent to the Exchange that it will advise the Exchange
of any failure by a fund to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. In addition, the Exchange also has a
general policy prohibiting the distribution of material, non-public
information by its employees.
    As noted in proposed Rule 14.13(b)(4), the Investment Company's
investment adviser will upon request make available to the Exchange
and/or FINRA, on behalf of the Exchange, the daily portfolio holdings
of each series of Tracking Fund Shares. The Exchange believes that this
is appropriate because it will provide the Exchange and/or FINRA, on
behalf of the Exchange, with access to the daily Fund Portfolio of any
series of Tracking Fund Shares upon request on an as needed basis. The
Exchange believes that the ability to access the information on an as
needed basis will provide it with sufficient information to perform the
necessary regulatory functions associated with trading series of
Tracking Fund Shares on the Exchange, including the ability to monitor
compliance with the initial and continued listing requirements as well
as the ability to surveil for manipulation of the shares.
    As noted above, Form N-PORT requires reporting of a fund's complete
portfolio holdings on a position-by-position basis on a quarterly basis
within 60 days after fiscal quarter end. Investors can obtain a fund's
Statement of Additional Information, its Shareholder Reports, its Form
N-CSR, filed twice a year, and its Form N-CEN, filed annually. A fund's
SAI and Shareholder Reports are available free upon request from the
Investment Company, and those documents and the Form N-PORT, Form N-
CSR, and Form N-CEN may be viewed on-screen or downloaded from the
Commission's website at www.sec.gov. The Exchange also notes that the
Proxy Applications provide that an issuer will comply with Regulation
Fair Disclosure, which prohibits selective disclosure of any material
non-public information, which otherwise do not apply to issuers of
Tracking Fund Shares.
    Information regarding market price and trading volume of the shares
for each series of Tracking Fund Shares will be required to be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the shares of each series of Tracking Fund Shares will
be required to be published daily in the financial section of
newspapers. Quotation and last sale information for the shares for each
series of Tracking Fund Shares will be required to be available via the
CTA high-speed line. The Exchange deems Tracking Fund Shares to be
equity securities, thus rendering trading in such shares to be subject
to the Exchange's existing rules governing the trading of equity
securities. As provided in proposed Rule 14.13(b)(3), the minimum price
variation for quoting and entry of orders in securities traded on the
Exchange is $0.01.
    For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.

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

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. Rather, the Exchange notes
that the proposed rule change will facilitate the trading pursuant to
UTP of a new type of actively-managed exchange-traded product, thus
enhancing competition among both market participants and listing
venues, to the benefit of investors and the marketplace.

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

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

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

    Because the proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \31\ and Rule 19b-4(f)(6) thereunder.\32\
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(3)(A).
    \32\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \33\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \34\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposal may become operative upon filing. The Exchange states that
a waiver of the operative delay is consistent with the protection of
investors and the public interest because it would allow for the
immediate trading, pursuant to UTP, of Tracking Fund Shares on the
Exchange and therefore would provide investors with an additional
trading venue option. In addition, the proposal would correct a
typographical error in the existing rule text. The Commission believes
that waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest. Therefore, the
Commission hereby waives the operative delay and designates the
proposed rule change operative upon filing.\35\
---------------------------------------------------------------------------

    \33\ 17 CFR 240.19b-4(f)(6).
    \34\ 17 CFR 240.19b-4(f)(6)(iii).
    \35\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-CboeEDGA-2020-016 on the subject line.

Paper comments

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

All submissions should refer to File Number SR-CboeEDGA-2020-016. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeEDGA-2020-016 and should be
submitted on or before July 1, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12524 Filed 6-9-20; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register: May 5, 2008 (Volume 73, Number 87)]
[Notices]
[Page 24618]
[DOCID:fr05my08-514]

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

SECURITIES AND EXCHANGE COMMISSION

Proposed Collection; Comment Request

    Upon Written Request, Copies Available From: Securities and
Exchange Commission, Office of Investor Education and Advocacy,
Washington, DC 20549-0213.

Extension:
    Rule 236; OMB Control No. 3235-0095; SEC File No. 270-118.

    Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange
Commission (``Commission'') is soliciting comments on the collection of
information summarized below. The Commission plans to submit this
existing collection of information to the Office of Management and
Budget for extension and approval.
    Rule 236 (17 CFR 230.236) under the Securities Act of 1933
(``Securities Act'') (15 U.S.C. 77a et seq.) requires issuers choosing
to rely on an exemption from Securities Act registration for the
issuance of fractional shares, scrip certificates or order forms, in
connection with a stock dividend, stock split, reverse stock split,
conversion, merger or similar transaction, to furnish specified
information to the Commission in writing at least 10 days prior to the
offering. The information is needed to provide public notice that an
issuer is relying on the exemption. Public companies are the likely
respondents. Approximately 10 respondents file the information required
by Rule 236 at an estimated 1.5 hours per response for a total of 15
annual burden hours.
    Written comments are invited on: (a) Whether the proposed
collection of information is necessary for the proper performance of
the functions of the agency, including whether the information will
have practical utility; (b) the accuracy of the agency's estimate of
the burden imposed by the collection of information; (c) ways to
enhance the quality, utility, and clarity of the information collected;
and (d) ways to minimize the burden of the collection of information on
respondents, including through the use of automated collection
techniques or other forms of information technology. Consideration will
be given to comments and suggestions submitted in writing within 60
days of this publication.
    Please direct your written comments to R. Corey Booth, Director/
Chief Information Officer, Securities and Exchange Commission, C/O
Shirley Martinson, 6432 General Green Way, Alexandria, Virginia 22312;
or send an e-mail to<EMAIL_ADDRESS>
    Dated: April 28, 2008.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-9825 Filed 5-2-08; 8:45 am]

BILLING CODE 8010-01-P