Notice2021-22275
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To List and Trade Shares of Hartford Large Cap Growth ETF, a Series of Hartford Funds Exchange-Traded Trust, Under Rule 14.11(m), Tracking Fund Shares
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 14, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 196 (Thursday, October 14, 2021)</title>
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[Federal Register Volume 86, Number 196 (Thursday, October 14, 2021)]
[Notices]
[Pages 57237-57242]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-22275]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93273; File No. SR-CboeBZX-2021-063]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To List
and Trade Shares of Hartford Large Cap Growth ETF, a Series of Hartford
Funds Exchange-Traded Trust, Under Rule 14.11(m), Tracking Fund Shares
October 7, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on September 29, 2021, Cboe BZX Exchange, Inc. (``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing
with the Securities and Exchange Commission (``Commission'' or
``SEC'')) a proposed rule change to list and trade shares of Hartford
Large Cap Growth ETF (the ``Fund''), a series of Hartford Funds
Exchange-Traded Trust (the ``Trust''), under Rule 14.11(m), Tracking
Fund Shares. The shares of the Fund are referred to herein as the
``Shares.''
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/">http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), 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
[[Page 57238]]
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 list and trade shares of the Fund pursuant
to Rule 14.11(m), Tracking Fund Shares,\4\ which are securities issued
by an actively managed open-end management investment company.\5\ The
Exchange is submitting this proposal as required by Rule
14.11(m)(2)(A), which provides that the Exchange must file separate
proposals under Section 19(b) of the Act before listing and trading of
a series of Tracking Fund Shares.
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\4\ As defined in Rule 14.11(m)(3)(A), the term ``Tracking Fund
Share'' means a security that: (i) Represents an interest in an
investment company (``Investment Company'') registered under the
Investment Company Act of 1940 (the ``1940 Act'') 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 (``NAV''); (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 NAV; and
(iv) the portfolio holdings for which are disclosed within at least
60 days following the end of every fiscal quarter.
\5\ Rule 14.11(m) was approved along with the listing and
trading of three series of Tracking Fund Shares by the Commission on
May 15, 2020. See Securities Exchange Act Release No. 88887 (May 15,
2020), 85 FR 30990 (May 21, 2020) (the ``Tracking Fund Shares
Approval Order'').
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The Shares will be offered by the Trust, which is organized as a
statutory trust under the laws of Delaware. The Trust is registered
with the Commission as an open-end investment company and has filed a
registration statement on behalf of the Fund on Form N-1A with the
Commission.\6\ Hartford Funds Management Company LLC (the ``Adviser'')
will be the investment adviser to the Fund. Wellington Management
Company LLP is the sub-adviser (``Sub-Adviser'') to the Fund. State
Street Bank and Trust Company is the administrator, custodian, and
transfer agent for the Trust. ALPS Distributors, Inc. serves as the
distributor for the Trust.
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\6\ The Trust is registered under the 1940 Act. On July 16,
2021, the Trust filed a registration statement on Form N-1A relating
to the Fund (File No. 333-215165) (the ``Registration Statement'').
The descriptions of the Fund and the Shares contained herein are
based, in part, on information included in the Registration
Statement. The Fund is an actively-managed exchange-traded fund that
submitted an application for exemptive relief (the ``Application'')
which was granted under an exemptive order (the ``Exemptive Order'',
and the Exemptive Order together with the Application the
``Exemptive Relief'') issued on August 5, 2021 (File No. 812-15232).
The Fund's Application incorporated the conditions and requirements
to an exemptive order from the SEC under the 1940 Act (15 U.S.C.
80a-1) to 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. See Investment
Company Act Release No. 33683 (November 14, 2019), 84 FR 64140
(November 20, 2019) (the Notice) and 33712 (December 10, 2019) (the
Order).
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Rule 14.11(m)(2)(E) provides that, if the investment adviser to the
investment company issuing Tracking Fund Shares is affiliated with a
broker-dealer, such investment adviser shall erect and maintain a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\7\ In addition, Rule
14.11(m)(2)(E) further requires that personnel who make decisions on
the investment company's portfolio composition must be subject to
procedures designed to prevent the use and dissemination of material
nonpublic information regarding the investment company portfolio.
Neither the Adviser nor the Sub-Adviser is registered as a broker-
dealer, but both have their own, independent broker-dealer affiliates.
The Adviser and Sub-Adviser each represent that a fire wall exists and
will be maintained between the respective personnel at each of (i) the
Adviser and Sub-Adviser, and (ii) their respective affiliated broker-
dealers with respect to access to information concerning the
composition and/or changes to the Fund's portfolio and Tracking
Basket.\8\ Specifically, the Adviser and the Sub-Adviser each represent
that the personnel who make decisions on the Fund's portfolio
composition and/or Tracking Basket or who have access to nonpublic
information regarding the Fund Portfolio \9\ and/or the Tracking Basket
or changes thereto are subject to procedures designed to prevent the
use and dissemination of material non-public information regarding such
portfolio and/or Tracking Basket. In the event that (a) the Adviser or
a Sub-Adviser becomes registered as a broker-dealer or newly affiliated
with a broker-dealer; or (b) any new adviser or sub-adviser is a
registered broker-dealer or becomes newly affiliated with a broker-
dealer; it will implement and maintain a fire wall with respect to its
relevant personnel or such broker-dealer affiliate, as applicable,
regarding access to information concerning the composition and/or
changes to the Fund Portfolio and/or Tracking Basket, and will be
subject to procedures designed to prevent the use and dissemination of
material non-public information regarding such portfolio and/or
Tracking Basket. Any person or entity, including any service provider
for the Fund, who has access to nonpublic information regarding the
Fund Portfolio or Tracking Basket or changes thereto for the Fund will
be subject to procedures designed to prevent the use and dissemination
of material nonpublic information regarding the Fund Portfolio or
Tracking Basket or changes thereto. Further, any such person or entity
that is registered as a broker-dealer or affiliated with a broker-
dealer, must have erected and will 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. The Fund intends to qualify each year as
a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended.
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\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser, Sub-Adviser and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
\8\ As defined in Rule 14.11(m)(3)(E), the term ``Tracking
Basket'' means the identities and quantities of the securities and
other assets included in a basket that is designed to closely track
the daily performance of the Fund Portfolio, as provided in the
exemptive relief under the 1940 Act applicable to a series of
Tracking Fund Shares.
\9\ As defined in Rule 14.11(m)(3)(B), the term ``Fund
Portfolio'' means the identities and quantities of the securities
and other assets held by the Investment Company that will form the
basis for the Investment Company's calculation of net asset value at
the end of the business day.
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The Shares will conform to the initial and continued listing
criteria under
[[Page 57239]]
Rule 14.11(m) as well as all terms in the Exemptive Relief. The
Exchange represents that, for initial and continued listing, the Fund
will be in compliance with Rule 10A-3 under the Act.\10\ A minimum of
100,000 Shares of the Fund will be outstanding at the commencement of
trading on the Exchange. The Exchange will obtain a representation from
the issuer of the Shares of the Fund that the NAV per Share of the Fund
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 net asset value, the Tracking Basket, and the Fund Portfolio. The
Fund's investments will be consistent with its investment objective and
will not be used to enhance leverage.
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\10\ See 17 CFR 240.10A-3.
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Hartford Large Cap Growth ETF
The Fund's holdings will conform to the permissible investments as
stated herein and as set forth in the Exemptive Relief and the holdings
will be consistent with all requirements in the Exemptive Relief.\11\
Any foreign common stocks held by the Fund will be traded on an
exchange that is a member of the Intermarket Surveillance Group
(``ISG'') \12\ or with which the Exchange has in place a comprehensive
surveillance sharing agreement.
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\11\ Pursuant to the Exemptive Relief, the Fund's permissible
investments include only the following instruments: ETFs, notes,
common stocks, preferred stocks, American Depositary Receipts
(ADRs), real estate investment trusts, commodity pools, metals
trusts, and currency trusts, in each case that are traded on a U.S.
securities exchange; common stocks listed on a foreign exchange that
trade on such exchange contemporaneously with the Fund's shares;
exchange-traded futures that are traded on a U.S. futures exchange
contemporaneously with the Fund's shares; and cash and cash
equivalents (which are short-term U.S. Treasury securities,
government money market funds, and repurchase agreements). The Fund
will not purchase any securities that are illiquid investments (as
defined in Rule 22e-4(a)(8) of 1940 Act) at the time of purchase. In
addition, pursuant to the Exemptive Relief, the Fund will not:
Borrow for investment purposes; hold short positions; or invest in
``penny stocks'' (as defined in Rule 3a51-1 under the Act).
\12\ For a list of the current members of ISG, see
<a href="http://www.isgportal.com">www.isgportal.com</a>. The Exchange notes that all components, except
the cash and cash equivalent components, of the Fund may trade on
markets that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
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The Fund's investment objective is to seek to provide capital
appreciation. The Fund seeks to achieve its investment objective by
investing in a diversified portfolio of common stocks and other
securities covering a broad range of industries, companies and market
capitalizations that the Sub-Adviser believes exhibit long-term growth
potential. The Sub-Adviser identifies such companies using a
fundamental analysis of a company, which involves the analysis of
factors such as each issuer's financial condition and industry
position, as well as market and economic conditions. Under normal
circumstances, the Fund will invest at least 80% of its assets in
equity securities of large capitalization companies.\13\ The Fund may
invest up to 25% of its net assets in ADRs representing securities of
foreign issuers.
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\13\ The Fund defines large-cap securities as companies with
market caps within the collective range of the Russell 1000 Index
and S&P 500 Index.
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Trading Halts
Rule 14.11(m)(4)(B)(iv) provides that (a) 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 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; and (b) 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.
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.\14\ As provided in
Rule 14.11(m)(2)(C), 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.
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\14\ With respect to trading in Tracking Fund Shares, all of the
BZX 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.
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Tracking Basket for the Proposed Fund
For the Fund, the Tracking Basket will consist of a combination of
Strategy Components,\15\ Representative ETFs,\16\ and cash and cash
equivalents. The Exchange notes that the Tracking Basket methodology
used by the Fund is substantively identical to a proposal previously
approved by the Commission.\17\ Representative ETFs selected for
inclusion in the Tracking Basket will be consistent with the Fund's
objective and selected based on certain criteria, including, but not
limited to, liquidity, assets under management, holding limits and
compliance considerations. Representative ETFs can provide a useful
mechanism to reflect the Fund's holdings' exposures within the Tracking
Basket without revealing the Fund's exact positions.\18\ Intraday
pricing information for all constituents of the Tracking Basket that
are exchange-traded, which includes all eligible instruments except
cash and cash equivalents, will be available on the exchanges on which
they are traded and through subscription services. Intraday pricing
information for cash equivalents will be available through subscription
services and/or pricing services. The Exchange notes that the Fund's
NAV will form the basis for creations and redemptions for the Fund and
creations and redemptions will work in a manner substantively identical
to that of series of Managed Fund Shares. The Adviser expects that the
Shares of the Fund will generally be created and redeemed in-kind, with
limited exceptions. The names and quantities of the instruments that
constitute the basket of securities for creations and redemptions will
be the same as the Fund's Tracking Basket, except to the extent
purchases and redemptions are made entirely or in part on a cash basis.
In the event that the
[[Page 57240]]
value of the Tracking Basket is not the same as the Fund's NAV, the
creation and redemption baskets will consist of the securities included
in the Tracking Basket plus or minus an amount of cash equal to the
difference between the NAV and the value of the Tracking Basket, as
further described below.
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\15\ ``Strategy Components'' refers to recently disclosed
portfolio holdings.
\16\ ``Representative ETFs'' refers to liquid ETFs that convey
information about the types of instruments (that are not otherwise
fully represented by the Strategy Components) in which the Fund
invests.
\17\ See Tracking Fund Shares Approval Order.
\18\ The set of ETFs that are ``representative'' to be used in
the Tracking Basket will depend on certain factors, including the
Fund's investment objective, past holdings, and benchmark, and may
change from time to time. For example, a U.S. diversified fund
benchmarked to a diversified U.S. index would use liquid U.S.
exchange-traded ETFs to capture size (large, mid or small
capitalization), style (growth or value) and/or sector exposures in
the Fund's portfolio. Leveraged and inverse ETFs will not be
included in the Tracking Basket. Representative ETFs may constitute
no more than 50% of the Tracking Basket's assets on each business
day at the time that the Tracking Basket is published.
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The Tracking Basket will be constructed utilizing a proprietary
optimization process to minimize daily deviations in return of the
Tracking Basket relative to the Fund and is used to facilitate the
creation/redemption process and arbitrage. Typically, the Tracking
Basket is expected to be rebalanced on schedule with the public
disclosure of the Fund's holdings; however, a new optimized Tracking
Basket may be generated as frequently as daily, and therefore,
rebalancing may occur more frequently at the Adviser's discretion. In
determining whether to rebalance a new optimized Tracking Basket, the
Adviser will consider various factors, including liquidity of the
securities in the Tracking Basket, tracking error, and the cost to
create and trade the Tracking Basket.\19\ For example, if the Adviser
determines that a new Tracking Basket would reduce the variability of
return differentials between the Tracking Basket and the Fund when
balanced against the cost to trade the new Tracking Basket, rebalancing
may be appropriate. In addition to disclosure of the Tracking Basket,
the Fund publishes the Tracking Basket Weight Overlap on its website on
each business day before the commencement of trading in shares on the
listing exchange.\20\ The Tracking Basket Weight Overlap is the
percentage weight overlap between the holdings of the prior day's
Tracking Basket compared to the holdings of the Fund that formed the
basis for the Fund's calculation of NAV at the end of the prior
business day. It is calculated by taking the lesser weight of each
asset held in common between the Fund's portfolio and the Tracking
Basket, and adding the totals. The Tracking Basket Weight Overlap is
intended to provide investors with an understanding of the degree to
which the Tracking Basket and the Fund's portfolio overlap and help
investors evaluate the risk that the performance of the Tracking Basket
may deviate from the performance of the portfolio holdings of the Fund.
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\19\ The Adviser uses a trading cost model to develop estimates
of costs to trade a new Tracking Basket. There are essentially two
elements to this cost: (1) The cost to purchase securities
constituting the Tracking Basket, i.e., the cost to put on the hedge
for the Authorized Participant, and (2) the cost of any adjustments
that need to be made to the composition of the Tracking Basket,
i.e., the cost to the Authorized Participant to change or maintain
the hedge position. The inclusion of the trading cost model in the
optimization process is intended to result in a Tracking Basket that
is cost effective and liquid without compromising its tracking
ability.
\20\ Investors can access such information at
<a href="http://www.hartfordfunds.com">www.hartfordfunds.com</a>.
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As noted above, the Fund will also disclose the entirety of its
portfolio holdings including the name, identifier, market value and
weight of each security and instrument in the portfolio, at a minimum
within at least 60 days following the end of every fiscal quarter. The
Fund's website, at no charge, will include additional quantitative
information updated on a daily basis, including, on a per Share basis
for the 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 the Fund as may be required for other ETFs under
Rule 6c-11 under the 1940 Act, as amended. Price information for the
exchange-listed instruments held by the Fund, including both U.S. and
non-U.S. listed equity securities and U.S. exchange-listed futures will
be available through major market data vendors or securities exchanges
listing and trading such securities. The Exchange notes that the
concept of the Tracking Basket employed under this structure is
designed to provide investors with the traditional benefits of ETFs
while protecting the Fund from the potential for front running or free
riding of portfolio transactions, which could adversely impact the
performance of the Fund.
The Exchange believes that the particular instruments that may be
included in the Fund's Fund Portfolio and Tracking Basket do not raise
any concerns related to the Tracking Basket being able to closely track
the NAV of the Fund because such instruments include only instruments
that trade on an exchange contemporaneously with the Shares.\21\ In
addition, the Fund's Tracking Basket will be optimized so that it
reliably and consistently correlates to the performance of the Fund.
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\21\ The Exchange notes that to the extent that the Fund
Portfolio or Tracking Basket includes any foreign common stocks,
such securities will be traded on an exchange that is a member of
ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.
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The Adviser anticipates that the returns between the Fund and its
Tracking Basket will have a consistent relationship and that the
deviation in the returns between the Fund and the Tracking Basket will
be sufficiently small such that the Tracking Basket will provide
authorized participants, arbitrageurs, and certain other market
participants (collectively, ``Market Makers'') with a reliable hedging
vehicle that they can use to effectuate low-risk arbitrage trades in
Fund Shares. The Exchange believes that the disclosures provided by the
Fund will allow Market Makers to understand the relationship between
the performance of the Fund and its Tracking Basket. Market Makers will
be able to estimate the value of and hedge positions in the Fund's
Shares, which the Exchange believes will facilitate the arbitrage
process and help ensure that the Fund's Shares normally will trade at
market prices close to their NAV. The Exchange also believes that
competitive market making, where traders are looking to take advantage
of differences in bid-ask spread, will aid in keeping spreads tight.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \22\ in general and Section 6(b)(5) of the Act \23\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
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\22\ 15 U.S.C. 78f.
\23\ 15 U.S.C. 78f(b)(5).
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The Exchange notes that a significant amount of information about
the Fund and its Fund Portfolio will be publicly available at all
times. The Fund will disclose the Tracking Basket, which is designed to
closely track the daily performance of the Fund Portfolio, on a daily
basis. The Fund will also disclose the entirety of its portfolio
holdings including the name, identifier, market value and weight of
each security and instrument in the portfolio, at a minimum 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
[[Page 57241]]
daily basis, including, on a per Share basis for the 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
the Fund as may be required for other ETFs under Rule 6c-11 under the
1940 Act, as amended. Price information for the exchange-listed
instruments held by the Fund, including both U.S. and non-U.S. listed
equity securities and U.S. exchange-listed futures will be available
through major market data vendors or securities exchanges listing and
trading such securities.
The Exchange represents that the Shares of the Fund will comply
with all other requirements applicable to Tracking Fund Shares,
including the dissemination of key information such as the Tracking
Basket, the Fund Portfolio, and NAV, suspension of trading or removal,
trading halts, surveillance, minimum price variation for quoting and
order entry, an information circular informing members of the special
characteristics and risks associated with trading in the Shares, and
firewalls as set forth in the Rules applicable to Tracking Fund Shares
and the Tracking Fund Shares Approval Order. Moreover, U.S.-listed
equity securities held by the Fund will trade on markets that are a
member of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.\24\ All statements and representations
made in this filing regarding the description of the portfolio or
reference assets, limitations on portfolio holdings or reference
assets, dissemination and availability of reference asset (as
applicable), or the applicability of Exchange listing rules specified
in this filing shall constitute continued listing requirements for the
Shares. The issuer has represented to the Exchange that it will advise
the Exchange of any failure by the Fund or Shares to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange will surveil for compliance
with the continued listing requirements. FINRA conducts certain cross-
market surveillances on behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for FINRA's performance
under this regulatory services agreement. If the Fund is not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures with respect to the Fund under Exchange
Rule 14.12.
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\24\ See supra note 9 [sic].
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The Exchange believes that the proposal is designed to prevent
fraudulent and manipulative acts and practices in that the Rules
relating to listing and trading of Tracking Fund Shares provide
specific initial and continued listing criteria required to be met by
such securities.
Rules 14.11(m)(4)(B)(iii) and (iv) provide that the Exchange will
consider the suspension of trading in and will commence delisting
proceedings for the Fund pursuant to Rule 14.12 under any of the
circumstances described above and 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 Shares inadvisable.
Additionally, the Exchange believes that the requirements related
to information protection enumerated under Rule 14.11(m)(2)(F) will act
as a strong safeguard against any misuse and improper dissemination of
information related to the 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 Fund Portfolio or the Tracking Basket or
changes thereto will act to prevent any individual or entity from
sharing such information externally.
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Trading of the Shares
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Tracking Fund Shares. If
the Fund is not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under Exchange Rule
14.12. In addition, the Exchange also has a general policy prohibiting
the distribution of material, non-public information by its employees.
Any foreign common stocks held by the Fund will be traded on an
exchange that is a member of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. All futures
contracts that the Fund may invest in will be traded on a U.S. futures
exchange. The Exchange or FINRA, on behalf of the Exchange, or both,
will communicate as needed regarding trading in the Shares, underlying
U.S. exchange-listed equity securities, and U.S. exchange-listed
futures with other markets and other entities that are members of ISG,
and the Exchange or FINRA, on behalf of the Exchange, or both, may
obtain trading information regarding trading such instruments from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, underlying equity
securities, and U.S. exchange-listed futures from markets and other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
As provided in Rule 14.11(m)(2)(D), the Adviser will upon request
make available to the Exchange and/or FINRA, on behalf of the Exchange,
the daily Fund Portfolio of the Fund. 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 listing and trading the 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.
In addition, 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 the
Fund's Statement of Additional Information, its Shareholder Reports,
its Form N-CSR and its Form N-CEN. The prospectus, Statement of
Additional Information, and Shareholder Reports are available free upon
request, 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 <a href="http://www.sec.gov">www.sec.gov</a>. The Exchange also notes that the Exemptive
Relief provides that the Fund 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.
[[Page 57242]]
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 CTA high-speed line. 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. As provided in Rule
14.11(m)(2)(C), 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 listing of a new
series of Tracking Fund Shares, 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 has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing 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 \25\ and Rule 19b-
4(f)(6) thereunder.\26\
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-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.
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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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#acded9c0c981cfc3c1c1c9c2d8dfecdfc9cf82cbc3da"><span class="__cf_email__" data-cfemail="fe8c8b929bd39d9193939b908a8dbe8d9b9dd0999188">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2021-063 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to: Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number SR-CboeBZX-2021-063. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2021-063 and should be submitted
on or before November 4, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22275 Filed 10-13-21; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on October 14, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.