Notice2025-02753
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend BZX Rule 14.11(l) To Permit the Generic Listing and Trading of Multi-Class ETF 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
February 19, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 32 (Wednesday, February 19, 2025)</title>
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[Federal Register Volume 90, Number 32 (Wednesday, February 19, 2025)]
[Notices]
[Pages 9937-9939]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-02753]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102408; File No. SR-CboeBZX-2024-112]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Amend BZX Rule 14.11(l) To Permit the Generic
Listing and Trading of Multi-Class ETF Shares
February 12, 2025.
I. Introduction
On November 8, 2024, Cboe BZX Exchange, Inc. (``BZX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend BZX Rule 14.11(l) to permit the generic
listing and trading of Multi-Class ETF Shares. The proposed rule change
was published for comment in the Federal Register on November 25,
2024.\3\ The Commission has received no comments on the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 101655 (November 19,
2024), 89 FR 92989 (``Notice'').
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On December 18, 2024, pursuant to Section 19(b)(2) of the Act,\4\
the Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\ The Commission is publishing this order to institute
proceedings pursuant to Section 19(b)(2)(B) of the Act \6\ to determine
whether to disapprove the proposed rule change.
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 101960, 89 FR 105118
(December 26, 2024). The Commission designated February 23, 2025 as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change
BZX Rule 14.11(l) governs the generic listing and trading of
Exchange-Traded Fund Shares (``ETF Shares'') \7\ on the Exchange. BZX
Rule 14.11(l)(4) currently provides that the Exchange may approve a
series of ETF Shares for listing and/or trading (including pursuant to
unlisted trading privileges) pursuant to Rule 19b-4(e) under the
Act,\8\ provided such series of ETF Shares is eligible to operate in
reliance on Rule 6c-11 under the 1940 Act, and must satisfy the
requirements of BZX Rule 14.11(l) on an initial and continued listing
basis.\9\ BZX Rule 14.11(l)(4)(A) also specifically requires that the
requirements of Rule 6c-11 under the 1940 Act must be satisfied by a
series of ETF Shares on an initial and continued listing basis.\10\ In
addition, BZX Rule 14.11(l)(4)(B)(i) provides that, if the Exchange
becomes aware that the issuer of the ETF Shares is no longer eligible
to operate in reliance on Rule 6c-11 under the 1940 Act, the Exchange
will consider suspending trading in, and will commence delisting
proceedings under BZX Rule 14.12 for, the series of ETF Shares.\11\
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\7\ ETF Shares are shares of stock issued by an Exchange-Traded
Fund. See BZX Rule 14.11(l)(3)(A). Exchange-Traded Fund means
``exchange-traded fund'' as defined in Rule 6c-11 under the
Investment Company Act of 1940 (``1940 Act''). See BZX Rule
14.11(l)(3)(B).
\8\ Rule 19b-4(e)(1) under the Act provides that the listing and
trading of a new derivative securities product by a self-regulatory
organization shall not be deemed a proposed rule change, pursuant to
paragraph (c)(1) of Rule 19b-4, if the Commission has approved,
pursuant to section 19(b) of the Act, the self-regulatory
organization's trading rules, procedures and listing standards for
the product class that would include the new derivative securities
product and the self-regulatory organization has a surveillance
program for the product class. See 17 CFR 19b-4(e)(1). Rule 19b-4(e)
defines ``new derivative securities product'' as any type of option,
warrant, hybrid securities product or any other security, other than
a single equity option or a security futures product, whose value is
based, in whole or in part, upon the performance of, or interest in,
an underlying instrument. See 17 CFR 19b-4(e).
\9\ See BZX Rule 14.11(l)(4).
\10\ See BZX Rule 14.11(l)(4)(A).
\11\ See BZX Rule 14.11(l)(4)(B)(i).
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The Exchange proposes to expand BZX Rule 14.11(l) to allow the
Exchange to also approve a series of ETF Shares for listing and/or
trading (including pursuant to unlisted trading privileges) on the
Exchange pursuant to Rule 19b-4(e) under the Act, provided such series
of ETF Shares is eligible to operate in reliance on any exemptive
relief under Rule 6c-11 under the 1940 Act that permits the fund to
offer a class of ETF Shares in addition to classes of shares that are
not exchange-traded (``Multi-class ETF Shares''). Similarly, as
proposed, such series also must satisfy the requirements of BZX Rule
14.11(l) on an initial and continued listing basis. The Exchange also
proposes that the requirements of Rule 6c-11, including the
requirements of any exemptive relief applicable to Multi-class ETF
Shares, must be satisfied by a series of ETF Shares on an initial and
continued listing basis. Lastly, the Exchange proposes to amend BZX
Rule 14.11(l)(4)(B)(i)(a) to provide that, if the Exchange becomes
aware that the issuer of the ETF Shares is no longer eligible to
operate in reliance on Rule 6c-11 under the 1940 Act or any exemptive
relief applicable to Multi-class ETF Shares, the Exchange will consider
suspending trading in the series and will commence delisting
proceedings under BZX Rule 14.12.
The Exchange states that there are numerous applications for
exemptive relief for Multi-class ETF Shares currently before the
Commission that request exemptive relief similar to that previously
granted to other funds that are not listed on the Exchange.\12\ As a
result, the Exchange states that the proposed amendment would provide
for the generic listing and/or trading of Multi-class ETF Shares under
BZX Rule 14.11(l) on the Exchange immediately upon the Commission's
applicable order granting exemptive relief.\13\ The Exchange further
states that it submits the proposal only to prevent any unnecessary
delay in listing Multi-class ETF Shares when and if such requests for
exemptive relief are granted by the Commission.\14\
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\12\ See Notice, supra note 3, 89 FR at 92990.
\13\ See id.
\14\ See id. The Exchange also restates that it ``is only
proposing to amend its rules to allow such a series of Multi-class
ETF Shares to list on the Exchange pursuant to Rule 14.11(l), a
change to its rules that will only be meaningful if and when the
Commission grants such relief to an [a]pplicant.'' Id., 89 FR at
92991.
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The Exchange states that ``permitting Multi-class ETF Shares to
list on the Exchange is consistent with the applicable exemptive relief
and will help perfect the mechanism of a free and open market and, in
general, will protect investors and the public interest in that it will
permit the listing and trading of Multi-class ETF Shares, consistent
with the applicable exemptive relief, and in a manner that will benefit
investors.'' \15\ Specifically, the Exchange believes that the
exemptive relief proposed in the applications and the expected benefits
of the Multi-class ETF Shares would be to the benefit of investors, and
that eliminating any unnecessary delay for additional Multi-class ETF
Shares listing on the Exchange under BZX Rule 14.11(l), as proposed to
be amended, will simply help accrue those benefits to investors more
expeditiously.\16\ The Exchange states that, to the extent that the
Commission does not grant Multi-class ETF Shares relief, the proposed
change to BZX Rule 14.11(l) will have no impact on series of ETF Shares
listed on the Exchange.\17\ The Exchange further states that amending
BZX Rule
[[Page 9938]]
14.11(l) to explicitly provide that the initial and continued listing
standards applicable to ETF Shares, including the suspension of trading
or removal standards, which would be applicable to Multi-class ETF
Shares operating under any applicable exemptive relief, is designed to
promote transparency and clarity in the Exchange's rules.\18\ The
Exchange believes that these amendments would clearly allow Multi-class
ETF Shares to list and trade upon the Commission's order of exemptive
relief.\19\
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\15\ Notice, supra note 3, 89 FR at 92991.
\16\ See id.
\17\ See id.
\18\ See id.
\19\ See id. See also supra note 14 and accompanying text.
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The Exchange further states that, while Multi-class ETF Shares
could potentially be listed under existing BZX Rules 14.11(c) or
14.11(i), it would require quantitative portfolio requirements and
ongoing compliance obligations that the Exchange believes are
unnecessary and burdensome.\20\ The Exchange also states that it ``is
not aware of any clear policy rationale as to why those quantitative
requirements should apply to Multi-class ETF Shares other than the
rules are already in place.'' \21\ In addition, the Exchange states
that, while the applicants generally seek the same exemptive relief as
granted under the previous orders, several applicants have proposed
different conditions to the relief that reflect the adoption of Rule
6c-11, and, as a result, the Exchange believes there is a reasonable
relationship between the proposed rule change and the applications for
exemptive relief to allow the Commission to evaluate whether the
proposed rule change is consistent with the Act.\22\ The Exchange also
acknowledges that approval of this proposed rule change would not
necessarily result in the listing and trading of additional Multi-class
ETF Shares under proposed BZX Rule 14.11(l) until and unless the
necessary exemptive relief was granted, but that approving this
proposal would address any potential concerns the Commission might have
as it specifically relates to the listing and trading of Multi-class
ETF Shares under proposed BZX Rule 14.11(l) and ``would allow for a
smooth launch process if and when such relief is granted.'' \23\
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\20\ See Notice, supra note 3, 89 FR at 92990.
\21\ Id., 89 FR at 92990-91.
\22\ See id.
\23\ Id.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2024-112 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \24\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposal. Institution of proceedings does not
indicate that the Commission has reached any conclusions with respect
to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
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\24\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\25\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposal's consistency with Section 6(b)(5) of the Act,
which requires, among other things, that the rules of a national
securities exchange be ``designed to prevent fraudulent and
manipulative acts and practices'' and ``to protect investors and the
public interest.'' \26\
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\25\ Id.
\26\ 15 U.S.C. 78f(b)(5).
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The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in the Notice, in addition to any other comments they may wish to
submit about the proposed rule change. In particular, the Commission
seeks comment on whether the proposal is consistent with Section
6(b)(5) of the Act,\27\ and specifically, whether the proposed rule
change is designed to prevent fraudulent and manipulative acts and
practices.
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\27\ Id.
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According to the Exchange, a number of applications for exemptive
relief to permit the applicable fund to offer Multi-class ETF Shares
have been submitted to the Commission, and that such applications for
exemptive relief are similar to those previously granted to other funds
that are not listed on the Exchange.\28\ However, the Exchange provides
no indication that any exemptive relief to such applicants has yet been
granted or from what elements of either Rule 6c-11 or sections of, or
particular rules under, the 1940 Act issuers would be exempt.
Correspondingly, it is unclear whether the proposed rule change
actually would allow for the generic listing of shares of any funds
authorized to offer a class of ETF Shares in addition to classes of
shares that are not exchange-traded.
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\28\ See Notice, supra note 3, 89 FR at 92990.
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In addition, although the Exchange states that its proposed rule
change is to prevent any unnecessary delay in listing Multi-class ETF
Shares when and if the requested prospective exemptive relief is
granted by the Commission, BZX Rule 14.11(l), as proposed to be
amended, would allow the Exchange to generically list and trade ETF
Shares issued by a fund that has received any exemptive relief under
Rule 6c-11 under the 1940 Act to offer Multi-class ETF Shares, not only
the requested prospective exemptive relief referenced in the proposed
rule change. The Exchange further states that, while the applicants
generally seek the same exemptive relief as granted under the previous
orders, several applicants have proposed different conditions to the
relief that reflect the adoption of Rule 6c-11 and that this
establishes a reasonable relationship between the proposed rule change
and the applications for exemptive relief to allow the Commission to
evaluate whether the proposed rule change is consistent with the
Act.\29\ The Commission seeks comment on whether the Exchange has
provided sufficient information and explanation regarding either the
requested proposed exemptive relief referenced in the proposed rule
change or other future exemptive relief that has not yet been
requested, and the relationship between any such exemptive relief and
its proposed rule change, as well as the factors the Commission
considered in approving BZX Rule 14.11(l),\30\ to allow an evaluation
of whether the proposed rule change is consistent with Section 6 of the
Act. In particular, the Commission requests comment on whether the
Exchange has provided sufficient explanation of how its proposed rule
change is designed to prevent fraudulent and manipulative practices in
light of the scope of the exemptive relief under Rule 6c-11 potentially
available to the Multi-class ETF Shares that may be generically listed
under the proposed rule change.
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\29\ See id., 89 FR at 92990-91. See also supra note 22 and
accompanying text.
\30\ See Securities Exchange Act Release No. 88566 (April 6,
2020), 85 FR 20312 (April 10, 2020) (SR-CboeBZX-2019-097).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
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submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change
is consistent with Section 6(b)(5) or any other provision of the Act,
and the rules and regulations thereunder. Although there do not appear
to be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\31\
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\31\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by March 12, 2025. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
March 26, 2025.
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#84f6f1e8e1a9e7ebe9e9e1eaf0f7c4f7e1e7aae3ebf2"><span class="__cf_email__" data-cfemail="e193948d84cc828e8c8c848f9592a1928482cf868e97">[email protected]</span></a>. Please include
file number SR-CboeBZX-2024-112 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-2024-112. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2024-112 and should
be submitted on or before March 12, 2025. Rebuttal comments should be
submitted by March 26, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02753 Filed 2-18-25; 8:45 am]
BILLING CODE 8011-01-P
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