May 4, 2020
Cboe BZX Exchange, Inc. (Cboe), The Nasdaq Stock Market LLC (NASDAQ) and NYSE Arca, Inc. (NYSE) received approval from the SEC’s Division of Trading and Markets (Division) to adopt rules that establish generic listing standards to permit the listing and trading of ETFs that can rely on Rule 6c-11 under the 1940 Act (Listing Rules).
The Listing Rules permit ETFs that can rely on Rule 6c-11 and meet the other requirements of the applicable Listing Rule to list on Cboe, NASDAQ or NYSE without the SEC issuing an order or notice under Section 19(b) of the 1934 Act to approve the listing. The Listing Rules also permit existing ETFs that are presently listed under current generic listing requirements or pursuant to an order or notice under Section 19(b) of the 1934 Act and rely on Rule 6c-11 to be approved for listing under the applicable Listing Rule, provided they meet the other requirements of the Listing Rule.
The Listing Rules are based on current generic listing rules for index and actively-managed ETFs that rely on ETF exemptive relief under the 1940 Act (Non-6c-11 ETFs), but the Listing Rules have been streamlined to omit the following requirements: (i) “quantitative” standards for ETF portfolio securities (such as minimum market value and monthly trading volume requirements for equity securities); and (ii) the requirement to disseminate an intra-day indicative value for the ETF’s portfolio during the trading day.
The Listing Rules include “firewall” requirements that mirror requirements in current generic listing rules for Non-6c-11 ETFs for ETFs that are self-indexed (a passive ETF with an underlying index maintained by the ETF’s adviser) (Self-Indexed ETFs) and ETFs that are actively-managed where the ETF’s adviser is affiliated with a broker-dealer. For a Self-Indexed ETF, the Listing Rules require the ETF’s adviser to erect and maintain a “firewall” around the personnel who have access to information concerning changes and adjustments to the index, and that the index be calculated by a third party who is not a broker-dealer or the ETF’s adviser. For an actively-managed ETF, the Listing Rules require the adviser to erect and maintain a “firewall” between the adviser and any affiliated broker-dealer with respect to access to information concerning the composition and/or changes to the ETF’s portfolio.
The SEC’s orders approving the Listing Rules for Cboe, NASDAQ and NYSE are available at the links below:
Cboe BZX: https://www.sec.gov/rules/sro/cboebzx/2020/34-88566.pdf
NYSE Arca: https://www.sec.gov/rules/sro/nysearca/2020/34-88625.pdf
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The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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