81_FR_20082 81 FR 20016 - Self-Regulatory Organizations; BATS Exchange, Inc.; Order Granting Approval of Proposed Rule Change, as Modified by Amendment Nos. 1, 2, and 3 Thereto, To List and Trade Shares of the Elkhorn S&P GSCI Dynamic Roll Commodity ETF of Elkhorn ETF Trust

81 FR 20016 - Self-Regulatory Organizations; BATS Exchange, Inc.; Order Granting Approval of Proposed Rule Change, as Modified by Amendment Nos. 1, 2, and 3 Thereto, To List and Trade Shares of the Elkhorn S&P GSCI Dynamic Roll Commodity ETF of Elkhorn ETF Trust

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 66 (April 6, 2016)

Page Range20016-20021
FR Document2016-07832

Federal Register, Volume 81 Issue 66 (Wednesday, April 6, 2016)
[Federal Register Volume 81, Number 66 (Wednesday, April 6, 2016)]
[Notices]
[Pages 20016-20021]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-07832]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77487; File No. SR-BATS-2015-105]


Self-Regulatory Organizations; BATS Exchange, Inc.; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment 
Nos. 1, 2, and 3 Thereto, To List and Trade Shares of the Elkhorn S&P 
GSCI Dynamic Roll Commodity ETF of Elkhorn ETF Trust

March 31, 2016.

I. Introduction

    On December 18, 2015, BATS Exchange, Inc. (``Exchange'' or 
``BATS'') 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 list and trade shares (``Shares'') of the 
Elkhorn S&P GSCI Dynamic Roll Commodity ETF (``Fund'') of Elkhorn ETF 
Trust (``Trust'') under BATS Rule 14.11(i). The proposed rule change 
was published for comment in the Federal Register on January 4, 
2016.\3\ On February 17, 2016, 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\ On February 18, 2016, the Exchange filed 
Amendment No. 1 to the proposed rule change.\6\ On February 24, 2016, 
the Exchange filed Amendment No. 2 to the proposed rule change.\7\ On 
March 22, 2016, the Exchange filed Amendment No. 3 to the proposed rule 
change.\8\ The Commission received no comments on the proposal. This 
order grants approval of the proposed rule change, as modified by 
Amendment Nos. 1, 2, and 3 thereto.
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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. 76776 (Dec. 28, 
2015), 81 FR 120 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 77159, 81 FR 9041 
(Feb. 23, 2016). The Commission designated April 1, 2016 as the date 
by which the Commission shall either approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change. See id.
    \6\ In Amendment No. 1, which amended and replaced the proposed 
rule change in its entirety, the Exchange clarified the scope of the 
non-exchange-traded investment companies, futures, and exchange-
traded options on futures to be held by the Fund and the Subsidiary. 
Because Amendment No. 1 to the proposed rule change does not 
materially alter the substance of the proposed rule change or raise 
unique or novel regulatory issues, Amendment No. 1 is not subject to 
notice and comment (Amendment No. 1 to the proposed rule change is 
available at: https://www.sec.gov/comments/sr-bats-2015-105/bats2015105-2.pdf).
    \7\ In Amendment No. 2, which amended and replaced the proposed 
rule change, as modified by Amendment No. 1 thereto, in its 
entirety, the Exchange clarified: (a) That the Fund and the 
Subsidiary would not invest in leveraged or inverse leveraged 
securities of investment companies; (b) that the commodity-linked 
instruments in which the Fund invests will be listed and traded in 
the U.S. on registered exchanges; (c) that, for surveillance, the 
Exchange would be able to obtain information regarding trading in 
the underlying commodity-linked instruments; and (d) the scope of 
exchange-traded options on futures contracts to be held by the Fund 
and Subsidiary. Because Amendment No. 2 to the proposed rule change 
does not materially alter the substance of the proposed rule change 
or raise unique or novel regulatory issues, Amendment No. 2 is not 
subject to notice and comment (Amendment No. 2 to the proposed rule 
change is available at: https://www.sec.gov/comments/sr-bats-2015-105/bats2015105-1.pdf).
    \8\ In Amendment No. 3 to the proposed rule change, the Exchange 
clarified that: (a) All statements and representations made in the 
proposal shall constitute continued listing requirements for listing 
the Shares on the Exchange; (b) the issuer will advise the Exchange 
of any failure by the Fund to comply with the continued listing 
requirements; (c) pursuant to its obligations under Section 19(g)(1) 
of the Act, the Exchange will surveil for compliance with the 
continued listing requirements; and (d) if the Fund is not in 
compliance with the applicable listing requirements, the Exchange 
will commence delisting procedures under Exchange Rule 14.12. 
Because Amendment No. 3 does not materially alter the substance of 
the proposed rule change or raise unique or novel regulatory issues, 
Amendment No. 3 is not subject to notice and comment (Amendment No. 
3 to the proposed rule change is available at: https://www.sec.gov/comments/sr-bats-2015-105/bats2015105-3.pdf).

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[[Page 20017]]

II. Exchange's Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares of the Fund 
pursuant to BATS Rule 14.11(i), which governs the listing and trading 
of Managed Fund Shares on the Exchange. The Shares will be offered by 
the Trust, which was established as a Massachusetts business trust on 
December 12, 2013.\9\ Elkhorn Investments, LLC will be the investment 
adviser (``Adviser'') to the Fund. It is currently anticipated that 
day-to-day portfolio management for the Fund will be provided by the 
Adviser. However, the Fund and the Adviser may contract with an 
investment sub-adviser (``Sub-Adviser'') to provide day-to-day 
portfolio management for the Fund. ALPS Distributors, Inc. will be the 
principal underwriter and distributor of the Fund's Shares. The Fund 
will contract with unaffiliated third parties to provide 
administrative, custodial and transfer agency services to the Fund. The 
Exchange represents the Adviser is not a broker-dealer, but is 
affiliated with a broker-dealer, and it has implemented a fire wall 
with respect to its broker-dealer affiliate regarding access to 
information concerning the composition of, or changes to, the Fund's 
portfolio.\10\
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    \9\ The Exchange represents that the Trust is registered under 
the Investment Company Act of 1940 (``1940 Act''). See Registration 
Statement on Form N-1A for the Trust, dated November 10, 2015 (File 
Nos. 333-201473 and 811-22926) (``Registration Statement''). The 
Exchange further states that the Trust has obtained certain 
exemptive relief under the 1940 Act.
    \10\ See BATS Rule 14.11(i)(7). The Exchange further represents 
that, in the event that (a) the Adviser or a Sub-Adviser becomes, or 
becomes newly affiliated with, a broker-dealer or registers as a 
broker-dealer, or (b) any new adviser or sub-adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, it will 
implement a fire wall with respect to its relevant personnel or such 
broker-dealer affiliate, as applicable, regarding access to 
information concerning the composition of, or changes to, the 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material, non-public information regarding 
such portfolio.
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A. Exchange's Description of the Fund's Investments \11\
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    \11\ The Commission notes that additional information regarding 
the Fund, the Trust, the Subsidiary (as defined herein), and the 
Shares, including investment strategies, risks, creation and 
redemption procedures, fees, portfolio holdings disclosure policies, 
calculation of net asset value (``NAV''), distributions, and taxes, 
among other things, can be found in the Notice and the Registration 
Statement, as applicable. See Notice and Registration Statement, 
supra notes 3 and 9, respectively.
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    According to the Exchange, the Fund's investment objective will be 
to provide total return which exceeds that of the S&P GSCI Dynamic Roll 
Index (``Benchmark'') \12\ consistent with prudent investment 
management.\13\ The Fund will seek excess return above the Benchmark 
through the active management of a short duration portfolio of highly 
liquid, high quality bonds.
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    \12\ The Benchmark is developed, maintained, and sponsored by 
S&P Dow Jones Indices LLC (``S&P Indices'').
    \13\ According to the Exchange, the Benchmark currently contains 
24 commodity futures on physical commodities across five sectors: 
energy, agriculture; livestock; industrial metals; and precious 
metals. See Notice, supra note 3 (providing additional information 
regarding the Benchmark and its components, including a table 
describing each of the commodities underlying the futures contracts 
included in the Benchmark as of October 31, 2015, and each 
instrument's trading hours, exchange, and ticker symbol).
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    The Fund will be an actively managed fund that seeks to achieve its 
investment objective by investing, under normal market conditions,\14\ 
in exchange-traded commodity futures contracts, centrally cleared and 
non-centrally cleared swaps,\15\ exchange-traded options on futures 
contracts, and exchange-traded commodity-linked instruments \16\ 
(collectively, ``Commodities'') through a wholly-owned subsidiary 
controlled by the Fund and organized under the laws of the Cayman 
Islands (``Subsidiary''), thereby obtaining exposure to the commodities 
markets.
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    \14\ The term ``under normal market conditions'' includes, but 
is not limited to, the absence of extreme volatility or trading 
halts in the fixed income markets, futures markets or the financial 
markets generally; operational issues causing dissemination of 
inaccurate market information; or force majeure type events such as 
systems failure, natural or man-made disaster, act of God, armed 
conflict, act of terrorism, riot or labor disruption, or any similar 
intervening circumstance.
    \15\ Investments in non-centrally cleared swaps (through the 
Subsidiary) will not represent more than 20% of the Fund's net 
assets. When investing in non-centrally cleared swaps, the 
Subsidiary will seek, where possible, to use counterparties, as 
applicable, whose financial status is such that the risk of default 
is reduced; however, the risk of losses resulting from default is 
still possible. The Adviser and/or a Sub-Adviser will evaluate the 
creditworthiness of counterparties on an ongoing basis. In addition 
to information provided by credit agencies, the Adviser's and/or a 
Sub-Adviser's analysis will evaluate each approved counterparty 
using various methods of analysis and may consider such factors as 
the counterparty's liquidity, its reputation, the Adviser's and/or a 
Sub-Adviser's past experience with the counterparty, its known 
disciplinary history and its share of market participation.
    \16\ Exchange-traded commodity-linked instruments include only 
the following: (1) Funds that provide exposure to commodities as 
would be listed under Exchange Rules 14.11(b), (c), and (i); and (2) 
pooled investment vehicles that invest primarily in commodities and 
commodity-linked instruments as would be listed under Exchange Rules 
14.11(d) and 14.11(e)(2), (4), (6), (7), (8), (9), and (10).
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    The Fund's Commodities investments, in part, will be comprised of 
exchange-traded futures contracts on commodities that comprise the 
Benchmark. Although the Fund, through the Subsidiary, will generally 
hold many of the futures contracts included in the Benchmark, the Fund 
and the Subsidiary will be actively managed and will not be obligated 
to invest in all of (or to limit investments solely to) such futures 
contracts. In addition, with respect to investments in exchange-traded 
futures contracts, the Fund and the Subsidiary will not be obligated to 
invest in the same amount or proportion as the Benchmark, or be 
obligated to track the performance of the Benchmark. In addition to 
exchange-traded futures contracts, the Fund's Commodities investments 
will also be comprised of the following: centrally cleared and non-
centrally cleared swaps on commodities; exchange-traded options on 
futures contracts that provide exposure to the investment returns of 
the commodities markets; and exchange-traded commodity-linked 
instruments, without investing directly in physical commodities.
    The Fund will invest in Commodities through investments in the 
Subsidiary and will not invest directly in physical commodities. The 
Fund's investment in the Subsidiary may not exceed 25% of the Fund's 
total assets. In addition to Commodities, the Fund's assets will be 
invested in: (1) short-term, investment grade fixed income securities, 
including only the following instruments: U.S. government and agency 
securities,\17\ corporate debt obligations,\18\ and repurchase 
agreements;\19\ (2) money market instruments; \20\ (3) investment

[[Page 20018]]

companies (other than those that are commodity-linked instruments),\21\ 
including both exchange traded and non-exchange-traded investment 
companies, that provide exposure to commodities, equity securities, and 
fixed income securities to the extent permitted under the 1940 Act and 
any applicable exemptive relief; \22\ (4) certain bank instruments; 
\23\ and (5) cash and other cash equivalents (collectively, ``Other 
Investments''). The Fund will use the Other Investments as investments, 
to provide liquidity, and to collateralize the Subsidiary's commodity 
exposure on a day-to-day basis.
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    \17\ Such securities are securities that are issued or 
guaranteed by the U.S. Treasury, by various agencies of the U.S. 
government, or by various instrumentalities, which have been 
established or sponsored by the U.S. government. U.S. Treasury 
obligations are backed by the ``full faith and credit'' of the U.S. 
government. Securities issued or guaranteed by federal agencies and 
U.S. government-sponsored instrumentalities may or may not be backed 
by the full faith and credit of the U.S. government.
    \18\ At least 75% of corporate debt obligations will have a 
minimum principal amount outstanding of $100 million or more.
    \19\ The Fund intends to enter into repurchase agreements only 
with financial institutions and dealers believed by the Adviser and/
or a Sub-Adviser to present minimal credit risks in accordance with 
criteria approved by the Trust's Board of Trustees (``Board''). The 
Adviser and/or a Sub-Adviser will review and monitor the 
creditworthiness of such institutions. The Adviser and/or a Sub-
Adviser will monitor the value of the collateral at the time the 
transaction is entered into and at all times during the term of the 
repurchase agreement.
    \20\ For the Fund's purposes, money market instruments will 
include only the following instruments: short-term, high-quality 
securities issued or guaranteed by non-U.S. governments, agencies 
and instrumentalities; non-convertible corporate debt securities 
with remaining maturities of not more than 397 days that satisfy 
ratings requirements under Rule 2a-7 under the 1940 Act; money 
market mutual funds; and deposits and other obligations of U.S. and 
non-U.S. banks and financial institutions. In addition, the Fund may 
invest in commercial paper (short-term unsecured promissory notes), 
but only if the commercial paper has received the highest rating 
from at least one nationally recognized statistical rating 
organization or, if unrated, has been judged by the Adviser and/or a 
Sub-Adviser to be of comparable quality.
    \21\ According to the Exchange, the Fund may invest in the 
securities of certain other investment companies in excess of the 
limits imposed under the 1940 Act pursuant to an exemptive order 
obtained by the Trust and the Adviser from the Commission. The 
exchange-traded investment companies in which the Fund may invest 
include Index Fund Shares (as described in Rule 14.11(c)), Portfolio 
Depository Receipts (as described in Rule 14.11(b)), and Managed 
Fund Shares (as described in Rule 14.11(i)). The non-exchange-traded 
investment companies in which the Fund may invest include all non-
exchange-traded investment companies that are not money market 
mutual funds, as described above. While the Fund and the Subsidiary 
may invest in inverse commodity-linked instruments and securities of 
investment companies, the Fund and the Subsidiary will not invest in 
leveraged or inverse leveraged (e.g., 2X or -3X) commodity-linked 
instruments or securities of investment companies.
    \22\ The exchange-traded investment companies and commodity-
linked instruments in which the Fund invests will be listed and 
traded in the U.S. on registered exchanges.
    \23\ The term ``certain bank instruments'' includes only the 
following instruments: certificates of deposit issued against funds 
deposited in a bank or savings and loan association; bankers' 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; and bank time deposits, which are monies 
kept on deposit with banks or savings and loan associations for a 
stated period of time at a fixed rate of interest.
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    The Fund's investment in the Subsidiary will be designed to help 
the Fund achieve exposure to commodity returns in a manner consistent 
with the federal tax requirements applicable to the Fund and other 
regulated investment companies. The Fund intends to qualify for, and to 
elect to be treated as, a separate regulated investment company under 
Subchapter M of the Internal Revenue Code.

B. Exchange's Description of the Subsidiary's Investments

    The Subsidiary will generally seek to make investments in 
Commodities, and its portfolio will be managed by the Adviser or a Sub-
Adviser.\24\ The Adviser or a Sub-Adviser will use its discretion to 
determine the percentage of the Fund's assets allocated to the 
Commodities held by the Subsidiary that will be invested in exchange-
traded commodity futures contracts, centrally cleared and non-centrally 
cleared swaps, exchange-traded options on futures contracts, and 
exchange-traded commodity-linked instruments. In this regard, under 
normal market conditions, the Subsidiary is expected, as a general 
matter, to invest in futures contracts in proportional weights and 
allocations that are similar to the Benchmark, as well as in the other 
Commodities. Additionally, the Subsidiary, like the Fund, may invest in 
Other Investments (e.g., as investments, to serve as margin or 
collateral, or to otherwise support the Subsidiary's positions in 
Commodities).
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    \24\ The Exchange states that the Subsidiary will not be 
registered under the 1940 Act and will not be directly subject to 
its investor protections, except as noted in the Registration 
Statement. However, the Subsidiary will be wholly-owned and 
controlled by the Fund. Therefore, the Fund's ownership and control 
of the Subsidiary will prevent the Subsidiary from taking action 
contrary to the interests of the Fund or its shareholders. The Board 
will have oversight responsibility for the investment activities of 
the Fund, including its expected investment in the Subsidiary, and 
the Fund's role as the sole shareholder of the Subsidiary. The 
Subsidiary will also enter into separate contracts for the provision 
of custody, transfer agency, and accounting agent services with the 
same or with affiliates of the same service providers that provide 
those services to the Fund.
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    The Fund's investment in the Subsidiary is intended to provide the 
Fund with exposure to commodity markets within the limits of current 
federal income tax laws applicable to investment companies such as the 
Fund, which limit the ability of investment companies to invest 
directly in the derivative instruments. The Subsidiary will have the 
same investment objective as the Fund, but unlike the Fund, it may 
invest without limitation in Commodities. The Subsidiary's investments 
will provide the Fund with exposure to domestic and international 
markets.

C. Exchange's Description of Commodities Regulation

    The Commodity Futures Trading Commission (``CFTC'') has adopted 
substantial amendments to CFTC Rule 4.5 relating to the permissible 
exemptions and conditions for reliance on exemptions from registration 
as a commodity pool operator. As a result of the instruments that will 
be indirectly held by the Fund, the Adviser will register as a 
commodity pool operator and will also become a member of the National 
Futures Association (``NFA''). Any Sub-Adviser will register as a 
commodity pool operator or commodity trading adviser, as required by 
CFTC regulations. The Fund and the Subsidiary will be subject to 
regulation by the CFTC and NFA and additional disclosure, reporting, 
and recordkeeping rules imposed upon commodity pools.

D. Exchange's Description of the Fund's Investment Restrictions

    While the Fund will be permitted to borrow as permitted under the 
1940 Act, the Fund's investments will not be used to seek performance 
that is the multiple or inverse multiple (i.e., 2X and -3X) of the 
Benchmark. In addition, the Fund may not invest more than 25% of the 
value of its total assets in securities of issuers in any one industry 
or group of industries. This restriction will not apply to obligations 
issued or guaranteed by the U.S. government, its agencies or 
instrumentalities, or securities of other investment companies.
    The Subsidiary's shares will be offered only to the Fund, and the 
Fund will not sell shares of the Subsidiary to other investors. The 
Fund and the Subsidiary will not invest in any non-U.S. equity 
securities (other than shares of the Subsidiary). The Fund will not 
purchase securities of open-end or closed-end investment companies, 
except in compliance with the 1940 Act or any applicable exemptive 
relief. In addition, the Exchange represents that, with respect to the 
futures contracts and exchange-traded options on futures contracts in 
which the Subsidiary invests, not more than 10% of the weight (to be 
calculated as the value of the contract divided by the total absolute 
notional value of the Subsidiary's futures and options contracts) of 
the futures and options contracts held by the Subsidiary, in the 
aggregate, shall consist of instruments whose principal trading market 
is a market from which the Exchange may not obtain information 
regarding trading in the futures contracts and exchange-traded options 
on futures contracts by virtue of: (a) Its membership in the 
Intermarket Surveillance Group (``ISG''); or (b) a comprehensive 
surveillance sharing agreement.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including securities deemed illiquid by the Adviser.\25\ The

[[Page 20019]]

Fund will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets, as determined in 
accordance with Commission staff guidance.
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    \25\ In reaching liquidity decisions, the Adviser may consider 
the following factors: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer).
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III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \26\ and the rules and regulations thereunder applicable to a 
national securities exchange.\27\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\28\ 
which requires, among other things, that the Exchange's rules be 
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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    \26\ 15 U.S.C. 78f.
    \27\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \28\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Act,\29\ which sets forth the finding 
of Congress that it is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly markets 
to assure the availability to brokers, dealers, and investors of 
information with respect to quotations for, and transactions in, 
securities. Quotation and last-sale information for the Shares will be 
available on the facilities of the Consolidated Tape Association 
(``CTA''). An estimated value, defined in BATS Rule 14.11(i)(3)(C) as 
the Intraday Indicative Value (``IIV''), that reflects an estimated 
intraday value of the Fund's portfolio (including the Subsidiary's 
portfolio), will be disseminated. The IIV will be based upon the 
current value for the components of the Disclosed Portfolio (as defined 
below) and will be updated and widely disseminated by one or more major 
market data vendors and broadly displayed at least every 15 seconds 
during the Exchange's Regular Trading Hours.\30\ On each business day, 
before commencement of trading in Shares during Regular Trading 
Hours,\31\ the Fund will disclose on its Web site the identities and 
quantities of the portfolio of securities, Commodities, and other 
assets (``Disclosed Portfolio'' as defined in Rule 14.11(i)(3)(B)) held 
by the Fund and the Subsidiary that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\32\ The NAV of the 
Fund's Shares generally will be calculated once daily Monday through 
Friday as of the close of regular trading on the New York Stock 
Exchange, generally 4:00 p.m. Eastern Time.\33\ Additionally, 
information regarding market price and volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. The previous 
day's closing price and trading volume information for the Shares will 
also be published daily in the financial section of newspapers. Intra-
day executable price quotations on the securities and other assets held 
by the Fund and the Subsidiary will be available from major broker-
dealer firms or on the exchange on which they are traded, as 
applicable. Intra-day price information on the securities and other 
assets held by the Fund and the Subsidiary will also be available 
through subscription services,

[[Page 20020]]

such as Bloomberg and Thomson Reuters, which can be accessed by 
authorized participants and other investors.\34\ Daily trading volume 
information for the Fund will also be available in the financial 
section of newspapers, through subscription services such as Bloomberg, 
Thomson Reuters, and International Data Corporation, which can be 
accessed by authorized participants and other investors, as well as 
through other electronic services, including major public Web sites. 
The Fund's Web site will include a form of the prospectus for the Fund 
and additional data relating to NAV and other applicable quantitative 
information. Information relating to the Benchmark, including its 
constituents, weightings, and changes to its constituents, will be 
available on the Web site of S&P Indices.
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    \29\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \30\ According to the Exchange, several major market data 
vendors display and/or make widely available Intraday Indicative 
Values published via the CTA or other data feeds.
    \31\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \32\ According to the Exchange, the Fund's disclosure of 
derivative positions in the Disclosed Portfolio will include 
information that market participants can use to value these 
positions intraday. On a daily basis, the Disclosed Portfolio 
displayed on the Fund's Web site will include the following 
information regarding each portfolio holding, as applicable to the 
type of holding: Ticker symbol, CUSIP number or other identifier, if 
any; a description of the holding (including the type of holding, 
such as the type of swap), the identity of the security, commodity, 
or other asset or instrument underlying the holding, if any; for 
options, the option strike price; quantity held (as measured by, for 
example, par value, notional value, or number of shares, contracts, 
or units); maturity date, if any; coupon rate, if any; effective 
date, if any; market value of the holding; and percentage weighting 
of the holding in the Fund's portfolio. The Web site and information 
will be publicly available at no charge.
    \33\ In determining the value of the assets held by the Fund and 
the Subsidiary, the Fund's and the Subsidiary's investments will be 
generally valued using market valuations. A market valuation 
generally means a valuation (i) obtained from an exchange, a pricing 
service, or a major market maker (or dealer), (ii) based on a price 
quotation or other equivalent indication of value supplied by an 
exchange, a pricing service, or a major market maker (or dealer), or 
(iii) based on amortized cost. The Fund and the Subsidiary may use 
various pricing services or discontinue the use of any pricing 
service. A price obtained from a pricing service based on such 
pricing service's valuation matrix may be considered a market 
valuation. If available, debt securities and money market 
instruments with maturities of more than 60 days will typically be 
priced based on valuations provided by independent, third party 
pricing agents. Such values will generally reflect the last reported 
sales price if the security is actively traded. The third party 
pricing agents may also value debt securities at an evaluated bid 
price by employing methodologies that utilize actual market 
transactions, broker supplied valuations, or other methodologies 
designed to identify the market value for such securities. Debt 
obligations with remaining maturities of 60 days or less may be 
valued on the basis of amortized cost, which approximates market 
value. If such prices are not available, the security will be valued 
based on values supplied by independent brokers or by fair value 
pricing, as described below. Futures contracts will be valued at the 
settlement price established each day by the board or exchange on 
which they are traded. Exchange-traded options will be valued at the 
closing price in the market where such contracts are principally 
traded. Swaps will be valued based on valuations provided by 
independent, third-party pricing agents. Securities of non-exchange-
traded investment companies will be valued at NAV. Equity securities 
listed on a securities exchange (including exchange-traded commodity 
linked instruments and exchange-traded investment companies), market 
or automated quotation system for which quotations are readily 
available (except for securities traded on The NASDAQ Stock Market 
LLC (``NASDAQ'') and the London Stock Exchange Alternative 
Investment Market (``LSE AIM'')) will be valued at the last reported 
sale price on the primary exchange or market on which they are 
traded on the valuation date (or at approximately 4:00 p.m. Eastern 
Time if a security's primary exchange is normally open at that 
time). For a security that trades on multiple exchanges, the primary 
exchange will generally be considered to be the exchange on which 
the security generally has the highest volume of trading activity. 
If it is not possible to determine the last reported sale price on 
the relevant exchange or market on the valuation date, the value of 
the security will be taken to be the most recent mean between the 
bid and asked prices on such exchange or market on the valuation 
date. Absent both bid and asked prices on such exchange, the bid 
price may be used. For securities traded on NASDAQ or LSE AIM, the 
official closing price will be used. If such prices are not 
available, the security will be valued based on values supplied by 
independent brokers or by fair value pricing, as described below. 
The prices for foreign instruments will be reported in local 
currency and converted to U.S. dollars using currency exchange 
rates. Exchange rates will be provided daily by recognized 
independent pricing agents. In the event that current market 
valuations are not readily available or such valuations do not 
reflect current market values, the affected investments will be 
valued using fair value pricing pursuant to the pricing policy and 
procedures approved by the Board in accordance with the 1940 Act. 
Fair value pricing may require subjective determinations about the 
value of an asset and may result in prices that differ from the 
value that would be realized if the asset was sold.
    \34\ More specifically, the Exchange represents that pricing 
information for exchange-traded commodity futures contracts, 
exchange-traded options on futures contracts, exchange-traded 
commodity-linked instruments, exchange-traded investment companies 
other than exchange-traded commodity-linked instruments will be 
available on the exchanges on which they are traded and through 
subscription services. Pricing information for securities of non-
exchange-traded investment companies will be available through the 
applicable fund's Web site or major market data vendors. Pricing 
information for swaps, fixed income securities, and money market 
instruments will be available through subscription services, broker-
dealer firms, and/or pricing services. Additionally, the Trade 
Reporting and Compliance Engine (``TRACE'') of the Financial 
Industry Regulatory Authority (``FINRA'') will be a source of price 
information for certain fixed income securities held by the Fund.
---------------------------------------------------------------------------

    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily, and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.\35\ 
Trading in the Shares also will be subject to BATS Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares 
of the Fund may be halted.\36\ The Exchange may halt trading in the 
Shares if trading is not occurring in the securities, Commodities, or 
other assets constituting the Disclosed Portfolio of the Fund and the 
Subsidiary, or if other unusual conditions or circumstances detrimental 
to the maintenance of a fair and orderly market are present.\37\ 
Further, the Commission notes that the Reporting Authority that 
provides the Disclosed Portfolio must implement and maintain, or be 
subject to, procedures designed to prevent the use and dissemination of 
material, non-public information regarding the actual components of the 
portfolio.\38\ The Exchange states that it prohibits the distribution 
of material, non-public information by its employees. The Exchange also 
represents that the Adviser is affiliated with a broker-dealer, and the 
Adviser has implemented a fire wall with respect to that broker-dealer 
affiliate regarding access to information concerning the composition 
of, or changes to, the Fund's portfolio.\39\ Moreover, the Exchange 
represents that it may obtain information regarding trading in the 
Shares and the underlying shares in exchange-traded investment 
companies, commodity-linked instruments, futures, and options on 
futures via ISG, from other exchanges who are members or affiliates of 
ISG, or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement.
---------------------------------------------------------------------------

    \35\ See BATS Rule 14.11(i)(4)(A)(ii).
    \36\ See BATS Rule 14.11(i)(4)(B)(iv).
    \37\ See BATS Rule 14.11(i)(4)(B)(iii) (providing additional 
considerations for the suspension of trading in or removal from 
listing of Managed Fund Shares on the Exchange). With respect to 
trading halts, the Exchange may consider all relevant factors in 
exercising its discretion to halt or suspend trading in the Shares 
of the Fund. The Exchange will halt trading in the Shares under the 
conditions specified in BATS Rule 11.18. Trading also may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable.
    \38\ See BATS Rule 14.11(i)(4)(B)(ii)(B).
    \39\ See supra note 10 and accompanying text. An investment 
adviser to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the 
Adviser and any 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.
---------------------------------------------------------------------------

    The Exchange further represents that the Shares are deemed to be 
equity securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will be subject to BATS Rule 14.11(i), which sets 
forth the initial and continued listing criteria applicable to Managed 
Fund Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) 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 Managed Fund 
Shares.
    (4) The Exchange will communicate as needed regarding trading in 
the Shares and in the exchange-traded Commodities and exchange-traded 
investment companies not included within the definition of Commodities 
(together, ``Exchange Traded Instruments'') held by the Fund and the 
Subsidiary with other markets and other entities that are members of 
ISG and may obtain trading information regarding trading in the Shares 
and in the Exchange Traded Instruments held by the Fund and the 
Subsidiary from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in the Shares and in 
the Exchange Traded Instruments held by the Fund and the Subsidiary 
from markets and other entities that are members of ISG, which includes 
securities and futures exchanges, or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. The Exchange also 
will be able to access, as needed, trade information for certain fixed 
income securities held by the Fund reported to FINRA's TRACE.
    (5) With respect to the futures contracts and exchange-traded 
options on futures contracts in which the Subsidiary invests, not more 
than 10% of the weight (to be calculated as the value of the contract 
divided by the total absolute notional value of the Subsidiary's 
futures and options contracts) of the futures and options contracts 
held by the Subsidiary, in the aggregate, shall consist of instruments 
whose principal trading market is a market from which the Exchange may 
not obtain information regarding trading in the futures contracts and 
exchange-

[[Page 20021]]

traded options on futures contracts by virtue of: (a) Its membership in 
ISG; or (b) a comprehensive surveillance sharing agreement.
    (6) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular (``Circular'') of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Circular will discuss the following: (a) The 
procedures for purchases and redemptions of Shares in Creation Units 
(and that Shares are not individually redeemable); (b) BATS Rule 3.7, 
which imposes suitability obligations on Exchange members with respect 
to recommending transactions in the Shares to customers; (c) how 
information regarding the IIV and the Disclosed Portfolio is 
disseminated; (d) the risks involved in trading the Shares during the 
Pre-Opening \40\ and After Hours Trading Sessions \41\ when an updated 
IIV will not be calculated or publicly disseminated; (e) the 
requirement that members deliver a prospectus to investors purchasing 
newly issued Shares prior to or concurrently with the confirmation of a 
transaction; and (f) trading information.
---------------------------------------------------------------------------

    \40\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \41\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    (7) For initial and continued listing, the Fund and the Subsidiary 
must be in compliance with Rule 10A-3 under the Act.\42\
---------------------------------------------------------------------------

    \42\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (8) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including securities deemed illiquid by the Adviser under the 1940 Act.
    (9) The Fund will invest in Commodities through investments in the 
Subsidiary and will not invest directly in physical commodities. The 
Fund's investment in the Subsidiary may not exceed 25% of the Fund's 
total assets. The Fund and the Subsidiary will not invest in any non-
U.S. equity securities (other than shares of the Subsidiary).
    (10) Investments in non-centrally cleared swaps (through the 
Subsidiary) will not represent more than 20% of the Fund's net assets.
    (11) At least 75% of corporate debt obligations will have a minimum 
principal amount outstanding of $100 million or more. In addition, the 
exchange-traded investment companies and commodity-linked instruments 
in which the Fund invests will be listed and traded in the U.S. on 
registered exchanges.
    (12) While the Fund will be permitted to borrow as permitted under 
the 1940 Act, the Fund's investments will not be used to seek 
performance that is the multiple or inverse multiple (i.e., 2X and -3X) 
of the Benchmark.
    (13) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    The Exchange represents that all statements and representations 
made in the filing regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange rules and surveillance procedures constitute 
continued listing requirements for listing the Shares on the Exchange. 
In addition, the issuer has represented to the Exchange that it will 
advise the Exchange of any failure by the Fund 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. If the Fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures under Exchange Rule 14.12. This approval 
order is based on all of the Exchange's representations and description 
of the Fund, including those set forth above and in the Notice. The 
Commission notes that the Fund and the Shares must comply with the 
requirements of BATS Rule 14.11(i), including those set forth in this 
proposed rule change, to be listed and traded on the Exchange on an 
initial and continuing basis.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment Nos. 1, 2, and 3 thereto, is 
consistent with Section 6(b)(5) of the Act \43\ and the rules and 
regulations thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\44\ that the proposed rule change (SR-BATS-2015-105), as modified 
by Amendment Nos. 1, 2, and 3 thereto, be, and it hereby is, approved.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
---------------------------------------------------------------------------

    \45\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07832 Filed 4-5-16; 8:45 am]
BILLING CODE 8011-01-P



                                                    20016                         Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices

                                                       8. Each Underlying Fund will                         These findings and their basis will be                Commission designated a longer period
                                                    maintain and preserve permanently in                    fully recorded in the minute books of                 within which to approve the proposed
                                                    an easily accessible place a written copy               the appropriate Investing Management                  rule change, disapprove the proposed
                                                    of the procedures described in the                      Company.                                              rule change, or institute proceedings to
                                                    preceding condition, and any                              11. Any sales charges and/or service                determine whether to disapprove the
                                                    modifications to such procedures, and                   fees charged with respect to shares of a              proposed rule change.5 On February 18,
                                                    will maintain and preserve for a period                 Fund of Funds will not exceed the                     2016, the Exchange filed Amendment
                                                    of not less than six years from the end                 limits applicable to a fund of funds as               No. 1 to the proposed rule change.6 On
                                                    of the fiscal year in which any purchase                set forth in NASD Conduct Rule 2830.                  February 24, 2016, the Exchange filed
                                                    in an Affiliated Underwriting occurred,                   12. No Underlying Fund will acquire
                                                                                                                                                                  Amendment No. 2 to the proposed rule
                                                    the first two years in an easily accessible             securities of an investment company or
                                                                                                            company relying on section 3(c)(1) or                 change.7 On March 22, 2016, the
                                                    place, a written record of each purchase
                                                    of securities in Affiliated Underwritings               3(c)(7) of the Act in excess of the limits            Exchange filed Amendment No. 3 to the
                                                    once an investment by a Fund of Funds                   contained in section 12(d)(1)(A) of the               proposed rule change.8 The Commission
                                                    in the securities of the Underlying Fund                Act, except to the extent the Underlying              received no comments on the proposal.
                                                    exceeds the limit of section                            Fund acquires securities of another                   This order grants approval of the
                                                    12(d)(1)(A)(i) of the Act, setting forth                investment company pursuant to                        proposed rule change, as modified by
                                                    from whom the securities were                           exemptive relief from the Commission                  Amendment Nos. 1, 2, and 3 thereto.
                                                    acquired, the identity of the                           permitting the Underlying Fund to
                                                    underwriting syndicate’s members, the                   acquire securities of one or more                        5 See Securities Exchange Act Release No. 77159,

                                                    terms of the purchase, and the                          investment companies for short-term                   81 FR 9041 (Feb. 23, 2016). The Commission
                                                                                                                                                                  designated April 1, 2016 as the date by which the
                                                    information or materials upon which                     cash management purposes.                             Commission shall either approve or disapprove, or
                                                    the determinations of the Board of the                    For the Commission, by the Division of              institute proceedings to determine whether to
                                                    Underlying Fund were made.                              Investment Management, under delegated                disapprove, the proposed rule change. See id.
                                                       9. Before investing in an Underlying                 authority.
                                                                                                                                                                     6 In Amendment No. 1, which amended and

                                                    Fund in excess of the limit in section                                                                        replaced the proposed rule change in its entirety,
                                                                                                            Robert W. Errett,                                     the Exchange clarified the scope of the non-
                                                    12(d)(1)(A), a Fund of Funds and the
                                                                                                            Deputy Secretary.                                     exchange-traded investment companies, futures,
                                                    Trust will execute a FOF Participation                                                                        and exchange-traded options on futures to be held
                                                                                                            [FR Doc. 2016–07835 Filed 4–5–16; 8:45 am]
                                                    Agreement stating, without limitation,                                                                        by the Fund and the Subsidiary. Because
                                                    that their respective boards of directors               BILLING CODE 8011–01–P                                Amendment No. 1 to the proposed rule change does
                                                    or trustees and their investment                                                                              not materially alter the substance of the proposed
                                                                                                                                                                  rule change or raise unique or novel regulatory
                                                    advisers, or trustee and Sponsor, as                                                                          issues, Amendment No. 1 is not subject to notice
                                                    applicable, understand the terms and                    SECURITIES AND EXCHANGE
                                                                                                                                                                  and comment (Amendment No. 1 to the proposed
                                                    conditions of the order, and agree to                   COMMISSION                                            rule change is available at: https://www.sec.gov/
                                                    fulfill their responsibilities under the                [Release No. 34–77487; File No. SR–BATS–              comments/sr-bats-2015–105/bats2015105–2.pdf).
                                                                                                                                                                     7 In Amendment No. 2, which amended and
                                                    order. At the time of its investment in                 2015–105]
                                                                                                                                                                  replaced the proposed rule change, as modified by
                                                    Underlying Fund Shares in excess of the                                                                       Amendment No. 1 thereto, in its entirety, the
                                                    limit in section 12(d)(1)(A)(i), a Fund of              Self-Regulatory Organizations; BATS                   Exchange clarified: (a) That the Fund and the
                                                    Funds will notify the Underlying Fund                   Exchange, Inc.; Order Granting                        Subsidiary would not invest in leveraged or inverse
                                                    of the investment. At such time, the                    Approval of Proposed Rule Change, as                  leveraged securities of investment companies; (b)
                                                                                                            Modified by Amendment Nos. 1, 2, and                  that the commodity-linked instruments in which
                                                    Fund of Funds will also transmit to the                                                                       the Fund invests will be listed and traded in the
                                                    Underlying Fund a list of the names of                  3 Thereto, To List and Trade Shares of                U.S. on registered exchanges; (c) that, for
                                                    each Fund of Funds Affiliate and                        the Elkhorn S&P GSCI Dynamic Roll                     surveillance, the Exchange would be able to obtain
                                                    Underwriting Affiliate. The Fund of                     Commodity ETF of Elkhorn ETF Trust                    information regarding trading in the underlying
                                                                                                                                                                  commodity-linked instruments; and (d) the scope of
                                                    Funds will notify the Underlying Fund                   March 31, 2016.                                       exchange-traded options on futures contracts to be
                                                    of any changes to the list of the names                                                                       held by the Fund and Subsidiary. Because
                                                    as soon as reasonably practicable after a               I. Introduction                                       Amendment No. 2 to the proposed rule change does
                                                    change occurs. The Underlying Fund                                                                            not materially alter the substance of the proposed
                                                                                                               On December 18, 2015, BATS                         rule change or raise unique or novel regulatory
                                                    and the Fund of Funds will maintain                     Exchange, Inc. (‘‘Exchange’’ or ‘‘BATS’’)             issues, Amendment No. 2 is not subject to notice
                                                    and preserve a copy of the order, the                   filed with the Securities and Exchange                and comment (Amendment No. 2 to the proposed
                                                    FOF Participation Agreement, and the                    Commission (‘‘Commission’’), pursuant                 rule change is available at: https://www.sec.gov/
                                                    list with any updated information for                   to Section 19(b)(1) of the Securities
                                                                                                                                                                  comments/sr-bats-2015–105/bats2015105–1.pdf).
                                                                                                                                                                     8 In Amendment No. 3 to the proposed rule
                                                    the duration of the investment and for                  Exchange Act of 1934 (‘‘Act’’) 1 and Rule             change, the Exchange clarified that: (a) All
                                                    a period of not less than six years                     19b–4 thereunder,2 a proposed rule                    statements and representations made in the
                                                    thereafter, the first two years in an                   change to list and trade shares                       proposal shall constitute continued listing
                                                    easily accessible place.                                (‘‘Shares’’) of the Elkhorn S&P GSCI                  requirements for listing the Shares on the Exchange;
                                                       10. Before approving any advisory                                                                          (b) the issuer will advise the Exchange of any
                                                                                                            Dynamic Roll Commodity ETF (‘‘Fund’’)                 failure by the Fund to comply with the continued
                                                    contract under section 15 of the Act, the
                                                                                                            of Elkhorn ETF Trust (‘‘Trust’’) under                listing requirements; (c) pursuant to its obligations
                                                    board of directors or trustees of each                                                                        under Section 19(g)(1) of the Act, the Exchange will
                                                                                                            BATS Rule 14.11(i). The proposed rule
                                                    Investing Management Company                                                                                  surveil for compliance with the continued listing
                                                                                                            change was published for comment in
                                                    including a majority of the disinterested
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                                                                                                                                  requirements; and (d) if the Fund is not in
                                                                                                            the Federal Register on January 4,                    compliance with the applicable listing
                                                    directors or trustees, will find that the
                                                                                                            2016.3 On February 17, 2016, pursuant                 requirements, the Exchange will commence
                                                    advisory fees charged under such                                                                              delisting procedures under Exchange Rule 14.12.
                                                                                                            to Section 19(b)(2) of the Act,4 the
                                                    contract are based on services provided                                                                       Because Amendment No. 3 does not materially alter
                                                    that will be in addition to, rather than                  1 15
                                                                                                                                                                  the substance of the proposed rule change or raise
                                                                                                                   U.S.C. 78s(b)(1).                              unique or novel regulatory issues, Amendment No.
                                                    duplicative of, the services provided                     2 17 CFR 240.19b–4.                                 3 is not subject to notice and comment
                                                    under the advisory contract(s) of any                     3 See Securities Exchange Act Release No. 76776
                                                                                                                                                                  (Amendment No. 3 to the proposed rule change is
                                                    Underlying Fund in which the Investing                  (Dec. 28, 2015), 81 FR 120 (‘‘Notice’’).              available at: https://www.sec.gov/comments/sr-bats-
                                                    Management Company may invest.                            4 15 U.S.C. 78s(b)(2).                              2015-105/bats2015105-3.pdf).



                                               VerDate Sep<11>2014   17:54 Apr 05, 2016   Jkt 238001   PO 00000   Frm 00066   Fmt 4703   Sfmt 4703   E:\FR\FM\06APN1.SGM   06APN1


                                                                                   Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices                                                           20017

                                                    II. Exchange’s Description of the                        (‘‘Benchmark’’) 12 consistent with                         Benchmark. Although the Fund,
                                                    Proposed Rule Change                                     prudent investment management.13 The                       through the Subsidiary, will generally
                                                                                                             Fund will seek excess return above the                     hold many of the futures contracts
                                                       The Exchange proposes to list and                     Benchmark through the active                               included in the Benchmark, the Fund
                                                    trade the Shares of the Fund pursuant                    management of a short duration                             and the Subsidiary will be actively
                                                    to BATS Rule 14.11(i), which governs                     portfolio of highly liquid, high quality                   managed and will not be obligated to
                                                    the listing and trading of Managed Fund                  bonds.                                                     invest in all of (or to limit investments
                                                    Shares on the Exchange. The Shares will                     The Fund will be an actively managed                    solely to) such futures contracts. In
                                                    be offered by the Trust, which was                       fund that seeks to achieve its investment                  addition, with respect to investments in
                                                    established as a Massachusetts business                  objective by investing, under normal                       exchange-traded futures contracts, the
                                                    trust on December 12, 2013.9 Elkhorn                     market conditions,14 in exchange-traded                    Fund and the Subsidiary will not be
                                                    Investments, LLC will be the investment                  commodity futures contracts, centrally                     obligated to invest in the same amount
                                                    adviser (‘‘Adviser’’) to the Fund. It is                 cleared and non-centrally cleared                          or proportion as the Benchmark, or be
                                                    currently anticipated that day-to-day                    swaps,15 exchange-traded options on                        obligated to track the performance of the
                                                    portfolio management for the Fund will                   futures contracts, and exchange-traded                     Benchmark. In addition to exchange-
                                                    be provided by the Adviser. However,                     commodity-linked instruments 16                            traded futures contracts, the Fund’s
                                                    the Fund and the Adviser may contract                    (collectively, ‘‘Commodities’’) through a                  Commodities investments will also be
                                                    with an investment sub-adviser (‘‘Sub-                   wholly-owned subsidiary controlled by                      comprised of the following: centrally
                                                    Adviser’’) to provide day-to-day                         the Fund and organized under the laws                      cleared and non-centrally cleared swaps
                                                                                                             of the Cayman Islands (‘‘Subsidiary’’),                    on commodities; exchange-traded
                                                    portfolio management for the Fund.
                                                                                                             thereby obtaining exposure to the                          options on futures contracts that
                                                    ALPS Distributors, Inc. will be the
                                                                                                             commodities markets.                                       provide exposure to the investment
                                                    principal underwriter and distributor of                    The Fund’s Commodities                                  returns of the commodities markets; and
                                                    the Fund’s Shares. The Fund will                         investments, in part, will be comprised                    exchange-traded commodity-linked
                                                    contract with unaffiliated third parties                 of exchange-traded futures contracts on                    instruments, without investing directly
                                                    to provide administrative, custodial and                 commodities that comprise the                              in physical commodities.
                                                    transfer agency services to the Fund.                                                                                  The Fund will invest in Commodities
                                                    The Exchange represents the Adviser is                      12 The Benchmark is developed, maintained, and
                                                                                                                                                                        through investments in the Subsidiary
                                                    not a broker-dealer, but is affiliated with              sponsored by S&P Dow Jones Indices LLC (‘‘S&P              and will not invest directly in physical
                                                                                                             Indices’’).
                                                    a broker-dealer, and it has implemented                     13 According to the Exchange, the Benchmark             commodities. The Fund’s investment in
                                                    a fire wall with respect to its broker-                  currently contains 24 commodity futures on                 the Subsidiary may not exceed 25% of
                                                    dealer affiliate regarding access to                     physical commodities across five sectors: energy,          the Fund’s total assets. In addition to
                                                    information concerning the composition                   agriculture; livestock; industrial metals; and             Commodities, the Fund’s assets will be
                                                                                                             precious metals. See Notice, supra note 3
                                                    of, or changes to, the Fund’s portfolio.10               (providing additional information regarding the            invested in: (1) short-term, investment
                                                    A. Exchange’s Description of the Fund’s                  Benchmark and its components, including a table            grade fixed income securities, including
                                                    Investments 11                                           describing each of the commodities underlying the          only the following instruments: U.S.
                                                                                                             futures contracts included in the Benchmark as of          government and agency securities,17
                                                       According to the Exchange, the                        October 31, 2015, and each instrument’s trading
                                                                                                             hours, exchange, and ticker symbol).                       corporate debt obligations,18 and
                                                    Fund’s investment objective will be to                      14 The term ‘‘under normal market conditions’’          repurchase agreements;19 (2) money
                                                    provide total return which exceeds that                  includes, but is not limited to, the absence of            market instruments; 20 (3) investment
                                                    of the S&P GSCI Dynamic Roll Index                       extreme volatility or trading halts in the fixed
                                                                                                             income markets, futures markets or the financial              17 Such securities are securities that are issued or
                                                                                                             markets generally; operational issues causing
                                                      9 The  Exchange represents that the Trust is                                                                      guaranteed by the U.S. Treasury, by various
                                                                                                             dissemination of inaccurate market information; or
                                                    registered under the Investment Company Act of                                                                      agencies of the U.S. government, or by various
                                                                                                             force majeure type events such as systems failure,
                                                    1940 (‘‘1940 Act’’). See Registration Statement on                                                                  instrumentalities, which have been established or
                                                                                                             natural or man-made disaster, act of God, armed
                                                    Form N–1A for the Trust, dated November 10, 2015                                                                    sponsored by the U.S. government. U.S. Treasury
                                                                                                             conflict, act of terrorism, riot or labor disruption, or
                                                    (File Nos. 333–201473 and 811–22926)                                                                                obligations are backed by the ‘‘full faith and credit’’
                                                                                                             any similar intervening circumstance.
                                                    (‘‘Registration Statement’’). The Exchange further          15 Investments in non-centrally cleared swaps
                                                                                                                                                                        of the U.S. government. Securities issued or
                                                    states that the Trust has obtained certain exemptive                                                                guaranteed by federal agencies and U.S.
                                                                                                             (through the Subsidiary) will not represent more           government-sponsored instrumentalities may or
                                                    relief under the 1940 Act.                               than 20% of the Fund’s net assets. When investing
                                                       10 See BATS Rule 14.11(i)(7). The Exchange                                                                       may not be backed by the full faith and credit of
                                                                                                             in non-centrally cleared swaps, the Subsidiary will
                                                    further represents that, in the event that (a) the                                                                  the U.S. government.
                                                                                                             seek, where possible, to use counterparties, as               18 At least 75% of corporate debt obligations will
                                                    Adviser or a Sub-Adviser becomes, or becomes             applicable, whose financial status is such that the
                                                    newly affiliated with, a broker-dealer or registers as   risk of default is reduced; however, the risk of           have a minimum principal amount outstanding of
                                                    a broker-dealer, or (b) any new adviser or sub-          losses resulting from default is still possible. The       $100 million or more.
                                                    adviser is a registered broker-dealer or becomes         Adviser and/or a Sub-Adviser will evaluate the
                                                                                                                                                                           19 The Fund intends to enter into repurchase

                                                    affiliated with a broker-dealer, it will implement a     creditworthiness of counterparties on an ongoing           agreements only with financial institutions and
                                                    fire wall with respect to its relevant personnel or      basis. In addition to information provided by credit       dealers believed by the Adviser and/or a Sub-
                                                    such broker-dealer affiliate, as applicable, regarding   agencies, the Adviser’s and/or a Sub-Adviser’s             Adviser to present minimal credit risks in
                                                    access to information concerning the composition         analysis will evaluate each approved counterparty          accordance with criteria approved by the Trust’s
                                                    of, or changes to, the portfolio, and will be subject    using various methods of analysis and may consider         Board of Trustees (‘‘Board’’). The Adviser and/or a
                                                    to procedures designed to prevent the use and            such factors as the counterparty’s liquidity, its          Sub-Adviser will review and monitor the
                                                    dissemination of material, non-public information        reputation, the Adviser’s and/or a Sub-Adviser’s           creditworthiness of such institutions. The Adviser
                                                    regarding such portfolio.                                past experience with the counterparty, its known           and/or a Sub-Adviser will monitor the value of the
                                                                                                                                                                        collateral at the time the transaction is entered into
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                                                       11 The Commission notes that additional               disciplinary history and its share of market
                                                    information regarding the Fund, the Trust, the           participation.                                             and at all times during the term of the repurchase
                                                    Subsidiary (as defined herein), and the Shares,             16 Exchange-traded commodity-linked                     agreement.
                                                    including investment strategies, risks, creation and     instruments include only the following: (1) Funds             20 For the Fund’s purposes, money market

                                                    redemption procedures, fees, portfolio holdings          that provide exposure to commodities as would be           instruments will include only the following
                                                    disclosure policies, calculation of net asset value      listed under Exchange Rules 14.11(b), (c), and (i);        instruments: short-term, high-quality securities
                                                    (‘‘NAV’’), distributions, and taxes, among other         and (2) pooled investment vehicles that invest             issued or guaranteed by non-U.S. governments,
                                                    things, can be found in the Notice and the               primarily in commodities and commodity-linked              agencies and instrumentalities; non-convertible
                                                    Registration Statement, as applicable. See Notice        instruments as would be listed under Exchange              corporate debt securities with remaining maturities
                                                    and Registration Statement, supra notes 3 and 9,         Rules 14.11(d) and 14.11(e)(2), (4), (6), (7), (8), (9),   of not more than 397 days that satisfy ratings
                                                    respectively.                                            and (10).                                                                                                Continued




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                                                    20018                         Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices

                                                    companies (other than those that are                    its portfolio will be managed by the                      National Futures Association (‘‘NFA’’).
                                                    commodity-linked instruments),21                        Adviser or a Sub-Adviser.24 The Adviser                   Any Sub-Adviser will register as a
                                                    including both exchange traded and                      or a Sub-Adviser will use its discretion                  commodity pool operator or commodity
                                                    non-exchange-traded investment                          to determine the percentage of the                        trading adviser, as required by CFTC
                                                    companies, that provide exposure to                     Fund’s assets allocated to the                            regulations. The Fund and the
                                                    commodities, equity securities, and                     Commodities held by the Subsidiary                        Subsidiary will be subject to regulation
                                                    fixed income securities to the extent                   that will be invested in exchange-traded                  by the CFTC and NFA and additional
                                                    permitted under the 1940 Act and any                    commodity futures contracts, centrally                    disclosure, reporting, and recordkeeping
                                                    applicable exemptive relief; 22 (4)                     cleared and non-centrally cleared                         rules imposed upon commodity pools.
                                                    certain bank instruments; 23 and (5) cash               swaps, exchange-traded options on
                                                    and other cash equivalents (collectively,               futures contracts, and exchange-traded                    D. Exchange’s Description of the Fund’s
                                                    ‘‘Other Investments’’). The Fund will                   commodity-linked instruments. In this                     Investment Restrictions
                                                    use the Other Investments as                            regard, under normal market conditions,                      While the Fund will be permitted to
                                                    investments, to provide liquidity, and to               the Subsidiary is expected, as a general                  borrow as permitted under the 1940 Act,
                                                    collateralize the Subsidiary’s                          matter, to invest in futures contracts in                 the Fund’s investments will not be used
                                                    commodity exposure on a day-to-day                      proportional weights and allocations                      to seek performance that is the multiple
                                                    basis.                                                  that are similar to the Benchmark, as                     or inverse multiple (i.e., 2X and –3X) of
                                                       The Fund’s investment in the                         well as in the other Commodities.                         the Benchmark. In addition, the Fund
                                                    Subsidiary will be designed to help the                 Additionally, the Subsidiary, like the                    may not invest more than 25% of the
                                                    Fund achieve exposure to commodity                      Fund, may invest in Other Investments                     value of its total assets in securities of
                                                    returns in a manner consistent with the                 (e.g., as investments, to serve as margin                 issuers in any one industry or group of
                                                    federal tax requirements applicable to                  or collateral, or to otherwise support the                industries. This restriction will not
                                                    the Fund and other regulated                            Subsidiary’s positions in Commodities).                   apply to obligations issued or
                                                    investment companies. The Fund                             The Fund’s investment in the                           guaranteed by the U.S. government, its
                                                    intends to qualify for, and to elect to be              Subsidiary is intended to provide the                     agencies or instrumentalities, or
                                                    treated as, a separate regulated                        Fund with exposure to commodity                           securities of other investment
                                                    investment company under Subchapter                     markets within the limits of current                      companies.
                                                    M of the Internal Revenue Code.                         federal income tax laws applicable to                        The Subsidiary’s shares will be
                                                    B. Exchange’s Description of the                        investment companies such as the                          offered only to the Fund, and the Fund
                                                    Subsidiary’s Investments                                Fund, which limit the ability of                          will not sell shares of the Subsidiary to
                                                                                                            investment companies to invest directly                   other investors. The Fund and the
                                                      The Subsidiary will generally seek to                 in the derivative instruments. The                        Subsidiary will not invest in any non-
                                                    make investments in Commodities, and                    Subsidiary will have the same                             U.S. equity securities (other than shares
                                                                                                            investment objective as the Fund, but                     of the Subsidiary). The Fund will not
                                                    requirements under Rule 2a-7 under the 1940 Act;
                                                    money market mutual funds; and deposits and             unlike the Fund, it may invest without                    purchase securities of open-end or
                                                    other obligations of U.S. and non-U.S. banks and        limitation in Commodities. The                            closed-end investment companies,
                                                    financial institutions. In addition, the Fund may       Subsidiary’s investments will provide                     except in compliance with the 1940 Act
                                                    invest in commercial paper (short-term unsecured
                                                    promissory notes), but only if the commercial paper
                                                                                                            the Fund with exposure to domestic and                    or any applicable exemptive relief. In
                                                    has received the highest rating from at least one       international markets.                                    addition, the Exchange represents that,
                                                    nationally recognized statistical rating organization
                                                                                                            C. Exchange’s Description of                              with respect to the futures contracts and
                                                    or, if unrated, has been judged by the Adviser and/                                                               exchange-traded options on futures
                                                    or a Sub-Adviser to be of comparable quality.           Commodities Regulation
                                                       21 According to the Exchange, the Fund may                                                                     contracts in which the Subsidiary
                                                    invest in the securities of certain other investment
                                                                                                              The Commodity Futures Trading                           invests, not more than 10% of the
                                                    companies in excess of the limits imposed under         Commission (‘‘CFTC’’) has adopted                         weight (to be calculated as the value of
                                                    the 1940 Act pursuant to an exemptive order             substantial amendments to CFTC Rule                       the contract divided by the total
                                                    obtained by the Trust and the Adviser from the          4.5 relating to the permissible
                                                    Commission. The exchange-traded investment                                                                        absolute notional value of the
                                                    companies in which the Fund may invest include          exemptions and conditions for reliance                    Subsidiary’s futures and options
                                                    Index Fund Shares (as described in Rule 14.11(c)),      on exemptions from registration as a                      contracts) of the futures and options
                                                    Portfolio Depository Receipts (as described in Rule     commodity pool operator. As a result of
                                                    14.11(b)), and Managed Fund Shares (as described
                                                                                                                                                                      contracts held by the Subsidiary, in the
                                                    in Rule 14.11(i)). The non-exchange-traded
                                                                                                            the instruments that will be indirectly                   aggregate, shall consist of instruments
                                                    investment companies in which the Fund may              held by the Fund, the Adviser will                        whose principal trading market is a
                                                    invest include all non-exchange-traded investment       register as a commodity pool operator                     market from which the Exchange may
                                                    companies that are not money market mutual funds,       and will also become a member of the
                                                    as described above. While the Fund and the                                                                        not obtain information regarding trading
                                                    Subsidiary may invest in inverse commodity-linked                                                                 in the futures contracts and exchange-
                                                                                                               24 The Exchange states that the Subsidiary will
                                                    instruments and securities of investment                                                                          traded options on futures contracts by
                                                    companies, the Fund and the Subsidiary will not         not be registered under the 1940 Act and will not
                                                    invest in leveraged or inverse leveraged (e.g., 2X or   be directly subject to its investor protections, except   virtue of: (a) Its membership in the
                                                    -3X) commodity-linked instruments or securities of      as noted in the Registration Statement. However,          Intermarket Surveillance Group (‘‘ISG’’);
                                                    investment companies.                                   the Subsidiary will be wholly-owned and                   or (b) a comprehensive surveillance
                                                       22 The exchange-traded investment companies          controlled by the Fund. Therefore, the Fund’s             sharing agreement.
                                                    and commodity-linked instruments in which the           ownership and control of the Subsidiary will
                                                                                                                                                                         The Fund may hold up to an aggregate
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                    Fund invests will be listed and traded in the U.S.      prevent the Subsidiary from taking action contrary
                                                    on registered exchanges.                                to the interests of the Fund or its shareholders. The     amount of 15% of its net assets in
                                                       23 The term ‘‘certain bank instruments’’ includes    Board will have oversight responsibility for the          illiquid assets (calculated at the time of
                                                    only the following instruments: certificates of         investment activities of the Fund, including its          investment), including securities
                                                    deposit issued against funds deposited in a bank or     expected investment in the Subsidiary, and the
                                                    savings and loan association; bankers’ acceptances,     Fund’s role as the sole shareholder of the                deemed illiquid by the Adviser.25 The
                                                    which are short-term credit instruments used to         Subsidiary. The Subsidiary will also enter into
                                                                                                            separate contracts for the provision of custody,            25 In reaching liquidity decisions, the Adviser
                                                    finance commercial transactions; and bank time
                                                    deposits, which are monies kept on deposit with         transfer agency, and accounting agent services with       may consider the following factors: The frequency
                                                    banks or savings and loan associations for a stated     the same or with affiliates of the same service           of trades and quotes for the security; the number of
                                                    period of time at a fixed rate of interest.             providers that provide those services to the Fund.        dealers wishing to purchase or sell the security and



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                                                                                  Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices                                                      20019

                                                    Fund will monitor its portfolio liquidity               Indicative Value (‘‘IIV’’), that reflects an            regarding market price and volume of
                                                    on an ongoing basis to determine                        estimated intraday value of the Fund’s                  the Shares will be continually available
                                                    whether, in light of current                            portfolio (including the Subsidiary’s                   on a real-time basis throughout the day
                                                    circumstances, an adequate level of                     portfolio), will be disseminated. The IIV               on brokers’ computer screens and other
                                                    liquidity is being maintained, and will                 will be based upon the current value for                electronic services. The previous day’s
                                                    consider taking appropriate steps in                    the components of the Disclosed                         closing price and trading volume
                                                    order to maintain adequate liquidity if,                Portfolio (as defined below) and will be                information for the Shares will also be
                                                    through a change in values, net assets,                 updated and widely disseminated by                      published daily in the financial section
                                                    or other circumstances, more than 15%                   one or more major market data vendors                   of newspapers. Intra-day executable
                                                    of the Fund’s net assets are held in                    and broadly displayed at least every 15                 price quotations on the securities and
                                                    illiquid assets. Illiquid assets include                seconds during the Exchange’s Regular                   other assets held by the Fund and the
                                                    securities subject to contractual or other              Trading Hours.30 On each business day,                  Subsidiary will be available from major
                                                    restrictions on resale and other                        before commencement of trading in                       broker-dealer firms or on the exchange
                                                    instruments that lack readily available                 Shares during Regular Trading Hours,31                  on which they are traded, as applicable.
                                                    markets, as determined in accordance                    the Fund will disclose on its Web site                  Intra-day price information on the
                                                    with Commission staff guidance.                         the identities and quantities of the                    securities and other assets held by the
                                                                                                            portfolio of securities, Commodities,                   Fund and the Subsidiary will also be
                                                    III. Discussion and Commission’s
                                                                                                            and other assets (‘‘Disclosed Portfolio’’               available through subscription services,
                                                    Findings
                                                                                                            as defined in Rule 14.11(i)(3)(B)) held
                                                       The Commission has carefully                         by the Fund and the Subsidiary that will                value debt securities at an evaluated bid price by
                                                    reviewed the proposed rule change and                   form the basis for the Fund’s calculation               employing methodologies that utilize actual market
                                                    finds that it is consistent with the                                                                            transactions, broker supplied valuations, or other
                                                                                                            of NAV at the end of the business day.32                methodologies designed to identify the market
                                                    requirements of Section 6 of the Act 26                 The NAV of the Fund’s Shares generally                  value for such securities. Debt obligations with
                                                    and the rules and regulations                           will be calculated once daily Monday                    remaining maturities of 60 days or less may be
                                                    thereunder applicable to a national                     through Friday as of the close of regular               valued on the basis of amortized cost, which
                                                    securities exchange.27 In particular, the                                                                       approximates market value. If such prices are not
                                                                                                            trading on the New York Stock                           available, the security will be valued based on
                                                    Commission finds that the proposal is                   Exchange, generally 4:00 p.m. Eastern                   values supplied by independent brokers or by fair
                                                    consistent with Section 6(b)(5) of the                  Time.33 Additionally, information                       value pricing, as described below. Futures contracts
                                                    Act,28 which requires, among other                                                                              will be valued at the settlement price established
                                                    things, that the Exchange’s rules be                       30 According to the Exchange, several major
                                                                                                                                                                    each day by the board or exchange on which they
                                                                                                                                                                    are traded. Exchange-traded options will be valued
                                                    designed to prevent fraudulent and                      market data vendors display and/or make widely
                                                                                                                                                                    at the closing price in the market where such
                                                    manipulative acts and practices, to                     available Intraday Indicative Values published via
                                                                                                                                                                    contracts are principally traded. Swaps will be
                                                                                                            the CTA or other data feeds.
                                                    promote just and equitable principles of                   31 Regular Trading Hours are 9:30 a.m. to 4:00
                                                                                                                                                                    valued based on valuations provided by
                                                    trade, to foster cooperation and                                                                                independent, third-party pricing agents. Securities
                                                                                                            p.m. Eastern Time.                                      of non-exchange-traded investment companies will
                                                    coordination with persons engaged in                       32 According to the Exchange, the Fund’s
                                                                                                                                                                    be valued at NAV. Equity securities listed on a
                                                    facilitating transactions in securities, to             disclosure of derivative positions in the Disclosed     securities exchange (including exchange-traded
                                                    remove impediments to and perfect the                   Portfolio will include information that market          commodity linked instruments and exchange-
                                                                                                            participants can use to value these positions           traded investment companies), market or automated
                                                    mechanism of a free and open market                     intraday. On a daily basis, the Disclosed Portfolio     quotation system for which quotations are readily
                                                    and a national market system, and, in                   displayed on the Fund’s Web site will include the       available (except for securities traded on The
                                                    general, to protect investors and the                   following information regarding each portfolio          NASDAQ Stock Market LLC (‘‘NASDAQ’’) and the
                                                    public interest.                                        holding, as applicable to the type of holding: Ticker   London Stock Exchange Alternative Investment
                                                                                                            symbol, CUSIP number or other identifier, if any;       Market (‘‘LSE AIM’’)) will be valued at the last
                                                       The Commission also finds that the                   a description of the holding (including the type of     reported sale price on the primary exchange or
                                                    proposal is consistent with Section                     holding, such as the type of swap), the identity of     market on which they are traded on the valuation
                                                    11A(a)(1)(C)(iii) of the Act,29 which sets              the security, commodity, or other asset or              date (or at approximately 4:00 p.m. Eastern Time if
                                                    forth the finding of Congress that it is in             instrument underlying the holding, if any; for          a security’s primary exchange is normally open at
                                                                                                            options, the option strike price; quantity held (as     that time). For a security that trades on multiple
                                                    the public interest and appropriate for                 measured by, for example, par value, notional           exchanges, the primary exchange will generally be
                                                    the protection of investors and the                     value, or number of shares, contracts, or units);       considered to be the exchange on which the
                                                    maintenance of fair and orderly markets                 maturity date, if any; coupon rate, if any; effective   security generally has the highest volume of trading
                                                    to assure the availability to brokers,                  date, if any; market value of the holding; and          activity. If it is not possible to determine the last
                                                                                                            percentage weighting of the holding in the Fund’s       reported sale price on the relevant exchange or
                                                    dealers, and investors of information                   portfolio. The Web site and information will be         market on the valuation date, the value of the
                                                    with respect to quotations for, and                     publicly available at no charge.                        security will be taken to be the most recent mean
                                                    transactions in, securities. Quotation                     33 In determining the value of the assets held by    between the bid and asked prices on such exchange
                                                    and last-sale information for the Shares                the Fund and the Subsidiary, the Fund’s and the         or market on the valuation date. Absent both bid
                                                    will be available on the facilities of the              Subsidiary’s investments will be generally valued       and asked prices on such exchange, the bid price
                                                                                                            using market valuations. A market valuation             may be used. For securities traded on NASDAQ or
                                                    Consolidated Tape Association                           generally means a valuation (i) obtained from an        LSE AIM, the official closing price will be used. If
                                                    (‘‘CTA’’). An estimated value, defined in               exchange, a pricing service, or a major market          such prices are not available, the security will be
                                                    BATS Rule 14.11(i)(3)(C) as the Intraday                maker (or dealer), (ii) based on a price quotation or   valued based on values supplied by independent
                                                                                                            other equivalent indication of value supplied by an     brokers or by fair value pricing, as described below.
                                                                                                            exchange, a pricing service, or a major market          The prices for foreign instruments will be reported
                                                    the number of other potential purchasers; dealer
                                                                                                            maker (or dealer), or (iii) based on amortized cost.    in local currency and converted to U.S. dollars
                                                    undertakings to make a market in the security; and
                                                                                                            The Fund and the Subsidiary may use various             using currency exchange rates. Exchange rates will
                                                    the nature of the security and the nature of the
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                                                                            pricing services or discontinue the use of any          be provided daily by recognized independent
                                                    marketplace trades (e.g., the time needed to dispose
                                                                                                            pricing service. A price obtained from a pricing        pricing agents. In the event that current market
                                                    of the security, the method of soliciting offers, and
                                                                                                            service based on such pricing service’s valuation       valuations are not readily available or such
                                                    the mechanics of transfer).
                                                      26 15 U.S.C. 78f.
                                                                                                            matrix may be considered a market valuation. If         valuations do not reflect current market values, the
                                                                                                            available, debt securities and money market             affected investments will be valued using fair value
                                                      27 In approving this proposed rule change, the
                                                                                                            instruments with maturities of more than 60 days        pricing pursuant to the pricing policy and
                                                    Commission has considered the proposed rule’s           will typically be priced based on valuations            procedures approved by the Board in accordance
                                                    impact on efficiency, competition, and capital          provided by independent, third party pricing            with the 1940 Act. Fair value pricing may require
                                                    formation. See 15 U.S.C. 78c(f).                        agents. Such values will generally reflect the last     subjective determinations about the value of an
                                                      28 15 U.S.C. 78f(b)(5).
                                                                                                            reported sales price if the security is actively        asset and may result in prices that differ from the
                                                      29 15 U.S.C. 78k–1(a)(1)(C)(iii).                     traded. The third party pricing agents may also         value that would be realized if the asset was sold.



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                                                    20020                         Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices

                                                    such as Bloomberg and Thomson                           and orderly market are present.37                      securities, thus rendering trading in the
                                                    Reuters, which can be accessed by                       Further, the Commission notes that the                 Shares subject to the Exchange’s
                                                    authorized participants and other                       Reporting Authority that provides the                  existing rules governing the trading of
                                                    investors.34 Daily trading volume                       Disclosed Portfolio must implement and                 equity securities. In support of this
                                                    information for the Fund will also be                   maintain, or be subject to, procedures                 proposal, the Exchange has made
                                                    available in the financial section of                   designed to prevent the use and                        representations, including:
                                                    newspapers, through subscription                        dissemination of material, non-public                     (1) The Shares will be subject to
                                                    services such as Bloomberg, Thomson                     information regarding the actual                       BATS Rule 14.11(i), which sets forth the
                                                    Reuters, and International Data                         components of the portfolio.38 The                     initial and continued listing criteria
                                                    Corporation, which can be accessed by                   Exchange states that it prohibits the                  applicable to Managed Fund Shares.
                                                    authorized participants and other                       distribution of material, non-public                      (2) The Exchange has appropriate
                                                    investors, as well as through other                     information by its employees. The                      rules to facilitate transactions in the
                                                    electronic services, including major                    Exchange also represents that the                      Shares during all trading sessions.
                                                    public Web sites. The Fund’s Web site                   Adviser is affiliated with a broker-                      (3) The Exchange believes that its
                                                    will include a form of the prospectus for               dealer, and the Adviser has                            surveillance procedures are adequate to
                                                    the Fund and additional data relating to                implemented a fire wall with respect to                properly monitor the trading of the
                                                    NAV and other applicable quantitative                   that broker-dealer affiliate regarding                 Shares on the Exchange during all
                                                    information. Information relating to the                access to information concerning the                   trading sessions and to deter and detect
                                                    Benchmark, including its constituents,                  composition of, or changes to, the                     violations of Exchange rules and the
                                                    weightings, and changes to its                          Fund’s portfolio.39 Moreover, the                      applicable federal securities laws.
                                                    constituents, will be available on the                  Exchange represents that it may obtain                 Trading of the Shares through the
                                                    Web site of S&P Indices.                                information regarding trading in the                   Exchange will be subject to the
                                                                                                            Shares and the underlying shares in                    Exchange’s surveillance procedures for
                                                       The Commission further believes that                                                                        derivative products, including Managed
                                                                                                            exchange-traded investment companies,
                                                    the proposal to list and trade the Shares                                                                      Fund Shares.
                                                                                                            commodity-linked instruments, futures,
                                                    is reasonably designed to promote fair                                                                            (4) The Exchange will communicate
                                                                                                            and options on futures via ISG, from
                                                    disclosure of information that may be                   other exchanges who are members or                     as needed regarding trading in the
                                                    necessary to price the Shares                           affiliates of ISG, or with which the                   Shares and in the exchange-traded
                                                    appropriately and to prevent trading                    Exchange has entered into a                            Commodities and exchange-traded
                                                    when a reasonable degree of                             comprehensive surveillance sharing                     investment companies not included
                                                    transparency cannot be assured. The                     agreement.                                             within the definition of Commodities
                                                    Commission notes that the Exchange                         The Exchange further represents that                (together, ‘‘Exchange Traded
                                                    will obtain a representation from the                   the Shares are deemed to be equity                     Instruments’’) held by the Fund and the
                                                    issuer of the Shares that the NAV per                                                                          Subsidiary with other markets and other
                                                    Share will be calculated daily, and that                   37 See BATS Rule 14.11(i)(4)(B)(iii) (providing     entities that are members of ISG and
                                                    the NAV and the Disclosed Portfolio                     additional considerations for the suspension of        may obtain trading information
                                                    will be made available to all market                    trading in or removal from listing of Managed Fund     regarding trading in the Shares and in
                                                                                                            Shares on the Exchange). With respect to trading
                                                    participants at the same time.35 Trading                halts, the Exchange may consider all relevant          the Exchange Traded Instruments held
                                                    in the Shares also will be subject to                   factors in exercising its discretion to halt or        by the Fund and the Subsidiary from
                                                    BATS Rule 14.11(i)(4)(B)(iv), which sets                suspend trading in the Shares of the Fund. The         such markets and other entities. In
                                                                                                            Exchange will halt trading in the Shares under the
                                                    forth circumstances under which Shares                  conditions specified in BATS Rule 11.18. Trading
                                                                                                                                                                   addition, the Exchange may obtain
                                                    of the Fund may be halted.36 The                        also may be halted because of market conditions or     information regarding trading in the
                                                    Exchange may halt trading in the Shares                 for reasons that, in the view of the Exchange, make    Shares and in the Exchange Traded
                                                    if trading is not occurring in the                      trading in the Shares inadvisable.                     Instruments held by the Fund and the
                                                                                                               38 See BATS Rule 14.11(i)(4)(B)(ii)(B).
                                                    securities, Commodities, or other assets                   39 See supra note 10 and accompanying text. An
                                                                                                                                                                   Subsidiary from markets and other
                                                    constituting the Disclosed Portfolio of                 investment adviser to an open-end fund is required     entities that are members of ISG, which
                                                    the Fund and the Subsidiary, or if other                to be registered under the Investment Advisers Act     includes securities and futures
                                                    unusual conditions or circumstances                     of 1940 (‘‘Advisers Act’’). As a result, the Adviser   exchanges, or with which the Exchange
                                                                                                            and any Sub-Adviser and their related personnel
                                                    detrimental to the maintenance of a fair                are subject to the provisions of Rule 204A–1 under
                                                                                                                                                                   has in place a comprehensive
                                                                                                            the Advisers Act relating to codes of ethics. This     surveillance sharing agreement. The
                                                       34 More specifically, the Exchange represents that   Rule requires investment advisers to adopt a code      Exchange also will be able to access, as
                                                    pricing information for exchange-traded commodity       of ethics that reflects the fiduciary nature of the    needed, trade information for certain
                                                    futures contracts, exchange-traded options on           relationship to clients as well as compliance with
                                                                                                            other applicable securities laws. Accordingly,         fixed income securities held by the
                                                    futures contracts, exchange-traded commodity-
                                                    linked instruments, exchange-traded investment          procedures designed to prevent the communication       Fund reported to FINRA’s TRACE.
                                                    companies other than exchange-traded commodity-         and misuse of non-public information by an                (5) With respect to the futures
                                                    linked instruments will be available on the             investment adviser must be consistent with Rule        contracts and exchange-traded options
                                                    exchanges on which they are traded and through          204A–1 under the Advisers Act. In addition, Rule
                                                                                                            206(4)–7 under the Advisers Act makes it unlawful      on futures contracts in which the
                                                    subscription services. Pricing information for
                                                    securities of non-exchange-traded investment            for an investment adviser to provide investment        Subsidiary invests, not more than 10%
                                                    companies will be available through the applicable      advice to clients unless such investment adviser has   of the weight (to be calculated as the
                                                                                                            (i) adopted and implemented written policies and
                                                    fund’s Web site or major market data vendors.
                                                                                                            procedures reasonably designed to prevent
                                                                                                                                                                   value of the contract divided by the total
                                                    Pricing information for swaps, fixed income                                                                    absolute notional value of the
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                                                                                                            violation, by the investment adviser and its
                                                    securities, and money market instruments will be
                                                    available through subscription services, broker-
                                                                                                            supervised persons, of the Advisers Act and the        Subsidiary’s futures and options
                                                                                                            Commission rules adopted thereunder; (ii)              contracts) of the futures and options
                                                    dealer firms, and/or pricing services. Additionally,    implemented, at a minimum, an annual review
                                                    the Trade Reporting and Compliance Engine               regarding the adequacy of the policies and             contracts held by the Subsidiary, in the
                                                    (‘‘TRACE’’) of the Financial Industry Regulatory        procedures established pursuant to subparagraph (i)    aggregate, shall consist of instruments
                                                    Authority (‘‘FINRA’’) will be a source of price
                                                    information for certain fixed income securities held
                                                                                                            above and the effectiveness of their                   whose principal trading market is a
                                                                                                            implementation; and (iii) designated an individual
                                                    by the Fund.                                            (who is a supervised person) responsible for
                                                                                                                                                                   market from which the Exchange may
                                                       35 See BATS Rule 14.11(i)(4)(A)(ii).
                                                                                                            administering the policies and procedures adopted      not obtain information regarding trading
                                                       36 See BATS Rule 14.11(i)(4)(B)(iv).                 under subparagraph (i) above.                          in the futures contracts and exchange-


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                                                                                  Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices                                               20021

                                                    traded options on futures contracts by                     (12) While the Fund will be permitted              SECURITIES AND EXCHANGE
                                                    virtue of: (a) Its membership in ISG; or                to borrow as permitted under the 1940                 COMMISSION
                                                    (b) a comprehensive surveillance                        Act, the Fund’s investments will not be
                                                                                                                                                                  [Release No. 34–77488; File No. SR–
                                                    sharing agreement.                                      used to seek performance that is the                  ISEGemini–2016–03]
                                                       (6) Prior to the commencement of                     multiple or inverse multiple (i.e., 2X
                                                    trading, the Exchange will inform its                   and ¥3X) of the Benchmark.                            Self-Regulatory Organizations; ISE
                                                    members in an Information Circular                         (13) A minimum of 100,000 Shares                   Gemini, LLC; Notice of Filing of
                                                    (‘‘Circular’’) of the special                           will be outstanding at the                            Proposed Rule Change Related to
                                                    characteristics and risks associated with               commencement of trading on the                        Market Wide Risk Protection
                                                    trading the Shares. Specifically, the                   Exchange.
                                                    Circular will discuss the following: (a)                   The Exchange represents that all                   March 31, 2016.
                                                    The procedures for purchases and                        statements and representations made in                   Pursuant to Section 19(b)(1) of the
                                                    redemptions of Shares in Creation Units                 the filing regarding (a) the description of           Securities Exchange Act of 1934
                                                    (and that Shares are not individually                   the portfolio, (b) limitations on portfolio           (‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                    redeemable); (b) BATS Rule 3.7, which                   holdings or reference assets, or (c) the              notice is hereby given that, on March
                                                    imposes suitability obligations on                      applicability of Exchange rules and                   17, 2016, the ISE Gemini, LLC (the
                                                    Exchange members with respect to                        surveillance procedures constitute                    ‘‘Exchange’’ or ‘‘ISE Gemini’’) filed with
                                                    recommending transactions in the                        continued listing requirements for                    the Securities and Exchange
                                                    Shares to customers; (c) how                            listing the Shares on the Exchange. In                Commission (‘‘Commission’’) the
                                                    information regarding the IIV and the                   addition, the issuer has represented to               proposed rule change, as described in
                                                    Disclosed Portfolio is disseminated; (d)                the Exchange that it will advise the                  Items I, II, and III below, which Items
                                                    the risks involved in trading the Shares                Exchange of any failure by the Fund to                have been prepared by the self-
                                                    during the Pre-Opening 40 and After                     comply with the continued listing                     regulatory organization. The
                                                    Hours Trading Sessions 41 when an                       requirements, and, pursuant to its                    Commission is publishing this notice to
                                                    updated IIV will not be calculated or                   obligations under Section 19(g)(1) of the             solicit comments on the proposed rule
                                                    publicly disseminated; (e) the                          Act, the Exchange will surveil for                    change from interested persons.
                                                    requirement that members deliver a                      compliance with the continued listing
                                                                                                                                                                  I. Self-Regulatory Organization’s
                                                    prospectus to investors purchasing                      requirements. If the Fund is not in
                                                                                                                                                                  Statement of the Terms of Substance of
                                                    newly issued Shares prior to or                         compliance with the applicable listing
                                                                                                                                                                  the Proposed Rule Change
                                                    concurrently with the confirmation of a                 requirements, the Exchange will
                                                    transaction; and (f) trading information.               commence delisting procedures under                      The Exchange proposes to introduce
                                                       (7) For initial and continued listing,               Exchange Rule 14.12. This approval                    new activity based order protections as
                                                    the Fund and the Subsidiary must be in                  order is based on all of the Exchange’s               described in more detail below. The text
                                                    compliance with Rule 10A–3 under the                    representations and description of the                of the proposed rule change is available
                                                    Act.42                                                  Fund, including those set forth above                 on the Exchange’s Web site (http://
                                                       (8) The Fund may hold up to an                       and in the Notice. The Commission                     www.ise.com), at the principal office of
                                                    aggregate amount of 15% of its net                      notes that the Fund and the Shares must               the Exchange, and at the Commission’s
                                                    assets in illiquid assets (calculated at                comply with the requirements of BATS                  Public Reference Room.
                                                    the time of investment), including                      Rule 14.11(i), including those set forth              II. Self-Regulatory Organization’s
                                                    securities deemed illiquid by the                       in this proposed rule change, to be                   Statement of the Purpose of, and
                                                    Adviser under the 1940 Act.                             listed and traded on the Exchange on an               Statutory Basis for, the Proposed Rule
                                                       (9) The Fund will invest in                          initial and continuing basis.                         Change
                                                    Commodities through investments in                         For the foregoing reasons, the
                                                    the Subsidiary and will not invest                      Commission finds that the proposed                       In its filing with the Commission, the
                                                    directly in physical commodities. The                   rule change, as modified by Amendment                 self-regulatory organization included
                                                    Fund’s investment in the Subsidiary                     Nos. 1, 2, and 3 thereto, is consistent               statements concerning the purpose of,
                                                    may not exceed 25% of the Fund’s total                  with Section 6(b)(5) of the Act 43 and the            and basis for, the proposed rule change
                                                    assets. The Fund and the Subsidiary                     rules and regulations thereunder                      and discussed any comments it received
                                                    will not invest in any non-U.S. equity                  applicable to a national securities                   on the proposed rule change. The text
                                                    securities (other than shares of the                    exchange.                                             of these statements may be examined at
                                                    Subsidiary).                                                                                                  the places specified in Item IV below.
                                                       (10) Investments in non-centrally                    IV. Conclusion                                        The self-regulatory organization has
                                                    cleared swaps (through the Subsidiary)                     It is therefore ordered, pursuant to               prepared summaries, set forth in
                                                    will not represent more than 20% of the                 Section 19(b)(2) of the Act,44 that the               sections A, B and C below, of the most
                                                    Fund’s net assets.                                      proposed rule change (SR–BATS–2015–                   significant aspects of such statements.
                                                       (11) At least 75% of corporate debt                  105), as modified by Amendment Nos.
                                                                                                                                                                  A. Self-Regulatory Organization’s
                                                    obligations will have a minimum                         1, 2, and 3 thereto, be, and it hereby is,
                                                                                                                                                                  Statement of the Purpose of, and
                                                    principal amount outstanding of $100                    approved.
                                                                                                                                                                  Statutory Basis for, the Proposed Rule
                                                    million or more. In addition, the                         For the Commission, by the Division of
                                                    exchange-traded investment companies                                                                          Change
                                                                                                            Trading and Markets, pursuant to delegated
                                                    and commodity-linked instruments in                     authority.45                                          1. Purpose
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                                                    which the Fund invests will be listed                   Robert W. Errett,                                        The purpose of the proposed rule
                                                    and traded in the U.S. on registered                    Deputy Secretary.                                     change is to introduce new risk
                                                    exchanges.                                              [FR Doc. 2016–07832 Filed 4–5–16; 8:45 am]            protections for orders designed to aid
                                                      40 The
                                                                                                            BILLING CODE 8011–01–P                                members in their risk management by
                                                             Pre-Opening Session is from 8:00 a.m. to
                                                    9:30 a.m. Eastern Time.                                                                                       supplementing current price
                                                      41 The After Hours Trading Session is from 4:00         43 15 U.S.C. 78f(b)(5).
                                                    p.m. to 5:00 p.m. Eastern Time.                           44 15 U.S.C. 78s(b)(2).                               1 15   U.S.C. 78s(b)(1).
                                                      42 See 17 CFR 240.10A–3.                                45 17 CFR 200.30–3(a)(12).                            2 17   CFR 240.19b–4.



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Document Created: 2018-02-07 13:51:45
Document Modified: 2018-02-07 13:51:45
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 20016 

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